PROSPECTUS
VISUAL DATA CORPORATION
2,638,540 Shares
Common Stock
This Prospectus (the "Prospectus") relates to the offer and sale of up
to 2,638,540 shares (the "Shares") of Common Stock, $.0001 par value per share
(the "Common Stock") of Visual Data Corporation (the "Company") by certain of
the selling shareholders named herein (the "Selling Security Holders"). Of the
2,638,540 Shares, (i) up to 1,000,000 Shares are issuable upon conversion of or
otherwise with respect to 300 shares of the Company's Series A Convertible
Preferred Stock (the "Series A Preferred"), (ii) up to 1,000,000 Shares are
issuable upon conversion of or otherwise with respect to 150 shares of the
Company's Series A-1 Convertible Preferred Stock (the "Series A-1 Preferred"),
(iii) an aggregate of 421,665 Shares are currently owned by certain of the
Selling Security Holders, and (iv) 216,875 Shares are issuable upon exercise of
outstanding stock options or warrants at prices ranging from $3.00 to $5.00 per
share (the "Selling Security Holders Options and Warrants") granted by the
Company to unaffiliated third parties in connection with services rendered to
the Company or in connection with the Company's acquisition of EDnet. See "The
Company", "Selling Security Holders" and "Description of Securities."
The number of Shares indicated as being issuable upon the conversion of
the Series A Preferred or the Series A-1 Preferred represents the number of
Shares the Company was contractually obligated to register pursuant to the terms
and conditions of each transaction. Each share of the Series A Preferred and the
Series A-1 Preferred is convertible into the Company's Common Stock at a price
per share equal to the lesser of (i) $2.865, subject to adjustment or (ii) a
floating conversion price determined by multiplying a Conversion Percentage in
effect as of such date by the Market Price for the Company's Common Stock. The
Conversion Percentage shall be 83.72% for the first 180 days from the issuance
date of the Series A Preferred Stock and 78.72% for any day thereafter. The
Market Price for the Company's Common Stock shall be the average of the three
lowest closing bid prices for such Common Stock during the 20 consecutive
trading days immediately preceding such date.
Pursuant to Rule 416, the number of shares of Common Stock to be
registered hereunder also includes an indeterminate number of shares which may
become issuable upon conversion of, or otherwise with respect to, the Series A
Preferred, Series A-1 Preferred and the Selling Security Holders Options and
Warrants to prevent dilution resulting from stock splits, stock dividends or
similar transactions in accordance with the terms thereof. See "Description of
Securities" and "Selling Security Holders."
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE 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 November 3, 1998
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The Selling Security Holders have advised the Company that they propose
to sell the Shares, from time to time, publicly or through broker-dealers as
agents for others, or in private sales. See "Selling Security Holders" and "Plan
of Distribution." The Company has informed the Selling Security Holders that the
anti-manipulative rules under the Securities Exchange Act of 1934 (the "Exchange
Act"), including Regulation M promulgated thereunder, may apply to their sales
in the market and have furnished the Selling Security Holders with a copy of
these rules. The Company has also informed the Selling Security Holders of the
need for delivery of copies of this Prospectus in connection with any sale of
securities registered hereunder.
Although the Company will receive the proceeds from the sale of an
additional 150 shares of Series A Preferred and upon the exercise of Selling
Security Holders Options and Warrants, the Company will not receive any of the
proceeds from the sale by the Selling Security Holders of the Shares being
registered for resale by this Prospectus.
The Company will pay all offering expenses of this offering including
the Securities and Exchange Commission ("Commission") registration fee, legal
fees and expenses, blue sky fees, accounting fees and expenses, printing
expenses and miscellaneous expenses estimated to be $42,000, but will not pay
discounts or commissions incurred by the Selling Security Holders in connection
with the sale of the Shares.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Reports, proxy statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of this material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
Web site at http//www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the resale of the securities described
herein. This Prospectus, which is Part I of the Registration Statement, omits
certain information contained in the Registration Statement. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement, including the
exhibits thereto. Statements in this Prospectus as to any document are not
necessarily complete, and where any such document is an exhibit to the
Registration Statement or is incorporated by reference herein, each such
statement is qualified in all respects by the provisions of such exhibit or
other document, to which reference is hereby made, for a full statement of the
provisions thereof. A copy of the Registration Statement, with exhibits, may be
obtained from the Commission's office in Washington, D.C. (at the
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above address) upon payment of the fees prescribed by the rules and regulations
of the Commission, or examined there without charge, or from the Commission's
Web site at http://www.sec.gov.
TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION............................................................................ 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................................ 4
RISK FACTORS..................................................................................... 5
THE COMPANY...................................................................................... 13
USE OF PROCEEDS.................................................................................. 19
SELLING SECURITY HOLDERS ........................................................................ 20
PLAN OF DISTRIBUTION............................................................................. 24
DESCRIPTION OF SECURITIES........................................................................ 26
LEGAL MATTERS.................................................................................... 35
EXPERTS.......................................................................................... 35
INDEMNIFICATION.................................................................................. 35
</TABLE>
The Common Stock and Warrants are traded on The Nasdaq SmallCap Market
(TM) under the symbols "VDAT" and "VDATW," respectively. On November 3, 1998 the
last sale price of the Common Stock and Warrants, as reported on The Nasdaq
SmallCap Market(TM), were $3.00 and $.5625, respectively.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
contained in this Prospectus, and if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Selling Security Holders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof.
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The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports and other information
with the Commission.
The Company has previously and intends in the future to furnish its
stockholders with annual reports containing audited financial statements and to
distribute quarterly reports containing unaudited summary financial information
for each of the first three quarters of each fiscal year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated
herein by reference:
1. Report on Form 8-K as filed by the Company on June 3, 1998.
2. Report on Form 8-K as filed by the Company on May 19, 1998.
3. Quarterly Reports of the Company on Form 10-QSB for the quarters and
periods ended December 31, 1997, March 31, 1998 and June 30, 1998.
4. Definitive Proxy Statement for the Company's 1998 Annual Meeting as
filed by the Company on March 30, 1998.
5. Annual Report of the Company on Form 10-KSB for the fiscal year ended
September 30, 1997.
6. Registration Statement on Form SB-2, Registration No. 333-18819, and all
pre-effective and post-effective amendments thereto, as declared effective
by the Commission on July 30, 1997.
7. Definitive Proxy Statement for a Special Meeting of Stockholders to be
held on October [19], 1998 as filed with the Commission on July 31,
1998.
8. Report on Form 8-K as filed on August 11, 1998.
9. Report on Form 8-K as filed on August 21, 1998.
10. Report on Form 8-K/A as filed on October 7, 1998.
11. Report on Form 8-K/A as filed on October 30, 1998.
12. All reports and documents filed by the Company pursuant to Sections 13,
14 or 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered
hereby have been sold or which de-registers all securities then
remaining unsold, shall be deemed to be incorporated by reference
herein and to be a part hereof from the respective date of filing of
such documents.
Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein
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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
statement modified or superseded shall not be deemed, except as so modified or
superseded, to constitute part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of the Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated by
reference in this Prospectus, other than exhibits to such documents. Written
requests for such copies should be directed to Corporate Secretary, Visual Data
Corporation at the Company's principal executive office, 1291 SW 29 Avenue,
Pompano Beach, Florida 33069, Telephone (954) 917-6655, Facsimile (954)
917-6660.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE THESE
SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION,
SHOULD CAREFULLY READ THIS PROSPECTUS AND CONSIDER, ALONG WITH OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS.
Forward Looking Statements
The discussion in this Prospectus regarding the Company and its
business and operations includes "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1996. Such statements consist
of any statement other than a recitation of historical fact and can be
identified by the use of forward-looking terminology such as "may," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The reader is cautioned that all
forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward looking statements. The
discussion below highlights some of the more important risks regarding the
Company. The risks highlighted below should not be assumed to be the only things
that could affect future performance. The Company does not have a policy of
updating or revising forward-looking statements and thus it should not be
assumed that silence by management of the Company over time means that actual
events are bearing out as estimated in such forward looking statements.
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Risks Related to the Company's Acquisition Strategy
The Company's strategy is to increase its revenue and the markets it
serves through the acquisition of media developers with emphasis on developers
of video media. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional companies or successfully
integrate the operations of additional companies into those of the Company
without encountering substantial costs, delays or other problems. In addition,
there can be no assurance that companies acquired in the future will achieve
profitability that justify the Company's investment in them or that acquired
companies will not have unknown liabilities that could materially adversely
effect the Company's results of operations or financial condition. The Company
may compete for acquisition and expansion opportunities with companies that have
greater resources than the Company. There can be no assurance that suitable
acquisition candidates will continue to be available, that financing for
acquisitions will be obtainable on terms acceptable to the Company, that
acquisitions can be consummated or that acquired businesses can be integrated
successfully and profitably into the Company operations. Further, the Company's
results of operations in fiscal quarters immediately following a material
acquisition may be materially adversely effected while the Company integrates
the acquired business into its existing operations. The Company may acquire
certain businesses that have either been unprofitable or that have had
inconsistent profitability prior to their acquisition. The inability of the
Company to improve the profitability of these acquired businesses could have a
material adverse effect on the Company. Finally, the Company's acquisition
strategy places significant demands on the Company's resources and there can be
no assurance that the Company's management, operational systems and structure
can be expanded to effectively support the Company's continued acquisition
strategy. If the Company is unable to implement successfully its acquisition
strategy, this inability may have a material adverse effect on the Company's
business, results of operations or financial condition.
Dependence on Management to Integrate the Acquisitions and Ability to Manage
Growth
The business strategy of the Company involves growth through
acquisition and internal development. The Company is subject to various risks
associated with its growth strategy, including the risk that it will be unable
to identify and recruit suitable acquisition candidates in the future or to
integrate and manage the acquired companies.
The Company has recently completed its acquisition of 51% of EDnet,
Inc. ("EDnet"), as well as the acquisition of certain other assets, and is in
the process of integrating these operations into the Company. While the business
plan of EDnet is similar, its history, geographical location, business model and
business culture is different in many respects. The directors and senior
management of the Company face a significant challenge in their efforts to
integrate the businesses of the Company and the acquired companies or assets,
and effectively manage the continued growth of the Company. While
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management of the Company believes that the diverse experience of the Company
and the acquired company will strengthen the Company, there can be no assurance
that management's efforts to integrate the operations of this acquired company
and assets will be successful, that management can manage the Company's growth
or that the anticipated benefits of the acquired company or assets will be fully
realized. The dedication of management resources to such efforts may detract
attention from the day-to-day business of the Company. There can be no assurance
that there will not be substantial costs associated with such activities or the
success of integration efforts, which could have a material adverse effect on
the Company's operating results.
Absence of Profitability; Accumulated Deficit; Prior Loss; Future Operating
Results
Although the Company has achieved increased levels of revenues to date
during fiscal 1998 from those reported for the year ended September 30, 1997,
the Company continues to incur operating losses. For the year ended September
30, 1997 and nine months ended June 30, 1998, the Company incurred losses of
$3,573,962 and $1,908,779 (unaudited), respectively. The Company's operating
expenses have increased and can be expected to increase significantly in
connection with the Company's recent acquisitions and continued proposed
expansion and, accordingly, the Company's future profitability will depend on
continued corresponding increases in revenues from operations. Future events,
including unanticipated expenses, increased competition or inability to
effectively integrate its acquisitions, could have an adverse affect on the
Company's operating margins and results of operations. As a result of the
Company's losses from operations, together with the costs associated with
acquisitions, the Company may experience liquidity and cash flow problems if it
is not able to raise additional capital as needed. There can be no assurance
that the Company's rate of revenue growth will continue in the future or that
the Company's future operations will be profitable.
Need for Additional Financing
The Company currently intends to effect future acquisitions with cash,
promissory notes and future issuances of debt or equity securities. There can be
no assurance that the Company will be able to obtain financing if and when it is
needed on terms the Company deems acceptable. The inability of the Company to
obtain financing would have a material adverse effect on the Company's ability
to implement its acquisition strategy, and as a result, could require the
Company to diminish or suspend its acquisition strategy.
Risks Relating to Capital Requirements
The Company's acquisition and internal growth strategy requires
substantial capital investment. Capital is typically needed not only for the
acquisition of additional companies, but also for the effective integration,
operation and expansion of these businesses as well as the start-up of on-line
multi-media libraries. The acquired businesses may require capital for working
capital and expansion. Therefore, the Company will need to raise capital,
possibly through the issuance of long-term or short-term indebtedness or the
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issuance of its equity securities in private or public transactions in order to
complete further acquisitions and expansion. This could result in dilution of
existing equity positions and increased interest expense. There can be no
assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing operations can be obtained on suitable
terms, if at all.
Competition
The Company is engaged in a highly competitive segment of the industry.
The Company may compete directly or indirectly with many companies who provide
specialized information such as content concerning hotels, attractions, resorts
and care facilities. A number of these competitors, who include hotel chains,
airlines and other travel-related organizations, are larger, better capitalized,
more established and have greater access to the resources necessary to produce a
competitive advantage. There are no assurances that the Company will be able to
compete favorably in the future.
Dependence on Key Personnel
Implementation of the Company's acquisition strategy is largely
dependent on the efforts of a few senior officers. In particular, the Company's
operations are dependent to a great degree on the continued efforts of the
President and Chief Executive Officer of the Company, Randy S. Selman, and the
Executive Vice President of the Company, Alan M. Saperstein. Furthermore, the
Company will likely be dependent on the senior management of companies that are
acquired. Competition for highly qualified personnel is intense, and the loss of
any executive officer or other key employee, or the failure to attract and
retain other skilled employees, could have a material adverse effect upon the
Company's business, results of operations or financial condition. The Company is
a party to employment agreements with each of Messrs. Selman and Saperstein.
Each of the employment agreements terminate in January 2001, unless terminated
earlier pursuant to the agreements, and each contains confidentiality provisions
and covenants not to compete. The Company has designated itself the beneficiary
of key man life insurance in the amount of $1,000,000 on the life of Mr. Selman
and $500,000 on the life of Mr. Saperstein. There can be no assurance, however,
that the Company can maintain the polices in effect or that the coverage will be
sufficient to compensate the Company for the loss of the services of Mr. Selman
or Mr. Saperstein.
Government Regulation and Regulatory Uncertainties
The Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access to
or commerce on the Internet. However, due to the increasing popularity and use
of the Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
pricing, characteristics and quality of products and services.
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Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, libel and personal
privacy is uncertain. Any such new legislation or regulation could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Exercise of Warrants and Conversion of Series A Convertible Preferred Stock Will
Have Dilutive Effect
As of September 30, 1998 the Company has options and warrants to
purchase a total of 3,110,451 shares of Common Stock at prices ranging between
$.00016 and $8.40 per share, including 1,049,460 options issued to directors and
members of management of the Company. The existence of such options and warrants
may adversely affect the terms under which the Company could obtain additional
equity capital. The exercise of these warrants and options may materially
adversely affect the market price of the Common Stock.
Further, as of September 30, 1998, 150 shares of the Company's Series A
Preferred were issued and outstanding pursuant to a private placement of such
securities in May 1998 and 150 shares of the Company's Series A-1 Preferred were
issued and outstanding pursuant to a private placement of securities in August
1998. As of the date of this Prospectus, each of the Series A Preferred and
Series A-1 Preferred are convertible into the Company's Common Stock at a price
equal to the lesser of (i) $2.865, subject to adjustment, or (ii) a floating
conversion price determined by multiplying a Conversion Percentage in effect as
of such date by the Market Price for the Company's Common Stock. The conversion
percentage shall be 83.72% for the first 180 days from the issuance date of the
Series A Preferred Stock and 78.72% for any day thereafter. The Market Price for
the Company's Common Stock shall be the average of the three lowest closing bid
prices for such Common Stock during the 20 consecutive trading days immediately
preceding such date. The Company is obligated to sell the holders of the Series
A Preferred an additional 150 shares providing that the Company's shareholders
approve the issuance thereof. In this regard, the Company held a Special Meeting
of it Shareholders on September 4, 1998 where in the Company's shareholders
approved the possible issuance of Common Stock in excess of 19.99% of the
presently issued and outstanding Common Stock as required by Rule 4460(i)(1)(D)
of The Nasdaq Stock Market, Inc. Nasdaq Marketplace Rules. See "Incorporation of
Certain Information by Reference." Accordingly, the ultimate number of shares of
Common Stock into which the shares of Series A Preferred are convertible is
unknown at this time. However, based upon (i) a closing bid price of $2.2710
per share (the closing bid price of the Company's Common Stock being the average
of the three lowest closing bid prices of the Company's Common Stock as reported
on The Nasdaq Small Cap Market(TM) during the preceding 20 consecutive trading
days preceding November 3, 1998), (ii) a conversion on November 3, 1998 and
(iii) assuming the conversion of all 300 shares of Series A Preferred and 150
shares of Series A-1 Preferred, the Company would issue an additional 824,686
shares of Common Stock to the Series A Preferred holders and an additional
424,354 shares of Common Stock to the Series A-1 Preferred holders. The 824,686
shares of Common Stock issuable upon the conversion of the Series A Preferred
would represent approximately
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22.1% of the currently issued and outstanding Common Stock, or approximately
18.1% of the Company's issued and outstanding Common Stock, giving proforma
effect to such issuance. The 424,354 shares of Common Stock issuable upon the
conversion of the Series A-1 Preferred would represent approximately 11.4% of
the currently issued and outstanding Common Stock, or approximately 10.2% of
the Company's issued and outstanding Common Stock, giving proforma effect to
such issuance. The amount of shares and percentage of Common Stock ultimately
issuable upon conversion of all 300 shares of Series A Preferred and the 150
shares of Series A-1 Preferred may increase or decrease substantially, depending
on changes in the closing bid price of the Company's Common Stock and other
anti-dilutive provisions contained in the Series A Preferred and Series A-1
Preferred. See "Description of Securities."
Possible Applicability of Rules Relating to Low-Priced Stocks; Penny Stock;
Possible Failure to Maintain Criteria for Nasdaq Securities
The Company's Common Stock and Warrants are traded on The Nasdaq
SmallCap Market(TM) under the symbols "VDAT" and "VDATW", respectively. If, for
any reason, the Common Stock and/or Warrants do not remain accepted for
inclusion on The Nasdaq SmallCap Market(TM), then, in such case, the Company's
Common Stock and/or Warrants would be expected to trade in the over-the-counter
markets through the "pink sheets" or on the NASD's OTC Bulletin Board. In the
event the Common Stock and/or Warrants were not included on The Nasdaq SmallCap
Market(TM), the Company's Common Stock and/or Warrants would be covered by a
Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of purchasers in this offering to sell their shares in
the secondary market. The ability of the Company to secure a symbol on The
Nasdaq SmallCap Market(TM) does not imply that a meaningful trading market in
its Common Stock or Warrants will ever develop, or, if developed, will be
sustained.
Shares Eligible for Future Sale
As of September 30, 1998, there were 3,732,100 shares of the Company's
Common Stock outstanding, of which approximately 2,499,100 were "restricted
securities" as that term is defined by Rule 144 under the Securities Act,
including 1,182,681 shares registered under an Alternate Prospectus in the
Company's initial public offering in July 1997. See "Incorporation of Certain
Information by Reference." Such shares will be eligible for public sale only if
registered under the Securities Act or if sold in accordance with Rule 144.
Under Rule 144, a person who is not an affiliate of the Company and who has held
restricted securities for a period of one year may sell a limited number of
shares to the
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public in ordinary brokerage transactions. Sales under Rule 144 may have a
depressive effect on the market price of the Company's Common Stock due to the
potential increased number of publicly held securities. The timing and amount of
sales of Common Stock covered by the Registration Statement of which this
Prospectus is a part, as well as sales pursuant to other filed registration
statements, could also have a depressive effect on the market price of the
Company's Common Stock.
Anti-Takeover Provisions; Possible Issuances of Preferred Stock
Certain provisions of the Company's Articles of Incorporation and
Bylaws may be deemed to have anti-takeover effects and may delay, defer or
prevent a takeover attempt of the Company, which include when and by whom
special meetings of the Company may be called. In addition, certain provisions
of the Florida Business Corporation Act also may be deemed to have certain
anti-takeover effects which include that control of shares acquired in excess of
certain specified thresholds will not possess any voting rights unless these
voting rights are approved by a majority of a corporation's disinterested
shareholders. In addition, the Company's Articles of Incorporation authorize the
issuance of up to 5,000,000 shares of preferred stock with such rights and
preferences as may be determined from time to time by the Board of Directors, of
which 4,999,550 shares remain without designation. Accordingly, while the
Company has agreed not to issue any shares of preferred stock while the Series A
Preferred and Series A-1 Preferred is outstanding, thereafter the Board of
Directors may, without shareholder approval, issue preferred stock with
dividends, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock or other classes of preferred stock. See "Description of Securities."
Further, the Company's Articles of Incorporation, Bylaws and Florida
law authorize the Company to indemnify its directors, officers, employees and
agents and limit the personal liability of corporate directors for monetary
damages, except in certain instances.
See "Indemnification."
Absence of Dividends
Holders of the Company's Common Stock are entitled to cash dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. However, pursuant to the respective designations, rights and
preferences of the outstanding Series A Preferred and Series A-1 Preferred, the
Company has agreed to not directly or indirectly, redeem or declare or pay any
cash dividend or cash distribution on its Common Stock without the express
written consent of the holders of not less than two-thirds of the then
outstanding shares of Series A Preferred and two-thirds of the then outstanding
shares of Series A-1 Preferred. See "Description of Securities." The Company has
never paid dividends and management of the Company does not anticipate the
declaration or payments of any dividends in the foreseeable future. The Company
intends to retain earnings, if any, to finance the developments and expansion of
its business. Future dividend policy will be subject to the discretion of the
Board of Directors and will be
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contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and other factors. Therefore,
there can be no assurance that cash dividends of any kind will ever be paid.
Volatility of Stock Price
Historically there has been and there may continue to be volatility in
the market price for the Company's Common Stock. Quarterly operating results of
the Company and their relationship to analysts' projections, changes in general
conditions in the economy, the financial markets or the marketing industry, or
other developments affecting the Company or its competitors, could cause the
market price of the Common Stock to fluctuate substantially.
Year 2000 Compliance
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The Year 2000 issue
relates to whether computer systems will properly recognize and process
information relating to dates in and after the year 2000. These systems could
fail or produce erroneous results if they cannot adequately process dates beyond
the year 1999 and are not corrected. Significant uncertainty exists in the
software industry concerning the potential consequences that may result from the
failure of software to adequately address the Year 2000 issue. The Company has
reviewed all software and hardware used internally by the Company in all support
systems to determine whether they are Year 2000 compliant. Most of the Company's
software has already been upgraded by the manufacturer or was recently purchased
and is Year 2000 compliant. The Company expects to have its remaining Year 2000
compliant systems in place by December 1998. The Company also intends to
implement and test these solutions prior to any anticipated impact of the Year
2000 issue on these systems. The Company does not believe that the aggregate
cost for the Year 2000 issue will be material. The Company, however, cannot
predict the effect of the Year 2000 issue on entities with which the Company
transacts business, and there can be no assurance that the effect of the Year
2000 issue on such entities will not have a material adverse effect on the
Company's business, financial condition or results of operations. The Company
will be formulating a contingency plan with respect to such entities with which
it does business.
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<PAGE>
THE COMPANY
Visual Data Corporation, a Florida corporation (the "Company"), was
formed in May 1993 with the goal of becoming the predominant digital multi-media
content provider in the advertising industry. In August 1997, one year after
exiting from its development stage activities, the Company completed its initial
public offering. As used herein, the Company includes HotelView Corporation, a
Florida corporation ("HVC") incorporated in September 1993, CareView
Corporation, a Florida corporation ("CareView") incorporated in August 1997,
Video News Wire Corporation, a Florida corporation ("Video NewsWire")
incorporated in March 1998 and ResortView Corporation, a Florida corporation
("ResortView") incorporated in December 1997, all of which are wholly-owned
subsidiaries of the Company.
The Company develops digital multi-media libraries of interactive
visual information which can be marketed and distributed through a variety of
media, including the Internet, other On-line services, laser disc, DVD and,
eventually, Interactive Television ("ITV"). Much like a magazine selling
advertising space, the Company generates revenues through fees paid by companies
which advertise and showcase their products in one of the Company's innovative
multi-media libraries, each of which are targeted to a specific industry, such
as travel, health care and interval ownership. Each of the libraries, or
"Views," is essentially a marketing company designed to distribute advertising
over new, non-traditional media, supplementing traditional advertising media
such as print, television and radio. Unlike traditional advertising which is
essentially passive, the use of non-traditional media should, in management's
opinion, allow the Company's messages to have greater impact and higher recall
because of the active interface between the advertiser and the consumer and the
proactive nature of the medium. The ability of the product to be revisited at
the consumer's discretion, combined with the detail of the message provided by
the video, will also permit a more aggressive promotion by the advertiser (the
Company's client) by allowing the client the opportunity to supplement their
traditional advertising, broaden reach and frequency, and, hopefully, improve
market position.
The Company's current libraries include:
HotelView(R), www.hotelview.com, a full-motion video library containing
informative vignettes on internationally known hotels and resorts in the United
States as well as internationally, including in the Caribbean, Bermuda and
Europe. HotelView(R) provides the consumer with an inside look at accommodations
and amenities of select hotels before booking a reservation. Maps, showing
distances to nearby attractions and airports are also provided.
AttractionView(TM), www.attractionview.com, a full-motion video library
containing informative vignettes on theme parks, attractions, and other points
of interest. AttractionView(TM) provides the consumer a quick view of
attractions such as Knott's Berry Farm Theme Park,
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<PAGE>
the Kennedy Space Center Spaceport, the Bronx Zoo and Busch Gardens Tampa in a
commercial-like format.
Video News Wire(TM), www.videonewswire.com, creates a full motion "TV news like"
video clip of a company's written press release, digitizes the clip and makes
the Video News release available to anyone via the Internet. Using the Company's
worldwide camera crew network, Video News Wire(TM) videotapes press conferences
and events incorporating them into each press release. As hereinafter described,
in March 1998 the Company signed an exclusive production and marketing agreement
with PR Newswire Corporation, the world's leading electronic distributor of
corporate news releases.
ResortView(TM), www.resortview.com, a video library of condominium/timeshare
resort properties available from all over the world. Professional,
easy-to-understand, narrated video "walking tours" allow a viewer to see the
accommodations from studios to three-bedroom units, and include a clear picture
of the lobby, restaurant/lounges, pool and beach, sports and exercise facilities
available at a particular location. As hereinafter described, in March 1998,
ResortView(TM) formed a strategic alliance with Interval International, Inc., a
Miami, Florida based company with 31 offices worldwide, which provides
developers of high quality vacation-ownership resorts with a full range of
services and solutions, including vacation exchange, program design, sales and
marketing tools, technology and operational support.
CareView(TM), which assists viewers in choosing adult care facilities, from
assisted living apartment to full care nursing homes, is currently available on
PC-based kiosks located in hospitals, with access to the Internet scheduled for
the fourth quarter of 1998.
The Company currently has eight additional libraries in various stages
of development, including:
CruiseView, which will permit viewers to "see before you go to sea" giving
cruise lovers a glimpse at each ship's cabins, on-board activities, dining rooms
and itinerary maps.
CampusView will provide a video database of American colleges and universities
permitting students and parents with a "magna-cum-helpful" look at each school's
facilities, programs and campus life.
AdventureView(TM) will permit viewers to get a glimpse at some of the world's
most exotic and exciting activities, from a rafting trip to a safari to a diving
expedition to a hike through the Amazon.
FitnessView(TM), "a library which is like having your own personal trainer,"
permits the viewer to customize a workout by watching and selecting only the
exercise segments they need.
Special sport-specific exercises will also be presented.
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<PAGE>
MedicalView, targeted for viewers or their families who are facing surgery or
medical treatments, where certain medical treatments will be presented in-depth,
in easy to understand, comfortable terms by a physician specializing in that
field.
ProductView(TM) is being developed as the "ultimate consumer catalog." Viewers
will be able to locate products they are considering purchasing and review the
item's features and capabilities before they purchase.
ConventionView(TM) is being developed as the "ultimate meeting planner tool" and
will permit viewers who have selected a particular area to obtain information on
available conference and meeting space, both in the local hotels and municipal
convention centers.
TalentView is being developed to provide professional voice, actor and director
talent a means of promoting themselves to producers, advertising agencies, movie
studios, etc. via a multi-media library available over the Internet.
As discussed above, the Company's libraries will be offered to the
general public through various media. Additional libraries which possess certain
synergies to HotelView(R), including CruiseView, AdventureView(TM) and
ConventionView(TM) will be offered through the travel agency distribution
channel and the Internet as these libraries are developed. Management of the
Company currently anticipates that many of the Company's other libraries, such
as MedicalView, CampusView, FitnessView(TM) and ProductView(TM) will be fully
developed and launched as soon as high speed data transmission capability, such
as cable modems, are more widely available. The Company owns, or in the case of
libraries under development will own, all of the content included in its
libraries.
Consumers today are accustomed to television, a visual medium of
full-motion, full-color video that is sound enhanced and readily available to
every consumer's home or business. On-line computer users are accustomed to
TV-like monitors and displays providing access to graphics and text databases on
every topic imaginable through service providers that make connections to these
databases affordable and easy. Computers outsold television sets in 1995 for the
first time in history. The combination of accessible, indexed, on-line
information in full-motion, full-color video forms the basis and the requirement
for multi-media Internet capability or ITV. Beginning in 1997, certain
technological advancements, including cable modems, digital satellite, highspeed
wireless modems and streaming digital video software, began to become available
to consumers. These advancements will enable suppliers and users of the Internet
to access multi-media information efficiently. Management of the Company
believes content such as that offered by the Company will become increasingly
more in demand to fill voids created by the expanded capacity these new
technologies provide.
In the opinion of management, the current demographics of the Internet
consumer offers the Company a very favorable platform for using the Company's
products and services to advertise and promote client products and services. For
instance, according to
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<PAGE>
Matrix Information and Directory Services (MIDS), in January 1998 there were
approximately 102 million individuals worldwide accessing the Internet, a one
year increase of approximately 79% from January 1997. Nielsen Media and the U.S.
Census Bureau currently estimate the total number of worldwide users is expected
to reach 200,000,000 by the end of 1998. Current statistics reflect that total
Internet advertising revenues in 1996 were approximately $267 million, with only
38% of those advertising dollars spent on computer products. By the year 2000,
it is estimated that 41% of Internet commerce will be travel related, one reason
the Company chose HotelView(R) as its first library. Of the people on-line, the
average annual income is $72,000 (compared to $32,000 nationwide), 25% generate
income of at least $80,000 annually and 50% are professional or managerial.
Further, there is expected to be a continuing notable increase in E- Commerce.
According to a forecast by International Data Corporation, users buying goods
and services over the Web will increase from approximately 27.6 million
individuals in 1998 to approximately 83.6 individuals in 2001, with year-end
commerce revenues increasing from an estimated $32 billion in 1998 to
approximately $237 billion in 2001.
RECENT DEVELOPMENTS
The Company's business strategy is to expand its operations through
acquisitions of media developers with emphasis on developers of video media
together with growth of its organic businesses. In furtherance thereof, in March
1998, the Company formed a strategic alliance with Miami, Florida-based Interval
International, Inc. to introduce ResortView (TM), a new lead generation program
developed specifically for the vacation ownership industry, which advertises a
resort via full-motion video over the Internet. The ResortView (TM) product
employs the latest media technology and multi-faceted distribution networks to
help developers of vacation ownership resorts promote properties to potential
renters.
In March 1998, the Company signed an exclusive agreement with PR
Newswire Corporation for the promotion and sale of the Company's video news
release service, Video NewsWire (TM) to PR Newswire's base of over 20,000 member
clients. Under the terms of the agreement, PR Newswire will also create all
necessary marketing collateral materials for distribution to each of their 28
bureaus nationwide and their London office. The Company will work with PR
Newswire to create custom-made video productions, with costs to clients starting
at about $700, based upon clients' own news releases, and then distribute them
over the Internet. Management of the Company believes the resulting television
news-like video clips will add a fresh dimension to news releases and provide an
innovative forum for presenting companies, their earnings results and other
material news, especially new products.
On May 8, 1998, the Company completed the sale of 150 shares of the
Company's Series A Preferred at a purchase price of $5,000 per share to two
institutional investors in a private transaction exempt from registration under
the Securities Act pursuant to Section 4(2) of such act. The purchasers have
agreed to purchase an additional 150 shares of Series A Preferred subject to
certain conditions contained in the agreement between the
17
<PAGE>
Company and such buyers as are hereinafter summarized. The initial purchase
resulted in net proceeds to the Company of, after fees and expenses of the
transaction, of approximately $692,500. See "Description of Securities" for the
designations, rights and preferences of the Series A Preferred.
Following the initial closing date, the buyers shall be obligated to
purchase and the Company will be obligated to sell an additional 150 shares of
Series A Preferred under the same terms and conditions as the initial shares so
issued, provided a series of conditions have been met, including, but not
limited to, (i) the Company shall have attained shareholder approval permitting
issuance of the shares of Common Stock underlying the Series A Preferred in
accordance with applicable law, which such approval was obtained at the
September 4, 1998 special meeting of shareholders (ii) the Company's
registration statement relating to the Common Stock issuable upon conversion of
the Series A Preferred has been declared effective by the Commission, which such
registration statement was declared effective on November 3, 1998 (iii) there
has been no change in the listing or threat thereof of the Common Stock, (iv)
the closing bid price of the Common Stock is greater that $2.50 per share on the
day immediately preceding the notification of such additional purchase, and (v)
there has not been a materially adverse change in the business or financial
condition or results of operations of the Company. In the event such
registration was not declared effective by September 30, 1998, both the fixed
conversion price and the variable conversion price were reduced by 2% and were
further reduced by an additional .06% each calendar day thereafter up to a
maximum of 20% until until November 3, 1998 when the registration statement was
declared effective.
In March 1998, the Company entered into an agreement with Digital
Criteria Technologies, Inc. ("DCT") to become the exclusive marketer of DCT's
proprietary VoiceSelect product, a multi-media database of professional voice
talent. Under the terms of the agreement, for which the Company received a
$250,000 fee, the Company will act as the Internet host for VoiceSelect and will
market the product to production companies,
18
<PAGE>
advertising agencies and talent agencies and voice talent, for which the Company
will also earn a percentage of the gross revenues generated by VoiceSelect. The
Company was also granted the first right of refusal to purchase VoiceSelect from
DCT.
On May 20, 1998, in a separate transaction, the Company acquired
certain assets of DCT, including a 30% interest in CareerSelect (TM) and a 40%
interest in Real Estate Select, for a total consideration of 140,000 shares of
the Company's restricted Common Stock and warrants to purchase an additional
70,000 shares of the Company's restricted Common Stock, exercisable at any time
and from time to time until April 7, 2002 at $3.18 per share. See "Selling
Security Holders." CareerSelect(TM) is a database and data search program
designed to provide a membership based service that allows prospective employers
to review resumes as well as hear potential job candidates that meet their
criteria on a computer display and to compare results of certain compatibility
factors before the prospective employer arranges an interview with the
candidate. Real Estate Select is a program designed to allow the viewer to enter
specific criteria and be provided with real estate properties that fit such
criteria.
In July 1998, the Company acquired 51% of the issued and outstanding
stock of EDnet, Inc. ("EDnet") (OTCBB: DNET) for a total purchase price of $1.4
million payable in a combination of cash, stock and secured note. EDnet, based
in San Francisco, develops and markets integrated systems for the delivery,
storage and management of professional- quality digital communications for
media-based applications, including audio and video production for the North
American advertising and entertainment industry. Following the closing of the
transaction, EDnet's Board of Directors was expanded to include four members
selected by the Company, including Randy S. Selman (Chairman), Alan Saperstein,
David E. Goodman and Brian K. Service.
In July 1998, the Company sold 100,000 shares of Common Stock in a
private placement exempt from registration under the Securities Act in reliance
on Section 4(2) and Regulation D thereof at a purchase price of $3.00 per share
to an accredited investor. The proceeds were used for general working capital by
the Company. See "Selling Security Holders."
In August 1998, the Company sold an aggregate of 166,665 shares of
Common Stock in a private placement exempt from registration under the
Securities Act in reliance on Section 4(2) and Regulation D thereof at a
purchase price equal to 75% of the then fair market value of the Company's
Common Stock which resulted in a sale price of $2.25 per share to a group of
accredited or otherwise sophisticated investors. The proceeds were used for
general working capital by the Company. See "Selling Security Holders."
In August 1998, the Company also completed the sale of 150 shares of
the Company's Series A-1 Preferred and a warrant to purchase 20,000 shares of
Common Stock, exercisable until August 11, 2002 at $4.00 per share, for an
aggregate purchase price of $750,000 to an institutional investor in a private
transaction exempt from registration under the Securities Act pursuant to
Section 4(2) of such act. See "Selling
19
<PAGE>
Security Holders." The initial purchase resulted in net proceeds to the Company
of, after fees and expenses of the transaction, of approximately $685,000. See
"Description of Securities" for the designations, rights and preferences of the
Series A-1 Preferred. Under the terms of the agreement, the Company was
obligated to prepare and file a registration statement with the Commission
providing for the resale of the shares of Common Stock issuable upon conversion
of the Series A-1 Preferred and the exercise of the Warrant. The Company filed a
Registration Statement on Form S-3 of which this Prospectus forms a part on
August 21, 1998. The Company further agreed to use its best efforts to have such
registration statement declared effective by September 30, 1998; provided, that
if the Commission reviews the registration statement on Form S-3 and in
connection with such review requests the audited financial statements of the
Company's year ending September 30, 1998 in order to declare such registration
effective, the deadline shall be extended to October 30, 1998. In the event such
registration was not declared effective by such date, both the fixed conversion
price and the variable conversion price of the Series A-1 Preferred would be
reduced by 2% and would be further reduced by an additional .06% each calendar
day thereafter up to a maximum of 20% until such registration statement has been
declared effective. Accordingly, as such Registration Statement of which this
Prospectus forms a part thereof was declared effective on November 3, 1998,
the fixed conversion price was adjusted to $2.865 and the variable conversion
price was reduced to 78.72%.
USE OF PROCEEDS
No proceeds will be obtained by the Company from the conversion of the
Series A or Series A-1 Preferred. In the event the remaining 150 shares of
Series A Preferred are sold and all of the Selling Security Holder Options and
Warrants are exercised, the Company would receive net proceeds of approximately
$1,475,875, after payment of offering expenses estimated to be approximately
$50,000. It is anticipated that the net proceeds, if any, from the sale of an
additional 150 shares of Series A Preferred and the exercise of the Selling
Security Holders Options and Warrants will be used by the Company for
acquisitions and for working capital associated with continuing operations. The
actual allocation of proceeds realized from the exercise of these securities
will depend upon the amount and timing of such exercises, the Company's
operating revenues and cash position at such time and its working capital
requirements during the course of such exercise period. There can be no
assurances that remaining 150 shares of Series A Preferred will be sold or that
any of the Selling Security Holders Options and Warrants will be exercised.
While the intended use of proceeds is consistent with the Company's
current business plan objectives, the Company reserves the right to change the
use of proceeds depending on working capital requirements and opportunities
afforded to the Company. Pending utilization of the proceeds as described above,
the net proceeds of the offering will be deposited in interest bearing accounts
or invested in money market instruments, government obligations, certificates of
deposits or similar short-term investment grade interest bearing investments.
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<PAGE>
SELLING SECURITY HOLDERS
Stock Ownership
The following table set forth the name of each Selling Security Holder,
the number or shares of Common Stock beneficially owned by such Selling Security
Holder as of November 3, 1998, and the number of Shares being offered by each
Selling Security Holder. The Shares being offered hereby are being registered to
permit public secondary trading, and the Selling Security Holders may offer all
or part of the Shares for resale from time to time. However, such Selling
Security Holders are under no obligation to either (a) convert their shares of
Series A Preferred or their shares of Series A-1 Preferred or exercise the
Selling Security Holders Options and Warrants, as the case may be, or (b) if
converted or exercised, to sell all or any portion of such Shares immediately
under this Prospectus. All information with respect to Share ownership has been
furnished by the Selling Security Holders. During the past three years no
Selling Security Holder has been an officer, director or affiliate of the
Company nor has any Selling Security Holder had any material relationship with
the Company during such period. Because the Selling Security Holders may sell
all or a portion of their Shares, no estimate can be given as to the number of
Shares that will be held by any Selling Security Holder upon termination of any
offering made hereby; accordingly, the following table assumes (i) the
conversion of 300 shares of Series A Preferred and the 150 shares of Series A-1
Preferred and the exercise of the Selling Security Holders Options and Warrants,
and (ii) the sale of all Shares by the Selling Security Holders immediately
following the date of this Prospectus.
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<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
Name of Selling of Common Stock Stock Beneficially ship
Security Holder Beneficially Owned Offered Owned After(4)
as of Nov. 3, 1998(1) Hereby After Offering(4) Offering
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Heracles Fund(5) 549,791(2) 666,667(3) 0 0
Themis Partners, L.P.(5) 274,895(2) 333,333(3) 0 0
WEC Investors IV, LLC 424,354(6) 1,020,000(6) 0 0
T.H. Holloway(7) 16,111 11,111 1,875 *
Socrates Skiadas(8) 47,847 22,222 3,750 *
Joseph Rotenberg(9) 32,736 11,111 2,250 *
Hart Rotenberg(10) 30,736 11,111 1,500 *
Hans Donerstag(11) 22,222 22,222 0 0
Rebecca C. Perrine(11) 22,222 22,222 0 0
Charles Xue(12) 75,555 55,555 7,500 0
John Quackenbush(11) 11,111 11,111 0 0
Allenstown Partners(13) 180,000 170,000 0 0
Cardinal Capital
Management, Inc.(14) 50,000 50,000 0 0
Morgan Fuller
Capital Group LLC(15) 125,000 125,000 0 0
Focus Financial Corp.(16) 46,875 46,875 0 0
Avon Brill, LLC(17) 50,000 50,000 0 0
Eric Ellenhorn(18) 5,000 5,000 0 0
Patrick Rooney(18) 5,000 5,000 0 0
--------- --------- --------
1,969,455 2,638,540 16,875
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
- -----------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities and includes any securities which the person has
the right to acquire within 60 days of November 3, 1998 through the
conversion or exercise of any security or other right.
(2) Beneficial ownership is determined as of November 3, 1998 and is
based upon a conversion price of the Series A Preferred shares equal to
$2.2710 (which is the average of the three lowest closing bid prices of
the Common Stock for the 20 consecutive trading days preceding November
3, 1998). The actual number of shares of Common Stock issuable upon
conversion of the Series A Preferred shares is that number of shares of
Common Stock equal to the quotient of (i) the aggregate stated value of
the Series A Preferred shares ($5,000 per share), plus an accrued and
unpaid premium of 5% per annum from May 1, 1998 divided by (ii) the
conversion price. The conversion price is the lesser of (a) $2.865
per share, subject to adjustment, or (b) the Market Price of the Common
Stock, where the Market Price is the average of the three lowest
closing bid prices for the Common Stock for the 20 consecutive trading
days immediately preceding such date of determination multiplied by a
conversion percentage which shall be 83.72% for the first 180 days
after the issuance date of the Series A Preferred and 78.72%
thereafter. No holder of Series A Preferred shares is entitled to
convert or exercise such securities to the extent that the shares to be
received by such holders upon such conversion or exercise would cause
such holders in the aggregate to beneficially own more than 4.99% of
the Common Stock of the Company (other than shares deemed to be
beneficially owned through ownership of Series A Preferred shares)
except upon 61 days prior notice to the Company.
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<PAGE>
The Company may be required to redeem any Series A Preferred shares
which may not be converted because of such limitation.
(3) Represents the allocation among such Selling Security Holders of
1,000,000 shares of Common Stock potentially issuable as of November 3,
1998, upon conversion and exercise of the 300 shares of Series A
Preferred held by such Selling Security Holders which the Company is
registering pursuant to the Registration Rights Agreement between the
Company and such Selling Security Holder. See Exhibits. The number of
shares of Common Stock registered pursuant to the Registration
Statement of which this Prospectus forms a part on behalf of the
Selling Security Holders holding shares of Series A Preferred and the
number of shares offered hereby by such holders have been determined by
agreement between the Company and such Selling Security Holder. Because
the number of shares of Common Stock that will ultimately be issued
upon conversion of the Series A Preferred is dependent, subject to
certain limitations, upon the average of certain closing bid prices of
the Common Stock prior to conversion, as described in footnote (2)
above, and certain antidilution adjustments, such number of shares (and
therefore the number of shares of Common Stock offered hereby) cannot
be determined at this time. The number of shares of Common Stock
offered by the Selling Security Holders holding shares of Series A
Preferred, in accordance with Rule 416 under the Securities Act, also
includes such presently undeterminate number of additional shares as
may be issuable upon conversion of the Series A Preferred, based upon
stock splits, stock dividends or similar transactions in accordance
with the terms of the Articles of Amendment to the Articles of
Incorporation.
(4) Gives effect to the conversion of all shares of Series A Preferred and
Series A-1 Preferred and the sale of the shares of Common Stock
issuable upon such conversion.
(5) Promethean Investment Group L.L.C. is the general partner of Themis
Partners L.P. and the investment advisor for Heracles Fund
(collectively, the "Promethean Entities") and consequently has voting
control and investment discretion of securities held by the Promethean
Entities. Promethean Investment Group L.L.C. is indirectly controlled
by Mr. James F. O'Brien. The ownership for each of the Promethean
Entities does not include the ownership information for the other
Promethean Entities. Promethean Investment Group L.L.C. and each of the
Promethean Entities disclaims beneficial ownership of the shares held
by the other Promethean Entities. Mr. O'Brien disclaims beneficial
ownership of the shares owned by Promethean Investment Group L.L.C. and
the Promethean Entities.
(6) WEC Investors IV, LLC purchased an aggregate of 150 shares of Series
A-1 Preferred and a warrant to purchase 20,000 shares of Common Stock.
Includes 20,000 shares of Common Stock underlying such warrant. Messrs.
Daniel J. Saks, Mark A. Nordlicht and Ethan Benovitz are the officers,
directors and controlling persons of WEC Investors IV, LLC. See "The
Company - Recent Developments." Beneficial ownership is determined as
of November 3, 1998, 1998 and is based upon a conversion price of the
Series A-1 Preferred shares equal to $2.2710 (which is the average of
the three lowest closing bid prices of the Common Stock for the 20
consecutive trading days preceding November 3, 1998). The actual number
of shares of Common Stock issuable upon conversion of the Series A-1
Preferred shares is that number of shares of Common Stock equal to the
quotient of (i) the aggregate stated value of the Series A Preferred
shares ($5,000 per share) divided by (ii) the conversion price. The
conversion price is the lesser of (a) $2.865 per share, subject to
adjustment, or (b) the Market Price of the Common Stock, where the
Market Price is the average of the three lowest closing bid prices for
the Common Stock for the 20 consecutive trading days immediately
preceding such date of determination multiplied by a conversion
percentage which shall be 83.72% for the first 180 days after the
issuance date of the Series A Preferred and 78.72% thereafter. No
holder of Series A-1 Preferred shares is entitled to convert or
exercise such
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<PAGE>
securities to the extent that the shares to be received by such holders
upon such conversion or exercise would cause such holders in the
aggregate to beneficially own more than 4.99% of the Common Stock of
the Company (other than shares deemed to be beneficially owned through
ownership of Series A-1 Preferred shares). Represents the contractual
obligation to include 1,000,000 shares of Common Stock potentially
issuable as of November 3, 1998, upon conversion and exercise of the
150 shares of Series A-1 Preferred held by such Selling Security Holder
which the Company is registering pursuant to the Registration Rights
Agreement between the Company and such Selling Security Holder. See
Exhibits. The number of shares of Common Stock registered pursuant to
the Registration Statement of which this Prospectus forms a part on
behalf of the Selling Security Holder holding shares of Series A-1
Preferred and the number of shares offered hereby by such holder have
been determined by agreement between the Company and such Selling
Security Holder. Because the number of shares of Common Stock that will
ultimately be issued upon conversion of the Series A-1 Preferred is
dependent, subject to certain limitations, upon the average of certain
closing bid prices of the Common Stock prior to conversion, as
described herein, and certain antidilution adjustments, such number of
shares (and therefore the number of shares of Common Stock offered
hereby) cannot be determined at this time. The number of shares of
Common Stock offered by the Selling Security Holder holding shares of
Series A-1 Preferred, in accordance with Rule 416 under the Securities
Act, also includes such presently undeterminate number of additional
shares as may be issuable upon conversion of the Series A-1 Preferred,
based upon stock splits, stock dividends or similar transactions in
accordance with the terms of the Articles of Amendment to the Articles
of Incorporation.
(7) Includes 3,125 shares covered by an Alternate Prospectus pursuant to
the Company's initial public offering in July 1997 and 11,111 shares
purchased from the Company in August 1998 at a purchase price equal to
75% of the then fair market value of the Company's Common Stock which
resulted in a sale price of $2.25 per share. Assumes the sale of an
aggregate of 14,236 shares either pursuant to the Alternate Prospectus,
as to the 3,125 shares, or pursuant to this Prospectus, as to the
11,111 shares. See "The Company - Recent Developments."
(8) Includes 21,875 shares covered by an Alternate Prospectus pursuant to
the Company's initial public offering in July 1997 and 22,222 shares
purchased from the Company in August 1998 at a purchase price equal to
75% of the then fair market value of the Company's Common Stock which
resulted in a sale price of $2.25 per share. Assumes the sale of an
aggregate of 44,097 shares either pursuant to the Alternate Prospectus,
as to the 21,875 shares, or pursuant to this Prospectus, as to the
22,222 shares. See "The Company - Recent Developments."
(9) Includes 19,375 shares covered by an Alternate Prospectus pursuant to
the Company's initial public offering in July 1997 and 11,111 shares
purchased from the Company in August 1998 at a purchase price equal to
75% of the then fair market value of the Company's Common Stock which
resulted in a sale price of $2.25 per share. Assumes the sale of an
aggregate of 30,486 shares either pursuant to the Alternate Prospectus,
as to the 19,375 shares, or pursuant to this Prospectus, as to the
11,111 shares. See "The Company - Recent Developments."
(10) Includes 18,125 shares covered by an Alternate Prospectus pursuant to
the Company's initial public offering in July 1997 and 11,111 shares
purchased from the Company in August 1998 at a purchase price equal to
75% of the then fair market value of the Company's Common Stock which
resulted in a sale price of $2.25 per share. Assumes the sale of an
aggregate of 29,236 shares either pursuant to the Alternate Prospectus,
as to the 18,125 shares, or pursuant to this Prospectus, as to the
11,111 shares. See "The Company - Recent Developments."
(11) Represents shares purchased from the Company in August 1998 at $2.25
per share. See "The Company - Recent Developments."
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(12) Includes 12,500 shares covered by an Alternate Prospectus pursuant to
the Company's initial public offering in July 1997 and 55,555 shares
purchased from the Company in August 1998 at a purchase price equal to
75% of the then fair market value of the Company's Common Stock which
resulted in a sale price of $2.25 per share. Assumes the sale of an
aggregate of 68,055 shares either pursuant to the Alternate Prospectus,
as to the 12,500 shares, or pursuant to this Prospectus, as to the
55,555 shares. See "The Company - Recent Developments."
(13) Includes 100,000 shares purchased by Allenstown Partners from the
Company in July 1998 at $3.00 per share (see "The Company - Recent
Developments") and 70,000 shares of Common Stock granted as
compensation under a 24 month consulting agreement dated July 15, 1998
between the Company and Allenstown Partners, of which Charles P.
Johnston, Carriage Hill Associates and Allenstown Investments are the
partners. Charles P. Johnston is the General Partner and controls
Carriage Hill Associates. Allenstown Investments is controlled by CCJ
Trust which is controlled by Charles C. Johnston. Charles P. Johnston
is the son of Charles C. Johnston. Also includes 10,000 shares of
Common Stock owned by J&C Resources, of which Mr. Charles C. Johnston
is the beneficial owner, of which 6,250 shares are covered by an
Alternate Prospectus pursuant to the Company's initial public offering
in July 1997. Assumes the sale of an aggregate of 176,250 hares either
pursuant to the Alternate Prospectus, as to the 6,250 shares, or
pursuant to this Prospectus, as to the 170,000 shares.
(14) Represents 50,000 shares of Common Stock underlying a warrant,
exercisable at $3.23 per share until August 11, 2003 issued as a fee in
connection with the WEC Investors IV, LLC transaction. Messrs. Rob
Rosenstein and Scott Kock are the officers and directors of Cardinal
Capital Management, Inc.
(15) Messrs. Jim Fuller and Gordon Taubenheim are the beneficial owners of
Morgan Fuller Capital Group LLC. Morgan Fuller Capital Group LLC may,
from time to time, transfer their shares for no value to officers,
directors, shareholders and other third parties. In the event of any
such transfer, the recipients of such will be included in a prospectus
supplement to be filed by the Company. Represents securities issued by
the Company in the acquisition of 51% of EDnet and includes 50,000
shares of Common Stock underlying a warrant, exercisable at $3.00 per
share until June 30, 2003, which such securities were subsequently
transferred by EDnet to such Selling Security Holder. See "The Company
- Recent Developments."
(16) Represents shares of Common Stock underlying an option, exercisable at
$5.00 per share until September 30, 2002, issued to Focus Financial
Corp. as compensation under a consulting agreement with the Company.
Messrs. David Portnoy, Gilbert Portnoy and Mark Portnoy are the
officers and directors of Focus Financial Corp.
(17) Represent shares of Common Stock underlying a warrant, exercisable at
$3.00 per share until June 30, 2003, issued in connection with the
EDnet transaction.
(18) Represents shares issued as interest for a loan made to the Company in
1997, the proceeds of which were used for general working capital,
which such loan has subsequently been repaid in full.
The Company has agreed to pay full costs and expenses related to the
offering, including but not limited to all fees and expenses in preparing,
filing and printing the Registration Statement and Prospectus and related
exhibits, amendments and supplements thereto and mailing of such items. The
Company will not pay selling commissions and expenses associated with any sale
by the Selling Security Holders.
PLAN OF DISTRIBUTION
The Common Stock offered by this Prospectus is being offered on behalf
of the Selling Security Holders. Such Common Stock may be sold or distributed
from time to time by the Selling Security Holders, or by donees or transferees
or, or other successors in interest to, the Selling Security Holders, directly
to one or more purchasers or through brokers, dealers or underwriters who may
act solely as agents or may acquire such Common Stock as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the Common Stock offered hereby may be effected in one or more of
the following methods: (i) ordinary brokers' transactions; (ii) transactions
involving
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cross or block trades or otherwise on The Nasdaq SmallCap Market (TM); (iii)
purchases by brokers, dealers or underwriters as principal and resale by such
purchasers for their own accounts pursuant to this Prospectus; (iv) "at the
market" to or through market markers or into an existing market for the Common
Stock; (v) in other ways not involving market markers or established trading
markets, including direct sales to purchasers or sales effected through agents;
(vi) through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); (vii) in privately negotiated transactions (viii)
to cover short sales; or (ix) any combination of the foregoing.
From time to time, one or more of the Selling Security Holders may
pledge, hypothecate or grant a security interest in some or all of the Shares
owned by them, and the pledgees, secured parties or persons to whom such Shares
have been hypothecated shall, upon foreclosure in the event of default, be
deemed to be Selling Security Holders hereunder. The number of Selling Security
Holders' Shares beneficially owned by those Selling Security Holders who so
transfer, pledge, donate or assign Selling Security Holders' Shares will
decrease as and when they take such actions. The plan of distribution for
Selling Security Holders' Shares sold hereunder will otherwise remain unchanged,
except that the transferees, pledgees, donees or other successors will be
Selling Security Holders hereunder. In addition, a Selling Security Holder may,
from time to time, sell short the Common Stock, and in such instances, this
Prospectus may be delivered in connection with such short sales and the Shares
offered hereby may be used to cover such short sales.
A Selling Security Holder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the positions they assume with such Selling
Security Holder, including, without limitation, in connection with distributions
of the Common Stock by such broker-dealers. A Selling Security Holder may also
enter into option or other transactions with broker-dealers that involve the
delivery of the Shares to the broker-dealers, who may then resell or otherwise
transfer such Shares. A Selling Security Holder may also loan or pledge the
Shares to a broker-dealer and the broker-dealer may sell the Shares so loaned or
upon a default may sell or otherwise transfer the pledged Shares.
Brokers, dealers, underwriters or agents participating in the
distribution of the Shares as agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Security Holders and/or
purchasers of the Common Stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be less than or in excess of customary
commissions). The Selling Security Holders and any broker-dealers who act in
connection with the sale of the Shares hereunder may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission they
receive and proceeds of any sale of the Shares may be deemed to be underwriting
discounts and commissions under the Securities Act. Neither the Company nor any
Selling Security Holder can presently estimate the amount of such compensation.
The Company knows of no existing arrangements between any Selling Security
Holder, any other stockholder, broker, dealer,
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underwriter or agent relating to the sale or distribution of the Shares included
in this Prospectus.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Shares included in this Prospectus to the
public, other than commission or discounts of underwriters, broker-dealers or
agents. The Company has also agreed to indemnify the Selling Security Holders
and certain related persons against liabilities, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company, the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
The Company had advised the Selling Security Holders that during such
time as they may be engaged in a distribution of the Shares included herein they
are required to comply with Regulation M promulgated under the Exchange Act.
With certain exceptions, Regulation M precludes any Selling Security Holder, any
affiliated purchasers, and any broker-dealers or other person who participates
in such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the Shares.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized by its Articles of Incorporation to issue
20,000,000 shares of Common Stock, of which 3,732,100 were issued and
outstanding as of September 30, 1998. The holders of the Company's Common Stock
are entitled to receive dividends at such time and in such amounts as may be
determined by the Company's Board of Directors, and upon liquidation are
entitled to share ratably in the assets of the Company, subject to the rights of
the holders of any shares of preferred stock which may be outstanding, remaining
after the payment of all debts and other liabilities.
All shares of the Company's Common Stock have equal voting rights, each
share being entitled to one vote per share for the election of directors and all
other purposes. Holders of such Common Stock are not entitled to any preemptive
rights to purchase or subscribe for any of the Company's securities. All of the
Company's Common Stock which is issued and outstanding is fully paid and
non-assessable. Stockholders, including the holders of any series of preferred
stock outstanding, do not have cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors are
able to elect 100% of the Company's Directors.
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It is not contemplated that any dividends will be paid on the Common
Stock, and the future ability to pay dividends will be dependent upon the
success of the Company's operations and the decision by its Board of Directors
at that time. However, pursuant to the designations, rights and preferences of
the outstanding Series A Preferred and Series A-1 Preferred, the Company has
agreed to not directly or indirectly, redeem or declare or pay any cash dividend
or cash distribution on its Common Stock without the express written consent of
the holders of not less than two-thirds of the then outstanding shares of Series
A Preferred and two-thirds of the then outstanding shares of Series A-1
Preferred.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock,
par value $.0001 per share. The Board of Directors of the Company has the
authority, without further action by shareholders, to issue the preferred stock
in one or more series, and to fix for any series the dividend rate, redemption
price, liquidation or dissolution preferences, conversion rights, voting rights
and other preferences and privileges. As of the date hereof, the Company has
designated a series consisting of 300 shares of Series A Preferred, of which 150
shares are currently issued and outstanding, and a series consisting of 150
shares of Series A-1 Preferred, all of which are issued and outstanding. The
remaining 4,999,550 shares of preferred stock remain without designation.
Series A Preferred
The following is a summary of the designations, rights and preferences
of the Series A Preferred. See "Incorporation of Certain Documents by Reference"
and "Exhibits."
Conversion
The Series A Preferred is convertible into the Company's Common Stock
at a price per share equal to the lesser of (i) $2.865, subject to adjustment
including in the event of stock splits, stock dividends, below market sales or
upon a Major Transaction (as hereinafter defined), or (ii) a floating conversion
price determined by multiplying a Conversion Percentage in effect as of such
date by the Market Price for the Company's Common Stock. The Conversion
Percentage shall be 83.72% for the first 180 days from the issuance date of the
Series A Preferred Stock and 78.72% for any day thereafter. The Market Price for
the Company's Common Stock shall be the average of the three lowest closing bid
prices for such Common Stock during the 20 consecutive trading days immediately
preceding such date.
Voting Rights
The shares of Series A Preferred carry no voting rights except as
required by law. The affirmative vote of holders of not less than two-thirds of
then outstanding shares of Series A Preferred shall be required for (a) any
change to the Articles of Amendment or the Company's Articles of Incorporation
which would also amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series A Preferred or (b) the Company to issue any
shares of Series A Preferred other than pursuant to the securities purchase
agreement under which the Series A Preferred was issued. A vote of holders
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of not less than two-thirds of the then outstanding shares of Series A Preferred
shall also be required to authorize or issue any additional or the capital stock
that is of senior or equal rank to the Series A Preferred in respect to the
preferences as to distribution and payments upon the all liquidation,
dissolution and winding up of the Company. The Company shall not authorize or
make any amendments of the Company's Articles of Incorporation or By-Laws or
file any resolutions of the Board of Directors of the Company containing any
provisions, which would adversely effect or otherwise impair the rights or
relative holders of the priority of the holders of the Series A Preferred
relative to the Common Stock or the holders of other class of capital stock,
without such consent. In the event of the merger or consolidation of the Company
with or into another corporation, the Series A Preferred shall maintain their
relative powers, designations and preferences provided and no merger shall
result inconsistent therewith.
Dividends
The holders of the Series A Preferred are not entitled to any
dividends. Until all the Series A Preferred have been converted or redeemed as
provided in the Articles of Amendment to the Company's Articles of
Incorporation, the Company shall not directly or indirectly, redeem, or declare
or pay any cash dividend or cash distribution on, its Common Stock without the
prior express written consent of the holders of not less than two-thirds of the
then outstanding Series A Preferred.
Liquidation Preference
The Series A Preferred has a stated value of $5,000 per share (the
"Face Value"). In the event that any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of the Series A Preferred
shall be entitled to receive in cash out of the assets of the Company, before
any amount shall be paid to the holders of any of the capital stock of the
Company of any class junior in rank to the Series A Preferred in respect of the
preferences as to distributions and payments on the liquidation, dissolution and
winding up of the Company an amount per share equal to the sum of (i) the Face
Value and an amount equal to the product of (.05) x (N/365) x ($5,000), where N
shall be the number of days outstanding (the "Liquidation Preference").
Redemption
Subject to certain conditions, including prior notice, the Company may
elect to redeem the Series A Preferred submitted for conversion in lieu of
converting such Series A Preferred provided that the floating conversion price
is less that $2.50. The redemption price of Company redemption in lieu of
conversion shall be an amount per share of Series A Preferred equal to the
product of 83.72% if the conversion is within 180 days after the issue date of
such stock or 78.72% if such conversion date is 181 days after the issuance of
the stock times the last reported sale price of the Common Stock on such
conversion date.
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The holders of the Series A Preferred shall have the right, at such
holders' option, to require the Company to redeem all or a portion of such
holders Series A Preferred at a price per share equal to 125% of the Liquidation
Preference upon the occurrence of a Major Transaction, as defined below. In
addition, after a Triggering Event, as defined below, each holder of the Series
A Preferred shall have the right, at such holders' option, to require the
Company to redeem all or a portion of such holders' Series A Preferred at a
price per share equal to the greater of (i) 125% of the Liquidation Preference
and (ii) the product of (a) the conversion rate at such time and (b) the closing
bid price calculated as of the day immediately preceding such Triggering Event.
A Major Transaction shall include (i) the consolidation, merger or
other business combination of the Company with or into another person (other
than a migratory merger or a transaction in which the Company is the surviving
entity and holders of the Company's voting power immediately prior to the
transaction continue after the transaction to hold the voting power necessary to
elect a majority of the members of the Board of Directors of the Company); (ii)
the sale or transfer of all or substantially all of the Company's assets or
(iii) consummation of purchase, tender offer or exchange offer made to the
holders of more than 30% of the Company's outstanding shares of Common Stock. A
Triggering Event shall have been deemed to occur at such time as any of the
following events shall have occurred: (i) the failure of this registration
statement relating to the shares of Common Stock issuable upon conversion of the
Series A Preferred, as filed by the Company with the Commission on August 21,
1998, to be declared effective by the Commission on or before a date which is 45
days after September 30, 1998 (or October 30, 1998, if extended), (ii) failure
to keep such registration statement effective pursuant to the terms of the
registration rights agreement subject to certain agreed blackout provisions,
(iii) the suspension from listing or the failure of the Common Stock to be
listed on an exchange for a period of five days; or (iv) if Randy S. Selman
ceases to be either the Chief Executive Officer or President of the Company
prior to March 1, 2000 for any reason other than death or disability.
Series A-1 Preferred
The following is a summary of the designations, rights and preferences
of the Series A-1 Preferred. See "Incorporation of Certain Documents by
Reference" and "Exhibits."
Conversion
The Series A-1 Preferred is convertible into the Company's Common Stock
at a price per share equal to the lesser of (i) $2.865, subject to adjustment
including in the event of stock splits, stock dividends, below market sales or
upon a Major Transaction (as hereinafter defined), or (ii) a floating conversion
price determined by multiplying a Conversion Percentage in effect as of such
date by the Market Price for the Company's Common Stock. The Conversion
Percentage shall be 83.72% for the first 180 days from the issuance date of the
Series A Preferred and 78.72% for any day
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thereafter. The Market Price for the Company's Common Stock shall be the average
of the three lowest closing bid prices for such Common Stock during the 20
consecutive trading days immediately preceding such date. In no event shall any
holder of Series A-1 Preferred be entitled to convert shares in excess of the
number of shares of Series A-1 Preferred which, upon conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such holder and
its affiliates to exceed 4.99% of the outstanding shares of Common Stock
following such conversion.
Voting Rights
The shares of Series A-1 Preferred carry no voting rights except as
required by law. The affirmative vote of holders of not less than two-thirds of
then outstanding shares of Series A-1 Preferred shall be required for (a) any
change to the Articles of Amendment or the Company's Articles of Incorporation
which would also amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series A-1 Preferred or (b) the Company to issue
any shares of Series A-1 Preferred other than pursuant to the securities
purchase agreement under which the Series A-1 Preferred was issued. A vote of
holders of not less than two-thirds of the then outstanding shares of Series A-1
Preferred shall also be required to authorize or issue any additional or the
capital stock that is of senior or equal rank to the Series A-1 Preferred in
respect to the preferences as to distribution and payments upon the all
liquidation, dissolution and winding up of the Company. The Company shall not
authorize or make any amendments of the Company's Articles of Incorporation or
By-Laws or file any resolutions of the Board of Directors of the Company
containing any provisions, which would adversely effect or otherwise impair the
rights or relative holders of the priority of the holders of the Series A-1
Preferred relative to the Common Stock or the holders of other class of capital
stock, without such consent. In the event of the merger or consolidation of the
Company with or into another corporation, the Series A-1 Preferred shall
maintain their relative powers, designations and preferences provided and no
merger shall result inconsistent therewith.
Dividends
The holders of the Series A-1 Preferred are not entitled to any
dividends. Until all the Series A-1 Preferred have been converted or redeemed as
provided in the Articles of Amendment to the Company's Articles of
Incorporation, the Company shall not directly or indirectly, redeem, or declare
or pay any cash dividend or cash distribution on, its Common Stock without the
prior express written consent of the holders of not less than two-thirds of the
then outstanding Series A-1 Preferred.
Liquidation Preference
The Series A-1 Preferred has a stated value of $5,000 per share (the
"Face Value"). In the event that any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of the Series A-1
Preferred shall be entitled to receive in cash out of the assets of the Company,
after payment to any holder of the Series A Preferred, but before any amount
shall be paid to the holders of any of the capital stock of the Company
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of any class junior in rank to the Series A-1 Preferred in respect of the
preferences as to distributions and payments on the liquidation, dissolution and
winding up of the Company an amount per share equal to the sum of (i) the Face
Value and an amount equal to the product of (.05) x (N/365) x ($5,000), where N
shall be the number of days outstanding.
Redemption
At any time, the Company may elect to redeem the Series A-1 Preferred
submitted for conversion in lieu of converting such Series A-1 Preferred
provided that the floating conversion price is less that $2.50. The redemption
price of Company redemption in lieu of conversion shall be an amount per share
of Series A-1 Preferred equal to the product of 83.72% if the conversion is
within 180 days after the issue date of the Series A Preferred or 78.72% if such
conversion date is 181 days after the issuance of the stock times the last
reported sale price of the Common Stock on such conversion date.
The holders of the Series A-1 Preferred shall have the right, at such
holders' option, to require the Company to redeem all or a portion of such
holders Series A-1 Preferred at a price per share equal to 125% of the
liquidation preference upon the occurrence of a Major Transaction, as defined
below. In addition, after a Triggering Event, as defined below, each holder of
the Series A-1 Preferred shall have the right, at such holders' option, to
require the Company to redeem all or a portion of such holders' Series A-1
Preferred at a price per share equal to the greater of (i) 125% of the
liquidation preference and (ii) the product of (a) the conversion rate at such
time and (b) the closing bid price calculated as of the day immediately
preceding such Triggering Event.
A Major Transaction shall include (i) the consolidation, merger or
other business combination of the Company with or into another person (other
than a migratory merger or a transaction in which the Company is the surviving
entity and holders of the Company's voting power immediately prior to the
transaction continue after the transaction to hold the voting power necessary to
elect a majority of the members of the Board of Directors of the Company); (ii)
the sale or transfer of all or substantially all of the Company's assets or
(iii) consummation of purchase, tender offer or exchange offer made to the
holders of more than 30% of the Company's outstanding shares of Common Stock. A
Triggering Event shall have been deemed to occur at such time as any of the
following events shall have occurred: (i) the failure of this registration
statement relating to the shares of Common Stock issuable upon conversion of the
Series A-1 Preferred, as filed by the Company with the Commission on August 21,
1998, to be declared effective by the Commission on or before a date which is 45
days after September 30, 1998 (or October 30, 1998, if extended), (ii) failure
to keep such registration statement effective pursuant to the terms of the
registration rights agreement subject to certain agreed blackout provisions or
(iii) the suspension from listing or the failure of the Common Stock to be
listed on an exchange for a period of five days.
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Warrants
Common Stock Purchase Warrants
The Company has issued and outstanding 1,150,000 redeemable Common
Stock Purchase Warrants ("Warrants") which were sold in the Company's initial
public offering ("IPO") in July 1997. Each Warrant entitles the holder to
purchase one share of Common Stock at $6.00 per share ("Warrant Exercise Price")
commencing February 1, 1998 until the expiration of the Warrants on July 30,
2002. The Warrants are redeemable by the Company for $.05 per Warrant, at any
time commencing February 1, 1998, upon 30 days' prior written notice, if the
closing bid price of the Company's Common Stock as reported by the principal
exchange on which the Common Stock is traded equals or exceeds $7.20 per share
for 20 consecutive trading days and ending 30 days prior to the notice of
redemption.
The Warrants can only be exercised when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrant holders will be unable to exercise the
Warrants and the Warrants may become valueless. In addition, because the
Warrants may be transferred, it is possible that the Warrants may be acquired by
persons residing in states where the Company has not registered, or is not
exempt from registration. In such event, if the shares of Common Stock
underlying the Warrants are not registered or qualified for sale in the state in
which a Warrant holder resides, such holder might not be permitted to exercise
the Warrants. Moreover, even if the Warrants could be transferred, the shares of
Common Stock underlying the Warrants may not be sold or transferred upon
exercise of the Warrants. Warrant holders residing in those states would have no
choice but to attempt to sell their Warrants or to let them expire unexercised.
Each Warrant may be exercised by surrendering the Warrant certificate,
with the form of election to purchase on the reverse side of the Warrant
certificate properly completed and executed, together with payment of the
exercise price to the Warrant Agent. The Warrants may be exercised in whole or
from time to time in part. If less than all of the Warrants evidenced by a
Warrant certificate are exercised, a new Warrant certificate will be issued for
the remaining number of Warrants.
Holders of the Warrants are protected against dilution of the equity
interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Warrants, the Warrants may be exercised immediately prior to such
action. In the event of liquidation, dissolution or winding up of the Company,
holders of the Warrants are not entitled to participate in the distribution of
the Company's assets.
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For the life of the Warrants, subject to the redemption provision, the
holders thereof are given the opportunity to profit from a rise in the market
price of the Common Stock of the Company. The exercise of the Warrants will
result in the dilution of the then book value of the Common Stock of the Company
held by the public investors and would result in a dilution of their percentage
ownership of the Company. The terms upon which the Company may obtain additional
capital may be adversely affected through the period that the Warrants remain
exercisable. The holders of these Warrants may be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain equity capital
on terms more favorable than those provided for by the Warrants.
In the event that the Warrants are called for redemption, the Warrant
holders may not be able to exercise their Warrants in the event that the Company
has not updated this Prospectus in accordance with the requirements of the
Securities Act or these securities have not been qualified for sale under the
laws of the state where the Warrant holder resides. In addition, in the event
that the Warrants have been called for redemption, such call for redemption
could force the Warrant holder to either (i) assuming the necessary updating to
the Prospectus and state blue sky qualifications have been effected, exercise
the Warrants and pay the exercise price at a time when, in the event of a
decrease in market price from the period preceding the issuance of the call for
redemption, it may be less than advantageous economically to do so, or (ii)
accept the redemption price, which, in the event of an increase in the price of
the stock, could be substantially less than the market value thereof at the time
of redemption.
Underwriters' Warrants
In connection with the IPO, the Company sold the Underwriters, or their
designees, for nominal consideration, the Underwriters' Warrants to purchase an
aggregate of 100,000 shares of Common Stock and 100,000 Warrants. The
Underwriters' Warrants are initially exercisable at an exercise price of $8.40
per share of Common Stock and $.14 per Warrant, each Warrant being in turn
exercisable at $8.40 per share, representing 140% of the initial public offering
price of the Company's securities. The Underwriter's Warrants are exercisable
for a period of four years commencing July 30, 1998. The Underwriters' Warrants,
which were restricted from sale, transfer, assignment or hypothecation until
July 30, 1998 except to officers, consultants and partners of the Underwriters,
contain provisions providing for adjustment of the exercise price and the number
and type of securities issuable upon exercise of the Underwriters' Warrants upon
the occurrence of certain events, including subdivisions and combinations of
Common Stock. The Underwriters' Warrants grant to the holders thereof certain
registration rights under the Securities Act for the securities issuable upon
the exercise thereof.
During the exercise period of the Underwriters' Warrants, the
Underwriters (or the then holders of a majority of the Underwriters' Warrants)
shall have the right to require the Company to prepare and file one
post-effective amendment to the original registration statement or a new
registration statement under the Securities Act covering all or any portion of
the Underwriters' Warrants and/or underlying shares of Common Stock. The
Underwriters or the holders of the Underwriters' Warrants are also entitled to
requires
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"piggy back" registration rights on two occasions during the period such
Underwriters' Warrants remain outstanding. The Company shall bear all expenses
incurred in the preparation and filing of any such registration statement or
post-effective amendment.
Other Outstanding Warrants
Additionally, as of September 30, 1998, there are warrants outstanding
to purchase an aggregate of 463,535 shares of Common Stock, of which 90,201
shares are exercisable at $6.60 per share through July 30, 1999; 8,334 of which
are exercisable at $2.80 per share through May 20, 1999; 20,000 of which are
exercisable at $4.00 per share through August 11, 2002; 50,000 of which are
exercisable at $3.23 per share through August 11, 2003; 90,000 of which are
exercisable at $6.00 per share through June 30, 1999; 10,000 of which are
exercisable at $3.00 per share through February 17, 2003; 125,000 of which are
exercisable at $3.00 per share through June 30, 2003; and 70,000 of which are
exercisable at $3.875 per share through April 7, 2002 which such warrants were
issued in connection with the DCT transaction. See "The Company Recent
Developments." An aggregate of 98,535 shares of Common Stock underlying the
warrants described in this paragraph may not be sold, transferred or assigned
for a period of 24 months from July 30, 1997 without the prior written consent
of the Representative of the several underwriters in the Company's initial
public offering. The Representative has advised the Company that it does not
have a general policy with respect to the release of shares prior to the
expiration of the lock-up.
Stock Options
As of September 30, 1998, there are stock options to purchase an
aggregate of 1,296,916 shares of Common Stock outstanding, which includes
options to purchase (i) 5,581 shares which are exercisable at $5.60 per share
through March 31, 1999, (ii) 274,460 shares which are exercisable at $.00016 per
share through January 1, 2001, which options are held by Randy S. Selman, the
Company's President, Chief Executive Officer and Chief Financial Officer
(137,230 options) and by Alan Saperstein, the Company's Executive Vice President
and Secretary (137,230 options), (iii) 46,875 shares which are exercisable at
$5.00 per share through September 30, 2002, (iv) 50,000 shares which are
exercisable at $2.50 per share through March 1, 2001, (v) 150,000 shares which
are exercisable at $2.50 per share through July 30, 2002, of which 50,000
options are held by Eric Jacobs, 50,000 options are held by Ben Swirsky and
50,000 options are held by Brian Service, all directors of the Company, (vi)
250,000 shares which are exercisable at $2.50 per share through December 31,
2000, of which 125,000 options are held by each of Randy S. Selman and Alan
Saperstein, (vii) 50,000 shares which are exercisable at $2.50 per share though
September 30, 2001 which are held by David E. Goodman, the Company's former
Chief Operating Officer, (viii) 300,000 shares which are exercisable at $2.50
per share through January 8, 2002, of which 125,000 options are held by each of
Randy S. Selman and Alan Saperstein and 50,000 options which are held by David
E. Goodman, (viii) 5,000 shares exercisable at $2.75 per share through April 21,
2002, (ix) 25,000 shares which are exercisable at $6.00 per share through May 1,
2002, (x) 50,000 shares which are exercisable at $2.50 per share through May 1,
2002, (xi) 40,000 shares which are exercisable at $2.375 per share through
September 22, 2001, (xii) 25,000 shares which are exercisable at $2.34 per share
through September 30, 2001; and (xiii) 25,000 shares which are exercisable at
$2.375 per share through September 30, 2002.
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The Nasdaq SmallCap Market(TM)
The Company's Common Stock and Warrants are traded on The Nasdaq
SmallCap Market(TM) under the symbols "VDAT" and "VDATW", respectively.
Transfer Agent
The Company's transfer agent and registrar for the Common Stock and
Warrants is Interwest Transfer Co., Inc., 1981 East Murray Holladay Road, Suite
100, Salt Lake City, UT 84117.
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson,
P.A., Counsel for the Company, Fort Lauderdale, Florida.
EXPERTS
The consolidated financial statements as of and for the year ended
September 30, 1997 incorporated by reference in this Prospectus have been
audited by Arthur Andersen LLP, independent certified public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference upon the authority of said firm as experts in giving said report.
The consolidated balance sheet of Visual Data Corporation and
Subsidiary as of September 30, 1996 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended, incorporated by reference in this prospectus, have been incorporated
herein in reliance on the reports of Goldstein Lewin & Co., independent
certified public accountants, given on the authority of that firm as experts in
accounting and auditing.
INDEMNIFICATION
The Company has authority under Section 607.0850 of the Florida
Business Corporation Act to indemnify its directors and officers to the extent
provided for in such statute. The Company's Articles of Incorporation provide
that the Company shall indemnify and may insure its officers and directors to
the fullest extent permitted by law.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for (i) violations of
criminal laws, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct
36
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was unlawful; (ii) deriving an improper personal benefit from a transaction;
(iii) voting for or assenting to an unlawful distribution; and (iv) willful
misconduct or conscious disregard for the best interests of the Company in a
preceding by or in the right of the Company to procure a judgment in its favor
or in a preceding by or in the right of a shareholder. The statute does not
affect a director's responsibilities under any other law, such as the Federal
securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or preceding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed 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
enforceable.
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<TABLE>
<CAPTION>
<S> <C>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with this offer made hereby. If given or made, such information or
representations must not be relied upon as having been authorized by the Company 2,638,540 shares
or any Underwriter. This Prospectus does not constitute an offer to sell or a of Common Stock
solicitation of any offer to buy any of the securities offered hereby in any
circumstance in which such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that information herein is correct at any VISUAL DATA
time subsequent to the date of this Prospectus. CORPORATION
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TABLE OF CONTENTS PROSPECTUS
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Page
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AVAILABLE INFORMATION.......................2
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE..................4
November 3, 1998
RISK FACTORS................................5
THE COMPANY.................................13
USE OF PROCEEDS.............................19
SELLING SECURITY HOLDERS....................20
PLAN OF DISTRIBUTION........................24
DESCRIPTION OF SECURITIES...................26
LEGAL MATTERS...............................35
EXPERTS.....................................35
INDEMNIFICATION.............................35
</TABLE>
