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Filed Pursuant to Rule 424(b)(3)
File No. 333-89259
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 14. 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.
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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 4. 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 October 29,1999.
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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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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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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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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> 16
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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