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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON July 28, 1998
REGISTRATION NO. 333-50853
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SOURCE MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 4825 13-3700438
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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5400 LBJ FREEWAY, SUITE 680
DALLAS, TEXAS 75240
(972) 701-5400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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TIMOTHY P. PETERS
CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
5400 LBJ FREEWAY, SUITE 680
DALLAS, TEXAS 75240
(972) 701-5400
(Name, address, including zip code, and telephone number, including area code,
of Registrant's agent for service)
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Copies of Communication to:
MICHAEL L. BENGTSON, ESQ.
MARK C. GUNNIN, ESQ.
JANE E. RAST, ESQ.
THOMPSON & KNIGHT, P.C.
1200 SAN JACINTO TOWER
98 SAN JACINTO BOULEVARD
AUSTIN, TEXAS 78701
(512) 469-6100
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
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, 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. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered(1) Price(1)(2) Registration Fee(3)
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Common Stock, $.001 par value per share . . . $ 112,173,110 $ 33,296.61
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(1) The Common Stock being registered consists of shares underlying warrants.
In accordance with Rule 416 under the Securities Act, this Registration
Statement also covers such indeterminate number of additional shares as
may become issuable upon exercise of such warrants to prevent dilution
from stock splits, stock dividends or similar transactions.
(2) In accordance with Rule 457(o) under the Securities Act of 1933, the
number of shares being registered and the proposed maximum offering price
per share are not included in this table.
(3) Calculated in accordance with Rule 457(f) under the Securities Act of
1933, as amended. $7,756.35 of this fee was paid with the initial filing of
this Registration Statement.
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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Explanatory Note
This Registration Statement contains two forms of prospectus. The first
prospectus relates to reoffers and resales on a continuous or delayed basis in
the future, as provided by Rule 415 under the Securities Act of 1933 (the
"Securities Act"). This prospectus relates to reoffers and resales of 4,775,857
shares of common Stock issuable upon the exercise of various warrants issued by
the Registrant in private placements exempt from Registration under Section 4(2)
of the Securities Act. The second prospectus relates to the issuance on a
continuous or delayed basis in the future, as provided by Rule 415 under the
Securities Act, of 2,326,500 shares of Common Stock upon the exercise of
warrants issued as part of the Company's initial public offering in June 1993.
The warrants were registered on the Company's Registration Statement on Form S-1
(File No. 33-62606). The differences in the prospectuses are that each contains
a different outside front and back cover and a different description under "Plan
of Distribution" and the first prospectus contains a "Selling Stockholders"
section.
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PROSPECTUS
4,775,857 SHARES
SOURCE MEDIA, INC.
Common Stock
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This Prospectus relates to the public offering of up to 4,775,857
shares (the "Shares") of Common Stock, $.001 par value per share ("Common
Stock"), of Source Media, Inc., a Delaware corporation (the "Company"), which
may be offered from time to time by certain shareholders of the Company
identified under the caption "Selling Shareholders" or by pledgees, donees,
transferees or other successors in interest (the "Selling Shareholders"). The
Shares being offered hereby are issuable upon the exercise of certain warrants
(the "Warrants"). The Company will receive no part of the proceeds of sales of
the Shares offered hereby, although it will receive proceeds from any exercises
of the Warrants.
The Shares may be offered by the Selling Shareholders from time to
time in one or more transactions as described under "Plan of Distribution." To
the extent required, the number of Shares to be sold, the name of the Selling
Shareholder(s), the purchase price, the name of any agent or broker-dealer, and
any applicable commissions, discounts or other items constituting compensation
to such agent or broker-dealer with respect to a particular offering will be set
forth in a supplement or supplements to this Prospectus (each, a "Prospectus
Supplement"). The aggregate proceeds to the Selling Shareholder(s) from the
sale of the Shares offered from time to time hereby will be the purchase price
of the Shares sold less commissions, discounts and other compensation, if any,
paid by the Selling Shareholder(s) to any agent or broker-dealer. The price at
which any of the Shares may be sold, and the commissions, if any, paid in
connection with any such sale, are unknown and may vary from transaction to
transaction. The Company will pay all expenses incident to the offering and
sale of the Shares to the public other than any commissions and discounts of
underwriters, dealers or agents and any transfer taxes. See "Selling
Shareholders" and "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the
trading symbol "SRCM." On July 27, 1998, the last reported sales price of the
Common Stock on the Nasdaq National Market was $20.00 per share.
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON
PAGE 4 HEREOF.
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The Securities and Exchange Commission (the "Commission") may take the
view that, under certain circumstances, the Selling Shareholders and any
broker-dealers or agents that participate with the Selling Shareholders in the
distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act. Commissions, discounts or concessions received
by any such broker-dealer or agent may be deemed to be underwriting commissions
under the Securities Act. The Company and the Selling Shareholders have agreed
to certain indemnification arrangements. See "Plan of Distribution."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is July 28, 1998
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Except as otherwise specified, (a) all references to Source or the
Company include Source Media, Inc. and its wholly-owned subsidiaries, including
IT Network, Inc. ("IT Network"), Interactive Channel, Inc. ("Interactive
Channel"), SMI Holdings, Inc. ("Holdings") and Interactive Channel Technologies
Inc. marketed under the name of Virtual Modem Technologies ("Virtual Modem",
formerly known as Cableshare Inc.), and (b) all references to Source's
activities, results of operations or financial condition prior to June 23, 1995
relate to Holdings.
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 and information statements and other
information with the Commission. Such reports, proxy and information
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, Seven World
Trade Center, Suite 1300, New York, New York 10048 and Chicago Regional Office,
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may be obtained by mail at prescribed rates
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, NW, Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the site is http://www.sec.gov. The Common Stock of the Company is
listed on the Nasdaq National Market, and such reports, proxy and information
statements and other information concerning the Company may be inspected at the
offices of Nasdaq Operations, 1735 K Street, NW, Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Shares offered hereby,
reference is hereby made to the Registration Statement. The Registration
Statement may be inspected at the public reference facilities maintained by the
Commission at the addresses set forth in the preceding paragraph. The Company
has filed the Registration Statement electronically with the Commission via the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
Statements contained herein concerning any document filed as an exhibit 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. Each such
statement is qualified in its entirely by such reference. The Company intends
to distribute to its shareholders annual reports containing audited financial
statements and will make available copies of quarterly reports for the first
three quarters of such fiscal year containing unaudited interim financial
information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company
pursuant to the Exchange Act are hereby incorporated by reference in this
Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(2) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
(3) All other documents filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act since the end of the fiscal
year covered by the annual report referred to in (1) above;
and
(4) The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A, filed with the Commission
on June 10, 1993.
All reports and other documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the completion or termination of this
offering shall be deemed to be incorporated by reference into this Prospectus,
to the extent required, and to be a part of this Prospectus from the date of
filing of such reports and documents.
Any statement contained in a document incorporated by reference into
this Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this Prospectus has
been delivered, upon written or oral request of such person, a copy of any or
all of the foregoing documents incorporated by reference into this Prospectus
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be submitted in writing to W. Scott Bedford, Chief Financial Officer,
5400 LBJ Freeway, Suite 680, Dallas, Texas 75240 or by telephone at (972)
701-5400.
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THE COMPANY
Source provides on-demand information, services and programming
through the telephone and can provide such information services and programming
through cable television over the Company's proprietary digital operating
systems through its two operating subsidiaries, IT Network and Interactive
Channel. Interactive Channel can provide on-demand information and services and
Internet access to the cable television industry over existing cable
infrastructure and telephone lines, with the addition of a digital set-top box.
The Company's operations are conducted through its subsidiaries, IT
Network, Interactive Channel, and Virtual Modem. Virtual Modem owns the
patented technology utilized by Source for Cable SuperSites Network ("Cable
SuperSites") and provides research and development services for Source. In
October 1997, Holdings formed IT Network and Interactive Channel as wholly-owned
operating subsidiaries.
IT Network provides voice information services through telephone
directories and newspapers and also provides related support services to
certain Yellow Pages directory and newspaper publishers participating with the
Company in offering voice information services ("Publisher Partners"). The
Company sells advertising and provides related support services to advertising
clients who pay to sponsor and deliver a promotional message before and after
the delivery of the voice information.
Interactive Channel's Cable SuperSites can supply programming and
services allowing a subscriber to access on-demand local and national news,
weather, sports and school information, browse the Internet, view programming
guides, purchase goods, send and receive e-mail and access a variety of other
offerings over existing cable infrastructure and telephone lines, with the
addition of a digital set-top box. Cable SuperSites can allow the Company or
cable system operators to sell interactive advertising space on cable screens
using text, voice and pictures. Cable SuperSites can be broadcast by cable
operators utilizing the Company's proprietary two-way operating system,
SourceWare. SourceWare can enable any cable television system equipped with a
compatible advanced analog or digital set-top box to deliver two-way, on-demand
programming with the touch of a television remote. In less than one second,
Cable SuperSites can allow subscribers to access interactive programming
delivered over the cable system to their television.
The Company believes that the best opportunity for its products and
services is in a digital cable environment. The deployment of the
infrastructure necessary for adoption of digital cable has only recently begun
to occur. Distribution of the Company's products and services is necessarily
dependent on this deployment. The Company is pursuing a strategy of working with
digital set-top box manufacturers to incorporate its technology in digital
set-top boxes. In addition, the Company continues to have discussions with
cable operators and various technology and media companies about licensing its
technology and other transactions. There can be no assurance that any
transactions will result from such discussions.
The Company is a Delaware corporation whose principal executive
offices are located at 5400 LBJ Freeway, Suite 680, Dallas, Texas 75240, and
whose telephone number is (972) 701-5400.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
CONTAIN FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS ABOUT THE COMPANY'S INDUSTRY, MANAGEMENT'S BELIEFS AND ASSUMPTIONS
MADE BY MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES," "SEEKS," "ESTIMATES" AND VARIATIONS OF SUCH WORDS AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY
SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE THOSE
NOTED IN THIS PROSPECTUS UNDER "RISK FACTORS" AND IN THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, INVESTORS
SHOULD CAREFULLY REVIEW THE RISK FACTORS AND OTHER INFORMATION SET FORTH IN THE
REPORTS AND OTHER DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE
COMMISSION.
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RISK FACTORS
Prospective investors should carefully consider the risk factors set
forth below, as well as the other information contained in this Prospectus and
the documents incorporated by reference herein. An investment in the Common
Stock involves a high degree of risk. The Company cautions the reader that this
list of factors may not be exhaustive. The Company operates in a rapidly
changing business, and new risk factors emerge from time to time. Management
cannot predict every risk factor, nor can it assess the impact, if any, of all
such risk factors on the Company's business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those projected in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual results.
Substantial Leverage; Ability to Service Debt. The Company is highly
leveraged and substantially all its assets are subject to security interests
securing its 12% Senior Secured Notes due 2004 (the "Notes"). As of March 31,
1997, the Company had total indebtedness of approximately $100 million.
The degree to which the Company is leveraged, together with the
covenants imposed by the Notes and the Company's 13-1/2% Senior PIK Preferred
Stock (the "Preferred Stock"), could have adverse consequences, including the
following: (i) substantial cash flow from the Company's operations will be
required for the payment of principal and interest on the Notes and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future, whether for acquisitions, capital expenditures, further
development of Cable SuperSites, refinancings or otherwise, may be impaired;
(iii) the Company may be more leveraged than certain of its competitors, which
may place it at a competitive disadvantage; (iv) the indenture under which the
Notes were issued (the "Indenture") imposes significant financial and operating
restrictions; and (v) the Company's high degree of leverage makes it more
vulnerable to changes in economic conditions, may limit its ability to withstand
competitive pressures and technological developments, consummate acquisitions
and capitalize on significant business opportunities and may make it a less
attractive candidate for a strategic transaction.
The Company will require substantial cash flow to meet its interest
and principal payment obligations with respect to the Notes and any other
borrowings. The Company's cash flow is dependent on the Company's future
performance and is subject to financial, economic and other factors, some of
which are beyond its control. If the Company is unable to generate sufficient
cash flow from operations or otherwise to satisfy its interest and principal
obligations on the Notes and other indebtedness, it may be required to refinance
all or a portion of such obligations or to sell assets. The Company expects that
any payment of the principal of any of the Notes, the redemption of, or payment
of cash dividends on, its Preferred Stock or any other borrowings, whether upon
maturity, acceleration, redemption or other repurchase obligation, such as a
change of control, may have to be refinanced in whole or in part or financed by
the sale of assets or similar transactions. The Indenture contains restrictions
on the Company's ability to incur additional indebtedness and to sell assets
and, in addition to such restrictions, the Company may not be able to effect a
refinancing or sell assets on acceptable terms when needed.
Insufficient Collateral. The proceeds of any sale of the collateral
following an event of default under the Indenture may not be sufficient to repay
the Notes in full. Although the collateral consists of substantially all the
assets of the Company, most of the Company's assets consist of cash,
investments, goodwill, other intangibles and accounts receivable. The tangible
assets comprising the collateral, which, as of March 31, 1998, had a net book
value of
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approximately $5.4 million, will consist primarily of computer and other
equipment.
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 $24.5 million and a net loss attributable to common stockholders of
$32.8 million in the year ended December 31, 1997 and had an operating loss of
$8.7 million and a net loss attributable to common stockholders of $9.5 million
in the quarter ended March 31, 1998. The Company's business plan for Cable
SuperSites is dependent on the widespread adoption of digital cable boxes and
the Company's technology, both of which are beyond the Company's ability to
control. Unless and until such events occur, the Company expects that it will
continue to incur operating losses, and they may be substantial. The Company
expects to incur operating losses at least through 1998 and may incur operating
losses thereafter. There can be no assurance that the Company will be able to
operate profitably at any time or that the Company will not require substantial
additional funds to implement its business plan.
Change of Control. Upon the occurrence of a change of control (which
could include the disposition of substantially all of the Company's or one of
its subsidiary's assets), the Company will be required to offer to repurchase
the outstanding Notes and Preferred Stock at 101% of, in the case of the Notes,
the principal amount thereof, plus accrued and unpaid interest to the date of
repurchase, and, in the case of the Preferred Stock, the liquidation preference
plus accumulated and unpaid dividends. There can be no assurance that sufficient
funds will be available to make any required repurchase. If the Company does not
have available funds sufficient to pay for Notes tendered for repurchase, an
event of default would occur under the Indenture. The occurrence of an event of
default would result in acceleration of maturity of the Notes unless waived by
the holders of the Notes and the Preferred Stock. Similarly, if the Company is
required to offer to repurchase the outstanding Preferred Stock and the Company
does not have available funds sufficient to repurchase shares of the Preferred
Stock tendered for repurchase, the holders of Preferred Stock would have the
right to elect two directors.
Access to Channels on Cable Systems and Uncertainty of Subscriber
Acceptance. The Company's ability to offer Cable SuperSites on any cable
television system depends on obtaining an agreement from the cable 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 operators, although Cable SuperSites is not
currently being offered in any markets covered by these agreements. The Company
is in discussions to obtain channel access for Cable SuperSites with other cable
systems; however, there can be no assurances that such additional agreements
will be entered into. Even if carriage agreements are entered into, there can be
no assurance that Cable SuperSites will be distributed as a result of such
agreements.
Even if the Company does have channel access and distribution, 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. Carriage of Cable SuperSites in
Colorado Springs was terminated effective April 1, 1998. In addition, Cable
SuperSites 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 Cable SuperSites will
prove more desirable than such services. If Cable SuperSites does not achieve
market acceptance, Source will be unable to implement its business
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strategy and Source's business will be materially adversely affected.
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 products or technologies, Virtual Modem, Interactive Channel or IT
Network. 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.
Extreme Volatility of Stock Price. The Company's Common Stock price
can be extremely volatile and has experienced substantial and sudden
fluctuations. The Company has been the subject of merger speculation in the
press and Internet "chat" rooms. Speculation that such a transaction may or may
not occur, whether or not based in fact, has in the past and may in the future
cause volatility and/or speculative fluctuations. In light of the foregoing, the
Company's trading history may not be a reliable indicator of the price at which
a transaction, if any, would occur. In addition, the stock market has
experienced significant price and volume fluctuations. Such broad market
fluctuations have adversely affected and may continue to adversely affect the
market price of the Common Stock.
Availability of Programming. If it obtains distribution for Cable
SuperSites, the success of Cable SuperSites will be highly dependent on the
availability of high-quality programming applications. The Company will depend
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 Cable SuperSites 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 Cable SuperSites 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 Cable SuperSites.
Reliance Upon Proprietary Technology. Source has a policy of entering
into confidentiality agreements with its employees, consultants and certain
other outside parties, and from time to time enters into license agreements
with other outside parties, and generally seeks to control access to and
distribution of its proprietary information and technology. Licenses of
technology to third parties, including grants of sub-license rights, could act
to increase competition faced by the Company and/or diminish the value of its
technology. For example, the Company granted to a third party certain rights
that may be assigned or sublicensed for use in connection with home shopping
and business-to-business applications. In addition, despite precautions taken
by the Company, 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. For example, the Company
has granted to a third party certain rights that may be assigned or sublicensed
for use in connection with home shopping and business-to-business applications.
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
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, including without limitation
litigation which has previously been disclosed, could result in the
invalidation of Source's proprietary rights and, in any event, would likely
result in substantial costs and diversion of management time, either of which
could
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<PAGE> 9
have a material adverse effect on Source's business.
The Company believes that its technology rights, including patents,
are among its most significant and valuable assets. In the event that the
Company's technology rights are adversely affected or its technology becomes
obsolete, its competitors develop alternative technologies or one or more of the
Company's patents is invalidated, the Company's prospects and value may be
materially adversely affected.
Year 2000. The Company is currently utilizing internal resources to
identify the potential impact of the year 2000 on the processing of
date-sensitive information by the Company's computerized information and support
systems. The Company expects to complete this process during the third quarter
of 1998. Once it has identified the consequences of the year 2000 on its
operations, the Company will take whatever steps it can to minimize the impact.
The year 2000 problem is the result of software that uses two digits (rather
than four) to define the applicable year. Any software or hardware that utilizes
date-sensitive coding may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations or system failures. At
this time, the Company is unable to assess the potential impact of the problem
or to determine whether the costs of addressing potential problems will have a
material adverse impact on the Company's financial position, results of
operations or cash flows in future periods. If the Company, its customers or
vendors are unable to adequately resolve such processing issues in a timely
manner, the Company's operations and financial results may be adversely
affected. Because the resources available to address the year 2000 problem are
scarce, to the extent the Company identifies problems that require the services
of third parties, it will most likely incur significant expenses in its attempts
to address such problems, if it is able to obtain such services at all. In
addition, if the Company has secured distribution for Cable SuperSites, the
failure of cable system operators or any other person in the distribution
process to have adequately resolved year 2000 problems could have a material
adverse effect on the Company's financial condition and results of operations.
Unavailability of Equipment; Reliance on Sole Supplier. The Company is
pursuing relationships with General Instruments and Scientific Atlanta to
incorporate the Company's SourceWare operating system in their advanced-analog
and digital set-top boxes. Neither General Instruments nor Scientific Atlanta
has agreed to manufacture units compatible with the Company's technology in any
certain quantities. If General Instruments and/or Scientific Atlanta fail to
incorporate the Company's SourceWare operating system into their set-top boxes
or fail to manufacture them in sufficient quantities, the Company would be
required to seek to enter into such arrangement with a different set-top box
manufacturer or continue to purchase its own set-top boxes. Because General
Instruments and Scientific Atlanta the vast majority of the United States'
set-top boxes, an agreement with any other manufacturer would not be as
beneficial to the Company. In addition, if the Company were required to purchase
its own set-top boxes, the Company estimates that its capital costs related to
such purchases would increase significantly compared to the estimated cost of
incorporating the Company's SourceWare operating system into set-top boxes
manufactured by General Instruments or Scientific Atlanta. If the Company is
forced to pursue either of these alternatives, its business prospects and
-7-
<PAGE> 10
financial condition would be materially adversely affected.
To incorporate SourceWare technology in advanced analog set-top boxes
requires the addition of the Company's chip for such set-top boxes to access
Cable SuperSites. Consequently, such chip may be a key factor in the success of
the Interactive Channel. LSI Logic is currently the only manufacturer of these
chips and is therefore the Company's sole supplier of this important component.
The Company has no guaranteed supply arrangements with LSI Logic, and there can
be no assurance that LSI Logic will be able to meet its requirements. Unless
alternative supply sources are identified for this chip, the Company could be
subject to pricing risks, delivery delays and quality control problems or even
unavailability of this component, any of which would have a material adverse
effect on the Company.
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. Many of the companies could obtain
distribution for their product more easily than the Company. 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
operators. Accordingly, Source must compete with other providers of television
programming to establish relationships with cable operators to gain channel
access.
In addition, certain regional bell operating companies or their
affiliates ("RBOCs") have provided voice information services in the past. There
can be no assurance that the RBOCs will not provide such services again in the
future. If one or more RBOCs were to begin providing such services, the
resulting competition could have a material adverse effect on the Company's
financial condition and results of operations. In addition, certain former
employees of the division of Brite Voice Systems Inc. that the Company acquired
in October 1997 (some of whom are also former employees of the Company), have
formed and operate a competing business. The Company has brought actions
challenging certain actions of these individuals.
Shares Eligible for Future Sale. Sales of a substantial number of
shares of Common Stock in the public market could adversely affect the market
price for the Common Stock. All shares of Common Stock outstanding are freely
tradeable without restriction by persons other than "affiliates" of the Company.
In addition, as of June 30, 1998 there were
-8-
<PAGE> 11
options, warrants and exchange rights outstanding entitling the holders thereof
to acquire 9,262,653 shares of Common Stock. The Registration Statement of
which this Prospectus forms a part registers an aggregate of 7,102,357 shares
of Common Stock underlying such warrants.
Shareholder Rights Plan; Antitakeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law. The Company has adopted a Shareholder
Rights Plan and declared a dividend distribution of one common share purchase
right on each outstanding share of the Company's Common Stock. Generally, if a
person or group acquires 15% or more of the Company's Common Stock, the Rights
will entitle shareholders other than the acquiror to purchase shares of Common
Stock (or, in certain circumstances, cash, other property or other securities)
at half price. In addition, if, after the acquisition by a person or group of
15% or more of the Company's Common Stock, Source sells more than 50% of its
assets or earning power or is acquired in a merger or other business combination
transaction, the acquiror must assume the obligations under the Rights and the
Rights will become exercisable to acquire common stock of the acquiror at the
discounted price. The Shareholder Rights Plan, along with certain provisions of
the Company's Certificate of Incorporation and Bylaws and of Delaware law, could
delay or make difficult a merger, tender offer or proxy contest involving the
Company.
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 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 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.
BellSouth is also allowed to terminate its agreement with the Company if it
determines that regulatory changes would impact the Company's ability to perform
under such agreement. These competitive developments, as well as other
regulatory requirements relating to privacy issues, may have a material adverse
effect on Source's business.
-9-
<PAGE> 12
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All proceeds from the sale of the Shares will be for the account of the
Selling Shareholders, as described below. See "Selling Shareholders" and "Plan
of Distribution" below.
SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, the
name of each of the Selling Shareholders, the number of Shares that each such
Selling Shareholder owns as of such date, the number of Shares owned by each
Selling Shareholder that may be offered for sale from time to time by this
Prospectus, and the number of Shares to be held by each such Selling
Shareholder assuming the sale of all of the Shares offered hereby. The Selling
Shareholders may also be pledgees, donees, transferees or other successors in
interest that receive shares from the Selling Shareholders listed below. To
the Company's knowledge, no Selling Shareholder has had any relationship with
the Company or any of its predecessors or affiliates within the past three
years. The Company may amend or supplement this Prospectus from time to time
to update the disclosure set forth herein.
<TABLE>
<CAPTION>
Shares Beneficially
Selling Owned Prior to the Shares Being
Shareholder Offering (1) Offered
--------------- ----------------------- ------------
Number Percent
------ -------
<S> <C> <C> <C>
Security Insurance Company
of Hartford 105,282 * 105,282
David Thalheim(2) 76,875 * 76,875
Dublind Partners Inc. 230,480 1.83 230,480
Noddings Investment
Group(3) 21,750 * 21,750
Ralph Sawyer 50 * 50
Northstar High
Total Return Fund 1,250,000 9.17 1,250,000
Turnberry Limited 34,114 * 34,114
Turnberry Capital
Partners, L.P. 146,309 1.17 146,309
Turnberry Capital
International Ltd. 89,027 * 89,027
Fidelity Advisor Series II:
Fidelity Advisor High
Yield Fund(4) 48,052 * 48,052
Fidelity Management Trust
Company on behalf of
accounts managed by it(5) 10,057 * 10,057
Fidelity Advisor Series VIII:
Fidelity Advisor Strategic
Income Fund(4) 1,676 * 1,676
</TABLE>
- --------------------
* Less than one percent
(1) The number and percentage of shares beneficially owned is determined
in accordance with Rule 13d-3 of the Exchange Act, and the information
is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to
acquire within 60 days of the date of this Prospectus through the
exercise of any stock option or other right. Unless otherwise
indicated in the footnotes, each person has sole voting and investment
power (or shares such power with his or her spouse) with respect to
the shares shown as beneficially owned.
(2) Includes 26,875 shares underlying warrants held in the name of The
David Thalheim Revocable Living Trust dated March 5, 1996. David
Thalheim is the sole trustee of this trust.
(3) Consists of 18,750 shares underlying warrants owned by Noddings
Warrant, L.P., of which Noddings Investment Group is the sole general
partner, and 3,000 shares underlying warrants owned by Diversified
Strategies, L.P., for which Noddings Investment Group has discretionary
authority.
(4) The entity is either an investment company or a portfolio of an
investment company registered under Section 8 of the Investment
Company Act of 1940, as amended, or a private investment account
advised by Fidelity Management & Research Company ("FMR Co."). FMR Co.
is a Massachusetts corporation and an investment advisor registered
under Section 203 of the Investment Advisers Act of 1940, as amended,
and provides investment advisory services to each of such Fidelity
entities identified above, and to other registered investment
companies and to certain other funds which are generally offered to a
limited group of investors, FMR Co. is a wholly-owned subsidiary of FMR
Corp. ("FMR"), a Massachusetts corporation.
(5) Shares indicated as owned by such entity are owned directly by various
private investment accounts, primarily employee benefit plans for
which Fidelity Management Trust Company ("FMTC")serves as trustee or
managing agent. FTMC is a wholly-owned subsidiary of FMR and a bank as
defined in Section 3(a)(6) of the Exchange Act.
This Prospectus also covers the possible resale of the Shares by
certain other currently unknown persons who may become owners of such Shares as
a result of their acquisition of warrants. Each such transferee of a Selling
Shareholder is hereby deemed to be a Selling Shareholder for purposes of making
resales of Shares using this Prospectus. To the extent required by applicable
law, information about any such transferees shall be set forth in an
appropriate supplement to this Prospectus.
The Selling Shareholders may offer and sell all or a portion of the
Shares from time to time but are under no obligation to offer or sell any of the
Shares. See "Plan of Distribution." Because the Selling Shareholders may sell
all, none or any part of the Shares from time to time, no estimate can be given
as to the number of shares that will be beneficially owned by the Selling
Shareholders upon termination of any offering or as to the percentage of the
beneficially own after termination of any offering.
-10-
<PAGE> 13
PLAN OF DISTRIBUTION
The Shares covered by this Prospectus may be offered and sold from
time to time by the Selling Shareholders. The Selling Shareholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. The Selling Shareholders may sell the Shares
being offered hereby on the Nasdaq National Market, or otherwise, at prices and
under terms then prevailing or at prices related to the then current market
price or at negotiated prices. The Shares may be sold by one or more of the
following means of distribution: (a) a block trade in which the broker-dealer
so engaged will attempt to sell Shares as agent, but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker-dealer as principal and resale by such broker-dealer for its own
account pursuant to this Prospectus; (c) an over-the-counter distribution in
accordance with the rules of the Nasdaq National Market; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (e)
in privately negotiated transactions. To the extent required, this Prospectus
may be amended and supplemented from time to time to describe a specific plan
of distribution. In connection with distributions of the Shares or otherwise,
the Selling Shareholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in
short sales of the Company's Common Stock in the course of hedging the
positions they assume with Selling Shareholders. The Selling Shareholders may
also sell the Company's Common Stock short and redeliver the Shares to close
out such short positions. The Selling Shareholders may also enter into option
or other transactions with broker-dealers or other financial institutions which
require the delivery to such broker-dealer or other financial institution of
Shares offered hereby, which Shares such broker-dealer or other financial
institution may resell pursuant to this Prospectus (as supplemented or amended
to reflect such transaction). The Selling Shareholders may also pledge Shares
to a broker-dealer or other financial institution, and, upon a default, such
broker-dealer or other financial institution, may effect sales of the pledged
Shares pursuant to this Prospectus (as supplemented or amended to reflect such
transaction). In addition, any Shares that qualify for sale pursuant to Rule
144 may be sold under Rule 144 rather than pursuant to this Prospectus.
In effecting sales, brokers, dealers or agents engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
Selling Shareholders in amounts to be negotiated prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act in connection
with such sales, and any such commissions, discounts or concessions may be
deemed to be underwriting discounts or commissions under the Securities Act.
The Company will pay all expenses incident to the offering and sale of the
Shares to the public other than any commissions and discounts of underwriters,
dealers or agents and any transfer taxes.
In order to comply with the securities laws of certain states, if
applicable, the Shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Company has advised the Selling Shareholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of Shares in the market and to the activities of the Selling Shareholders
and their affiliates. In addition, the Company will make copies of this
Prospectus available to the Selling Shareholders and has informed them of the
need for delivery of copies of this Prospectus to purchasers at or prior to the
time of any sale of the Shares offered hereby. The Selling Shareholders may
indemnify any broker-dealer that participates in transactions involving the
sale of the shares against certain liabilities, including liabilities arising
under the Securities Act.
At the time a particular offer of Shares is made, if required, a
Prospectus Supplement will be distributed that will set forth the number of
Shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
The sale of Shares by the Selling Shareholders is subject to
compliance by the Selling Shareholders with certain contractual restrictions
with the Company. There can be no assurance that the Selling Shareholders will
sell all or any of the Shares.
The Company has agreed to indemnify certain of the Selling
Shareholders and any person controlling such Selling Shareholders against
certain liabilities, including liabilities under the Securities Act. Such
Selling Shareholders have agreed to indemnify the Company and certain related
persons against certain liabilities, including liabilities under the Securities
Act.
The Company intends to keep the Registration Statement of which this
Prospectus constitutes a part effective until the earlier to occur of (i) June
23, 2000, and (ii) the sale of all the Shares covered hereby; provided, that
the Company in its sole discretion may terminate the effectiveness of such
Registration Statement prior to the end of such time periods. The
-11-
<PAGE> 14
Company intends to de-register any of the Shares not sold by the Selling
Shareholders at the end of such time period; however, any unsold shares will be
freely tradable subject to compliance with Rule 144 of the Securities Act.
VALIDITY OF THE SHARES
The validity of the Shares offered hereby will be passed upon by
Thompson & Knight, P.C., Austin, Texas, counsel to the Company.
EXPERTS
The Consolidated Financial Statements of Source Media, Inc. appearing
in Source Media, Inc.'s Annual Report (Form 10-K) for the year ended December
31, 1997, 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 on the authority of that firm as
experts in accounting and auditing.
-12-
<PAGE> 15
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE BY THIS
PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR BY ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SHARES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE OF OR OFFER TO SELL THE SHARES MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents By Reference . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Disclosure Regarding Forward-Looking Statements . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 10
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 11
Validity of the Shares . . . . . . . . . . . . . . . . . . . . . . . . 12
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
-13-
<PAGE> 16
[Alternate page]
PROSPECTUS
2,326,500 SHARES
SOURCE MEDIA, INC.
Common Stock
-------------------------
This Prospectus relates to the public offering of up to 2,326,500
shares (the "Shares") of Common Stock, $.001 par value per share ("Common
Stock"), of Source Media, Inc., a Delaware corporation (the "Company"), which
may be issued by the Company from time to time to the holders of warrants (the
"Warrants") issued by the Company in its initial public offering in June 1993
upon the exercise of the Warrants upon exercise of the Warrants in accordance
with the terms thereof. The Company will pay all expenses incident to the
issuance of the Shares. The Warrants are subject to a warrant agreement dated
June 23, 1993 which governs the terms and condition of the Warrants. Among such
terms and conditions is the obligation to register the issuance of the Common
Stock underlying the Warrants. This Registration Statement is intended to
fulfill that obligation. See "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the
trading symbol "SRCM." On July 27, 1998, the last reported sales price of the
Common Stock on the Nasdaq National Market was $20.00 per share.
-------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON
PAGE 4 HEREOF.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is July 28, 1998
<PAGE> 17
[Alternate Page]
PLAN OF DISTRIBUTION
The Shares covered by this Prospectus may be issued from time to time
to the holders of the Warrants, upon exercise thereof in accordance with
their terms. The Warrants were issued by the Company in its initial public
offering in June 1993.
In certain states the Shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
The Company intends to keep the Registration Statement of which this
Prospectus constitutes a part effective until the earlier to occur of (i) June
23, 2000, and (ii) the issuance of all the Shares covered hereby; provided, that
the Company in its sole discretion may terminate the effectiveness of such
Registration Statement prior to the end of such time periods. The
A-5
<PAGE> 18
[ALTERNATE PAGE]
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE BY THIS
PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF OR OFFER
TO SELL THE SHARES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents By Reference . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Disclosure Regarding Forward-Looking Statements . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 10
Validity of the Shares . . . . . . . . . . . . . . . . . . . . . . . . 11
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
A-13
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company will pay all expenses incident to the offering and sale to
the public of the shares being registered other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the Securities and Exchange Commission ("SEC") registration
fee.
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . $ 7,756.35
Nasdaq National Market listing fee . . . . . . . . 17,500.00
Legal fees and expenses . . . . . . . . . . . . . . 15,000.00
Accounting fees and expenses . . . . . . . . . . . 15,000.00
Miscellaneous expenses . . . . . . . . . . . . . . 30,000.00
-------------
Total . . . . . . . . . . . . . . . . . . $ 85,256.35
=============
</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) and
Section 5.1 of the Company's Bylaws (Exhibit 3.2) 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.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
<S> <C> <C>
5.1* -- Opinion of Thompson & Knight, P.C., counsel
for the Registrant.
23.1* -- Consent of Thompson & Knight, P.C. (included
as a part of Exhibit 5)
23.2* -- Consent of Ernst & Young LLP
24* -- Powers of Attorney (except with respect to
Michael S. Willner and John J. Reed,
included on signature page of original
filing).
</TABLE>
-------------------------
* Filed herewith.
II-1
<PAGE> 20
ITEM 17. UNDERTAKINGS.
A. Undertaking Pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) Securities Act of 1933 (the
"Securities Act");
(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. Notwithstanding the foregoing,
any increase or decrease in volume of
securities offered (if the total dollar value
of securities offered would not exceed that
which was registered) and any deviation from
the low or high end of the estimated maximum
offering range may be reflected in the form
of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a
20% change in the maximum aggregate offering
price set forth in the "Calculation of
Registration Fee" table in the effective
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;
(2) That, for the purpose of determining any liability
under the Securities Act, each such post- effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of this offering.
B. Undertaking Regarding Filings Incorporating Subsequent
Exchange Act Documents By Reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such
indemnification, is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
D. Undertaking Pursuant to Rule 430A.
The undersigned Registrant hereby undertakes that:
II-2
<PAGE> 21
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of the
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under
the Securities Act, each post-effective amendment that contains a form
of prospectus 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-3
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on this 28th day of July, 1998.
SOURCE MEDIA, INC.
By: /s/ Timothy P. Peters
----------------------------------
Timothy P. Peters
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Timothy P. Peters Chairman of the Board and Chief Executive Officer July 28, 1998
- ----------------------------------------- (Principal Executive Officer)
Timothy P. Peters
/s/ W. Scott Bedford Chief Financial Officer, Treasurer July 28, 1998
- ----------------------------------------- (Principal Financial and Accounting Officer)
W. Scott Bedford
/s/ John J. Reed Director July 28, 1998
- -----------------------------------------
John J. Reed
/s/ James L. Greenwald Director July 28, 1998
- -----------------------------------------
James L. Greenwald
/s/ Michael J. Marocco Director July 28, 1998
- -----------------------------------------
Michael J. Marocco
/s/ Robert H. Alter Director July 28, 1998
- -----------------------------------------
Robert H. Alter
/s/ Robert J. Cresci Director July 28, 1998
- -----------------------------------------
Robert J. Cresci
/s/ Barry Rubenstein Director July 28, 1998
- -----------------------------------------
Barry Rubenstein
/s/ Michael S. Willner Director July 28, 1998
- -----------------------------------------
Michael S. Willner
</TABLE>
II-4
<PAGE> 23
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
5.1* Opinion of Thompson & Knight, P.C., counsel
for the Registrant.
23.1* Consent of Thompson & Knight, P.C. (included in Exhibit 5.1)
23.2* Consent of Ernst & Young LLP
24.1** Powers of Attorney (except with respect to Michael S. Willner and
John J. Reed, included on signature page of original filing)
- --------------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 5.1
July 28, 1998
Source Media, Inc.
5400 LBJ Freeway, Suite 680
Dallas, Texas 75240
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed by you
with the Securities and Exchange Commission on or about the date hereof (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of up to 7,102,357 shares of your Common
Stock (the "Shares").
It is our opinion that the Shares when issued upon the valid exercise
of the Warrants against valid payment therefor shall be validly issued, fully
paid and non-assessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name under the
caption "Validity of the Shares" appearing in the Prospectus constituting a
part of the Registration Statement, and any amendments thereto.
Very truly yours,
THOMPSON & KNIGHT
A Professional Corporation
By: /s/ Michael L. Bengtson
----------------------------------
Michael L. Bengtson, Shareholder
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3 No. 333-50853) and related Prospectus of
Source Media, Inc. for the registration of 7,102,357 shares of its common stock
and to the incorporation by reference therein of our report dated February 13,
1998, 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,
1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
July 28, 1998
<PAGE> 1
EXHIBIT 24.1
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-3 with the Securities and Exchange Commission,
Washington, D.C. 20549 under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), hereby constitute and appoint Timothy P.
Peters, W. Scott Bedford and Maryann Walsh, and 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL S. WILLNER Director July 28, 1998
- ----------------------------
Michael S. Willner
/s/ JOHN J. REED President and Director July 28, 1998
- ----------------------------
John J. Reed
</TABLE>
