<PAGE> 1
As filed with the Securities and Exchange Commission on October 6, 1997
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
Source Media, Inc..
(Exact name of registrant as specified in its charter)
Delaware 13-3700438
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
(214) 890-9050
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
-----------------
Timothy P. Peters
Chairman of the Board and
Chief Executive Officer
Source Media, Inc.
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
(214) 890-9050
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public:
From time to time after this registration statement becomes
effective as determined by market conditions.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, 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. [ ]
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF REGISTRATION
REGISTERED REGISTERED OFFERING PRICE PER UNIT PRICE (1) FEE
- ---------------------- ------------ ----------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 33,000 $12.00 $396,000 $120
par value per share
</TABLE>
(1) Calculated pursuant to Rule 457(c), based upon the average of the bid and
asked prices for the Common Stock on September 30, 1997.
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.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1997
PROSPECTUS
33,000 SHARES
SOURCE MEDIA, INC.
COMMON STOCK
All the 33,000 shares (the "Shares") of Common Stock, $.001 par value
per share ("Common Stock"), of Source Media, Inc., a Delaware corporation
("Source" or the "Company"), offered hereby are being offered for the account
of a certain stockholder of the Company (the "Selling Shareholder"). The
Company will receive none of the proceeds from sales of the Shares.
The Common Stock is listed on the NASDAQ National Market System (the
"NASDAQ") under the symbol "SRCM". On September 30, 1997, the closing price of
the Common Stock on the NASDAQ was $12.00 per share.
The Shares may be sold from time to time by the Selling Shareholder.
Such sales may be made on the NASDAQ or otherwise at prices and on terms
related to the then current market price of the Common Stock or in negotiated
transactions. The Shares may be sold by any one or more of the following
methods: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent, but may position and resell a portion of a
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal, and resale by such broker or dealer, for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) privately
negotiated transactions. See "Plan of Distribution".
The Company has agreed with the Selling Shareholder to register the
Shares offered hereby. The Company has also agreed to pay all fees and expenses
incident to such registration, other than any underwriting discounts, any
selling commissions payable in respect of sales of the Shares or any expenses
incurred by the Selling Shareholder to retain any counsel, accountant or other
advisor; all of which will be paid by the Selling Shareholder. It is estimated
that the fees and expenses payable by the Company in connection with the
registration of the Shares will be approximately $15,000. The Company has
agreed with the Selling Shareholder to keep the Registration Statement (as
hereinafter defined), of which this Prospectus is a part, effective for a
period of at least 14 days from the effective date of this Prospectus.
-----------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS".
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
The date of this Prospectus is ________, 1997.
<PAGE> 3
No person is authorized in connection with the offering made hereby to
give any information or to make any representation not contained or
incorporated by reference in this Prospectus, and any information or
representation not contained or incorporated by reference herein must not be
relied upon as having been authorized by the Company or the Selling
Shareholder. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained from the Commission at
prescribed rates through its Public Reference Section at 450 Fifth Street,
N.W., Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended, with respect to the
Common Stock offered hereby (including all amendments or supplements thereto,
the "Registration Statement"). This Prospectus, which forms a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of certain documents are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 0-21894) pursuant to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997;
(3) The Company's Current Report on Form 8-K dated January 19, 1997
(Date of Event: January 14, 1997); and
(4) All other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Shares.
Any statement contained herein or in a document or information
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any subsequently filed document which also
is, or is deemed to be, incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any and all of the foregoing documents or information that has been
incorporated by reference in this Prospectus, other than exhibits to such
documents (unless such exhibits are
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specifically incorporated by reference into such documents). Maryann Walsh,
General Counsel, Source Media, Inc., 8140 Walnut Hill Lane, Suite 1000, Dallas,
Texas 75231, Telephone (214) 890-9050.
THE COMPANY
Source is a provider of information and services to consumers through
the television and telephone. In September 1996, in Colorado Springs, Colorado,
Source commercially introduced the Interactive Channel, its television
programming service which provides a range of on-demand information and
services to consumers utilizing cable television and telephone lines. In
November 1996, Source also commercially introduced the Interactive Channel in
Denton, Texas. Source utilizes the interactive television system of its
Interactive Channel Technologies Inc. ("ICT") subsidiary to deliver the
Interactive Channel. Source has announced distribution agreements for the
Interactive Channel with three cable operators, Marcus Cable Company, L.P.,
Cablevision Systems Corporation and Century Communications Corporation, and is
currently offering the Interactive Channel on the systems of two of these
operators. The Interactive Channel offers over 60 interactive programs
including on demand local and national news, sports and weather, home shopping
with companies such as J.C. Penney, Hallmark Connections and Waldenbooks,
interactive Yellow Pages, television and movie guides, travel information and
games.
Since 1988, Source has been delivering audiotex information to
consumers over the touch-tone telephone. Through its IT Network telephone
business (the "Telephone Division"), Source provides consumers with information
on demand, such as news, weather and sports, together with topical information
for health, legal and other matters of consumer interest. The Telephone
Division's principal business product, called the Network Guide, consists of
approximately 800 specific information topics listed in a stand-alone insert
generally bound in the front of Yellow Pages directories distributed by certain
Regional Bell Operating Companies ("RBOCs") or other Yellow Pages publishers.
Source's future performance will depend substantially on its ability
to manage change in its businesses and operations, to respond to competitive
developments, to upgrade its technologies and programming, to commercialize
products and services incorporating such upgraded technologies and programming
and to adapt its operational and financial control systems as necessary to
respond to continuing changes in its businesses.
The Company's operations are conducted through its subsidiaries, IT
Network, Inc. ("IT") and ICT. IT was incorporated in Colorado on July 19, 1988
and reincorporated in Texas in 1991. On June 23, 1995, IT merged with a
wholly-owned subsidiary of HB Communications Acquisition Corp. ("HBAC"), a
public company formed in Delaware for the purpose of acquiring a company
engaged in the communications industry, with IT surviving as a wholly-owned
subsidiary of HBAC (the "Merger"). In connection with the Merger, HBAC changed
its name to Source Media, Inc. Pursuant to the Merger, the outstanding common
stock and preferred stock of IT was converted into Common Stock of Source. On
January 14, 1997, Source acquired all of the outstanding shares of ICT that it
did not already own through a Canadian procedure known as a Plan of
Arrangement. ICT owns the patented technology utilized by Source for the
Interactive Channel and provides research and development services for Source.
The Company is a Delaware corporation whose principal executive
offices are located at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231,
and whose telephone number is (214) 890-9050.
RECENT DEVELOPMENTS
THE BRITE VOICE ACQUISITION
On September 23, 1997, the Company entered into an agreement with
Brite Voice to purchase substantially all of the assets of Brite Electronic
Publishing, Brite Voice's audiotex service and information division (the
"Brite Voice Acquisition"). The purchase price is $35.0 million in cash. The
principal assets to be acquired by the Company are certain contract rights,
customer lists and equipment. Brite Voice has agreed that, if the Brite Voice
Acquisition is consummated, it will not compete with the Company or solicit the
Company's customers for a period
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of three years from the closing of the Brite Voice Acquisition. The asset
purchase agreement relating to the Brite Voice Acquisition contains certain
representations and warranties and limited rights of indemnification from Brite
Voice. The closing of the Brite Voice Acquisition is contingent upon, among
other things, the Company's success in obtaining sufficient capital market debt
financing.
THE VOICE NEWS NETWORK (VNN) ACQUISITION
On September 30, 1997, the Company entered into an agreement with
Voice News Network, Inc., a division of Tribune Media Services, a unit of
Tribune Company, to purchase substantially all of its assets. The purchase
price is $9.0 million in cash. The principal assets to be acquired by the
Company are the existing contracts for the Voice News Network's interactive
audio network with certain newspapers. The asset purchase agreement relating to
the VNN Acquisition contains certain representations and warranties. The
closing of the VNN Acquisition requires, among other things, the Company to
obtain sufficient capital market debt financing.
WAIVER OF COVENANT IN SENIOR NOTE AGREEMENT
At September 30, 1997 the Company was not in compliance with the net
cash covenant contained in its senior note agreement. The Company has obtained
a waiver of this covenant effective until January 1, 1998.
RISK FACTORS
Any investment in the Common Stock involves a high degree of risk.
Prospective purchasers of the Common Stock should carefully consider the risk
factors set forth below, as well as the other information contained in this
Offering Memorandum. This Offering Memorandum contains forward-looking
statements, which can be identified by the use of forward-looking terminology
such as "may," "expect," "intend," "plan," "anticipate," "estimate" thereon or
comparable terminology. Actual results may differ materially from those
projected in the forward-looking statements as a result of any number of
factors, including risk factors set forth below.
HISTORICAL AND PROJECTED LOSSES. The Company has reported an operating loss and
a net loss in each year since its inception, including an operating loss of
$14.0 million and a net loss of $13.9 million in the year ended December 31,
1996. The Company's operating losses were experienced in the Interactive
Channel, which is in the initial launch phase, while the Company's Telephone
Division reached a break-even position. As a result of these losses, the
Company had an accumulated deficit of $56.9 million at December 31, 1996. The
Company expects to continue to incur substantial operating losses through 1998
and may incur substantial operating losses thereafter. There can be no
assurance that the Company will be able to operate profitably at any time.
EVOLVING NATURE OF BUSINESS. The on-line information and services industry is
experiencing rapid change. Products or technologies developed by others could
render obsolete or otherwise significantly diminish the value of the Company's
technology, the Interactive Channel or the Telephone Division. The Company's
future performance will depend substantially on its ability to respond to
competitive developments, to upgrade its technologies and programming, to
commercialize products and services incorporating upgraded technologies and
programming and to adapt its operational and financial control systems as
necessary to respond to continuing changes in its businesses.
There can be no assurance that the Company will be successful in these efforts.
ACCESS TO CHANNELS ON CABLE SYSTEMS AND UNCERTAINTY OF SUBSCRIBER ACCEPTANCE.
The Company's ability to offer the Interactive Channel on any cable television
system depends on obtaining an agreement from the cable system operator on
terms satisfactory to the Company. There is intense competition among suppliers
of programming for access to channels. The Company currently has three
agreements in place with cable system operators and is providing programming in
Colorado Springs, Colorado and Denton, Texas. The Company is in active
discussions to obtain channel access for the Interactive Channel with other
cable systems.
Even if the Company does have channel access, there can be no
assurance that a significant market for on-demand interactive television will
develop or that cable subscribers will use the television as a source of
on-demand information and services. In addition, the Interactive Channel will
be competing with other on-demand information and entertainment sources. This
competition includes services offering access to the Internet through the
television. There can be no assurance that the Interactive Channel will prove
more desirable than such services or sufficiently desirable to cable
subscribers to induce them to pay a subscription fee for the Interactive
Channel. If the Interactive
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Channel does not achieve market acceptance, Source will be unable to implement
its business strategy and Source's business will be materially adversely
affected.
AVAILABILITY OF PROGRAMMING. The success of the Interactive Channel is highly
dependent on the availability of high-quality programming applications that
appeal to the Interactive Channel's subscribers. The Company depends on
independent programming sources, such as third-party suppliers, local media,
retailers and information service providers, to create, produce and update the
programming disseminated on the Interactive Channel at no, or minimal, cost to
the Company. There can be no assurance that Source will succeed in attracting
and retaining such independent programming sources. If independent programming
sources do not develop high quality, up-to-date information, shopping,
entertainment and other programming applications that are capable of being
delivered on the Interactive Channel and that appeal to subscribers, or if such
suppliers are unwilling to provide such applications to Source on terms
favorable to Source, Source would have to increase the extent to which it
supplements these independent programming services with its internal
programming, which would increase the cost of operating the Interactive
Channel.
RELIANCE UPON PROPRIETARY TECHNOLOGY. Source often enters into confidentiality
or license agreements with certain of its employees, consultants and other
outside parties, and generally seeks to control access to and distribution of
its proprietary information. Despite these precautions, it may be possible for
third parties to copy or otherwise obtain and use Source's products or
technology without authorization, or to independently develop similar products
and technology. In addition, effective copyright and trade secret protection
may be unavailable or limited in certain foreign countries. There can be no
assurance that the steps taken by Source will prevent misappropriation of its
technology or that additional litigation will not be necessary in the future to
enforce Source's intellectual property rights, to protect Source's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in the invalidation of Source's proprietary rights and,
in any event, could result in substantial costs and diversion of management
time, either of which could have a material adverse effect on Source's
business.
RELIANCE ON YELLOW PAGES DISTRIBUTION CHANNEL. The Company's Telephone Division
is currently dependent on the Company's ability to distribute its printed menu
of available programming topics in certain of the Yellow Pages directories
published by the Company's contractually established publishing partners,
including several of the seven RBOCs. If the Company is unable to renew its
current agreements, or to enter into new agreements with its publishing
partners, and particularly the RBOCs, on financial terms as favorable as the
present agreements, its business and financial condition would be materially
and adversely affected.
UNCERTAINTY OF ALTERNATIVE REVENUE SOURCES. Historically, a significant portion
of the Company's monetary revenues has been generated from the sale of
advertising sponsorships in connection with its programming for the Telephone
Division. The future success of the Telephone Division depends not only on
maintaining these sources of advertising revenue, but also on adding new
sources of revenue, such as fees from consumer transactions and sales agency
fees.
HOLDING COMPANY STRUCTURE; CHANGE OF CONTROL. The Company is a holding company
with no business operations of its own. The Company's only material assets are
the direct and indirect equity interests in its subsidiaries, through which the
Company conducts its business operations. Accordingly, the Company will be
dependent upon the earnings and cash flows of, and dividends and distributions
from, its direct and indirect equity interest in its subsidiaries to pay its
expenses, meet its obligations and pay interest and principal on current and
future debt. There can be no assurance that these direct and indirect equity
interests in the Company's subsidiaries will generate sufficient earnings and
cash flows to pay dividends to distribute funds to the Company or to enable the
Company to pay its expenses and meet its obligations to pay interest and
principal on its current and future debt.
RELIANCE ON KEY PERSONNEL. The Company's future performance depends in large
part on the services of certain executive officers and other key personnel, the
loss of any one of which could be detrimental to the Company's success. In
addition, for the Company to implement its strategy and continued development
and growth, it will be necessary for the Company to attract and retain
qualified personnel in all areas.
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COMPETITION. In an industry characterized by extensive capital requirements and
rapid technological change, Source faces potential competition for the
acceptance of its on-line programming and services from a number of companies,
most of which have significantly greater financial, technical, manufacturing
and marketing resources than Source and may be in a better position to compete
in the industry. In addition, Source faces competition for advertiser revenues
from other media, including radio, television, newspapers, and magazines.
Source believes that for the foreseeable future public access to on-line
television will generally be through cable system operators. Accordingly,
Source must compete with other providers of television programming to establish
relationships with cable system operators to gain channel access.
GOVERNMENT REGULATION. The telecommunications and cable television industries
are subject to extensive regulation by federal, state and local governmental
agencies. Existing regulations were substantially affected by the passage of
the Telecommunications Act of 1996 ("1996 Telecom Act") in February 1996, which
allowed cable television companies and telephone companies both to enter and
participate in new lines of business. This introduced the possibility of new,
non-traditional competition for both cable television and telephone companies
and resulted in greater potential competition for Source. The outcome of
pending federal and state administrative proceedings may also affect the nature
and extent of competition that will be encountered by Source. In addition,
future regulations may prevent Source from generating revenues from sales of
database information about consumers obtained by Source from its television and
telephone business. These competitive developments, as well as other regulatory
requirements relating to privacy issues, may have a material adverse effect on
Source's business.
SELLING SHAREHOLDER
The following table sets forth certain information with respect to the
ownership of the Common Stock, as of September 30, 1997, and as adjusted to
reflect the sale of the Shares offered hereby by the Selling Shareholder.
Except as otherwise indicated, the Selling Shareholder has sole voting and
investment power with respect to all shares indicated as being beneficially
owned by such person.
<TABLE>
<CAPTION>
Ownership of Ownership of
Common Stock Before Number of Shares Common Stock After
the Offering Being Offered the Offering(1)
------------------- ---------------- ------------------
Number of Number of
Name Shares Percent Shares Percent
---- -------- ------- -------- -------
<S> <C> <C> <C>
Dykema Gossett PLLC(2) 33,000 * 33,000 0 --
</TABLE>
- ---------------------------
* Represents less than 1% of outstanding Common Stock.
(1) Assumes that all Shares being offered are sold.
(2) The shares being offered by Dykema Gossett PLLC as trustee for the
benefit of William T. Little individually and as trustee of the William
T. Little Revocable Trust ("Little") were received by Little from the
Company as part of a legal settlement. In connection with the settlement,
the Company also entered into the Settlement Agreement and Release dated
September 9, 1997 (the "Little Agreement") with Little pursuant to which
Little was accorded certain registration rights with respect to such
shares. The Company has registered such shares for sale pursuant to this
Prospectus as required by the Little Agreement.
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<PAGE> 8
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Shareholder
(including the Selling Shareholder's pledgees, donees or other successors in
interest). All sales may be made by the Selling Shareholder on the NASDAQ or
otherwise at prices and on terms related to the then current market price of
the Common Stock or in negotiated transactions. The Shares may be sold by any
one or more of the following methods:
(a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent, but may position and resell a portion of a
block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal, and resale by such
broker or dealer, for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
(d) privately negotiated transactions.
The Selling Shareholder may effect such transactions by selling the
Shares to or through brokers or dealers. Such brokers or dealers will receive
compensation in the form of discounts or commissions from the Selling
Shareholder, and they may also receive commissions from the purchasers of the
Shares for whom they may act as agents. Such discounts or commissions from the
Selling Shareholder or such purchasers are not expected to exceed those
customary in the types of transactions involved.
The Company will pay all fees and expenses incident to the
registration of the Shares, other than any underwriting discounts, any selling
commissions payable in respect of sales of the Shares or any expenses incurred
by the Selling Shareholder to retain any counsel, accountant or other advisor;
all of which will be paid by the Selling Shareholder. It is estimated that the
fees and expenses payable by the Company in connection with the registration of
the Shares will be approximately $15,000. The Company will receive none of the
proceeds from sales of the Shares.
In the event the Shares are offered to the public by the Selling
Shareholder, they may be deemed "underwriters" within the meaning of the
Securities Act of 1933. Any broker-dealer selling the Shares as agent for a
Selling Shareholder and any broker-dealer purchasing and reselling the Shares
for its own account may also be deemed an "underwriter".
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 50,000,000 shares of Common Stock,
par value $0.001 per share, and 1,000,000 shares of Preferred Stock, par value
$0.001 per share. As of September 30, 1997, there were outstanding 11,460,227
shares of Common Stock. In addition, as of such date there were outstanding
warrants and options (including replacement options) entitling the holders
thereof to purchase an aggregate of 7,908,406 shares of Common Stock and
exchange rights entitling the holder to acquire 206,376 shares of Common Stock.
COMMON SHARES
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors. The holders of
Common Stock are entitled to receive dividends when, as and if declared by the
board of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the Common Stock.
Holders of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption
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<PAGE> 9
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of preferred stock with such designations, rights and
preferences as may be determined from time to time by the board of directors of
the Company.
WARRANTS
The Company has outstanding warrants to purchase an aggregate of
6,663,852 shares of Common Stock. A brief description of such warrants follows.
Public Warrants. A total of 4,653,000 warrants (the "Public Warrants")
are currently outstanding, each of which entitles the registered holder to
purchase one-half of a share of Common Stock 2,326,500 shares in the aggregate
at a price of $11.00 per share, subject to adjustment in certain circumstances,
at any time until 5:00 p.m., New York City time, on June 23, 2000, at which
time the Public Warrants will expire. The Company may call the Public Warrants
for redemption, in whole or in part at a price of $0.01 per Public Warrant upon
not less than 30 days' prior written notice, provided that the last sale price
of Common Stock has been at least $20.00 ("Public Warrant Redemption Price")
for the 20 consecutive trading days ending on the third business day prior to
the date on which the notice of redemption is given. The holders of Public
Warrants have exercised rights until the close of business on the date fixed
for redemption. The holders of Public Warrants do not have the rights or
privileges of holders of Common Stock prior to the exercise of the Public
Warrants.
The exercise price, number of shares of Common Stock issuable on
exercise of the Public Warrants and Public Warrant Redemption Price are subject
to adjustment in certain circumstances including events of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company. The
Public Warrants, however, are not subject to adjustment for issuances of Common
Stock at a price below their exercise price.
The Company has the right, in its sole discretion, to decrease the
exercise price of the Public Warrants for a period of not less than 30 days on
not less than 30 days' prior written notice to the warrantholders and to extend
the expiration date of the Public Warrants on five business days prior written
notice to the warrantholders.
The Public Warrants were registered with the Commission under the
Securities Act and are currently traded on the OTC. The Company is required to
file with the Commission a current registration statement covering the shares
of Common Stock issuable upon exercise of such Public Warrants and maintain the
effectiveness of such registration statement during the period the Public
Warrants are exercisable. To date, the Company has not filed such a
registration statement.
The Company has also issued warrants to Hackman, Baring & Co.,
Incorporated, entitling Hackman, Baring & Co., Incorporated to purchase 25,000
shares of Common Stock on the same terms as the Public Warrants, except that
they are not registered with the Commission.
Brenner Warrants. Pursuant to an agreement dated January 19, 1994,
HBAC issued to Brenner Capital Corporation and its assignees ("Brenner")
warrants to purchase 28,302 shares of Common Stock exercisable at a price of
$10.60 per share (the "Brenner Warrants"). The Brenner Warrants, which were
issued on November 4, 1994, are exercisable until June 23, 1998. The Brenner
Warrants contain anti-dilution provisions providing for adjustment of the
exercise price upon the occurrence of certain events including the issuance of
shares of Common Stock or other securities convertible into or exercisable for
Common Stock at a price per share less than the exercise price of the Brenner
Warrants, or the market price of the Common Stock, or in the event of any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. Accordingly, in January 1997, the Brenner
Warrants were adjusted to provide for the purchase of 68,493 shares of common
stock exercisable at a purchase price of $4.38 per share to reflect the
issuance of Common Stock in connection with the ICT acquisition.
8
<PAGE> 10
VSD Warrants. Four individuals own warrants to purchase an aggregate
of 83,085 shares of Common Stock at an exercise price of $10.80 per share,
expiring on February 1, 2001.
Smith Warrants. The Revocable Trust for Kevin F. Smith, Jr. and James
A. Smith, III owns warrants to purchase 10,079 shares of Common Stock at an
exercisable price of $18.60 per share, expiring on February 10, 1998.
Hartford and Dublind Warrants. The Dublind Partners, Inc., an
affiliate of Dublind Securities, Inc., owns warrants to purchase 147,394 shares
of Common Stock, and Security Insurance Company of Hartford owns warrants to
purchase 105,282 shares of Common Stock, all expiring on December 21, 2002.
Pursuant to an agreement entered into with both parties in September 1995, the
exercise price of such warrants is $10.50 per share.
Funding Warrants. In May 1995, IT issued warrants to purchase an
aggregate of 1,034,687 shares of Common Stock at an exercise price of $7.44,
exercisable until May 17, 2000 (the "Funding Warrants"). The holders of the
Funding Warrants have demand and "piggyback" registration rights with respect
to the securities into which the Funding Warrants are exercisable. The Funding
Warrants also contain anti-dilution provisions providing for adjustment of the
exercise price upon the occurrence of certain events including the issuance of
shares of Common Stock or other securities convertible into or exercisable for
Common Stock at a price per share less than the exercise price of the Funding
Warrants, or in the event of any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. Accordingly,
in April 1997, the Funding Warrants were adjusted to provide for the purchase
of 1,034,687 shares of Common Stock exercisable at a purchase price of $6.00
per share to reflect the issuance of the Senior Secured Note Warrants.
Senior Secured Note Warrants. In connection with the issuance of its
existing senior secured notes, the Company issued warrants to the noteholders
entitling them to purchase 2,500,000 shares of Common Stock at an exercise
price of $6.00 per share, expiring on March 31, 2004. The holders of the Senior
Secured Note Warrants have demand and "piggyback" registration rights with
respect to the securities into which the Senior Secured Note Warrants are
exercisable. The Senior Secured Note Warrants also contain anti-dilution
provisions providing for adjustment of the exercise price and number of shares
upon the occurrence of certain events including the issuance of shares of
Common Stock or other securities convertible into or exercisable for Common
Stock at a price per share less than the exercise price of the Senior Secured
Note Warrants, or in the event of any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. At the option
of the Company, interest payments on the existing senior secured notes may be
made through the issuance of additional senior notes; however, to the extent
interest payments are made through the issuance of additional senior notes,
additional warrants to purchase .125 shares of the Company's Common Stock at a
purchase price of $6.00 per share must also be issued to the holders of the
notes. Accordingly, on September 30, 1997, the Company issued warrants to the
noteholders entitling them to purchase 163,333 shares of Common Stock.
Century and Freedom Warrants. In May 1997, the Company granted
warrants to each of its local partners in Colorado Springs, Freedom
Communications, Inc. and Century Communications Corporation, to purchase
100,000 shares at an exercise price of $6.41 per share, expiring on May 21,
2000.
CABLESHARE REPLACEMENT OPTIONS
Pursuant to the Plan of Arrangement, each of the options for ICT
Common Shares outstanding at the effective time of the Arrangement between the
Company and ICT was exchanged for an option (a "Replacement Option") to
purchase shares of Common Stock. The Replacement Options represent the right to
purchase 87,229 shares of Common Stock at a weighted average exercise price of
$3.99 per share.
POCOCK EXCHANGE RIGHTS
In September 1992, IT issued certain exchange rights (the "Pocock
Exchange Rights") to Terrence H. Pocock pursuant to an agreement (the "Pocock
Agreement") between Mr. Pocock and IT and a Canadian subsidiary of IT
("CanSub"). Under the Pocock Agreement, Mr. Pocock exchanged 1,623,409 of
Cableshare's Class A Shares and 843,818 of Cableshare's Class B Shares for
1,535,821 Class Y shares of CanSub (the "Class Y Shares"). Mr. Pocock
subsequently transferred the Class Y Shares, the Pocock Exchange Rights and
certain other rights to his wife. In May
9
<PAGE> 11
1993, in accordance with the Pocock Agreement, IT loaned Mrs. Pocock $750,000,
evidenced by a promissory note due in May 2000, bearing interest at two percent
per annum, secured by a pledge of certain of the Class Y Shares and the Pocock
Exchange Rights and guaranteed by Mr. Pocock. The Pocock Exchange Rights
entitle Mrs. Pocock to exchange the Class Y Shares for 206,376 shares of Common
Stock, without additional material consideration to the Company, at any time
through February 28, 2000.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services at its Dallas, Texas offices. The transfer agent and
registrar for the Public Warrants is Continental Stock Transfer and Trust
Company at its principal office in New York, New York.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the directors' duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law (the "DGCL") relating to
prohibited dividends or distributions or the repurchase or redemption of stock,
or (iv) for any transaction from which the director derives an improper
personal benefit. If the DGCL is amended to authorize further elimination or
limitation of directors' liability, then the liability of directors of the
Company shall automatically be limited to the fullest extent provided by law.
The Bylaws of the Company also contain provisions to indemnify the directors,
officers, employees or other agents. These provisions may have the practical
effect in certain cases of eliminating the ability of stockholders to collect
monetary damages from directors.
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS
Provisions of the DGCL prohibit "business combinations" between the
Company and certain stockholders unless the established requirements are met.
Consequently, the business combination provisions of the DGCL may have the
effect of deterring merger proposals, tender offers or other attempts to effect
changes in control of the Company that are not negotiated with and approved by
the Board of Directors.
Additionally, the following provisions of the Company's Certificate of
Incorporation and Bylaws may be considered to have anti-takeover implications:
(a) the ability of the board to increase the number of directors and fill (but
only until the next annual meeting of stockholders) the vacancies resulting
from such increase; and (b) the ability of the board of directors to establish
the rights of, and to issue, substantial amounts of preferred stock without the
need for stockholder approval which preferred stock, among other things, may be
used to increase voting impediments with respect to changes in control of the
Company or to dilute the stock ownership of holders of shares of Common Stock
seeking to obtain control of the Company.
REGISTRATION RIGHTS
Various stockholders of the Company have certain demand and
"piggyback" registration rights with respect to a total of 1,502,704 shares of
Common Stock. In addition, the Company has granted demand and "piggyback"
registration rights to the holders of warrants and the Pocock Exchange Rights
with respect to the shares of Common Stock underlying such warrants and the
206,376 shares of Common Stock underlying the Pocock Exchange rights.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Thompson & Knight, A Professional Corporation, Dallas, Texas.
10
<PAGE> 12
EXPERTS
The consolidated financial statements of the Company appearing in its
Annual Report on Form 10-K for the year ended December 31, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
Any audited financial statements incorporated by reference in the
Registration Statement of which this Prospectus is a part will be so
incorporated by reference herein in reliance upon the reports of independent
auditors pertaining to such financial statements (to the extent covered by
consents filed with the Securities and Exchange Commission) given upon the
authority of such firm as experts in auditing and accounting.
11
<PAGE> 13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses, other than brokerage
discounts and commissions, expected to be incurred in connection with the
offering of the Shares registered hereby. All amounts, except the Securities
and Exchange Commission registration fee, are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 120
Accounting Fees and Expenses................................ $ 5,000
Legal Fees and Expenses..................................... $ 5,000
Miscellaneous Expenses...................................... $ 4,880
-------
Total............................................ $15,000
=======
</TABLE>
- --------------
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, agents and controlling persons
of a corporation under certain conditions and subject to certain limitations.
Article Eighth of the Company's Certificate of Incorporation (Exhibit 3.1
hereto) and Section 5.1 of the Company's Bylaws (Exhibit 3.2 hereto) provide
for the indemnification of directors, officers and other authorized
representatives of the Company to the maximum extent permitted by the Delaware
General Corporation Law. Section 145 empowers a corporation to 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, by reason of the fact that he is or
was a director, officer or agent of the corporation or another enterprise if
serving at the request of the corporation. Depending on the character of the
proceeding, a corporation may indemnify against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation, unless and only to the extent, that the court of chancery or the
court in which such action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
The Company's Bylaws permit it to purchase insurance on behalf of any
such person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such liability under the
foregoing provision of the Bylaws.
II-1
<PAGE> 14
Item 16. Exhibits.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (No. 33-
97564), and incorporated herein by reference).
5.1 -- Opinion of Thompson & Knight, P.C., with respect to the
validity of the Source Common Shares.
23.1+ -- Consent of Ernst & Young LLP.
23.2 -- Consent of Thompson & Knight, P.C. (included in Exhibit
5.1).
</TABLE>
- -------------
+ Filed herewith.
Item 17. Undertakings.
(a) Rule 415 Offering
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to the Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
(iii) 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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 15
(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.
(b) Filings Incorporating Subsequent Exchange Act Documents by
Reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange 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.
(h) Acceleration of Effectiveness.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 16
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 Dallas, State of Texas, on the 6th day of
October, 1997.
SOURCE MEDIA, INC.
By: /s/ TIMOTHY P. PETERS
-----------------------------------
Timothy P. Peters
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and
officers of Source Media, Inc., a Delaware corporation, which is filing a
Registration Statement on Form S-1 with the Securities and Exchange Commission,
Washington, D.C. 20549 under the provisions of the Securities Act of 1933, as
each of them, the individual's true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for the person and in his
or her name, place and stead, in any and all capacities, to sign such
Registration Statement and any or all amendments, including post-effective
amendments, to the Registration Statement, including a Prospectus or an amended
Prospectus therein and any registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act,
and all other documents in connection therewith to be filed with the Securities
and Exchange Commission, granting unto 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 to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact as agents or any of them, or
their 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 by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ TIMOTHY P. PETERS Chief Executive Officer and October 6, 1997
------------------------------------------ Chairman of the Board,
Timothy P. Peters (principal executive officer)
By: /s/ MICHAEL G. PATE Chief Financial Officer and October 6, 1997
------------------------------------------ Treasurer (principal financial
Michael G. Pate and accounting officer)
</TABLE>
II-4
<PAGE> 17
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ JOHN J. REED President and Director October 6, 1997
------------------------------------------
John J. Reed
By: /s/ W. SCOTT BEDFORD Chief Operating Officer October 6, 1997
------------------------------------------
W. Scott Bedford
By: /s/ ROBERT H. ALTER Director October 6, 1997
------------------------------------------
Robert H. Alter
By: /s/ ROBERT J. CRESCI Director October 6, 1997
------------------------------------------
Robert J. Cresci
By: /s/ JAMES L. GREENWALD Director October 6, 1997
------------------------------------------
James L. Greenwald
By: /s/ BARRY RUBENSTEIN Director October 6, 1997
------------------------------------------
Barry Rubenstein
By: /s/ DAVID L. KUYKENDALL Director October 6, 1997
------------------------------------------
David L. Kuykendall
By: /s/ MICHAEL J. MAROCCO Director October 6, 1997
------------------------------------------
Michael J. Marocco
</TABLE>
II-5
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (No. 33-
97564), and incorporated herein by reference).
5.1 -- Opinion of Thompson & Knight, P.C., with respect to the
validity of the Source Common Shares.
23.1+ -- Consent of Ernst & Young LLP.
23.2 -- Consent of Thompson & Knight, P.C. (included in Exhibit
5.1).
</TABLE>
- -------------
+ Filed herewith.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF 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 Source Media, Inc.
for the registration of 33,000 shares of its common stock and to the
incorporation by reference therein of our report dated February 7, 1997 (except
for Note 5 and the last paragraph of Note 6, for which the date is April 9,
1997), with respect to the consolidated financial statements of Source Media,
Inc. included in its Annual Report (Form 10-K) for the year ended December 31,
1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
October 1, 1997
