<PAGE>
As filed with the Securities and Exchange Commission on September 21, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------
WAVE SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3477246
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
480 PLEASANT STREET
LEE, MASSACHUSETTS 01238
(413) 243-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------
STEVEN SPRAGUE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WAVE SYSTEMS CORP.
480 PLEASANT STREET
LEE, MASSACHUSETTS 01238
(413) 243-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
NEIL W. TOWNSEND, ESQ.
BINGHAM DANA LLP
399 PARK AVENUE
NEW YORK, NEW YORK 10022-4689
(212) 318 7700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AT SUCH TIME
OR TIMES AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AS THE SELLING
HOLDERS MAY DETERMINE.
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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 the delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE (1) REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$.01 par value 1,182,678 Shares $18.16 $21,477,432 $5,670
====================================================================================================================
</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 prices
reported on the Nasdaq National Market on September 20, 2000.
--------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 2000
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
1,182,678 SHARES
WAVE SYSTEMS CORP.
CLASS A COMMON STOCK
This prospectus relates to 1,182,678 shares of Class A Common Stock,
par value $.01 per share, of Wave Systems Corp. We are registering these shares
on behalf of certain stockholders, to be offered and sold by them from time to
time. We are not selling any of these shares and will not receive any proceeds
from the sale of these shares. Our Class A common stock trades on the Nasdaq
National Market under the symbol "WAVX". The last reported sales price of our
Stock on September 20, 2000 was $18.75 per share.
------------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
ACCURATE OR COMPLETE. IT IS ILLEGAL FOR ANYONE TO TELL YOU OTHERWISE.
-------------------------
The date of this prospectus is September 21, 2000.
<PAGE>
YOU SHOULD RELY ONLY UPON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
THAT TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH ADDITIONAL INFORMATION OR INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS
NOT AN OFFER TO SELL OR AN INVITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO DO
SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ITS DATE,
REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE
CLASS A COMMON STOCK; CHANGES MAY HAVE OCCURRED SINCE.
We own or have rights to trademarks or tradenames that we use in
conjunction with the sale of our products. Embassy-TM-, WaveMeter-Registered
Trademark-, WaveNet-Registered Trademark-, Great Stuff Network-TM-, Second
Shift-TM- (the Wave juggler logo), WaveCommerce-TM-, Wave Interactive
Network-TM-, WINPublish-TM-, WINPurchase-TM-, CablePC-TM-, WaveDirect-TM-,
MyPublish-TM-, CharityWave-TM-, iShopHere.com-TM- and N*Click-TM- are
trademarks or registered trademarks used by us. All other trademarks and
tradenames referred to in this prospectus are the property of their
respective owners.
- 3 -
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY, AND SHOULD BE READ AS SUCH. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE
DETAILED INFORMATION AND FINANCIAL INFORMATION AND STATEMENTS INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. YOU SHOULD CAREFULLY CONSIDER THE FACTORS SET
FORTH UNDER THE CAPTION "RISK FACTORS".
Our Business........Wave Systems Corp. offers powerful, next-generation
solutions for electronic commerce, making the process
easier, versatile, and more secure for consumers as well as
business-to-business applications. We are involved in the
research, development, and market testing of the Wave
System, which performs the buying transactions in a range of
consumer electronic devices, including computers, personal
digital assistants, and interactive televisions, for the use
of electronic content and services in a secure, trusted
environment. Electronic content and services refers to any
data, graphic, software, video or audio sequence that can be
digitally transmitted or stored, as well as access to
services such as broadcast or telecommunications services.
Examples include archived newspaper and magazine articles,
on-line books, music selections, clip-art, photographs and
video games. Under our model, electronic content and service
providers use the Wave System to allow consumers to purchase
one-time, multiple or permanent use of their content or
service, using a wide range of payment models including
rental, pay-for-use, or outright purchase, much like a phone
card or a pay-per-view cable system. We are also developing
a secure e-commerce shopping network which will offer
consumers access to quality brands and retailers as well as
special savings. This initiative commenced with our recent
acquisition of all of the assets of Indigo Networks, LLC
and their e-commerce shopping network iShopHere.com. We
believe that the Wave System can fundamentally change
today's centralized e-commerce model by creating a
de-centralized distribution and security system under which
consumers will be able to make individual purchases of
images, text, music or video, or make use of software, or
make purchases from traditional retail merchants all from
the consumer's computer or other interactive device. This
means that content and services can be consumed with more
efficient and flexible pricing, broader distribution
opportunities, greater protection against unauthorized
usage and with better privacy protection of the consumer's
sensitive information.
Our Market..........Our long-term strategy is to achieve broad market acceptance
of the Wave System as a standard platform for the secure
delivery of electronic content, goods and services and to
build a network of services for this platform. The growth
of e-commerce is creating consumer demand for a powerful
merchandising interface at the point of purchase, whether in
the office or at home. The business world is creating new
customer and supplier value chains which require new
approaches to the protection of information and content
which flows over public, shared networks. Content providers
seek a system that will allow consumers to pay royalties
easily and quickly for usage while allowing both customized
and broad, inexpensive distribution. Consumers in turn seek
enhanced control of their individual privacy and secure
storage of sensitive information. Our creation of the
trusted client model allows important new approaches to
addressing issues regarding the authentication of
identities, the protection of content and services, and the
distribution of electronic commerce transactions. These
three capabilities are key to building a network of
end-users and conducting e-commerce transactions.
- 4 -
<PAGE>
Our Product.........The Wave System consists of an EMBedded Application Security
SYstem in consumer devices that provides a core hardware and
software foundation for consumers to purchase electronic
content and access services on a flexible purchase basis.
The EMBASSY platform is a programmable, low cost "system
within a system" that can perform independent transactions
such as meter pay-per-use of electronic content, store
sensitive information such as identities, credit information
and account balances, and run secure applications for
pay-per-use access to software. The EMBASSY platform is an
open model based on security hardware originally designed
for use with "smart cards" that can be integrated into
personal computers and peripherals, interactive televisions
or used as independent components. The WaveMeter application
running in the EMBASSY platform allows e-commerce
transactions to occur without the expense of a real-time
network connection for every transaction. We have started
production of a software version of the WaveMeter
application that offers many of the features of the hardware
version. The WaveMeter server enables electronic content
owners to securely sell usage of their intellectual property
from a Web site. This secure electronic content delivery
service, offered through the WaveMeter server, does not
require either the consumer or the publisher to install any
additional hardware or software. The EMBASSY securely stores
electronic funds and transaction information about the usage
of electronic content to be transmitted securely to a
WaveNet central transaction processing center periodically.
The WaveNet application manages electronic codes for
scrambling and unscrambling electronic content, processes
credit and usage charges, automatically obtains credit
authorization, calculates royalty distributions, and provide
user and usage data to electronic content owners. The Wave
System is designed to be compatible with existing content
delivery systems, such as CD-ROMs and the Internet. Using
these Wave-enabled distribution systems, electronic content
providers can distribute their products in a secure format
and offer them for sale through the EMBASSY platform, which
in turn allows consumers to purchase and access the
electronic content when desired.
The iShopHere.com e-commerce shopping network provides
consumers access to quality brands and retailers. By
combining iShopHere.com's access to leading merchants with
Wave's EMBASSY Trusted Client e-commerce technology,
consumers will be able to complete transactions over the
Internet securely and reliably.
Our Partners........We are pursuing strategic relationships to build new ways of
distributing electronic content and services with electronic
content providers, network companies, and hardware
manufacturers. We have attracted other companies to port
their applications and services to the Wave System and its
EMBASSY platform, which we believe will in turn increase the
value of the system to other potential partners. During 1998
and 1999, we established relationships with RSA Data
Security, NEC Technologies, Pollex Technology,
Hewlett-Packard's VerSecure division, Sun Microsystems,
SMSC, ITE, IGST, Sarnoff Corp., Hauppauge Computer Systems,
Compaq Computer, National Semiconductor, KiSS Nordic,
Cyber-COMM, Lego Media and WavePhore. In 1999 and 2000, we
hope to expand the number of commitments from hardware
manufacturers, including personal computer manufacturers,
peripheral companies and other companies involved in
e-commerce.
We are incorporated in Delaware, and we were known previously as Indata
Corp. and Cryptologics International, Inc. We changed our name to Wave Systems
Corp. in January 1993. Our principal executive offices are located at 480
Pleasant Street, Lee, Massachusetts 01238, and our telephone number is (413)
243-1600.
- 5 -
<PAGE>
RISK FACTORS
WE HAVE A HISTORY OF NET LOSSES AND EXPECT NET LOSSES TO CONTINUE. IF
WE CONTINUE TO LOSE MONEY, OUR OPERATIONS WILL NOT BE FINANCIALLY VIABLE.
We have experienced significant losses and negative cash flow from
operations since our inception. We have not realized a net operating profit
in any quarter since we began our operations. As of June 30, 2000, we had a
deficit accumulated during the development stage of approximately $110.7
million and working capital of approximately $105.5 million. Our limited
operating history offers little information to serve as a basis for
evaluating us and our long-term prospects. You should consider our prospects
in light of the risks, expenses and difficulties that companies in their
earlier stage of development encounter, particularly companies in new and
rapidly evolving markets, such as online commerce.
To achieve profitability we must, among other things:
- Convince personal computer manufacturers and distributors of movies,
games, financial information and other digital data and electronic
content over the Internet to modify their offerings to be used with
our products and services;
- Convince consumers to choose to order, purchase and accept products
using our products and services;
- Assemble and maintain the necessary resources, especially talented
software programmers;
- Develop partnerships to maximize acceptance of our products and
services; and
- Raise additional capital if necessary to support our operations.
If we do not succeed in these objectives, our business likely will be
materially and adversely affected. We may never achieve, or be able to sustain,
profitability.
WE MAY NOT BE ABLE TO FUND OUR OPERATIONS.
Since we began our operations, we have incurred net losses and
experienced significant negative cash flow from operations. Based on our current
operating plan, we believe we have adequate cash to fund our operations through
at least the end of 2001. However, our actual cash requirements may exceed what
we have anticipated and we may run out of money. We do not know if additional
financing will be available or that, if available, it will be available on
favorable terms. If we issue additional shares of our stock, our stockholders'
ownership may be diluted, or the shares issued may have rights, preferences or
privileges senior to those of our common stock. If we do not have enough money,
we may be unable to continue our operations, develop or enhance our products,
take advantage of future opportunities or respond to competitive pressures.
IF WE ARE UNABLE TO DEVELOP A MARKET FOR OUR PRODUCTS AND SERVICES, OUR
BUSINESS WILL SUFFER.
- 6 -
<PAGE>
The market for our services is still immature and is evolving rapidly.
Our business will suffer if the market does not accept our products and
services. Demand for our products and serviced could drop if:
- providers of products or information in electronic form over the
Internet or personal computer manufacturers refuse to modify their
offerings so that they may be used with our products and service;
- providers of products or information in electronic form over the
Internet refuse to change their business model to allow end-users to
use our technology;
- consumers don't choose to use our technology; or
- competitors develop superior products or services.
To be successful, we must, among other things, prove that our
technology works and complete its development, respond to any competitive
developments, continue to attract, retain and motivate qualified personnel, and
market our technology effectively. We have only recently begun introducing our
technology to the market.
Our technologies have not been accepted as standards. To be successful,
we must obtain widespread acceptance of our technologies, or modify our products
and services to meet whatever industry standards ultimately develop. If we fail
to do either, our business will suffer.
An increasing number of market entrants have introduced or are
developing competing products and services to for delivering and receiving
payment for products or information in electronic form over the Internet.
Critical issues concerning the Internet remain unresolved and may limit the
growth of this type of commerce. Delays in the deployment of improvements to the
infrastructure for Internet access, including higher speed modems and other
access devices, also could hinder the development of the Internet.
With respect to our e-commerce shopping network, consumers may not
see the benefits of purchasing goods and services through our website, and
retail merchants may decide not to continue their relationship with us, or
competitors may offer superior products to route consumer traffic to retail
websites.
For all of these reasons, it remains uncertain whether commerce over
the Internet will continue to grow, our technologies will be generally accepted
as a standard model of this type of commerce, or a significant market for our
products and services will emerge.
OUR BUSINESS WILL NOT GROW IF WE DO NOT KEEP PACE WITH RAPIDLY CHANGING
TECHNOLOGIES.
Because the market in which we operate is characterized by rapidly
changing technology and frequent new product introductions, our success will
depend, among other things, upon our ability to improve our products, to develop
and introduce new products and services that keep pace with technological
developments, to respond to evolving customer requirements and to achieve market
acceptance. If we do not identify, develop, manufacture, market and support new
products and deploy new services successfully, our business will not grow and
our financial results will suffer.
OUR BUSINESS WILL SUFFER IF OUR TECHNOLOGIES ARE NOT COMPATIBLE WITH
POPULAR MODES OF DELIVERY OF PRODUCTS AND INFORMATION IN ELECTRONIC FORM.
We believe that our system is adaptable to most present modes for the
delivery of products and information in electronic form, such as on CD-ROMs,
over the Internet and through telecommunications devices. However, these modes
of delivery of products and information in
- 7 -
<PAGE>
electronic form may be replaced by other distribution technologies that are not
compatible with our technology.
The Internet, and online commerce over the Internet, are at an early
stage of development and are rapidly evolving. While the Internet is expected to
experience substantial growth in the number of users and amount of traffic,
Internet infrastructure may not continue to support the increasing demands
placed on it by this growth. Break-downs and slow-downs in Internet traffic may
slow expansion of its use. Further, the costs of use of the Internet could
increase to a degree that reduces its attraction as a platform for electronic
commerce.
Adequate Internet infrastructure and increased online commerce are
necessary for us to succeed. If the Internet infrastructure and complementary
services are unable to support growth, our business will not grow.
PROBLEMS RELATING TO SECURITY, SYSTEM DISRUPTIONS AND COMPUTER
INFRASTRUCTURE COULD NEGATIVELY AFFECT OUR BUSINESS AND THE BUSINESS OF OUR
CUSTOMERS.
Although we have implemented in our products various security
mechanisms, our products and services may nevertheless be vulnerable to
break-ins, piracy and similar disruptive problems caused by Internet users. Any
of these disruptions would harm our business. Advances in computer capabilities,
new discoveries in the field of security, or other developments may result in a
compromise or breach of the technology we use to protect products and
information in electronic form. Computer break-ins and other disruptions would
jeopardize the security of information stored in and transmitted through the
computer systems of users of our products, which may result in significant
liability to us and may also deter potential customers.
The security, piracy and privacy concerns of existing and potential
customers and electronic content providers, as well as concerns related to
computer viruses, may inhibit the growth of the Internet marketplace generally,
and our customer base and revenues in particular. A party who is able to
circumvent our security measures could misappropriate proprietary electronic
content or cause interruptions in our operations and those of our strategic
partners. We may be required to expend significant capital and other resources
to protect against security breaches or to alleviate problems caused by
breaches. Our attempts to implement contracts which limit our liability to our
customers, including liability arising from a failure of security features
contained in our products and services, may not be enforceable. We currently do
not have product liability insurance to protect against these risks.
COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR BUSINESS.
Our competitors may be able to develop products and services that are
more attractive to customers than our products and services. Many of our
competitors and potential competitors have substantially greater financial and
technical resources, greater name recognition and more extensive customer bases
that could be used to gain market share or product acceptance.
The Wave System competes with conventional information delivery
systems, such as on-line services, subscription services on CD-ROM, and services
on the Internet. We are also aware of other metering systems which compete
directly with the Wave System, and other current and evolving technologies that
provide some of its functionality. The Wave System is subject to competition
from producers of hardware-based controllers. We compete with producers of
software unlocking systems such as Rainbow Technologies, Inc. and Portland
Software. In addition to small companies dedicated to specific solutions, many
large information industry players are forming alliances and attempting to
- 8 -
<PAGE>
take advantage of the information delivery options offered by the Internet. The
Wave System also competes with electronic commerce payment technologies
developed and offered by IBM infoMarket Service, Broadvision Inc., Connect,
Inc., CyberCash, Inc., DigiCash and Open Market, Inc.
Other companies have developed or are developing technologies that are,
or may become, the basis for competitive products in the field of electronic
content distribution. Some of those technologies may have an approach or means
of processing that is entirely different from ours. Existing or new competitors
may develop products that are superior to ours or that otherwise achieve greater
market acceptance than ours.
IF WE DO NOT SUCCESSFULLY DEVELOP AND MAINTAIN OUR RELATIONSHIPS WITH
STRATEGIC PARTNERS, OUR REVENUES COULD GROW MORE SLOWLY THAN EXPECTED.
We depend upon strategic partners in our efforts to establish an
installed base of WaveMeters sufficient to convince content providers to use the
Wave System for delivery of their content. We are dependent upon semiconductor
companies to manufacture functioning WaveMeters in sufficient numbers and at a
low enough cost to enable us to convince manufacturers of personal computers to
incorporate WaveMeters. We are dependent upon electronic content owners to
modify their products to be used with the WaveMeters. These partners may choose
not to use our technology and could develop or market products or technologies
that compete directly with us. We cannot predict whether these third parties
will commit the resources necessary to achieve broad-based commercial acceptance
of our technology. Any delay in the use of our technology by these partners
could have a material adverse impact on the commercial acceptance of our
systems. We have no binding commitments from many of our strategic partners, and
there can be no assurance that we will enter into definitive agreements or that
the terms of such agreements will be satisfactory.
PRODUCT DEFECTS, DEVELOPMENT OR MANUFACTURING DELAYS MAY HARM OUR
BUSINESS.
We may experience delays in the development of our products or the
software, hardware and computing systems underlying our services. In addition,
despite testing by us and potential customers, it is possible that our products
may nevertheless contain errors. These development delays or errors could have a
material adverse effect on our business. Also, manufacturing delays or our
ability to procure products on a timely basis may limit our ability to sell
products.
IF WE LOSE OUR KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR BUSINESS AND GROWTH MAY SUFFER.
We believe that our future success depends upon the continued service
of our key technical and management personnel and on our ability to attract and
retain highly skilled technical, management, sales and marketing personnel. We
are particularly dependent on the skills and contributions of several key
individuals, including Peter J. Sprague and Steven Sprague, each of whom may
voluntarily terminate their employment with Wave at any time and whose departure
would have a material adverse effect on our business. We do not have "key
person" life insurance policies on any of our employees. Our industry is
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. There can be no assurance that our current employees will
continue to work for us or that we will be able to hire any additional personnel
necessary for our growth. Our future success also depends on our continuing
ability to identify, hire, train and retain other highly qualified technical and
managerial personnel. Competition for these employees is intense and increasing.
We may not be able to attract, assimilate or retain qualified technical and
managerial personnel in the future, and the failure of us to do so would have a
material adverse effect on our business.
- 9 -
<PAGE>
WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
AND OTHERS COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS.
Our success depends, in part, on our ability to enjoy or obtain
protection for our products and technologies under United States and foreign
patent laws, copyright laws and other intellectual property laws and to
preserve our trade secrets. We cannot assure you that any issued patents
owned or licensed by us will provide us with adequate protection or will not
be challenged, invalidated, infringed or circumvented.
We rely on trade secrets and proprietary know-how, which we protect, in
part, by confidentiality agreements with our employees and contract partners.
However, our confidentiality agreements may be breached and we may not have
adequate remedies for these breaches. Our trade secrets may also otherwise
become known or be independently discovered by competitors. We also rely on
copyright to prevent the unauthorized duplication of our software and hardware
products. While we have and will continue to protect our software and our
copyright interests, copyright laws may not adequately protect our technology.
We have submitted three trademark registrations and intend to apply for
additional name and logo marks in the United States and foreign jurisdictions,
as appropriate, but we cannot assure you that federal registration of any of
these trademarks will be granted.
CLAIMS THAT OUR TECHNOLOGY MAY INFRINGE PROPRIETARY RIGHTS OF THIRD
PARTIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We are aware of four United States patents, each of which has some
claim that, based upon what we currently know, covers certain material
aspects of our technology. Therefore, the commercialization of our technology
is subject to the rights of the holder of these patents unless we are able to
invalidate or license such claims. Also, the holder of these patents or its
licensees could seek to invalidate the claims of the patent which we have
licensed and therefore be able to commercialize a technology similar to our
technology. We can give no assurance that we would be successful in
invalidating such claims or, in turn, avoid having our claims invalidated.
Any proceeding involving the validity of these patents would be protracted
and costly. If these other four patents are not invalid insofar as their
claims relate to our technology, then we would require a license from the
holder of these patents to commercialize our technology. Due to the
uncertainty as to whether these other patents could be proved to be invalid,
we have engaged in preliminary negotiations with the patents holder to obtain
a license thereunder. The negotiations have so far not produced any agreement
and we cannot assure you that we will be able to obtain a license on
acceptable terms, if at all. Our inability to obtain a license, if needed, on
commercially reasonable terms or to invalidate the claims would have a
material adverse effect on our business and our future operations.
In January 1996, we received notice from a third party that claimed
that our technology infringes upon U.S. and foreign patents it owned. These
patents are also currently being litigated by third parties. We are not involved
in these proceedings. This company offered to license its patents to us. We are
currently obtaining information needed to investigate the merits of this claim.
While we believe that there is a viable argument for non-infringement, if we are
not able to show non-infringement, then we would require a license from this
company to commercialize our technology. We cannot assure you that we would be
able to obtain a license on acceptable terms, if at all. Our inability to obtain
a license, if needed, on commercially reasonable terms would have a material
adverse effect on our business and our future operations.
- 10 -
<PAGE>
REGULATION OF INTERNATIONAL TRANSACTIONS MAY ADVERSELY AFFECT OUR
BUSINESS OVERSEAS.
A variety of U.S. export control laws apply to our technology. We will
require export licenses to export certain of our technology outside North
America. We cannot assure you that we will be able to obtain licenses for our
products. In addition, the regulation of electronic monitoring, transmitting
payment instructions or audited usage and financial information varies from
country to country. We may be subject to different statutory or regulatory
controls in different foreign jurisdictions. Our technology may not be permitted
in foreign jurisdictions. Violations of foreign regulations or regulation of
international transactions could hurt our business.
OUR STOCK PRICE IS VOLATILE.
The price of our Class A common stock has been and likely will continue
to be subject to wide fluctuations in response to a number of events and
factors, such as:
- quarterly variations in operating results;
- variances of our quarterly results of operations from securities
analyst estimates;
- announcements of technological innovations, new products,
acquisitions, capital commitments or strategic alliances by us or our
competitors;
- changes in financial estimates and recommendations by securities
analysts;
- the operating and stock price performance of other companies that
investors may deem comparable to us; and
- news reports relating to trends in our markets.
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced significant price and
volume fluctuations that often have been unrelated to the operating performance
of the companies affected by these fluctuations. These broad market fluctuations
may adversely affect the market price of our Class A common stock, regardless of
our operating performance. Securities class action litigation has often been
instituted against companies that have experienced periods of volatility in the
market price for their securities. If we were to become the target of this kind
of litigation, the cost in dollars and management attention could be
substantial, and the diversion of management's attention and resources could
have a material adverse affect on our business.
WE MAY BE SUBJECT TO CONFLICTS OF INTEREST.
Our Board of Directors has included, and is likely to include in the
future, representatives of our strategic partners. It is possible that those
corporations may be competing against us or each other, directly or indirectly.
A director who also represents another company may voluntarily abstain from
voting on matters where there could be conflicts of interest. Even if such a
director does abstain, his presence on the Board could affect the process or the
results of the Board's deliberations. We have adopted no policies or procedures
to reduce or avoid such conflicts. If such conflicts of interest arise, they may
have a materially adverse effect on our business.
- 11 -
<PAGE>
DISPROPORTIONATE VOTING RIGHTS MAY AFFECT OUR STOCK PRICE.
Our common stock is divided into two classes, Class A common stock and
Class B common stock. Each class has different voting rights. Voting rights of
Class B common stock permit the holders of Class B common stock to block mergers
or similar transactions that are not approved by our Board of Directors and
other transactions submitted to stockholders if any person has acquired more
than 20% of our outstanding Series A common stock. The disproportionate voting
power enjoyed by the Class B common stock holders when voting on questions of
control may dissuade a potential merger partner or acquirer, even if the
majority of the Class A common stock holders wanted the merger or acquisition to
occur, and could depress the market price of the Common Stock.
GOVERNMENTAL REGULATION MAY SLOW OUR GROWTH AND DECREASE OUR
PROFITABILITY.
There are currently few laws or regulations that apply directly to the
Internet. Because our business is dependent in significant respect on the
Internet the adoption of new local, state, national or international laws or
regulations may decrease the growth of Internet usage or the acceptance of
Internet commerce which could, in turn, decrease the demand for our products and
services and increase our costs or otherwise have a material adverse effect on
our business.
Tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in Internet commerce. New state
tax regulations may subject us to additional state sales, use and income taxes.
OUR ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE FUTURE ACQUISITIONS AND
DEPRESS OUR STOCK PRICE.
In addition to the anti-takeover effect of the voting rights granted to
the holders of Class B common stock, a change of control may be delayed,
deferred or prevented by certain provisions of our charter documents, as well as
the Board's ability to issue shares of preferred stock without further vote or
action by the stockholders. In addition, Delaware law restricts certain business
combinations with any "interested stockholder", as defined. This statute may
delay, defer, or prevent a change in control of our company. These provisions
are intended to encourage any person interested in acquiring us to negotiate
with and obtain the approval of our Board of Directors. Certain of these
provisions may discourage a future acquisition not approved by our Board in
which you might receive an attractive value for your shares or that a
substantial number or even a majority of our stockholders might believe to be in
their best interest. As a result, stockholders who desire to participate in such
a transaction may not have the opportunity to do so. All of these factors may
depress the market price of our Class A common stock.
OUR DIVIDEND POLICIES MAY DEPRESS OUR STOCK PRICE.
We have never declared or paid any cash dividends on our common stock.
We currently anticipate retaining all future cash earnings, if any, to fund the
development and growth of our business and we do not anticipate paying dividends
on our common stock for the foreseeable future.
USE OF PROCEEDS
The selling stockholders will receive all of the net proceeds from
sales of the Class A common stock sold pursuant to this prospectus.
- 12 -
<PAGE>
SELLING SECURITY HOLDERS
An aggregate of 1,182,678 shares of Class A common stock are being
registered in this offering for the account of the selling stockholders. Of
these shares 374,889 were issued in connection with the acquisition of
substantially all of the assets of Indigo Networks, LLC, and its e-commerce
shopping network, iShopHere.com on August 31, 2000 which was reported on our
Form 8-K filed on September 15, 2000. In addition, 800,000 of these shares
were issued upon the exercise of a warrant granted to Red Wave, PLC (formerly
Internet Technology Group, PLC) in connection with the formation of a joint
venture to promote and commercialize the Wave technology in certain European
and Middle Eastern Markets. Presently, we own 40% of the joint venture, and
Red Wave, PLC owns 60%. We granted registration rights with respect to these
shares. We agreed to bear expenses, other than fees and expenses of counsel
to the selling stockholders, in connection with the registration and sale of
these shares. See "Plan of Distribution."
The following table sets forth the names of the selling stockholders,
the number of shares of Class A common stock each of the selling stockholders
beneficially owns, the number of shares which may be offered for resale pursuant
to this prospectus, and the number of shares that will be owned by each selling
stockholders after the completion of this offering.
As of June 30, 2000, there were 45,909,925 shares of Class A common
stock outstanding. The shares offered by this prospectus may be offered from
time to time, in whole or in part, by the selling stockholders or their
transferees. No selling stockholder has held any position nor had any material
relationship with us or our affiliates during the past three years, except where
noted.
The information included below is based upon information provided by
the selling stockholders. Because the selling stockholders may offer all, some
or none of their shares, we cannot provide a definitive estimate as to the
number of shares that the selling stockholders will hold after the offering.
Beneficial ownership is calculated in accordance with the rules of
the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person, and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person
that are currently exercisable or become exercisable within 60 days following
September 21, 2000 are deemed outstanding ("Currently Exercisable
Option/Warrant Shares"). However, these shares are not deemed outstanding for
the purpose of computing the percentage ownership of any other person. Unless
otherwise indicated, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned After the
Offering
--------------------
Shares
Beneficially
Owned Prior to Shares Being
Selling Security Holder the Offering Offered Number Percent
----------------------------------------------------------- -------------- ------------ ------ -------
<S> <C> <C> <C> <C>
Blue Windup, LLC 374,889 374,889 0 0%
Red Wave, PLC (1) 800,000 800,000 0 0%
Gustin Partners, LTD 7,789 7,789 0 0%
</TABLE>
(1) These shares were issued upon the exercise of a warrant granted to Red
Wave, PLC (formerly Internet Technology Group, PLC) in connection with
the formation of a joint venture to promote and commercialize the Wave
technology in certain European and Middle Eastern Markets.
- 14 -
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of Class A common stock offered in this
prospectus on behalf of the selling stockholders. As used in this prospectus,
the term selling stockholder includes pledgees, donees, transferees or other
successors-in-interest selling shares received from a selling stockholder as a
gift, partnership or liquidating distribution or other non-sale related transfer
after the date of this prospectus. We will pay all expenses of registration of
the shares offered, except for taxes or underwriting fees, discounts, selling
commissions and legal fees of selling stockholders. Each selling stockholder
will pay any brokerage commissions and similar selling expenses attributable to
the sale of the shares. We will not receive any of the proceeds from the sale of
the shares by the selling stockholder.
The selling stockholders may sell the shares from time to time in one
or more types of transactions, including block transactions, on one or more
exchanges, in the over-the-counter market, in negotiated transactions, through
put or call options transactions relating to the shares, through short sales of
the shares, or a combination of these methods of sale. The selling stockholders
may sell their shares at market prices prevailing at the time of sale, or at
negotiated prices.
The selling stockholders may use brokers or dealers to sell their
shares. As of the date of this prospectus, we have not been advised by any
selling stockholders that he, she or it has made any arrangements as to the
distribution of shares covered by this prospectus.
The selling stockholders may sell their shares directly to purchasers
or to or through broker-dealers, which may act as agents or principals. These
broker- dealers may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders and/or the purchasers of shares for
whom broker-dealers may act as agents or to whom they sell as principal, or
both. Compensation as to a particular broker-dealer might be in excess of
customary commissions.
The selling stockholders and any broker-dealers that act in connection
with the sale of the shares might be deemed to be "underwriters" as the term is
defined in Section 2(11) of the Securities Act of 1933. Consequently, any
commissions received by these broker-dealers and any profit on the resale of the
shares sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act of 1933.
Because the selling stockholders may be deemed to be "underwriters" as
defined in Section 2(11) of the Securities Act of 1933, the selling stockholders
will be subject to the prospectus delivery requirements of the Securities Act of
1933, as amended.
A selling stockholders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act
of 1933, provided that he, she or it meets the criteria and conforms to the
requirements of that Rule.
Upon being notified by a selling stockholder that he, she or it has
entered into any material arrangement with a broker-dealer for the sale of the
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, we will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under the
Securities Act of 1933, regarding the plan of distribution.
- 15 -
<PAGE>
We have agreed to indemnify certain of the selling stockholders against
certain liabilities, including liabilities arising under the Securities Act of
1933, or to contribute to payments which these selling stockholders may be
required to make in respect hereof. These selling stockholders have agreed to
indemnify us against certain liabilities, including liabilities arising under
the Securities Act of 1933, as amended.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
Wave Systems by Bingham Dana LLP, New York, New York.
EXPERTS
The consolidated financial statements of Wave Systems Corp. and
Subsidiaries (a development stage corporation) as of December 31, 1999 and
1998, and for each of the years in the three-year period ended December 31,
1999 have been included herein by reference and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, upon the authority of said firm as experts in accounting and
auditing.
- 16 -
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the periodic filing requirements of the Securities
Exchange Act of 1934. Further to our obligations under the Exchange Act, we file
reports, proxy and information statements and other information with the
Securities and Exchange Commission. These reports, proxy and information
statements and other information may be inspected and copied at the public
reference facilities of the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices of the Securities and Exchange Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials also can
be obtained from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
prescribed fees. The Securities and Exchange Commission also maintains a site on
the World Wide Web that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission (including Wave systems). The address of this
site is http://www.sec.gov.
We have filed a registration statement on Form S-3 with the Securities
and Exchange Commission to register under the Securities Act of 1933 the
securities that this prospectus offers. In accordance with the rules and
regulations of the Securities and Exchange Commission, portions of the
registration statement have been omitted from this prospectus. Therefore, this
prospectus contains only some of the information in the registration statement.
If you would like more information about Wave Systems and the securities this
prospectus offers, please refer to the registration statement, which is on file
at the offices of the Commission. You may obtain copies of these documents upon
payment of the fee, or you may examine them without charge at the offices or via
the Web site. When we discuss other documents in this prospectus, we may not
provide all of the information about or contained in those other documents. You
should not rely upon this prospectus to provide a complete discussion of the
contents of other documents. You should refer to those other documents yourself.
Whenever we discuss the contents of other documents, we qualify our statements
in all respects by reference to the applicable documents on file with the
Commission.
In addition to historical information, this prospectus and the
registration statement contain forward-looking statements within the meaning of
the Securities Litigation Reform Act of 1995. These statements and projections
about the future involve risks and uncertainties. As a result, we may not be
able to accurately predict the future and our actual results may turn out to be
materially different from what we anticipate and discuss in this prospectus. In
addition, we operate in an industry segment where securities prices may
fluctuate dramatically and may be influenced by regulatory and other factors
beyond our control. We discuss some of the factors which we believe to be
important in the cautionary statements that accompany the forward-looking
statements and in the risk factors section of this prospectus, as well as in the
risk factors detailed in the other filings we have made with the Securities and
Exchange Commission during the past 12 months. Whenever you assess a
forward-looking statement in this prospectus, we urge you to read carefully all
of the risk factors and cautionary statements in this prospectus, as well as
those in our other filings with the Securities and Exchange Commission.
- 17 -
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate into this prospectus information we
file with the SEC in other documents. The information incorporated by reference
is considered to be part of this prospectus and information we later file with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934
until all of the shares of common stock that are part of this offering have been
sold. The documents we have incorporated by reference are:
our Annual Report on Form 10-K for the year ended December 31, 1999;
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
our Current Report on Form 8-K filed with the SEC on September 15,
2000; and
the description of our common stock contained in our Registration
Statement on Form 8-A.
You may request a copy of these filings at no cost by writing or
telephoning Wave Systems Corp., 480 Pleasant Street, Lee, Massachusetts 01238,
(413) 243-1600.
- 18 -
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES
EXHIBIT NO. DESCRIPTION OF EXHIBIT
5 -- Opinion of Bingham Dana LLP with respect to the
legality of the shares being offered
23.1 -- Consent of Bingham Dana LLP (included as part of
Exhibit 5 hereto)
23.2 -- Consent of KPMG LLP, Independent Certified
Public Accountants
24 -- Power of Attorney (included on the signature
page hereto)
--------------------------
(b) Financial Statement Schedules:
All schedules have been omitted since they are either not required or
not applicable.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(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; and (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 the offering.
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 therefore is 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.
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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Lee, Commonwealth of Massachusetts,
on the 21st day of August, 2000.
Wave Systems Corp.
By: ______________________________
Name: Steven Sprague
Title: President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Peter J. Sprague and Steven
Sprague and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective 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, 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 full to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman and Director September 21, 2000
-----------------------------------
Peter J. Sprague
President, Chief Executive Officer September 21, 2000
----------------------------------- and Director
Steven Sprague
Director September 21, 2000
-----------------------------------
John E. Bagalay, Jr.
Director September 21, 2000
-----------------------------------
Nolan Bushnell
Director September 21, 2000
-----------------------------------
George Gilder
Director September 21, 2000
-----------------------------------
John E. McConnaughy, Jr.
Senior Vice President, Finance September 21, 2000
----------------------------------- and Administration, Chief Financial
Gerard T. Feeney Officer and Secretary (Principal
Accounting Officer)
</TABLE>
II-3
