<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
--------------------
WAVEPHORE, INC.
(Name of Issuer)
WAVEPHORE, INC.
(Name of Person(s) Filing Statement)
496,813 shares of Series A Convertible Preferred Stock
and
64,595 shares of Series B Convertible Preferred Stock
Issuable on Conversion of Outstanding Warrants to
Purchase Series B Convertible Preferred Stock
(Title of Class of Securities)
-----------
(CUSIP Number of Class of Securities)
None
Douglas J. Reich
General Counsel
WavePhore, Inc.
3311 North 44th Street
Phoenix, Arizona 85018
(602) 952-5500
(Name, Address and Telephone Number of Person Authorized
to Receive Notice and Communications on Behalf
of the Person(s) Filing Statement)
--------------------
Copy to:
Steven D. Pidgeon
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
(602) 382-6000
September 24, 1996
(Date Tender Offer First Published,
Sent or Given to Security Holders)
<TABLE>
<CAPTION>
C A L C U L A T I O N O F F I L I N G F E E
- -----------------------------------------------------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
- -----------------------------------------------------------------------------
<S> <C>
$3,703,638.00 $741.00
- -----------------------------------------------------------------------------
</TABLE>
* Assumes deemed exchange of 496,813 shares of Series A Convertible Preferred
Stock (the "Series A Preferred") and 64,595 shares of Series B Convertible
Preferred Stock (the "Series B Preferred") issuable on exercise of Warrants
to purchase Series B Preferred (the "Series B Warrants") for warrants and new
preferred shares. Also assumes deemed exchange of the Series B Warrants for
new Series B Warrants.
** Calculated based on the transaction valuation (determined on the basis of the
book value of the common stock ($1.94 per share) into which the Series A
Preferred and the Series B Preferred are convertible) multiplied by one-fiftieth
of one percent.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
<PAGE> 2
WavePhore, Inc., an Indiana corporation (the "Company"), is filing this Schedule
13E-4 with respect to consents being sought in the Company's solicitation (the
"Solicitation") of the holders of its outstanding Series A Convertible Preferred
Stock (the "Series A Preferred"), and its Series B Convertible Preferred Stock
(the "Series B Preferred" and together with the Series A Preferred, the
"Preferred Shares") issuable on exercise of outstanding Warrants to purchase
Series B Preferred (the "Series B Warrants") with respect to a proposed
non-conversion period for the Preferred Shares (the "Non-Conversion Period")
and certain requested revisions (the "Requested Revisions") to the terms of the
Preferred Shares, including revisions to the conversion price for the Preferred
Shares, and to the agreements under which the Preferred Shares and Series B
Warrants were issued, all as described in the Company's Consent Solicitation
Statement dated September 23, 1996 (the "Consent Solicitation Statement")
attached hereto as Exhibit (a)(1).
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is WavePhore, Inc., an Indiana
corporation, which has its principal executive offices at 3311 North 44th
Street, Phoenix, Arizona 85018 (telephone number (602) 952-5500).
(b) The information set forth on the front cover page, and under the
headings "Purpose of the Solicitation; Certain Effects of the Solicitation; Plan
of the Company After the Solicitation," "Requested Consents," "The Solicitation
- - General," "Risk Factors-Risk Factors Relating to the Solicitation-Additional
Market Overhang and Dilution," "Risk Factors-Risk Factors Relating to the
Company-Control by Existing Shareholders," "Description of Existing Securities
of the Company-Series A Convertible Preferred Stock," and "Description of
Existing Securities of the Company-Series B Convertible Preferred Stock" in the
Consent Solicitation Statement is incorporated herein by reference.
(c) The information set forth under the headings "Purpose of the
Solicitation; Certain Effects of the Solicitation; Plan of the Company After the
Solicitation," "Description of Existing Securities of the Company - Series A
Convertible Preferred Stock," and "Description of Existing Securities of the
Company- Series B Convertible Preferred Stock" in the Consent Solicitation
Statement is incorporated herein by reference.
(d) This statement is being filed by the issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth on the front cover page and under
the heading "Requested Consents" in the Consent Solicitation Statement is
incorporated herein by reference. No consideration other than the issuance of
new Warrants to purchase common stock of the Company and certain of the
Requested Revisions under the terms and conditions stated in the Consent
Solicitation Statement is being offered for the Proposed Non-Conversion Period
and the Requested Revisions.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER
OR AFFILIATE.
(a)-(j) The information set forth under the heading "Purpose of the
Solicitation; Certain Effects of the Solicitation; Plans of the Company After
the Solicitation" in the Consent Solicitation Statement is incorporated herein
by reference.
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ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth under the headings "Purpose of the
Solicitation; Certain Effects of the Solicitation; Plans of the Company After
The Solicitation" and "The Solicitation - General" in the Consent Solicitation
Statement is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE ISSUER'S SECURITIES.
The information set forth under the heading "Purpose of the
Solicitation; Certain Effects of the Solicitation; Plans of the Company after
the Solicitation" in the Consent Solicitation Statement is incorporated herein
by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under the heading "The Solicitation -
General" in the Consent Solicitation Statement is incorporated herein by
reference.
ITEM 7. FINANCIAL INFORMATION.
(a) Financial information set forth under the heading "Selected
Financial Information" and financial information included in the documents
incorporated by reference into the Consent Solicitation Statement under the
heading "Information Incorporated by Reference" in the Consent Solicitation
Statement is incorporated herein by reference.
(b) Not applicable.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The information set forth under the heading "Certain Legal
Matters and Regulatory Approvals" in the Consent Solicitation Statement is
incorporated herein by reference.
(c) The information set forth under the heading "Purpose of the
Solicitation, Certain Effects of the Solicitation; Plans of the Company After
the Solicitation" in the Consent Solicitation Statement is incorporated herein
by reference.
(d) Not applicable.
(e) Reference is hereby made to the Consent Solicitation Statement
and the related Consent Documentation Material, copies of which are attached
hereto as Exhibits (a)(1) through (a)(8), respectively, and incorporated in
their entirety herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Form of Consent Solicitation Statement dated September 23,
1996 (Appendices A - E are attached hereto as Exhibit Nos.
(a)(3) - (a)(7)).
(a)(2) Form of Consent.
(a)(3) Form of Warrant Agreement and form of Warrant.
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(a)(4) Form of Existing Preferred Stock Investment Agreement.
(a)(5) Form of Amendment No. 1 to Preferred Stock Investment
Agreement.
(a)(6) Form of Existing Series B Warrant Agreement.
(a)(7) Form of Amendment No. 1 to Series B Warrant Agreement.
(a)(8) Letter to holders of Preferred Shares and Series B Warrants
dated September 24, 1996.
(a)(9) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
WAVEPHORE, INC.,
an Indiana corporation
By /s/ David E. Deeds
-------------------------
David E. Deeds
President
Dated: September 24, 1996
4
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(a)(1) Form of Consent Solicitation Statement dated September 23, 1996
(Appendices A - E are attached hereto as Exhibit Nos. (a)(3) -
(a)(7)).
(a)(2) Form of Consent.
(a)(3) Form of Warrant Agreement and form of Warrant.
(a)(4) Form of Existing Preferred Stock Investment Agreement.
(a)(5) Form of Amendment No. 1 to Preferred Stock Investment
Agreement.
(a)(6) Form of Existing Series B Warrant Agreement.
(a)(7) Form of Amendment No. 1 to Series B Warrant Agreement.
(a)(8) Letter to holders of Preferred Shares and Series B Warrants
dated September 24, 1996.
(a)(9) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not Applicable.
</TABLE>
5
<PAGE> 1
EXHIBIT (a)(1)
CONSENT SOLICITATION STATEMENT
WAVEPHORE, INC.
Solicitation of Consent to a Non-Conversion Period and
Amendments to Preferred Stock Investment Agreements
and Series B Warrant Agreements
from the Holders of
Series A Convertible Preferred Shares
Series B Convertible Preferred Shares
and
Warrants to Purchase Series B Convertible Preferred Shares
- -------------------------------------------------------------------------------
WavePhore, Inc. may, in its sole discretion, terminate the Solicitation if it
has not received the Requisite Consents on or before October 1, 1996.
- -------------------------------------------------------------------------------
WavePhore, Inc., an Indiana corporation (the "Company" or
"WavePhore"), is soliciting (the "Solicitation") consents (the "Consents") from
the holders (the "Holders") of the Company's Series A Convertible Preferred
Shares (the "Series A Preferred"), its Series B Convertible Preferred Shares
(the "Series B Preferred" and together with the Series A Preferred, the
"Preferred Shares"), and its Warrants to Purchase Series B Preferred (the
"Series B Warrants") (i) to refrain from converting the Preferred Shares held by
such Holder (or purchasable upon the exercise of the Series B Warrants, as the
case may be) for a period of at least one hundred eighty (180) days (the
"Proposed Non-Conversion Period") from September 10, 1996, the date of deemed
issuance of the Warrants (the "Deemed Issuance Date"), subject to certain
Proposed Non-Conversion Period termination events described herein and (ii) to
agree to certain proposed amendments (the "Proposed Amendments" and together
with the Proposed Non- Conversion Period, the "Proposals") to the Preferred
Stock Investment Agreements dated as of December 1995 relating to the Series A
Preferred, the Preferred Stock Investment Agreements dated as of January 1996
relating to the Series B Preferred (collectively, the "Preferred Stock
Agreements"), and the Warrant Agreements dated as of February 12 and March 20,
1996, between the Company and the Holders of the Series B Warrants (the "Series
B Warrant Agreements"). See "Requested Consents."
Subject to the terms and conditions of the Solicitation, including
but not limited to the receipt by the Company of (i) the Consents of the Holders
of at least seventy-five percent (75%) of the aggregate of the shares of each of
the Series A Preferred and the Series B Preferred, and (ii) the Consents of all
of the Holders of the Series B Warrants, unless a lesser approval percentage is
accepted by the Company in its sole discretion (the "Requisite Consents"), the
Company will issue to each Consenting Holder of Preferred Shares (but not to the
Holders of Series B Warrants, except with respect to Preferred Shares they may
also hold) a Warrant (the "Warrants") that will entitle such Holder to purchase
up to two (2) shares of the Company's common shares, no par value (the "Common
Shares"), for each Preferred Share held by such Holder, at the price of $7.00
per share, subject to adjustment in certain circumstances, and during the
periods described herein. See "Requested Consents."
The Solicitation is being made upon the terms and is subject to the
conditions set forth in this Consent Solicitation Statement and in the
accompanying consent documentation materials. The Solicitation will expire at
5:00 p.m., Arizona time, on October 21, 1996, or such later date to which the
Solicitation is extended in the sole discretion of the Company (the "Expiration
Date"). Notwithstanding anything to the contrary in this Consent Solicitation
Statement, the Company reserves the right, in its sole discretion and for any
reason, to extend, amend, or terminate the Solicitation at any time prior to the
Expiration Date.
FOR CONSIDERATIONS THAT HOLDERS SHOULD CAREFULLY EVALUATE IN
DETERMINING WHETHER TO GRANT THE CONSENTS REQUESTED HEREBY SEE "RISK FACTORS"
BEGINNING ON PAGE 16.
The date of this Consent Solicitation Statement is September 23, 1996.
<PAGE> 2
Any questions regarding the terms of the Solicitation or requests
for assistance in completing the forms or for additional copies of this Consent
Solicitation Statement or related documents may be directed to the Company at
WavePhore, Inc., 3311 North 44th Street, Phoenix, Arizona 85018; Attention:
Douglas J. Reich. The Company's telephone and facsimile numbers are (602)
952-5500 and (602) 952-5517, respectively.
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by referenced herein
or in the accompanying consent documentation materials and, if given or made,
such information or representations must not be relied upon as having been
authorized. This Consent Solicitation Statement and related documents do not
constitute an offer to sell or the solicitation of an offer to buy any
securities or the solicitation of any consent in any jurisdiction to any person
or in any circumstances in which such offer or solicitation is unlawful. The
delivery of this Consent Solicitation Statement and related documents shall not,
under any circumstances, create any implication that the information contained
herein or therein is current as of any time subsequent to the date of such
information as specified herein.
This Consent Solicitation Statement, including all documents
incorporated by reference, includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical facts included in this
Consent Solicitation Statement (and in documents incorporated by reference),
including without limitation, statements under "Purpose of the Solicitation;
Certain Effects of the Solicitation; Plans of the Company after the
Solicitation," "The Solicitation," "The Company," and "Risk Factors" regarding
the Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed under "Risk Factors" and elsewhere in this Consent Solicitation
Statement, including without limitation in conjunction with the forward-looking
statements included in this Consent Solicitation Statement. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by this
section.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS CONSENT SOLICITATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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<S> <C>
PURPOSE OF THE SOLICITATION; CERTAIN EFFECTS OF THE SOLICITATION;
PLANS OF THE COMPANY AFTER THE SOLICITATION............................. 4
REQUESTED CONSENTS...................................................... 6
THE SOLICITATION........................................................ 10
THE COMPANY............................................................. 14
RISK FACTORS............................................................ 16
SELECTED FINANCIAL INFORMATION.......................................... 24
DESCRIPTION OF EXISTING SECURITIES OF THE COMPANY....................... 25
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.......................... 28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................. 29
AVAILABLE INFORMATION................................................... 31
INFORMATION INCORPORATED BY REFERENCE................................... 31
</TABLE>
APPENDIX A WARRANT AGREEMENT AND FORM OF WARRANT
APPENDIX B FORM OF EXISTING PREFERRED STOCK INVESTMENT AGREEMENT
APPENDIX C FORM OF AMENDMENT NO. 1 TO PREFERRED STOCK INVESTMENT AGREEMENT
APPENDIX D FORM OF EXISTING SERIES B WARRANT AGREEMENT
APPENDIX E FORM OF AMENDMENT NO. 1 TO SERIES B WARRANT AGREEMENT
3
<PAGE> 4
PURPOSE OF THE SOLICITATION; CERTAIN
EFFECTS OF THE SOLICITATION; PLANS OF
THE COMPANY AFTER THE SOLICITATION
BACKGROUND AND EFFECTS
The Company's Common Shares are traded on the Nasdaq Stock Market's
National Market System ("Nasdaq") under the symbol "WAVO."
The following table sets forth the range of high and low sales
prices for the Company's Common Shares for each quarter since the close of the
Company's initial public offering in October 1994 as reported by Nasdaq.
<TABLE>
<CAPTION>
Quarter Ended High Sales Price Low Sales Price
- ------------- ---------------- ---------------
<S> <C> <C>
December 31, 1994 $11.25 $5.625
March 31, 1995 8.75 5.00
June 30, 1995 18.00 6.875
September 30, 1995 19.25 13.75
December 31, 1995 20.50 13.25
March 31, 1996 19.00 13.75
June 30, 1996 14.125 7.125
</TABLE>
Since July 1, 1996, the closing price of the Company's Common Shares
on Nasdaq has ranged from $9.375 to $5.125 per share. On September 20, 1996, the
most recent trading day prior to the date of this Consent Solicitation
Statement, the closing price of the Common Shares on Nasdaq was $9.375 per
share.
The Preferred Shares are presently convertible into such number of
Common Shares as is determined by dividing the Liquidation Preference ($25.00
per share, plus any accrued but unpaid dividends) by the applicable Conversion
Price. At any date, the Conversion Price is equal to the lesser of (x) $21.00
(the "Conversion Price Cap") or (y) the average of the daily low trading prices
of the Common Shares during the three consecutive trading days immediately
preceding such date, reduced by a specified applicable percentage of such
average that increases at various intervals to a maximum of 29% for the period
that is 13 or more months after the date of issuance of the Series A Preferred
or the Series B Preferred, as applicable. See discussion of determination of the
Conversion Price for the Preferred Shares under the heading "Description of
Existing Securities of the Company - Series A Convertible Preferred Stock -
Series B Convertible Preferred Stock."
As of September 20, 1996, 915,192 Preferred Shares have been
converted into 3,944,685 Common Shares. The Company believes that the recent low
prices of the Common Shares is, in part, attributable to the "market overhang"
of the outstanding securities of the Company that are exercisable for or
convertible into Common Shares (see "Risk Factors -- Risk Factors Relating to
the Solicitation -- Additional Market Overhang and Dilution" and "Description of
Existing Securities of the Company").
The Company believes that the conversion formula for the Preferred
Shares has contributed to the downward pressure on the market price of the
Common Shares. The conversion formula is based in part on the price of the
Common Shares during the three trading days prior to conversion. Management
believes that this short period has enabled certain holders to sell Common
Shares into the market during the three trading day period prior to conversion
and then convert Preferred Shares when the market price of the Common Shares has
dropped in reaction to the sale. The Holders may then utilize Common Shares
obtained on the conversion of the Preferred Shares to cover the sale trades made
within the prior three trading day period.
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<PAGE> 5
The Company believes that the inability of Consenting Holders to
convert their Preferred Shares into Common Shares during the Proposed
Non-Conversion Period will help to stabilize the market price of the Common
Shares during such period. Further, the Warrants to be issued to Consenting
Holders will provide the Company with future sources of additional capital.
PLANS OF THE COMPANY AFTER THE SOLICITATION AND OTHER MATTERS
Following the consummation of the Solicitation, the business and
operations of the Company will be continued by the Company substantially as they
are currently being conducted. Except as disclosed in this Consent Solicitation
Statement, including any report or statement incorporated by reference herein,
the Company has no present plans or proposals that would result in (i) the
acquisition by any person of additional securities of the Company, or the
disposition of securities of the Company, except that the Company may, from time
to time, sell additional securities in negotiated transactions, (ii) an
extraordinary corporate transaction, such as a merger or reorganization, any
liquidation, or any sale or transfer of a material amount of assets involving
the Company or any of its subsidiaries, (iii) any change in the present board of
directors or management of the Company, including, but not limited to, a plan or
proposal to change the number or term of the directors, to fill any existing
vacancy on the board or to change any material term of the employment contract
of any executive officer, (iv) any material change in the present dividend rate
or policy or indebtedness or capitalization of the Company, (v) any other
material change in the Company's corporate structure or business, (vi) any
change in the Company's charter, bylaws or instruments corresponding thereto or
any other actions which may impede the acquisition of control of the Company by
any person, (vii) any class of equity security of the Company being delisted
from a national securities exchange or ceasing to be authorized to be quoted in
an inter-dealer quotation system of a registered national securities
association, (viii) any class of equity securities of the Company becoming
eligible for termination of registration pursuant to Section 12(g)(4) of the
Exchange Act, or (ix) the suspension of the Company's obligation to file reports
pursuant to Section 15(d) of the Exchange Act. None of the executive officers
and directors of the Company or any of its subsidiaries or any of their
associates owns or holds, directly or indirectly, any of the Preferred Shares or
Series B Warrants or any securities convertible into Preferred Shares or Series
B Warrants. Except for the effectuation of conversions and exercises, there have
been no transactions in the Preferred Shares or Series B Warrants or any
securities convertible into Preferred Shares or Series B Warrants effected by
the Company or any of such persons during the 40 business day period prior to
the date of this Consent Solicitation Statement.
Neither the Company nor any of its subsidiaries, nor any of the
directors or executive officers of the Company or any of its subsidiaries or any
of their associates is a party to any contract, arrangement, understanding or
relationship with any other person relating, directly or indirectly, to the
Solicitation (whether or not enforceable) with respect to any securities of the
Company (including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any such securities,
joint ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies, consents or
authorizations).
Neither the Preferred Shares or the Series B Warrants are, and the
Warrants would not be, margin stock for purposes of Regulation T of the Board of
Governors of the Federal Reserve System (the "Board") which governs the ability
of brokers to extend credit for the purchase or carrying of securities. The
Warrants may constitute margin stock for purposes of other regulations of the
Board governing the ability of banks and other person to extend credit for the
purpose of buying or carrying margin stock. If the Preferred Shares or Series B
Warrants of a Holder are held in any margin account to cover a margin position
in the Common Shares or otherwise, the Holder should consult with his broker to
determine the effects, if any, of the Proposed-Non-Conversion Period or other
Proposals on the margin requirements applicable to such Holder or such account.
5
<PAGE> 6
REQUESTED CONSENTS
PROPOSED NON-CONVERSION PERIOD; ISSUANCE OF WARRANTS
In this Solicitation, the Company is requesting each Holder to
refrain from converting such Holder's shares of Series A Preferred and Series B
Preferred purchasable upon the exercise of Series B Warrants for a period of one
hundred eighty (180) days following the Deemed Issuance Date (September 10,
1996), subject to certain Proposed Non-Conversion Period termination events
described below. Subject to the terms and conditions hereof, as soon as
practicable following the Acceptance Date (see "Requested Consents -
Effectiveness of the Proposals"), the Company will issue to each Consenting
Holder of Series A Preferred and Series B Preferred (but not to the Holders of
Series B Warrants, except to the extent such Holders also hold Preferred
Shares), a Warrant (effective as of the Deemed Issuance Date) to purchase (i) if
the Warrant is exercised at any time following one hundred and eighty (180) days
after the Deemed Issuance Date, one (1) Common Share, plus (ii) if the Warrant
is exercised at any time following two hundred and seventy days (270) after the
Deemed Issuance Date, an additional one-half (1/2) Common Share, plus (iii) if
the Warrant is exercised at any time following three hundred and sixty-five
(365) days after the Deemed Issuance Date, an additional one-half (1/2) Common
Share, in each case, for each share of Series A Preferred and Series B Preferred
that is held on the date of execution and delivery of the Warrant and that
continues to be held on the date of exercise of the Warrant, but only to the
extent that the Warrant has not been previously exercised as to such Preferred
Shares pursuant to (i), (ii), or (iii) above. The Warrant exercise price will be
$7.00 per Common Share. The Warrants will be effective from September 10, 1996
and will be deemed to have been issued on that date. Holders of Series B
Warrants who exercise their Series B Warrants into Preferred Shares prior to the
Expiration Date and who Consent to the Proposals with respect to such Preferred
Shares will be issued Warrants with respect to such Preferred Shares.
The Warrant will attach to the Series A Preferred and the Series B
Preferred held by a Consenting Holder and will not be transferable apart from
such Preferred Shares. The Warrant will be exercisable only by such Consenting
Holder and such Holder's permitted transferees commencing one hundred eighty
(180) days following the Deemed Issuance Date. Warrants that have not been
previously exercised will expire on December 31, 1998.
The Company may redeem all or any part of the unexercised Warrants
on a pro rata basis at any time and from time to time commencing two hundred and
ten (210) days following the Deemed Issuance Date, only to the extent the
Warrant is exercisable at the time of redemption, at the redemption price of
$0.05 per Common Share into which the Warrant is exercisable at the date of
redemption, but only if the closing price of the Common Shares on Nasdaq equals
or exceeds two hundred percent (200%) of the Warrant exercise price for any five
consecutive trading days during the term of the Warrant. The Company must give
notice of redemption of the Warrants at least five (5) business days prior to
the redemption date.
The Company has agreed to use its best efforts to register the
Common Shares issuable upon exercise of the Warrants under the Securities Act of
1933, as amended (the "Securities Act"), for resale by the holders thereof and
to cause such registration statement to become effective on or before one
hundred and eighty (180) days following the Deemed Issuance Date.
The description of the Warrants contained herein is qualified in its
entirety by reference to the Warrant Agreement attached as Appendix A to this
Consent Solicitation Statement and to the form of Warrant included therein as
Exhibit A.
PROPOSED NON-CONVERSION PERIOD TERMINATION EVENTS
Occurrence of one or more of the following events following the
Deemed Issuance Date will result in the termination of the Proposed
Non-Conversion Period: (i) if the Company's independent public accountants
resign (or they indicate that they will decline to stand for re-election after
the completion of the then current audit) due
6
<PAGE> 7
to a disagreement with management of the Company on matters relating to
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure and such disagreement would cause such accountants to make a
reference to the subject matter of the disagreement(s) in connection with their
reports; (ii) if the Federal Communications Commission (the "FCC") withdraws its
ruling that permits television broadcast licensees to use, without prior FCC
authorization, the Company's TVT1/4 technology to broadcast digital data within
the video portion of the National Television Standards Committee ("NTSC")
television broadcast signal of the type currently transmitted by FCC licensees
(see "Risk Factors - Risk Factors Relating to the Company - Government
Regulation"); (iii) if a petition for relief under Chapter 11 of the United
States Bankruptcy Code is filed by or against the Company and, if an involuntary
petition, such petition is not dismissed within 60 days of filing; (iv) if the
Company's principal lender, whether now or hereafter existing, accelerates the
maturity of any indebtedness due to such lender as the result of a material
default under the credit agreement governing such indebtedness; (v) if the
Company fails to file in a timely manner all reports required to be filed by it
pursuant to Sections 13, 14, or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or, if the Company has used Rule 12b- 25 under the
Exchange Act with respect to a report or a portion of a report, that report or
portion thereof was not filed within the time period prescribed by Rule 12b-25;
or (vi) if the Registration Statement to be filed by the Company covering the
resale of the Common Shares underlying the Warrants ceases to be effective until
December 31, 1998 or such earlier date as all Common Shares covered by such
Registration Statement have been disposed of pursuant thereto.
PROPOSED AMENDMENT TO PREFERRED STOCK AGREEMENTS
Each Holder of Preferred Shares has executed an individual Preferred
Stock Agreement with the Company. A copy of the form of Preferred Stock
Agreement with respect to the Preferred Shares is attached hereto as Appendix B.
The Company is requesting consent by each Holder of Preferred Shares to the
Proposed Amendments to such Holder's Preferred Stock Agreement.
Pursuant to the Company's Articles of Incorporation, as amended, the
Preferred Shares are presently convertible into such number of Common Shares as
is determined by dividing the Liquidation Preference ($25.00 per share, plus any
accrued but unpaid dividends) by the applicable Conversion Price. At any date,
the Conversion Price is equal to the lesser of (x) $21.00 (the "Conversion Price
Cap") or (y) the average of the daily low trading prices of the Common Shares
during the three consecutive trading days immediately preceding such date,
reduced by a specified applicable percentage of such average. Commencing 13
months after issuance, the effective Conversion Price is $21.00 per share or 71%
of the then market price as measured per this provision. See discussion of
determination of the Conversion Price for the Preferred Shares under the heading
"Description of Existing Securities of the Company - Series A Convertible
Preferred Stock - Series B Convertible Preferred Stock."
Section 1.5 of the Preferred Stock Agreement provides, in summary,
that if the Company issues any Common Shares or securities convertible into
Common Shares or warrants to purchase Common Shares (with certain exceptions),
at an effective purchase price per Common Share that is less than the Conversion
Price for the Preferred Shares in effect at the time the Preferred Shares are
submitted for conversion into Common Shares, then the Conversion Price for the
Preferred Shares will be reduced to be equal to the lower purchase price per
Common Share.
The Company is requesting each Holder of Preferred Shares to amend
such Holder's Preferred Stock Agreement to permanently waive the application of
Section 1.5 (the "Section 1.5 Waiver"). The Section 1.5 Waiver will be effected
by amendment to the Preferred Stock Agreement between a Consenting Holder and
the Company (the "Preferred Stock Agreement Amendments"). The form of Preferred
Stock Agreement Amendment is attached hereto as Appendix C. In exchange for the
Section 1.5 Waiver, the Preferred Stock Agreement Amendment will also contain a
new Section 1.7. Pursuant to new Section 1.7, commencing one hundred and eighty
(180) days following the Deemed Issuance Date, the conversion price cap (the
"New Conversion Price Cap") for the Preferred Shares will be the lesser of (x)
$21.00 or (b) seventy-one percent (71%) of the average of the closing price of
the Common Shares on Nasdaq for the twenty (20) trading days immediately
preceding the expiration of the 180 day
7
<PAGE> 8
period. Thereafter, the conversion price for the Preferred Shares on any date
will be the lesser of (x) the New Conversion Price Cap or (y) 71% of the lowest
daily low trading price of the Common Shares during the five consecutive trading
days immediately preceding such date. Accordingly, if the average trading price
prior to expiration of the Proposed Non-Conversion Period is less than $21.00
per share, Consenting Holders will obtain the benefit of a lower conversion
price cap.
The Preferred Stock Agreements contain provisions for registration
under the Securities Act of the underlying Common Shares into which Preferred
Shares are convertible. Such provisions also apply to any other securities or
warrants that may be issued as a distribution with respect to or in exchange for
the Preferred Shares. Because the Warrant Agreement to be executed upon issuance
of the Warrants contains registration rights and the mechanics therefor
applicable to the Warrants, the Preferred Stock Agreement Amendment will provide
that the Preferred Stock Agreement provisions relating to registration will not
apply to the Warrants.
Consenting Holders and their transferees will be bound by and will
obtain the benefits of the provisions of the Preferred Stock Agreement
Amendments. The rights of non-Consenting Holders will continue to be governed by
the existing Preferred Stock Agreements.
PROPOSED AMENDMENT TO SERIES B WARRANT AGREEMENTS
Each holder of Series B Warrants has executed an individual Series B
Warrant Agreement with the Company. A copy of the form of Series B Warrant
Agreement is attached hereto as Appendix D. The Company is requesting consent by
each Holder of Series B Warrants to the Proposed Amendments to such Holder's
Series B Warrant Agreement.
The Series B Preferred purchasable upon the exercise of the Series B
Warrants will be, upon such exercise and purchase, convertible into Common
Shares pursuant to the existing conversion formula for the Preferred Shares as
described above. See "Requested Consents - Proposed Amendment to Preferred Stock
Agreements" and the discussion of determination of the Conversion Price for the
Preferred Shares under the heading "Description of Existing Securities of the
Company - Series A Convertible Preferred Stock and - Series B Convertible
Preferred Stock."
The Company is requesting each Holder of Series B Warrants to agree
to refrain from converting any of such Holder's shares of Series B Preferred
purchased upon exercise of Series B Warrants for a period of one hundred eighty
(180) days following the Deemed Issuance Date, subject to certain Proposed
Non-Conversion Period termination events described above. This agreement will be
effected by amendment to the Series B Warrant Agreement between a Consenting
Holder and the Company (the "Series B Warrant Agreement Amendments"). The form
of Series B Warrant Agreement Amendment is attached hereto as Appendix E. In
exchange for such agreement not to convert, the Series B Warrant Agreement
Amendment will also contain a new Section 19. Pursuant to new Section 19,
commencing one hundred eighty (180) days following the Deemed Issuance Date, the
New Conversion Price Cap for the Series B Preferred will be the lesser of (x)
$21.00 or (b) 71% of the average of the closing price of the Common Shares on
Nasdaq for the twenty (20) trading days immediately preceding the expiration of
the 180 day period. Thereafter, the conversion price for the Series B Preferred
into which the Series B Warrants are convertible on any date will be the lesser
of (x) the New Conversion Price Cap or (y) 71% of the lowest daily low trading
price of the Common Shares during the five consecutive trading days immediately
preceding such date.
Pursuant to Section 6.1 of the Series B Warrant Agreements, the
price per share at which shares of Series B Preferred are purchasable on
exercise of the Series B Warrants is $25.00 (the "Series B Warrant Price.").
Section 7.1(f) of the Series B Warrant Agreement provides for adjustment of the
Series B Warrant Price based on a formula specified therein in the event that
the Company issues, among other things, warrants to purchase Common Shares at a
price per Common Share lower than the Current Market Price (as defined in the
Series B Warrant Agreement generally, the average per share closing bid price of
the Common Shares as reported by Nasdaq on the twenty (20)
8
<PAGE> 9
consecutive trading days immediately preceding the issuance date) in effect
immediately prior to the issuance. The Company is also requesting from all
Holders of the Series B Warrants, and the Series B Warrant Agreement Amendment
reflects, a permanent waiver of the application of Section 7.1(f) to the
issuance of the Warrants and any other issuances of securities by the Company.
The Company believes that, pursuant to the existing terms of the Series B
Warrants, non-Consenting Holders will not be entitled to any adjustment in their
conversion price as a result of issuance of the Warrants.
Each Holder of Series B Warrants also executed a Preferred Stock
Agreement relating to the Series B Preferred into which the Series B Warrants
are exercisable. Consenting Holders of Series B Warrants will also be required
to execute a Preferred Stock Agreement Amendment in connection with such
Preferred Shares.
EFFECTIVENESS OF THE PROPOSALS
The Company will become obligated to issue a Warrant to an
individual Consenting Holder of Preferred Shares and the Warrant Agreement and
the Preferred Stock Agreement Amendment executed by a Consenting Holder will
become effective only if: (i) such Holder has properly completed and executed
(a) the form included herewith entitled "Consent to Non-Conversion Period and
Amendments to Preferred Stock Agreement and Series B Warrant Agreement," (b) the
Warrant Agreement included herewith, and (c) the Preferred Stock Agreement
Amendment (collectively, the "Consent and Amendment Documents"); (ii) the
properly completed and executed Consent and Amendment Documents are received by
the Company prior to the Expiration Date for the Solicitation and are not
revoked within such period; (iii) such Consent and Amendment Documents are so
received from (x) the Holders of at least seventy-five percent (75%) of the
aggregate of the outstanding shares for each of the Series A Preferred and the
Series B Preferred, and (y) all of the Holders of Series B Warrants, unless the
Company, in its sole discretion, determines to accept a lesser approval
percentage (the "Requisite Consents"); and (iv) such Consent and Amendment
Documents are accepted by the Company ("Accepted Consents") no later than five
(5) business days following the Expiration Date (the "Acceptance Date").
With respect to Holders of Series B Warrants, the Preferred Stock
Agreement Amendment and the Series B Warrant Agreement Amendment executed by a
Consenting Holder will become effective only if: (i) such Holder has properly
completed and executed (a) the form included herewith entitled "Consent to
Non-Conversion Period and Amendments to Preferred Stock Agreement and Series B
Warrant Agreement," (b) the Preferred Stock Agreement Amendment, and (c) the
Series B Warrant Agreement Amendment included herewith (the foregoing documents
are also hereinafter collectively referred to as the "Consent and Amendment
Documents"); (ii) the properly completed and executed Consent and Amendment
Documents are received by the Company prior to the Expiration Date for the
Solicitation and are not revoked within such period; (iii) such Consent and
Amendment Documents are so received from all of the Holders of Series B
Warrants, unless the Company, in its sole discretion, determines to accept a
lesser approval percentage; and (iv) such Consent and Amendment Documents are
accepted by the Company no later than the Acceptance Date. A holder of Series B
Warrants who is also a Holder of Preferred Shares must consent to the Proposals
with respect to all of such Holder's Series B Warrants and Preferred Shares,
including Preferred Shares held by all affiliates or other persons controlled by
or managed by such persons, in order to receive the benefits offered pursuant to
this Consent Solicitation Statement.
The Company will give notice to the Consenting Holders of the
Acceptance Date promptly thereafter. At any time prior to the Acceptance Date,
the Company may, in its sole discretion and for any reason, determine to amend
or terminate the Solicitation, and will give notice to the Holders of any such
determination. See "The Solicitation."
9
<PAGE> 10
THE SOLICITATION
GENERAL
The Company will become obligated to issue a Warrant to an
individual Consenting Holder of Preferred Shares and the Warrant Agreement and
Preferred Stock Agreement Amendment executed by such Consenting Holder will
become effective only upon acceptance by the Company. The Series B Warrant
Agreement Amendment executed by a Consenting Holder of Series B Warrants will
become effective only upon acceptance by the Company. The Acceptance Date will
occur on the date no later than five (5) business days following the Expiration
Date of the Solicitation on which the Company determines to accept Consent and
Amendment Documents (consisting of (a) the form included in the consent
documentation materials attached hereto entitled "Consent to Non-Conversion
Period and Amendments to Preferred Stock Agreement and Series B Warrant
Agreement" (the "Consent Form"), (b) the Warrant Agreement included in such
consent documentation materials (if the Consenting Holder is a Holder of
Preferred Shares), (c) the Preferred Stock Agreement Amendment included in such
consent documentation materials, and (d) the Series B Warrant Agreement
Amendment (if the Consenting Holder is a Holder of Series B Warrants) included
in such consent documentation materials, that are properly completed and
executed by (x) the Holders of at least seventy-five percent (75%) of the
aggregate of the outstanding shares of each of the Series A Preferred and the
Series B Preferred and (y) all of the Holders of Series B Warrants (unless the
Company, in its sole discretion and for any reason, determines to accept a
lesser approval percentage), and that are received by the Company and are not
revoked by 5:00 p.m., Arizona time, on the Expiration Date. The Company will
give notice of its acceptance to all Holders promptly thereafter. As of
September 20, 1996, 496,813 shares of Series A Preferred and no shares of Series
B Preferred were issued and outstanding. However, there were outstanding Series
B Warrants to purchase an aggregate of 64,595 Series B Preferred. None of the
Preferred Shares or securities convertible into Preferred Shares and none of the
Series B Warrants are held of record or otherwise owned by the Company or any of
its affiliates, including officers and directors of the Company or any such
affiliates.
THE CONSENT FORM MUST BE EXECUTED BY (i) THE PERSON IN WHOSE NAME
PREFERRED SHARES OR SERIES B WARRANTS ARE REGISTERED IN THE STOCK REGISTRATION
BOOKS OF THE COMPANY MAINTAINED BY THE COMPANY'S TRANSFER AGENT (A " REGISTERED
HOLDER") OR (ii) ANY OTHER PERSON WHO IS ENTITLED TO CONSENT ON BEHALF OF SUCH A
REGISTERED HOLDER. THE WARRANT AGREEMENT, THE PREFERRED STOCK AGREEMENT
AMENDMENT AND THE SERIES B WARRANT AGREEMENT AMENDMENT MUST BE EXECUTED BY
BENEFICIAL OWNERS OF THE PREFERRED SHARES AND SERIES B WARRANTS, AS THE CASE MAY
BE, TO WHICH THEY RELATE.
No persons are being employed, retained, or will be compensated by
the Company or by any person on behalf of the Company to make solicitations or
recommendations in connection with the Solicitation. The Solicitation will be
effected by the Company and its regular officers and employees as part of their
regular duties.
EXPIRATION
The Solicitation will expire at 5:00 p.m., Arizona time, on October
21, 1996 (the "Expiration Date"), unless extended by the Company.
Notwithstanding anything to the contrary in this Consent Solicitation Statement,
the Company reserves the right, in its sole discretion and for any reason, to
extend, amend, or terminate the Solicitation at any time prior to the Expiration
Date. THE COMPANY MAY, IN ITS SOLE DISCRETION, TERMINATE THE SOLICITATION IF IT
HAS NOT RECEIVED THE REQUISITE CONSENTS WITHIN FIVE (5) BUSINESS DAYS FROM THE
DATE OF MAILING OF THIS CONSENT SOLICITATION STATEMENT (I.E., ON OR BEFORE
OCTOBER 1, 1996). Receipt of the Requisite Consents will not in and of itself
obligate the Company to execute the Warrant Agreements, the Preferred Stock
Agreement Amendments, or the Series B Warrant Agreement Amendments with, and to
issue the Warrants to, Consenting Holders. The Company will become obligated to
execute such documents and to issue such Warrants only on the Acceptance Date.
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<PAGE> 11
If the Solicitation is amended prior to the Expiration Date, the
Company will send a notice thereof to the Holders and the Company will resolicit
Consents to the extent necessary to address such change.
HOW TO CONSENT
Holders of Preferred Shares and Series B Warrants who wish to
consent to the Proposals set out in this Consent Solicitation Statement must
consent to all of the Proposals as a whole. Consent and Amendment Documents are
being mailed with this Consent Solicitation Statement.
Holders who desire to consent to the Proposals should so indicate by
marking the appropriate boxes on, and signing and dating, the form included
herewith entitled "Consent to Non-Conversion Period and Amendments to Preferred
Stock Agreement and Series B Warrant Agreement" (the Consent Forms). The Consent
Forms must be executed by the Registered Holder (the Holder in whose name the
Preferred Shares or Series B Warrants are registered on the books of the
Company). The beneficial owner of the related Preferred Shares should sign the
Warrant Agreement, the Preferred Stock Agreement Amendment and, if applicable,
the Series B Warrant Agreement Amendment relating to such Holder's Series B
Warrants. The beneficial owner of Series B Warrants who is not also a Holder of
Preferred Shares should sign the Series B Warrant Agreement Amendment and the
Preferred Stock Agreement Amendment applicable to such Holder's underlying
Series B Preferred. All of such documents should be mailed or delivered to the
Company at the address listed on the last page of this Consent Solicitation
Statement, in accordance with the instructions contained therein and in the
attached consent documentation material. IF NONE OF THE BOXES ON THE CONSENT
FORM IS CHECKED, BUT THE CONSENT FORM IS OTHERWISE PROPERLY COMPLETED AND
SIGNED, AND IS RETURNED TOGETHER WITH THE WARRANT AGREEMENT, AND THE PREFERRED
STOCK AGREEMENT AMENDMENT AND THE SERIES B WARRANT AGREEMENT AMENDMENT, AS
APPLICABLE, PROPERLY SIGNED, THE HOLDER WILL BE DEEMED TO HAVE CONSENTED TO THE
PROPOSALS SET OUT IN THIS CONSENT SOLICITATION STATEMENT.
Consent Forms must be executed in exactly the same manner as the
name(s) appear(s) on the books and records of the Company maintained by the
Transfer Agent. If Preferred Shares or Series B Warrants to which a Consent Form
relates are held by two or more joint Registered Holders, all such Registered
Holders must sign the Consent Form. If a signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
Holder acting in a fiduciary or representative capacity, such person should so
indicate when signing and must submit proper evidence satisfactory to the
Company of such person's authority so to act. If Preferred Shares or Series B
Warrants are registered in different names, separate Consent Forms must be
executed covering each form of registration. If a Consent Form is executed by a
person other than the Registered Holder, then it must be accompanied by the
applicable proxy duly executed by the Registered Holder, with, unless such
person is an Eligible Institution, the signature on such proxy guaranteed by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office in the United States (each of which firms is referred
to herein as an "Eligible Institution"), confirming the right of the signatory
to the Consent Form to execute such Consent Form on behalf of the Registered
Holder. Signatures on the Consent Form must also be guaranteed under certain
circumstances specified in the Consent Form.
An Eligible Institution may deliver its Consent Form to the Company
by facsimile transmittal. The Company reserves the right to receive Consents by
any other reasonable means or in any form that reasonably evidences the giving
of consent.
The method of delivery of all documents is at the election and risk
of the Consenting Holder. The Company recommends use of an overnight delivery
service to ensure timely delivery.
All questions as to the validity, form, eligibility (including time
of receipt) and acceptance of the Consents will be determined by the Company in
its sole discretion, which determination will be final and binding. The Company
reserves the right to reject any and all Consent and Amendment Documents
determined by it not to be
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<PAGE> 12
in proper form or the acceptance of which, in the opinion of the Company's
counsel, may be unlawful. The Company also reserves the right to waive any
defects or irregularities or conditions of the Solicitation. The interpretation
of the terms and conditions of the Solicitation (including the Consent and
Amendment Documents and the instructions thereto) by the Company shall be final
and binding on all parties.
TRANSFER OF PREFERRED SHARES OR SERIES B WARRANTS
The delivery of Consent and Amendment Documents will not affect a
Holder's right to sell or transfer the Preferred Shares or the Series B
Warrants. However, Consent and Amendment Documents received by the Company will
not be counted if the Preferred Shares or Series B Warrants to which they relate
have been transferred prior to the Acceptance Date. The Warrants will attach to
the Preferred Shares held by a Holder and the Company can only execute and
deliver the Warrants to and execute the Warrant Agreement with persons who are
Holders of Preferred Shares at the time of such execution and delivery.
Similarly, the Company will only execute a Series B Preferred Stock Agreement
Amendment with persons who are Holders of Preferred Shares or Series B Warrants
at the time of such execution and will only execute a Series B Warrant Agreement
Amendment with persons who are Holders of Series B Warrants at the time of such
execution.
If Preferred Shares or Series B Warrants are transferred during the
Solicitation, the Company will, to the extent possible within the period of the
Solicitation then remaining, resolicit Consents from the transferee.
Following the Acceptance Date, a Consent will bind every subsequent
Holder of Preferred Shares or Series B Warrants, as the case may be, even if
notation of the Consent is not made on such Preferred Shares or Series B
Warrants. In order to be entitled to receive Warrants, Consenting Holders must
continue to hold their Preferred Shares. Failure to deliver Consent and
Amendment Documents will have the same effect as if a Holder had voted "No" to
the Proposals.
REVOCATION OF CONSENTS
All properly completed and executed Consent and Amendment Documents
received by the Company prior to termination or expiration of the Solicitation
that relate to Preferred Shares or Series B Warrants that continue to be held by
the Holders who executed such Consent and Amendment Documents will be counted,
unless the Company receives from such Holder a properly completed and duly
executed notice of revocation or changed Consent and Amendment Documents bearing
a date later than the date of the prior Consent and Amendment Documents at any
time prior to the termination or expiration of the Solicitation. Consent Forms
executed by a Holder of Preferred Shares or Series B Warrants, as the case may
be, shall bind the Holder and every subsequent Holder of Preferred Shares or
Series B Warrants, as the case may be, or a portion of such Preferred Shares or
Series B Warrants, even if notation of the Consent is not made on such Preferred
Shares or Series B Warrants. However, any such Holder may revoke the Consent if
the Company receives written notice of revocation before the termination or
expiration of the Solicitation. To be effective, a notice of revocation must be
in writing, must indicate the certificate number or numbers of the Preferred
Shares or Series B Warrants to which it relates and the aggregate number of
Preferred Shares or Series B Warrants and must be (a) signed in the same manner
as the original Consent Form or (b) accompanied by a proxy or other
authorization (in form satisfactory to the Company). Revocation of Consents must
be sent to the Company at the address set forth on the last page of this Consent
Solicitation Statement.
A subsequent transfer of the Preferred Shares or Series B Warrants
after the execution and delivery of a Consent and before the termination of the
Solicitation will automatically revoke such Consent, and the transferee must
execute and deliver a new Consent.
All questions as to the validity (including the time of receipt) of
revocations of Consents will be determined by the Company, whose determination
will be final and binding. The Company will not be under any duty to give
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<PAGE> 13
notification of any defects or irregularities in any consents or any revocation
thereof, nor shall it incur any liability for failure to give any such
notification.
FEES AND EXPENSES
Brokers, dealers, commercial banks, trust companies, and other
nominees will be reimbursed by the Company for customary mailing and handling
expenses incurred by them in forwarding material to their clients. All other
fees and expenses attributable to the Solicitation will be paid by the Company.
The Company estimates that fees and expenses attributable to the Solicitation
will approximate $46,500. This number includes the following fees and expenses,
all approximate:
<TABLE>
<CAPTION>
<S> <C>
Legal $45,000
Other(1) 1,500
-------
Total $46,500
</TABLE>
(1) May include additional amounts utilized for other items
described above.
13
<PAGE> 14
THE COMPANY
The Company, including its wholly owned subsidiaries WavePhore
Canada, Inc. ("WavePhore Canada"), WavePhore Networks, Inc. ("WavePhore
Networks") and WavePhore Japan, K.K. ("WavePhore Japan") (collectively for
purposes of this Section only, "WavePhore" or the "Company"), is a developer and
provider of proprietary products and services for low-cost, high-speed, wireless
data broadcasting systems for distributing digital data via the existing
worldwide television, radio and satellite broadcast infrastructures. The Company
believes that it is the leading operator worldwide of broadcasting networks, and
the only fully integrated multimedia, datacasting services company in the world.
The Company's proprietary technologies for broadcast and reception, application
software, content, and network services provide its customers with low-cost,
highly reliable delivery of electronic information.
The Company is a leading supplier of wireless data broadcasting
network services and equipment for information providers ("IPs"), including
vendors of financial data, news, and other services, such as Reuters America,
Inc. ("Reuters"), Dow Jones & Company, Inc. ("Dow Jones"), the Associated Press,
Knight-Ridder, Inc., and Thompson Financial Services, the provider of First
Call(R). The Company believes it is the only company that provides wireless data
broadcasting services to the majority of the leading IPs in North America. The
Company provides IPs with multiple private and shared broadcast delivery options
for distribution of time-sensitive information. Its turnkey, reliable,
cost-effective solutions include FM sub-carrier, Vertical Blanking Interval
("VBI"), television in-band, and VSAT Satellite technologies.
The Company operates high quality wireless data delivery networks
for numerous IPs via its FM subcarrier and small dish satellite data
broadcasting networks. The networks utilize established broadcast technologies,
and is particularly suited to the economical one-way transmission of data from
one central location to many remote sites. The Company's FM subcarrier
transmission operations are established in 14 major United States markets which,
combined with the Company's small dish satellite coverage, enables the Company
to serve all of the continental United States and the major population centers
in Canada. In addition, the Company sells and rents sophisticated data receivers
to Ips for use with the Company's network. The Company also markets and sells in
the U.S. and Canada commercial data broadcasting network services through
exclusive long-term agreements with radio and television broadcasters, including
the Canadian Broadcasting Corporation ("CBC") in Canada.
The Company sells advanced data receivers and network management
systems which employ FM subcarrier, Ku-band, C-band and single channel per
carrier satellite transmission to companies which operate private networks to
disseminate information or audio programming to numerous remote locations. These
companies include Novanet Communications (Canada), SkyTel Corp., AEI Music
Network, Inc., Reuters, Muzak, 3M and WSI Weather.
The Company has designed and produced VBI hardware, including
encoders, decoders and bridges, and has developed various software packages for
data transmission and reception, including a datacasting network management
server. Certain of the Company's VBI technology has been licensed to Intel
Corporation by the Company and is now a part of the Intercast(R) Standard which
has been developed by Intel. Products made by industry suppliers utilizing the
Intercast Standard are presently available for sale.
The Company's TVT1/4 data broadcasting system transmits digital
data, inserted into analog television signals, at approximately 300,000 bits per
second ("bps"), which is up to approximately 10 times faster than conventional
consumer telephone modems currently in use. The TVT1/4 product consists of an
encoder, installed at the television broadcasting site, and decoders placed at
data reception sites within the reach of the broadcast signal.
The Company intends to establish its wireless data broadcasting
systems as an integral part of an emerging, worldwide data broadcast industry.
The Company believes that its wireless data broadcasting systems are
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<PAGE> 15
particularly suited for those international markets which have underdeveloped
wired telecommunications infrastructures.
The Company's Newscast service allows users to create customer
information profiles and have news and information matching those profiles
electronically "clipped" from over 400 services and delivered continuously to
the users' personal computers. The Newscast service, which incorporates hardware
and software, enables end-users to continuously filter real time news from IPs
and allows easy integration of this flow of information into an organization's
local area network or electronic mail system for delivery to persons who need
timely access to such information. The Company offers versions of the Newscast
product for Microsoft Windows(R) and Apple Macintosh(R) operating systems.
On January 25, 1995, the Company purchased all of the outstanding
common stock of BleuMont Telecom Inc. ("BleuMont Telecom") of Montreal, Canada,
in consideration for $284,831, including direct acquisition costs of $148,699,
and 244,626 Common Shares, which were valued at a total of approximately
$1,135,000 as of January 25, 1995. As a result of this transaction, BleuMont
Telecom became a wholly-owned subsidiary of the Company. Subsequent to this
acquisition, the Company caused BleuMont Telecom to change its name to WavePhore
Canada, Inc.
In December, 1995 and January, 1996, the Company completed a private
placement of shares of its Series A and Series B Convertible Preferred Shares to
institutional and other accredited investors which resulted in gross proceeds to
the Company of $33,500,000, less commissions of $2,512,500 and other offering
expenses estimated to total approximately $129,000.
On December 29, 1995, the Company purchased all of the outstanding
common stock of Mainstream Data, Inc. ("Mainstream") of Salt Lake City, Utah, in
consideration for $20,000,000 in cash and 747,029 Common Shares, which were
valued at a total of approximately $9,400,000 as of December 29, 1995. In
addition, the Company incurred costs of approximately $100,000 in connection
with such acquisition. As a result of this transaction, Mainstream became a
wholly-owned subsidiary of the Company. Subsequent to this acquisition, the
Company caused Mainstream to change its name to WavePhore Networks, Inc.
The Company is an Indiana corporation formed on November 13, 1990.
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<PAGE> 16
RISK FACTORS
In addition to the other information contained in this Consent
Solicitation Statement, Holders should carefully consider the factors discussed
below in evaluating the Company and its business before consenting to the
Proposals described herein.
RISK FACTORS RELATING TO THE SOLICITATION:
ADDITIONAL MARKET OVERHANG AND DILUTION
Certain events, including the issuance of additional Common Shares
upon the exercise or conversion of outstanding options, warrants and preferred
stock of the Company, could result in substantial dilution of the Common Shares.
On September 20, 1996, the Company had outstanding 15,528,098 Common Shares. The
Company also has outstanding the following additional securities that are
exercisable for or convertible into Common Shares: (i) 496,813 Series A
Preferred Shares, which are convertible into an indeterminable number of Common
Shares as described below; (ii) warrants to purchase 64,595 Series B Preferred
Shares, which are convertible into an undeterminable number of Common Shares as
described below; (iii) 501,963 shares of Series 1994 Cumulative Convertible
Preferred Shares ("Series 1994 Shares"), which are convertible into a like
number of Common Shares, subject to adjustment in certain circumstances; (iv)
Representative Warrants to purchase an aggregate of 165,000 Common Shares,
subject to adjustment in certain circumstances; (v) a Warrant to purchase an
aggregate of 250,000 Common Shares, subject to adjustment in certain
circumstances, held by Intel Corporation (the "Intel Warrant"); and (vi) other
rights, warrants, and options issued to officers, directors, employees, and
others (the "Key-Employee Rights") of the Company exercisable for an aggregate
of 1,380,750 Common Shares. See "Description of Existing Securities of the
Company." In addition, if the Company were to receive Consents from all of the
Holders of Preferred Shares (assuming conversion of all of the Series B Warrants
prior to the Acceptance Date) pursuant to this Solicitation, the Company would
issue, subject to the terms and conditions hereof, to such Holders Warrants to
acquire an aggregate of up to 1,122,816 Common Shares, subject to adjustment in
certain cases.
When the Common Shares are trading at prices below the applicable
Conversion Price Cap (currently $21.00 per share), the Series A Preferred and
the Series B Preferred are convertible into Common Shares of the Company at a
ratio based, in part, upon the average of the daily low trading prices of such
Common Shares during the three consecutive trading days immediately preceding
the date of conversion, reduced by an applicable percentage as set forth in the
respective designations of the Series A Preferred and the Series B Preferred.
Because the applicable conversion price, and thus the number of Common Shares
that may be issued upon conversion, is dependent upon presently unknown future
market prices for the Common Shares, the number of Common Shares that could be
issued upon conversion is not presently determinable. If the closing prices of
$20.50 and $9.375 per share of the Company's Common Shares on December 31, 1995
and September 20, 1996 were utilized for the purpose of calculating the
conversion price of the Series A Preferred and the Series B Preferred into which
the Series B Warrants are exercisable, the Company would be obligated to issue
approximately 775,433 and 1,695,613 Common Shares, respectively, if all of the
Series A Preferred and Series B Preferred outstanding on September 20, 1996 or
issuable on exercise of the outstanding Series B Warrants were converted at the
conversion price determined thereby. The proposed amendments to the conversion
formula for the Preferred Shares also may result in the issuance of a greater
number of Common Shares on conversion of the Preferred Shares than would be the
case under the existing conversion formula.
The Company has registered the Common Shares underlying the Series A
Preferred, the Series B Preferred, the Series B Warrants, the Representative
Warrants, and certain of the Key-Employee Rights under the Securities Act, for
resale by the holders thereof. In addition, the Company expects to register a
total of 997,029 Common Shares for resale by certain shareholders in September,
1996. The potential dilution that would result upon the conversion or exercise
of the outstanding preferred stock, warrants, and options described above and
the potential "overhang" on the market of the Common Shares into which the
outstanding preferred stock, warrants, and options
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<PAGE> 17
of the Company described above are convertible or exercisable, together with the
fact that the Common Shares described above are registered and thus are freely
saleable by the holders into the market, has and could further adversely affect
the prevailing market price of the Common Shares. See "Purpose of the
Solicitation; Certain Effects of the Solicitation; Plans of the Company after
the Solicitation." See also, "Risk Factors--Risk Factors Relating to the Company
- -- Shares Eligible for Future Sale" below.
EFFECTS OF CONSENT TO PROPOSED NON-CONVERSION PERIOD
Subject to the terms and conditions of this Solicitation, Consenting
Holders will agree to refrain from converting (and will be contractually
prohibited from converting) their Preferred Shares into Common Shares of the
Company for a period of one hundred eighty (180) days from the Deemed Issuance
Date, subject to certain Non- Conversion Period termination events, and any such
attempted conversions will be treated by the Company as null and void. See
"Requested Consents." The Series A Preferred and the Series B Preferred are
convertible into a number of Common Shares that varies depending, in part, on
the market price of the Common Shares. When the Common Shares are trading at
prices below the Conversion Price Cap (now $21.00 per share), the lower the
market price during the three consecutive trading days prior to conversion, the
greater the number of Common Shares into which the Preferred Shares are
convertible. Consenting Holders will not be able to take advantage of any Common
Share market price during the Proposed Non-Conversion Period. Holders of
Preferred Shares who do not consent to the Proposals may be able to convert at
such time during the Proposed Non-Conversion Period as the market price of the
Common Shares is low, thereby obtaining a greater number of shares upon
conversion, and then hold such Common Shares until such time, if ever, as the
market price improves. See "Purpose of the Solicitation; Certain Effects of the
Solicitation; Plans of the Company After the Solicitation."
RISK FACTORS RELATING TO THE COMPANY:
LIMITED OPERATING HISTORY; LACK OF PROFITABILITY
The Company was organized in November 1990. Prior to the acquisition
of Mainstream in December, 1995, the Company had very limited revenues from
operations and had incurred significant losses and substantially negative
operating cash flow. Since the acquisition of Mainstream the Company's revenues
have increased significantly, however, the Company has continued to incur losses
and negative cash flow.
RAPID TECHNOLOGICAL CHANGE AND FREQUENT NEW PRODUCT INTRODUCTIONS
The market for the Company's products and services is characterized
by rapid technological change and frequent new product introductions. The
Company believes that its future success depends upon its ability to develop and
market products and services which incorporate new technologies, and to enhance
and expand its existing product lines. The Company will need to spend
significant amounts of capital to develop and enhance its products and services
to meet technological changes. There can be no assurance that the Company (i)
can develop or market new products or services successfully, (ii) can respond
effectively to technological changes or new product announcements by its
competitors, or (iii) will have sufficient capital when required to implement
such strategies.
The Company is continuing its development of certain of its analog
television data broadcasting products. To date, there have been limited sales of
such products. There can be no assurance (i) that the Company will be successful
in commercially developing such products, (ii) that third party manufacturers of
personal computers, set top boxes, facsimile machines and other consumer
electronic products will be willing to incorporate the Company's technology into
their products, or (iii) that such technology and products will achieve
significant market acceptance.
The success of the Company's analog television data broadcasting
products will depend upon the continued use of the analog television broadcast
signal. The replacement of the analog television broadcast signal by a digital
television broadcast signal as the standard medium of television transmission
could materially adversely affect the Company's analog television data
broadcasting products. In this regard, so-called high definition television
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<PAGE> 18
("HDTV") is expected to eventually enable television broadcasters to transmit
non-programming related digital data at high speeds to a mass audience. HDTV
involves a digital television signal which is incompatible with the Company's
analog TVT1/4 technology. However, if and when implemented, it is anticipated
that HDTV will use a separate bandwidth allocated by the FCC and other
regulatory authorities in other markets, which would be non- interfering with
the bandwidth currently used for the analog broadcast infrastructure. Further,
since development and deployment of an HDTV system will involve the re-equipping
of the television industry with new transmitters and millions of homes with new
receivers, the development of a new broadcast infrastructure and the development
of a technology standard, the Company believes that the widespread acceptance
and deployment of HDTV will not occur in the United States and other worldwide
markets for several years. The Company also believes that the current analog
infrastructure may continue to be used for several years beyond HDTV's initial
introduction in the United States market, with similar transition periods in
other markets. Accordingly, HDTV may not be an immediate threat to the
successful deployment of the Company's TVT1/4 technology in a worldwide market;
however, it may become a competing technology in the future.
AGGRESSIVE COMPETITION
The Company has aggressive competitors in the data broadcasting and
electronic information access and processing businesses. The Company's sales and
potential profitability will be affected by competition from other businesses,
including established firms with greater financial and technical resources and
more experience in data broadcasting and information distribution than the
Company. The Company is aware of numerous competitors which provide products and
services similar to those offered by the Company, including, among others, the
regional Bell operating companies, AP SatNet and Data Broadcasting Corporation
in the data broadcasting business, dial-up services such as Reed Elsevier,
Inc.'s LEXIS(R)/NEXIS(R), Desktop Data, Inc., PointCast Incorporated and
Individual, Inc. in the electronic information access and processing business,
and Wegener Communications, Comstream Corporation, International Datacasting
Corporation and Scientific-Atlanta, Inc. in the equipment sales business. In
addition, with the rapid expansion of the Internet, numerous companies provide
access to or deliver similar products via this on-line facility. Additional
competitors may enter the market as demand for the Company's products and
services expands. The Company's sales and marketing efforts will be critical as
the Company continues to face competition in the marketplace. The Company does
not offer two-way, interactive communications products or services, and the
Company could face a potential competitive disadvantage in the event that
two-way systems are developed and offered at prices lower than the Company's
broadcast systems. There can be no assurance that the Company will, in the
future, (i) be able to provide the technological enhancements and new products
necessary to maintain its competitive position, or (ii) have the financial
resources to make the required investments in sales, marketing, engineering, and
research and development necessary to sustain a competitive position for its
products and services. The Company's financial condition and results of
operations may be affected adversely by the actions of existing or future
competitors, including the development of new technologies, the introduction of
new products and the reduction of prices to gain or retain market share.
GOVERNMENT REGULATION
In the United States, broadcast transmissions are subject to
regulation by the FCC. In June, 1996, the FCC, acting upon a petition submitted
by the Company, ruled that television broadcast licensees may, without prior FCC
authorization, use the Company's TVT1/4 technology to broadcast digital data
within the video portion of the NTSC television broadcast signal of the type
currently transmitted by FCC licensees. In adopting this amendment to its rules,
the FCC stated that allowing television broadcast licensees to use this
technology, among others, to insert digital data into the video portion of the
television signal will allow licensees to provide a wide variety of ancillary
services, which the FCC expects will expand the products and services available
to businesses and consumers within a television service area. However, there is
no assurance that any television networks or television stations will utilize
the Company's TVT1/4 technology to broadcast digital data.
The FCC authorizes FM station licensees to utilize subcarriers
within the FM baseband signal for specified purposes including data
broadcasting. The Company has entered into contracts with certain FM licensees
to lease
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<PAGE> 19
their subcarriers to broadcast data. The Company is not currently required to
hold an FCC license to act as a private carrier to use FM subcarrier channels.
An FM license is granted for a period of seven years and may be renewed by the
FCC for like terms. Although there can be no assurance that the licenses for the
FM stations used by the Company will be renewed, the Company believes that
adequate alternative FM stations would be available for use by the Company. The
Company currently holds an FCC license for a satellite uplink in Salt Lake City,
Utah. The Company's license is subject to renewal, and there can be no assurance
that its license will be renewed upon the expiration of its term on October 23,
2002. Any such license may be revoked for cause. Future changes in regulations
affecting allocation of the spectrum for services which compete with the
Company's services could also adversely affect the Company's business, including
spectrum allocations currently under consideration by the FCC.
DIFFICULTIES IN MANAGING GROWTH AND EXPANSION, AND RISKS OF FUTURE ACQUISITIONS
The Company has experienced significant growth, primarily through
two acquisitions in 1995 and anticipates continuing expansion of its operations
and business. The management of such growth will require an expansion and
integration of the Company's management and financial controls, as well as a
corresponding increase in the Company's quality control, delivery, and service
capabilities, and could place significant strain on the Company's resources.
There can be no assurance that the Company will be able to increase these
capabilities effectively or do so in a timely manner. In addition, in order to
accommodate this planned growth, it is expected that the Company's operating
expenses will increase; there can be no assurance that revenues will increase as
rapidly and operating results may therefore be adversely affected. Future
acquisitions by the Company may result in potentially dilutive issuances of
equity securities, the incurrence of additional debt, and amortization of
expenses related to goodwill and intangible assets that could adversely affect
the Company's profitability. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations and products of the
acquired company, the diversion of management's attention from other business
concerns, risks of entering markets in which the Company has no or limited
direct prior experience, and the potential loss of key employees of the acquired
companies.
DEPENDENCE ON SENIOR MANAGEMENT AND KEY EMPLOYEES
The Company's success depends to a significant extent upon the
performance of its executive officers and other key personnel. The loss of the
services of any of its executive officers or other key employees could have a
material adverse affect on the Company. The Company has not entered into
employment agreements with any of its senior executive officers and is not the
beneficiary of life insurance on any of them. Although the Company has
agreements with certain members of management not to compete with the Company,
there can be no assurance that such agreements will be enforceable or effective
in retaining such management persons. In addition, there can be no assurance
that the Company will be successful in attracting and retaining qualified
personnel.
DEPENDENCE UPON STRATEGIC ALLIANCES OR RELATIONSHIPS
The Company's future success may, in part, depend upon its ability
to develop strategic alliances or relationships with one or more information
providers ("IPs"), personal computer and computer chip manufacturers, television
networks, consumer electronic manufacturers, software developers, and sales and
marketing partners. Through such relationships, the Company may seek to develop
additional commercial opportunities in the data broadcasting industry, including
the deployment of encoders and decoders, applications and device driver
software, network operations, and widespread demand for high-speed data
broadcasting. The Company may be dependent on the subsequent success of such
third parties to commercialize such products. There can be no assurance that the
Company will be able to develop strategic relationships, or that any strategic
partner will contractually commit to utilize the Company's products or
technology. The inability of the Company to develop and maintain strategic
relationships could have a material adverse affect on the Company's business. In
addition, there can be no assurance that the Company's collaborators will not
pursue alternative technologies or develop alternative products
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<PAGE> 20
either on their own or in collaboration with others, including the Company's
competitors. The Company may seek to enter into arrangements with third parties
for foreign commercialization of its products and services. The Company's
ability to address markets outside the United States may depend in large part on
its ability to enter into collaborative arrangements with such third parties. To
the extent that the Company enters into collaborative relationships with third
parties, whether for territories outside the United States or otherwise, the
success of the Company's products and services that are subject to such
relationships may depend in large part on the efforts and commitment of such
collaborative partners. The Company has limited experience in business
operations outside the United States and Canada, and there can be no assurance
that the Company will be able to compete successfully in international markets.
International operations and sales are also subject to political and economic
risks, including political instability, currency controls, exchange rate
fluctuations, and changes in import/export regulations, any of which could have
a material adverse effect on the Company.
DEPENDENCE ON SUPPLIERS
Certain critical components used in the Company's products,
including microprocessors, Flash EPROMs, SCPC demodulator assemblies, and L-Band
tuners, are each currently available only from sole sources, while certain other
components are available from only a limited number of sources. Although to date
the Company has been able to obtain adequate supplies of these components, the
Company's inability in the future to obtain sufficient sole- or limited-source
components or to develop alternative sources could result in delays in product
introductions or shipments, which could have a material adverse affect on the
Company's operating results. In addition, the Company has elected to obtain
certain components, electronic component kitting, manufacture, assembly and test
of printed circuit boards, manufacture enclosures, and assembly of mechanical
components from single sources. The Company generally obtains these sources on a
purchase order basis and does not have long-term contracts with these suppliers
or subcontractors. Although the Company believes that other qualified
subcontractors are available, the inability of any of these suppliers or
subcontractors to provide these services to the Company on a timely basis could
materially adversely affect the Company's operations.
PATENTS AND PROPRIETARY RIGHTS
The success of the Company will be dependent upon its ability to
protect its intellectual property and maintain the proprietary nature of its
technology, through a combination of patents, licenses and other intellectual
property arrangements. There can be no assurance as to the range or degree of
protection which the Company's existing patents and any future patents which may
be issued to the Company will afford, that such patents will provide any
competitive advantages for the Company, or that others will not obtain patents
similar to any patents issued to the Company. There can be no assurance that any
patents issued to the Company will not be challenged by third parties,
invalidated, rendered unenforceable or designed around. Further, there can be no
assurance that any pending patent applications or future applications will
result in the issuance of any patents to the Company. There can be no assurance
that the Company will be successful in protecting its proprietary rights. Since
patent applications in the United States are maintained in secrecy until patents
issue, and since publication of inventions in technical or patent literature
tends to lag behind actual discoveries, there can be no assurance that others
will not obtain patents for technology that the Company's technology will
infringe, and that technology would need to be designed around or licensed from
the inventor by the Company. If the Company deems it necessary to license
technology to avoid infringement, there can be no assurance that such licenses
will be available on terms that the Company considers to be favorable. No
assurance can be given that the Company's technology will not infringe patents
or proprietary rights of others, nor that the Company can obtain licenses to use
such proprietary rights if necessary. In addition, there can be no assurance
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology. Further,
the laws of certain countries in which the Company's products may be sold or
licensed may not protect the Company's products and intellectual property rights
to the same extent as the laws of the United States. Any litigation to determine
the validity of any third party claims could result in significant expense to
the Company, adversely affect operating results, and divert the efforts of the
Company's technical and management personnel, whether or not such litigation is
resolved in favor of the Company. Although the Company is not aware of any
pending or threatened litigation
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involving such matters as of the date of this Prospectus, in the event of an
adverse result in any such litigation, the Company could be required to expend
significant resources to develop non-infringing technology or obtain licenses to
the disputed technology. There can be no assurance that the Company would be
successful in such development or that any such licenses would be available on
commercially reasonable terms.
The Company's products, services and technology also incorporate
subject matter that the Company believes is in the public domain and subject
matter that is licensed to the Company or that it otherwise has the right to
use. There can be no assurance, however, that third parties will not assert
patent or other intellectual property infringement claims against the Company
with respect to its products, services, technology or other matters. There may
be patents and other intellectual property relevant to the Company's products,
services and technology which are not known to the Company and which are owned
by third parties.
The Company has conducted a legal review of two United States
patents owned by third parties and of certain prior art. One of the patents may
have claims which cover certain of the Company's technology. The Company does
not believe that it infringes any valid claims of these patents and the Company
believes that it has valid defenses if any claim of infringement is asserted
against the Company.
QUARTERLY RESULTS AND SEASONALITY
The Company has experienced quarterly fluctuations in operating
results and expects that such fluctuations will continue. These fluctuations
have been caused by various factors, including the timing of significant orders
from major customers and the timing of shipments. In addition, the Company's
operating results may be influenced by seasonality, which typically results in
increased revenue in the fourth quarter related to equipment sales. Because of
these factors, the Company expects that its future quarterly results of
operations will continue to be subject to significant fluctuations. These
factors could also affect significantly annual results of operations.
DEPENDENCE ON A RELATIVELY SMALL NUMBER OF CUSTOMERS
The Company's current customers include certain of the world's
leading providers of financial information, general and industry-specific
business news, and business music. These customers utilize the Company's network
services and hardware products to distribute their products to end-users. A
relatively small group of these customers is responsible for a significant
percentage of the Company's revenue. Although the Company believes that its
current relationships with its customers are good, the loss of one or more of
its major customers could have a material adverse affect on the Company.
CONCENTRATION OF FACILITIES; RISK OF NETWORK DISRUPTION
The Company's business depends in significant part on its Network
Control Center in Salt Lake City, Utah, and access to shared satellite uplink
facilities in Raleigh, North Carolina and Chicago, Illinois. While the Company
does not currently maintain an off-site backup facility for its network control
center, it is in the process of arranging for an off-site backup facility for
critical network operations. Damage to or destruction of any of these facilities
would seriously disrupt the Company's operations and could materially and
adversely affect the Company's profitability.
CONTROL BY EXISTING SHAREHOLDERS
As of September 20, 1996, the current officers and directors of the
Company owned approximately 37% of the outstanding Common Shares of the
Company. Certain of such shareholders also hold stock options to purchase
additional Common Shares and hold preferred stock of the Company convertible
into Common Shares, the exercise or conversion of which would increase their
percentage ownership of the Company. Accordingly, the officers and directors,
acting as a group, will likely be able to elect all of the Company's directors
and to determine
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corporate actions requiring shareholder approval. The continuing control by such
shareholders could have the effect of delaying or preventing a change in control
of the Company. See "Anti-Takeover Provisions."
VOLATILE COMMON SHARES PRICE
The market price of the Common Shares, like that of the common stock
of many other technology companies, has been highly volatile. Factors such as
announcements of technological innovations by the Company or its competitors,
governmental regulation, industry legislation, developments in patent or other
proprietary rights of the Company or its competitors, including litigation,
fluctuations in the Company's operating results, analyst reports and market
conditions for technology stocks in general, could have a significant impact on
the future price of the Common Shares. The stock market has from time to time
experienced extreme price and volume fluctuations that have particularly
affected the market price for many technology companies for reasons frequently
unrelated to the operating performance of the companies affected. The market
price for the Company's Common Shares could also be adversely affected by
dilution and by the Common Shares which may be sold into the market pursuant to
registration statements which the Company has filed or may be obligated to file
for the sale of additional Common Shares in the future. See "Risk Factors--Risk
Factors Relating to the Solicitation--Additional Market Overhang and Dilution"
above.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation contain certain provisions
that could have the affect of delaying, deferring or preventing a change in
control of the Company. In addition, certain provisions of the Indiana Business
Corporation Law restrict business combinations with any "interested shareholder"
as defined in such law. These provisions may discourage, delay or prevent
certain types of transactions involving an actual or potential change in control
of the Company, including transactions in which the shareholders might otherwise
receive a premium for their Common Shares over then-current market prices, and
may limit the ability of the Company's shareholders to approve transactions
which they may deem to be in their best interests. These provisions may have the
affect of delaying or preventing a change in control of the Company without
action by the shareholders, and therefore could adversely affect the price of
the Company's Common Shares.
The Company's board of directors has the authority to issue a total
of up to 10,000,000 shares of preferred stock and to fix the rates, preferences,
privileges, and restrictions, including voting rights, of such shares of
preferred stock, without any further vote or action by the shareholders. The
rights of the holders of the Common Shares will be subject to, and may be
adversely affected by, the rights of the holders of the preferred stock that
have been issued, or might be issued in the future. The issuance of preferred
stock, while providing desired flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company, thereby delaying, deferring, or preventing a change in
control of the Company. Furthermore, holders of such preferred stock may have
other rights, including economic rights senior to the Common Shares, and, as a
result, the existence and issuance thereof could have a material adverse affect
on the market value of the Common Shares. The Company has in the past issued,
and may from time to time in the future issue, preferred stock for financing or
other purposes with rights, preferences, or privileges senior to the Common
Shares.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 20, 1996, the Company had 15,528,098 Common Shares
outstanding, all of which were eligible for trading on Nasdaq. On a fully
diluted basis, assuming the exercise of all outstanding options, rights and
warrants to purchase Common Shares or securities convertible into Common Shares
and the conversion of all outstanding preferred stock based upon the $9.375 per
share closing price of the Common Stock on September 20, 1996, the Company would
have 19,739,466 Common Shares outstanding. Assuming the exercise of all
outstanding Series B Warrants into Series B Preferred prior to the termination
of the Solicitation and the Consent of all Holders of the Preferred Shares, the
Company would, subject to the terms and conditions of this Solicitation, issue
Warrants
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to purchase up to an additional 1,122,816 Common Shares. The Company may from
time to time issue additional Common Shares or securities exercisable for or
convertible into Common Shares to finance the expansion of its business, for
acquisitions, or for other corporate purposes. The Company's Articles of
Incorporation authorize the issuance of up to 50 million Common Shares. Future
sales of securities could adversely affect the prevailing market price of the
Common Shares.
NO DIVIDENDS
The Company has not paid any dividends on its Common Shares, and
does not plan to pay dividends on its Common Shares for the foreseeable future.
In addition, the provisions of certain series of its preferred stock prohibit
the payment of dividends on the Common Shares under certain circumstances.
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SELECTED FINANCIAL INFORMATION
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
1995 1994 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues............................... $ 813 $ -- $ 8,648 $ 521
Loss before extraordinary items........ (15,456) (4,641) (4,967) (4,118)
Extraordinary items.................... -- -- -- --
Net Loss............................... $(15,456) $ (4,641) $ (4,967) $ (4,118)
Net Loss per share..................... $ (1.52) $ (0.57) $ (0.42) $ (0.42)
Net Loss per share (fully diluted)..... $ (1.52) $ (0.57) $ (0.42) $ (0.42)
Income per share before
extraordinary items.................... $ (1.52) $ (0.57) $ (0.42) $ (0.42)
Number of shares used in per
share information...................... 10,195 8,082 11,866 9,908
Ratio of earnings to fixed charges..... -- -- -- --
BALANCE SHEET DATA:
December 31, June 30,
1995 1994 1996 1995
---- ---- ---- ----
Working Capital......................... $10,999 $11,397 $10,831 $ 8,141
Total Assets............................ 38,258 12,048 37,996 10,549
Total assets excess of purchase
price over the fair market value of
net assets acquired..................... 19,791 12,048 20,478 9,935
Total Indebtedness (short-term and
long-term).............................. 1,835 -- 1,680 56
Shareholders' equity.................... 30,806 11,561 33,857 9,667
Book value per share.................... 3.02 1.43 2.85 .98
</TABLE>
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DESCRIPTION OF EXISTING SECURITIES OF THE COMPANY
The Company has authorized 50,000,000 Common Shares and 10,000,000
preferred shares. As of September 20, 1996, 15,831,598 Common Shares were
issued, of which 15,528,098 shares were outstanding and 303,500 were held in the
Company's treasury; and a total of 998,776 preferred shares in three series were
issued and outstanding.
The Company's Board of Directors has the authority, without further
action by the shareholders, to issue additional preferred shares in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any series of unissued preferred shares and to fix the number
of shares constituting any series and the designation of such series, without
any further vote or action by the shareholders. The issuance of preferred Shares
may have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the shareholders, may discourage bids for
the Company's Common Shares at a premium over the market price of the Common
Shares, and may adversely affect the market price of and other rights of the
holders of Common Shares.
The following summary of certain provisions of the Common Shares and
preferred shares does not purport to be complete and is subject to, and is
qualified in its entirety by, the amended Articles of Incorporation of the
Company and the Restated Code of Bylaws of the Company and by the provisions of
applicable law.
COMMON SHARES
Holders of Common Shares are entitled to one vote per share on all
matters on which shareholders are entitled to vote. Subject to the rights of
holders of any class or series of shares, including preferred shares, having a
preference over the Common Shares as to dividends or upon liquidation, holders
of Common Shares are entitled to such dividends as may be declared by the
Company's Board of Directors out of funds lawfully available therefor, and are
entitled upon liquidation to receive pro rata the assets available for
distribution to shareholders. Holders of the Common Shares have no preemptive,
subscription or conversion rights. The Common Shares are not subject to
assessment and have no redemption provisions.
SERIES 1994 CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Series 1994 Cumulative Convertible Preferred Shares (the "Series
1994 Shares") consists of a total of 501,963 shares which have a stated value of
$11.00 per share and are convertible at any time into Common Shares at $11.00
per share. The conversion provisions are subject to adjustment in certain
circumstances. Cumulative dividends on the Series 1994 Shares accrue at the rate
of 10% per annum and are payable when, as and if declared by the Board of
Directors of the Company. No dividends may be paid on the Common Shares or other
series junior to the Series 1994 Shares unless all accrued dividends have been
paid on the Series 1994 Shares. On liquidation of the Company, holders of the
Series 1994 Shares will be entitled to receive, before any distribution to
holders of Common Shares or other series junior to the Series 1994 Shares,
liquidation distributions equal to the stated value per Series 1994 Share, plus
accrued and unpaid dividends. The Company may redeem the Series 1994 Shares at
any time on at least 30 days written notice at the redemption price of $11.00
per share, plus accrued and unpaid dividends, provided that such redemption has
been approved by a majority of the directors of the Company who are not holders
of such Series 1994 Shares. The Series 1994 Shares have no voting rights except
as otherwise provided by law or the Articles of Incorporation. All of the Series
1994 Shares are held by David E. Deeds, the Chairman, Chief Executive Officer
and President of the Company.
SERIES A CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 1,308,000 shares of Series A
Preferred, of which 1,308,000 shares were issued and 496,813 shares are
outstanding as of September 20, 1996. Holders of the Series A Preferred are
25
<PAGE> 26
entitled to receive cumulative dividends at the rate of $1.25 per share per
annum, payable semi-annually on June 30 and December 31 of each year, when, as
and if declared by the Company's Board of Directors, in preference and priority
to any payment of any dividend on the Common Shares or any other class or series
of shares of the Company. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Series A Preferred are entitled to
receive, prior and in preference to any distribution of any assets of the
Company to the holders of any other class or series of shares, the amount of
$25.00 per share, plus any accrued but unpaid dividends (the "Liquidation
Preference"). The Series A Preferred may be redeemed in whole or in part at any
time beginning on the first year anniversary after the date of issuance
(December 27, 1995), on at least 30 days notice, at a redemption price equal to
the Liquidation Preference. However, the Company may not exercise the right of
redemption unless and until (i) the average last trade price of the Common
Shares for the 20 consecutive trading days prior to the redemption date exceeds
$38.00 per share, and (ii) shares issuable upon conversion of the Series A
Preferred have been registered for resale under the Securities Act. At any time
more than three months after the date of issuance, each share of the Series A
Preferred may be convertible, at the option of the holder thereof, into such
number of Common Shares as is determined by dividing (i) the Liquidation
Preference by (ii) the applicable Conversion Price. At any date, the Conversion
Price shall be the lesser of (x) $21.00 or (y) the average of the daily low
trading prices of the Common Shares during the three consecutive trading days
immediately preceding such date, reduced by the applicable percentage of such
average, which increases from 13% to 29% during the period commencing three
months after the date of issuance through 13 or more months after the date of
issuance of the Series A Preferred. The conversion provisions are subject to
adjustment in certain circumstances. On the third anniversary of the date of
issuance of the Series A Preferred (December 27, 1998), such shares shall be
converted into Common Shares without any action on the part of the holders
thereof. Except as otherwise provided by law, the Series A Preferred have no
voting rights. The sole holder of the Company's Series 1994 Shares consented to
the creation by the Company of the Series A Preferred which have certain rights
senior to the Series 1994 Shares. There is currently no established trading
market for the Series A Preferred.
SERIES B CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 600,000 shares of Series B
Preferred, of which none is outstanding as of the date of this Consent
Solicitation Statement. However, there are currently Series B Warrants
outstanding to purchase 64,595 shares of Series B Preferred. The provisions of
the Series B Preferred are identical to those of the Series A Preferred, with
the exception that the Series A Preferred have certain rights, preferences and
privileges which are superior to those of the Series B Preferred in matters
involving dividends, liquidation preference, redemption and the issuance of
Common Shares on conversion. The sole holder of the Company's Series 1994 Shares
consented to the creation by the Company of the Series B Preferred, which have
certain rights senior to the Series 1994 Shares. There is currently no
established trading market for the Series B Preferred.
REPRESENTATIVE'S WARRANTS
The Representative's Warrants were sold by the Company pursuant to
the Underwriting Agreement relating to its initial public offering in October,
1994. Such Warrants enable the holders to purchase an aggregate of 165,000
Common Shares at the purchase price of $18.15 per share at any time until their
expiration on October 20, 1999. The exercise price and number of shares
purchasable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events.
WARRANT HELD BY INTEL CORPORATION
Intel Corporation holds a warrant which is exercisable at any time
through May 5, 1997 to purchase 250,000 Common Shares at a per share price equal
to $11.34, subject to adjustment upon the occurrence of certain events.
26
<PAGE> 27
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Shares and the
Preferred Shares is American Securities Transfer, Incorporated (the "Transfer
Agent").
CERTAIN CHARTER PROVISIONS AND EFFECTS OF INDIANA LAW
The Company's Articles of Incorporation require that proposals for
consideration at a meeting of shareholders must be submitted to the Secretary of
the Company not later than the earlier of (i) two hundred seventy (270) days
after the adjournment of the next preceding annual meeting, or (ii) the close of
business on the seventh day following the date on which notice of the meeting is
formally given to shareholders. The foregoing provision may not be amended
except with the affirmative vote of 85% of the voting power of all shares
entitled to vote.
In the event any person acquires 10% of the voting power of the
Common Shares (an "Interested Shareholder"), then, for a period of five (5)
years after such acquisition, the Indiana Business Corporation Law prohibits
certain business combinations between the Company and such Interested
Shareholder unless prior to the acquisition of such Common Shares by the
Interested Shareholder, the Board of Directors of the Company approves of such
acquisition of Common Shares or approves of such business combination. After
such five-year period, only the following three types of business combinations
between the Company and such an Interested Shareholder are permitted: (i) a
business combination approved by the Board of Directors of the Company before
the acquisition of Common Shares by the Interested Shareholder, (ii) a business
combination approved by holders of a majority of the Common Shares not owned by
the Interested Shareholder, and (iii) a business combination in which the
shareholders receive a price for their Common Shares at least equal to a formula
price based on the highest price per Common Share paid by the Interested
Shareholder. In addition, certain accretions of voting power may result in an
acquiring shareholder losing the right to vote the Common Shares acquired unless
such voting power is approved by a majority of the disinterested Common Shares
and, if authorized by an appropriate provision of the Company's Articles of
Incorporation or Code of Bylaws adopted prior to the time the person becomes an
Interested Shareholder, may permit the redemption of the acquiring shareholder's
Common Shares. The Company has not adopted such redemption provisions.
27
<PAGE> 28
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS
The Company is not aware of any license or regulatory permit that
appears to be material to its business that might be adversely affected by the
Solicitation as contemplated in the Consent Solicitation Statement or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the Company's issuance of Warrants or effectuation of the transactions
contemplated pursuant to the Solicitation. Should any such approval or other
action be required, the Company currently contemplates that it will seek such
approval or other action. The Company cannot predict whether it may determine
that it is required to delay the Solicitation pending the outcome of any such
matter. There can be no assurance that any such approval or other action, if
needed, would be obtained or would be obtained without substantial conditions or
that the failure to obtain any such approval or other action might not result in
adverse consequences to the Company's business. In lieu of seeking such
approval, the Company may determine to terminate the Solicitation. The Company
intends to make all required filings under the Exchange Act.
There is no stockholder vote required in connection with the
Solicitation.
28
<PAGE> 29
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain United
States federal income tax consequences to (i) a "U.S. Holder" of the Proposed
Amendments, the Section 1.5 Waiver, the agreement not to convert the Series A
Preferred and Series B Preferred for one hundred eighty days following the
Deemed Issuance Date and the receipt of a Warrant and (ii) a "U.S. Warrant
Holder" of the Proposed Amendment to the Series B Warrant Agreement and the
Preferred Stock Agreement relating to the Series B Preferred underlying the
Series B Warrants and its agreement therein not to convert any Series B
Preferred issued on exercise of the Series B Warrants for a period of one
hundred eighty days following the Deemed Issuance Date. As used herein, the term
"U.S. Holder" and "U.S. Warrant Holder" means a beneficial holder of the Series
A Preferred and/or Series B Preferred, and the Series B Warrants, respectively,
that is for United States federal income tax purposes (a) a citizen or resident
of the United States, (b) a corporation or other entity created under the laws
of the United States or of any political subdivision thereof or (c) an estate or
trust the income of which is subject to United States federal income taxation
regardless of source. The discussion deals only with Series A Preferred, Series
B Preferred and the Series B Warrants as capital assets, and not with special
classes of holders, such as dealers in securities or currencies, banks,
tax-exempt organizations and life insurance companies. In addition, the
discussion does not describe any state, local or foreign tax consequences.
The summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations thereunder, published
rulings and court decisions. Neither a ruling from the IRS nor an opinion of
counsel has been requested with respect to the federal income tax consequences
of the Proposed Amendments, the Section 1.5 Waiver, the agreement not to convert
the Series A Preferred and Series B Preferred for six (6) months following the
Acceptance Date or the receipt of the Warrant.
PROPOSED AMENDMENT, WAIVER AND WARRANT FOR SERIES A PREFERRED AND SERIES B
PREFERRED
Under current law, the Proposed Amendments, the Section 1.5 Waiver
and the agreement not to convert the Series A Preferred and Series B Preferred
for one hundred eighty days following the Deemed Issuance Date would most likely
be considered a constructive exchange by the U. S. Holders of the Series A
Preferred and Series B Preferred for new Series A Preferred and Series B
Preferred.
This would be a tax-free recapitalization under Section 368(a)(1)(E)
of the Code and, while not entirely free from doubt, should not constitute a
constructive deemed distribution to a U.S. Holder taxable as a dividend. Any
Warrant received by a U.S. Holder would be taxable, but only to the extent of
gain realized (i.e., the excess, if any, of the fair market value of the new
Series A Preferred, Series B Preferred and Warrant received over the U.S.
Holder's basis in the Series A Preferred and Series B Preferred treated as
exchanged therefor); no loss would be recognized on the exchange. The U.S.
Holder would recognize ordinary income if the exchange has the effect of the
distribution of a dividend. The U.S. Holder's basis in the new Series A
Preferred and Series B Preferred would equal the U.S. Holder's basis in Series A
Preferred and Series B Preferred treated as exchanged therefor, increased by (i)
the amount which was treated as a dividend and (ii) any gain (not including any
portion of the gain which was treated as a dividend) recognized on the exchange
and reduced by the fair market value of the Warrant received. The U.S. Holder's
holding period in the new Series A Preferred and Series B Preferred would
include the U.S. Holder's holding period in the Series A Preferred and Series B
Preferred treated as exchanged therefor. The U.S. Holder's basis in the Warrant
would equal the fair market value of the Warrant.
PROPOSED AMENDMENT AND WAIVER FOR SERIES B WARRANT
If the modification of the Series B Warrant and the Preferred Stock
Agreement relating to the Series B Preferred underlying the Series B Warrant
constitutes an exchange of the Series B Warrant for a new Series B Warrant, the
exchange would not qualify as a tax-free recapitalization. An exchange would
occur if the new Series B Warrant differed materially either in kind or in
extent from the existing Series B Warrant. If an exchange is deemed to occur,
each U.S. Warrant Holder would recognize gain in an amount equal to the
difference between the fair market value of the new Series B Warrant and the
U.S. Warrant Holder's basis in the Series B Warrant.
29
<PAGE> 30
The U.S. Warrant Holder's basis in the new Series B Warrant would equal the fair
market value of the new Series B Warrant.
If the modification does not constitute an exchange of the Series B
Warrant for a new Series B Warrant, the U.S. Warrant Holder will not recognize
any gain or loss. The U.S. Warrant Holder's basis in the Series B Warrant would
not change.
BACKUP WITHHOLDING AND REPORTING
A U.S. Holder who receives a Warrant may be subject to backup
withholding with respect to the fair market value of the Warrant unless (i) such
U.S. Holder is a corporation or comes within certain other exempt categories,
and, when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. The Company will report to U.S. Holders and the IRS the
amounts of any "reportable payments" made with respect to the Series A Preferred
and Series B Preferred.
IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS IS INTENDED TO BE A SUMMARY ONLY AND IS NOT TAX ADVICE. U.S.
HOLDERS OF THE SERIES A PREFERRED, SERIES B PREFERRED AND U.S. WARRANT HOLDERS
OF THE SERIES B WARRANTS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PROPOSED AMENDMENTS AND TRANSACTIONS DESCRIBED HEREIN AND THE CONTINUING
OWNERSHIP AND DISPOSITION OF THE SERIES A PREFERRED, SERIES B PREFERRED AND
SERIES B WARRANTS.
30
<PAGE> 31
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and, in accordance therewith, files reports and other information
with the Commission. Reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at its Regional Offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy, and
information statements and other information regarding registrants, such as the
Company, that file electronically with the Commission. The Common Shares are
listed on Nasdaq and similar information can be inspected and copied at the
offices of the National Association of Securities Dealers, Inc., 1735 K. Street,
N.W., Washington, D.C. 20006.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the
Commission and are hereby incorporated by reference into this Consent
Solicitation Statement: (1) Annual report on Form 10-K for the fiscal year ended
December 31, 1995; (2) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996; (3) the Proxy Statement for the 1996 Annual
Meeting of Stockholders; and (4) Current Reports on Form 8-K dated December 27,
1995 (as amended by Form 8-K/A filed on March 11, 1996). All other documents and
reports filed pursuant to Sections 13(a), 13 (c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Consent Solicitation Statement and prior to
the termination of this Solicitation shall be deemed to be incorporated by
reference in this Consent Solicitation Statement and to be made a part hereof
from the date of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Consent Solicitation Statement to the extent that a
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Consent
Solicitation Statement.
The Company will provide without charge to each person, including
any beneficial owner, to whom a copy of this Consent Solicitation Statement is
delivered, upon the written or oral request of such person, a copy of any or all
documents which are incorporated herein by reference (not including the exhibits
to such documents, unless such exhibits are specifically incorporated by
reference in the document which this Consent Solicitation Statement
incorporates). Requests should be directed to Douglas J. Reich, General Counsel,
WavePhore, Inc., 3311 North 44th Street, Phoenix, Arizona 85018; telephone (602)
952-5500.
31
<PAGE> 32
CONSENT SOLICITATION STATEMENT
WAVEPHORE, INC.
Solicitation of Consent to a Non-Conversion Period and
Amendments to Preferred Stock Investment Agreements
and Series B Warrant Agreements
from the Holders of
Series A Convertible Preferred Shares
Series B Convertible Preferred Shares
and
Warrants to Purchase Series B Convertible Preferred Shares
Deliveries of Consent and Amendment Documents should be made to the
Company at the address set forth below. Facsimile copies of Consents from
Eligible Institutions should be directed to the Company at the facsimile number
set forth below. Requests for additional copies of the Consent Solicitation
Statement or Consent and Amendment Documents should be directed to the Company
at the telephone number and address set forth below. Questions concerning the
terms of the Solicitations should be directed to the Company at the telephone
numbers set forth below.
WAVEPHORE, INC.
3311 North 44th Street
Phoenix, Arizona 85018
Telephone no.: (602) 952-5500
Facsimile no.: (602) 952-5517
Attention: Douglas J. Reich
32
<PAGE> 1
EXHIBIT (a)(2)
WAVEPHORE, INC.
SERIES A CONVERTIBLE PREFERRED SHARES
SERIES B CONVERTIBLE PREFERRED SHARES
WARRANTS TO PURCHASE SERIES B CONVERTIBLE PREFERRED SHARES
CONSENT TO NON-CONVERSION PERIOD AND
AMENDMENTS TO PREFERRED STOCK
AGREEMENT AND SERIES B WARRANT AGREEMENT
THE SOLICITATION WILL EXPIRE AT 5:00 P.M.,
ARIZONA TIME, ON OCTOBER 21, 1996
OR SUCH LATER DATE TO WHICH THE SOLICITATION
IS EXTENDED (THE "EXPIRATION DATE")
WAVEPHORE, INC. MAY, IN ITS SOLE DISCRETION, TERMINATE THE
SOLICITATION IF IT HAS NOT RECEIUVED THE REQUISITE CONSENTS ON OR BEFORE
OCTOBER 1, 1996.
The undersigned is the holder of Series A Convertible Preferred Shares
(the "Series A Preferred"), Series B Convertible Preferred Shares (the "Series B
Preferred" and together with the Series A Preferred, the "Preferred Shares"),
and/or Series B Preferred Warrants (the "Series B Warrants") of WavePhore, Inc.
(the "Company").
The undersigned hereby:
CONSENTS / / DOES NOT CONSENT / /
to each of the Proposals described in the Consent Solicitation Statement, dated
September 23, 1996 (the "Consent Solicitation Statement"). IF NO ELECTION IS
SPECIFIED ABOVE, ANY OTHERWISE PROPERLY COMPLETED AND SIGNED FORM WILL BE DEEMED
A CONSENT TO THE PROPOSALS. By execution hereof, the undersigned acknowledges
receipt of the Consent Solicitation Statement. All capitalized terms used herein
which are undefined shall have the meanings ascribed to them in the Consent
Solicitation Statement.
This form relates to all of the Preferred Shares and/or Series B
Warrants held by the undersigned. The undersigned has listed on the table on
this form the number of Preferred Shares and/or Series B Warrants and the
certificate number of such shares or Warrants for which this consent is given.
The undersigned acknowledges and agrees that this consent will not be
effective if the Preferred Shares and Series B Warrants with respect to which
this consent is given are transferred prior to the Acceptance Date (as defined
in the Consent Solicitation Statement), but that following the Acceptance Date,
this Consent will bind all transferees of the Preferred Shares and/or Series B
Warrants.
This fully executed form should be delivered by mail, hand delivery or
overnight courier or, solely in the case of Eligible Institutions (as defined),
by facsimile transmittal, to the Company at the following address or facsimile
number:
TO: WAVEPHORE, INC.
3311 NORTH 44TH STREET
PHOENIX, ARIZONA 85018
TELEPHONE NO.: (602) 952-5500
FACSIMILE NO.: (602) 952-5517
ATTENTION: DOUGLAS J. REICH
<PAGE> 2
LISTED BELOW ARE THE PREFERRED SHARES AND/OR SERIES B WARRANTS
REGISTERED IN THE NAME OF THE HOLDER
<TABLE>
<CAPTION>
=============================================================================================
DESCRIPTION OF PREFERRED SHARES AND SERIES B WARRANTS
- ---------------------------------------------------------------------------------------------
<S> <C>
NAME(S) AND ADDRESS
OF HOLDER(S) NUMBER OF SHARES AND
(PLEASE FILL IN, IF BLANK) CERTIFICATE NUMBERS
- ---------------------------------------------------------------------------------------------
SERIES A PREFERRED SERIES B PREFERRED SERIES B WARRANTS
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
* If this consent form relates to less than all of the Preferred Shares or
Series B Warrants registered in the name of the Holder(s), the Holder(s) must
list the number of shares and certificate numbers of the Series A Preferred, the
Series B Preferred and the Series B Warrants (separately) as to which this
consent form relates. Otherwise, this consent form will be deemed to relate to
all of the Preferred Shares and/or Series B Warrants registered in the name of
such Holder(s).
=============================================================================================
</TABLE>
<PAGE> 3
SIGN HERE
--------------------------------------------
Signature(s)
---------------------------------------------
Name(s) (Please Print)
---------------------------------------------
---------------------------------------------
Address
---------------------------------------------
Zip Code
-----------------------------------------------
Area Code and Telephone No.
-----------------------------------------------
Date
<PAGE> 1
EXHIBIT (a)(3)
APPENDIX A
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement"), dated as of
September 10, 1996, is made and entered into between WAVEPHORE, INC., an Indiana
corporation (the "Company"), and the holder of the Company's Series A
Convertible Preferred Shares or Series B Convertible Preferred Shares whose name
appears below (the "Warrantholder") .
R E C I T A L S
1. The Warrantholder is a holder of _______ shares of the
Company's Series A Convertible Preferred Shares and shares of the Company's
Series B Convertible Preferred Shares (the "Preferred Shares").
2. In consideration for the Warrantholder's agreement not to
convert the Preferred Shares for a period of at least one-hundred eighty (180)
days following September 10, 1996, the deemed date of issuance of the warrants
granted pursuant hereto (the "Deemed Issuance Date") and to amend the Preferred
Stock Investment Agreement pursuant to which the Preferred Shares were issued to
the Warrantholder, the Company has agreed to issue to the Warrantholder a
warrant to purchase up to two shares of the Company's common shares, no par
value (the "Common Shares"), for each Preferred Share held on the date of
exercise of such warrant, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and for the purpose of defining the terms and provisions of
the Warrant and the respective rights and obligations of the Company and the
Warrantholder thereunder, the Company and the Warrantholder hereby agree as
follows:
1. ISSUANCE, TRANSFERABILITY, AND FORM OF WARRANT.
1.1 ISSUANCE OF WARRANT. Subject to the terms and conditions hereof, as
soon as practical after execution hereof, the Company shall issue to the
Warrantholder as of the Deemed Issuance Date, and the Warrantholder shall accept
from the Company, a common stock purchase warrant substantially in the form
attached hereto as Exhibit A (the "Warrant"). The Common Shares issued or
issuable upon exercise of the Warrant shall be referred to collectively herein
as the "Shares."
1.2 REGISTRATION. The Warrant issued to Warrantholder shall be numbered
and shall be registered on the books of the Company.
1.3 TRANSFER. The Warrant shall attach to the Preferred Shares held by
the Warrantholder and shall not be transferrable apart from such Preferred
Shares. Subject to the previous sentence and to Section 10 hereof, the Warrant
or applicable portion thereof shall be transferable on the books of the Company
along with all or a portion of the Preferred Shares only upon delivery thereof
to the Company duly endorsed by the Warrantholder or by its duly authorized
attorney or representative, accompanied by proper evidence of succession,
assignment, or authority to transfer. Upon any registration of transfer, the
Company shall execute and deliver a new Warrant to the person entitled thereto
evidencing the right to purchase that number of Shares hereunder corresponding
to the Preferred Shares transferred to such person, less any Shares for which
this Warrant was previously exercised corresponding to such Preferred Shares. In
the event that only a portion of the Preferred Shares and this Warrant is
transferred at any time, the Company will also execute and deliver a new Warrant
to the transferring holder evidencing the remaining portion of the Warrant that
corresponds to the portion of the Preferred Shares retained. Unless the context
indicates otherwise, the term "Warrantholder" shall include any transferee or
transferees of the Warrants pursuant to this Subsection 1.3, and the term
"Warrant" shall include any and all warrants outstanding
<PAGE> 2
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or transfer pursuant
to this Agreement.
1.4 FORM OF WARRANT. The text of the Warrant and of the form of
election to purchase shares shall be substantially as set forth in Exhibit A
attached hereto. The price per Share and the number of Shares issuable upon
exercise of the Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant shall be executed on behalf of
the Company by its President, Vice President, or other proper officer.
A Warrant bearing the signature of an individual who was at the time of
such signature the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the delivery of such Warrant.
The Warrant shall be dated the date of signature thereof by the proper
officer of the Company either upon initial issuance as of the Deemed Issuance
Date or upon division, exchange, substitution, or transfer.
1.5 LEGEND ON WARRANTS AND SHARES. Each Warrant certificate issued
pursuant to this Agreement, either initially or upon transfer or exchange or
otherwise, unless at the time of issuance such Warrant is subject to a currently
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), shall bear the following legend:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and neither the securities nor any interest therein may be sold,
exchanged, hypothecated, transferred or otherwise disposed of in the
absence of registration or an exemption therefrom under the Act, and
except as set forth in Sections 1.3 and 10 of the Warrant Agreement
pursuant to which they were issued."
Each certificate for Shares initially issued upon exercise of the
Warrant, unless at the time of such exercise such Shares are subject to a then
currently effective registration statement under the Securities Act, shall bear
the following legend:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and neither the securities nor any interest therein may be sold,
exchanged, hypothecated, transferred or otherwise disposed of in the
absence of registration or an exemption therefrom under the Act."
Any certificate issued at any time on transfer or in exchange
or substitution for any certificate bearing such legend (except a new
certificate issued upon completion of a public distribution pursuant to a
registration statement under the Securities Act of the securities represented
thereby) shall also bear the above legend, unless, in the opinion of the
Company's counsel, the securities represented thereby need no longer be subject
to such restrictions.
2. EXERCISE OF WARRANTS; SHARES ISSUABLE UPON EXERCISE; REDEMPTION.
2.1 EXERCISE OF WARRANT. Subject to compliance with the terms of this
Agreement and applicable securities laws, this Warrant may be exercised, in
whole or in part at any time during the period (the "Exercise Period") beginning
on or after one-hundred eighty (180) days following the Deemed Issuance Date and
ending at 5:00 p.m., Arizona time, on December 31, 1998 (the "Termination
Date"), by surrendering to the Company, at its principal office, the certificate
evidencing the Warrant to be exercised, together with the purchase form on the
reverse thereof duly completed and signed and payment of an amount equal to the
product obtained by multiplying the number of Shares being purchased upon such
exercise by the Warrant Price (as defined in and determined in
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accordance with the provisions of Sections 6 and 7 hereof). Payment of the
aggregate Warrant Price shall be made in cash or by certified or cashier's check
as outlined in Section 6 or such other consideration as may be deemed acceptable
in the sole discretion of the Company.
Upon such surrender of the Warrant and payment of the Warrant Price,
the Company shall issue and cause to be delivered with all reasonable dispatch
to or, subject to the terms and conditions hereof, upon the written order of the
Warrantholder and in such name or names as the Warrantholder may designate, a
certificate or certificates for the number of Shares issuable upon the exercise
of the Warrant, as determined in accordance with Subsection 2.2 below, and for
which the Warrant is then being exercised. Such certificate or certificates for
Shares shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record of such Shares
as of the date of surrender of the Warrant and payment of the Warrant Price, as
aforesaid, notwithstanding that the certificates representing such Shares shall
not actually have been delivered or that the stock transfer books of the Company
shall then be closed. The Warrant shall be exercisable, at the election of the
Warrantholder, either in full or from time to time in part but in no event for
less than 25% of the Common Shares then purchasable upon proper exercise of such
Warrant and, in the event that a certificate evidencing the Warrant is exercised
at any time prior to the Termination Date in respect of less than all of the
Shares specified therein and for which the Warrant is then or could in the
future be exercisable, a new certificate evidencing the remaining portion of the
Warrant will be issued by the Company.
2.2 SHARES ISSUABLE UPON EXERCISE OF WARRANT. Upon exercise of the
Warrant during the Exercise Period, the Company shall issue to the Warrantholder
a number of Common Shares, up to the maximum number of Common Shares stated in
the Warrant, determined as follows: (i) if such exercise occurs at any time
following one-hundred eighty (180) days after the Deemed Issuance Date, one (1)
Share, plus (ii) if such exercise occurs at any time following two hundred
seventy (270) days after the Deemed Issuance Date, an additional one-half (1/2)
Share; plus (iii) if such exercise occurs at anytime following three hundred
sixty-five (365) days after the Deemed Issuance Date, an additional one-half
(1/2) Share, in each case for each Preferred Share as to which the Warrant was
issued and that continues to be held on the date of exercise of the Warrant, but
only to the extent that the Warrant has not been previously exercised as to such
Preferred Shares pursuant to (i), (ii), or (iii) above. The number of Shares
issuable upon exercise of the Warrant and the Warrant Price per share shall be
subject to adjustment from time to time as set forth below.
2.3 REDEMPTION OF WARRANT.
(a) ELECTION TO REDEEM. At any time and from time to time during the
period commencing two- hundred ten (210) days following the Deemed Issuance Date
and ending on the Termination Date, the Company may redeem the Warrant, in whole
or in part, only to the extent not yet exercised and only to the extent then
exercisable, at a redemption price equal to $.05 per share for each Share
issuable upon exercise of the Warrant on the date fixed for redemption (the
"Redemption Price"), provided, that the Company may exercise this right of
redemption only if the closing price of the Shares on the Nasdaq National
Market, or the principal exchange on which the Shares are then traded, equals or
exceeds 200% of the Warrant Price for a minimum of five (5) consecutive trading
days during any period during the term of the Warrant to the date on which
notice of redemption is given as provided below.
(b) MECHANICS OF REDEMPTION. At least 5 business days prior to the
date fixed for redemption (the "Redemption Date"), written notice shall be
mailed, first class postage prepaid, by the Company to the Warrantholder at the
address last shown on the records of the Corporation for such Warrantholder,
notifying such Warrantholder of the redemption which is to be effected,
specifying that portion of the Warrant (based upon the number of Shares into
which the Warrant is then exercisable) that is to be redeemed from such
Warrantholder, the Redemption Date, the Redemption Price, the place at which
payment may be obtained and calling upon each such Warrantholder to surrender
to the Company, in the manner and at the place designated, the Warrant
certificate or certificates representing the Warrant or portion thereof to be
redeemed. On or after the Redemption Date, except
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to the extent that, prior to the Redemption Date, such Warrant or portion
thereof shall have been exercised, the Warrantholder shall surrender to the
Company the Warrant certificate or certificates representing the Warrant or
portion thereof called for redemption, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be cancelled. In the
event only a portion of a Warrant is called for redemption, a new certificate
shall be issued representing the unredeemed portion.
(c) RIGHTS OF WARRANTHOLDERS AFTER REDEMPTION. From and after the
Redemption Date, unless there shall have been a default in payment of the
Redemption Price, all rights of the Warrantholder as to that portion of the
Warrant that has been redeemed (except the right to receive the Redemption Price
without interest upon surrender of the certificate or certificates representing
such portion) shall cease.
(d) SELECTION BY THE COMPANY OF WARRANTS TO BE REDEEMED. In the case
the Company shall elect to redeem less than all of the Warrant and any other
warrants issued to other holders of Series A Preferred Shares or Series B
Preferred Shares on the date and substantially in the form of the Warrant (the
"Collective Warrants"), the Collective Warrants to be redeemed shall be selected
by the Company on a pro rata basis from the outstanding Collective Warrants not
previously called for redemption. If any Collective Warrant or portion thereof
selected for redemption is exercised in part before receipt by the Warrantholder
or any other holder of a Collective Warrant of the Redemption Price, the portion
of such Collective Warrant not exercised shall be deemed (so far as may be) to
be the portion selected for redemption. Collective Warrants which have been
exercised during a selection of Collective Warrants to be redeemed may be
treated by the Company as not outstanding for the purpose of such selection.
2.4 TERM OF WARRANTS. The Warrants shall expire on the Termination Date
stated in Subsection 2.1 hereof.
3. PAYMENT OF TAXES.
The Company will pay all transfer, documentary stamp and similar taxes,
if any, attributable to the issuance of the Shares; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any secondary transfer of the Warrant or the Shares.
4. MUTILATED OR MISSING WARRANTS.
In case the certificate or certificates evidencing the Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Warrantholder, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and in
substitution for the certificate or certificates lost, stolen, or destroyed a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such mutilation, loss, theft, or destruction of such Warrant and
a bond of indemnity, if requested, also satisfactory in form and amount at the
applicant's cost. Applicants for such substitute Warrant certificates shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
5. RESERVATION OF SHARES.
There have been reserved, and the Company shall at all times keep
reserved so long as the Warrant remains outstanding, out of its authorized
Shares, such number of Shares as shall be subject to purchase under the Warrant.
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6. WARRANT PRICE.
PRICE. The price per Share (the "Warrant Price") at which Shares shall
be purchasable upon the exercise of the Warrant shall be $7.00, subject to
further adjustment pursuant to Section 7 hereof. Payment of the Warrant Price
shall be made by certified or cashier's cash or check or such other
consideration as may be deemed acceptable by the Company in its sole discretion.
7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
7.1 ADJUSTMENTS. The number of Shares purchasable upon the exercise of
the Warrant and the Warrant Price shall subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend of Common
Shares or make a distribution in Common Shares, (ii) subdivide its outstanding
Common Shares, (iii) combine its outstanding Common Shares into a smaller number
of Common Shares or (iv) issue by reclassification of its Common Shares other
securities of the Company, the number of Shares purchasable upon exercise of the
Warrant immediately prior thereto and thereafter shall be adjusted so that the
Warrantholder shall be entitled to receive from time to time upon exercise of
the Warrant the kind and number of shares or other securities of the Company
which it would have owned or would have been entitled to receive after the
happening of any of the events described above, had the Warrant been exercisable
in full and exercised immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this Paragraph
(a) shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) No adjustment in the number of Shares purchasable under
the Warrant on any date of exercise shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the number
of Shares then purchasable upon the exercise of the Warrant; provided, however,
that any adjustments which by reason of this Paragraph (b) are not required to
be made immediately shall be carried forward and taken into account in any
subsequent adjustment or for any subsequent exercise.
(c) Whenever the number of Shares purchasable upon the
exercise of the Warrant is adjusted as herein provided, the Warrant Price
payable upon exercise of the Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the number of Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and the denominator of which shall
be the number of Shares so purchasable immediately thereafter.
(d) Whenever the number of Shares purchasable upon the
exercise of the Warrant or the Warrant Price is adjusted as herein provided, the
Company shall cause to be promptly mailed to the Warrantholder by first class
mail, postage prepaid, notice of such adjustment or adjustments setting forth
the number of Shares purchasable upon the exercise of a Warrant and the Warrant
Price after such adjustment, a brief statement of the facts requiring such
adjustment and the computation by which such adjustment was made.
(e) For the purpose of this Subsection 7.1, the term "Common
Shares" shall mean (i) the class of stock designated as the Common Shares of the
Company at the date of this Agreement or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Shares. In the event
that at any time, as a result of an adjustment made pursuant to this Section 7,
the Warrantholder shall become entitled to purchase any securities of the
Company other than Common Shares, thereafter the number of such other securities
so purchasable upon exercise of the Warrant and the Warrant Price of such
securities shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Shares contained in this Section 7.
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7.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Subsection 7.1,
no adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of the Warrant.
7.3 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION. ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets, or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant Price
in effect immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and other securities and property which he
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale, or conveyance had the Warrant been exercisable in
full and exercised immediately prior to such action. Such agreement shall
provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The provisions of
this Subsection 7.3 shall similarly apply to successive consolidations, mergers,
sales, or conveyances.
7.4 PAR VALUE OF COMMON SHARES. Before taking any action which would
cause an adjustment reducing the Warrant Price below the then par value of the
Common Shares issuable upon exercise of the Warrant, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and non-assessable
Common Shares at such adjusted Warrant Price.
7.5 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any adjustments
in the Warrant Price or the number of securities purchasable upon the exercise
of the Warrant, the Warrant certificate or certificates theretofore or
thereafter issued may continue to express the same price and number of
securities as are stated in the similar Warrant certificates initially issuable
pursuant to this Agreement. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of the
Warrant certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant certificate thereafter issued, whether upon
registration or transfer of, or in exchange or substitution for, an outstanding
Warrant certificate, may be in the form so changed.
8. FRACTIONAL INTERESTS; CURRENT MARKET PRICE.
The Company shall not be required to issue fractional Shares on the
exercise of the Warrant. If any fraction of a share of Common Shares would,
except for the provisions of this Section 8, be issuable on the exercise of the
Warrant (or specified portion thereof), the Company shall pay an amount in cash
equal to the then Current Market Price multiplied by such fraction. For the
purpose of this Agreement, the term "Current Market Price" shall mean (i) if the
Common Shares are traded in the over-the-counter market or on the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"),
the average per share closing bid prices of the Common Shares on the 20
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Shares are traded on a national securities exchange, the average for the
20 consecutive trading days immediately preceding the date in question of the
daily per share closing prices of the Common Shares on the principal securities
exchange on which the Common Shares are listed, as the case may be. The closing
price referred to in clause (ii) above shall be the last reported sales price or
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the principal
securities exchange on which the Common Shares are then listed.
9. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in the Warrant shall be
construed as conferring upon the Warrantholder or its transferees any rights
whatsoever as a shareholder of the Company, including the right to vote,
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to receive dividends, to consent, or to receive notices as a shareholder in
respect of any meeting of shareholders for the election of directors of the
Company or any other matter. If, however, at any time prior to the expiration of
the Warrant and prior to its exercise, any of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Subsections 7.1 or 7.3; or
(b) a dissolution, liquidation, or winding up of the Company
(other than in connection with a consolidation, merger, or sale of its
property, assets and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder as provided in Section 12 hereof at least
twenty (20) days prior to the date fixed as a record date or the date of closing
the transfer books for the determination of the shareholders entitled to any
relevant dividend, distribution, subscription rights, or other rights or for the
determination of shareholders entitled to vote on such proposed dissolution,
liquidation, or winding up. Such notice shall specify such record date or the
date of closing the transfer books, as the case may be.
10. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any disposition of
the Warrant or Shares issuable upon exercise of the Warrant unless a
registration statement under the Securities Act is in effect with regard
thereto, the Warrantholder shall give written notice to the Company describing
briefly the manner in which any such proposed disposition is to be made; and no
such disposition shall be made if the Company has notified the Warrantholder
that, in the reasonable opinion of counsel to the Company, a registration
statement or other notification or posteffective amendment thereto (hereinafter
collectively a "Registration Statement") under the Securities Act is required
with respect to such disposition and no such Registration statement has been
filed by the Company with, and declared effective, if necessary, by, the
Securities and Exchange Commission (the "Commission").
(b) The Company will utilize its reasonable best efforts to cause a
registration to be filed under the Securities Act for the purpose of registering
the Shares issuable upon exercise of the Warrant for resale by the Warrantholder
and to cause such registration statement to become effective on or before
one-hundred eighty (180) days following the Deemed Issuance Date.
(c) All fees, disbursements, and out-of-pocket expenses incurred in
connection with the filing of any Registration Statement under Paragraph (b) of
Section 10 and in complying with applicable securities and Blue Sky laws shall
be borne by the Company, provided, however, that any expenses of the
Warrantholder or holders of the underlying securities, including but not limited
to attorneys' fees and discounts and commissions, shall be borne by the
Warrantholder and holders of the Shares. The Company at its expense will supply
the Warrantholder and any holder of Shares with copies of such Registration
Statement and the prospectus or offering circular included therein and other
related documents in such quantities as may be reasonably requested by the
Warrantholder or holder of Shares.
(d) The Company shall have no obligation to register the Warrant but
shall be obligated to register the Common Shares issuable upon exercise of the
Warrant in accordance with Paragraph (b) of Section 10.
(e) The Company agrees that it will use its best efforts to keep such
Registration Statement effective until December 31, 1998 or such earlier date as
all Common Shares covered by such Registration Statement have been disposed of
pursuant thereto.
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(f) The Warrantholder agrees to cooperate with the Company and to
provide the Company on its request with all information concerning the
Warrantholder, the Warrant issued hereunder, and any Shares acquired upon
exercise of the Warrant that may reasonably be requested by the Company in order
for the Company to perform its obligation under this Section 10.
11. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement with
respect to the Shares pursuant to section 10 above, the Company agrees to
indemnify and hold harmless the Warrantholder or any holder of such Shares (for
purposes of this Section 11, references to any holder of Shares other than the
Warrantholder shall refer only to such holders who have agreed to be bound by
this Section 11, and to the extent applicable, by Section 10 hereof) and each
person who controls the Warrantholder or any holder of such Shares within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Warrantholder or any holder of such Shares or
such controlling person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances in which they were made, not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement, preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto
in reliance upon, and in conformity with, written information furnished to the
Company by such Warrantholder or the holder of the Shares specifically for use
in the preparation thereof. This indemnity will be in addition to any liability
which the Company may otherwise have.
(b) The Warrantholder and the holder of the Shares agree that they will
indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Securities Act in respect of
the Registration Statement, each officer of the Company, and each person who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, officer or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any such
Registration Statement, or any related preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Warrantholder or such holder of Shares specifically for use in the
preparation thereof. This indemnity will be in addition to any liability which
the Warrantholder or such holder of Shares may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
11 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 11, notify the indemnifying party of the commencement thereof. No
indemnification provided for in this Section 11 shall be available to any party
who shall fail to give the notice if the party to whom such notice was not given
was prejudiced by the failure to give the notice, but the omission so to notify
the indemnifying party will not relieve the indemnifying party or parties from
any liability which it may have to any indemnified party
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<PAGE> 9
for contribution otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section 11. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, reasonably assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 11 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party; provided that the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) and the indemnifying party shall have been advised by such counsel that
there may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may be available to
the indemnified party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnifying party). No settlement of any
action against an indemnified party shall be made without the consent of the
indemnifying party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnified party.
12. NOTICES.
Any notice pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested.
(a) If to the Warrantholder:
To the address of the Warrantholder
listed below
(b) If to the Company:
WavePhore, Inc.
3311 North 44th Street
Phoenix, Arizona 85018
Attention: General Counsel
Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in
accordance herewith to the other party.
13. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrantholder shall bind and inure to the benefit
of their respective successors and assigns hereunder.
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14. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Subsection 7.3 are complied with.
15. APPLICABLE LAW.
This Agreement shall be deemed to be a contract made under the laws of
the State of Arizona and for all purposes shall be construed in accordance with
the laws of said State without regard to the conflict of law principles thereof.
16. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Warrantholder any legal or equitable
right, remedy or claim under this Agreement, and this Agreement shall be for the
sole and exclusive benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
WAVEPHORE, INC.
By:___________________________________________
David E. Deeds, President
WARRANTHOLDER:
______________________________________________
______________________________________________
______________________________________________
Tel. No:______________________________________
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WARRANT NO. __
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND NEITHER
THE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, EXCHANGED,
HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT, AND EXCEPT AS SET
FORTH IN SECTIONS 1.3 AND 10 OF THE WARRANT AGREEMENT PURSUANT TO WHICH
THEY WERE ISSUED.
WARRANT TO PURCHASE UP TO __________ COMMON SHARES
IN RESPECT OF ______ SHARES OF
SERIES ____ CONVERTIBLE
PREFERRED STOCK
VOID AFTER 5:00 P.M., ARIZONA TIME, ON DECEMBER 31, 1998
WAVEPHORE, INC.
This certifies that, for value received, the Warrantholder
whose name appears below, or its permitted assigns, is entitled to purchase from
WavePhore, Inc., an Indiana corporation (the "Company), at any time during the
period (the "Exercise Period") beginning on or after one-hundred eighty (180)
days following the Deemed Issuance Date (September 10, 1996) and ending at the
expiration time and date (the "Termination Date") shown above, at the purchase
price per share of $7.00 (the "Warrant Price"), the number of Common Shares, no
par value, of the Company ("Shares"), up to the number of Common Shares stated
above, determined as follows: (i) if such exercise occurs at any time following
one-hundred eighty (180) days after the Deemed Issuance Date, one (1) Share,
plus (ii) if such exercise occurs at any time following two hundred seventy
(270) days after the Deemed Issuance Date, an additional one-half (1/2) Share;
plus (iii) if such exercise occurs at anytime following three hundred sixty-five
(365) days after the Deemed Issuance Date, an additional one-half (1/2) Share,
in each case for each Preferred Share as to which this Warrant is issued, as
stated above, and that continues to be held on the date of exercise of this
Warrant, but only to the extent that this Warrant has not been previously
exercised as to such Preferred Shares pursuant to (i), (ii), or (iii) above. The
number of shares purchasable upon exercise of this Warrant and the Warrant Price
per share shall be subject to adjustment from time to time as set forth in the
Warrant Agreement referred to below. Capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Warrant Agreement.
This Warrant may be exercised in whole or in part, but not as
to less than 25% of the Shares then purchasable upon proper exercise of the
Warrant, by presentation of this Warrant with the Purchase Form on the reverse
side hereof duly executed and simultaneous payment of the Warrant Price (subject
to adjustment) at the principal office of the Company. Payment of such price
shall be made at the option of the Warrantholder in cash or by certified or
cashier's check or such other consideration as may be deemed acceptable by the
Company in its sole discretion.
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This Warrant is issued under and in accordance with a Warrant
Agreement dated as of September 10, 1996 (the "Warrant Agreement") between the
Company and the Warrantholder and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which the Warrantholder by
acceptance hereof consents.
Upon any partial exercise of this Warrant, there shall be
executed and issued to the Warrantholder or its permitted assigns a new Warrant
in respect of the Shares as to which this Warrant shall not have been exercised.
No fractional interests will be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any fraction upon the
exercise of one or more Warrants. This Warrant is transferable at the office of
the Company in the manner and subject to the limitations set forth in the
Warrant Agreement.
This Warrant does not entitle any Warrantholder hereof to any
of the rights of a shareholder of the Company.
WAVEPHORE, INC.
BY:________________________________
David E. Deeds, President
Attest:
_____________________________
Douglas J. Reich, Secretary
Dated: September 10, 1996
WARRANTHOLDER
___________________
___________________
___________________
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<PAGE> 13
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, ____________________ shares (the "Shares") provided for therein, and
requests that certificates for the Shares be issued in the name of:
________________________________________________________________________________
(Please Print Name, Address and Social Security Number)
________________________________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant certificate for the balance of the shares purchasable under
the within Warrant certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: ___________________________, 19 ____
Name of Warrantholder or Assignee: ____________________________________
(Please Print)
Address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature:
Signature Guaranteed: Note: The above signature must correspond with the
name as written upon the face of this
Warrant certificate in every particular,
without alteration or enlargement or any
change whatever, unless this Warrant has
been assigned.
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<PAGE> 14
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________________________________________________________
(Name and Address of Assignee Must Be Printed or Typewritten)
the within Warrant, hereby irrevocably consisting and appointing ______________
Attorney to transfer said Warrant on the books of the Company, with full power
of substitution in the premises.
Dated: ____________________, 19__ ____________________________________________
Signature of Registered Holder
Signature Guaranteed: Note: The signature of this assignment must
correspond with the name as it appears upon
the face of the within Warrant certificate
in every particular, without alteration or
enlargement or any change whatever.
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<PAGE> 1
EXHIBIT (a)(4)
APPENDIX B
FORM OF PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of December, 1995 between WavePhore, Inc. (the
"Company") and the investor whose name is set forth at the foot of this
Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Preferred Stock. Upon the following
terms and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, [_______] shares of the Company's
Series A Convertible Preferred Stock (the "Shares") having the rights and
preferences set forth in Schedule I hereto.
Section 1.2 Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be $25 per share.
Section 1.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Investor, at 10:00 a.m.,
local time on the later of the following: (i) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith,
or (ii) such other time and place and/or on such other date as the Investor and
the Company may agree. The date on which the Closing occurs is referred to
herein as the "Closing Date."
(b) On the Closing Date, the Company shall deliver to the
Investor certificates representing the Shares registered in the name of the
Investor or deposit such Shares into accounts designated by the Investor, and
the Investor shall deliver to the Company the Purchase Price for all the Shares
by cashier's check or wire transfer in immediately available funds to such
account as shall be designated in writing by the Company. In addition, each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.
Section 1.4 Covenant to Register.
(a) For purposes of this Section, the following definitions
shall apply:
(i) The terms "register," "registered," and
"registration" refer to a registration under the Securities Act of 1933, as
amended (the "Act") effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the
stock issuable upon conversion of the Shares, or otherwise issuable pursuant to
this Agreement or the provisions of Schedule I hereto, and any securities of the
Company or securities of any successor corporation issued as, or issuable upon
the conversion or exercise of any warrant, right or other security that is
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of, the Shares.
<PAGE> 2
(iii) The term "holder of Registrable securities"
means the Investor and any permitted assignee of registration rights pursuant to
Section 1.7(h).
(b) (i) The Company shall, as expeditiously as possible
following the Closing, file a registration statement on Form S-3, or if Form S-3
is not then available, another appropriate form, covering all the Registrable
Securities, and shall use its best efforts to cause such registration statement
to become effective by the 90th calendar day after the Closing Date (the
"Initial Registration"). In the event such registration is not so declared
effective or does not include all Registrable Securities, a holder of
Registrable Securities shall have the right to require by notice in writing that
the Company register all or any part of the Registrable Securities held by such
holder (a "Demand Registration") and the Company shall thereupon effect such
registration in accordance herewith. The parties agree that if the holder of
Registrable Securities demands registration of less than an of the Registrable
Securities, the Company, at its option, may nevertheless file a registration
statement covering all of the Registrable Securities. If such registration
statement is declared effective with respect to all Registrable Securities and
the Company is in compliance with its obligations under Subsection (d)(ii)
through (v) hereof, the demand registration rights granted pursuant to this
Subsection (b) (i) shall cease. If such registration statement is not declared
effective with respect to all Registrable Securities the demand registration
rights described herein shall remain in effect until all Registrable Securities
have been registered under the Act. The Company shall provide holders of
Registrable Securities reasonable opportunity to review any such registration
statement or amendment or supplement thereto prior the filing thereof.
(ii) The Company shall not be obligated to effect
Demand Registration under Subsection (b)(i) if all of the Registrable Securities
held by the holder of Registrable Securities which are demanded to be covered by
the Demand Registration are, at the time of such demand, included in an
effective registration statement and the Company is in compliance with its
obligations under Subsection (d) (ii) through (v) hereof.
(iii) The Company may suspend the effectiveness of
any such registration effected pursuant to this Subsection (b) in the event, and
for such period of time as, such a suspension is required by the rules and
regulations of the Securities and Exchange Commission ("SEC"). The Company will
use its best efforts to cause such suspension to terminate at the earliest
possible date.
(iv) If the registration statement covering all
Registrable Securities is not effective by the 90th calendar day after the
Closing Date, then the Company shall pay the Investor an amount equal to 3% of
the total Purchase Price, and if not effective by 30 days thereafter, an
additional amount equal to 3% of the total Purchase Price for each 30 day period
thereafter (pro-rata as to a period of less than 30 days). An amount equal to 3%
of the total Purchase Price of Registrable Securities then held by Investor
shall also be paid to the Investor during any period in excess of 30 days that
the effectiveness of the Registration Statement is suspended as set forth in
Section 1.4 (b)(iii). This subsection is subject to the provisions of Section
7.2(a) hereof.
(c) If the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Investor) any of its stock or other securities under the Act in connection with
a public offering of such securities (other than a registration on Form S-4,
Form S-8 or other limited purpose form) and all Registrable Securities have not
theretofore been included in a registration statement under Subsection (b) which
remains effective, the Company shall, at such time, promptly give an holders of
Registrable Securities written notice of such registration. Upon the written
request of any holder of Registrable Securities given within twenty (20) days
after receipt of such notice by the holder of Registrable Securities, the
Company shall use its best efforts to cause to be registered under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered. However, the Company shall have no obligation under this Subsection
(c) to the extent that, with respect to a public offering registration, any
underwriter of such public offering reasonably notifies such holder(s) in
writing of its determination that the Registrable Securities or a portion
thereof should be excluded therefrom.
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<PAGE> 3
(d) Whenever required under this Section to effect the
registration of any Registrable Securities, including, without limitation, the
Initial Registration, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration to become effective as provided in Section 1.4(b)(i),
and upon the request of any holder of Registrable Securities keep such
registration statement effective for so long as any holder of Registrable
Securities desires to dispose of the securities covered by such registration
statement.
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement and notify the holders of the filing and
effectiveness of such Registration Statement and any amendments or supplements.
(iii) Furnish to each holder of Registrable
Securities such numbers of copies of a current prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, copies
of the registration statement, any amendment or supplement thereto and any
documents incorporated by reference therein and such other documents as each
holder of Registrable Securities may reasonably require in order to facilitate
the disposition of Registrable Securities owned by such holder of Registrable
Securities.
(iv) Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or "Blue Sky" laws of such jurisdictions as shall be reasonably
requested by the holder of Registrable Securities, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions.
(v) Notify each holder of Registrable Securities
immediately of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.
(vi) Furnish, at the request of any holder of
Registrable Securities, (1) an opinion of counsel of the Company, dated the
effective date of the registration statement, in form and substance reasonably
satisfactory to the holder and its counsel and covering, without limitation,
such matters as the due authorization and issuance of the securities being
registered and compliance with securities laws by the Company in connection with
the authorization, issuance and registration thereof and (2) a letter or letters
of the Company's independent public accountants in form and substance reasonably
satisfactory to the holder and its counsel.
(vii) Use its best efforts to list the Registrable
Securities covered by such registration statement with any securities exchange
on which the Common Stock is then listed;
(viii) Make available for inspection by the holder
of Registrable Securities, upon request, all SEC Documents (as defined below)
filed subsequent to the Closing and require the Company's officers, directors
and employees to supply all information reasonably requested by any holder of
Registrable Securities in connection with such registration statement.
(e) Each holder of Registrable Securities will furnish to the
Company in connection with any registration under this Section such information
regarding itself, the Registrable Securities and other securities
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<PAGE> 4
of the Company held by it, and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of the
Registrable Securities held by such holder of Registrable Securities.
(f) (i) The Company shall indemnify, defend and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c) and each of its
officers, directors, employees, agents, partners or controlling persons (within
the meaning of the Act) (each, an "indemnified party") from and against, and
shall reimburse such indemnified party with respect to, any and all claims,
suits, demands, causes of action, losses, damages, liabilities, costs or
expenses ("Liabilities") to which such indemnified party may become subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or (B) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; provided
however, that the Company shall not be liable in any such case to the extent
that any such Liability arises out of or is based upon an untrue statement or
omission so made in strict conformity with information furnished by such
indemnified party in writing specifically for use in the registration statement.
(ii) Promptly after receipt by any indemnified party
of Registrable Securities of notice of the commencement of any action, such
indemnified party of Registrable Securities shall, if a claim in respect thereof
is to be made against the Company hereunder, notify the Company in writing
thereof, but the omission so to notify the Company shall not relieve the Company
from any Liability which it may have to the indemnified party other than under
this section and shall only relieve it from any Liability which it may have to
the indemnified party under this section if and to the extent the Company is
materially prejudiced by such omission. In case any such action shall be brought
against any indemnified party and such indemnified party shall notify the
Company of the commencement thereof, the Company shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from the Company to the indemnified party of its election so
to assume and undertake the defense thereof, the Company shall not be liable to
the indemnified party under this section for any legal expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that if the defendants in any such action include both the
Company and such indemnified party and the indemnified party shall have
reasonably concluded that there may be reasonable defenses available to it which
are different from or additional to those available to the Company or if the
interests of the holder of Registrable Securities reasonably may be deemed to
conflict with the interests of the Company, the holder of Registrable Securities
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other reasonable
expenses related to such participation to be reimbursed by the Company as
incurred.
(g) (i) With respect to the inclusion of Registrable
Securities in a registration statement pursuant to Subsections (b) or (c), all
fees, costs and expenses of and incidental to such registration, inclusion and
public offering shall be borne by the Company; provided, however, that any
securityholders participating in such registration shall bear their pro-rata
share of the underwriting discounts and commissions, if any, incurred by them in
connection with such registration. The Company agrees, if requested, to do so by
the holder of Registrable Securities, to enter into customary agreements
(including, without limitation, underwriting agreements in customary form and
containing customary provisions) and to take such other actions as are
reasonably required in order to expedite or facilitate the disposition of
Registrable Securities pursuant to the Registration Statement.
(ii) The fees, costs and expenses of registration to
be home by the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or Blue Sky
laws of any jurisdiction or jurisdictions in which
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<PAGE> 5
securities to be offered are to be registered and qualified. The Company shall
also pay the reasonable fees and expenses not in excess of $40,000 of one
counsel designated by a majority in interest of the holders of Registrable
Securities included in the registration statement, if such a firm is so
designated, and make available to such counsel documents and personnel for due
diligence purposes. Except as otherwise provided herein, fees and disbursements
of counsel and accountants for the selling securityholders shall be borne by the
respective selling securityholders.
(h) The rights to cause the Company to register all or any
portion of Registrable Securities pursuant to this Section may be assigned by
Investor to a transferee or assignee of 20% or more, in the aggregate, of the
Shares or the Registrable Securities derived from such Shares. Within a
reasonable time after such transfer the Investor shall notify the Company of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned. Such assignment shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Act. Any
transferee shall agree in writing at the time of transfer to be bound by the
applicable provisions of this Agreement.
(i) From and after the date of this Agreement, the
Company shall not agree to allow the holders of any securities of the Company to
include any of their securities in any registration statement filed by the
Company pursuant to Subsection (b) unless each holder of Registrable Securities
has consented thereto.
1.5 Conversion Price Adjustment. In the event that the Company issues
or sells any shares of its Common Stock or any of its securities which are
convertible into or exchangeable for its Common Stock or any convertible
security, or any warrants or other rights to subscribe for or to purchase or any
options for the purchase of its Common Stock (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the Closing Date listed in the SEC Documents or on Exhibit A
hereto), at an effective purchase price per Common Share which is less than the
Conversion Price in effect at the time the Shares are submitted for conversion,
then upon such conversion the Company shall issue to the Investor or any
assignee of Investor's rights hereunder such number of Common Shares as will
cause the effective Conversion Price of such Shares to be equal to such lower
purchase price per Common Share. Issuance of securities in the pending
acquisition identified in Exhibit A is exempt from this provision.
1.6 Holdback Period. The Company agrees not to effect any public sale
or distribution of any securities similar to the Registrable Securities or any
securities exercisable for or convertible or exchangeable into the Registrable
Securities during the 14 days prior to, and during the 90 days immediately
following the effective date of any registration statement filed pursuant to
Section 1.4(b).
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Indiana and has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company does not have
any subsidiaries except as listed in Exhibit A hereto. The Company and each such
subsidiary, if any, is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
other than those in which the failure so to qualify would not have a Material
Adverse Effect. "Material Adverse Effect" means any adverse effect on the
business,
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<PAGE> 6
operations, properties, prospects, or financial condition of the entity with
respect to which such term is used and which is material to such entity and
other entities controlling or controlled by such entity taken as a whole.
(b) Authorization: Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Shares in accordance with the terms hereof, (ii) the execution
and delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, (iii) this Agreement has been
duly executed and delivered by the Company, and (iv) this Agreement constitutes
a valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding are as most
recently described in the SEC Documents and there have been no changes therein
(except for changes described on Exhibit A) since such description, except for
the authorization of the Shares and the designation of their preferences as set
forth in Schedule I hereto. All of the outstanding shares of the Company's
Common Stock have been validly issued and are fully paid and nonassessable.
Except as set forth in Exhibit A hereto and as described in the SEC Documents,
no shares of Common Stock are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company, or contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company or options, warrants, scrip, rights to subscribe to, or commitments
to purchase or acquire, any shares, or securities or rights convertible into
shares, of capital stock of the Company. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation as in effect on the date hereof (the "Articles"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
(d) Issuance of Shares. The issuance of the Shares has been
duly authorized and, when paid for or issued in accordance with the terms
hereof, the Shares shall be validly issued, fully paid and non-assessable and
entitled to the rights and preferences set forth in Schedule I hereto. The
common stock issuable upon conversion of the Shares will be duly authorized and
validly issued, fully paid and non-assessable and the holders shall be entitled
to all rights and preferences accorded to a holder of common stock.
(e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a violation
of the Company's Articles or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
Federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to the Investor
and not to the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for possible violations which either singly or in the aggregate do not
and will not have a Material Adverse Effect. The Company is not required under
Federal, state or local law, rule or regulation in the United States to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental
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<PAGE> 7
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Shares in accordance with the terms
hereof (other than any SEC, NASD or state securities filings which may be
required to be made by the Company subsequent to the Closing, and any
registration statement which may be filed pursuant hereto); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.
(f) SEC Documents, Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d), in addition to one
or more registration statements and amendments thereto heretofore filed by the
Company with the SEC and an S-8 registration statement filed in December, 1995,
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "SEC Documents"). The Company has delivered or made
available to the Investor true and complete copies of the quarterly and annual
(including, without limitation, proxy information and solicitation materials)
SEC Documents filed with the SEC since December 31, 1994. The Company has not
provided to the Investor any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(g) No Material Adverse Change. Since September 30, 1995, the
date through which the most recent quarterly report of the Company on Form 10-Q
has been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company or its subsidiaries, except as otherwise disclosed or reflected in other
SEC Documents prepared through or as of a date subsequent to September 30, 1995.
(h) No Undisclosed Liabilities. The Company and its
subsidiaries have no liabilities or obligations not disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
its subsidiaries' respective businesses since September 30, 1995 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(i) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective business, properties, prospects, operations or
financial condition, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
(j) No General Solicitation. Neither the Company, nor any of
its affiliates, or any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Act) in connection with the offer or sale of the Shares.
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<PAGE> 8
(k) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Shares under the Act.
Section 2.2 Representations and Warranties of the Investor. The
Investor hereby makes the following representations and warranties to the
Company:
(a) Authorization, Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Shares being sold hereunder, (ii) the execution and delivery of
this Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of the Investor or
its Board of Directors, stockholders, or partners, as the case may be, is
required, (iii) this Agreement has been duly authorized, executed and delivered
by the Investor, and (iv) this Agreement constitutes a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of
this Agreement and the consummation by the Investor of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Investor's charter documents or By-Laws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which the Investor is a party, or result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Investor or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate have a Material Adverse Effect on the Investor). The business of the
Investor is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations which either singly
or in the aggregate do not and will not have a Material Adverse Effect. The
Investor is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or purchase the Shares in accordance with the terms hereof, provided
that for purposes of the representation made in this sentence, the Investor is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(c) Investment Representation. The Investor is purchasing the
Shares for investment and not with a view to distribution. Investor has no
present intention to sell the Shares and Investor has no present arrangement
(whether or not legally binding) to sell the Shares to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Shares for any minimum or other specific
term and reserves the right to dispose of the Shares at any time in accordance
with Federal securities laws applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited
investor as defined in Rule 501 promulgated under the Act.
(e) Rule 144. The Investor understands that the Shares must be
held indefinitely unless such Shares are registered under the Act or an
exemption from registration is available. The Investor has been advised or is
aware of the provisions of Rule 144 promulgated under the Act.
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<PAGE> 9
ARTICLE III
Covenants
Section 3.1 Securities Compliance.
(a) The Company shall notify the SEC and NASD, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and Common Stock issuable upon conversion thereof to the
Investor or subsequent holder.
(b) The Investor understands that the Shares are being offered
and sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Investor set forth herein
in order to determine the applicability of such exemptions and the suitability
of such Investor to acquire the Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
said act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement and will not take any action or file
any document (whether or not permitted by the Securities Act of 1933 or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Acts, except as
permitted herein. The Company will take all action necessary to continue the
Using or trading of its Common Stock on the Nasdaq National Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and Nasdaq.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and/or sell
the Shares to the Investor is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investor's Representations and Warranties.
The representations and warranties of the Investor shall be true and correct in
all material respects.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the
Investor to Purchase the Shares. The obligation hereunder of the Investor to
acquire and pay for the Shares is subject to the satisfaction, at or before the
9
<PAGE> 10
Closing, of each of the conditions set forth below. These conditions are for the
Investor's sole benefit and may be waived by the Investor at any time in its
sole discretion.
(a) Accuracy of the Company's Representation and Warranties.
The representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a particular date).
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) Nasdaq. From the date hereof to the Closing Date, trading
in the Company's Common Stock shall not have been suspended by the SEC or the
Nasdaq National Market (except for any suspension of trading of limited duration
agreed to between the Company and the Nasdaq National Market solely to permit
dissemination of material information regarding the Company), and trading in
securities generally as reported by Nasdaq shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by Nasdaq.
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) Opinion of Counsel, Etc. At the Closing the Investor shall
have received an opinion of counsel to the Company (covering, without
limitation, the matters set forth in Section 2.l(a) through (d)), in form and
substance reasonably satisfactory to the Investor and its counsel, and such
other certificates and documents as the Investor or its counsel shall reasonably
require incident to the Closing.
ARTICLE V
Legend on Stock
Each certificate representing the Shares and, if appropriate,
securities issued upon conversion thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
The Company agrees to reissue certificates representing the Shares or,
if applicable, the securities issued upon conversion thereof without the legend
set forth above at such time as (i) the holder thereof is permitted to dispose
of such Shares (or securities issued upon conversion thereof) pursuant to Rule
144(k) under the Act or (ii) the Shares or such securities are sold to a
purchaser or purchasers who (in the opinion of counsel to such purchasers, in
form and substance reasonably satisfactory to the Company and its counsel) are
able to dispose of such shares publicly without registration under the Act.
10
<PAGE> 11
ARTICLE VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors or other governing body of the Investor or the
Company at any time if the Closing shall not have been consummated by the fifth
business day following the date of this Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth business day following the date of this
Agreement.
ARTICLE VII
Miscellaneous
Section 7.1 Fees and Expenses. Except as otherwise set forth in Section
1.4 hereof, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay, at the
Closing, all due diligence fees and attorneys' fees and expenses incurred by the
Investor and Cappello Capital Corp., up to the maximums stated in the final
letter agreement dated December 7, 1995 between the Company and Cappello Capital
Corp., in connection with the preparation, negotiation, execution and delivery
of this Agreement and the transactions contemplated hereunder. The Company shall
pay all stamp and other taxes and duties levied in connection with the issuance
of the Shares pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Investor (i) hereby
irrevocably submits to the jurisdiction of the United States District Court and
other courts of the United States sitting in New York for the purposes of any
suit action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company and
the Investor consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the
11
<PAGE> 12
Company nor the Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: Wavephore, Inc.
David E. Deeds, President
2601 West Broadway Road
Tempe, AZ 85282
with copies to: Krys, Boyle Golz, Reich,
Freedman & Scott
Dominion Plaza, Suite 2700 South
600 Seventeenth Street
Denver, Colorado 80202
Att'n: Douglas J. Reich
to the Investor: At the address set forth at the foot
of this Agreement, with copies to
Investor's counsel as set forth at
the foot of this Agreement or as
specified in writing by Investor
with copies to: Gerard K. Cappello
Cappello Capital Corp.
1299 Ocean Avenue, Suite 306
Santa Monica, California 90401
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other party
hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may amend this Agreement without notice to or the consent of
any third party. Except as herein provided, neither the Company nor the Investor
shall assign this Agreement or any rights or obligations hereunder without the
prior written consent of the other (which consent may
12
<PAGE> 13
be withheld for any reason in the sole discretion of the party from whom consent
is sought); provided, however, that the Company may assign its rights and
obligations hereunder to any acquirer of substantially all of the assets or a
controlling equity interest of the Company. The assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of New York without
regard to such state's principles of conflict of laws.
Section 7.10 Survival. The representations and warranties of the
Company and the Investor contained in Article II and the agreements and
covenants set forth in Articles I, III and VII shall survive the Closing.
Section 7.11 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
executed signature pages to be physically delivered to the other party within
five days of the execution and delivery hereof.
Section 7.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
13
<PAGE> 14
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
WAVEPHORE, INC.
By:_________________________________________
Name: David E. Deeds
Its: Chairman and Chief Executive Officer
THE INVESTOR
By: ________________________________________
Name:
Its:
Investor's address:
Name and address of Investor's counsel:
14
<PAGE> 15
EXHIBIT A
TO
PREFERRED STOCK INVESTMENT AGREEMENT
DATED DECEMBER ___, 1995
-------------------------------------------
Section 1.5 Common Shares Issuable by WavePhore Inc. Pursuant to Employees or
Director Option Plans or Upon Exercise of Options, Warrants or Rights
Outstanding as of December 21, 1995:
<TABLE>
<CAPTION>
COMMON SHARES
OPTIONS, WARRANTS OR RIGHTS RESERVED FOR ISSUANCE
- --------------------------- ---------------------
<S> <C>
Officer Option Exercisable at $.20 Per Share 250,000
1991 Restricted Stock Option Plan Options Exercisable 170,500
at Prices Ranging From $.20 to $7.00 per Share
1994 Stock Compensation Plan Options Exercisable at 460,000
Prices Ranging From $5.63 to $7.125 per Share
Series 1994 Cumulative Convertible Preferred Shares 501,963
Convertible at $11.00 per Share
Representatives' Warrants Exercisable at $18.15 per Share 165,000
Consultant Option Exercisable at $6.00 Per Share 100,000
Warrants Exercisable at $10.40 Per Share 250,000
1995 Incentive Plan (Options Granted to Purchase 2,500,000
268,500 Shares at $7.50 per Share)
1995 Nonemployee Director Stock Plan (Options Granted 300,000
to Purchase 30,000 Shares at $15.48 per Share)
Estimated Shares to be Issued in Connection With the 747,029
Acquisition of Mainstream Data, Inc. at $14.725 per Share
</TABLE>
Section 2.1 (a) As of December 21, 1995, WavePhore, Inc. had the Following
Subsidiaries:
WavePhore Canada, Inc.
WavePhore Japan, K.K.
Section 2.1 (c) As of December 21, 1995, WavePhore, Inc. had 10,659,384 Common
Shares Issued, of which 10,560,384 Shares Were Outstanding and 99,000 Shares
Were Held in the Company's Treasury.
15
<PAGE> 16
As of the Closing Date, holders of the following securities of
WavePhore, Inc. held registration rights with respect to securities of
WavePhore, Inc.:
Representatives' Warrants to Purchase 165,000 Common Shares exercisable
at $18-15 per share.
Stock Purchase Warrants to purchase 250,000 Common Shares exercisable
at $10.40 per share.
Approximately 747,029 Common Shares expected to be issued in connection
with the acquisition of Mainstream Data, Inc.
16
<PAGE> 1
EXHIBIT (a)(5)
APPENDIX C
AMENDMENT NO. 1
TO
PREFERRED STOCK INVESTMENT AGREEMENT
THIS AMENDMENT NO. 1 TO PREFERRED STOCK INVESTMENT AGREEMENT
(the "Agreement"), dated as of September 10, 1996, is made and entered into
between WAVEPHORE, INC., an Indiana corporation (the "Company"), and the holder
of the Company's Series A or Series B Convertible Preferred Shares or Warrants
to purchase Series B Convertible Preferred Shares whose name appears below (the
"Shareholder") .
R E C I T A L S
1. Shareholder is the holder of shares of the Company's Series
A Convertible Preferred Shares/Series B Convertible Preferred Shares (the
"Preferred Shares"), and/or of Warrants to purchase ____ shares of Series B
Convertible Preferred Shares (the "Series B Warrants") which Preferred Shares
were purchased pursuant to, or upon exercise of the Series B Warrants will have
been purchased subject to, the terms and conditions of a Preferred Stock
Investment Agreement dated as of December 1995 or January 1996, between the
Company and Shareholder (the "Preferred Stock Agreement").
2. Subject to the terms and conditions of the Company's
Consent Solicitation Statement dated September 25, 1996, (i) the Company has
agreed to issue and sell to the Shareholder a warrant (the "Warrant") to
purchase up two shares of the Company's common shares, no par value (the "Common
Shares"), for each Preferred Share held by the Shareholder on the date of
execution and delivery of the Warrant and that continues to be held on the date
of exercise of such Warrant, subject to the terms and conditions of a Warrant
Agreement, and (ii) Shareholder has agreed not to convert the Preferred Shares
for a period of at least one-hundred eighty (180) days following September 10,
1996, the deemed date of issuance of the Warrant (the "Deemed Issuance Date")
and to enter into this Agreement to amend certain terms of the Preferred Stock
Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and for the purpose of defining the respective rights and
obligations of the Company and the Shareholder hereunder, the Company and the
Shareholder hereby agree as follows:
1. NEW CONVERSION PRICE CAP.
In exchange for the waiver described in Section 3 hereof, the Preferred
Stock Agreement is hereby amended by adding new Section 1.7, the text of which
shall read as follows:
"1.7 NEW CONVERSION PRICE CAP. Commencing one hundred and eighty (180)
days following the Deemed Issuance Date, the conversion price cap (the
"New Conversion Price Cap") for the Preferred Shares will be the lesser
of (x) $21.00 or (y) seventy-one percent (71%) of the average of the
closing price of the Common Shares on Nasdaq for the twenty (20)
trading days immediately preceding the expiration of the 180-day
Non-Conversion Period. Thereafter, the conversion price for the
Preferred Shares on any date will be the lesser of (i) the New
Conversion Price Cap or (ii) 71% of the lowest daily low trading price
of the Common Shares during the five consecutive trading days
immediately preceding such date."
The Company and Shareholder hereby agree that terms of this new Section 1.7
shall supersede in all respects, to the extent inconsistent, the terms set forth
in subsections (4)4(c)(i) and (ii) and (5)4(c)(i) and (ii), as applicable, of
the Company's Articles of Incorporation, as amended, relating to this matter.
<PAGE> 2
2. NON-CONVERSION PERIOD.
The Preferred Stock Agreement is hereby amended by adding new Section
1.8, the text of which shall read as follows:
"SECTION 1.8. NON-CONVERSION PERIOD. Shareholder hereby agrees to
refrain from converting such Holder's Preferred Shares for a period of
one hundred eighty (180) days following the Deemed Issuance Date (the
"Non-Conversion Period"). Any attempt by Shareholder to convert
Preferred Shares shall be treated by the Company as null and void.
Notwithstanding the foregoing, occurrence of one or more of the
following events following the Deemed Issuance Date shall result in the
termination of the Non-Conversion Period: (i) if the Company's
independent public accountants resign (or they indicate that they will
decline to stand for re-election after the completion of the then
current audit) due to a disagreement with management of the Company on
matters relating to accounting principles or practices, financial
statement disclosure, or auditing scope or procedure and such
disagreement would cause such accountants to make a reference to the
subject matter of the disagreement(s) in connection with their reports;
(ii) if the Federal Communications Commission (the "FCC") withdraws its
ruling that permits television broadcast licensees to use, without
prior FCC authorization, the Company's TVT1/4 technology to broadcast
digital data within the video portion of the National Television
Standards Committee television broadcast signal of the type currently
transmitted by FCC licensees; (iii) if a petition for relief under
Chapter 11 of the United States Bankruptcy Code is filed by or against
the Company and, if an involuntary petition, such petition is not
dismissed within 60 days of filing; (iv) if the Company's principal
lender, whether now or hereafter existing, accelerates the maturity of
any indebtedness due to such lender as the result of a material default
under the credit agreement governing such indebtedness; (v) if the
Company fails to file in a timely manner all reports required to be
filed by it pursuant to Sections 13, 14, or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or, if the
Company has used Rule 12b-25 under the Exchange Act with respect to a
report or a portion of a report, that report or portion thereof was not
filed within the time period prescribed by Rule 12b-25; or (vi) if the
Registration Statement to be filed by the Company covering the resale
of the Common Shares underlying the Warrant ceases to be effective
until December 31, 1998 or such earlier date as all Common Shares
covered by such Registration Statement have been disposed of pursuant
thereto."
3. WAIVER OF SECTION 1.5.
Shareholder does hereby acknowledge and agree that all of the rights
set forth in Section 1.5 of the Preferred Stock Agreement are hereby permanently
waived with respect to their application, if any, to the issuance of the Warrant
or any other issuance of securities by the Company and the Company shall have no
obligation whatsoever to effect any adjustment as provided for in Section 1.5.
4. WAIVER OF APPLICATION OF REGISTRATION RIGHTS.
Shareholder does hereby acknowledge and agree that, effective on the
Deemed Issuance Date, and in light of the registration rights set forth in the
Warrant Agreement to be executed by Shareholder and the Company upon issuance of
the Warrants, all of the rights set forth in Section 1.4 of the Preferred Stock
Agreement are hereby waived with respect to their application, if any, to the
issuance of the Warrants and the Company shall have no obligation whatsoever to
effect any registration under the terms of Section 1.4 with respect to the
Warrants or Common Shares issuable thereunder.
2
<PAGE> 3
5. TRANSFEREES MUST BE BOUND BY THIS AGREEMENT.
The Shareholder hereby acknowledges and agrees that Shareholder will
transfer the Preferred Shares or Series B Warrants held by such Shareholder only
to a transferee who agrees to be bound by all of the terms and conditions of the
Preferred Stock Agreement, as amended hereby.
6. EFFECT ON PREFERRED STOCK AGREEMENT.
Except as modified by the terms of this Agreement, the terms of the
Preferred Stock Agreement shall remain in full force and effect.
7. APPLICABLE LAW.
This Agreement shall be deemed to be a contract made under the laws of
the State of Arizona and for all purposes shall be construed in accordance with
the laws of said State without regard to the conflict of law principles thereof.
8. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Shareholder and Shareholder's
permitted transferees any legal or equitable right, remedy or claim under this
Agreement, and this Agreement shall be for the sole and exclusive benefit of the
Company and the Shareholder and Shareholder's permitted transferees.
9. CONFIRMATION OF REPRESENTATIONS AND WARRANTIES.
The Shareholder hereby reaffirms the representations and warranties
made by Shareholder in Section 2.2 of the Preferred Stock Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
WAVEPHORE, INC.
By:
------------------------------
David E. Deeds, President
SHAREHOLDER:
__________________________________
__________________________________
__________________________________
Tel. No: _________________________
3
<PAGE> 1
EXHIBIT (a)(6)
APPENDIX D
THIS WARRANT AGREEMENT (the "Agreement"), dated as of February
12, 1996 is made and entered into between WAVEPHORE, INC., an Indiana
corporation (the "Company"), and (the "Warrantholder").
The Company hereby issues and sells to the Warrantholder a
Stock Purchase Warrant as hereinafter described (the "Warrant") to purchase up
to an aggregate of 4,420 (subject to adjustment pursuant to Section 7 hereof)
shares of Series B Preferred Stock of the Company.
The term "Shares" as used herein means the shares of Series B
Preferred Stock initially issuable upon exercise hereof, and the shares of
Common Stock issuable upon exercise hereof when, and after, this Warrant is
exercised or becomes a warrant to purchase Common Stock as provided in Section
2.2 hereof.
In consideration of the foregoing and for the purpose of
defining the terms and provisions of the Warrant and the respective rights and
obligations thereunder, the Company and the Warrantholder hereby agree as
follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANT.
1.1 REGISTRATION. The Warrant shall be numbered and shall be
registered on the books of the Company when issued.
1.2 TRANSFER. Subject to Section 10 hereof, the Warrant shall
be transferable on the books of the Company only upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Warrant to the person entitled thereto. The Warrant
may be divided or combined, upon request to the Company by the Warrantholder,
into a certificate or certificates representing the right to purchase the same
aggregate number of Shares. Unless the context indicates otherwise, the term
"Warrantholder" shall include any transferee or transferees of the Warrants
pursuant to this Subsection 1.2, and the term "Warrant" shall include any and
all warrants outstanding pursuant to this Agreement, including those evidenced
by a certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to this Agreement.
1.3 FORM OF WARRANT. The text of the Warrant and of the form
of election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The price per Share and the number of Shares issuable upon
exercise of the Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant shall be executed on behalf of
the Company by its President, Vice President or other authorized officer.
A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the delivery of such Warrant.
The Warrant shall be dated as of the date of signature thereof
by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
1.4 LEGEND ON WARRANTS AND SHARES. Each Warrant certificate
and certificate for shares initially issued upon exercise of this Warrant,
unless at the time of transfer or exercise such Warrant or Shares are subject to
a currently effective registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), shall bear the following legend:
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"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act") and
neither the securities nor any interest therein may be sold, exchanged,
hypothecated, transferred or otherwise disposed of in the absence of
registration or an exemption therefrom under the Act."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act of the securities represented thereby) shall also bear the
above legend unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such restrictions.
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 EXERCISE OF WARRANTS. Subject to the terms of this
Agreement, the Warrantholder shall have the right, at any time during the period
ending at 5:00 P.M., New York time, on December 31, 2000 (the "Termination
Date"), to purchase from the Company up to the number of fully paid and
nonassessable Shares to which the warrantholder may at the time be entitled to
purchase pursuant to this Agreement, upon surrender to the Company, at its
principal office, of the certificate evidencing the Warrant to be exercised,
together with the purchase form on the reverse thereof duly filled in and
signed, and upon payment to the Company of the Warrant Price (as defined in and
determined in accordance with the provisions of Sections 6 and 7 hereof), for
the number of Shares in respect of which such Warrant is then exercised. Payment
of the aggregate Warrant Price shall be made in cash or by check or by surrender
of Warrants as outlined in Section 6.
Upon such surrender of the Warrant and payment of the Warrant
Price, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Warrantholder and in such name or
names as the Warrantholder may designate, a certificate or certificates for the
number of full Shares so purchased upon the exercise of the Warrant, together
with cash, as provided in Section 8 hereof, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Shares as of the date
of surrender of the Warrant and payment of the Warrant Price, as aforesaid,
notwithstanding that the certificates representing such Shares shall not
actually have been delivered or that the stock transfer books of the Company
shall then be closed. The Warrant shall be exercisable, at the election of the
warrantholder, either in full or from time to time in part and, in the event
that a certificate evidencing the Warrant is exercised in respect of less than
all of the Shares specified therein at any time prior to the Termination Date, a
new certificate evidencing the remaining portion of the Warrant will be issued
by the Company.
2.2 TERM OF WARRANTS; SUBSTITUTION OF WARRANTS. On the date
that no shares of Series B Preferred Stock of the Company remain outstanding
(the "Substitution Date") this Warrant shall automatically be converted into and
shall become a Warrant to purchase that number of shares of Common Stock which
the holder would have received if this Warrant had been exercised and the shares
of Series B Preferred Stock received upon such exercise had been converted into
Common Stock on the Substitution Date; and thereupon, subject to adjustment as
herein provided,the Warrant Price shall be the Conversion Price of the Series B
Preferred Stock on the Substitution Date. The Warrants shall expire on the
Termination Date stated in Section 2.1 hereof.
SECTION 3. PAYMENT OF TAXES.
The company will pay all Documentary stamp taxes, if any,
attributable to the initial issuance of the Shares; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any secondary transfer of the Warrant or the Shares.
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SECTION 4. MUTILATED OR MISSING WARRANTS.
In case the certificate or certificates evidencing the Warrant
shall be mutilated, lost, stolen or destroyed, the company shall, at the request
of the Warrantholder, issue and deliver in exchange and substitution for and
upon cancellation of the mutilated certificate or certificates, or in lieu of
and in substitution for the certificate or certificates lost, stolen or
destroyed, a new Warrant certificate or certificates of like tenor and
representing an equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
and of bond of indemnity, if requested, also satisfactory in form and amount at
the applicant's cost. Applicants for such substitute Warrant certificate shall
also comply with such other reasonable regulations and pay such other reasonable
charger as the Company may prescribe.
SECTION 5. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times
keep reserved so long as the Warrant remains outstanding, out of its authorized
shares, such number of shares as shall be subject to purchase under the Warrant.
SECTION 6. WARRANT PRICE; PAYMENT.
6.1 PRICE. The price per Share (the "Warrant Price") at which
shares of Series B Preferred Stock shall be purchasable upon the exercise of the
Warrant shall be $25.00, subject to further adjustment pursuant to Section 7
hereof, and subject to the substitution provisions of Section 2.2 hereof.
6.2 CASHLESS EXERCISE. In addition to the exercise of all or a
portion of this Warrant by the payment of the exercise price in cash or check,
and in lieu of any such payment, the holder(s) of this Warrant shall have the
right at any time and time to exercise the Warrant in full or in part by the
Warrant certificates in exchange for that number of shares of Common Stock
which, valued at Current Market Price, equal to the total Current Market Price
of the shares as to which this Warrant is then being exercised less the total
Warrant Price payable for such shares. For the purposes of this paragraph,
Current Market Price of the Common Stock shall be as defined in Section 8, and
Current Market Price of the Series B Preferred stock shall be the Current Market
Price of the Common Stock multiplied by the number of shares of Common Stock
into which one share of Series B Preferred Stock is then convertible. In case of
a partial exercise of this Warrant, a new certificate evidencing the remaining
portion of the Warrant will be issued by the Company.
SECTION 7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the
exercise of the Warrants and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
7.1 Adjustments. The number of Shares purchasable upon the
exercise of the Warrants and the Warrant Price shall be subject to adjustment as
follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of common stock, (iii) combine its
outstanding shares of Common stock into a smaller number of shares of
Common Stock or (iv) issue by reclassification Of its Common Stock
other securities of the Company, the number of Shares purchasable upon
exercise of the Warrants immediately prior thereto shall be adjusted so
that the Warrantholder shall be entitled to receive the kind and number
of shares or other securities of the Company which it would have owned
or would have been entitled to receive after the happening of any of
the events described above, had the Warrants been exercised immediately
prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this Paragraph (a) shall
become
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effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options, warrants
or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to
subscribe for or to purchase shares of common Stock at a price per
share which is lower at the record date mentioned below than the then
Current Market Price (as defined in Section 8), the number of Shares
thereafter purchasable upon this exercise of a Warrant shall be
determined by multiplying the number of Shares theretofore purchasable
upon exercise of each Warrant by a fraction, of which the numerator
shall be (2) the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options or warrants
plus (2) the number of additional shares of Common Stock offered for
subscription or purchase, and of which the denominator shall be (x) the
number of shares of Common Stock outstanding immediately prior to the
issuance of such rights, options or warrants plus (y) the number of
shares which the aggregate offering price of the total number of shares
offered would purchase at the Current Market Price. Such adjustment
shall be made whenever such rights, options or warrants are issued, and
shall become effective immediately and retroactively after the record
date for the determination of shareholders entitled to receive such
rights, options or warrants.
(c) In case the Company shall distribute to all or
substantially all holders of its shares of Common Stock evidences of
its indebtedness or assets (excluding cash dividends or distributions
out of earnings) or rights, options, warrants or convertible securities
containing the right to subscribe for or purchase shares of Common
Stock (excluding those referred to in paragraph (b) above), then, in
each case, the number of Shares thereafter purchasable upon the
exercise of the Warrants shall be determined by multiplying the number
of Shares theretofore purchasable upon exercise of the Warrants by a
fraction, of which the numerator shall be the then Current Market Price
on the date of such distribution, and of which the denominator shall be
such Current Market Price on such date minus the then fair value of the
portion of the assets or evidence of indebtedness so distributed or of
such subscription rights, options or warrants applicable to one share.
Such adjustment shall be made whenever any such distribution is made
and shall become effective on the date of distribution retroactive to
the record date for the determination of shareholders entitled to
receive such distribution.
(d) No adjustment in the number of Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Shares then purchasable upon the exercise of a warrant; provided,
however, that any adjustments which by reason of this Paragraph (d) are
not required to be made immediately shall be carried forward and taken
into account in any subsequent adjustment.
(e) Whenever the number of Shares purchasable upon the
exercise of a Warrant is adjusted as herein provided, the Warrant Price
payable upon exercise of a Warrant shall be adjusted by multiplying
such Warrant Price immediately prior to such adjustment by a fraction,
of which the numerator shall be the number of Shares Purchasable upon
the exercise of a Warrant immediately prior to such adjustment, and of
which the denominator shall be the number of Shares so purchasable
immediately thereafter.
(f) To the extent not covered by paragraphs (b) or (c) hereof,
in case the Company shall sell or issue shares of Common Stock or
rights, options, warrants or convertible securities containing the
right to subscribe for or purchase shares of Common Stock (other than
shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon
exercise of options, warrants or rights outstanding on the date of this
Agreement) at a price per share (determined, in the case of such
rights, options, warrants or convertible securities, by dividing (i)
the total amount received or receivable by the Company in
consideration, of the sale or issuance of such rights, options,
warrants or convertible securities, plus the total consideration
payable to the Company upon exercise or conversion thereof, by (ii) the
total number of shares covered by such rights, options, warrants or
convertible
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securities) lower than the Current Market Price in effect immediately
prior to such sale or issuance, then the Warrant Price shall by reduced
to a price (calculated to the nearest cent) determined by dividing (I)
an amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such sale or issuance multiplied by
the then existing Warrant Price, plus (B) the consideration received by
the Company upon such sale or issuance divided by the Current Market
Price and multiplied by the existing Warrant Price, by (II) the total
number of shares of Common Stock outstanding immediately after such
sale or issuance. The number of Shares purchasable upon the exercise of
the Warrant shall be that number determined by multiplying the number
of Shares issuable upon exercise immediately prior to such adjustment
by a fraction, of which the numerator shall be the Warrant Price in
effect immediately prior to such adjustment and the denominator shall
be the Warrant Price as so adjusted. For the purposes of such
adjustments, the shares of Common Stock which the holders of any such
rights, options, warrants or convertible securities shall be entitled
to subscribe for or purchase shall be deemed issued and outstanding as
of the date of such sale or issuance and the consideration received by
the company therefor shall be deemed to be the consideration received
by the Company for such rights, options, warrants or convertible
securities, plus the consideration or premiums stated in such rights,
options, warrants or convertible securities to be paid for the shares
of Common Stock covered thereby. In case the Company shall sell or
issue shares of Common Stock or rights, options, warrants or
convertible securities containing the right to subscribe for or
purchase shares of Common Stock for a consideration consisting, in
whole or in part, of property other than cash or its equivalent, then
for purposes of determining the "price per share" of shares of Common
Stock any underwriting discounts or commissions shall not be deducted
from the price received by the Company for sales of securities
registered under the Act. There shall be no adjustment of the warrant
Price pursuant to this paragraph (f) if the amount of such adjustment
would be less than $.01 per Share; provided, however, that any
adjustment which by reason of this provision is not required to be made
immediately shall be carried forward and taken into account in any
subsequent adjustment.
(g) Whenever the number of Shares purchasable upon the
exercise of a Warrant or the Warrant Price is adjusted as herein
provided, the Company shall cause to be promptly mailed to the
Warrantholder by first class mail, postage prepaid, notice of such
adjustment or adjustments and a certificate of a firm of independent
public accountants selected by the Board of Directors of the Company
(who may be the regular accountants employed by the Company) setting
forth the number of Shares purchasable upon the exercise of a Warrant
and the Warrant Price after such adjustment, a brief statement of the
facts requiring such adjustment and the computation by which such
adjustment was made.
(h) For the purpose of this Subsection 7.1, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement (ii) any other class of
stock resulting from successive changes or reclassifications of such
Common Stock. In the event that at any other time, as a result of an
adjustment made pursuant to this Section 7, the Warrantholder shall
become entitled to purchase any securities of the Company other than
shares of Common Stock, thereafter the number of such other securities
so purchasable upon exercise of the Warrant and the Warrant Price of
such securities shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Shares contained in this Section 7.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the
number of Shares purchasable upon exercise of the Warrants and the
Warrant Price, to the extent the Warrants have not then been exercised,
shall, upon such expiration, be readjusted and shall thereafter be such
as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) on the basis
of (A) the fact that the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion rights and (B)
the fact that such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such
exercise plus the consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options,
warrants or conversion rights whether or not exercised; provided,
however, that
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no such readjustment shall have the effect of increasing the Warrant
Price by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options,
warrants or conversion privileges.
7.1 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
Subsection 7.1, no adjustment in respect of any dividends shall be made during
the term of the Warrant or upon the exercise of the Warrant.
7.2 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant Price
in effect immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and other securities and property which he
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Warrant been exercised
immediately prior to such action. Such agreement shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The provisions of this Subsection 7.3 shall
similarly apply to successive consolidations, mergers, sales or conveyances.
7.3 PAR VALUE OF COMMON STOCK. Before taking any action which
would cause an adjustment reducing the Warrant Price below the then par value of
the shares of Common Stock issuable upon exercise of the Warrant, the Company
will take any corporate action which may, in the.opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Warrant Price.
7.4 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the Warrant Price or the number of securities purchasable upon
the exercise of the warrant, the Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price and number of
securities as are stated in the similar Warrant certificates initially issuable
pursuant to this Agreement. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of the
warrant certificate that it may deem appropriate and that does, not affect the
substance thereof; and any warrant certificate thereafter issued, whether upon
registration or transfer of, or in exchange or substitution for, an outstanding
Warrant certificate, may be in the form so changed.
SECTION 8. FRACTIONAL INTERESTS; CURRENT MARKET PRICE.
The company shall not be required to issue fractional Shares
on the exercise of the Warrant. If any fraction of a share of Common Stock
would, except for the provisions of this Section 8, be issuable on the exercise
of the Warrant (or specified portion thereof), the Company shall pay an amount
in cash equal to the then Current Market Price multiplied by such fraction. For
the purpose of this Agreement, the term "Current Market Price" shall mean (i) if
the Common Stock is traded in the over-the-counter market or on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"),
the average per share closing bid prices of the Common Stock on the 20
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is traded on a national securities exchange, the average for the 20
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Common stock on the principal stock exchange on
which it is listed, as the case may be. The closing price referred to in clause
(ii) above shall be the last reported sales price or in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case on the national securities exchange on which the Common
Stock is then listed.
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SECTION 9. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in any of the Warrants
shall be constructed as conferring upon the Warrantholder or its transferees any
rights whatsoever as a shareholder of the Company, including the right to vote,
to receive dividends, to consent or to receive notices as a shareholder in
respect of any meeting of shareholders for the election of directors of the
Company or any other matter. If, however, at any time prior to the expiration of
the Warrant and prior to its exercise, any of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Sections 7.1 or 7.3; or
(b) a dissolution, liquidation or winding up of the company
(other than in connection with a consolidation, merger or sale of its
property, assets and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder as provided in Section 12 hereof at least
twenty (20) days prior to the date fixed as a record date or the date of closing
the transfer books for the determination of the shareholders entitled to any
relevant dividend, distribution, subscription rights or other rights or for the
determination of shareholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or the
date of closing the transfer books, as the case may be.
SECTION 10. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any
disposition of any of the Warrants or Shares, the Warrantholder shall
give written notice to the Company describing briefly the manner in
which any such proposed disposition is to be made; and no such
disposition shall be made if the Company has notified the Warrantholder
that, in the reasonable opinion of counsel to the company, a
registration statement or other notification or post-effective
amendment thereto (hereinafter collectively a "Registration Statement")
under the Securities Act is required with respect to such disposition
and no such Registration Statement has been filed by the Company with,
and declared effective, if necessary, by, the Securities and Exchange
commission (the "Commission").
(b) The Company shall be obligated to the owners of the
Warrant and the Shares to file a Registration Statement only as
follows:
(i) Whenever, during the seven-year period following
the issuance of the Warrant, the Company proposes to file with
the Commission a Registration Statement (other than as to the
shares issuable upon conversion of its Series A Preferred
Stock, or a registration on Form S-4, S-8 or other limited
purpose form) it shall, at least thirty (30) days prior to
such filing, give written notice of such proposed filing to
the Warrantholder and each holder of Shares, at its address
appearing on the records of the Company, and shall offer to
include and shall include in such filing any proposed
disposition of the Shares upon receipt by the company, not
less than fifteen days prior to the proposed filing date, of a
request therefor setting forth the facts with respect to such
proposed disposition.
(c) All fees, disbursements and out-of-pocket expenses in
connection with the filing of any, Registration Statement under
Paragraph (b) of Section 10 and in complying with applicable securities
and Blue Sky laws shall be borne by the Company, provided, however,
that any expenses of the Warrantholder or holders of the underlying
securities, including but not limited to attorneys' fees and discounts
and commissions, shall be borne by the Warrantholder and holders of the
Shares. The Company at its expense will supply the Warrantholder and
any holder of Shares with copies of such Registration Statement and the
prospectus or offering circular included therein and other related
documents in such quantities as may be reasonably requested by the
Warrantholder or holder of Shares.
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(d) The Company shall not be required by this Section 10 to
file such Registration Statement if, in the opinion of counsel for the
Warrantholder or holder of Shares reasonably satisfactory to the
Company the proposed public offering or other transfer as to which such
post-effective amendment or other registration or notification is
requested is exempt from applicable federal and state securities
registration requirements and would result in all purchasers or
transferees obtaining securities which are not restricted securities,"
as defined in Rule 144 under the Securities Act.
(e) The Company shall have no obligation under this Section 10
to the extent that, with respect to a public offering registration, any
underwriter of such public offering reasonably requests that the Shares
or a portion thereof be excluded; and notwithstanding the use of the
term "Shares" in this Section 10, the Company shall have no obligation
to register shares of its Series B Preferred Stock but shall be
obligated to register the shares of Common Stock issuable upon
conversion of such Series B Preferred Stock or upon exercise hereof.
(f) The Company agrees that it will use its best efforts to
keep such Registration Statement effective for twelve months after the
date such Registration Statement is declared effective by the
Commission.
SECTION 11. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement
with respect to the Shares pursuant to Section 10 above, the Company
agrees to indemnify and hold harmless the Warrantholder or any holder
of such shares and each person who controls the Warrantholder or any
holder of such Shares within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to
which the Warrantholder or any holder of such Shares or such
controlling person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any such Registration Statement, or any related preliminary prospectus,
final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading; provided,
however, that the Company will not be liable in any such case to the
extend that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by
such Warrantholder or the holder of the Shares specifically for use in
the preparation thereof. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The warrantholder and the holder of the Shares agree that
they will indemnify and hold harmless the Company, each other person
referred to in subparts (1), (2) and (3) of Section 11(a) of the
Securities Act, in respect of the Registration Statement, each officer
of the Company, and each person who controls the company within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Securities Act or
otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any such Registration Statement, or any related preliminary prospectus,
final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but
in each case
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only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by the
Warrantholder or such holder of Shares specifically for use in the
preparation thereof. This indemnity will be in addition to any
liability which the Warrantholder or such holder of Shares may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 11 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 11, notify the
indemnifying party of the commencement thereof. No indemnification
provided for in such paragraph shall be available to any party who
shall fail to give the Notice if the party to whom such Notice was not
given was prejudiced by the failure to give the Notice, but the
omission so to notify the indemnifying party will not relieve the
indemnifying party or parties from any liability which it may have to
any indemnified party for contribution otherwise than as to the
particular item as to which indemnification is then being sought solely
pursuant to this Section 11. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, reasonably assume the
defense thereof, subject to the provisions herein stated and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 11 for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation unless the indemnifying party shall not pursue the action
to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be
at the expense of the indemnifying party; provided that the fees and
expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) and the
indemnifying party shall have been advised by such counsel that there
may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may
indemnifying party shall not have the right to assume the defense of
such action on behalf of the indemnified party, it being understood,
however, that the indemnifying party shall not, in connection with any
one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable attorneys
fees and expenses of more than one separate firm designated in writing
by the indemnifying party). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying
party, which shall not be unreasonably withheld in light of all factors
of importance to such indemnified party.
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SECTION 12. NOTICES.
Any notice pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested.
(a) If to the Warrantholder:
(b) If to the Company:
WavePhore, Inc.
2601 West Broadway Road
Tempe, Arizona, 85282.
Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in
accordance herewith to the other party.
SECTION 13. SUCCESSORS.
All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Warrantholder shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 14. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any
other corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 7.4 are complied with.
SECTION 15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All statements contained in any schedule, exhibit, certificate
or other instrument delivered by or an behalf of the parties hereto, or in
connection with the transactions contemplated by this Agreement, shall be deemed
to be representations and warranties hereunder. Notwithstanding any
investigations made by or on behalf of the parties to this Agreement, all
representations, warranties and agreements made by the parties to this Agreement
or pursuant hereto shall survive.
SECTION 16. APPLICABLE LAW.
This Agreement shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State.
SECTION 17. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Agreement, and this Agreement shall
be for the sole and exclusive benefit of the Company and the Warrantholder.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
WAVEPHORE, INC.
BY: ________________________________
David E. Deeds, President
WARRANTHOLDER:
BY: ________________________________
Its: _______________________________
11
<PAGE> 12
WARRANT NO.
EXHIBIT A
The securities represented by this Certificate have not been
registered under the Securities Act of 1933 and may not be
sold, exchanged, hypothecated or transferred in any manner
except in Compliance with Sections 1.4 and 10 of the Warrant
Agreement pursuant to which they were issued.
WARRANT TO PURCHASE SHARES
OF SERIES B PREFERRED STOCK
VOID AFTER 5:00 P.M., NEW YORK TIME, ON DECEMBER 31, 2000
WAVEPHORE, INC.
This certifies that, for value received the registered holder
hereof or assigns (the "Warrantholder"), is entitled to purchase from WavePhore,
Inc., an Indiana corporation (the "Company"), at any time before the expiration
time and date shown above, at the purchase price per share of $25.00 (the
"Warrant Price"), the number of shares shown above. The number of shares
purchasable upon exercise of this Warrant and the Warrant Price per share shall
be subject to adjustment from time to time as set forth in the Warrant Agreement
referred to below.
This Warrant may be exercised in whole or in part by
presentation of this Warrant with the Purchase Form on the reverse side hereof
duly executed and simultaneous payment of the Warrant Price (subject to
adjustment) at the principal office of the Company. Payment of such price shall
be made at the option of the Warrantholder in cash or by certified or cashier's
check or as otherwise specified in the Warrant Agreement.
This Warrant is issued under and in accordance with a Warrant
Agreement dated as of February 12, 1996 (the "Warrant Agreement") between the
Company and the Warrantholder and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which the Warrantholder by
acceptance hereof consents.
Upon any partial exercise of this Warrant, there shall be
signed and issued to the warrantholder a new Warrant in respect of the shares as
to which this Warrant shall not have been exercised. This Warrant may be
exchanged at the office of the Company by surrender of this Warrant properly
endorsed for one or more new Warrants of the same aggregate number of Units as
were evidenced by the Warrant or Warrants exchanged. No fractional interests
will be issued upon the exercise of rights to purchase hereunder, but the
company shall pay the cash value of any fraction upon the exercise of one or
more warrants. This Warrant is transferable at the office of the Company in the
manner and subject to the limitations set forth in the Warrant Agreement.
This Warrant does not entitle any Warrantholder hereof to any
of the rights of a shareholder of the Company.
WAVEPHORE, INC.
By:___________________________________________
David E. Deeds, President
Attest:
______________________________
R. Glenn Williamson, Secretary
Dated: February 12, 1996
12
<PAGE> 13
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, ________ shares (the "Shares") provided for therein, and requests
that certificates for the Shares be issued in the name of:
_______________________________________________________________________________
(Please Print Name, Address and Social Security Number)
_______________________________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant certificate for the balance of the shares purchasable under
the within Warrant certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and deliver to the address
stated below.
Dated: ________________, 19__
Name of Warrantholder or Assignee: ___________________________________
(Please Print)
Address:_______________________________________________________________________
_______________________________________________________________________
Signature:_____________________________________________________________________
Signature Guaranteed: Note: The above signature must correspond with the name
as written upon the face of this Warrant certificate in
every particular, without alteration or enlargement or
any change whatever, unless this Warrant has been
assigned.
13
<PAGE> 14
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Name and Address of Assignee Must Be Printed or Typewritten)
_______________________________________________________________________________
the within Warrant, hereby irrevocably consisting and appointing ________
Attorney to transfer said Warrant on the books of the Company, with full power
of substitution in the premises.
Dated:___________________, 19_____________ ___________________________________
Signature of Registered Holder
Signature Guaranteed: Note: The signature of this assignment must correspond
with the name as it appears upon the face of the
within Warrant certificate in every particular,
without alteration or enlargement or any change
whatever.
14
<PAGE> 1
EXHIBIT (a)(7)
APPENDIX E
AMENDMENT NO. 1
TO
SERIES B WARRANT AGREEMENT
THIS AMENDMENT NO. 1 TO SERIES B WARRANT AGREEMENT (the
"Agreement"), dated as of September 10, 1996, is made and entered into between
WAVEPHORE, INC., an Indiana corporation (the "Company"), and the holder of a
Warrant to purchase Series B Convertible Preferred Shares of the Company whose
name appears below (the "Warrantholder") .
R E C I T A L S
1. Warrantholder acquired a warrant (the "Series B Warrant")
to purchase shares of the Company's Series B Convertible Preferred Shares (the
"Series B Preferred") pursuant to the terms and conditions of a Warrant
Agreement dated as of February 12, 1996 or March 20, 1996, between the Company
and Holder (the "Series B Warrant Agreement").
2. In consideration for Warrantholder's agreement (i) not to
convert any of the Series B Preferred acquired upon exercise of the Series B
Warrant for a period of at least one-hundred eighty (180) days following
September 10, 1996, the deemed date of this Agreement (the "Deemed Amendment
Date") and (ii) to permanently waive the application, if any, of Section 7.1(f)
of the Series B Warrant Agreement to the Company's issuance of warrants (the
"New Warrants") to purchase common shares of the Company pursuant to that
certain Consent Solicitation Statement dated September 23, 1996 and to the
issuance of any other securities by the Company, the Company has agreed to amend
the Series B Warrant Agreement to provide for a new conversion price cap (the
"New Conversion Price Cap") for the Series B Preferred purchasable upon the
exercise of the Series B Warrant.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and for the purpose of defining the respective rights and
obligations of the Company and the Warrantholder hereunder, the Company and the
Warrantholder hereby agree as follows:
1. NON-CONVERSION PERIOD.
The Series B Warrant Agreement is hereby amended by adding new Section
18, the text of which shall read as follows:
"SECTION 18. NON-CONVERSION PERIOD. Warrantholder hereby agrees to
refrain from converting such Holder's Series B Preferred, if any,
acquired upon exercise of the Series B Warrants for a period of one
hundred eighty (180) days following the Deemed Amendment Date (the
"Non-Conversion Period"). Notwithstanding the foregoing, occurrence of
one or more of the following events following the Deemed Amendment Date
shall result in the termination of the Non-Conversion Period: (i) if
the Company's independent public accountants resign (or they indicate
that they will decline to stand for re-election after the completion of
the then current audit) due to a disagreement with management of the
Company on matters relating to accounting principles or practices,
financial statement disclosure, or auditing scope or procedure and such
disagreement would cause such accountants to make a reference to the
subject matter of the disagreement(s) in connection with their reports;
(ii) if the Federal Communications Commission (the "FCC") withdraws its
ruling that permits television broadcast licensees to use, without
prior FCC authorization, the Company's TVT1/4 technology to broadcast
digital data within the video portion of the National Television
Standards Committee television broadcast signal of the type currently
<PAGE> 2
transmitted by FCC licensees; (iii) if a petition for relief under
Chapter 11 of the United States Bankruptcy Code is filed by or against
the Company and, if an involuntary petition, such petition is not
dismissed within 60 days of filing; (iv) if the Company's principal
lender, whether now or hereafter existing, accelerates the maturity of
any indebtedness due to such lender as the result of a material default
under the credit agreement governing such indebtedness; (v) if the
Company fails to file in a timely manner all reports required to be
filed by it pursuant to Sections 13, 14, or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or, if the
Company has used Rule 12b-25 under the Exchange Act with respect to a
report or a portion of a report, that report or portion thereof was not
filed within the time period prescribed by Rule 12b-25; or (vi) if the
Registration Statement to be filed by the Company covering the resale
of the Common Shares underlying the New Warrants ceases to be effective
until December 31, 1998 or such earlier date as all Common Shares
covered by such Registration Statement have been disposed of pursuant
thereto."
2. NEW CONVERSION PRICE CAP.
The Series B Warrant Agreement is hereby amended by adding new Section
19, the text of which shall read as follows:
"SECTION 19. NEW CONVERSION PRICE CAP. Commencing one hundred and
eighty (180) days following the Deemed Amendment Date, the conversion
price cap (the "New Conversion Price Cap") for the Series B Preferred
will be the lesser of (x) $21.00 or (y) seventy-one percent (71%) of
the average of the closing price of the Common Shares on Nasdaq for the
twenty (20) trading days immediately preceding the expiration of the
180-day Non-Conversion Period. Thereafter, the conversion price for the
Series B Preferred on any date will be the lesser of (i) the New
Conversion Price Cap or (ii) 71% of the lowest daily low trading price
of the Common Shares during the five consecutive trading days
immediately preceding such date."
The Company and Warrantholder hereby agree that terms of this new Section 18
shall supersede in all respects, to the extent inconsistent, the terms set forth
in the Company's Articles of Incorporation specifically relating to this matter.
3. WAIVER OF SECTION 7.1(f).
Warrantholder does hereby acknowledge and agree that upon the Company's
issuance of the New Warrants, all of the rights set forth in Section 7.1(f) of
the Series B Warrant Agreement are hereby permanently waived with respect to
their application, if any, to the issuance of the New Warrants and any other
issuances of securities by the Company and the Company shall have no obligation
whatsoever to effect any adjustment as provided for in Section 7.1(f).
4. EFFECT ON SERIES B WARRANT AGREEMENT.
Except as modified by the terms of this Agreement, the terms of the
Series B Warrant Agreement shall remain in full force and effect.
5. APPLICABLE LAW.
This Agreement shall be deemed to be a contract made under the laws of
the State of Arizona and for all purposes shall be construed in accordance with
the laws of said State without regard to the conflict of law principles thereof.
2
<PAGE> 3
6. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Warrantholder any legal or equitable
right, remedy or claim under this Agreement, and this Agreement shall be for the
sole and exclusive benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
WAVEPHORE, INC.
By:______________________________________
David E. Deeds, President
WARRANTHOLDER:
_________________________________________
_________________________________________
_________________________________________
Tel. No:_________________________________
3
<PAGE> 1
Exhibit (a)(8)
[Wavephore Letterhead]
Re: Consent Solicitation Pertaining to our Series A and Series B Convertible
Preferred Stock and Warrants to Purchase Series B Convertible Preferred
Stock.
Dear Security Holder:
Enclosed are materials describing proposed changes to the terms of
agreements governing our Series A and Series B Convertible Preferred Stock (the
"Preferred Shares") and Warrants to purchase Series B Convertible Preferred
Stock (the "Warrants"). Holders of Preferred Shares who consent to these
amendments will receive, among other things, warrants to acquire our common
shares at an exercise price of $7.00 per share. Holders of our Warrants will
receive an adjustment in the conversion price "cap" of the Series B Preferred
Shares underlying the Warrants. The following provides a summary of our reasons
for seeking your consent to these changes, as well as certain terms of the
warrants you would receive for consenting to these changes. Of course, we urge
you to read the more detailed information enclosed.
As you know, since the offering of our Preferred Shares in December
1995, our Common Share price has declined. We believe that part of this decline
is attributable to the market overhang resulting from our outstanding
convertible preferred shares and warrants. This downward pressure has been
exacerbated by the fact that the conversion price of the Preferred Shares and
Warrants is based upon a formula tied to the market price of the common shares;
more specifically, it is the lower of $21.00 per share (the current "cap") or a
discount to the market price of the Common Shares measured over a very brief
trading period prior to any given conversion.
In an effort to stabilize the market for our Common Shares, we are
requesting holders of our Preferred Shares and Warrants not to convert their
Preferred Shares for 180 days. In consideration for this temporary waiver, we
are offering consenting holders of Preferred Shares warrants to acquire
additional Common Shares. For each Preferred Share a consenting holder will
receive warrants to purchase up to two Common Shares at an exercise price of
$7.00 per share. The price of our common shares on September 20, 1996, the day
prior to mailing of these materials, was $9.375 per share. We are also
proposing to modify the "cap" on the conversion price of the Preferred Shares
held by consenting holders, currently at $21.00 per share, to the lower of
$21.00 per share or 71% of the average of the closing price of the Common
Shares measured over a 20 trading day period ending immediately prior to
expiration of the 180 day non-conversion period (the "New Cap"). Thereafter,
the conversion price for the Preferred Shares on any date will be the lesser of
the New Cap or 71% of the lowest daily low trading price of the Common Shares
during the 5 consecutive trading days immediately preceding such date.
<PAGE> 2
In addition to the foregoing, we are requesting that holders of
Preferred Shares and Warrants permanently waive an adjustment to their exercise
price that would otherwise result from issuance of the warrants and from any
future issuance of stock or derivative securities. Other proposed changes to
the conversion formula of the Preferred Shares and related provisions are
detailed in the enclosures.
We believe that the temporary waiver of the rights of our holders of
Preferred Shares and Warrants should help stabilize the market for our
Common Shares during the non-conversion period to the benefit of the Company
and our security holders as a whole. Further, the warrants to be issued to
consenting holders of Preferred Shares will provide the Company with a future
source of additional capital.
We recognize that holders of Preferred Shares and Warrants are being
requested to agree to certain changes for the benefit of the Company and all of
its security holders. We believe, however, that the issuance of the warrants,
as well as the potential lowering of the conversion "cap", represents fair and
appropriate consideration for this request.
Our offer and consent solicitation is scheduled to remain open until
October 21, 1996. However, we reserve the right to withdraw this offer at any
time, and may choose to withdraw the offer within 5 business days of the
mailing of these materials if 75% in interest of the holders of our Preferred
Shares and all holders of the Warrants have not consented to our offer.
We urge you to review the enclosed materials. If you have any questions
regarding these materials or need assistance completing the consent forms,
please call Douglas J. Reich, General Counsel of the Company, at 602-952-5500.
We appreciate your consideration of this request.
Sincerely,
David E. Deeds,
Chairman, CEO and President
2
<PAGE> 1
EXHIBIT (a)(9)
IMPORTANT TAX INFORMATION
Federal income tax law requires that a U.S. Holder who receives a Warrant
from the Company as consideration for such U.S. Holder's Consent must provide
the Company (as payer) with his correct taxpayer identification number ("TIN"),
which, in the case of a U.S. Holder who is an individual, is his social security
number. However, if the foregoing transactions are treated, for federal income
tax purposes, as a constructive exchange by the U. S. Holders of the Series A
Preferred and Series B Preferred for new Series A Preferred and Series B
Preferred and such exchange is treated as a tax-free recapitalization under
Section 368(a)(1)(E) of the Code, then, to the extent receipt of the Warrant is
treated as a dividend in connection with such recapitalization, the amount of
the Warrant treated as a dividend is not subject to backup withholding.
If the receipt of the Warrant is not treated as a dividend and the Company
is not provided with the correct TIN or an adequate basis for an exemption, such
U.S. Holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to such U.S. Holder of the Warrant pursuant to
the Solicitation may be subject to backup withholding in an amount equal to 31%
of the gross proceeds resulting from the Solicitation. If withholding results in
an overpayment of taxes, a refund may be obtained.
Exempt Holders (including, among others, all corporations) are not subject
to these backup withholding and reporting requirements and need not return the
Substitute Form W-9. See the enclosed Guidelines for additional instructions.
To prevent backup withholding, each U.S. Holder who receives a Warrant from
the Company must provide his correct taxpayer identification number by
completing the "Substitute Form W-9" set forth herein, certifying that the TIN
provided is correct (or that such Holder is awaiting a TIN) and that (i) the
U.S. Holder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest or
dividends, or (ii) the Internal Revenue Service has notified the U.S. Holder
that he is no longer subject to backup withholding. If the Series A Preferred or
Series B Preferred are in more than one name or are not in the name of the
actual owner, consult the enclosed guidelines for information on which TIN to
report. If you do not have a TIN, consult the enclosed guidelines for
instructions on applying for a TIN, check the box in Part 2 of the Substitute
Form W-9, and write "applied for" in lieu of your TIN. If you do not provide
your TIN to the payer within 60 days, backup withholding will begin and continue
until you furnish your TIN to the payer.
THE SUBSTITUTE FORM W-9 SHOULD BE SENT TO THE COMPANY.
<PAGE> 2
- -------------------------------------------------------------------------------
PAYEE'S NAME
Enter name(s) as shown on applicable account (if joint account, list first and
circle the name of the person or entity whose number you enter below).
- -------------------------------------------------------------------------------
ADDRESS (Number, Street, and Apt. or Suite No.)
(City, State and Zip Code)
- -------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for
Taxpayer Identification
Number
Taxpayer Identification No.
- -For all accounts
After completing the
Form, return to the
Depositary
- -------------------------------------------------------------------------------
PART I
Enter your taxpayer identification number below. For most individuals, this is
your Social Security Number. For sole proprietors, see the enclosed Guidelines.
For other entities, it is your Employer Identification Number. If you do not
have a number, see How to Obtain a Taxpayer Identification Number in the
enclosed Guidelines.
Note: If the account is in more than one name, see the chart on page 1 of the
enclosed Guidelines on which number to give the Company.
Social Security Number
________________________________________
or
Employer Identification Number.
________________________________________
- -----------------------------------------------------------------------------
PART II
If you are exempt from backup withholding, enter
the word "Exempt" below. To determine whether you
are exempt, see page 2 of the enclosed Guidelines.
- -----------------------------------------------------------------------------
PART III
CERTIFICATION - UNDER PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me),
(2) I am not subject to backup withholding
either because (a) I am exempt from backup
withholding, (b) I have not been notified by the
Internal Revenue Service ("IRS") that I am subject
to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding, and
(3) Any other information provided on this form is true and correct.
CERTIFICATION INSTRUCTIONS - You must cross out
item (2) above if you have been notified by the
IRS that you are subject to backup withholding
because of under reporting interest or dividends
on your tax return. However, if after being
notified by the IRS that you were subject to
backup withholding you received another
notification from the IRS that you are no longer
subject to backup withholding, do not cross out
item (2). (Also see Certification under Specific
Instruction in the enclosed Guidelines.)
________________________________________________
SIGNATURE
________________________________________________
DATE
- -----------------------------------------------------------------------------
<PAGE> 3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Give the Give the EMPLOYER
For this type of account: SOCIAL SECURITY For this type of account: IDENTIFICATION
Number of - Number of -
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 8. Sole proprietorship The owner(4)
account
2. Two or more individuals The actual owner of the account 9. A valid trust, estate, Legal entity (Do not furnish
(joint account) or, if combined funds, the first or pension trust the identifying number of the
individual on the account(1) personal representative or
trustee unless the legal entity
itself is not designated in the
account title.)(5)
3. Husband and wife (joint The actual owner of the account 10. Corporate account The corporation
account) or, if joint funds, the first
individual on the account(1)
4. Custodian account of a The minor(2) 11. Religious, charitable, or The organization
minor (Uniform educational organization
Transfers to Minors Act) account
5. Adult and minor (joint The adult or, if the minor is the 12. Partnership account held The partnership
account) only contributor, the minor(1) in the name of the
business
6. Account in the name of The ward, minor, or incompetent 13. Association, club or The organization
guardian or committee person(3) other tax-exempt
for a designated ward, organization
minor, or incompetent
person
7a. The usual revocable The grantor-trustee(1) 14. A broker or registered The broker or nominee
savings trust account nominee
(grantor is also trustee)
7b. So-called trust account The actual owner(1) 15. Account with the The public entity
that is not a legal or valid Department of
trust under State law Agriculture in the name
of a public entity
(such as a State
or local government,
school district, or
prison) that receives
agricultural program
payments
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 4
HOW TO OBTAIN A TAXPAYER IDENTIFICATION NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE FORM W-9 WITH THE INFORMATION AGENT, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON PART II OF THE FORM, AND
RETURN IT TO THE INFORMATION AGENT. PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
* A corporation.
* A financial institution.
* An organization exempt from tax under section 501(a), or an
individual retirement plan.
* The United States or any agency or instrumentality thereof.
* A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof.
* A foreign government, a political subdivision of a foreign
government, or any agency or instrumentality thereof.
* An international organization or any agency or instrumentality thereof.
* A dealer in securities or commodities required to register in
the U.S. or a possession of the U.S.
* A real estate investment trust.
* A common trust fund operated by a bank under section 584(a).
* An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1).
* An entity registered at all times under the Investment Company
Act of 1940.
* A foreign central bank of issue.
PRIVACY ACT NOTICE. - Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. - If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. - If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. - Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT
YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
