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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1997
Registration No.
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TELULAR CORPORATION
(Exact name of Registrant as specified in its charter)
-------------------------------
<TABLE>
<S> <C>
DELAWARE 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
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647 N. LAKEVIEW PARKWAY
VERNON HILLS, IL 60061
(847) 247-9400
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive offices)
-------------------------------
KENNETH E. MILLARD
CHIEF EXECUTIVE OFFICER
TELULAR CORPORATION
647 N. LAKEVIEW PARKWAY
VERNON HILLS, IL 60061
(847) 247-9400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------------
COPY TO:
MICHAEL E. CUTLER, ESQ.
COVINGTON & BURLING
1201 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 662-6000
-------------------------------
Approximate date of commencement of proposed
sale to public: From time to time after this
Registration Statement becomes effective.
-------------------------------
If the only securities being registered on this Form are to be 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 offer. [ ]
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 on 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
<TABLE>
<CAPTION>
===================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(2) PER SHARE(1) OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE $.01
PER SHARE . . . . . . . . . . 5,500,000 $3.34 $18,370,000 $5,566.67
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low sale
prices of the shares of Common Stock as reported on the Nasdaq National
Market System on May 20, 1997.
(2) In accordance with Rule 416 this Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of shares of the Series A Convertible
Preferred Stock (i) to prevent dilution resulting from stock splits,
stock dividends or similar transactions and (ii) by reason of changes
in the Conversion Price or Conversion Rate of the Series A Convertible
Preferred Stock in accordance with the terms of the Certificate of
Designations, Rights and Preferences of the Series A Convertible
Preferred Stock.
<PAGE> 2
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 (THE
"COMMISSION"), ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE 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.
PROSPECTUS SUBJECT TO COMPLETION
MAY 28, 1997
TELULAR CORPORATION
COMMON STOCK
(par value $.01 per share)
-------------------------------
This Prospectus relates to the resale of up to Five Million
Five Hundred Thousand (5,500,000) shares of common stock, par value $.01 per
share (the "Common Stock"), of Telular Corporation, a Delaware corporation (the
"Company") issued or issuable to Nelson Partners ("Nelson") and Olympus
Securities, Ltd. ("Olympus") (collectively referred to hereinafter as the
"Investors"), or the Investors' respective assigns, as holders of the Company's
Series A Convertible Preferred Stock ("Preferred Stock" and such holders the
"Selling Shareholders") in connection with the transaction described herein. All
of the shares offered hereby will be offered and sold by the Selling
Shareholders. Although the Company received proceeds from the purchase by the
Investors of the Preferred Stock, the Company will not receive any proceeds from
the sale of the shares of Common Stock offered hereby. See "Selling
Shareholders."
The shares of Common Stock offered by the Selling Shareholders
hereby include such presently indeterminate number of shares as may be issued on
conversion of the Preferred Stock pursuant to the provisions thereof regarding
determination of the applicable conversion price. The Company has agreed to
initially register a number of shares of Common Stock equal to approximately one
and one-half times the number of shares of Common Stock that would have been
issued if all the Preferred Stock had been converted at the conversion price in
effect at the time of the filing of this registration statement. By way of
example, if all shares of Preferred Stock had been converted on May 15, 1997,
the Company would have been obligated to issue Two Million Eight Thousand One
Hundred Ten (2,008,110) shares of Common Stock in respect thereto. The foregoing
estimate is for illustrative purposes only. The actual number of shares of
Common Stock issued or issuable upon conversion of the Preferred Stock is
subject to adjustment and could be materially less or more than such estimated
amount or the 5,500,000 shares of Common Stock noted as being offered by the
Selling Shareholders, depending upon factors which cannot be predicted by the
Company at this time, including, among others, the future market price of the
Common Stock. Additional shares of Common Stock that may become issuable by
reason of changes in the conversion price or conversion rate of the Preferred
Stock are offered hereby pursuant to Rule 416 under the Securities Act of 1933,
as amended.
The Common Stock is listed on the Nasdaq National Market under
the symbol WRLS. On May 20, 1997, the last sale price of the Common Stock, as
reported on the Nasdaq National Market, was $3.75 per share.
The Common Stock may be offered from time to time by the
Selling Shareholders to or through brokers, dealers or other agents or directly
to other purchasers in one or more market transactions, in one or more private
transactions or in a combination of such methods of sale, at prices then
prevailing, at prices related to such prices, or at negotiated prices. In
effecting sales, brokers, dealers or other agents engaged by the Selling
Shareholders may arrange for other brokers, dealers or agents to participate.
Such brokers, dealers or agents may receive commissions, discounts or
concessions from the Selling Shareholders in amounts to be negotiated. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any such commissions, discounts or
concessions may be deemed to be underwriting discounts or commissions under the
Securities Act.
Certain costs, expenses and fees in connection with the
registration of the Common Stock will be borne by the Company. Commissions,
discounts and transfer taxes, if any, attributable to the sales of the Common
Stock will be borne by the Selling Shareholders.
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 3
-------------------------------
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 MAY __, 1997
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NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFER MADE HEREBY. AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER(S) OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT THIS INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
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"). SUCH REPORTS, PROXY
STATEMENTS AND OTHER INFORMATION FILED BY THE COMPANY CAN BE INSPECTED AND
COPIED AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE COMMISSION AT 450
FIFTH STREET, N.W., WASHINGTON, D.C. 20549; AND THE PUBLIC REFERENCE FACILITIES
LOCATED AT THE REGIONAL OFFICES OF THE COMMISSION AT THE FOLLOWING ADDRESSES:
NEW YORK REGIONAL OFFICE, 7 WORLD TRADE CENTER, SUITE 1300, NEW YORK, NEW YORK
10048 AND CHICAGO REGIONAL OFFICE, CITICORP CENTER, 500 WEST MADISON STREET,
CHICAGO, ILLINOIS 60661-2511. COPIES OF SUCH MATERIAL ALSO CAN BE OBTAINED FROM
THE PUBLIC REFERENCE SECTION OF THE COMMISSION AT 450 FIFTH STREET, N.W.,
WASHINGTON, D.C. 20549, AT PRESCRIBED RATES.
THIS PROSPECTUS CONSTITUTES A PART OF A REGISTRATION STATEMENT
ON FORM S-3 FILED BY THE COMPANY WITH THE COMMISSION UNDER THE SECURITIES ACT
WITH RESPECT TO THE COMMON STOCK BEING OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE REGISTRATION
STATEMENT, CERTAIN PORTIONS OF WHICH HAVE BEEN OMITTED AS PERMITTED BY THE RULES
AND REGULATIONS OF THE COMMISSION. FOR FURTHER INFORMATION, REFERENCE IS MADE TO
THE REGISTRATION STATEMENT, AND TO THE EXHIBITS INCORPORATED THEREIN BY
REFERENCE OR FILED AS A PART THEREOF. ANY STATEMENTS CONTAINED HEREIN CONCERNING
THE PROVISIONS OF ANY SUCH EXHIBITS ARE NOT NECESSARILY COMPLETE AND, IN EACH
INSTANCE, REFERENCE IS MADE TO THE COPY OF SUCH EXHIBIT 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 INFORMATION BY REFERENCE
THE FOLLOWING DOCUMENTS FILED BY THE COMPANY WITH THE
COMMISSION ARE HEREBY INCORPORATED BY REFERENCE IN THIS PROSPECTUS:
(a) THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1996.
(b) THE QUARTERLY REPORTS OF THE COMPANY ON FORM 10-Q FOR
THE QUARTERS ENDED DECEMBER 31, 1996 AND MARCH 31,
1997.
(c) THE CURRENT REPORT OF THE COMPANY ON FORM 8-K FILED
APRIL 25, 1997.
(d) THE DESCRIPTION OF THE COMPANY'S COMMON STOCK
CONTAINED IN THE COMPANY'S REGISTRATION STATEMENT ON
FORM 8-A, DATED JANUARY 13, 1994, FILED PURSUANT TO
SECTION 12 OF THE EXCHANGE ACT, WHICH INCORPORATES BY
REFERENCE THE DESCRIPTION CONTAINED IN THE COMPANY'S
REGISTRATION STATEMENT ON FORM S-1 UNDER THE
SECURITIES ACT, NO. 33-72096, AS AMENDED, AND IN ANY
AMENDMENTS OR REPORTS THAT ARE FILED FOR THE PURPOSE
OF UPDATING SUCH DESCRIPTION.
ALL 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 OFFERINGS TO WHICH THIS
PROSPECTUS RELATES SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND TO BE A PART HEREOF FROM THE DATE OF FILING OF SUCH DOCUMENTS.
ANY STATEMENT IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY
REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED BY THIS PROSPECTUS
TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR IN ANY OTHER 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 HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE COPIES
OF ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS) TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY
OF THIS PROSPECTUS HAS BEEN DELIVERED ON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON TO:
THOMAS M. MASON, CHIEF FINANCIAL OFFICER
TELULAR CORPORATION
647 N. LAKEVIEW PARKWAY
VERNON HILLS, IL 60061
(847) 247-9400
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RISK FACTORS
Prospective purchasers of Common Stock of the Company should
carefully consider the following factors in conjunction with the information
contained in the materials in the Company's reports on Forms 10-K, 10-Q and 8-K
and proxy materials, as filed with the Commission (the "SEC Filings").
LIMITED OPERATING HISTORY AND EXPECTATION OF CONTINUED LOSSES
The Company commenced operations in 1986 and although it
reported a profit for the fourth quarter of fiscal year 1996, and the first
quarter of fiscal year 1997, it has yet to report an annual profit. The
development of the Company's business has required significant expenditures in
connection with the defense of the Company's patents, research and development
of its technology and marketing of its products. Substantial costs related to
these activities have been and will continue to be incurred by the Company
before the realization of associated revenues.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
At March 31, 1997, the Company had $11.8 million in cash and
cash equivalents with a working capital surplus of approximately $25.7 million.
Expansion of the Company's business, including the development of new products
and markets for the Company's existing products, will require significant
product development expenditures. In addition, the Company is expected at least
in the near term to continue to operate at a loss. Based on its current
operating plan, the Company believes its existing capital resources, including a
credit facility and proceeds from the issuance of Preferred Stock, should enable
it to maintain its current and planned operations. The Company continues to
consider other financing opportunities, including the sale of additional shares
of Preferred Stock, that would be used to support additional growth and product
development. Expected future uses of cash include working capital requirements,
marketing programs and product development in anticipation of future revenues.
Cash requirements may vary and are difficult to predict given the nature of the
developing markets targeted by the Company. The amount of royalty income from
the Company's licensees is unpredictable, but could have an impact on the
Company's actual cash flow. Unanticipated events such as litigation could
increase capital requirements. To the extent that additional funds are needed
subsequently, the Company may need to raise additional funds through public or
private financings. No assurance can be given that additional financing will be
available or that, if available, it will be obtained on terms favorable to the
Company.
The Company has now completed a major corporate restructuring
as part of a program to balance expenditure levels with revenues, and to improve
working capital. In connection with that restructuring, the Company incurred
approximately $11.0 million in restructuring and impairment charges, phased out
its manufacturing operations in Puerto Rico and Illinois, consolidated its
manufacturing operations at the Company's Atlanta, Georgia facility, and reduced
its workforce from approximately 250 employees in January 1996 to approximately
110 employees at the end of November 1996. Details of the restructuring are set
forth in the Company's SEC Filings. The Company is continuing to monitor
expenditure levels in light of timing of market expansion and revenues and
anticipates taking further actions from time to time as it deems appropriate.
Faced with terminating leases at its Buffalo Grove and
Atlanta, Georgia facilities, on May 1, 1997, the Company consolidated its
Buffalo Grove and Atlanta, Georgia operations into a new facility in Vernon
Hills, Illinois. This has resulted in the Company's manufacturing, engineering,
and administration operations to be located at a single site. The Company
anticipates this development will enhance the quality of its products and speed
the reach of such products to market.
MANAGEMENT TRANSITION
The Company has experienced several significant changes in
management over the past two years. Richard Gerstner served as Chief Executive
Officer from November 1993 to November 1995. From November 1995 until April
1996, William L. De Nicolo served as Chief Executive Officer. Mr. De Nicolo, the
founder of the Company, served as CEO prior to Mr. Gerstner's appointment and
has served as Chairman of the Board since the Company was founded. Kenneth E.
Millard became President and Chief Executive Officer in April 1996. Mr. Millard
also serves as a member of the Board of Directors. Robert L. Montgomery was
appointed Executive Vice- President and Chief Operating Officer during March,
1997. Thomas M. Mason joined the Company as Senior Vice-
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President and Chief Financial Officer in March, 1997. Mr. Mason replaced Frank
J.M. ten Brink who had performed those functions since joining the Company in
July, 1996. The Company plans to hire additional senior executives for other
functions during fiscal year 1997.
As noted above, the Company has experienced a number of
changes in its executives over the past year, and has substantially reduced its
workforce. These changes may have an adverse effect on the Company's ability to
implement its plans and manage its operations in a consistent manner.
RELATIONSHIP WITH MOTOROLA
The Company has several important relationships with Motorola,
Inc. ("Motorola"), which owns approximately 15% of the Company's outstanding
shares of Common Stock.
Sales by the Company to Motorola represented approximately 31%
of net sales by the Company during the preceding fiscal year. In addition, as
discussed below under "Reliance on Key Customer," the Company has entered into a
substantial contract with Motorola to sell fixed wireless terminals to Motorola
for its construction of a cellular system in Hungary.
The Company purchases cellular transceivers from Motorola.
These purchases represented approximately 54% of total cost of goods for the
Company during the preceding fiscal year.
The Company and Motorola have recently expanded their
purchase/supply relationship into a crossOEM arrangement under which the Company
will sell additional fixed wireless terminals to Motorola and Motorola will sell
current and future cellular products to the Company.
The Company and Motorola have entered into cross-licensing
relationships under their respective intellectual property rights.
These and other aspects of the Company and Motorola's
relationship are discussed in more detail in the SEC Filings.
RELIANCE ON KEY CUSTOMER
In the near term the Company's success may depend on a number
of large orders from a small group of companies, which creates a risk that the
loss of any one customer may have a significant impact on the Company's
financial results. During fiscal year 1996, sales by the Company to Motorola
represented approximately 31% of total sales. The Company has a substantial
contract with Motorola to sell fixed wireless terminals to Motorola for its
construction of a cellular system in Hungary, and is negotiating for additional
business with Motorola for subsequent phases of the Hungarian project. The
contract includes a commitment by Motorola to purchase $100 million of the
Company's fixed wireless terminals over a three-year period commencing January
1, 1996. As of May 23, 1997, Motorola had purchased $23.5 million of product
under this contract. The commitment by Motorola to purchase additional product
under this contract is not guaranteed.
INTELLECTUAL PROPERTY RIGHTS
The Company's success in the United States will depend to a
considerable extent upon its ability to obtain and enforce intellectual property
protection for its technology in the United States. No assurance can be given
that the Company's existing patents or any future patents obtained by the
Company will not be challenged, invalidated or circumvented, or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent to or superior to the Company's technology. The
nature and status of litigation that involves the Company's intellectual
property rights is set forth in the SEC Filings.
Although the Company believes that its intelligent interface
can be adapted to accommodate emerging wireless services, there can be no
assurance that these new services will fall within the boundaries of the
Company's existing patent protection.
In some countries, patent protection is not available.
Moreover, some countries that grant patents do not afford meaningful protection
or redress for violations. Neither the Company nor its competitors have
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established, and both are now legally barred from establishing, patent
protection for core technology in many other countries, including the principal
countries of Western Europe. In the absence of patent protection, the Company
has relied upon other competitive factors including: (a) product functionality,
(b) the quality of its products, and (c) the desirability of using products that
meet the same specifications as those in the United States and in other
countries where the Company has obtained patent protection.
There can be no assurance that patent protection can be
obtained, in the United States or elsewhere, for new products or applications,
or that such patent protection, if obtained, will afford meaningful protection.
INTENSE COMPETITION IN INDUSTRY
Competition in the wireless telecommunications equipment
industry is intense. The industry includes major domestic and international
companies, many of which have substantially greater financial, technical,
marketing, sales, manufacturing, distribution and other resources than those of
the Company. The Company faces competition in various areas from certain of its
licensees and those customers who may purchase the licensees' products. It has
granted a non-exclusive royalty-bearing license to Motorola which enables
Motorola to produce and sell products which compete with the Company's products.
To the extent that expansion of the Company's product line or
the development of new uses or applications for its products are outside of the
protection provided by the Company's patents and other intellectual property
rights, the Company may encounter increased competition from a variety of
sources.
RELIANCE UPON GROWTH AND PRICING OF WIRELESS SERVICE
The market for basic telephone service in developing
countries, which at present are the Company's principal markets, is an emerging
one. The timing related to purchases of equipment for the provision of telephone
service is affected by regulatory, macroeconomic, capital availability and
competitive factors which make the timing of such awards difficult to predict.
The success of the Company depends to a considerable extent
upon the continued growth and increased availability of cellular and other
wireless telecommunications services internationally and, to a lesser extent at
least in the short term, in the United States.
ANTI-TAKEOVER PROVISIONS; MOTOROLA PURCHASE RIGHTS
The Company's Board of Directors can, without obtaining
stockholder approval, issue shares of preferred stock having rights that could
adversely affect the voting power of holders of the Common Stock. The issuance
of preferred stock may delay, defer or prevent a change in control of the
Company. In addition, Section 203 of the Delaware General Corporation Law
restricts certain business combinations with any "interested stockholder" as
defined in such law. The current stockholders of the Company are not, by virtue
of their current holdings, deemed to be "interested stockholders" under this
statute. This statute may delay, deter or prevent a change in control of the
Company.
Under the terms and conditions of the Company's Preferred
Stock, issued on April 16, 1997, the merger, consolidation, or sale of
substantially all of the assets of the Company, or the purchase of more than 50%
of the outstanding shares of Common Stock of the Company, prior to conversion of
all of the shares of the Preferred Stock may trigger a right of redemption on
the part of the holders of the Preferred Stock.
Under the Shareholders' Agreement among certain of the
Company's stockholders, the Company and its principal stockholders are required
to notify Motorola prior to any solicitation of purchase offers for, or the
acceptance of any unsolicited offer for, all or substantially all of the assets
of the Company or a majority of its voting stock. Motorola has the right to
submit a bid at that time, and the Company and its principal stockholders have
agreed not to make any such sale at a valuation lower than that of Motorola's
bid, if any. Motorola's rights will terminate upon any sale by Motorola of
shares of Common Stock, unless after such sale Motorola owns 20% or more of the
outstanding Common Stock, on a fully diluted basis. The existence of this
contractual provision may delay, deter or prevent a change in control of the
Company.
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REDEMPTION OF PREFERRED STOCK
A right of redemption on the part of the holders of the
Preferred Stock may be triggered by a number of events in addition to the
merger, consolidation or sale of substantially all of the assets of the Company,
including the purchase of more than 50% of the outstanding shares of Common
Stock of the Company, the failure by the Company to convert Preferred Stock when
required to do so, the delisting of the Company's Common Stock from a national
securities exchange, or the failure by the Company to timely register and keep
in effect the Common Stock to be issued upon conversion of the Preferred Stock.
VOLATILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate based
on a number of factors, including variations in the Company's distribution
channels and the mix of products it sells, the timing of final product approvals
from any major distributor or end user, the timing of orders from and shipments
to major customers, the timing of new product introductions by the Company or
its competitors, changes in pricing policies by the Company's suppliers, the
availability and cost of key components, the timing of personnel hirings and the
market acceptance of new and enhanced versions of the Company's products.
VOLATILITY OF STOCK PRICE
Factors such as announcements of the results of trials or the
introduction of new products by the Company or its competitors, market
conditions in the telecommunications, technology and emerging growth sectors and
rumors relating to the Company or its competitors may have a significant impact
on the market price of the Common Stock. Furthermore, the stock market has
experienced volatility that has particularly affected the market prices of
equity securities of many high technology and emerging growth companies such as
those in the telecommunications industry. This volatility has often been
unrelated to the operating performance of such companies. These market
fluctuations could adversely affect the price of the Common Stock.
The Company's stock price was particularly volatile during
fiscal 1996. The Company believes that this volatility was attributable in part
to the timing on conversion of the $18 million in convertible debentures issued
by the Company in December 1995. All of the debentures have been converted, and
a total of 7.0 million shares of Common Stock have been issued.
The Preferred Stock issued by the Company on April 16, 1997,
is convertible into Common Stock at a price equal to the lower of the 110% of
the 30-day average trading price prior to the time the Common Stock was issued
and 85% (subject to certain adjustments) of the 30-day average trading price
prior to conversion, subject to certain minimum price provisions. Under the
terms of the purchase agreement for the Preferred Stock, the holders thereof
have covenanted, subject to certain conditions, not to engage in short sales
(other than short sales no more than three days prior to conversion in an amount
which does not exceed the number of shares to be received upon such conversion)
or to engage in transactions in violation of Section 9 of the 1934 Act, relating
to the manipulation of the trading price of the Common Stock. While these
limitations are intended to minimize volatility that may result from the
conversion of the Preferred Stock, there can be no assurance that such
volatility will not occur.
DILUTION
Upon conversion of the Company's Preferred Stock, Common Stock
may be issued at a discount relative to the market price of Common Stock at that
time. Issuance at a discount could result in a dilution in the net tangible book
value of the Company per share and in the stockholders' equity per share. The
magnitude of any dilution will depend on the size of the discount and the number
of shares to be issued. These variables will depend on a variety of factors,
including the timing of conversion and the market price at the time of
conversion.
RAPID TECHNOLOGICAL CHANGE
The telecommunications equipment industry is characterized by
rapid technological advances, evolving industry standards, changes in end-user
requirements and frequent new product introduction and enhancements. The
wireless telecommunications industry is experiencing significant technological
change, such as the proposed transformation of cellular systems from analog to
digital. The rate at which this change occurs and
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<PAGE> 8
the success of such new technologies may have a material effect on the rate at
which the Company expands its business and on its ability to achieve
profitability. Moreover, there can be no assurance that continuing developments
in technology will not result in the establishment of wireless or wireline
technologies for which the Company's interface technology is not required or in
the development of equipment equal or superior to that provided by the Company.
RISK OF LITIGATION
Litigation in the telecommunications equipment and other high
technology industries has increasingly been used as a competitive tactic both by
established companies seeking to protect their existing position in the market
and by emerging companies attempting to gain access to the market. In such
litigation, complaints may be filed on a variety of grounds, including
antitrust, breach of contract, trade secret, patent or copyright infringement,
patent or copyright invalidity, and unfair business practices. If the Company is
forced to defend itself against such claims, whether or not meritorious, the
Company is likely to incur substantial expense and diversion of management
attention, and may encounter market confusion and the reluctance of licensees
and distributors to commit resources to the Company's products. In the event
that the Company's patents or other intellectual property rights were deemed
invalid or were determined not to prohibit competing technologies, the Company
could face additional competition. See "Risk Factors -- Intellectual Property
Rights."
DEPENDENCE ON ABILITY TO DEVELOP MARKETS
The Company's success depends on its ability to develop both
domestic and international markets for its products. There can be no assurances
that the Company will continue to market its products successfully or that a
larger market for its products will continue to develop.
DEPENDENCE ON ABILITY TO MANAGE GROWTH
The Company's ability to produce and market large volumes of
competitively priced quality products depends on its ability to implement and
continually expand its operational and financial systems, recruit additional
employees and train, manage and motivate both current and new employees. Failure
to effectively manage the growth of the Company or the transition in officers of
the Company would have a material adverse effect on the business of the Company.
DEPENDENCE ON CONTRACTORS FOR MANUFACTURING AND DISTRIBUTION
The Company uses subcontractors for the manufacture of certain
of its components and for the assembly of some of its products. In the past, the
Company has experienced delays in the receipt of interface components and
products, which have resulted in delays in product deliveries. The Company may
experience similar delays in the future.
The inability to obtain sufficient quantities of key
components as required, or to develop alternative sources if and as required in
the future, could result in delays or reductions in product shipments. In
addition, shortages of raw materials or production capacity constraints at the
Company or its subcontractors could negatively affect the Company's ability to
meet its production obligations and result in increased prices for affected
parts. These events could have a material adverse effect on the Company's
customer relationships and operating results.
The Company uses third parties, in addition to its direct
sales force, to distribute and market some of its products. In particular, the
Company plans to use interconnect companies and cellular carriers to market,
distribute, install and service certain of its products. Although the Company
has entered into contracts with several major interconnect companies and
cellular carriers, the Company is only in the early stages of developing these
relationships. In addition, these third parties are not contractually obligated
to perform any of the activities on which the Company depends to meet its
business objectives.
7
<PAGE> 9
DEPENDENCE ON MOTOROLA FOR TRANSCEIVERS
The Company currently procures most of its cellular
transceivers from Motorola, a principal stockholder of the Company. Pursuant to
the stock purchase agreement between Motorola and the Company, Motorola has
agreed to provide the Company with an opportunity to purchase transceivers based
on any transmission technology that Motorola's Cellular Subscriber Group offers,
when, as and if such products are made available to the public. Under this
agreement, Motorola has a right of first refusal to supply on competitive terms
the Company's transceiver needs provided, among other things, that Motorola
manufactures a comparable product and that the customer does not specifically
request another manufacturer's transceiver product. If sufficient quantities of
Motorola transceivers were not available, the Company might have to redesign its
products and could experience increased costs and shipment delays.
QUALITY CONTROL PROBLEMS
From time to time, the Company has experienced quality control
problems with components provided by certain of its subcontractors. The Company
has instituted quality monitoring procedures for its components to address these
problems and to comply with ISO-9001. However, there can be no assurance that
future quality control problems will not occur.
RISKS OF DOING BUSINESS IN DEVELOPING MARKETS
Among the Company's largest potential markets are developing
countries that may deploy wireless communications networks as an alternative to
the construction of wireline infrastructure. Such countries may decline to
construct wireless telecommunications systems or construction of such systems
may be delayed for a variety of reasons, in which event the development of
demand for the Company's products in those countries will be similarly limited
or delayed. In doing business in developing markets, the Company may also face
economic, political and hard currency conditions that are more volatile than
those commonly experienced in the United States and other areas.
Despite its reliance on international markets, to date, the
Company's sales have not been adversely affected by currency fluctuations.
Currently, the Company requires letters of credit or qualification for export
credit insurance underwritten by the Export-Import Bank of the United States or
other third party insurers on a substantial portion of its international sales
orders. Also, to mitigate the effects of currency fluctuations on the Company's
results of operations, the Company endeavors to conduct all of its international
transactions in U.S. dollars. However, as the Company's international operations
grow, foreign exchange or the inflation of a foreign currency may pose greater
risks for the Company, and the Company may be required to develop and implement
additional strategies to manage these risks.
DEPENDENCE ON RESEARCH AND DEVELOPMENT
The telecommunications equipment market is characterized by
rapid technological advance and the development of increasingly sophisticated
and powerful systems. To remain competitive, the Company must dedicate
significant resources to the development and enhancement of its present and
future products. There can be no assurance that the Company's development
efforts will be successful or that the Company will have adequate capital to
fund such research and development. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding."
CONFLICTS OF INTEREST
The Company's Board of Directors includes, and is expected to
continue to include, persons designated by strategic partners of the Company and
other parties that have business relationships with the Company. It is possible
that the companies designating such directors, such as Motorola and other
companies in which a director may hold a financial interest, may be in direct or
indirect competition with the Company or among themselves, including competition
with respect to certain business activities and transactions that the Company
may propose to undertake. Although the affected directors may abstain from
voting on matters in which the interests of the Company and those of another
company with which they are affiliated are in conflict, the presence of
potential or actual conflicts could affect the process or outcome of Board
deliberations in ways that could be adverse to the Company.
8
<PAGE> 10
CONTROL BY EXISTING STOCKHOLDERS
As of November 29, 1996, the officers and directors of the
Company, together with entities affiliated with directors of the Company,
beneficially own approximately 33.2% of the Common Stock (assuming the exercise
of immediately available stock options to purchase Common Stock). Accordingly,
these stockholders, if acting in concert, will be able to elect all of the
Company's directors and to determine the outcome of corporate actions requiring
stockholder approval, regardless of how other stockholders of the Company may
vote. The voting power of these stockholders under certain circumstances could
have the effect of delaying or preventing a change in control of the Company.
Under a Shareholders' Agreement, Motorola has the right to nominate for election
a number of directors proportionate to their respective holdings of outstanding
shares of Common Stock in the case of Motorola, as long as it holds at least 10%
of the outstanding shares it may nominate at least one director, and that if it
holds at least 20% of the outstanding shares it may nominate at least two
directors), and the principal stockholders of the Company have agreed to vote in
favor of each such nominee.
DIVIDEND POLICY
To date, the Company has paid no cash dividends on its Common
Stock. The Company currently intends to retain all future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
The terms of the Preferred Stock prohibit the Company from
paying dividends except out of retained earnings of the Company generated after
April 1, 1997. Under the terms of the Loan and Security Agreement with Sanwa
Business Credit Corporation that provides a revolving credit facility of up to
Twenty Million Dollars ($20,000,000) (the "Loan"), the Company is prohibited
from paying dividends during the term of the Loan.
THE COMPANY
OVERVIEW
The Company is in the fixed wireless telecommunications
industry. The Company designs, develops, manufactures and markets products based
on its proprietary interface technologies, which provide the capability to
bridge wireline telecommunications customer premises equipment ("CPE") with
cellular-type transceivers for use in wireless communication networks, whether
cellular, enhanced specialized mobile radio ("ESMR"), personal communications
services ("PCS"), or satellite-based. Applications of the Company's technology
include fixed wireless telecommunications as a primary service where wireline
systems are unavailable, unreliable or uneconomical and as wireless backup
systems for wireline telephone systems and wireless security alarm transmission
systems. The Company's principal product lines -- PHONECELL(R) and TELGUARD(R)
- -- allow CPE designed for traditional wireline networks to send and receive
voice, data and facsimile signals over wireless networks.
The Company was founded in June 1986 by Mr. William L. De
Nicolo, the current Chairman of the Board of the Company, when he acquired title
to the intellectual property rights of a pending patent application dealing with
a "cellular interface" concept and methodology. The patent not only describes a
simple physical circuit or device, but also the very concept and principles
underlying the use of intelligent interface device (the "invention") in
conjunction with cellular-type transceivers and systems.
In January 1994, the Company completed an initial public
offering of its common stock and is traded on the NASDAQ National Market System
under the ticker symbol "WRLS".
9
<PAGE> 11
COMPANY STRATEGY
The Company's strategy is to leverage its market experience,
internationally-accepted products, and patents into a leadership position in the
rapidly developing Wireless Alternate Access ("WAA") and Wireless Local Loop
("WLL") subscriber terminal equipment industry. Global telecommunications
equipment manufacturers together with national and international service
providers are increasingly sharing the Company's vision that wireless systems in
both developed and developing countries are well suited for use as basic
telephone service networks. The key trends that are fueling the worldwide
adoption of WAA/WLL programs include the following:
- Rapid acceptance of cellular mobile communications;
- An accelerating trend toward privatization of
telecommunication service in both developed
and developing countries;
- Development and adoption of digital wireless
transmission standards (e.g., Time Divisional
Multiple Access ("TDMA"), Group Special Mobile
("GSM") and Code Division Multiple Access ("CDMA"))
which enhance network capacity and service capability
while significantly reducing the effective cost per
subscriber served;
- Service network providers acceptance of wireless
network solutions as fast, cost effective answers to
their customers' unmet demand for telecommunications;
and,
- PCS licensing and the proposed telecommunications
legislation within the U.S. should intensify
competition by wireless service providers to capture
wireless minutes of usage.
Based upon its proprietary interface technology, the Company
designs, manufacturers and markets a full line of WAA/WLL products which allow
cost-effective, innovative communications solutions where wired facilities are
(1) of substandard quality, (2) unavailable on a timely basis, (3) too costly,
or, (4) in need of alternative access or backup/diverse routing capability for
local telephone service exists.
CAPITAL RESOURCES
On April 16, 1997, the Company issued to each of the Investors
5,000 shares of Preferred Stock (collectively a total of 10,000 shares) in
exchange for Ten Million Dollars ($10,000,000) pursuant to a private placement.
The conversion terms of the Preferred Stock reflect the equivalent of a 5%
annual stock dividend. The Preferred Stock automatically converts to shares of
the Company's Common Stock on April 16, 1999, or October 16, 1999, depending
upon the conversion price. Prior to maturity, the Preferred Stock is convertible
by the holders of the Preferred Stock under specific terms and conditions which
include "collars" on the conversion price and limitations on related stock
trading. In both cases, the conversion formula is based upon the Nasdaq closing
bid prices for the Company's Common Stock. The Company also has the right to
redeem the Preferred Stock for cash at defined terms. Senior management
anticipates that the funds will be used for the development of new products for
the worldwide fixed wireless terminal business.
On April 23, 1997, the Company entered into a Loan and
Security Agreement with Sanwa Business Credit Corporation for a revolving credit
facility of up to Twenty Million Dollars ($20,000,000) (the "Loan"). Borrowings
under the Loan are subject to borrowing base requirements and other conditions.
Under the Loan, the Company is required to comply with certain affirmative and
negative covenants.This Agreement replaces a prior credit facility. Senior
management anticipates that the Loan will be used to meet demands on working
capital requirements associated with certain large wireless local loop projects
that the Company intends to bid on.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends on its
ability to adapt to the rapidly changing telecommunications environment and to
continue to meet customers' needs. The Company is currently adapting its
products to new wireless technologies and is working closely with several
companies, including long-distance carriers, cellular service providers and
telecommunications infrastructure providers and equipment manufacturers, to
develop new fixed wireless products.
10
<PAGE> 12
For example, pursuant to the terms of the Stock Purchase
Agreement, between Wireless Domain, Inc., formerly Telepath Corporation
("Wireless Domain") and the Company, dated as of June 28, 1996 (the "Stock
Purchase Agreement"), Telepath has undertaken to develop certain fixed wireless
products for the Company. The agreement calls for the Company to increase its
equity position in Wireless Domain to 50% by August of 1997 by purchasing an
additional one-sixth of Wireless Domain for 150,000 shares of the Company's
common stock as well as payments totaling $0.5 million in two separate
transactions. The first of the two additional investments in Wireless Domain
occurred during the second quarter of fiscal year 1997. In January 1997, the
Company exchanged $0.25 million in cash and 75,000 shares of the Company's
common stock (approximate value of $0.5 million) for an additional one-twelfth
of Wireless Domain. Under the agreement, the Company purchases various product
development services from Wireless Domain. The Company spent $0.5 million and
$1.1 million respectively on such services from Wireless Domain during the three
months and six months ended March 31, 1997. This relationship provides the
Company, subject to certain terms of the Stock Purchase Agreement, with access
to an additional 24 engineers. Additionally, Motorola has also agreed to fund
certain product development activities.
As of May 15, 1997, the Company's research and development
staff was comprised of 18 engineers and is focused on bringing new products to
market in the most advantageous and timely manner possible. Additionally, the
research staff continually investigates methods by which the Company can reduce
the costs of its products.
The Company is currently adapting its products to digital
wireless standards, including GSM, DCS1800, PCS1900, TDMA and CDMA as well as
satellite-based systems.
MANUFACTURING
Fabrication of the Company's products is accomplished through
a combination of in-house manufacturing and subcontracting. The Company
manufactures security alarm transmission products and fixed wireless terminals
at its facility in Vernon Hills. The Company has developed proprietary testing
equipment and procedures to conduct comprehensive quality control and quality
assurance throughout the manufacturing and assembly process. Quality programs
are a high priority at the Company; since 1994, the Company has been designated
as an ISO 9001 certified Company.
The Company historically has contracted with several suppliers
for the critical components of its products. The major exception to this policy
has been transceiver units, which are principally supplied by Motorola. The
Company's interface technology is compatible with several other manufacturers'
transceivers, and the Company believes it could obtain transceivers from such
manufacturers if sufficient quantities were not available from Motorola,
although not necessarily on equivalent terms.
SELLING SHAREHOLDERS
All of the shares offered hereby were issued or are issuable
by the Company to the Selling Shareholders based on each such Selling
Shareholders pro-rata share of the Common Stock issued or issuable to the
Selling Shareholder upon the conversion of the Preferred Stock ("Registrable
Securities") as of the date this Registration Statement, as amended, becomes
effective. The Registrable Securities will be issued or are issuable to the
Selling Shareholders pursuant to the terms of the Certificate of Designation of
the Preferred Stock. The Preferred Stock constituted the consideration for the
payment by the Investors to the Company of approximately Ten Million Dollars
($10,000,000).
Pursuant to the terms of the Registration Rights Agreement,
the Company agreed to register the Registrable Securities under the Securities
Act and to keep such registration effective until the earlier of: (i) the date
as of which the Selling Shareholders may sell all of the Registrable Securities,
without restriction pursuant to Rule 144(k) under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Selling Shareholders have sold all
of the Registrable Securities and (B) none of the Preferred Stock is
outstanding.
The following table sets forth certain information regarding
the hypothetical beneficial ownership of the Company's Common Stock that would
be held by the Selling Shareholders if the conversion of Preferred Stock to
Common Stock occurred on May 15, 1997. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common
11
<PAGE> 13
Stock. None of the Selling Shareholders is currently an affiliate of the
Company or has had a material relationship with the Company during the last
three years.
<TABLE>
<CAPTION>
Shares
Beneficially
Shares Owned
Beneficially Owned Shares After the Offering
Prior to the Being ------------------
Offering(1) Offered Number Percent
----------- ------- ------ -------
<S> <C> <C> <C> <C>
Nelson Partners(2) 1,004,055 2,250,000 -0- 0%
Olympus Securities, Ltd.(2) 1,004,055 2,250,000 -0- 0%
--------- --------- --- --
2,008,110 5,500,000 -0- 0%
</TABLE>
PLAN OF DISTRIBUTION
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to options,
warrants and convertible securities currently exercisable or convertible, or
exercisable or convertible within 60 days, are deemed outstanding, including for
purposes of computing the percentage ownership of the person holding such
option, warrant or convertible security, but not for purposes of computing the
percentage of any other holder.
(2) Beneficial ownership is shown as of May 15, 1997. Beneficial ownership is
based upon conversion of all of the Selling Shareholders Preferred Stock at
$5.00 per share of Common Stock (which price was the effective conversion price
of the Preferred Stock on May 15, 1997) and accretion of a 5% premium per annum.
The shares of Common Stock offered by the Selling Shareholders hereby include
such presently indeterminate number of shares as may be issued on conversion of
the Preferred Stock pursuant to the provisions thereof regarding determination
of the applicable conversion price. The Company has agreed to initially register
a number of shares of Common Stock equal to approximately one and one-half times
the number of shares of Common Stock that would have been issued if all the
Preferred Stock had been converted at the conversion price in effect at the time
of the filing of this registration statement. By way of example, if all shares
of Preferred Stock held by such Selling Shareholder had been converted on May
15, 1997, the Company would have been obligated to issue 1,004,055 shares of
Common Stock in respect thereto. The foregoing estimate is for illustrative
purposes only. The actual number of shares of Common Stock issued or issuable
upon conversion of the Preferred Stock is subject to adjustment and could be
materially less or more than such estimated amount depending upon factors which
cannot be predicted by the Company at this time, including, among others, the
future market price of the Common Stock, accretion of a 5% premium per annum and
certain anti-dilution adjustments. Pursuant to the terms of the Preferred Stock,
the Preferred Stock is convertible by the holders thereof only to the extent
that the number of shares of Common Stock thereby issuable, together with the
number of shares of Common Stock then held by such holder and its affiliates
(not including shares underlying unconverted shares of Preferred Stock) would
not exceed 4.9% of the then outstanding Common Stock as determined in accordance
with Section 13(d) of the Securities Act of 1934, as amended. Accordingly, the
number of shares of Common Stock set forth for such Selling Shareholder may
exceed the actual number of shares of Common Stock that such Selling Shareholder
could own beneficially at any given time through its ownership of the Preferred
Stock. See "Risk Factors "Potential Dilution." The number of shares noted as
being offered by the Selling Shareholder are also subject to increase in the
event of a stock split, stock dividend or similar transaction involving the
Common Stock pursuant to Rule 416 under the Securities Act. Citadel Limited
Partnership is the managing general partner of Nelson and the trading manager of
Olympus and consequently has voting control and investment discretion over
securities held by both Nelson and Olympus. The ownership information for Nelson
does not include the shares owned by Olympus and the ownership information for
Olympus does not include the shares owned by Nelson.
12
<PAGE> 14
The purpose of this Prospectus is to permit each Selling
Shareholder, if they desire, to dispose of some or all of their shares at such
times and at such prices as each may choose. Whether sales of shares will be
made, and the timing and amount of any sale made, is within the sole discretion
of each Selling Shareholder.
The Common Stock covered by this Prospectus may be offered for
sale from time to time by the Selling Shareholder(s) to or through underwriters
or directly to other purchasers or through agents in one or more market
transactions, in one or more private transactions or in a combination of such
methods of sale, at prices then prevailing, at prices related to such prices or
at negotiated prices. Such methods of distribution may include, without
limitation: (a) a block trade in which the broker-dealer so engaged will attempt
to sell the Common Stock as agent but may position and resell a portion of the
block as a principal to facilitate the transaction; (b) purchases by a
broker-dealer as a principal and resale by such broker-dealer for its own
account pursuant to this Registration Statement; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face- to-face transactions between sellers and purchasers without a broker or
dealer. This Prospectus may be amended and supplemented from time to time to
describe a specific plan of distribution.
In connection with distributions of the Common Stock or
otherwise, the Selling Shareholder(s) 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 Common Stock in the course of hedging the positions they assume with
the Selling Shareholder(s). The Investors each have agreed that, subject to
certain conditions, so long as an Investor, or any of its affiliates, owns
beneficially any Preferred Stock, such Investor shall engage in short sales of
Common Stock only if made no earlier than three days prior to the date of
conversion of any Preferred Stock with respect to the number of shares of Common
Stock that does not exceed the number of shares of Common Stock to be obtained
by such Investor pursuant to such conversion. Except as limited by the preceding
sentence, the Selling Shareholder(s) may also sell Common Stock short and
redeliver the shares to close out such short positions. The Selling
Shareholder(s) may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealer or financial institution of the Common Stock offered hereby,
which Common Stock such broker-dealer or other financial institutions may resell
pursuant to this Prospectus (as supplemented or amended to reflect such
transaction). The Selling Shareholder(s) may also pledge the shares registered
hereunder 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 Common Stock pursuant to this Prospectus (as supplemented or amended to
reflect such transaction). In addition, any Common Stock covered by this
Prospectus that qualifies for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the
form of commissions, discounts or concessions from the Selling Shareholders in
amounts to be negotiated in connection with sales pursuant thereto. 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 commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act.
Certain costs, expenses and fees in connection with the
registration of the Common Stock will be borne by the Company. Commissions,
discounts and transfer taxes, if any, attributable to the sales of the Common
Stock will be borne by the Selling Shareholders. The Selling Shareholders have
agreed or may agree to indemnify the Company or any underwriter, as the case may
be, and any of their respective affiliates, directors, officers and controlling
persons, against certain liabilities in connection with the offering of the
Common Stock pursuant to this Registration Statement, including liabilities
arising under the Securities Act. In addition, the Company has agreed to
indemnify the Selling Shareholders or any underwriter, as the case may be, and
any of their respective affiliates, directors, officers and controlling persons,
against certain liabilities in connection with the offering of the Common Stock
pursuant to this Prospectus, including liabilities arising under the Securities
Act.
13
<PAGE> 15
The Company has agreed to supply the Selling Shareholders with
such number of copies of this Prospectus as each may reasonably request. The
Selling Shareholders will in all cases be responsible for complying with the
prospectus delivery requirements of Section 5(b)(2) of the Securities Act in
connection with the offering and sale of the shares.
14
<PAGE> 16
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby
are being passed upon for the Company by Covington & Burling, Washington, D.C.
EXPERTS
The consolidated financial statements of Telular Corporation appearing
in Telular Corporation's Form 10-K for the year ended September 30, 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.
15
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered hereby (other than
underwriting discounts and commissions) are set forth below:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee............................................ $ 5,566.67
----------
Nasdaq Listing Fee.............................................................................. 17,500
---------
Blue Sky Fees and Expenses...................................................................... 0
---------
Accounting Fees and Expenses................................................................... 5,000
---------
Legal Fees and Expenses......................................................................... 20,000
---------
Registrar and Transfer Agent's Fees and Expenses............................................... 0
---------
Miscellaneous Expenses......................................................................... 1,000
---------
Printing Costs.................................................................................. 0
---------
Total $ 49,066.67
-----------
</TABLE>
- ----------------------------------
* Except for the Securities and Exchange Commission registration fee and
the Nasdaq listing fee all expenses are estimated.
Item 15. Indemnification of Officers and Directors
Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") provides that a corporation may indemnify any person,
including any officer or director, who was or is a party or who is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise ("such Person"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonable
incurred by such Person, if he 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 any threatened, pending or completed action
by or in the right of the corporation, a corporation also may indemnify any such
Person for costs actually and reasonably incurred by him in connection with that
action's defense or settlement, if he acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation; however, no indemnification shall 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 a court shall
determine that such indemnity is proper. Where a director, officer, employee or
agent is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
(including attorneys' fees) that such officer or director actually and
reasonably incurred.
The Registrant's Bylaws provide that the Registrant will
indemnify such Persons against all liability and expense arising out of such
Person's connection with the business of the Registrant, provided that the Board
of
II-1
<PAGE> 18
Directors determines that such Person acted in good faith and reasonably
believed that his actions were not opposed to the best interests of the
Registrant; and with respect to any criminal action or proceeding, that such
Person had no reasonable cause to believe his conduct was unlawful. In the case
of any action, suit or proceeding by or in the right of the Registrant in which
such Person is adjudged liable to the Registrant, the Registrant will indemnify
such Person for expenses only to the extent that the court in which such action
is brought determines, upon application, that such Person is entitled to
indemnity for reasonable expenses, and in no case shall such indemnification
extend to liability. Advances against reasonable expenses may be made by the
Registrant on terms fixed by the Board of Directors subject to an obligation to
repay if indemnification proves unwarranted.
The Registrant's Certificate of Incorporation provides that,
to the fullest extent permitted by Delaware law, its directors shall not be
liable for monetary damages for breach of the directors' fiduciary duty to the
Registrant and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care. In appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant or its stockholders, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
Directors and officers of the Registrant are covered by a
directors' and officers' liability insurance policy of the Registrant.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------ ----------- ---------
<S> <C> <C>
Instruments defining the rights
of Security Holders
4.1 Certificate of Incorporation Incorporated by reference to
Exhibit 3.1 to the Registration State-
ment of Telular Corporation on Form
S-1, Registration No. 33-72096, as
amended ("Form S-1")
4.2 Amendment No. 1 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.2 to Form S-1
4.3 Amendment No. 2 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.3 to Form S-1
4.4 Amendment No. 3 to Certificate Incorporated by reference to
of Incorporation Exhibit 3.4 to Form 10-Q filed
on May 16, 1997
4.5 Bylaws Incorporated by reference to
Exhibit 3.4 to Form S-1
</TABLE>
II-2
<PAGE> 19
<TABLE>
<S> <C> <C>
4.6 Certificate of Designations, Incorporated by reference
Rights and Preferences of to Exhibit 99.2 to
Series A Convertible Preferred Form 8-K filed on
Stock April 25, 1997
Opinion on legality of Common
Stock being registered
5.1 Opinion of Covington & Burling Filed herewith
Consents of experts and counsel
23.1 Consent of Covington & Burling Filed herewith as Exhibit 5.1
23.2 Consent of Ernst & Young LLP Filed herewith
Additional Exhibits
99.1 Securities Purchase Agreement Incorporated by reference
by and between Telular Corporation to Exhibit 99.1 to
and the purchasers of the Series Form 8-K filed on
A Convertible Preferred Stock April 25, 1997
99.2 Registration Rights Agreement by Incorporated by reference
and between Telular Corporation to Exhibit 99.3 on
and the purchasers of the Form 8-K dated
Preferred Stock April 25, 1997
</TABLE>
Item 17. Undertakings
(a) 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;
(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 by
the Registrant pursuant to
II-3
<PAGE> 20
Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference 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 registered which remain unsold at
the termination of the offering.
(b) The 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 that is incorporated by reference in the
Registration Statement shall be deemed to be a new
Registration Statement relating to the Common Stock
therein, and the offering of such Common Stock at
that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person
of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 Vernon Hills, State of Illinois, on the 28th day of May, 1997.
TELULAR CORPORATION
(Registrant)
By /s/ Kenneth E. Millard
----------------------
Kenneth E. Millard
Chief Executive Officer
Each person whose signature appears below constitutes and appoints
William L. De Nicolo, Kenneth E. Millard and Thomas M. Mason, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, and
in any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, state
securities law administrators, other governmental authorities, the Nasdaq Stock
Market, and stock exchanges, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act, this 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/ Kenneth E. Millard Chief Executive Officer and Director May 28, 1997
- ---------------------- (principal executive officer)
Kenneth E. Millard
/s/ Thomas M. Mason Senior Vice President, Chief May 28, 1997
- ------------------- Financial Officer and Secretary
Thomas M. Mason (principal financial officer)
/s/ William L. De Nicolo Director and Chairman of the Board May 28, 1997
- ------------------------
William L. De Nicolo
/s/ John E. Berndt Director May 28, 1997
- ------------------
John E. Berndt
/s/ Larry J. Ford Director May 28, 1997
- -----------------
Larry J. Ford
</TABLE>
II-5
<PAGE> 22
<TABLE>
<S> <C> <C>
/s/ Richard D. Haning Director May 28, 1997
- ---------------------
Richard D. Haning
/s/ David P. Mixer Director May 28, 1997
- ------------------
David P. Mixer
</TABLE>
II-6
<PAGE> 23
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
Instruments defining the rights
of Security Stockholders
4.1 Certificate of Incorporation Incorporated by reference to
Exhibit 3.1 to the Registration State-
ment of Telular Corporation on Form
S-1, Registration No. 33-72096, as
amended ("Form S-1")
4.2 Amendment No. 1 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.2 to Form S-1
4.3 Amendment No. 2 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.3 to Form S-1
4.4 Amendment No. 3 to Certificate Incorporated by reference to
of Incorporation Exhibit 3.4 to Form 10-Q filed
on May 16, 1997
4.5 Bylaws Incorporated by reference to
Exhibit 3.4 to Form S-1
4.6 Certificate of Designations, Incorporated by reference
Rights and Preferences of to Exhibit 99.2 to Form 8-K
Series A Convertible Preferred filed on April 25, 1997
Stock
Opinion on legality of Common
Stock being registered
5.1 Opinion of Covington & Burling Filed herewith
Consents of experts and counsel
23.1 Consent of Covington & Burling Filed herewith as Exhibit 5.1
23.2 Consent of Ernst & Young LLP Filed herewith
Additional Exhibits
99.1 Securities Purchase Agreement Incorporated by reference
by and between Telular to Exhibit 99.1 to Form 8-K
Corporation and the purchasers filed on April 25, 1997
of the Series A Convertible
Preferred Stock
99.2 Registration Rights Agreement Incorporated by reference to
by and between Telular Exhibit 99.3 on Form 8-K
Corporation, and the dated April 25, 1997
purchasers of the Preferred
Stock
</TABLE>
<PAGE> 1
Exhibit 5.1
May 28, 1997
Telular Corporation
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Gentlemen:
This opinion is being furnished to you in connection with the
public resale by Olympus Securities, Ltd ("Olympus") and Nelson Partners
("Nelson"), or their respective assigns (collectively, the "Preferred Stock
Investors"), of up to Five Million Five Hundred Thousand (5,500,000) shares1/
of Telular Corporation's (the "Company") Common Stock, par value $.01 per share
(the "Shares") pursuant to the registration statement filed by the Company
under the Securities Act of 1933 on May 27, 1997, with the Securities and
Exchange Commission (the "Commission") (which registration statement, as
amended by all amendments, is hereinafter called the "Registration Statement").
The Shares were issued to the Preferred Stock Investors by the Company under
the terms of the Private Placement, between the Preferred Stock Investors and
the Company, dated as of April 16, 1997 (the "Private Placement"), and may be
sold from time-to-time by Preferred Stock Investors to or through brokers,
dealers or other agents or directly to other purchasers in one or more market
transactions, in one or more private transactions, or in a combination of such
methods of sale, at prices then prevailing, at prices related to such prices,
or at negotiated prices.
We have acted as counsel for the Company in connection with
the issue and sale of the Shares to the Preferred Stock Investors. We have
examined signed copies of the Registration Statement and all exhibits thereto,
all as filed with the Commission. We have also examined and relied
- ----------------
1/ The Registration Statement also covers such indeterminate numbers of
additional shares of Common Stock as may become issuable upon conversion of the
Company's Series A Convertible Preferred Stock (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (ii) by reason of
changes in the conversion price or conversion rate of the Preferred Stock in
accordance with the terms of the Certificate of Designations, Rights and
Preferences of the Series A Convertible Preferred Stock.
<PAGE> 2
Telular Corporation
May 28, 1997
Page - 2 -
upon certain resolutions adopted by the Board of Directors of the Company,
certified by the Secretary of the Company, a copy of the Bylaws of the Company,
and a copy of the Certificate of Incorporation of the Company certified by the
Secretary of the State of the State of Delaware. We also have examined such
other documents and made such other investigations as we have deemed necessary
to form a basis for the opinion hereinafter expressed.
In examining the foregoing documents we have assumed the
authenticity of documents submitted to us as originals, the genuineness of all
signatures, the conformity to original documents of documents submitted as
copies, and the accuracy of the representations and statements included
therein.
Based upon the foregoing, it is our opinion that the Shares
issued to and to be sold by the Preferred Stock Investors pursuant to the
Registration Statement are duly authorized, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement, and to the use of our name therein and in the related
Prospectus under the caption "Legal Matters".
It is understood that this opinion is to be used only in
connection with the offer and sale of the Shares while the Registration
Statement is in effect.
Very truly yours,
/s/ Covington & Burling
COVINGTON & BURLING
<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. 33-00000) and related Prospectus of
Telular Corporation for the registration of 5,500,000 shares of its common
stock and to the incorporation by reference therein of our report dated
November 8, 1996, with respect to the consolidated financial statements and
schedule of Telular Corporation included in its Form 10-K for the year ended
September 30, 1996, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Chicago, Illinois
May 20, 1997
