<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997
REGISTRATION STATEMENT NO. 333-34127
================================================================================
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: COPY TO:
DOUGLAS J. REICH, ESQ. STEVEN D. PIDGEON, ESQ.
WAVEPHORE, INC. SNELL & WILMER L.L.P.
3311 NORTH 44TH STREET ONE ARIZONA CENTER
PHOENIX, ARIZONA 85018 PHOENIX, ARIZONA 85004-0001
(602)952-5500 (602) 382-6000
----------------------------
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, check the following box./ /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box.:/X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box./ /
----------------------------
(FACING PAGE CONTINUED ON FOLLOWING PAGE)
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares 4,772,732 Shares $7.00(2) 33,409,124 $ 10,124
- ----------------------------------------------------------------------------------------------------------------------
Warrants to Purchase 954,545 Warrants -0-(3) -0-(3) -0-
Common Shares
- ----------------------------------------------------------------------------------------------------------------------
Common Shares Issuable 954,545 Shares $8.80(3) 8,399,996(3) $ 2,545
Upon Exercise of Warrants
- ----------------------------------------------------------------------------------------------------------------------
Total $ 12,669
======================================================================================================================
</TABLE>
(1) The Company agreed to register 175% of the Common Shares issuable upon
conversion of the Series C Preferred Shares and exercise of the
Warrants. In the event of a stock split, stock dividend, or similar
transaction involving Common Shares of the Company, in order to
prevent dilution, the number of shares registered shall be
automatically increased to cover the additional shares in accordance
with Rule 416(a) under the Securities Act of 1933. In addition,
pursuant to Rule 416, this Registration Statement also covers such
indeterminate number of additional Common Shares which may become
issuable upon conversion of the Series C Preferred Shares by reason
of reductions in the conversion price thereof in accordance with its
terms (including, but not limited to, the terms which cause the
variable conversion price thereof to decrease to the extent the
market price of the Company's Common Shares declines).
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the last reported sales price of
the Common Shares on August 14, 1997, as reported by the Nasdaq
National Market.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g), based upon the last reported sales price of
the Common Shares on August 14, 1997, as reported by the Nasdaq
National Market.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
PROSPECTUS
5,727,277 COMMON SHARES
WAVEPHORE, INC.
All of 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"). Pursuant to Rule 416 under the Securities
Act of 1933, as amended (the "Securities Act"), the number of Common Shares
offered hereby (the "Common Shares") includes such presently indeterminate
number of Common Shares as may be issued on conversion of the Company's Series C
Convertible Preferred Stock (the "Series C Preferred Shares"), as a dividend,
payment of a redemption price or otherwise pursuant to the provisions thereof
regarding determination of the applicable conversion price, including
adjustments to the conversion price to prevent dilution resulting from stock
splits, stock dividends or similar transactions, or by reason of reductions in
the conversion price in accordance with the terms thereof (including, but not
limited to, the terms which cause the variable conversion price thereof to
decrease to the extent the market price of the Company's Common Shares
declines). In addition, the Company has agreed to register 175% of the Common
Shares issuable upon conversion of the Series C Preferred Shares at the Fixed
Conversion Price (defined below) and exercise of the related Warrants issued on
July 24, 1997. Until January 23, 1998, six months after the date of issuance of
the Series C Preferred Shares, the applicable conversion price is $8.80 ("Fixed
Conversion Price"), which is equal to 115% of the average closing sale prices of
the Company's Common Shares for the five trading days prior to but not including
the date of issuance. The Fixed Conversion Price may be extended up to six
months if the Company satisfies certain conditions in its Articles of Amendment.
If the Fixed Conversion Price of the Common Shares were used to determine the
number of Common Shares issuable as of the first date on which the Series C
Preferred Shares may be converted, the Company would be obligated to issue a
total of approximately 2,727,275 Common Shares if all 24,000 Series C Preferred
Shares outstanding on the date of this Prospectus were to be converted. An
additional 545,454 Common Shares may be purchased upon exercise of presently
outstanding Warrants sold to the Selling Security Holders simultaneously with
the purchase of the Series C Preferred Shares. The 545,454 Common Shares
purchasable upon exercise of the Warrants also may be offered by the Selling
Security Holders. See "Selling Security Holders." The Company will not receive
any of the proceeds from the sale of Common Shares by the Selling Security
Holders, although the Company will receive up to $4,799,995 upon exercise of the
Warrants. The Selling Security Holders may elect to sell all, a portion, or none
of the Common Shares registered hereby. The Common Shares are traded on the
Nasdaq National Market ("Nasdaq") under the symbol "WAVO." The Common Shares
being registered under the Registration Statement of which this Prospectus is a
part may be offered for sale from time to time by or for the account of such
Selling Security Holders in the open market, on the Nasdaq National Market, in
privately negotiated transactions, in an underwritten offering, or a combination
of such methods, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Common
Shares are intended to be sold through one or more broker-dealers or directly to
purchasers. Such broker-dealers may receive compensation in the form of
commissions, discounts or concessions from the Selling Security Holders and/or
purchasers of the Common Shares for whom such broker-dealers may act as agent,
or to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be in excess of customary concessions). The Selling
Security Holders and any broker-dealers who act in connection with the sale of
Common Shares hereunder may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by them and proceeds of any
resale of the Common Shares may be deemed to be underwriting discounts and
commissions under the Securities Act. See "Selling Security Holders" and "Plan
of Distribution." 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 "Plan of
Distribution."
SEE "RISK FACTORS" ON PAGE 6 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 HOLDERS 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 SEPTEMBER 26, 1997.
<PAGE> 4
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 as 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; (2)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June
30, 1997; (3) the Proxy Statement for the 1997 Annual Meeting of
Securityholders; (4) Current Report on Form 8-K filed on August 1, 1997; (5)
Current Report on Form 8-K filed on June 12, 1997; (6) Current Report on Form
8-K/A filed on August 12, 1997; and (7) 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.
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The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all documents 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 for such documents should be directed to Investor
Relations, WavePhore, Inc., 3311 North 44th Street, Phoenix, Arizona 85018;
telephone (602) 952-5500.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including all documents incorporated herein by reference,
contains forward-looking statements including statements regarding, among other
items, the Company's business strategy, growth strategy, and anticipated trends
in the Company's business. Additional written or oral forward-looking statements
may be made by the Company from time to time in filings with the Commission or
otherwise. The words "believe," "expect," "anticipate," and "project" and
similar expressions identify forward-looking statements, which speak only as of
the date the statement is made. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, some of which cannot be predicted or quantified and are beyond
the Company's control. Future events and actual results could differ materially
from those set forth in, contemplated by, or underlying the forward-looking
statements. Statements in this Prospectus, including those set forth in "Risk
Factors," and the documents incorporated herein by reference, describe factors,
among others, that could contribute to or cause such differences. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information contained in or incorporated into this Prospectus
will in fact transpire or prove to be accurate. All written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the foregoing.
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THE COMPANY
Investors should carefully consider the information set forth under the
heading "Risk Factors" commencing on page 6 of this Prospectus. Except as
otherwise specified, all references herein to the "Company" or "WavePhore"
include WavePhore, Inc., an Indiana corporation, and each of its subsidiaries.
GENERAL
WavePhore is a developer and provider of proprietary products and
services for low-cost, high-speed, data broadcasting systems for distributing
electronic information via existing worldwide television, radio, and satellite
broadcast infrastructures and the Internet. The Company currently operates two
divisions and is developing a third division within the data broadcasting
industry: (i) its Networks Division provides equipment and data broadcasting
services to major information providers to enable them to broadcast news and
other information to their customers; (ii) its Newscast(TM) Division provides
business customers with customized and aggregated news and information delivered
from information providers and other content sources; and (iii) its recently
formed Consumer Division is developing a consumer-based entertainment and
programming service for data broadcasting to home PCs and TV/PCs known as
WaveTop(TM).
NETWORKS DIVISION
The Company, through its Networks Division, provides wireless data
broadcasting network services and equipment to providers of financial data,
news, and other information, such as Reuters America, Inc. ("Reuters"), Dow
Jones & Company, Inc., the Associated Press, Knight-Ridder, Inc., and Thompson
Financial Services. The Company's broadcast networks utilize established
technologies, such as FM subcarrier and small dish satellite broadcasting
technologies, that are well-suited to the economical one-way transmission of
time-sensitive data from one central location to many remote sites. The
Company's FM subcarrier transmission operations are established in 14 major
United States markets that, combined with the Company's small dish satellite
coverage, enable the Company to serve the continental United States and the
major population centers in Canada. The Company designs, sells, and rents data
receivers and network management equipment and systems to information providers
for use with the Company's networks or their own private network. These
companies include Novanet Communications Limited, SkyTel Corp., AEI Music
Network, Inc., Reuters, Muzak, 3M Company and WSI Corporation.
NEWSCAST DIVISION
The Company's WavePhore Newscast(TM) Today service allows users to create
customized information profiles and have news and information matching those
profiles electronically "clipped" from a large variety of information sources
and delivered to the users' PCs. The Newscast service, which incorporates
hardware and software elements, enables end users to filter real-time news and
other data from information providers and allows 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 service for Microsoft Windows(R) and Apple
Macintosh(R) operating systems.
CONSUMER DIVISION (WAVETOP)
In February 1997, the Company announced the creation of WaveTop(TM)
("WaveTop"), a consumer broadcast service that the Company expects will become a
nationwide wireless broadcast medium for the home PC. This new service is
intended to deliver entertainment and information programming, utilizing "push"
technology, via existing analog television broadcast signals without the
bandwidth limitations associated with the Internet. The Company expects WaveTop
to provide streaming multimedia content, including audio, video, software and
real-time data, to broadcast-ready PCs or TV/PCs. The WaveTop service will
broadcast data and other content by inserting it into the
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<PAGE> 7
vertical blanking interval ("VBI") of existing analog television signals. The
Public Broadcasting Service ("PBS") and its member stations, pursuant to an
agreement with PBS National Datacast, Inc., will provide the broadcast signal
that WaveTop utilizes to transmit its information. The Company intends to offer
a variety of "channels" through WaveTop, free of charge to the consumer. The
Company is seeking to generate revenue from advertiser-sponsors and content
provider-sponsors for the respective channels. The Company also will 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 WaveTop service is expected to commence operations
in the fourth quarter of 1997, although there can be no assurance that such
initial operations will not be delayed.
The Company designs and produces proprietary VBI equipment, including
encoders, decoders, and bridges, and has developed various software packages and
systems for data transmission and reception. To facilitate reception of the
WaveTop service by home PC users, the Company has licensed WaveTop related
technology to PC manufacturers such as Compaq Computer Corporation. Certain of
the Company's VBI technology, which has been licensed to Intel Corporation
("Intel") by the Company, permits a PC to receive and display television
broadcasting and datacasting. The Company and Intel also have jointly developed
a hardware developer's kit for Intel's Intercast Viewer and WavePhore's
broadcast services, which includes jointly developed VBI decoder technology in
software form that is used to extract data embedded in the standard television
signal. The kit provides OEM PC/board manufacturers and independent hardware
vendors tools to develop and test products that will support Intel's Intercast
technology and WavePhore's data broadcasting technology and services.
RECENT DEVELOPMENTS--ACQUISITION OF PARACEL ONLINE SYSTEMS, INC.
On May 29, 1997, the Company purchased substantially all of the assets
and assumed certain of the liabilities of Paracel Online Systems, Inc. ("Paracel
Online"), a provider of customized and aggregated news and other information
derived from newspapers, newswires, and news magazines to general business
customers worldwide utilizing proprietary and licensed technology. Paracel
Online also provides industry specific, high performance text and data analysis
services to the pharmaceutical, biotechnology, and commercial online information
industries.
The Company paid $3,000,000 for Paracel Online at closing, and agreed to
pay an additional $6,000,000 in November 1997. The purchase agreement also
provides for the delivery of additional consideration if the combined WavePhore
Newscast and acquired Paracel Online businesses achieve certain minimum
financial performance thresholds in 1997 and 1998, respectively. Subject to
certain conditions, 50% of any additional consideration may be paid in Common
Shares based upon the then current value of such shares.
The Paracel Online news service receives information from a wide variety
of national and international sources continuously throughout the day via
satellite and other methods of electronic transmission. Through the use of
proprietary technology, the information is processed and then delivered to
customers' PCs, principally via the Internet, and also via Lotus Notes networks
and e-mail servers. Each customer of the Paracel Online service has at least one
custom-designed profile, which pinpoints topics, competitors, industry terms,
and companies according to the customer's predefined profile. The Paracel Online
news service utilizes Fast Data Finder ("FDF") text filtering and categorization
technology licensed to Paracel Online. The Fast Data Finder uses the
custom-built profiles as road maps for filtering the information for each
customer. The FDF is a massively-parallel hardware accelerator for
high-precision, large-scale text profiling that enables the filtering of raw
information and customization of information on a very large scale. The Paracel
Online business is currently operated within the Company's WavePhore Newscast
division.
The Company is an Indiana corporation formed on November 13, 1990. The
Company's principal executive offices are located at 3311 N. 44th Street,
Phoenix, Arizona and its telephone number is (602) 952-5500.
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<PAGE> 8
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 a significant acquisition in December 1995,
the Company had very limited revenues from operations and had incurred
significant losses and substantial negative operating cash flow. Since the
initial acquisition and partially as the result of substantial additional
acquisitions, the Company's revenues have increased significantly. However, the
Company has continued to incur losses and negative cash flow and expects to
continue to do so in the foreseeable future.
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 analog television signals broadcast by PBS
member television stations pursuant to an agreement with PBS National Datacast,
Inc. 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.
RISK ASSOCIATED WITH DEVELOPMENT OF ADVANCED TELEVISION SYSTEM FORMAT
The advanced television system format ("ATV") currently under development
by the broadcast industry is expected eventually to enable television
broadcasters to transmit digital programming and non-programming related data at
high speeds to a mass audience. ATV utilizes a digital television signal, as
compared to the analog signals currently used by U.S. and other television
broadcasters. While the Company expects to migrate its television signal-based
data broadcasting products and services to the digital-based ATV format when it
becomes available, and anticipates that it will develop products and services
that will take advantage of the data broadcasting opportunities expected to be
created by implementation of ATV, there can be no assurance that the Company
will be successful in these efforts. If the digital-based ATV format achieves
widespread acceptance in the future, the Company will be required to adapt its
television signal-based data broadcasting products and services to be compatible
with such format or its future business operations will be materially and
adversely affected.
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<PAGE> 9
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 that provide products and services
similar to those offered by the Company, including, among others, (i) the
regional Bell operating companies, AP SatNet and Data Broadcasting Corporation
in the data broadcasting business, (ii) dial-up services such as Reed Elsevier,
Inc.'s LEXIS/NEXIS(R), Desktop Data, Inc., and Individual, Inc. in the
electronic information access and processing business, and (iii) 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 services are developed and
offered at more competitive prices than those of 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
adversely affected 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.
EMERGING MARKET FOR CUSTOMIZED INFORMATION SERVICES
The market for the Company's customized information services has only
recently begun to develop, is rapidly evolving and is characterized by an
increasing number of market entrants who have introduced or developed business
information services for delivery by facsimile and over public and private
networks, online services, the Internet and intranets. As is typical of a new
and rapidly evolving industry, demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty.
The Company's future operating results will depend in substantial part on
its ability to increase the subscriber base of its Newscast service, which is
sold to businesses, organizations, professionals and other institutional users,
to successfully launch its WaveTop service, which will be offered to consumers,
and to attract content sponsorship from advertisers for its products. Growth in
the subscriber base of Newscast and WaveTop will depend on, among other factors,
the ability of the Company to expand its direct and indirect sales and marketing
channels, to attract and retain information providers that publish news and
information that is relevant to the needs of the Company's customers, and to
deliver its services across the multiple delivery platforms that are relied upon
by its customers to support their changing communications infrastructure. The
receipt of paid advertising sponsorship of WaveTop will depend on, among other
matters, market acceptance of this form of advertising, the Company's ability to
build a direct sales force to sell advertising, the Company's ability to attract
and retain information providers, and the Company's ability to develop and
increase a base of users of a sufficient size and with appropriate demographics
to attract advertisers.
Because the market for the Company's products and services is new and
evolving, it is difficult to predict with any assurance the growth rate, if any,
and size of this market, as well as the costs to develop this market. There can
be no assurance that the market for the Company's products and services will
develop or that the Company's products and services will achieve market
acceptance. Specifically, the Company has no prior experience in marketing its
products and services to consumers, which is the primary target market for its
WaveTop service. If this market fails to develop, develops more slowly than
expected, or becomes saturated with competitors; if the Company's products
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and services do not achieve market acceptance; or if pricing becomes subject to
significant competitive pressures, the Company's business, results of
operations, and financial condition will be materially adversely affected.
DEPENDENCE ON GROUPWARE SOFTWARE AND LICENSED TECHNOLOGY
With the Company's recent acquisition of Paracel Online, it is
anticipated that a portion of the Company's revenue will be derived from
services delivered to customers who have established private communications
networks based on third party groupware software, including primarily Lotus
Notes (a software program marketed by IBM). Any factor adversely affecting the
demand for, or use of, Lotus Notes or other similar software could have an
adverse impact on the demand for the Company's newly acquired products and
services and would cause a material adverse effect on the Company's business,
results of operations, and financial condition. Additionally, any changes to the
underlying components of Lotus Notes or other similar software that would
require changes to the Company's newly acquired products and services would
materially adversely affect the Company if it were not able to successfully
develop or implement such changes in a timely and cost-effective fashion. In
addition, certain technology critical to the Paracel Online service, including
FDF technology, is licensed from third parties, principally its former parent
company. Under a license from Paracel Online's former parent company, WavePhore
has been granted exclusive rights to certain software through May 29, 2002, and
non-exclusive rights thereafter.
DEPENDENCE ON INFORMATION PROVIDERS
The Company currently offers information profiles electronically
"clipped" from a large variety of information sources pursuant to agreements
between the Company and approximately 36 information providers. The Company's
agreements with information providers are generally for a term of one or more
years, with automatic renewal unless notice of termination is provided before
the end of the term by either party. These agreements also may be terminated by
the information providers if the Company fails to fulfill its obligations under
the applicable agreement. Some agreements are terminable at will. Many of these
information providers compete with one another and, to some extent, with the
Company for subscribers and paid advertising. Termination of one or more
significant information provider agreements would decrease the news and
information which the Company can offer its customers and could have a material
adverse effect on the Company's business, results of operations, and financial
condition. The Company may in the future be subject to certain third party
claims, such as defamation, as a result of the content supplied by its
information providers, and any such claim may have a material adverse effect on
the Company. In addition, fees payable to the Company's information providers
constitute a significant portion of the Company's cost of revenues for such
business. If the Company is required to increase the fees payable to its
information providers, such increased fee payments could have a material adverse
effect on the Company's gross margins and results of operations.
RISK OF SYSTEM FAILURE OR INADEQUACY
The Company's operations are dependent on its ability to maintain its
computer and telecommunications equipment in effective working order and to
protect its systems against damage from fire, natural disaster, power loss,
telecommunications failure, or similar events. 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.
Although the Company has arranged for off-site back-up for its network control,
this measure does not eliminate the significant risk to the Company's operations
from a natural disaster or system failure at its principal site. The Company's
operations are dependent upon receipt of timely feeds and computer downloads
from its information providers, and any failure or delay in the transmission or
receipt of such feeds and downloads, whether on account of system failure of the
information providers, the Company's network, or otherwise, would disrupt the
Company's operations. In addition, growth of the Company's customer base may
strain the capacity of its computer and telecommunications systems and lead to
degradations in performance or system failure. Any damage, failure or delay that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's business, results of operations, and financial
condition.
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DEPENDENCE ON INFORMATION TRANSMISSION FACILITIES
The Company's Newscast news and information is transmitted, and WaveTop
is expected to be transmitted, using one or more of three methods: via
television transmission utilizing VBI, satellite transmission, or FM radio
transmission. None of these methods of transmission is completely within the
control of the Company, and the loss or significant disruption of any of them
could have a material adverse effect on the Company's business. News and
information is delivered by information providers to the Company's news
consolidation facility, where it is reformatted for broadcast and transmitted to
the Company's customers. Any interruption in transmission facilities could
adversely affect the Company's ability to broadcast its services. Although the
Company generally is not required to hold an FCC license to broadcast data via
these transmission sources, such sources typically are required to hold an FCC
license. To the extent the transmission facility relied upon by the Company to
transmit data fails to maintain its license with the FCC or the FCC does not
renew the license upon expiration, the Company will not be able to transmit data
using that source in the future. In addition, the Company currently relies on an
agreement with PBS National Datacast, Inc. to broadcast its WaveTop service
through the PBS television signal. This agreement expires on January 1, 2002,
subject to a five-year option to extend the Agreement. The agreement may be
terminated if the Company fails to fulfill certain conditions. To the extent
this contractual arrangement is terminated or the PBS television signal is
interrupted, the Company's ability to broadcast its WaveTop service will be
significantly impaired.
RISKS ASSOCIATED WITH ACQUISITIONS
Acquisitions, including the Company's acquisition of BleuMont Telecom
Inc. in January 1995, Mainstream Data, Inc. in December 1995 and Paracel Online
in May 1997, involve a number of potential risks, including difficulties in the
assimilation of the acquired companies' operations, technology, products and
personnel, completion and integration of acquired in-process technology,
diversion of management's resources, uncertainties associated with operating in
new markets, and working with new employees and customers, and the potential
loss of the acquired companies' key employees. In order for the Company to
achieve anticipated benefits from its acquisitions, the Company will need to
integrate the acquired companies' business and key employees with the Company's
existing operations. No assurance can be given that the Company will be
successful in this regard. Moreover, even if successfully integrated, the
acquired companies' operations may not achieve levels of revenues or
productivity comparable to those achieved by the Company's existing operations,
or otherwise perform as expected. The combination of these companies will also
require substantial attention from management. In addition, the process of
combining these organizations could cause the interruption of, or a loss of
momentum in, the activities of the Company's businesses. The diversion of the
attention of management and the interruption or loss of momentum with respect to
the Company's business activities could have an adverse effect on the business,
results of operations, and financial condition of the Company.
Management may from time to time consider other acquisitions of assets or
businesses that it believes may enable the Company to acquire complementary
skills and capabilities, offer new products, expand its customer base, or obtain
other competitive advantages. There can be no assurance that the Company will be
able to successfully identify suitable acquisition candidates or complete future
acquisitions. In order to finance such acquisitions or fund the operations of
any acquired businesses, it may be necessary for the Company to raise additional
funds either through public or private financings, including bank borrowings.
Any financing, if available at all, may be on terms that are not favorable to
the Company. In addition, issuances of the Company's equity securities for
future acquisitions could result in dilution to the Company's existing
stockholders. There can be no assurance that the Company's acquisitions and any
future acquisitions will not have a material adverse effect upon the Company's
business and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
A component of the Company's strategy is its planned expansion into
international markets. To date, the Company has only limited experience in
marketing, selling, and delivering its products and services internationally.
There can be no assurance that the Company will be able to successfully market,
sell, and deliver its products and
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services in international markets. The Company anticipates that any significant
international expansion efforts may require a substantial commitment of the
Company's funds. In addition to the uncertainty as to the Company's ability to
expand its international presence, there are certain risks inherent in doing
business on an international level, such as regulatory requirements, export
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, difficulties in protecting intellectual property
rights, longer payment cycles, problems in collecting accounts receivable,
political instability, fluctuations in currency exchange rates, currency
controls, changes in import/export regulations, and potentially adverse tax
consequences, which could adversely impact the success of the Company's
international operations. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, results
of operation, and financial condition.
DEPENDENCE UPON STRATEGIC ALLIANCES OR RELATIONSHIPS
The Company's future success will, in part, depend upon its ability to
develop additional and maintain existing strategic alliances or relationships
with information providers, 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 demand for high-speed data
broadcasting products and services. The Company will 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 or maintain
such strategic relationships, and the inability of the Company to do so would
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 will depend in part on the efforts and commitment
of such collaborative partners.
FCC REGULATION
In the United States, broadcast transmissions are subject to regulation
by the Federal Communications Commission ("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 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. There can be no assurance that the licenses for the FM stations used
by the Company will be renewed. Although the Company believes that adequate
alternative FM stations would be available for use by the Company, any delay in
identifying alternative stations or the terms upon which they are willing to
supply their services could adversely affect the Company's business.
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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. Specifically, the FCC has not issued final regulations
regarding the transmission of non-programming related content in the ATV format,
although Congress specifically authorized such use in the legislation adopting
the ATV format. If the Company migrates its television signal-based data
broadcasting services to the ATV format, the Company will become subject to any
regulations adopted by the FCC governing transmission of content in the ATV
format.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the net proceeds from its recent
offering of Series C Preferred Shares and related Warrants, together with other
available funds, including under its credit facility, and cash flow generated
from business operations, will be sufficient to meet anticipated needs for
working capital, capital expenditures, and business expansion for at least the
next 12 months. Thereafter, the Company believes that it may need to raise
additional funds. The Company may need to raise additional funds in order to
fund expansion, develop new or enhanced services or products, to respond to
competitive pressures, or to acquire complimentary products, businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible securities, the percentage ownership of the stockholders of the
Company will be reduced and such securities may have rights, preferences or
privileges senior to those of the holders of the Common Shares. There can be no
assurance that additional financing will be available on terms favorable to the
Company, or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to fund its expansion, take
advantage of acquisition opportunities, develop or enhance services or products
or respond to competitive pressures. Such inability could have a material
adverse effect on the Company's business, results of operations and financial
conditions.
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 ON SUPPLIERS
Components used in certain of the Company's products, including
microprocessors and other electronic components, may be available from only one
source, 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 of
enclosures, and assembly of mechanical components from single sources. The
Company generally obtains these products 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
or products to the Company on a timely basis could materially adversely affect
the Company's operations.
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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.
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 equipment 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 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
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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.
CONTROL BY EXISTING SHAREHOLDERS
As of August 14, 1997, the current officers and directors of the Company
owned approximately 30% 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, may 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.
VOLATILITY IN PRICE OF COMMON SHARES; STOCK REPURCHASE PLAN; NASDAQ LISTING
MATTERS
The market price of the Company's Common Shares, like that of the 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. In addition,
the Company has adopted a stock repurchase plan pursuant to which the Company
may from time to time repurchase its Common Shares in the open market. Such
purchases, if made, could tend to increase the price of the Common Shares.
The Company's Common Shares are quoted on the Nasdaq National Market,
which imposes various requirements for ongoing listing. Among other matters,
rules applicable to Nasdaq National Market issuers require shareholder approval
of certain stock issuances. The Company does not believe shareholder approval is
required and therefore has not pursued shareholder approval for the issuance of
Common Shares pursuant to conversion of the Series C Preferred Shares and the
exercise of the related Warrants, or for the potential issuance of shares in
connection with the acquisition of Paracel Online. There can be no assurance
that Nasdaq will not require such approval or will not seek to delist the
Company's Common Shares if such approval is not obtained.
DILUTION
Certain events, including the issuance of additional shares of preferred
stock or Common Shares, including upon the exercise or conversion of outstanding
options, warrants and shares of preferred stock of the Company, or in connection
with the payment of dividends on the Series A, Series B and Series C Preferred
Shares, could result in substantial dilution of the Common Shares. The Company's
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. For the first six
months following the date of issuance of the Series C Preferred Shares (the
"Fixed Conversion Price Period"), the conversion price will be $8.80, which is
equal to 115% of the average of the closing sale prices of the Company's Common
Shares as reported on the Nasdaq National Market on the five trading days
immediately prior to, but not including, the date of issuance (the "Fixed
Conversion Price"). The Fixed Conversion Price may be extended up to six months
if the Company satisfies certain conditions described in its Articles of
Amendment. Following the Fixed Conversion Price Period, the conversion price
will be the lesser of: (i) the Fixed Conversion Price, or (ii) a "floating"
conversion price equal to the average of the third to seventh lowest closing
sale
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prices for the Company's Common Shares during the 30 trading days immediately
prior to but not including the Conversion Date. Because the applicable
conversion prices, and thus the number of Common Shares that 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 price of $7.00 per share for the
Company's Common Shares on August 14, 1997 was utilized for the purpose of
calculating the conversion prices of the Series A and Series B Preferred Shares,
the Company would be obligated to issue approximately 2,130,006 and 32,898
Common Shares, respectively, if all of the Series A and Series B Preferred
Shares outstanding on August 14, 1997 were converted at the conversion price
determined thereby. Based on the Fixed Conversion Price of $8.80 per share,
which remains in effect until expiration of the Fixed Price Conversion Period,
the Company would be obligated to issue approximately 2,727,275 Common Shares
if all Series C Preferred Shares were converted as of August 14, 1997. The
issuance of such amount of Common Shares, and the potential "overhang" of such
shares on the market, could adversely affect the prevailing market price of the
Company's Common Shares. In addition, the Company may from time to time issue
additional Common Shares or other series of preferred stock exercisable for or
convertible into Common Shares to finance the expansion of its business, for
acquisitions, or for other corporate purposes.
RISK OF MANDATORY REDEMPTION IN CERTAIN CIRCUMSTANCES
If a Mandatory Redemption Event (as defined below) occurs, each holder
of Series C Preferred Shares will have the right to require the Company to
redeem those shares for cash equal to the Stated Value of the Series C
Preferred Shares ($1,000 per share) being redeemed multiplied by 120%, unless
the Mandatory Redemption Event relates to the Company's failure to deliver
Common Shares in certain circumstances, in which case the Mandatory Redemption
Price will be equal to (a) the Stated Value of the shares being redeemed, plus
(b) the Stated Value of such shares multiplied by 1.125% for each month elapsed
between the date the Series C Preferred Shares were purchased from the Company
and the Mandatory Redemption Date. Mandatory Redemption Events include, but are
not limited to, (i) the failure of the Company to timely deliver Common Shares
as required under the terms of the Series C Preferred Shares, (ii) the failure
by the Company's shareholders to approve the transactions contemplated by the
agreement relating to the issuance of the Series C Preferred Shares, including
the issuance and sale of the Series C Preferred Shares and the reservation for
issuance and the issuance of the Common Shares upon conversion of the Series C
Preferred Shares, (iii) the Company's failure to satisfy registration
requirements applicable to the Series C Preferred Shares and any underlying
securities, (iv) the failure by the Company to maintain the listing of its
Common Shares on the Nasdaq National Market or another national securities
exchange, and (v) certain transactions involving a sale of assets or business
combination involving the Company. If a Mandatory Redemption Event occurs,
there can be no assurance that the Company will have the necessary funds to
effect such redemption or that the satisfaction of such redemption will not
adversely affect the financial condition of the Company.
EFFECT OF ANTIDILUTION PROTECTION FOR EXISTING SECURITIES
The Company's outstanding shares of Series A and Series B Preferred
Shares, and certain related warrants, provide for a reduction in the otherwise
applicable conversion price or exercise price in the event the Company issues
Common Shares (or securities convertible into Common Shares) at an effective
price less than the conversion or exercise price then in effect. In connection
with a consent solicitation undertaken by the Company in the fall of 1996, a
substantial majority of the holders of the Company's Series A and Series B
Preferred Shares and the related warrants consented to a waiver of these
particular antidilution provisions. Further, certain holders of these securities
have converted or exercised them since the consent solicitation. At June 30,
1997, 1,101 shares of Series A and B Preferred Shares were held by
non-consenting holders and no warrants containing these provisions were held by
non-consenting holders. Accordingly, although any potential adjustment in the
conversion price of such securities and resulting dilution that may result from
issuance of additional preferred stock or warrants or issuance of Common Shares
underlying preferred stock or warrants cannot be quantified at the present time,
the Company does not believe that any such dilution would be material. The
Company's outstanding Series C Preferred Shares also provide for antidilution
protection upon the occurrence of certain events such as stock splits,
redemptions, mergers, and major corporate announcements.
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 shares of preferred stock and to fix the rates, preferences,
privileges, and restrictions, including voting rights, of such 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
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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.
RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS
The Company has not paid any dividends on its Common Shares, and does not
plan to pay any 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. Further,
although the Company's credit facility does not include any specific
prohibitions on the payment of dividends, it does include various financial
covenants that could have the effect of limiting cash dividend or redemption
payments. The Indiana Business Corporation Law includes limitations on the
ability of corporations to pay dividends on or to purchase or redeem their own
stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of August 14, 1997, the Company had 16,577,652 Common Shares
outstanding, all of which were eligible for trading on the Nasdaq National
Market. The Company also had outstanding, as of August 14, 1997, 501,963 1994
Cumulative Preferred Shares, 420,851 Series A Preferred Shares, 6,500 Series
B Preferred Shares, 24,000 Series C Preferred Shares, and options and warrants
to acquire an additional 4,717,340 Common Shares. All of the Common Shares
underlying the Company's outstanding preferred stock and warrants, and
substantially all of such shares underlying any outstanding options, have been
registered for resale by the holders thereof. Future sales of such Common and
Preferred Shares and additional presently indeterminate Common Shares that may
be issued by the Company in the future, including the Common Shares subject to
outstanding options, warrants and conversion rights, could adversely affect the
prevailing market price of the Common Shares.
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.
USE OF PROCEEDS
The Selling Security Holders will receive all of the proceeds and the
Company will not receive any of the proceeds from the sale of the Common Shares
offered hereby. If all of the outstanding Warrants were exercised, the Company
would receive gross proceeds of approximately $4,799,995, which the Company
expects to use for general corporate purposes. There can be no assurance that
any of such Warrants will be exercised.
15
<PAGE> 18
SELLING SECURITY HOLDERS
The following table provides information regarding the beneficial
ownership of the Common Shares as of August 14, 1997, and as adjusted to reflect
the sale of the securities offered hereby, by the Selling Security Holders.
Pursuant to Rule 416 of the Securities Act, Selling Security Holders may also
offer and sell Common Shares issued with respect to the Series C Preferred
Shares and the Warrants as a result of stock splits, stock dividends and
anti-dilution provisions (including by reason of reductions in the conversion
price of the Series C Preferred Shares related to reductions in the market price
of the Company's Common Shares and otherwise in accordance with the terms
thereof). 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.
<TABLE>
<CAPTION>
COMMON SHARES BENEFICIALLY COMMON
OWNED PRIOR TO THE SHARES COMMON SHARES
------------------ TO BE SOLD IN BENEFICIALLY OWNED
OFFERING(1) THE OFFERING(1) AFTER THE OFFERING(2)
----------- --------------- --------------------------
NAME OF SELLING
SECURITY
HOLDER NUMBER NUMBER NUMBER PERCENT
----------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Proprietary 681,818 681,818 0 0
Convertible
Investment Group
Inc.
Capital Ventures 681,818 681,818 0 0
International
CC Investments, 818,183 818,183 0 0
LDC
Nelson Partners(3) 766,730 340,909 425,821 2.0%
Olympus Securities, 553,657 340,909 212,748 1.0%
Ltd.(3)
RGC International 409,092 409,092 0 0
Investors, LDC
</TABLE>
- ---------------------
(1) Includes such number of Common Shares estimated to be issuable upon
conversion of the Series C Preferred Shares, assuming the Fixed
Conversion Price of $8.80 per share is used to determine the Common
Shares issuable on such conversion. See "Description of Securities."
The actual number of such Common Shares (and the actual number of
shares offered hereby) may be greater than the indicated amount as a
result of the application of the floating conversion price provisions
at the actual date of conversion. See "Description of Securities." The
Series C Preferred Shares were purchased by the Selling Security
Holders in a private placement by the Company on July 24, 1997. The
Series C Preferred Shares are convertible commencing October 24, 1997.
The figures above also include up to 545,454 Common Shares issuable
upon conversion of Warrants sold in connection with the private
placement of the Series C Preferred Shares; and also include the Common
Shares issuable to each of Nelson Partners and Olympus Securities, Ltd.
upon the conversion of Series A Preferred Shares currently held by
them, which Common Shares have been registered for resale from time to
time under a separate registration statement.
Except under certain limited circumstances, no holder of the Series C
Preferred Shares or Warrants is entitled to convert or exercise such
securities to the extent that the shares to be received by such holder
upon such conversion or exercise would cause such holder to
beneficially own more than 4.9% of the outstanding Common Shares.
Therefore, the number of shares set forth herein and which a Selling
Security Holder may sell pursuant to this Prospectus may exceed the
number of Common Shares such Selling Security Holder would otherwise
beneficially own as determined pursuant to Section 13(d) of the
Exchange Act. Moreover, pursuant to the regulations of the National
Association of Securities Dealers, in the absence of shareholder
approval, the aggregate number of Common Shares issuable to the Selling
Security Holders at a discount from market price upon conversion of the
Series C Preferred Shares and exercise of the Warrants may not exceed
19.99% of the outstanding Common Shares on July 24, 1997. Unless
shareholder approval is obtained to issue Common Shares to the Selling
Security Holders in such circumstance in excess of the maximum amount
set forth above, none of the Selling Security Holders will be entitled
to acquire more than its proportionate share of such maximum amount.
Any Series C Preferred Shares which may not be converted and any
Warrants which may not be exercised because of such limitation must be
redeemed by the Company.
(2) Assumes that the Selling Security Holder disposes of all of the Common
Shares covered by this Prospectus and does not acquire any additional
Common Shares. Except as set forth in footnote 1, assumes no other
exercise of options, warrants or conversion rights or issuances of
additional securities.
(3) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson") and the trading manager of Olympus Securities, Ltd.
("Olympus") and consequently has voting control and investment
discretion over securities held by both Nelson and Olympus. The
ownership information for Nelson does not include the shares owned by
Olympus and the ownership information for Olympus does not include the
shares owned by Nelson.
DESCRIPTION OF SECURITIES
The Company has authorized 50,000,000 Common Shares and 10,000,000
Preferred Shares ("Preferred Shares"). As of August 14, 1997, 16,932,152 Common
Shares were issued, of which 16,577,652 Common Shares were outstanding and
354,500 were held in the Company's treasury; and a total of 953,314 Preferred
Shares in four 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
16
<PAGE> 19
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 common 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 PREFERRED SHARES
The Series 1994 Cumulative Convertible Preferred Shares (the "Series 1994
Preferred Shares") consist of 501,963 authorized, issued, and outstanding
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 Preferred 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
Preferred Shares unless all accrued dividends have been paid on the Series 1994
Preferred Shares. On liquidation of the Company, holders of the Series 1994
Preferred Shares will be entitled to receive, before any distribution to holders
of Common Shares or other series junior to the Series 1994 Preferred Shares,
liquidation distributions equal to the stated value per Series 1994 Preferred
Share, plus accrued and unpaid dividends. The Company may redeem the Series 1994
Preferred 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 Preferred Shares. The
Series 1994 Preferred Shares have no voting rights except as otherwise provided
by law or the Articles of Incorporation. All of the Series 1994 Preferred 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 Preferred Shares"), of which 420,851 Series A
Preferred Shares were outstanding as of August 14, 1997. Holders of the Series A
Preferred Shares are 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
Preferred 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 "Series A Liquidation Preference"). The Series A Preferred 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 Series A 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 Shares have been registered
for resale under the Securities Act. Pursuant to written agreements with the
holders, each share
17
<PAGE> 20
of the Series A Preferred Shares may be convertible, at the option of the holder
thereof, into such number of Common Shares as is determined by dividing (i) the
Series A Liquidation Preference by (ii) the applicable Series A Conversion
Price. At any date, the Series A Conversion Price will be the lesser of (x)
$21.00 for certain holders and $5.48 for other holders or (y) 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 Preferred Shares (December 27, 1998), such
shares will be converted into Common Shares without any action on the part of
the holders thereof. Except as otherwise provided by law or the Articles of
Incorporation, the Series A Preferred Shares have no voting rights. The sole
holder of the Company's Series 1994 Preferred Shares consented to the creation
by the Company of the Series A Preferred Shares, which have certain rights
senior to the Series 1994 Preferred Shares.
SERIES B CONVERTIBLE PREFERRED SHARES
The Company is authorized to issue 600,000 Series B Convertible Preferred
Shares (the "Series B Preferred Shares"), of which 6,500 were outstanding as of
August 14, 1997. The provisions of the Series B Preferred Shares are identical
to that of the Series A Preferred Shares, with the exception that the Series A
Preferred Shares have certain rights, preferences and privileges that are
superior to those of the Series B Preferred 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 Preferred Shares, which have certain
rights senior to the Series 1994 Preferred Shares.
WARRANTS TO PURCHASE SERIES B PREFERRED SHARES
Warrants to purchase Series B Preferred Shares (the "Series B Warrants")
were issued in connection with the sale of the Series B Preferred Shares. Such
Series B Warrants enable the holder to purchase Series B Preferred Shares at the
purchase price of $25.00 per Series B Preferred Share at any time until their
expiration on December 31, 2000. As of August 14, 1997, a total of 50,155 Series
B Warrants were outstanding. The exercise price and number of Series B Preferred
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.
1996 WARRANTS
The 1996 Warrants were issued by the Company to holders of Series A and
Series B Preferred Shares who agreed not to convert their Shares for at least
180 days after the deemed issuance of such 1996 Warrants on September 10, 1996
("Deemed Issuance Date"). They expire on December 31, 1998. Upon exercise of a
1996 Warrant during the exercise period, the Company will issue to the 1996
Warrantholders 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 1996 Warrant, determined as follows: (i) if such exercise
occurs at any time following 180 days after the Deemed Issuance Date, one Common
Share, plus (ii) if such exercise occurs at any time following 270 days after
the Deemed Issuance Date, an additional one-half Common Share; plus (iii) if
such exercise occurs at anytime following 365 days after the Deemed Issuance
Date, an additional one-half Common Share, in each case for each Series A or
Series B Preferred Share as to which the 1996 Warrant was issued and that
continues to be held on the date of exercise of the 1996 Warrant, but only to
the extent that the 1996 Warrant has not been previously exercised as to such
Preferred Shares pursuant to (i), (ii), or (iii) above.
18
<PAGE> 21
SERIES C CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 25,000 shares of its Series C
Convertible Preferred Stock (the "Series C Preferred Shares"), of which 24,000
Series C Preferred Shares were outstanding as of August 14, 1997. Holders of the
Series C Preferred Shares are entitled to receive cumulative dividends at the
rate of 6% per annum, payable quarterly in cash or Common Shares, at the option
of the Company, when and as declared by the Company's Board of Directors in
preference and priority to any payment of any dividend on Common Shares. In the
event of any liquidation, dissolution or winding up of the Company, holders of
the Series C Preferred Shares are entitled to receive, prior and in preference
to any distribution of any assets of the Company to the holders of Common
Shares, the amount of $1,000 per share, plus any accrued but unpaid dividends
(the "Series C Liquidation Preference"). The Series C Preferred Shares may be
redeemed, subject to certain restrictions, at any time beginning on the first
anniversary after the date of issuance, at a redemption price equal to 115% of
the Stated Value of the Series C Preferred Shares being liquidated. Such
redemption price may be paid in cash or Common Shares. The Stated Value of the
Series C Preferred Shares is $1,000 per share. However, the Company may not
exercise its right of redemption unless the closing sale price of the Common
Shares exceeds 150% of the Fixed Conversion Price for any consecutive ten
trading days. Commencing three months after the date of issuance of the Series C
Preferred Shares, each holder may convert its Series C Preferred Shares into
Common Shares, subject to certain limitations and procedures described in the
Articles of Amendment. The number of Common Shares that may be acquired upon
conversion will equal the Stated Value of the Series C Preferred Shares being
converted divided by the applicable Conversion Price. For the first six months
following the date of issuance (the "Fixed Conversion Price Period"), the
conversion price will be $8.80, which is equal to 115% of the average of the
closing sale prices of the Company's Common Shares as reported on the Nasdaq
National Market on the five trading days immediately prior to but not including
the date of issuance (the "Fixed Conversion Price"). The Fixed Conversion Price
Period, which currently will expire on January 23, 1998, may be extended up to
six months if the Company satisfies certain conditions described in the Articles
of Amendment. Following the Fixed Conversion Price Period, the conversion price
will be the lesser of: (i) the Fixed Conversion Price, or (ii) a "floating"
conversion price equal to the average of the third to seventh lowest closing
sale prices for the Company's Common Shares during the 30 trading days
immediately prior to but not including the conversion date. On the fifth
anniversary of the date of issuance, or July 24, 2002, all Series C Preferred
Shares then outstanding will be automatically converted into the number of
Common Shares equal to the Stated Value of the Series C Preferred Shares being
converted divided by the applicable Conversion Price. In the event of certain
Mandatory Redemption Events, which events the Company believes are within its
control, each holder of Series C Preferred Shares will have the right to require
the Company to redeem those shares for cash at the Mandatory Redemption Price,
which will be equal to the Liquidation Preference of the Series C Preferred
Shares being redeemed multiplied by 120%, unless the Mandatory Redemption Event
relates to the Company's failure to deliver Common Shares in certain
circumstances, in which case the Mandatory Redemption Price will be equal to (a)
the Stated Value of the Shares being redeemed, plus (b) the Stated Value of such
Shares multiplied by 1.125% for each month elapsed between the date of issuance
and the Mandatory Redemption Date. Mandatory Redemption Events include, but are
not limited to, the failure of the Company to timely deliver Common Shares as
required under the terms of the Series C Preferred Shares or Warrants, the
Company's failure to satisfy registration requirements applicable to such
securities, the failure by the Company to maintain the listing of its Common
Shares on the Nasdaq National Market or another national securities exchange,
and certain transactions involving the sale of assets or business combinations
involving the Company. The Company's Series A and Series B Preferred Shares are
senior to the Series C Preferred Shares. The Company's Series 1994 Cumulative
Preferred Shares rank pari passu with the Series C Preferred Shares.
WARRANTS RELATED TO SERIES C PREFERRED SHARES
Holders of the Series C Preferred Shares also received Warrants to
purchase that number of Common Shares equal to 20% of the Stated Value of the
Series C Preferred Shares purchased by such holders divided by the exercise
price. The exercise price of the Warrants is equal to $8.80, which is equal to
115% of the average of the closing sale prices of the Common Shares for the five
trading days immediately preceding but not including the date of issuance of the
Series C Preferred Shares. Each Warrant has a three year term.
19
<PAGE> 22
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) 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
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 provision.
PLAN OF DISTRIBUTION
The Common Shares are being offered on behalf of the Selling Security
Holders, and, except for the exercise price of the Warrants, the Company will
not receive any proceeds from the Offering. The Common Shares may be sold or
distributed from time to time by the Selling Security Holders or by pledgees,
donees, or transferees of, or other successors in interest to, the Selling
Security Holders, directly to one or more purchasers (including pledgees) or
through brokers, dealers or underwriters who may act solely as agents or may
acquire Common Shares as principals, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at negotiated prices,
or at fixed prices, which may be changed. The distribution of the Common Shares
may be effected in one or more of the following methods: (i) ordinary brokers'
transactions which may include long or short sales (in certain circumstances);
(ii) transactions involving cross or block trades or otherwise on the Nasdaq
National Market; (iii) purchases by brokers, dealers or underwriters as
principal and resale by such purchasers for their own accounts pursuant to this
Prospectus; (iv) "at the market" to or through market makers or into an existing
market for the Common Shares; (v) in other ways not involving market makers or
established trading markets, including direct sales to purchasers or sales
effected through agents; (vi) through transactions in options, swaps or other
derivatives (whether exchange-listed or otherwise); (vii) pursuant to Rule 144
under the Securities Act; or (viii) any combination of the foregoing, or by any
other legally available means except as may be limited by the Securities
Purchase Agreements with respect to the Series C Preferred Shares and related
Warrants. In addition, except as so limited, the Selling Security Holders or
their successors in interest may enter into hedging transactions with
broker-dealers who may engage in short sales of Common Shares in the course of
hedging the positions they assume with the Selling Security Holders. The Selling
Security Holders or their successors in interest may also enter into option or
other transactions with broker-dealers that require the delivery by such
broker-dealers of the Common Shares, which Common Shares may be resold
thereafter pursuant to this Prospectus. Selling Security Holders will be subject
to applicable provisions of the Exchange Act and rules and regulations
thereunder, including without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of any of the Shares of Common Stock by
the Selling Security Holders.
Brokers, dealers, underwriters or agents participating in the
distribution of the Common Shares as agents may receive compensation in the form
of commissions, discounts or concessions from the Selling Security Holders
20
<PAGE> 23
and/or purchasers of the Common Shares for whom such broker-dealers may act as
agent, or to whom they may sell as principal, or both (which compensation as to
a particular broker-dealer may be less than or in excess of customary
commissions). The Selling Security Holders and any broker-dealers who act in
connection with the sale of the Common Shares hereunder may be deemed to be
"Underwriters" within the meaning of the Securities Act, and any commissions
they receive and proceeds of any sale of Common Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. Neither the
Company nor any Selling Security Holder can presently estimate the amount of
such compensation. The Company knows of no existing arrangements between any
Selling Security Holder, any other shareholder, broker, dealer, underwriter or
agent relating to the sale or distribution of the Common Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Common Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The Company
has also agreed to indemnify the Selling Security Holders and certain related
persons against certain liabilities, including liabilities under the Securities
Act.
LEGAL OPINIONS
The validity of the Common Shares offered hereby will be passed upon
for the Company by Barnes & Thornburg, Indianapolis, Indiana.
EXPERTS
The consolidated financial statements of WavePhore, Inc. appearing in
WavePhore, Inc.'s Annual Report (Form 10-K) for the years ended December 31,
1996 and 1995, 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.
The financial statements of Paracel Online Systems, Inc. as of
December 31, 1996 and 1995 and for the period from January 1, 1995 to December
4, 1995 (Predecessor), the period from December 5, 1995 (acquisition) to
December 31, 1995 and the year ended December 31, 1996 (Successor) appearing in
WavePhore Inc.'s Current Report (Form 8-K/A filed on August 12, 1997), have been
incorporated by reference herein and in the registration statement in reliance
on the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
21
<PAGE> 24
================================================================================
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
Disclosure Regarding Forward Looking Statements........................... 3
The Company............................................................... 4
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 16
Selling Security Holders.................................................. 16
Description of Securities................................................. 17
Plan of Distribution...................................................... 20
Legal Opinions............................................................ 21
Experts................................................................... 21
================================================================================
================================================================================
5,727,277 COMMON SHARES
WAVEPHORE, INC.
---------------
PROSPECTUS
---------------
SEPTEMBER 26, 1997
================================================================================
22
<PAGE> 25
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 $12,669*
Nasdaq Listing Fee $17,500**
Printing and Engraving Expense $ 2,000*
Legal Fees and Expenses $ 6,000*
Accounting Fees and Expenses $ 3,000*
Blue Sky Fees and Expenses $ 500*
Transfer Agent Fees and Expenses $ 1,000*
Miscellaneous $ 331*
-------
TOTAL $43,000*
</TABLE>
- ----------------
* Estimated
** Previously Paid
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
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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 effects 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 Restated Code of Bylaws provide that the corporation
shall indemnify any individual who 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 been 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 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 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 Security Holders,
including its officers, directors, or controlling persons, against certain
liabilities, including liabilities under the Act.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that, in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
EXHIBIT NO. 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).
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<PAGE> 27
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 Articles of Amendment to the Company's Articles of
Incorporation dated July 23, 1997 (incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form 8-K
filed as of August 1, 1997.
3.5 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 L.L.P.*
23.2 Consent of KPMG Peat Marwick L.L.P.
23.3 Consent of Barnes & Thornburg (included in Exhibit 5).*
24. Power of Attorney (included on signature page of Registration
Statement).*
______________
* Previously filed
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
Act, 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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, 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, as
amended (the "Exchange Act") 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 Exchange Act; 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 Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised
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<PAGE> 28
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.
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<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on September 26, 1997.
WAVEPHORE, INC.
/s/ David E. Deeds
_______________________________________
David E. Deeds, Chairman, Chief
Executive Officer and President
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David E. Deeds
___________________________ September 26, 1997
David E. Deeds Chairman of the Board, Chief Executive Officer and
President (Principal Executive Officer)
/s/ * September 26, 1997
___________________________ Executive Vice President, Chief Operating Officer and
R. Glenn Williamson Director
/s/ Kenneth D. Swenson September 26, 1997
___________________________ Executive Vice President, Chief Financial Officer,
Kenneth D. Swenson Treasurer (Principal Financial Officer and Principal
Accounting Officer) and Director
/s/ *
___________________________ Director September 26, 1997
C. Roland Haden
/s/ *
___________________________ Director September 26, 1997
Glenn Scolnik
/s/ *
___________________________ Director September 26, 1997
J. Robert Collins
</TABLE>
*By /s/ Kenneth D. Swenson
_______________________
Kenneth D. Swenson
Attorney-in-Fact
28
<PAGE> 1
Exhibit 23.2
Consent of Independent Accountants
The Board of Directors
Paracel Online Systems, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-3 and related Prospectus of WavePhore, Inc. for the registration of
5,727,277 shares of its common stock of our report dated July 3, 1997, with
respect to the balance sheets of Paracel Online Systems, Inc. (formerly
Carthage International, Inc.), a wholly owned subsidiary of Paracel, Inc., as
of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the period from January 1,
1995 to December 4, 1995 (Predecessor), the period from December 5, 1995
(acquisition) to December 31, 1995 and the year ended December 31, 1996
(Successor), which report appears in Form 8-K/A of WavePhore, Inc. dated August
12, 1997.
We also consent to the reference to our firm under the heading "Experts" in the
Prospectus.
KPMG Peat Marwick LLP
Los Angeles, California
September 26, 1997
