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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997
REGISTRATION STATEMENT NO. 333-23039
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
WAVEPHORE, INC.
(Exact name of registrant as specified in its charter)
INDIANA 86-0491428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3311 NORTH 44TH STREET
PHOENIX, ARIZONA 85018
(602) 952-5500
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
-------------------------
DAVID E. DEEDS, CHIEF EXECUTIVE OFFICER
WAVEPHORE, INC.
3311 NORTH 44TH STREET
PHOENIX, ARIZONA 85018
(602) 952-5500
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-------------------------
COPY TO:
DOUGLAS J. REICH, ESQ.
WAVEPHORE, INC.
3311 NORTH 44TH STREET
PHOENIX, ARIZONA 85018
(602)952-5500
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated March 10, 1997
PROSPECTUS
964,100 COMMON SHARES
WAVEPHORE, INC.
All of the WavePhore, Inc. Common Shares (the "Common Shares") offered hereby
(the "Offering") may be sold by certain Selling Security Holders (the "Selling
Security Holders") of WavePhore, Inc. ("WavePhore" or the "Company"). The number
of Common Shares offered hereby includes such number of Common Shares as may be
issued on exercise of outstanding warrants dated September 10, 1996 (the
"Warrants"). The Common Shares may be purchased upon exercise of presently
outstanding Warrants which, could be exercised for a total of 964,100 Common
Shares. The Selling Security Holders may receive from one to two Common Shares,
or an aggregate of from 482,050 to 964,100 Common Shares, upon exercise of the
Warrants determined by the date of the exercise. The exercise price of the
Warrants is $7.00 per share, consequently the Company may receive proceeds of up
to $6,748,700 from the exercise of the Warrants by the Selling Security Holders
if all the Warrants are exercised more than one year following September 10,
1996. See "Description of Securities -- Warrants" for detailed information
regarding the number of Common Shares into which the Warrants may be exercised
at various times. The Company will not receive any proceeds from the sale of the
Common Shares by the Selling Security Holders. The Selling Security Holders may
elect to sell all, a portion or none of the Common Shares registered hereunder.
The Common Shares are traded on The Nasdaq National Market tier of the Nasdaq
Stock Market ("Nasdaq") under the Symbol "WAVO." The Common Shares may be sold
by the Selling Security Holders from time to time, in ordinary brokers'
transactions through Nasdaq at the price prevailing at the time of such sales.
The commission payable will be the regular commission a broker receives for
effecting such sales. The Common Shares may also be offered in block trades,
private transactions, or otherwise. The net proceeds to the Selling Security
Holders will be the proceeds received by them upon such sales, less brokerage
commissions. All expenses of registration incurred in connection with this
Offering are being borne by the Company, but the Selling Security Holders will
pay any brokerage and other expenses of sale incurred by them.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
EACH SELLING SECURITY HOLDER AND ANY BROKER EXECUTING SELLING ORDERS ON BEHALF
OF THE SELLING SECURITY HOLDER MAY BE DEEMED TO BE AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. COMMISSIONS RECEIVED BY ANY SUCH BROKER MAY BE
DEEMED TO BE UNDERWRITING COMMISSIONS UNDER THE SECURITIES ACT.
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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH ____, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (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 Company's
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.
The Company has filed with the Commission a registration statement (the
"Registration Statement") with respect to the Common Shares offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information contained in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
Common Shares offered hereby, reference is made to the Registration Statement,
including the exhibits thereto. Statements contained herein concerning the
provisions of any documents filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
No person is authorized to give any information or make any representation
other than those contained or incorporated by reference in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the Commission
and are hereby incorporated by reference into this Prospectus: (1) Annual Report
on Form 10-K for the fiscal year ended December 31, 1996; and (2) Description of
Capital Stock contained in the Company's registration statement on Form 8-A,
including all amendments or reports filed for the purpose of updating such
description. 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 Prospectus
and prior to the termination of this Offering shall be deemed to be incorporated
by reference in this Prospectus 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 Prospectus 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 Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus 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 Prospectus incorporates).
Requests should be directed to Investor Relations, WavePhore, Inc., 3311 North
44th Street, Phoenix, Arizona 85018; telephone (602) 952-5500.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, 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 Prospectus (and in documents incorporated by
reference), including without limitation, statements under "The Company," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" 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 Prospectus, including without limitation in
conjunction with the forward-looking statements included in this Prospectus. 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.
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THE COMPANY
WavePhore, Inc., including its wholly-owned subsidiaries WavePhore Canada,
Inc. ("WavePhore Canada"), WavePhore Networks, Inc. ("WavePhore Networks") and
WavePhore Japan, K.K. ("WavePhore Japan") (collectively, "WavePhore" or the
"Company"), is a developer and provider of proprietary products and services for
low-cost, high-speed, data broadcasting systems for distributing digital data
via the existing worldwide television, radio and satellite broadcast
infrastructures and the Internet. 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.
In February, 1997, the Company announced its creation of its Consumer
Division and a broadcast PC consumer service, WaveTop(TM), which the Company
expects will become the first nationwide wireless broadcast medium for the home
PC. This new broadcast service is intended to deliver entertainment and
information programming, utilizing "push" technology, via existing television
broadcasting signals without the bottleneck of the Internet or tying up of
telephone lines. WaveTop is expected to provide streaming multi-media content,
including audio, video, software and real-time data, to broadcast-ready PCS or
TV/PCS sold by PC manufacturers, such as Compaq, which has licensed related
WavePhore technology, and to original equipment manufacturers ("OEMS"). The
WaveTop service will operate by inserting data into the vertical blanking
interval of the television signals of the Public Broadcasting Service ("PBS")
and its member stations, pursuant to an agreement with PBS National Datacast,
Inc. The WaveTop service is expected to commence operations in fall, 1997, with
the potential capability to reach up to 99% of U.S. households. The Company
intends to offer a variety of "channels" through WaveTop, free of charge to the
consumer. The Company is seeking advertiser-sponsors and content
provider-sponsors for the respective channels. The Company will also seek to
create revenue sharing opportunities with on-line service providers and plans to
explore opportunities to create subscriber-based premium channels and
pay-per-view downloads.
The Company's WavePhore Newscast(TM) service allows users to create customer
information profiles and have news and information matching those profiles
electronically "clipped" from over 600 services and delivered continuously to
the users' PCs. The Newscast service, which incorporates hardware and software,
enables end-users to continuously filter real time news from Information
Providers ("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. As of February, 1997, the
Company had approximately 55,000 users which receive its Newscast service. The
Company offers versions of the Newscast product for Microsoft Windows(R) and
Apple Macintosh(R) operating systems.
The Company, through its Networks Division, is a leading supplier of
wireless data broadcasting network services and equipment for 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 well
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 has designed, sells and rents its sophisticated data
receivers to IPs for use with the Company's network. The Company also markets
and sells in
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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 technologies, 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
("Intel") by the Company and is now a part of Intel's Intercast(TM) standard
which permits a computer user to receive and view TV broadcasting and
datacasting.
The Company and Intel have also jointly developed a Hardware Developer's Kit
for Intel's Intercast Viewer and WavePhore's broadcast services, which includes
jointly developed VBI decoder technology that is used to extract data embedded
in the standard television signal. The kit provides OEM PC/board manufacturers
and independent hardware vendors the necessary tools to develop and test
products which will support Intel's Intercast technology and WavePhore's data
broadcasting technology and services.
The Company has also licensed certain of its VBI technology to Compaq
Computer Corp. ("Compaq"), which will enable Compaq PCs equipped with this
technology to receive data broadcasting, including the Company's WaveTop
offerings.
The Company's TVT1/4(TM) 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 most
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 is continuing to develop various other advanced data
broadcasting related technologies.
The Company intends to establish its data broadcasting systems, utilizing
its various technologies, as an integral part of an emerging, worldwide data
broadcasting industry. The Company believes that its wireless data broadcasting
systems are well suited for those international markets which have
underdeveloped wired telecommunications infrastructures.
On January 25, 1995, the Company purchased all of the outstanding common
stock of BleuMont Telecom Inc. ("BleuMont Telecom") of Montreal, Canada. 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.
On December 29, 1995, the Company purchased all of the outstanding common
stock of Mainstream Data, Inc. ("Mainstream") of Salt Lake City, Utah. 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.
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 $170,000.
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In September and October, 1996, certain holders of warrants to purchase
Series B Convertible Preferred Shares (the "Series B Warrants") exercised
78,505 Warrants, at an aggregate exercise price of approximately $1.96 million,
into 78,505 Series B Preferred Shares of which 72,005 such Shares were
subsequently converted into WavePhore Common Shares.
In September, 1996, the Company obtained consents from nearly all the
holders of its outstanding Series A Preferred Shares and Series B Warrants with
respect to a proposed 180 day non-conversion period for the Preferred Shares and
certain requested revisions to the terms of the Preferred Shares, including
revisions to the conversion price for the Preferred Shares, and to agreements
under which the Series B Warrants and Preferred Shares were issued. Consenting
holders of Preferred Shares received a Warrant to purchase up to two 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 certain other
conditions. In consequence, the Company issued 482,050 Warrants and this
Prospectus relates to the Common Shares underlying such Warrants. See
"Description of Securities-Warrants."
In September, 1996, the Company issued 500,000 Common Shares to Intel
Corporation for aggregate consideration of $4,000,000, pursuant to a Stock
Purchase Agreement dated as of September 13, 1996.
The Company is an Indiana corporation formed on November 13, 1990.
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the factors discussed below in
evaluating the Company and its business before purchasing any of the Common
Shares offered hereby. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus. See "Disclosure Regarding
Forward-Looking Statements."
LIMITED OPERATING HISTORY; LACK OF PROFITABILITY
The Company was organized in November 1990 as the successor to an Arizona
corporation formed in 1983. 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 and
take advantage of 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 has announced a new consumer service, "WaveTop", for the home PC
market, utilizing the VBI of television signals broadcast by PBS National
Datacast, Inc. member television stations. The Company also is continuing its
development of certain advanced data broadcasting technologies. There can be no
assurance (i) that the Company will be successful in commercially developing
such products and services, (ii) that third party manufacturers of personal
computers, PC boards, set top boxes, and other consumer electronic products will
be willing to incorporate the Company's technology into their products, or (iii)
that such technology, products and services will achieve significant market
acceptance.
The so-called advanced television system ("ATV") is expected to eventually
enable television broadcasters to transmit non-programming related digital data
at high speeds to a mass audience. The Company believes that its VBI
technologies will be compatible with ATV as it is currently envisioned. ATV
involves a digital television signal which is incompatible with the Company's
analog TVT1/4 technology. However, the Company expects to migrate its data
broadcasting services to ATV when it becomes available. If and when implemented,
ATV will use a separate bandwidth allocated by the Federal Communications
Commission ("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 ATV
system will involve the reequipping 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 ATV 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 ATV's initial introduction in the United States
market, with similar transition periods in other markets. The Company
anticipates that it will develop products and services which will take advantage
of the data broadcasting opportunities expected to be created by implementation
of ATV.
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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 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/NEXIS(R), Desktop Data, Inc., Paracel Online Services, Inc., 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.
DEPENDENCE UPON STRATEGIC ALLIANCES OR RELATIONSHIPS
The Company's future success may, in part, depend upon its ability to
develop additional strategic alliances or relationships with 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
products and services. The Company may be dependent on the efforts of such third
parties to assist in commercializing such products and services. There can be no
assurance that the Company will be able to develop such strategic relationships.
The inability of the Company to develop and maintain appropriate 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 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 domestic or foreign, the success of the Company's products and services
that are subject to such relationships may depend in 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.
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
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authorization, use 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.
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 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.
9
<PAGE> 12
DEPENDENCE ON SUPPLIERS
Components used in certain of 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 Company relies upon a combination of patent, copyright, trademark and
trade secret laws, confidentiality and nondisclosure agreements, and other
measures to establish and protect its proprietary rights to its technologies,
products and services. Such protection may not preclude competitors from copying
or learning from the Company's technologies, products and services or from
developing similar technologies, products and services. Also, 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. 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
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 technologies, products and services 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 technologies, products, and services, or other matters. There may be patents
and other intellectual property relevant to the Company's technologies,
products, and services and which are not known to the Company and which are
owned by third parties.
10
<PAGE> 13
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 the world's leading providers of
financial information, general and industry-specific business news and
information, 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 generally 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 results of operations.
CONTROL BY EXISTING SHAREHOLDERS
As of March 7, 1997, the current officers and directors of the Company owned
approximately 34.2% of the outstanding Common Shares of the Company. Certain of
such persons also hold stock options to purchase additional Common Shares and
hold Preferred Shares 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
effectively elect all of the Company's directors and to determine corporate
actions requiring shareholder approval. The continuing voting power 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 and new products 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 the
Common Shares which may be sold into the market pursuant to the registration
statement of which this Prospectus is a part and other registration statements
which the Company has filed or may be obligated to file for the sale of
additional Common Shares in the future.
11
<PAGE> 14
DILUTION
Certain events, including the issuance of additional Common Shares upon the
exercise or conversion of outstanding options, warrants and preferred shares of
the Company, could result in substantial dilution of the Common Shares. The
Series A and Series B Preferred Shares are convertible into Common Shares of the
Company at a ratio based, in part, upon the lowest daily low trading price of
such Common Shares during the five 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 and Series B Preferred
Shares and written agreements with the holders of such Shares. Because the
applicable conversion price, and thus the number of Common Shares which may be
issued upon conversion, are dependent upon presently unknown future market
prices for the Common Shares, the number of Common Shares to be issued upon
conversion is not presently determinable. If the closing prices of $20.50 and
$8.50 per share for the Company's Common Shares on December 31, 1995 and March
7, 1997 were utilized for the purpose of calculating the conversion price of the
Series A and Series B Preferred Shares, the Company would be obligated to issue
approximately 842,500 and 2,032,000 Common Shares, respectively, if all of
Series A and Series B Preferred Shares outstanding on March 7, 1997 were
converted at the conversion price determined thereby. The issuance of such
amount of Common Shares, additional Common Shares issuable upon conversion of a
total of 51,595 Series B Preferred Shares underlying certain warrants, the
Representative Warrants and the Warrants, and the potential "overhang" of such
shares on the market, could adversely affect the prevailing market price of the
Company's Common Shares.
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 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 Preferred Shares and to fix the rates, preferences, privileges, and
restrictions, including voting rights, of such Preferred Shares, 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 Shares that have been issued, or might be issued
in the future. The issuance of Preferred Shares, 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 Shares 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 Shares for financing or other purposes with rights,
preferences, or privileges senior to the Common Shares.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 7, 1997, the Company had 16,236,984 Common Shares outstanding,
all of which were eligible for trading on Nasdaq. Future sales of such Common
Shares and additional presently indeterminate Common Shares which may be issued
by the Company in the future, including the Common Shares offered by this
Prospectus and Common Shares subject to outstanding options, warrants and
conversion rights, could adversely affect the prevailing market price of the
Common Shares.
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<PAGE> 15
The Company has granted registration rights to certain other holders of the
Company's Common Shares. In addition, 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.
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 Shares prohibit the
payment of dividends on the Common Shares under certain circumstances.
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<PAGE> 16
USE OF PROCEEDS
If all of the outstanding Warrants were exercised, the Company would receive
gross proceeds ranging from $3,374,350 to $6,748,700, depending upon the number
of Common Shares into which the Warrants were exercisable on the date of
exercise, which proceeds the Company expects to use for general corporate
purposes. The Company will not receive any proceeds from the sale by the Selling
Security Holders of the Common Shares which may be offered hereby.
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Shares underlying the Warrants of the Company as of
March 7, 1997, by the Selling Security Holders. Except as otherwise indicated,
to the knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their securities, except to the extent that
authority is shared by spouses under applicable law or as otherwise noted below.
<TABLE>
<CAPTION>
Common Shares Beneficially Owned
Name of Selling Prior to, and which may be sold in,
Security Holder the Offering(1)
3/9/97 6/7/97 9/10/97
------ ------ -------
<S> <C> <C> <C>
Raphael, L.P. 6,000 9,000 12,000
AG Super Fund International Partners, L.P. 4,000 6,000 8,000
GAM Arbitrage, Inc. 11,000 16,500 22,000
Angelo Gordon & Co., L.P. 11,000 16,500 22,000
AG Super Fund, L.P. 12,000 18,000 24,000
AG ARB Partners, L.P. 10,000 15,000 20,000
Olympus Securities, Ltd. 35,100 52,650 70,200
Nelson Partners 64,900 97,350 129,800
LaRocque Trading Group LLC 4,000 6,000 8,000
Kessler Asher Group Limited Partnership 2,000 3,000 4,000
Q Investments, L.P. 10,000 15,000 20,000
Amalgamated Gadget, L.P. 10,000 15,000 20,000
Index Special Situations Fund 15,000 22,500 30,000
Kyneton Investments, Ltd. 27,000 40,500 54,000
</TABLE>
- --------
1
14
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
LICAP Partners 8,000 12,000 16,000
Barry Meisel 2,000 3,000 4,000
Theodore Meisel 4,000 6,000 8,000
Global Bermuda, L.P. 57,800 86,700 115,600
Lakeshore International, L.P. 10,000 15,000 20,000
Nicollett Fund L.P. 23,500 35,250 47,000
Ronald H. Means 4,000 6,000 8,000
Silverton International Fund, Ltd. 90,750 136,125 181,500
Steven A. Amos 10,000 15,000 20,000
Emeritaatsfonds Gereformeerde
Kerken in Nederland 50,000 75,000 100,000
------- ------- -------
Total 482,050 723,075 964,100
======= ======= =======
</TABLE>
(1) Includes the maximum number of Common Shares which may be issued upon
exercise of each Warrant as of the dates indicated. See "Description of
Securities -- Warrants." The Selling Security Holders may now or in the future
also beneficially own additional Common Shares issued or issuable pursuant to
conversions of the Company's Series A and Series B Preferred Shares. Such
additional Common Shares also may be sold pursuant to a separate presently
effective Prospectus dated October 15, 1996. Accordingly, the total amount and
percentage of Common Shares which may be beneficially owned by such Selling
Security Holders prior to and after completion of this Offering presently are
not determinable.
15
<PAGE> 18
DESCRIPTION OF SECURITIES
The Company has authorized 50,000,000 Common Shares and 10,000,000
Preferred Shares. As of March 7, 1997, 16,586,484 Common Shares were issued, of
which 16,236,984 Common Shares were outstanding and 349,500 were held in the
Company's treasury; and a total of 994,614 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 a total of up to 10,000,000 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 which are included as
exhibits to the Registration Statement of which this Prospectus is a part, 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 SHARES
The Series 1994 Cumulative Convertible Preferred Shares (the "Series 1994
Shares") consists of a total of 501,963 authorized and issued 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 SHARES
The Company is authorized to issue 1,308,000 Series A Convertible Preferred
Shares (the "Series A Shares"), of which 479,651 Series A Shares were
outstanding as of March 7, 1997. Holders of the Series A Shares are
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<PAGE> 19
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 and
as 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 Shares 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 Shares may be redeemed in whole or in part at any time beginning on the first
year anniversary after the date of issuance, 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 Shares have been registered for resale under the
Securities Act of 1933, as amended (the "Act"). Pursuant to written agreements
with the holders, each share of the Series A Shares 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
(ii) a fixed discount from the underlying market price of the Common Shares. The
conversion provisions are subject to adjustment in certain circumstances. On the
third anniversary of the date of issuance of the Series A Shares (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 Shares 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 Shares which
have certain rights senior to the Series 1994 Shares.
SERIES B CONVERTIBLE PREFERRED SHARES
The Company is authorized to issue 600,000 Series B Convertible Preferred
Shares (the "Series B Shares"), of which 6,500 were outstanding as of March 7,
1997. The provisions of the Series B Shares are identical to that of the Series
A Shares, with the exception that the Series A Shares have certain rights,
preferences and privileges which are superior to those of the Series B Shares 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 Shares which
have certain rights senior to the Series 1994 Shares.
WARRANTS TO PURCHASE SERIES B CONVERTIBLE PREFERRED SHARES
The Warrants to purchase Series B Convertible Preferred Shares (the "Series
B Warrants) were issued in connection with the sale of the Series B Shares. Such
Series B Warrants enable the holder to purchase Series B Shares at the purchase
price of $25.00 per Series B Share at any time until their expiration on
December 31, 2000. As of March 7, 1997, a total of 51,595 Series B Warrants were
outstanding. The exercise price and number of Series B Shares purchasable upon
exercise of the Series B Warrants are subject to adjustment upon the occurrence
of certain events.
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 holder to purchase an aggregate of 165,000 Common
Shares at a 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.
WARRANTS
The Warrants were issued by the Company to holders of Series A and Series B
Shares ("Warrant Holder") who agreed not to convert their Shares for at least
180 days after the deemed issuance of such Warrants on September 10, 1996
("Deemed Issuance Date"). Upon exercise of a Warrant during the exercise period,
the
17
<PAGE> 20
Company shall issue to the Warrant Holder a number of Common Shares at a per
share price of $7.00 subject to certain adjustments from time to time, 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Shares is American
Securities Transfer, Incorporated.
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
Company's Common Shares (an "Interested Shareholder"), then, for a period of
five (5) years after such acquisition, the Indiana Business Corporation Law (the
"IBCL") 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.
18
<PAGE> 21
PLAN OF DISTRIBUTION
The Common Shares may be sold by the Selling Security Holders from time
to time in either underwritten public offerings, in transactions pursuant to
Rule 144 under the Securities Act, in privately negotiated transactions, through
the facilities of Nasdaq, or otherwise, at market prices prevailing at the time
of such sale, at prices relating to such prevailing market prices, or at
negotiated prices. The Company will not receive any of the proceeds from the
sale of Common Shares by the Selling Security Holders. The net proceeds to the
Selling Security Holders will be the proceeds received by them upon such sales,
less brokerage commissions.
In the case of sales of the Common Shares effected to or through
broker-dealers, such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders or the
purchasers of the Common Shares sold by or through such broker-dealers, or both.
The Company has advised the Selling Security Holders that the anti-manipulative
Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934, as amended
("Exchange Act") may apply to their sales in the market and has informed them of
the need for delivery of copies of this Prospectus. The Company is not aware as
of the date of this Prospectus of any agreements between any of the Selling
Security Holders and any broker-dealers with respect to the sale of the Common
Shares offered by this Prospectus. The Selling Security Holders and any
broker-dealer or other agent executing sell orders on behalf of the Selling
Security Holders may be deemed to be "underwriters" within the meaning of the
Securities Act, in which case the commissions received by any such broker-dealer
or agent and profit on any resale of the Common Shares may be deemed to be
underwriting commissions under the Securities Act. The commissions received by a
broker-dealer or agent may be in excess of customary compensation.
The Selling Security Holders may elect to sell all, a portion or none of
the Common Shares offered by them hereunder.
The Company will pay substantially all of the expenses incident to the
registration of the Common Shares offered hereby, other than underwriting or
brokerage discounts, commissions and selling expenses with respect to the Common
Shares being sold by the Selling Security Holders.
LEGAL OPINIONS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Barnes & Thornburg, 11 South Meridian Street, Indianapolis,
Indiana 46204.
EXPERTS
The consolidated financial statements of WavePhore, Inc. appearing in
WavePhore, Inc.'s Annual Report (Form 10-K) for the years ended December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
19
<PAGE> 22
No dealer, sales representative, or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company, the Selling Security Holders, or any
other person. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
an offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder and thereunder shall, under any circumstances, create any
implication that the information contained herein is correct as of anytime
subsequent to the date hereof.
TABLE OF CONTENTS
Page
----
Available Information .................................................... 2
Information Incorporated by Reference ................................... 2
The Company .............................................................. 4
Risk Factors ............................................................. 7
Use of Proceeds .......................................................... 14
Selling Security Holders ................................................. 14
Description of Securities ................................................ 16
Plan of Distribution ..................................................... 19
Legal Opinions ........................................................... 19
Experts .................................................................. 19
964,100 COMMON SHARES
WAVEPHORE, INC.
--------------------
PROSPECTUS
--------------------
MARCH __, 1997
20
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS.
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the issuance
and distribution of the securities being registered, all of which expenses will
be paid by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration Fee ................................ $ 2,045
Nasdaq Listing Fee ................................ $17,500*
Printing and Engraving Expenses ................... $ 1,500*
Legal Fees and Expenses ........................... $10,000*
Accounting Fees and Expenses ...................... $ 2,000*
Blue Sky Fees and Expenses ........................ $ 500*
Transfer Agent Fees and Expenses .................. $ 1,000*
Miscellaneous ..................................... $ *
-------
Total ...................................... $34,545*
=======
</TABLE>
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Unless limited by the Articles of Incorporation, the Indiana Business
Corporation Law (the "IBCL") requires that a corporation indemnify a director
who was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the director was a party because the director is or was a
director of the corporation against reasonable expenses incurred by the director
in connection with the proceeding. The IBCL permits a corporation to indemnify
an individual made a party to a proceeding because the individual is or was a
director against liability incurred in the proceeding if: (1) the individual's
conduct was in good faith; and (2) the individual reasonably believed: (A) in
the case of conduct in the individual's official capacity with the corporation,
that the individual's conduct was in its best interest; and (B) in all other
cases, that the individual's conduct was at least not opposed to its best
interests; and (3) in the case of any criminal proceeding, the individual
either: (A) had reasonable cause to believe the individual's conduct was lawful;
or (B) had no reasonable cause to believe the individual's conduct was unlawful.
Unless a corporation's articles of incorporation provide otherwise, an officer
of the corporation, whether or not a director, is entitled to mandatory and
court-ordered indemnification to the same extent as a director; and the
corporation may indemnify an officer, employee or agent of the corporation,
whether or not a director, to the same extent as a director, and to the extent,
consistent with public policy, that may be provided by its articles of
incorporation, bylaws, general or specific action of its board of directors, or
contract. The indemnification provisions of the IBCL are not exclusive of any
other rights to indemnification that a person may have under the corporation's
articles of incorporation or bylaws, a resolution of the board of directors or
of the shareholders, or any other authorization, whenever adopted, after notice,
by a majority vote of all of the voting shares then issued and outstanding.
The IBCL provides that a director is not liable for any action taken as
a director, or any failure to take any action, unless: (1) the director has
breached or failed to perform the duties of the director's office in compliance
with Section 23-1-35-1 of the IBCL; and (2) the breach or failure to perform
constitutes willful misconduct or recklessness. Section 23-1-35-1 of the IBCL
provides that a director shall, based upon the facts then known to the director,
discharge the duties as a director, including the director's duties as a member
of a committee: (1) in good faith; (2) with the care
II-1
<PAGE> 24
an ordinarily prudent person in a like position would exercise under similar
circumstances; and (3) in a manner the director reasonably believes to be in the
best interests of the corporation. In discharging the director's duties, a
director is entitled to rely upon information, opinions, reports, or statements,
including financial statements and other financial data, if prepared or
presented by: (1) one or more officers or employees of the corporation whom a
director reasonably believes to be reliable and competent in the matters
presented; (2) legal counsel, public accountants, or other persons as to matters
the director reasonably believes are within the person's professional or expert
competence; or (3) a committee of the board of directors of which the director
is not a member if the director reasonably believes the committee merits
confidence. A director is not acting in good faith if the director has knowledge
concerning the matter in question that makes reliance otherwise permitted by the
foregoing provisions unwarranted. A director may, in considering the best
interests of a corporation, consider the affects of any action on shareholders,
employees, suppliers, and customers of the corporation, and communities in which
offices or other facilities of the corporation are located, and any other
factors the director considers pertinent.
The Company's Articles of Incorporation provide that the corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including any action
or suit by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to the maximum extent permitted under the IBCL. Such indemnification
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any statute, bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
The Company's Code of Bylaws provide that the corporation shall
indemnify any individual or is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director, officer,
partner or trustee of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or enterprise whether or not for
profit, against liability and expenses, including attorneys fees, incurred by
him in any action, suit or proceeding, whether civil, criminal, administrative,
investigative, and whether formal or informal, in which he has made or
threatened to be made a party by reason of being or having been in any such
capacity, or arising out of his status as such, except (i) in the case of any
action, suit, or proceeding terminated by judgment, order or conviction, in a
relation to matters as to which he is adjudged to have breached or failed to
perform the duties of his office and the breach or failure to perform
constituted a willful misconduct or recklessness; and (ii) in any other
situation, in relation to matters as to which it is found by a majority of a
committee composed of all directors not involved in the matter in controversy
(whether or not a quorum) that the person breached or failed to perform the
duties of his office and the breach or failure to perform constituted a willful
misconduct or recklessness.
The directors and officers of the Company are covered by an insurance
policy indemnifying against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act"), in certain circumstances.
The Company has agreed to indemnify the Selling Shareholders, including
their officers, directors, employees, agents, partners or controlling persons,
against certain liabilities, including liabilities under the Act.
II-2
<PAGE> 25
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Restated Articles of Incorporation (incorporated by
reference to Exhibit 4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994).
3.2 Articles of Amendment to the Company's Articles of
Incorporation, dated December 27, 1995 (incorporated by
reference to Exhibit 3 to the Company's Current Report on
Form 8-K dated December 27, 1995).
3.3 Articles of Amendment to the Company's Articles of
Incorporation, dated February 7, 1996 (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement No.333-1198 on Form S-3).
3.4 Restated Code of Bylaws (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement No.
33-80343 on Form S-8).
5 Opinion of Barnes & Thornburg, regarding legality.
23.1 Consent of Ernst & Young LLP.
23.3 Consent of Barnes & Thornburg (included in Exhibit 5).
24 Power of Attorney (included on signature page of
Registration Statement).
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-3
<PAGE> 26
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix , State of Arizona, on March , 1997.
WAVEPHORE, INC.
By /s/ David E. Deeds
-----------------------------------------
David E. Deeds, Chairman, Chief
Executive Officer and President
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints David E. Deeds, R. Glenn Williamson,
Kenneth D. Swenson and Douglas J. Reich, and each of them, his
attorneys-in-fact, each with a power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ David E. Deeds Chairman of the Board, Chief March 10, 1997
- ----------------------- Executive Officer and President
David E. Deeds (Principal Executive Officer)
/s/ R. Glenn Williamson Executive Vice President, Chief March 10, 1997
- ----------------------- Operating Officer, and Director
R. Glenn Williamson
/s/ Kenneth D. Swenson Executive Vice President, Chief March 10, 1997
- ----------------------- Financial Officer, Treasurer
Kenneth D. Swenson (Principal Financial Officer and
Principal Accounting Officer) and
Director
/s/ C. Roland Haden Director March 10, 1997
- -----------------------
C. Roland Haden
/s/ Glenn Scolnik Director March 10, 1997
- -----------------------
Glenn Scolnik
/s/ J. Robert Collins Director March 10, 1997
- -----------------------
J. Robert Collins
II-5
<PAGE> 1
EXHIBIT 5
[BARNES & THORNBURG LETTERHEAD]
March 28, 1997
WAVEPHORE, INC.
3311 North 44th Street
Phoenix, Arizona 85018
Re: Issuance of Common Shares
-------------------------
Gentlemen:
We have acted as special Indiana counsel to WavePhore, Inc., an Indiana
corporation (the "Company"), in connection with its Registration Statement on
Form S-3 (the "Registration Statement") filed under the Securities Act of 1933,
as amended, relating to the registration and sale from time to time of up to an
aggregate of 964,100 of the Company's Common Shares, without par value (the
"Shares"), underlying the Company's warrants issued as of September 10, 1996
(the "Warrants").
In rendering the opinions set forth herein, we have limited our factual
inquiry to (i) reliance on a certificate of the Secretary of the Company, (ii)
reliance on the facts and representations contained in the Registration
Statement, including without limitation those relating to the number of the
Company's Common Shares, without par value, which are authorized, issued or
reserved for issuance upon exercise of the Warrants, and (iii) such documents,
corporate records and other instruments as we have deemed necessary or
appropriate as a basis for the opinions expressed below, including without
limitation a certificate issued by the Secretary of State of the State of
Indiana dated March 25, 1997 attesting to the corporate existence of the
Company in the State of Indiana.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies, and the authenticity of the originals of such copies. In
rendering the opinion expressed below, we have assumed that the Shares will
conform, and that the Warrants do conform, in all material respects to the
description thereof set forth in the Registration Statement.
Based upon the foregoing, and subject to the qualifications set forth
herein, we are of the opinion that, when the following events have occurred:
(a) the Registration Statement has become effective under the
Securities Act of 1933, as amended;
<PAGE> 2
WAVEPHORE, INC.
March 28, 1997
Page 2
(b) the registration and delivery of the certificate or
certificates evidencing the Shares have occurred; and
(c) the Shares have been issued and sold upon the exercise of the
Warrants in the manner specified in the Registration Statement and the Company
has received the consideration therefor as described in the Registration
Statement; then
the Shares will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the current internal laws of the
State of Indiana (without giving effect to any conflict of law principles
thereof), and we have not considered, and express no opinion on, the laws of
any other jurisdiction. This opinion is based on the laws in effect and facts
in existence on the date of this letter, and we assume no obligation to revise
or supplement this letter should the law or facts, or both, change.
This opinion is intended solely for the use of the Company in
connection with the registration of the Shares. It may not be relied upon by
any other person or for any other purpose, or reproduced or filed publicly by
any person, without the written consent of Barnes & Thornburg; provided,
however, that we hereby consent to the filing of this opinion as Exhibit 5 to
the Registration Statement and to the references to Barnes & Thornburg
contained in the Registration Statement.
Very truly yours,
/s/ Barnes & Thornburg
BARNES & THORNBURG
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of WavePhore, Inc. for
the registration of 964,100 shares of its common stock and the incorporation by
reference therein of our report dated February 14, 1997, with respect to the
financial statements of WavePhore, Inc. included in its Annual Report (Form
10-K) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Phoenix, Arizona
March 6, 1997
