<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER___, 1999
REGISTRATION STATEMENT NO.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
WAVO CORPORATION
(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.)
3131 E. CAMELBACK RD., SUITE 320
PHOENIX, ARIZONA 85016
(602) 952-5500
(Address, including zip code, and telephone number, including
area code, of principal executive offices)
-------------------------------
DAVID E. DEEDS, CHIEF EXECUTIVE OFFICER
WAVO CORPORATION
3131 E. CAMELBACK RD., SUITE 320
PHOENIX, ARIZONA 85016
(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.
WAVO CORPORATION SNELL & WILMER L.L.P.
3131 E. CAMELBACK RD., SUITE 320 ONE ARIZONA CENTER
PHOENIX, ARIZONA 85016 PHOENIX, ARIZONA 85004-0001
(602) 952-5500 (602) 382-6000
FAX (602) 952-5517 FAX (602) 382-6070
---------------------------------
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.[ ]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
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(2) Offering Price Registration Fee
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Common Shares Issuable Upon 1,000,000 Shares $3.8125 $3,812,500.00 $1,059.88
Exercise of Warrants
- -----------------------------------------------------------------------------------------------------------------------------------
Common Shares Issuable Upon 7,500 Shares $3.8125 $28,593.75 $ 7.95
Exercise of Warrants
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,007,500 Shares $3,841,093.75 $1,067.83
===================================================================================================================================
</TABLE>
(1) In the event of a stock split, stock dividend, or similar transaction
involving the common stock of the Company, in order to prevent dilution, the
number of shares registered will be automatically increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act of
1933.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low prices of
the common stock on October 15, 1999, 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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS MAY NOT SELL THE SECURITIES OFFERED BY THIS PROSPECTUS
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
WAVO CORPORATION
1,007,500 Common Shares
This prospectus relates to 1,007,500 shares of common stock of Wavo
Corporation which may be sold from time to time by the selling shareholders
named herein, or their transferees, pledgees, donees or successors.
The shares are being registered to permit public secondary trading of
them and may be offered and sold from time to time by the selling shareholders.
The shareholders may sell the common stock through ordinary brokerage
transactions, directly to market makers of our shares, or through any of the
other means described in the section entitled "Plan of Distribution" beginning
on page 13. We can not assure you that the selling shareholders will sell all or
any portion of the common stock offered hereby.
We will not receive any of the proceeds from the sale of these shares,
although we have paid the expenses of preparing this prospectus and the related
registration statement.
Our common stock is traded on the Nasdaq National Market under the
symbol "WAVO."
We are an Indiana corporation, formed on November 13, 1990. Our
principal executive offices are located at 3131 E. Camelback Rd., Suite 320,
Phoenix, Arizona and our telephone number is (602) 952-5500.
-----------------------------
BEFORE PURCHASING ANY OF THE SHARES COVERED BY THIS PROSPECTUS,
CAREFULLY READ AND CONSIDER THE RISK FACTORS INCLUDED IN THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 3. YOU SHOULD BE PREPARED TO ACCEPT ANY AND ALL
OF THE RISKS ASSOCIATED WITH PURCHASING THE SHARES, INCLUDING A LOSS OF ALL OF
YOUR INVESTMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SALE OF THE COMMON STOCK OR DETERMINED THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR ANY
PERSON TO TELL YOU OTHERWISE.
The date of this prospectus is ______ ____,1999.
-------------------------
<PAGE> 4
TABLE OF CONTENTS
Page
WAVO CORPORATION..............................................................1
RISK FACTORS..................................................................4
USE OF PROCEEDS..............................................................10
SELLING SHAREHOLDERS.........................................................10
DESCRIPTION OF SECURITIES....................................................11
PLAN OF DISTRIBUTION.........................................................14
LEGAL OPINIONS...............................................................14
EXPERTS......................................................................15
WHERE YOU CAN FIND MORE INFORMATION..........................................15
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. NO
ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THE COMMON STOCK IS NOT BEING OFFERED IN ANY JURISDICTION WHERE THE
OFFER IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THE DOCUMENTS.
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WAVO CORPORATION
We provide technologies, products, and services that enable people and
enterprises to more efficiently receive, manage and productively use all types
of information. Our technologies and services aggregate, filter, customize and
distribute content in text, graphics, audio, and video form using a wide range
of television, radio, and satellite broadcast infrastructures and the Internet.
Our operations consist of the following service and product areas:
VIRGIN JAMCAST: In September 1999, through a collaboration with the
Virgin Entertainment Group, we launched a new entertainment-focused offering
called Virgin JamCast. The product will provide users with digital music files
that are delivered via the Internet using IP Multicast or broadcast to their PC
24 hours a day over the PBS television signal. The service will enable users to
download, store, listen to and purchase digital music or purchase CDs. The
JamCast product is built upon the technology used in the WaveTop service.
NEWSPAK: NewsPak is the latest release in our premier suite of
Internet-driven broadcasting solutions that delivers news content from 34
sources generating more than 2000 stories a day. It allows web site operators
and developers to put pre-licensed, real-time news from well-known content
sources on their sites quickly and with minimum effort. Generally adding news to
a website had been a complex and difficult task involving time consuming
negotiations with content providers, the challenge of processing a variety of
news from different sources in different formats, and the purchase of expensive
equipment and software. NewsPak makes real time news immediately available for
subscribers websites with the potential to add more site value and repeat
visitors.
e:WATCH: Our eWatch(TM) service provides a comprehensive Internet
monitoring service to our customers. We monitor the Internet, including public
discussion and bulletin boards and web sites, for information requested by our
customers. We deliver the filtered results of the monitoring to our customers
daily via E-mail or the Internet. We currently monitor approximately 250,000
Internet postings per day. Typically, monitoring involves messages and
information related to the customer and its business, or that of others, such as
their competitors. We have more than 600 customers for whom we provide this
service.
WAVETOP: WaveTop is an Internet-like consumer-based entertainment and
programming service that is broadcast to personal computers, or PCs, in the
home. WaveTop is a free service that offers a variety of "channels", including
broadcast news, sports, games, family, and other popular information content.
WaveTop operates by transmitting data directly to the users' home PCs via
television signals that are received by TV tuner cards installed in the PCs. By
using existing television signals rather than telephone lines or cable, WaveTop
can provide large streaming multimedia content, including audio, video, software
and real-time data, without the bandwidth limitations of traditional Internet
transmission methods. We began offering WaveTop in April 1998. We seek to
generate revenues for WaveTop primarily from advertiser-sponsors and content
provider-sponsors for our various channels, and seek to generate additional
revenue through:
- revenue-sharing opportunities with on-line service providers and
electronic commerce vendors;
- licensing our WaveTop-related technology;
- creating subscriber-based premium channels; and
- pay-per-view downloads.
NEWSCAST: Our Newscast(TM) service delivers custom filtered business
information from over 4,500 sources to more than 200,000 of our customers'
employees, associates, and members, through the Internet, extranets, and
corporate intranets. Newscast uses patented filtering and pattern matching
technology to filter over 80,000 articles, reports, documents and transcripts
per day from leading national and international sources and deliver customized
news and information to our customers on a real time basis. Throughout the day
this data and information is transmitted directly to our customers' computers,
or internal systems, for immediate and easy access. For example, we provide our
customers in banking and financial services with real-time news and information
about the economy and our customers in manufacturing with real-time news and
information about supplies, transportation, and other stories that affect their
industry. Our Newscast service saves our customers time and resources by
searching thousands of sources to retrieve the specific information they need.
In addition to maintaining our current customers, we are focused on increasing
our market share by targeting Fortune 2000 companies.
DIGITAL MEDIA SERVICES: Our Digital Media Services provide end-to-end
satellite, FM radio signal, cable, Internet, and land-based data broadcast
communications solutions to companies that send all types of information, from
news, stock quotes and sports scores to digital background music, to their
customers at more than 90,000 sites worldwide.
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Our customers include the Associated Press, Business Wire, Dow Jones,
Knight-Ridder/Tribune, PR Newswire, Reuters and Thomson Financial Services.
Networks also sells satellite receiver equipment and builds data broadcast
systems that enable customers, such as the Muzak DBS Division, Standard & Poor's
ComStock and AEI Music Network, to create their own communication networks.
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RECENT DEVELOPMENTS
JamCast.com, Inc. was formed as a collaboration between Wavo
Corporation and Virgin Entertainment Group in September 1999. In return for its
contributions, including its agreement to provide $15 million of in-store
promotion over the next three years, Virgin Entertainment Group received a 25%
equity stake in JamCast.com, Inc. The remaining 75% interest in JamCast.com is
owned by Wavo Corporation. We also granted to Virgin warrants to purchase
500,000 of our shares at $4.00, and 500,000 of our shares at $5.00.
In September 1999, we entered into a loan modification agreement with
Silicon Valley Bank in order to, among other things, expand our credit facility.
In connection with this agreement, we issued to Silicon Valley Bank a warrant to
purchase 7,500 shares of our common stock. The warrant is exercisable at a price
of $5.42 per share. The exercise price and number of shares purchasable upon
exercise of the warrants are subject to adjustment upon the occurrence of
certain dilution events.
On October 4, 1999, we issued 1,500 shares of our $10,000 par value
Series D Convertible Preferred Stock and 900,000 warrants to purchase our common
stock in a private placement to institutional investors. The net proceeds of the
offering, after expenses, were approximately $13,925,000. Donaldson, Lufkin &
Jenrette served as our placement agent for this transaction. The Series D
preferred shares carry a dividend rate of 10% per annum, which may be paid in
cash or common stock, and are non-voting. The conversion price of the Series D
preferred shares will be 100% of the lowest weighted-average trading price of
our common shares for any day during the six days prior to conversion date. We
may, at our sole discretion, call for conversion of various amounts of the
outstanding preferred shares and at various times throughout the term of the
agreement, subject to certain conditions, including the availability of an
effective registration statement covering the underlying shares of common stock.
In addition, we have the right to redeem outstanding preferred shares for cash,
in whole or in part, at 110% of par plus accrued dividends. The warrants to
purchase our common stock are exercisable at the price of $4.641 per share. In
addition, subject to satisfaction of certain conditions, we may elect to sell an
additional $5 million of Series D preferred shares to the investors. We intend
to use the proceeds of this funding for working capital and to grow our
business.
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RISK FACTORS
BEFORE PURCHASING ANY OF THE SHARES COVERED BY THIS PROSPECTUS, YOU
SHOULD CAREFULLY READ AND CONSIDER THE RISK FACTORS SET FORTH BELOW. YOU SHOULD
BE PREPARED TO ACCEPT ANY AND ALL OF THE RISKS ASSOCIATED WITH PURCHASING THE
SHARES, INCLUDING A LOSS OF ALL OF YOUR INVESTMENT.
WE HAVE A HISTORY OF LOSSES AND MAY NEVER BECOME PROFITABLE
We have generated relatively limited revenues from operations and
incurred significant expenses in developing our products and services. As a
result, we have realized net losses each year since our inception in November
1990. We incurred net losses of approximately $8.6 million for the fiscal year
1996, approximately $19.8 million for the fiscal year 1997, and approximately
$28.5 million for the fiscal year 1998. As of December 31, 1998, we had an
accumulated deficit of approximately $96.3 million. We expect to incur
significant operating losses through the end of 1999 and may continue to incur
operating losses after 1999. Given our history of losses, limited revenues from
operations and significant expenses, we may never become profitable.
IF WE DO NOT GENERATE WIDESPREAD DEMAND FOR OUR VIRGIN JAMCAST AND NEWSPAK
SERVICES WE MAY NEVER BECOME PROFITABLE.
To become profitable, we need to generate broad based market acceptance
for our recently announced new services, Virgin JamCast and Newspak. In addition
to achieving widespread consumer demand, the success of our various services
depends on our ability to meet the following objectives, none of which we may
achieve.
- attracting and retaining the most popular information providers;
- including our software and technology in products manufactured by
others, including personal computers, TV tuner boards, set top boxes and
other consumer products; and
- generating significant revenues through e-commerce, technology licensing
and other opportunities.
IF WE DO NOT SIGNIFICANTLY EXPAND THE MARKETS FOR OUR NEWSCAST, DIGITAL MEDIA
AND EWATCH SERVICES WE MAY NEVER BECOME PROFITABLE
Our profitability also depends on expanding the market for our
Newscast, Digital Media and eWatch services. The markets for these services also
are relatively new and evolving. Increasing our share of this market depends on
meeting the following objectives, none of which we may achieve.
- demonstrating a technological or economic advantage over our
competitors;
- providing strong customer service to support these services;
- attracting and retaining information providers; and
- increasing sales through our direct sales force.
OUR PRODUCTS AND SERVICES MAY BECOME OBSOLETE UNLESS WE ADAPT TO RAPID
TECHNOLOGICAL CHANGE AND FREQUENT NEW PRODUCT INTRODUCTIONS BY OUR COMPETITORS
The markets for our products and services experience rapid
technological change, frequent new product introductions, and evolving industry
standards. Rapid technological change and new product introduction could render
one or more of our products or services obsolete or place us at a competitive
disadvantage. Accordingly, we believe that our success depends upon our ability
to anticipate changes in consumer preferences, develop and market products and
services that incorporate new technologies, and enhance and expand our existing
product lines and services to keep pace with competing products. We will need to
spend significant amounts of capital to develop, market and enhance our products
and services to meet and take advantage of technological changes. Our failure to
anticipate or adapt to technological change or evolving industry standards, and
to successfully introduce new products and services, could materially and
adversely affect our business.
WE MAY NOT SUCCEED UNLESS WE ARE ABLE TO SUCCESSFULLY ADDRESS THE DIFFERENT
COMPETITIVE CHALLENGES IN EACH OF OUR MARKETS
Each of the markets in which we compete presents different competitive
challenges. For example, we currently offer our WaveTop service primarily to PC
users at home and provide our Newscast service primarily to business users. We
must respond to different competitive challenges and compete with a different
set of competitors
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in each of our markets. In addition, with the rapid expansion of the Internet,
the number of companies that can provide similar products and services in each
of our markets is growing significantly. As a result, we expect that more
competitors will enter the markets in which we operate. Increased competition
may result in price reductions, reduced gross margins and loss of market share.
The data broadcasting and information services industry is intensely
competitive, rapidly changing and significantly affected by new product
introductions and other market activities. Each of the markets in which we
operate includes numerous competitors with well recognized brand names that
provide products and services that compete with those we offer, including, but
not limited to:
- several e-commerce and music companies in the Internet business;
- the regional Bell operating companies, AP SatNet and Data Broadcasting
Corporation in the data broadcasting business;
- Reed Elsevier, Inc.'s LEXIS/NEXIS(R), and NewsEDGE corporation in the
electronic information access and processing business market;
- America Online, @Home, Compuserve, and Yahoo!, in the Internet-based
consumer information and entertainment market; and
- Scientific-Atlanta, Inc., in the satellite equipment business.
Many of our competitors have longer operating histories and greater
presence in key markets, greater name recognition, access to larger customer
bases and significantly greater financial, sales, marketing, distribution,
technical and other resources. Given these competitive disadvantages, we may not
be able to compete effectively against these competitors. Our inability to
compete would have a material adverse effect on our business. These competitors
may be able to adapt to new or emerging technologies and changes in customer
requirements more quickly than we can. They might also be able to devote greater
resources to the development, promotion and sale of competing products and
services.
WE MAY LOSE THE EXCLUSIVE RIGHT TO USE TECHNOLOGY REQUIRED TO OPERATE NEWSCAST
OPENING THE WAY FOR DIRECTLY COMPETITIVE PRODUCTS
A portion of the technology critical to the operation of Newscast,
including the Fast Data Finder technology that filters information from vast
amounts of data, is licensed from third parties. Under a license from Paracel,
Inc., we have been granted exclusive rights to software associated with the use
of the Fast Data Finder and the Newscast technologies through May 29, 2002, and
non-exclusive rights after that time. After May 29, 2002, Paracel could license
its technology, including Fast Data Finder technology, to other parties. If this
were to occur, these other parties may compete with us or offer similar
products. This would likely have a material adverse effect on our business.
THIRD PARTY INFORMATION PROVIDERS MAY TERMINATE OR CHOOSE NOT TO RENEW
AGREEMENTS TO PROVIDE CONTENT WHICH WOULD ADVERSELY AFFECT OUR SERVICE OFFERINGS
We currently rely on a number of content and information providers to
supply entertainment, news, and other information we offer through our various
services. Our agreements with information providers are generally for a term of
one or more years. The termination of or failure to renew one or more
significant information provider agreements would decrease the available
entertainment, news and information that we can offer our customers. Many of the
agreements automatically renew unless notice of termination is provided before
the end of the term by either party. However, most of these agreements may be
terminated by the information provider if we fail to fulfill our obligations
under the agreement and some agreements are terminable at will. We cannot
guarantee that an information provider will not terminate its agreement with us
or that it will choose to renew the agreement at the end of its term.
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PBS NATIONAL DATACAST, INC. MAY TERMINATE OUR AGREEMENT TO BROADCAST DATA WHICH
COULD PRECLUDE US FROM OFFERING KEY SERVICES
The success of our Virgin JamCast service also will depend to a large
degree on our relationship with PBS National Datacast, Inc. We have entered into
an agreement with PBS National Datacast under which our services will be
broadcast through the television signals transmitted by PBS member stations. If
PBS National Datacast were to terminate our agreement, we likely would not be
able to broadcast these services without interruption, if at all. The agreement
expires on January 1, 2002. We have an option to extend the term for an
additional five years. However, PBS National Datacast may terminate the
agreement if we fail to comply with the provisions of the agreement, breach the
agreement, or are in default under the agreement. We do not have any
arrangements with other television broadcasters to provide alternative
transmission of these services and do not currently intend to enter into any
other alternative arrangements. Alternative methods of transmission may present
significant barriers we would have to overcome in order to make use of them. Any
alternative broadcaster would likely be unable to offer the same geographic
coverage of transmission as PBS.
FAILURE OR DISRUPTION OF OUR TELECOMMUNICATIONS SYSTEMS MAY DISRUPT OUR
OPERATIONS AND SERVICE OFFERINGS TO OUR CUSTOMERS
Our customers rely on our ability to provide and distribute information
24 hours a day seven days a week without failures. As a result, our business
depends to a significant extent on our ability to maintain continuous operation
of our computer and telecommunications systems. Any damage to or loss of our
computer and telecommunications networks, including our network operations
centers, or damage to or loss of any third party controlled systems, including
satellites or those operated by Internet service providers, could have a
material adverse effect on our business. Our systems may suffer damage or
disruption from fire, natural disaster, power loss, telecommunications failure,
or similar events. Our operations also depend in significant part on our network
operations centers in Phoenix, Arizona, Dallas, Texas, and Salt Lake City, Utah.
Although we have arranged for off-site back-up for our network control, this
arrangement does not eliminate the significant risk to our operations from a
natural disaster or system failure. In addition, growth of our customer base may
strain the capacity of our computer and telecommunications systems or lead to
degradations in performance or system failure.
ANY DISRUPTION IN RECEIVING INFORMATION FROM THIRD PARTY INFORMATION PROVIDERS
WILL DISRUPT OUR ABILITY TO PROVIDE TIMELY INFORMATION TO OUR CUSTOMERS
We depend on the timely receipt of information feeds and computer
downloads from third parties. Any loss, interruption or disruption of the
transmission of this information to our news consolidation facility would result
in delay, loss, interruption or disruption of the transmission to the end users.
In addition to affecting customers of our information providers, these events
would adversely affect customers of our services. These disruptions could result
in those customers terminating, or failing to renew, their contracts with us. In
either case, our business could be materially and adversely affected.
We also depend largely on the integrity, capability, and maintenance of
third party controlled systems, including satellites and the Internet. The loss
or disruption of any facility or equipment, or the interruption of any
facility's or equipment's transmission capabilities, could adversely affect our
ability to broadcast services and information. It could also cause one or more
of our customers to terminate their contracts with us or fail to renew their
contracts. Our Networks service uses a third party shared satellite uplink
facility in Raleigh, North Carolina, as well as third party FM radio
transmission facilities. Similarly, our WaveTop and Virgin JamCast services use
PBS member station television broadcast facilities to broadcast and deliver
these services. We do not control any of these facilities or equipment.
WE MAY EXPERIENCE DIFFICULTIES AND DELAYS IN MIGRATING OUR TECHNOLOGY TO THE NEW
ADVANCED TELEVISION SYSTEM FORMAT WHICH COULD RESULT IN AN INABILITY TO TRANSMIT
DATA AND A CONSEQUENTIAL LOSS OF CUSTOMERS
The broadcast industry is in the process of migrating to a new advanced
television system format. This format will enable television broadcasters to
transmit digital programming and non-programming related data at high speeds
using a digital television signal. We may experience unanticipated difficulties
and delays in adapting our analog signal-based data broadcasting products and
services, such as WaveTop and Virgin JamCast, to the digital-based advanced
television system format when it becomes available. Most U.S. and other
television
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broadcasters, including PBS member stations, currently use analog signals. When
the digital-based advanced television system format achieves widespread
implementation, we will be required to adapt our analog signal-based data
broadcasting products and services to be compatible. If we experience
significant difficulties or delays in migrating to the digital format, it could
result in a loss of customers or an inability to transmit data, which could have
a material adverse effect our business.
THE FCC MAY REVOKE OR NOT RENEW LICENSES UPON WHICH WE DEPEND TO PROVIDE OUR
SERVICES TO CUSTOMERS
We must comply with regulations issued by the Federal Communications
Commission. Specifically, the FCC requires broadcasters in television, radio and
other media to obtain and maintain licenses to transmit information. As
described below, the FCC has the right to revoke a license and may elect not to
renew a license after its expiration. If WavePhore or any third party
broadcaster on which we rely fails to maintain any required FCC licenses, our
ability to provide our services may be disrupted.
TELEVISION. In the United States, broadcast transmissions are subject
to regulation by the FCC. Although we are not currently required to hold an FCC
license to provide our broadcasting services, third parties on which we rely are
or may be required to obtain or maintain FCC licenses to provide their services
to us. In addition, the services we provide may require us to obtain an FCC
license in the future. If we or a third party on which we rely fails to obtain
or maintain any required FCC license, we may be unable to provide our broadcast
services on a continuous basis.
FM SUBCARRIERS. We have entered into contracts with various FM
licensees to lease their subcarriers to broadcast data. An FM license is granted
for a period of seven years and may be renewed by the FCC for like terms.
However, there is no guarantee that the licenses for the FM stations we use will
be renewed. Although we believe that adequate alternative FM stations would be
available for our use, any delay in finding alternative stations, or the terms
upon which they would be willing to supply their services, could adversely
affect our business. We are not currently required to hold an FCC license to act
as a private carrier to use FM subcarrier channels. If in the future we are
required to hold an FCC license in order to use these FM subcarriers, there is
no assurance we will be granted one.
SATELLITE UPLINKS. We currently hold two FCC licenses for satellite
uplinks in Salt Lake City, Utah. Our satellite uplink licenses are subject to
renewal. There can be no assurance that these licenses will be renewed upon
their expiration on October 23, 2002, and January 16, 2008. These licenses may
be revoked for cause. Failure to renew, or revocation of, either or both of our
FCC licenses for satellite uplinks could have a material adverse affect on our
business. We also share a satellite uplink facility in Raleigh, North Carolina.
This facility is required to hold a license from the Federal Communications
Commission in order to broadcast information via satellite transmission. If this
transmission facility were to fail to obtain any required license from the FCC,
fail to maintain its license, or fail to have a required license renewed by the
FCC, we would be unable to transmit information using this facility.
ADVANCED TELEVISION SYSTEM FORMAT. While Congress specifically
authorized the use of the advanced television system format in the legislation
adopting the format, the FCC has not issued final regulations regarding the
transmission of non-programming related content in the format. If we migrate our
analog signal-based data broadcasting services to the new digital format, we
will become subject to any regulations adopted by the FCC governing transmission
of content in that format.
WE MAY NOT BE ABLE TO RAISE THE SUBSTANTIAL ADDITIONAL CAPITAL REQUIRED TO
EXECUTE OUR BUSINESS PLAN
We expect to continue to incur significant operating expenses in
continuing to develop and market our products and services. Although we believe
currently available funds and capital resources will be sufficient to meet
anticipated needs for capital through mid 2000, we expect that we will need
substantial additional capital to fully implement our business plan beyond mid
2000. We also may need to raise additional funds in order to acquire
complementary businesses, products, or technology. Additional financing may not
be available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to
execute our business plan or take advantage of our business opportunities. In
addition, if we elect to raise capital by issuing additional shares of stock,
existing shareholders may incur dilution.
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OUR BUSINESS IS LIKELY TO BE HURT IF WE ARE UNABLE TO KEEP OUR SENIOR EXECUTIVE
OFFICERS AND KEY EMPLOYEES
We rely considerably on the abilities of our founder and Chief
Executive Officer, David E. Deeds. We also depend to a significant extent upon
the performance of our other senior executive officers. We have not entered into
employment agreements with any of our senior executive officers and are not the
beneficiary of life insurance on any of them. Although we have agreements with
some members of management not to compete with us, there can be no assurance
that these agreements will be enforceable or effective in retaining these
individuals. As a result, we may lose one or more key individuals to resignation
or death and may be unable to adequately replace these individuals. In addition,
our products and services are highly technical and require key employees with
high levels of technical expertise. Demand for these individuals, particularly
in the locations where we operate, is very high. The loss of the services of any
of our key employees, or the failure to attract and retain qualified personnel
to replace them, could have a material adverse effect on our business.
A LARGE PORTION OF OUR REVENUE COMES FROM A SMALL NUMBER OF CUSTOMERS, THE LOSS
OF WHICH COULD MATERIALLY AND ADVERSELY AFFECT OUR OPERATING RESULTS
A significant percentage of our revenue comes from a relatively small
group of customers. Although we believe that our current relationships with our
customers are generally good, the loss of one or more of our major customers
could have a material adverse effect on our operating results.
AS AN INTERNET-BASED COMPANY OUR COMMON STOCK PRICE IS UNUSUALLY VOLATILE, WHICH
MAY IMPEDE OUR ABILITY TO RAISE CAPITAL, AND CAUSE OUR INVESTORS TO LOSE MONEY
The market price of our common stock, like the stock of many other
technology companies, particularly those involved in Internet-related businesses
and e-commerce, has been highly volatile. In addition, we have experienced, and
may continue to experience, significant fluctuations in revenues and operating
results from period to period, which tends to increase the volatility of our
common stock price. Factors that affect volatility include:
- unexpected fluctuations in our operating results;
- announcements of technological innovations and new products by us or our
competitors;
- increases in governmental regulation;
- developments or changes in legislation affecting the industries in which
we operate;
- developments in our patent or other proprietary rights or those of our
competitors;
- analyst reports, media stories, news broadcasts, and interviews; and
- market conditions for technology and Internet-related stocks in general.
WE MAY ISSUE ADDITIONAL SHARES AND DILUTE YOUR OWNERSHIP PERCENTAGE
Certain events over which you have no control could result in the
issuance of additional shares of our common stock, which would dilute your
ownership percentage in Wavo Corporation. We may issue additional shares of
common stock or preferred stock:
- to raise additional capital or finance acquisitions;
- upon the exercise or conversion of outstanding options, warrants and
shares of convertible preferred stock; or
- in lieu of cash payment of dividends.
Prior to the exercise of the warrants relating to this offering, there
were outstanding convertible preferred shares, warrants, and options to acquire
up to approximately 13,946,588 additional shares of common stock at prices
ranging from $4.00 to $18.15 per share. If converted or exercised, these
securities will dilute your percentage ownership of common stock. These
securities, unlike the common stock, provide for antidilution protection upon
the occurrence of stock splits, redemptions, mergers, reclassifications,
reorganizations and other similar corporate transactions, and, in some cases,
major corporate announcements. If one or more of these events occurs, the number
of shares of common stock that may be acquired upon conversion or exercise would
increase.
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OUR GOVERNING DOCUMENTS AND INDIANA LAW CONTAIN PROVISIONS THAT COULD PREVENT
TRANSACTIONS IN WHICH YOU WOULD RECEIVE A PREMIUM FOR YOUR STOCK
Our Articles of Incorporation and the Indiana Business Corporation Law
contain provisions that could have the affect of delaying, deferring, or
preventing a change in control and the opportunity to sell your shares at a
premium over current market prices. Although intended to protect Wavo
Corporation and its shareholders from unwanted takeovers, their effect could
hinder or prevent transactions in which you might otherwise receive a premium
for your common stock over then-current market prices, and may limit your
ability to approve transactions which may be in your best interests. As a
result, the mere existence of these provisions could adversely affect the price
of our common stock.
WE MAY ISSUE ADDITIONAL SHARES OF PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL
THAT HAVE RIGHTS SENIOR TO THOSE OF COMMON SHAREHOLDERS
Our Board of Directors has the authority to issue a total of up to
25,000,000 shares of preferred stock and to fix the rates, preferences,
privileges, and restrictions, including voting rights, of the preferred stock,
which typically are senior to the rights of the common shareholders, without any
further vote or action by you and the other common shareholders. Your rights
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.
Preferred stock also could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of Wavo
Corporation. This could delay, defer, or prevent a change in control.
Furthermore, holders of preferred stock may have other rights, including
economic rights, senior to the common stock. As a result, their existence and
issuance could have a material adverse affect on the market value of the common
stock. We have 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 stock.
WE ARE SUBJECT TO RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS AND DO NOT INTEND TO
PAY ANY DIVIDENDS
We have not paid any dividends on the common stock, and do not plan to
pay any dividends on the common stock for the foreseeable future. The provisions
of the Series 1994 Preferred Shares and the Series D Convertible Preferred Stock
prohibit the payment of dividends on the common stock unless the dividends on
those preferred shares are first paid. In addition, although our 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. Accordingly, you should not expect that dividends will
be paid on your common stock.
WE RELY ON COMPUTER HARDWARE, SOFTWARE, AND INTERNET-BASED TECHNOLOGY THAT COULD
HAVE YEAR 2000 PROBLEMS AND ADVERSELY AFFECT THE DELIVERY OF OUR SERVICES TO
CUSTOMERS
We rely extensively on computer hardware, software and related
technology, together with data, in the operation of our business. This
technology and data are used in creating and delivering our products and
services, and in our internal operations, such as billing and accounting. We
have initiated an enterprise-wide program to evaluate the technology and data
used in the creation and delivery of our products and services, and in our
internal operations. If we fail to complete the implementation of our Year 2000
plan prior to the commencement of the Year 2000, or our customers and suppliers
fail to successfully remediate their own Year 2000 issues, it could materially
adversely affect us. The program utilizes a Year 2000 "team" which includes
executive officers. The team must identify Year 2000 issues and develop and
implement a plan to handle them. The plan includes resolving any Year 2000
issues that are related to our customers and suppliers. However, there can be no
assurances that these third parties will successfully remediate their own Year
2000 issues over which we have no control.
WE MAKE FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS THAT MAY NOT PROVE TO BE
ACCURATE
This prospectus contains or incorporates forward-looking statements
including statements regarding, among other items, our business strategy, growth
strategy, and anticipated trends in our business. We may make additional written
or oral forward-looking statements from time to time in filings with the
Securities and Exchange Commission or otherwise. When we use the words
"believe," "expect," "anticipate," "project" and similar expressions, this
should alert you that this is a forward-looking statement. Forward-looking
statements speak only as of the date the statement is made. These
forward-looking statements are based largely on our expectations. They are
subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond our 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, and in
documents incorporated into this
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<PAGE> 14
prospectus, including those set forth in "Risk Factors" and "The Company",
describe factors, among others, that could contribute to or cause these
differences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this prospectus will
in fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this section.
USE OF PROCEEDS
The selling shareholders will receive all of the proceeds from the sale
of the common stock offered under this prospectus.
SELLING SHAREHOLDERS
The following table provides information regarding the selling
shareholders' ownership of our common stock as of October 12, 1999, and as
adjusted to reflect the sale of the securities offered under this prospectus.
Unless we have indicated otherwise, to our knowledge, the selling shareholders
have sole voting and investment power with respect to their securities.
<TABLE>
<CAPTION>
COMMON SHARES
NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED COMMON SHARES OFFERED PERCENTAGE
- --------------------------- PRIOR TO THE OFFERING BY THIS PROSPECTUS OF CLASS
--------------------- --------------------- ----------
<S> <C> <C> <C>
Virgin Entertainment Group, Inc.(1) 1,000,000 1,000,000 3.3%
Silicon Valley Bank(2) 7,500 7,500 *
</TABLE>
* Represents less than 1%.
(1) Consists of 1,000,000 shares of common stock underlying two separate
warrants. As of the date of this prospectus, Virgin Entertainment Group
does not hold any other securities in Wavo Corporation other than the
shares being offered under this prospectus.
(2) Consists of 7,500 shares of common stock underlying a warrant.
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<PAGE> 15
DESCRIPTION OF SECURITIES
We are authorized to issue up to 100,000,000 shares of common stock and
25,000,000 preferred shares. As of October 12 1999, 28,924,230 shares of common
stock were issued and outstanding, and a total of 503,463 preferred shares
were issued and outstanding.
Of the 28,924,230 shares of common stock outstanding on October 12,
1999, this amount does not include the 2,867,954 shares of common stock issuable
upon exercise of currently outstanding warrants, and 6,826,671 shares of common
stock reserved for issuance upon exercise of currently outstanding stock
options.
The following summary of certain provisions of the common stock and
preferred shares does not purport to be complete and is subject to, and is
qualified in its entirety by, our amended Articles of Incorporation, Restated
Code of Bylaws, and by the provisions of applicable law.
COMMON STOCK
The holders of our common stock 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 stock as to dividends or upon liquidation, the
holders of our common stock are also entitled to dividends as may be declared by
our Board of Directors out of funds that are lawfully available, and are
entitled upon liquidation to receive pro rata the assets that are available for
distribution to holders of common stock. Holders of the common stock have no
preemptive, subscription, or conversion rights. The common stock is not subject
to assessment and have no redemption provisions.
PREFERRED STOCK
Our Board of Directors has the authority, without further action by the
shareholders, to issue a total of up to 25,000,000 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
determine the number of shares constituting any series and the designation of
the series, without any further vote or action by the shareholders.
SERIES 1994 PREFERRED SHARES
We have authorized, issued and outstanding 501,963 of our Series 1994
Cumulative Convertible Preferred Shares. These shares have a stated value of
$11.00 per share and are convertible at any time into common stock at $11.00 per
share. The conversion provisions are subject to adjustment if there is a stock
split, dividend, distribution, reorganization, reclassification, merger,
consolidation, share exchange, or other similar corporate transaction.
Cumulative dividends on the shares accrue at the rate of 10% per annum and are
payable when declared by the Board of Directors. We may not pay dividends on the
common stock or other series junior to these preferred shares unless all accrued
dividends have been paid on the latter. On liquidation, the holder of the
preferred shares will be entitled to receive, before any distribution to holders
of our common stock or other series junior to the preferred shares, liquidation
distributions equal to the stated value of $11.00 per preferred share, plus
accrued and unpaid dividends. We may redeem the 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 the redemption has been
approved by a majority of the Board of Directors who are not holders of the
preferred shares. The preferred shares have no voting rights except as otherwise
provided by law or the Articles of Incorporation. David E. Deeds, the Chairman,
Chief Executive Officer and President, owns all of the Series 1994 Preferred
Shares.
SERIES A, SERIES B, AND SERIES C PREFERRED SHARES
We were authorized to issue, and in the past did issue, three separate
series of convertible preferred shares called the Series A, Series B, and Series
C Convertible Preferred Shares, all with varying provisions. All of these
preferred shares have been converted into common stock and are no longer
outstanding.
SERIES D PREFERRED SHARES
On October 4, 1999, we issued 1,500 shares of our Series D Convertible
Preferred Stock and related warrants in a private placement to institutional
investors. The Series D preferred shares carry a dividend rate of 10% per annum,
which may be paid in cash or common stock, and are non-voting. The conversion
price of the Series D preferred shares will be 100% of the lowest
weighted-average trading price of our common shares for any day during the six
days prior to conversion date. We may, at our sole discretion, call for
conversion of various amounts of the outstanding preferred shares and at various
times throughout the term of the agreement, subject to certain
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<PAGE> 16
conditions, including the availability of an effective registration statement
covering the underlying shares of common stock. In addition, we have the right
to redeem outstanding preferred shares for cash, in whole or in part, at 110% of
par plus accrued dividends. The terms of the private placement are more fully
set forth in our Current Report on Form 8-K, and its exhibits, filed October 5,
1999.
WARRANTS
As of the date of this prospectus, we have the following warrants
outstanding:
- We issued warrants to our underwriters in connection with our
initial public offering in October 1994. These warrants enable the
underwriters, or other holders, to purchase an aggregate of 165,000
shares of common stock at a purchase price of $18.15 per share. The
warrants expire on October 20, 1999.
- We issued warrants to purchasers of our Series C Preferred Shares.
Warrants to purchase up to 545,454 shares of common stock remain
outstanding. The exercise price of these warrants is $8.80 per
share, which is equal to 115% of the average of the closing sale
prices of the common stock for the five trading days immediately
preceding the date we issued the Series C Preferred Shares. These
warrants expire on July 24, 2000.
- In connection with the sale of our Series D preferred shares, we
issued warrants to purchase up to 900,000 shares of common stock.
The exercise price of these warrants is $4.641 per share. These
warrants expire on October 4, 2004. The exercise price and number of
shares purchasable upon exercise of the warrants are subject to
adjustment upon the occurrence of certain dilution events.
- We issued a warrant to Castle Creek Technology Partners, LLC. This
warrant enables Castle Creek to purchase an aggregate of 250,000
shares of common stock at a purchase price of $11.89 per share. The
exercise price and number of shares purchasable upon exercise of the
warrants are subject to adjustment upon the occurrence of a stock
split, reverse stock split, or distribution to shareholders. The
warrants expire on March 25, 2004.
- In connection with the formation of JamCast.com, we issued to Virgin
Entertainment Group, Inc. warrants to purchase an aggregate of
1,000,000 shares of our common stock. Warrants to purchase 500,000
are exercisable at $4.00 per share and expire on September 14, 2001.
Warrants to purchase the remaining 500,000 are exercisable at $5.00
per share and expire on September 14, 2004.
- In connection with a loan modification agreement with Silicon Valley
Bank, we issued to Silicon Valley Bank a warrant to purchase 7,500
shares of our common stock. The warrants are exercisable at $5.42
per share. The Warrants expire on September 24, 2002. The exercise
price and number of shares purchasable upon exercise of the warrants
are subject to adjustment upon the occurrence of certain dilution
events.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is American
Securities Transfer & Trust, Inc.
CHARTER PROVISIONS AND EFFECTS OF INDIANA LAW
Our Articles of Incorporation require that proposals for consideration
at a meeting of shareholders must be submitted to the Secretary not later than
the earlier of:
- 270 days after the adjournment of the previous annual meeting; or
- the close of business on the seventh day following the date on which
notice of the meeting is given to shareholders.
Under the Indiana Business Corporation Law, any person who acquires 10%
of the voting power of the common stock of a corporation is considered an
"interested shareholder." For a period of five (5) years after an acquisition,
certain business combinations between Wavo Corporation and the interested
shareholder are prohibited,
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unless prior to the acquisition of that common stock by the interested
shareholder, the Board of Directors approves the acquisition of common stock or
the business combination. After the five-year period, only the following three
types of business combinations between Wavo Corporation and the interested
shareholder are permitted:
- a business combination approved by the Board of Directors before the
acquisition of common stock by the interested shareholder;
- a business combination approved by holders of a majority of the
common stock not owned by the interested shareholder; and
- a business combination in which the shareholders receive a price for
their common stock at least equal to a formula price based on the
highest price per share paid by the interested shareholder.
In addition, under Indiana law, a party acquiring Wavo Corporation common stock
may lose the right to vote some or all of those shares if the acquisition
results in that party holding greater than 20%, 33%, or 50% of the outstanding
shares of Wavo Corporation. An acquiring party can avoid the loss of the right
to vote these shares if the right to vote is approved by shareholders holding a
majority of the "disinterested" common stock, and, if authorized by a provision
of our Articles of Incorporation or Bylaws adopted before the time that party
became an interested shareholder, permit the redemption of the acquiring party's
common stock. We have not adopted this kind of a redemption provision.
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<PAGE> 18
PLAN OF DISTRIBUTION
We are registering the common stock covered by this prospectus for the
selling shareholders. As used in this prospectus, the "selling shareholders"
includes the pledgees, donees, transferees, or other successors in interest who
later hold the selling shareholders' interests. We are paying the costs and fees
of registering the common stock, but the selling shareholders will pay any
brokerage commissions, discounts or other expenses relating to the sale of the
common stock. We have also agreed to indemnify the selling shareholders and
certain related persons against certain liabilities, including liabilities under
the Securities Act.
The selling shareholders may sell the common stock at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed.The
selling shareholders may sell some or all of their common stock through:
- ordinary brokers' transactions which may include long or short
sales;
- transactions involving cross or block trades or otherwise on the
Nasdaq National Market;
- purchases by brokers, dealers, or underwriters as principal and
resale by those purchasers for their
- own accounts under this prospectus;
- "at the market" to or through market makers or into an existing
market for the common stock;
- in other ways not involving market makers or established trading
markets, including direct sales to
- purchasers or sales effected through agents;
- through transactions in options, swaps or other derivatives; or
- any combination of the foregoing, or by any other legally available
means.
The selling shareholders may enter into hedging transactions with broker-dealers
who may engage in short sales of common stock in the course of hedging the
positions they assume. The selling shareholders also may enter into option or
other transactions with broker-dealers that require the delivery by those
broker-dealers of the common stock. The shares may then be resold under this
prospectus. In its selling activities, the selling shareholders will be subject
to applicable provisions of the Securities Exchange Act of 1934 and its rules
and regulations, including without limitation, Regulation M, which may limit the
timing of purchases and sales of any of the shares of common stock by the
selling shareholders.
The selling shareholders may negotiate and pay broker-dealers
commissions, discounts or concessions for their services. Broker-dealers engaged
by the selling shareholders may allow other broker-dealers to participate in
resales. The selling shareholders and any broker-dealers involved in the sale or
resale of the common stock may qualify as "underwriters" within the meaning of
Section 2(11) of the Securities Act. In addition, the broker-dealers'
commissions, discounts or concession may qualify as underwriters' compensation
under the Securities Act. If the selling shareholders or any broker-dealer
qualifies as an "underwriter," they will be subject to the prospectus delivery
requirements of Rule 153 of the Securities Act, which may include delivery
through the facilities of the NASD. In conjunction with sales to or through
brokers, dealers or agents, the selling shareholders may agree to indemnify them
against liabilities arising under the Securities Act. We know of no existing
arrangements between the selling shareholders, any other shareholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the common
stock.
In addition to selling their common stock under this prospectus, the
selling shareholders may:
- transfer its common stock in other ways not involving market makers
or established trading markets, including by gift, distribution, or
other transfer; or
- sell their common stock under Rule 144 of the Securities Act rather
than under this prospectus, if the transaction meets the
requirements of Rule 144.
LEGAL OPINIONS
Barnes & Thornburg, of Indianapolis, Indiana, will pass upon the
validity of the common stock offered under this prospectus.
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EXPERTS
The consolidated financial statements of Wavo Corporation, (formerly known
as WavePhore Corporation) appearing in our Annual Report (Form 10-K) for the
years ended December 31, 1998 and 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. These consolidated financial statements are
incorporated herein by reference in reliance upon the report given upon the
authority of Ernst & Young LLP, as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
GOVERNMENT FILINGS: We file annual, quarterly and special reports and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Commission's Public Reference Room 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. Please call the Commission at 1-800-SEC-0330 for more
information about the Public Reference Rooms. Most of our filings are also
available to you free of charge at the Commission's web site at
http://www.sec.gov.
STOCK MARKET: Our common stock is listed on the Nasdaq National Market 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.
REGISTRATION STATEMENT: We have filed a registration statement under the
Securities Act with the Commission with respect to the common stock offered
under this prospectus. This prospectus is a part of the registration statement.
However, it does not contain all of the information contained in the
registration statement and its exhibits. You should refer to the registration
statement and its exhibits for further information about Wavo Corporation and
the common stock offered under this prospectus.
INFORMATION INCORPORATED BY REFERENCE: The Commission allows us to
"incorporate by reference" the information we file with it, which means that we
can disclose important information to you by referring you to those documents.
The information incorporated by reference is an important part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We have filed the following
documents with the Commission and they are incorporated by reference into this
prospectus:
- our Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
- our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999;
- our Proxy Statement for the 1998 Annual Meeting of Security holders,
dated April 26, 1999;
- our Current Report on Form 8-K, and its Exhibits, filed June 4,
1999;
- our Current Report on Form 8-K, and its Exhibits, filed October 5,
1999; and
- the description of our capital stock contained in our registration
statement on Form 8-A, including all amendments or reports filed for
the purpose of updating the description.
Please note that all other documents and reports filed under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act following the date of this prospectus and
prior to the termination of this offering will be deemed to be incorporated by
reference into this prospectus and to be made a part of it from the date of the
filing of our reports and documents.
You may request free copies of these filings by writing or telephoning
us at the following address:
Investor Relations
Wavo Corporation
3131 E. Camelback Road, Suite 320
Phoenix, Arizona 85016
(602) 952-5500.
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PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the
issuance and distribution of the securities being registered, all of which will
be paid by Wavo Corporation:
Securities and Exchange Commission Registration Fee $ 1,068
Nasdaq Listing Fee $ 17,500
Legal Fees and Expenses $ 15,000
Accounting Fees and Expenses $ 1,000
Transfer Agent Fees and Expenses $ 500
Miscellaneous $ 932
___________
TOTAL $ 36,000
- -------------------
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 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: (a) in good faith; (b) with the care an ordinarily prudent
person in a like position would exercise under similar circumstances; and (c) 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
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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.
Wavo Corporation's Articles of Incorporation provide that the
corporation must 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.
Wavo Corporation's Restated Code of Bylaws provide that the corporation
must 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
- 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
- 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 Wavo Corporation are covered by an
insurance policy indemnifying against certain liabilities which arise from their
activities performed on behalf of Wavo Corporation, including liabilities under
the Securities Act of 1933 in certain circumstances.
Insofar as indemnification for liabilities arising under the Securities
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 SEC, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 16. EXHIBITS
EXHIBIT NO. EXHIBIT
3.1 Amended and Restated Articles of Incorporation (incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form 8-K dated June 4,
1999).
3.2 Articles of Amendment to the Company's Articles of Incorporation dated
September 30, 1999 (incorporated by reference to Exhibit 3.1 to Wavo
Corporation's Current Report on Form 8-K filed as of October 5, 1999).
II-2
<PAGE> 22
3.3 Restated Code of Bylaws (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement No. 33-80343 on Form S-8).
4.1 Form of Warrant issued to Virgin Entertainment Group.
4.2 Warrant Agreement issued to Silicon Valley Bank
5 Opinion of Barnes & Thornburg regarding legality.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Barnes & Thornburg (included in Exhibit 5).
24 Power of Attorney (included on signature page of registration statement).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, 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 Securities Act, each filing of the
Registrant's Annual Report under Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report under Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
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 that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on October 18, 1999.
WAVO CORPORATION
/s/ David E. Deeds
----------------------------------------------------
David E. Deeds, Chairman and Chief Executive Officer
Know all men by these presents, that each person whose signature
appears below constitutes and appoints David E. Deeds, R. Glenn Williamson,
Kenneth D. Swenson, and Douglas J. Reich, and each of them, his true and lawful
attorneys-in-fact and agent, with full powers of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all amendments to this registration statement on
Form S-3 and to sign any registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) of the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting under
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully and to all intents and purposes as he might
or could do in person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David E. Deeds Chairman of the Board and Chief Executive Officer October 18, 1999
- --------------------------- (Principal Executive Officer)
David E. Deeds
/s/ R. Glenn Williamson Vice Chairman and Director October 18, 1999
- --------------------------
R. Glenn Williamson
/s/ Peter M. White President and Director October 18, 1999
- --------------------------
Peter M. White
/s/ Kenneth D. Swenson Executive Vice President, Chief Financial Officer, October 18, 1999
- -------------------------- Treasurer (Principal Financial Officer and
Kenneth D. Swenson Principal Accounting Officer) and Director
/s/ Glenn Scolnik Director October 18, 1999
- -------------------------
Glenn Scolnik
/s/ J. Robert Collins Director October 18, 1999
- -------------------------
J. Robert Collins
</TABLE>
II-4
<PAGE> 24
INDEX TO EXHIBITS
EXHIBIT
NO. EXHIBIT
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
dated June 4, 1999).
3.2 Articles of Amendment to the Company's Articles of Incorporation
dated September 30, 1999 (incorporated by reference to Exhibit 3.1
to Wavo Corporation's Current Report on Form 8-K filed as of October
5, 1999).
3.3 Restated Code of Bylaws (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement No. 33-80343 on Form S-8).
4.1 Form of Warrant issued to Virgin Entertainment Group
4.2 Warrant Agreement issued to Silicon Valley Bank
5 Opinion of Barnes & Thornburg regarding legality.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Barnes & Thornburg (included in Exhibit 5).
24 Power of Attorney (included on signature page of registration
statement).
II-5
<PAGE> 1
Exhibit 4.1
These securities have not been registered under the Securities Act of 1933, as
amended. These securities have been acquired for investment and not with a view
to distribution or resale, and may not be sold, mortgaged, pledged, hypothecated
or otherwise transferred without an effective registration statement for such
shares under the Securities Act of 1933, as amended, or an opinion of counsel
for the corporation that registration is not required under such act.
WAVO CORPORATION
Common Stock Purchase Warrant
To Subscribe for and Purchase September 14, 1999
500,000 Shares of Common Stock of
WAVO CORPORATION
THIS CERTIFIES that Virgin Entertainment Group, Inc. or its registered
assigns (the "Holder") is entitled to subscribe for and purchase from WAVO
CORPORATION, an Indiana corporation (hereinafter called the "Company"), up to
500,000 shares (subject to adjustment as hereinafter provided) of fully paid and
non-assessable Common Stock of the Company (the "Common Stock"), subject to the
provisions and upon the terms and conditions hereinafter set forth at or prior
to 5:00 p.m. Pacific time on September 14, 2001 (the "Exercise Period"), at a
purchase price per share of $4.00 (such price as from time to time to be
adjusted as provided herein is called the "Warrant Price").
This Warrant and any Warrant subsequently issued upon exchange or transfer
hereof are hereinafter collectively called the "Warrant."
Section 1. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised by the Holder, in whole or in part (but not as to fractional shares)
at any time or from time to time during the Exercise Period by the completion of
the purchase form attached hereto and by the surrender of this Warrant (properly
endorsed) at the office of the Company as it may designate by notice in writing
to the Holder hereof at the address of the Holder appearing on the books of the
Company, and by payment to the Company of the Warrant Price in cash or by
certified or official bank check, or by wire transfer, for each share being
purchased. In the event of any exercise of the rights represented by this
Warrant, a certificate or certificates for the shares of Common Stock so
purchased, registered in the name of the Holder or its nominee or other party
designated in the purchase form by the Holder hereof, shall be delivered to the
Holder within three (3) business days after the date on which the rights
represented by this Warrant shall have been so exercised; and, unless this
Warrant has expired or has been exercised in full, a new Warrant representing
the number of shares (except a remaining fractional share), if any, with respect
to which this Warrant shall not then have been exercised shall also be issued to
the Holder within such time. The person in whose name any certificate for shares
of Common Stock is issued upon exercise of this Warrant shall for all purposes
be deemed to have become the
<PAGE> 2
holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Warrant is made, except that, if the date of such
surrender and payment is a date on which the stock transfer books of the Company
are closed, such person shall be deemed to have become the holder of such shares
at the close of business on the next succeeding date on which the stock transfer
books are open. No fractional shares shall be issued upon exercise of this
Warrant and no payment or adjustment shall be made upon any exercise on account
of any cash dividends on the Common Stock issued upon such exercise. If any
fractional interest in a share of Common Stock would, except for the provision
of this Section 1, be delivered upon such exercise, the Company, in lieu of
delivery of a fractional share thereof, shall pay to the Holder an amount in
cash equal to the current market price of such fractional share as determined in
good faith by the Board of Directors of the Company. Current market price means
the fair market value of the Common Stock determined by the closing price of the
Common Stock on the relevant date as reported on the Nasdaq National Market (or
any national securities exchange or quotation system on which the Common Stock
is then listed) or, if no prices are reported for that date, such prices on the
next preceding date for which closing bid and asked prices were reported, or if
the Common Stock is not publicly traded, by such methods or procedures as may be
established from time to time by the Board of Directors of the Company in good
faith.
Section 2. STOCK SPLITS, CONSOLIDATION, MERGER, AND SALE. In the event that
before the issuance of the shares of Common Stock into which this Warrant may be
exercised the outstanding shares of Common Stock shall be split, combined, or
consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock or any other class or classes of stock,
as appropriate, the Warrant Price in effect immediately prior to such
combination or consolidation and the number of shares purchasable under this
Warrant shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately adjusted. If there shall be effected any
consolidation or merger of the Company with another corporation, or a sale of
all or substantially all of the Company's assets to another corporation, and if
the holders of Common Stock shall be entitled pursuant to the terms of any such
transaction to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the Holder of this
Warrant shall thereafter have the right to receive, upon the basis and upon the
terms and conditions specified herein, including payment to the Company of the
Warrant Price, and in lieu of the shares of Common Stock immediately theretofore
receivable upon the exercise of such Warrant, such shares of stock, securities
or assets as may be issuable or payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the number of shares
of such Common Stock immediately theretofore so receivable had such
consolidation, merger or sale not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holder
to the end that the provisions hereof shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant.
(a) STOCK TO BE RESERVED. The Company will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant.
2
<PAGE> 3
(b) ISSUE TAX. The issuance of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the Holders of
this Warrant for any issuance tax in respect thereof provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the Holder of this Warrant.
(c) CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of the shares of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
Section 3. NOTICES OF RECORD DATES. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution; or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or into any other corporation, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company, then and in each such event the Company will give notice to the
Holder of this Warrant specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right and stating the
amount and character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least ten (10) days and not more than
ninety (90) days prior to the date therein specified, and such notice shall
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or to a favorable vote of shareholders, if either
is required.
Section 4. NO SHAREHOLDER RIGHTS OR LIABILITIES. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Common Stock, and no mere enumeration hereon
of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Warrant Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
3
<PAGE> 4
Section 5. REPRESENTATIONS OF HOLDER. The Holder hereby represents and
acknowledges to the Company as of the date hereof and as of each exercise date
that:
(a) this Warrant, the Common Stock issuable upon exercise of this Warrant
and any securities issued with respect to any of them by way of a stock dividend
or stock split or in connection with a recapitalization, merger, consolidation
or other reorganization will be "restricted securities" as such term is used in
the rules and regulations under the Securities Act and that the issuance of the
Warrant and the Common Stock and the other securities have not been and may not
be registered under the Securities Act or any state securities law, and that
such securities must be held indefinitely unless registration is effected or
transfer can be made pursuant to appropriate exemptions;
(b) the Holder has read, and fully understands, the terms of this Warrant
set forth on its face and the attachments hereto, including the restrictions on
transfer contained herein;
(c) the Holder is purchasing for investment for its own account and not
with a view to or for sale in connection with any distribution of this Warrant
or the Common Stock of the Company issuable upon exercise of this Warrant and it
has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained herein will prevent Holder from
transferring such securities in compliance with the terms of this Warrant and
the applicable federal and state securities laws;
(d) the Holder is an "accredited investor" within the meaning of paragraph
(a) of Rule 501 of Regulation D promulgated by the Securities and Exchange
Commission; and
(e) the Company may affix the following legend (in addition to any other
legend(s), if any, required by applicable state corporate and/or securities
laws) to certificates for shares of Common Stock (or other securities) issued
upon exercise of this Warrant unless the securities are registered for resale:
These securities have not been registered under the Securities Act of
1933, as amended. These securities have been acquired for investment and
not with a view to distribution or resale, and may not be sold, mortgaged,
pledged, hypothecated or otherwise transferred without an effective
registration statement for such shares under the Securities Act of 1933,
as amended, unless registration is not required under such act.
(f) The Holder acknowledges that it has reviewed the periodic reports
filed by the Company pursuant to the Securities Exchange Act of 1934, and has
had an opportunity to ask questions of and to receive answers from the Company
regarding these reports and the affairs and prospects of the Company in general.
4
<PAGE> 5
Section 6. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Holder agrees that prior to making any disposition of the Warrant
or Common Stock issuable upon exercise of the Warrant unless a registration
statement under the Securities Act is in effect with regard thereto, the Holder
shall give written notice to the Company describing briefly the manner in which
any such proposed disposition is to be made; and no such disposition shall be
made if the Company has notified the Holder that, in the reasonable opinion of
counsel to the Company, a registration statement or other notification or
posteffective amendment thereto (hereinafter collectively a "Registration
Statement") under the Securities Act is required with respect to such
disposition and no such Registration statement has been filed by the Company
with, and declared effective, if necessary, by, the Securities and Exchange
Commission (the "Commission"); provided that no opinion of counsel shall be
required in connection with a transfer to any key employee of the Virgin
Entertainment Group, Inc., or any Affiliate thereof. "Affiliate" means, with
respect to any entity (including, without limitation, any partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture or other entity of whatever
nature), (i) any other entity that, directly or through one or more
intermediaries, Controls or is Controlled by, or is under common Control with
such entity. For the purpose of the foregoing, "Control" (including, with
correlative meaning, the terms "controlling," "controlled by" and "under common
control with") means, with respect to any entity, the possession, directly or
indirectly, of the power to direct, or cause the direction of, the management or
policies of such entity, whether through ownership of voting securities, by
contract or otherwise.
(b) The Company will utilize its reasonable best efforts to cause a
registration statement to be filed under the Securities Act on or before thirty
(30) days from the date hereof for the purpose of registering the Common Stock
issuable upon exercise of the Warrant for resale by the Holder and to cause such
registration statement to become effective on or before ninety (90) days
following the date of filing of the registration statement.
(c) All fees, disbursements, and out-of-pocket expenses incurred in
connection with the filing of any Registration Statement under Paragraph (b) of
Section 6 and in complying with applicable securities and Blue Sky laws shall be
borne by the Company, provided, however, that any expenses of the individual
Holder or holders of the underlying securities, including but not limited to the
Holder or holders' attorneys' fees and discounts and commissions, shall be borne
by the Holder and holders of the Common Stock. The Company at its expense will
supply the Holder and any holder of Common Stock with copies of such
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Holder or holder of Common Stock.
(d) The Company shall have no obligation to register the Warrant but shall
be obligated to register the Common Stock issuable upon exercise of the Warrant
in accordance with Paragraph (b) of Section 6.
5
<PAGE> 6
(e) The Company agrees that it will use its best efforts to keep such
Registration Statement effective until September 14, 2002 or such earlier date
as all Common Stock covered by such Registration Statement have been disposed of
pursuant thereto.
(f) The Holder agrees to cooperate with the Company and to provide the
Company on its request with all information concerning the Holder, the Warrant
issued hereunder, and any Common Stock acquired upon exercise of the Warrant
that may reasonably be requested by the Company in order for the Company to
perform its obligation under this Section 6.
Section 7. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated, or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated, or destroyed.
Section 8. PRESENTMENT. Prior to due presentment of this Warrant, together
with a completed assignment form attached hereto for registration of transfer,
the Company may deem and treat the Holder as the absolute owner of the Warrant,
notwithstanding any notation of ownership or other writing thereon, for the
purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
Section 9. NOTICE. Notice or demand pursuant to this Warrant shall be
sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the Holder of this Warrant, to the Holder at its last known
address as it shall appear in the records of the Company, and if to the Company,
at 3131 E. Camelback Road, Suite 320, Phoenix, Arizona 85016, Attention: Douglas
J. Reich. The Company may alter the address to which communications are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 9 for the giving of notice.
Section 10. GOVERNING LAW. The validity, interpretation, and performance
of this Warrant shall be governed by the laws of the State of California
without regard to principles of conflicts of laws.
Section 11. SUCCESSORS, ASSIGNS. Subject to the restrictions on transfer by
Holder set forth in Section 6 hereof, all the terms and provisions of the
Warrant shall be binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
Section 12. AMENDMENT. This Warrant may be modified, amended, or
terminated by a writing signed by the Company and the Holder.
Section 13. SEVERABILITY. Should any part but not the whole of this Warrant
for any reason be declared invalid, such decision shall not affect the validity
of any remaining portion, which remaining portion shall remain in force and
effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties
6
<PAGE> 7
hereto that they would have executed the remaining portion of this Warrant
without including therein any such part which may, for any reason, be hereafter
declared invalid.
Section 14. NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered on and as of the day and year first above written by one of its
officers thereunto duly authorized.
WAVO CORPORATION,
an Indiana corporation
Dated: __________________ By:_________________________________
Title:______________________________
The undersigned Holder agrees and accepts this Warrant and acknowledges that
it has read and confirms each of the representations contained in Section 5.
VIRGIN ENTERTAINMENT GROUP, INC.
Dated: __________________ By:_________________________________
Title:______________________________
7
<PAGE> 8
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant
in whole or in part)
To: WAVO CORPORATION
The undersigned, whose Social Security or other identifying number is
_______________, hereby irrevocably elects the right of purchase represented by
the within Warrant for, and to purchase thereunder, ______________ shares of
Common Stock provided for therein and tenders payment herewith to the order of
WAVO CORPORATION in the amount of $______________.
The undersigned requests that certificates for such shares be issued as follows:
Name: __________________________________
Address:________________________________
________________________________
________________________________
Deliver to:_____________________________
Address:________________________________
________________________________
________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below:
Address: ________________________________
________________________________
________________________________
8
<PAGE> 9
By this exercise,
The undersigned hereby reaffirms its representations and warrants set
forth forth in Section 5 of the Warrant Agreement as of the date hereof.
Dated:______________, _____ Signature:_________________________________
(Signature must conform in all respects to
the name of the Warrant Holder as specified
on the face of the Warrant, without
alteration, enlargement or any change
whatsoever)
9
<PAGE> 10
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of
the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
____________ ______________________________, whose Social Security or other
identification number is _________________ [residing/located] at
____________________________ ____________________ the attached Warrant, and
appoints _____________________________ residing at_____________________________
_____________________________________________ the undersigned's attorney-in-fact
to transfer said Warrant on the books of the Company, with full power of
substitution in the premises.
Dated:_______________, _____
In the presence of:
_________________________________ _____________________________________
(Signature must conform in all
respects to the name of the Warrant
Holder as specified on the face of the
Warrant, without alteration,
enlargement or any change whatsoever).
10
<PAGE> 11
These securities have not been registered under the Securities Act of 1933, as
amended. These securities have been acquired for investment and not with a view
to distribution or resale, and may not be sold, mortgaged, pledged, hypothecated
or otherwise transferred without an effective registration statement for such
shares under the Securities Act of 1933, as amended, or an opinion of counsel
for the corporation that registration is not required under such act.
WAVO CORPORATION
Common Stock Purchase Warrant
To Subscribe for and Purchase September 14, 1999
500,000 Shares of Common Stock of
WAVO CORPORATION
THIS CERTIFIES that Virgin Entertainment Group, Inc. or its registered
assigns (the "Holder") is entitled to subscribe for and purchase from WAVO
CORPORATION, an Indiana corporation (hereinafter called the "Company"), up to
500,000 shares (subject to adjustment as hereinafter provided) of fully paid and
non-assessable Common Stock of the Company (the "Common Stock"), subject to the
provisions and upon the terms and conditions hereinafter set forth at or prior
to 5:00 p.m. Pacific time on September 14, 2004 (the "Exercise Period"), at a
purchase price per share of $5.00 (such price as from time to time to be
adjusted as provided herein is called the "Warrant Price").
This Warrant and any Warrant subsequently issued upon exchange or transfer
hereof are hereinafter collectively called the "Warrant."
Section 1. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised by the Holder, in whole or in part (but not as to fractional shares)
at any time or from time to time during the Exercise Period by the completion of
the purchase form attached hereto and by the surrender of this Warrant (properly
endorsed) at the office of the Company as it may designate by notice in writing
to the Holder hereof at the address of the Holder appearing on the books of the
Company, and by payment to the Company of the Warrant Price in cash or by
certified or official bank check, or by wire transfer, for each share being
purchased. In the event of any exercise of the rights represented by this
Warrant, a certificate or certificates for the shares of Common Stock so
purchased, registered in the name of the Holder or its nominee or other party
designated in the purchase form by the Holder hereof, shall be delivered to the
Holder within three (3) business days after the date on which the rights
represented by this Warrant shall have been so exercised; and, unless this
Warrant has expired or has been exercised in full, a new Warrant representing
the number of shares (except a remaining fractional share), if any, with respect
to which this Warrant shall not then have been exercised shall also be issued to
the Holder within such time. The person in whose name any certificate for shares
of Common Stock is issued upon exercise of this Warrant shall for all purposes
be deemed to have become the
<PAGE> 12
holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Warrant is made, except that, if the date of such
surrender and payment is a date on which the stock transfer books of the Company
are closed, such person shall be deemed to have become the holder of such shares
at the close of business on the next succeeding date on which the stock transfer
books are open. No fractional shares shall be issued upon exercise of this
Warrant and no payment or adjustment shall be made upon any exercise on account
of any cash dividends on the Common Stock issued upon such exercise. If any
fractional interest in a share of Common Stock would, except for the provision
of this Section 1, be delivered upon such exercise, the Company, in lieu of
delivery of a fractional share thereof, shall pay to the Holder an amount in
cash equal to the current market price of such fractional share as determined in
good faith by the Board of Directors of the Company. Current market price means
the fair market value of the Common Stock determined by the closing price of the
Common Stock on the relevant date as reported on the Nasdaq National Market (or
any national securities exchange or quotation system on which the Common Stock
is then listed) or, if no prices are reported for that date, such prices on the
next preceding date for which closing bid and asked prices were reported, or if
the Common Stock is not publicly traded, by such methods or procedures as may be
established from time to time by the Board of Directors of the Company in good
faith.
Section 2. STOCK SPLITS, CONSOLIDATION, MERGER, AND SALE. In the event that
before the issuance of the shares of Common Stock into which this Warrant may be
exercised the outstanding shares of Common Stock shall be split, combined, or
consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock or any other class or classes of stock,
as appropriate, the Warrant Price in effect immediately prior to such
combination or consolidation and the number of shares purchasable under this
Warrant shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately adjusted. If there shall be effected any
consolidation or merger of the Company with another corporation, or a sale of
all or substantially all of the Company's assets to another corporation, and if
the holders of Common Stock shall be entitled pursuant to the terms of any such
transaction to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the Holder of this
Warrant shall thereafter have the right to receive, upon the basis and upon the
terms and conditions specified herein, including payment to the Company of the
Warrant Price, and in lieu of the shares of Common Stock immediately theretofore
receivable upon the exercise of such Warrant, such shares of stock, securities
or assets as may be issuable or payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the number of shares
of such Common Stock immediately theretofore so receivable had such
consolidation, merger or sale not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holder
to the end that the provisions hereof shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant.
(a) STOCK TO BE RESERVED. The Company will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon the exercise of this Warrant as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of this Warrant.
2
<PAGE> 13
(b) ISSUE TAX. The issuance of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the Holders of
this Warrant for any issuance tax in respect thereof provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the Holder of this Warrant.
(c) CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of the shares of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
Section 3. NOTICES OF RECORD DATES. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution; or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or into any other corporation, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company, then and in each such event the Company will give notice to the
Holder of this Warrant specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right and stating the
amount and character of such dividend, distribution or right, and (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least ten (10) days and not more than
ninety (90) days prior to the date therein specified, and such notice shall
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or to a favorable vote of shareholders, if either
is required.
Section 4. NO SHAREHOLDER RIGHTS OR LIABILITIES. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Common Stock, and no mere enumeration hereon
of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Warrant Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
3
<PAGE> 14
Section 5. REPRESENTATIONS OF HOLDER. The Holder hereby represents and
acknowledges to the Company as of the date hereof and as of each exercise date
that:
(a) this Warrant, the Common Stock issuable upon exercise of this Warrant
and any securities issued with respect to any of them by way of a stock dividend
or stock split or in connection with a recapitalization, merger, consolidation
or other reorganization will be "restricted securities" as such term is used in
the rules and regulations under the Securities Act and that the issuance of the
Warrant and the Common Stock and the other securities have not been and may not
be registered under the Securities Act or any state securities law, and that
such securities must be held indefinitely unless registration is effected or
transfer can be made pursuant to appropriate exemptions;
(b) the Holder has read, and fully understands, the terms of this Warrant
set forth on its face and the attachments hereto, including the restrictions on
transfer contained herein;
(c) the Holder is purchasing for investment for its own account and not
with a view to or for sale in connection with any distribution of this Warrant
or the Common Stock of the Company issuable upon exercise of this Warrant and it
has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained herein will prevent Holder from
transferring such securities in compliance with the terms of this Warrant and
the applicable federal and state securities laws;
(d) the Holder is an "accredited investor" within the meaning of paragraph
(a) of Rule 501 of Regulation D promulgated by the Securities and Exchange
Commission; and
(e) the Company may affix the following legend (in addition to any other
legend(s), if any, required by applicable state corporate and/or securities
laws) to certificates for shares of Common Stock (or other securities) issued
upon exercise of this Warrant unless the securities are registered for resale:
These securities have not been registered under the Securities Act of
1933, as amended. These securities have been acquired for investment and
not with a view to distribution or resale, and may not be sold, mortgaged,
pledged, hypothecated or otherwise transferred without an effective
registration statement for such shares under the Securities Act of 1933,
as amended, unless registration is not required under such act.
(f) The Holder acknowledges that it has reviewed the periodic reports
filed by the Company pursuant to the Securities Exchange Act of 1934, and has
had an opportunity to ask questions of and to receive answers from the Company
regarding these reports and the affairs and prospects of the Company in general.
4
<PAGE> 15
Section 6. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Holder agrees that prior to making any disposition of the
Warrant or Common Stock issuable upon exercise of the Warrant unless a
registration statement under the Securities Act is in effect with regard
thereto, the Holder shall give written notice to the Company describing briefly
the manner in which any such proposed disposition is to be made; and no such
disposition shall be made if the Company has notified the Holder that, in the
reasonable opinion of counsel to the Company, a registration statement or other
notification or posteffective amendment thereto (hereinafter collectively a
"Registration Statement") under the Securities Act is required with respect to
such disposition and no such Registration statement has been filed by the
Company with, and declared effective, if necessary, by, the Securities and
Exchange Commission (the "Commission"); provided that no opinion of counsel
shall be required in connection with a transfer to any key employee of the
Virgin Entertainment Group, Inc., or any Affiliate thereof. "Affiliate" means,
with respect to any entity (including, without limitation, any partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture or other entity of whatever
nature), (i) any other entity that, directly or through one or more
intermediaries, Controls or is Controlled by, or is under common Control with
such entity. For the purpose of the foregoing, "Control" (including, with
correlative meaning, the terms "controlling," "controlled by" and "under common
control with") means, with respect to any entity, the possession, directly or
indirectly, of the power to direct, or cause the direction of, the management or
policies of such entity, whether through ownership of voting securities, by
contract or otherwise.
(b) The Company will utilize its reasonable best efforts to cause a
registration statement to be filed under the Securities Act on or before thirty
(30) days from the date hereof for the purpose of registering the Common Stock
issuable upon exercise of the Warrant for resale by the Holder and to cause such
registration statement to become effective on or before ninety (90) days
following the date of filing of the registration statement.
(c) All fees, disbursements, and out-of-pocket expenses incurred in
connection with the filing of any Registration Statement under Paragraph (b) of
Section 6 and in complying with applicable securities and Blue Sky laws shall be
borne by the Company, provided, however, that any expenses of the individual
Holder or holders of the underlying securities, including but not limited to the
Holder or holders' attorneys' fees and discounts and commissions, shall be borne
by the Holder and holders of the Common Stock. The Company at its expense will
supply the Holder and any holder of Common Stock with copies of such
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Holder or holder of Common Stock.
(d) The Company shall have no obligation to register the Warrant but shall
be obligated to register the Common Stock issuable upon exercise of the Warrant
in accordance with Paragraph (b) of Section 6.
5
<PAGE> 16
(e) The Company agrees that it will use its best efforts to keep such
Registration Statement effective until September 14, 2005 or such earlier date
as all Common Stock covered by such Registration Statement have been disposed of
pursuant thereto.
(f) The Holder agrees to cooperate with the Company and to provide the
Company on its request with all information concerning the Holder, the Warrant
issued hereunder, and any Common Stock acquired upon exercise of the Warrant
that may reasonably be requested by the Company in order for the Company to
perform its obligation under this Section 6.
Section 7. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated, or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated, or destroyed.
Section 8. PRESENTMENT. Prior to due presentment of this Warrant, together
with a completed assignment form attached hereto for registration of transfer,
the Company may deem and treat the Holder as the absolute owner of the Warrant,
notwithstanding any notation of ownership or other writing thereon, for the
purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
Section 9. NOTICE. Notice or demand pursuant to this Warrant shall be
sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the Holder of this Warrant, to the Holder at its last known
address as it shall appear in the records of the Company, and if to the Company,
at 3131 E. Camelback Road, Suite 320, Phoenix, Arizona 85016, Attention: Douglas
J. Reich. The Company may alter the address to which communications are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 9 for the giving of notice.
Section 10. GOVERNING LAW. The validity, interpretation, and performance
of this Warrant shall be governed by the laws of the State of California
without regard to principles of conflicts of laws.
Section 11. SUCCESSORS, ASSIGNS. Subject to the restrictions on transfer by
Holder set forth in Section 6 hereof, all the terms and provisions of the
Warrant shall be binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
Section 12. AMENDMENT. This Warrant may be modified, amended, or
terminated by a writing signed by the Company and the Holder.
Section 13. SEVERABILITY. Should any part but not the whole of this Warrant
for any reason be declared invalid, such decision shall not affect the validity
of any remaining portion, which remaining portion shall remain in force and
effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties
6
<PAGE> 17
hereto that they would have executed the remaining portion of this Warrant
without including therein any such part which may, for any reason, be hereafter
declared invalid.
Section 14. NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered on and as of the day and year first above written by one of its
officers thereunto duly authorized.
WAVO CORPORATION,
an Indiana corporation
Dated: __________________ By:___________________________________
Title: _______________________________
The undersigned Holder agrees and accepts this Warrant and acknowledges that
it has read and confirms each of the representations contained in Section 5.
VIRGIN ENTERTAINMENT GROUP, INC.
Dated: __________________ By:___________________________________
Title: _______________________________
7
<PAGE> 18
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant
in whole or in part)
To: WAVO CORPORATION
The undersigned, whose Social Security or other identifying number is
_______________, hereby irrevocably elects the right of purchase represented by
the within Warrant for, and to purchase thereunder, ______________ shares of
Common Stock provided for therein and tenders payment herewith to the order of
WAVO CORPORATION in the amount of $______________.
The undersigned requests that certificates for such shares be issued as follows:
Name: __________________________________
Address: ________________________________
________________________________
________________________________
Deliver to: _______________________________
Address: ________________________________
________________________________
________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below:
Address: ________________________________
________________________________
________________________________
8
<PAGE> 19
By this exercise,
The undersigned hereby reaffirms its representations and warrants set
forth forth in Section 5 of the Warrant Agreement as of the date hereof.
Dated:______________, _____ Signature:_________________________________
(Signature must conform in all respects to
the name of the Warrant Holder as specified
on the face of the Warrant, without
alteration, enlargement or any change
whatsoever)
9
<PAGE> 20
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of
the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
____________ ______________________________, whose Social Security or other
identification number is _________________ [residing/located] at
____________________________ ____________________ the attached Warrant, and
appoints _____________________________ residing at______________________________
_____________________________________________ the undersigned's attorney-in-fact
to transfer said Warrant on the books of the Company, with full power of
substitution in the premises.
Dated:_______________, _____
In the presence of:
_________________________________ _____________________________________
(Signature must conform in all
respects to the name of the Warrant
Holder as specified on the face of the
Warrant, without alteration,
enlargement or any change whatsoever).
10
<PAGE> 1
Exhibit 4.2
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: WAVO Corporation
Number of Shares: (subject to provisions set forth below)
Class of Stock: Common
Initial Exercise Price: $5.42
Issue Date: September 24, 1999
Expiration Date: September 24, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of
$1.00 and for other good and valuable consideration, SILICON VALLEY BANK
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of the class of securities (the "Shares") of the corporation (the
"Company") at the initial exercise price per Share (the "Warrant Price") all as
set forth above and as adjusted pursuant to Article 2 of this Warrant, subject
to the provisions and upon the terms and conditions set forth in this Warrant.
Holder shall be entitled to 7,500 Shares upon execution of this Warrant. In the
event the Equity Event as described in that certain Loan and Security Agreement
between Holder and Company dated October 14, 1997, as amended from time to time
(the "Loan Agreement") has not occurred by October 24, 1999, Holder shall be
entitled to an additional 5,000 Shares. Additionally for each two weeks
thereafter in which the Equity Event has not occurred Holder shall be entitled
to an additional 5,000 Shares (the "Additional Shares"). Notwithstanding the
foregoing, such grant of the Additional Shares shall not be construed in any way
as Bank's agreement to (i) waive an Event of Default under the Loan Agreement;
(ii) forbear from exercising its rights and remedies if an Event of Default
occurs, exists or continues under the Loan Agreement; or (iii) extend Revolving
Loan Maturity Date.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 Intentionally Omitted
1.4 Fair Market Value. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
<PAGE> 2
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares
2
<PAGE> 3
of common stock issuable upon conversion of the Shares, shall be subject to
adjustment, from time to time in the manner set forth on Exhibit A in the event
of Diluting Issuances (as defined on Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than (i) the price per share at which the Shares
were last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(c) The Capitalization Table attached to this Warrant is true
and complete as of the Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior
3
<PAGE> 4
written notice of the date when the same will take place (and specifying the
date on which the holders of common stock will be entitled to exchange their
common stock for securities or other property deliverable upon the occurrence of
such event); and (3) in the case of the matter referred to in (e) above, the
same notice as is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 Term. This Warrant is exercisable, in whole or in part, at any
time and from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder s notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or to any affiliate of Holder, or, to any
other transferree by giving the Company notice of the portion of the Warrant
being transferred setting forth the name, address and taxpayer identification
number of the transferee and surrendering this Warrant to the Company for
reissuance to the transferee(s) (and Holder if applicable). Unless the Company
is filing financial information with the SEC pursuant to the Securities Exchange
Act of 1934, the Company shall have the right to refuse to transfer any portion
of this Warrant to any person who directly competes with the Company.
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<PAGE> 5
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail at such address
as may have been furnished to the Company or the Holder, as the case may be, in
writing by the Company or such holder from time to time. All notices to be
provided under this Warrant shall be sent to the following address:
Silicon Valley Bank
Attn: Treasury Department
3003 Tasman Drive
Santa Clara, CA 95054
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
WAVO CORPORATION
By: ______________________________
Name: ______________________________
(Print)
Title: Chairman of the Board, President or
Vice President
By: ______________________________
Name: ______________________________
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant
Secretary
5
<PAGE> 6
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase shares of the
Common/Preferred Series ___ [Strike one] Stock of ______________. pursuant to
the terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
-------------------------------------------
(Name)
-------------------------------------------
-------------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
------------------------------------
(Signature)
- --------------------
(Date)
<PAGE> 7
EXHIBIT "A"
SILICON VALLEY BANK
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of September 24, 1999,
by and between Silicon Valley Bank, a California-chartered bank ("Purchaser")
and the Company whose name appears on the last page of this Antidilution
Agreement.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant') pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. Definitions. As used in this Antidilution Agreement, the
following terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to
subscribe for, purchase, or otherwise acquire common stock or Convertible
Securities.
(b) "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a
record date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock
(including reissued shares) issued (or deemed to be issued pursuant to Section
2) after the date of the Warrant. Additional Common Shares does not include,
however, any common stock issued in a transaction described in Sections 2.1 and
2.2 of the Warrant; any common stock Issued upon conversion of preferred stock
outstanding on the date of the Warrant; the Shares; or common stock Issued as
incentive or in a nonfinancing transaction to employees, officers, directors, or
consultants to the Company.
(e) The shares of common stock ultimately Issuable upon
exercise of an Option (including the shares of common stock ultimately Issuable
upon conversion or exercise of a Convertible Security Issuable pursuant to an
Option) are deemed to be Issued when the Option is Issued. The shares of common
stock ultimately Issuable upon conversion or exercise of a Convertible Security
(other than a Convertible Security Issued pursuant to an Option) shall be deemed
Issued upon Issuance of the Convertible Security.
2. Deemed Issuance of Additional Common Shares. The shares of common
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock
<PAGE> 8
Issuable is determined without regard to any future adjustments permitted under
the instrument creating the Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting Issuances.
3.1 Ratchet Adjustment. If the Company issues Additional Common
Shares after the date of the Warrant and the consideration per Additional Common
Share (determined pursuant to Section 9) is less than the Warrant Price in
effect immediately before such Issue, the Warrant Price shall be reduced to the
lesser of:
(a) the amount of such consideration per Additional Common
Share; or
(b) if the Company's common stock is traded on a national
securities exchange or the National Association of Securities Dealers Automated
Quotation System, the last reported bid or sale price of the Company's common
stock on the first trading day following a public announcement of the Issuance.
3.2 Adjustment of Number of Shares. Upon each adjustment of the
Warrant Price, the number of Shares issuable upon exercise of the Warrant shall
be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Warrant Price.
3.3 Securities Deemed Outstanding. For the purpose of this Section
3, all securities issuable upon exercise of any outstanding Convertible
Securities or Options, warrants, or other rights to acquire securities of the
Company shall be deemed to be outstanding.
4. No Adjustment for Issuances Following Deemed Issuances. No
adjustment to the Warrant Price shall be made upon the exercise of Options or
conversion of Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
Securities. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. Recomputation Upon Expiration of Options or Convertible Securities.
The Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. Limit on Readjustments. No readjustment of the Warrant Price
pursuant to Sections 5 or 6 shall increase the Warrant Price more than the
amount of any decrease made in respect of the Issue of any Options or
Convertible Securities.
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<PAGE> 9
8. 30 Day Options. In the case of any Options that expire by their
terms not more than 30 days after the date of Issue thereof, no adjustment of
the Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) Cash shall be valued at the amount of cash received by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
(b) Property. Property other than cash shall be computed at the
fair market value thereof at the time of the Issue as determined in good faith
by the Board of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional common
Shares Issued together with other property of the Company for consideration that
covers both shall be determined in good faith by the Board of Directors.
(d) Options and Convertible Securities. The consideration per
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable by the
Company for the Issue of the Options or Convertible Securities, plus the minimum
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon exercise of the
Options or conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) ultimately Issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
10. General.
10.1 Governing Law. This Antidilution Agreement shall be
governed in all respects by the laws of the State of California as such laws are
applied to agreements between California residents entered into and to be
performed entirely within California.
10.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
10.3 Entire Agreement. Except as set forth below, this
Antidilution Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
10.4 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first class
mail, postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth below, or at
such other address as Purchaser shall have furnished to the Company in writing,
or (b) if to the Company, at the Company's address set forth below, or at such
other address as the Company shall have furnished to the Purchaser in writing.
10.5 Severability. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
3
<PAGE> 10
10.6 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK<<
By:_______________________________ By:__________________________________
Name:_____________________________ Name:________________________________
(Print):__________________________ (Print):_____________________________
Title:____________________________ Title:Chairman of the Board,
President or Vice President
Address: Address:
4
<PAGE> 11
EXHIBIT "B"
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of September 24,
1999, by and between Silicon Valley Bank, a California-chartered bank
("Purchaser") and the Company whose name appears on the last page of this
Agreement.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Shares (if
Common Stock) or all shares of Common Stock of the Company issuable or issued
upon conversion of the Shares and (ii) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or
qualifying transferees under subsection 1.8 hereof who hold Registrable
Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 Company Registration.
(a) Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a registration on Form S-1
or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
5
<PAGE> 12
(i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within 30 days after
receipt of such written notice from the Company, by any Holder or Holders,
except as set forth in subsection 1.2(b) below.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subsection 1.2(a)(i). In such event the right of any Holder to
registration pursuant to this subsection 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company.
1.3 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 1 including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company except the Company shall not be
required to pay underwriters' fees, discounts or commissions relating to
Registrable Securities. All expenses of any registered offering not otherwise
borne by the Company shall be borne pro rata among the Holders participating in
the offering and the Company.
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
6
<PAGE> 13
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act or the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
1.5 Indemnification.
(a) The Company will indemnify each Holder of
Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which such registration,
qualification or compliance has been effected pursuant to this Rights Agreement,
and each underwriter, if any, and each person who controls any underwriter of
the Registrable Securities held by or issuable to such Holder, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, or any violation or alleged violation by the Company of the
Securities Act, the Securities Exchange Act of 1934, as amended, ("Exchange
Act") or any state securities law applicable to the Company or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any such
state law and relating to action or inaction required of the Company in
connection with any such registration, qualification of compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, within a reasonable amount of time after incurred
for any reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 1.5(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld);
and provided further, that the Company will not be liable in any such case to
the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by an instrument duly executed by such Holder or
underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by or issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein;
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<PAGE> 14
provided, however, that the indemnity agreement contained in this subsection
1.5(b) shall not apply to amounts paid in settlement of any such claim, loss,
damage, liability or action if such settlement is effected without the consent
of the Holder, (which consent shall not be unreasonably withheld); and provided
further, that the total amount for which any Holder shall be liable under this
subsection 1.5(b) shall not in any event exceed the aggregate proceeds received
by such Holder from the sale of Registrable Securities held by such Holder in
such registration.
(c) Each party entitled to indemnification under this
subsection 1.5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.6 Information by Holder. Any Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 Rule 144 Reporting. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, after 90 days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) so long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as the Holder may reasonably request in
complying with any rule or regulation of the SEC allowing the Holder to sell any
such securities without registration.
1.8 Transfer of Registration Rights. Holders' rights to cause
the Company to register their securities and keep information available, granted
to them by the Company under subsections 1.2
8
<PAGE> 15
and 1.7 may be assigned to a transferee or assignee of a Holder's Registrable
Securities not sold to the public, provided, that the Company is given written
notice by such Holder at the time of or within a reasonable time after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned. The Company may prohibit the transfer of any Holders' rights
under this subsection 1.8 to any proposed transferee or assignee who the Company
reasonably believes is a competitor of the Company.
2. General.
2.1 Waivers and Amendments. With the written consent of the
record or beneficial holders of at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the Holders of the
Registrable Securities under this agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
2.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
2.4 Entire Agreement. Except as set forth below, this Agreement
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first class
mail, postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth below, or at
such other address as such Holder shall have furnished to the Company in
writing, or (b) if to the Company, at the Company's address set forth below, or
at such other address as the Company shall have furnished to the Holder in
writing.
2.6 Severability. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, the validity, legality and enforceability
of the remaining provisions of this Agreement or any provision of the other
Agreement s shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
2.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9
<PAGE> 16
PURCHASER COMPANY
SILICON VALLEY BANK
By:__________________ By:___________________
Name:________________ Name:_________________
Title:_______________ Title:________________
By:___________________
Name:_________________
Title:________________
Address: Address:
10
<PAGE> 1
BARNES & THORNBURG
11 South Meridian Street
Indianapolis, Indiana 46204 U.S.A.
(317) 236-1313
Fax (317) 231-7433
http://www.btlaw.com
October 18, 1999
WAVO CORPORATION
3131 E. Camelback Road
Suite 320
Phoenix, Arizona 85016
Re: Registration of Common Shares
Gentlemen:
We have acted as special Indiana counsel to WAVO Corporation, an
Indiana corporation (the "Company"), in connection with its Registration
Statement on Form S-3 (the "Registration Statement") filed under the Securities
Act of 1933, as amended (the "1933 Act"), relating to the registration of up to
1,007,500 of the Company's Common Shares, without par value (the "Shares"),
issuable upon the exercise of (a) the warrants for 1,000,000 Shares issued to
Virgin Entertainment Group, Inc. (the "Virgin Warrants") pursuant to that
certain Investment and Participation Agreement dated as of September 14, 1999
among the Company, Jamcast.com, Inc. and Virgin Entertainment Group, Inc., and
(b) a warrant for 7,500 Shares issued to Silicon Valley Bank (the "Bank
Warrant" and, together with the Virgin Warrants, the "Warrants") pursuant to
that certain Loan Modification Agreement effective as of September 24, 1999
between the Company and Silicon Valley Bank.
In rendering the opinions set forth herein, we have limited our factual
inquiry to (i) reliance on a certificate of the Secretary of the Company, (ii)
reliance on the facts and representations contained in the Registration
Statement, including without limitation those relating to the number of the
Company's Common Shares, without par value, which are authorized, issued or
reserved for issuance upon conversion or exercise of preferred shares, warrants
and options, and (iii) such documents, corporate records and other instruments
as we have deemed necessary or appropriate as a basis for the opinions expressed
below, including without limitation a certificate issued by the Secretary of
State of the State of Indiana dated October 13, 1999, attesting to the corporate
existence of the Company in the State of Indiana, and telephonic verification
with such Secretary of State with respect to the Company's continued valid
existence as of the date hereof.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies, and the authenticity of the originals of such copies. In
rendering the opinion expressed below, we have assumed that the Shares (i) will
conform in all
Indianapolis Fort Wayne South Bend Elkhart Chicago Washington, D.C.
<PAGE> 2
WAVO Corporation
October 18, 1999
Page 2
material respects to the description thereof set forth in the Registration
Statement, (ii) will be issued and delivered in accordance with the terms of the
Warrants, and (iii) will be issued pursuant to an exemption from the
registration requirements of the 1933 Act pursuant to Section 4(2) of the 1933
Act.
Based upon the foregoing, and subject to the qualifications set forth
herein, we are of the opinion that the Shares, when issued upon exercise of the
Warrants in accordance with the terms thereof, will be validly issued, fully
paid and nonassessable.
The foregoing opinion is limited to the current internal laws of the State
of Indiana (without giving effect to any conflict of law principles thereof),
and we have not considered, and express no opinion on, the laws of any other
jurisdiction. This opinion is based on the laws in effect and facts in
existence on the date of this letter, and we assume no obligation to revise or
supplement this letter should the law or facts, or both, change.
This opinion is intended solely for the use of the Company in connection
with the registration of the Shares. It may not be relied upon by any other
person or for any other purpose, or reproduced or filed publicly by any person,
without the written consent of Barnes & Thornburg; provided, however, that we
hereby consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to the references to Barnes & Thornburg contained in the
Registration Statement.
Very truly yours,
/s/ Barnes & Thornburg
BARNES & THORNBURG
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related prospectus of Wavo Corporation
for the registration of 1,007,500 shares of its common stock and to the
incorporation by reference therein of our report dated January 25, 1999, with
respect to the consolidated financial statements of Wavo Corporation included
in its Annual Report (Form 10-K) for the year ended December 31, 1998, filed
with the Securities and Exchange Commission
/s/ Ernst & Young LLP
Phoenix, Arizona
October 18, 1999
