<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997.
REGISTRATION NO. 333-34825
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DELTAPOINT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7372 77-0216760
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
------------------------------
22 LOWER RAGSDALE DRIVE
MONTEREY, CALIFORNIA 93940
(408) 648-4000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
JEFFREY F. AIT
CHIEF EXECUTIVE OFFICER
DELTAPOINT, INC.
22 LOWER RAGSDALE DRIVE
MONTEREY, CALIFORNIA 93940
(408) 648-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY D. SAPER, ESQ. THOMAS J. POLETTI, ESQ.
KURT J. BERNEY, ESQ. KATHERINE J. BLAIR, ESQ.
Wilson Sonsini Goodrich & Rosati Freshman, Marantz, Orlanski, Cooper &
650 Page Mill Road Klein
Palo Alto, California 94304-1050 9100 Wilshire Boulevard
(415) 493-9300 Beverly Hills, California 90212-3480
Facsimile: (415) 493-6811 (310) 273-1870
Facsimile: (310) 274-8293
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER
SECURITIES TO BE REGISTERED REGISTERED SECURITY(1)
<S> <C> <C>
Common Stock, $0.001 par value(2)................................... 3,680,000 shares $2.625
Underwriter's Warrant(3)............................................ 1 warrant $5.00
Common Stock issuable upon exercise of Underwriter's Warrant(4)..... 320,000 shares $2.625
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Totals.............................................................. -- --
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value(2)................................... $9,660,000 2,928.00
Underwriter's Warrant(3)............................................ $5.00 --
Common Stock issuable upon exercise of Underwriter's Warrant(4)..... $840,000 255.00
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Totals.............................................................. $10,500,005 $3,183.00(5)
</TABLE>
(1) Based on an assumed offering price of $2.625 per share.
(2) Includes 480,000 shares which the Underwriter has the option to purchase to
cover over-allotments, if any.
(3) In connection with the Registrant's sale of Common Stock, the Registrant is
granting to the Underwriter a warrant to purchase 320,000 shares of Common
Stock (the "Underwriter's Warrant"). The price to be paid by the Underwriter
for the Underwriter's Warrant is $5.00.
(4) The exercise price of the Underwriter's Warrant is expected to be $3.675 per
share of Common Stock. Such shares are being registered for resale by the
Underwriter and its assigns and transferees on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933.
(5) $872 is paid herewith. A fee of $2,311.00 has previously been paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1997
3,200,000 SHARES
DELTAPOINT, INC.
COMMON STOCK
All of the shares of Common Stock, par value $0.001 ("Common Stock") offered
hereby are being sold by DeltaPoint, Inc., a California corporation (the
"Company"). The Common Stock is traded on the OTC Bulletin Board under the
symbol "DTPT" and on the Pacific Exchange under the symbol "DTP.P." On September
22, 1997, the reported last sale price of the Common Stock on the OTC Bulletin
Board was $2.625 per share. See "Price Range of Common Stock."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING
TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS(1) TO COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total (3)................................................ $ $ $
</TABLE>
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $252,000, assuming
a public offering price of $2.625 per share (or $289,800 if the
Underwriter's over-allotment option described in footnote (3) is exercised
in full) and, (ii) a warrant to purchase up to 320,000 shares of Common
Stock at $3.675 per share, assuming a public offering price of $2.625 per
share, exercisable over a period of four years, commencing one year from the
date of this Prospectus (the "Underwriter's Warrant"). The Company has
agreed to indemnify the Underwriter against certain civil liabilities under
the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $685,000.
(3) The Company has granted the Underwriter an option, exercisable within 30
business days of the date of this Prospectus, to purchase up to 480,000
additional shares of Common Stock on the same terms and conditions as set
forth above to cover over-allotments, if any. If all such additional shares
of Common Stock are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be increased to
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered hereby will be offered on a "firm
commitment" basis by the Underwriter when, as and if delivered to and accepted
by the Underwriter, and subject to prior sale, withdrawal or cancellation of the
offer without notice. It is expected that delivery of the certificates
representing the shares of Common Stock will be made at the offices of H.J.
Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 15620 on or about
, 1997.
H.J. MEYERS & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
Inside Front Cover Artwork
[Graphic chart inserted here reciting DeltaPoint's mission statement to be a
leading provider of scalable web site development and management solutions for
Web based business environments and describing how DeltaPoint sells and markets
its products. There is also a depiction of the name and logo of Site
Technologies.]
- --------------------------------------------------------------------------------
Inside Back Cover Artwork
[Picture inserted here highlights the name and logo of two DeltaPoint products,
QuickSite ("The Fastest Way to Create, Manage, & Sell on the Web") and
SiteSweeper ("Quality Control for the Web Professional"), through the respective
depictions of a web page with the title "Make Money on the Web" and a brochure
with the title "Quality Summary." There is also a depiction of the name and logo
of Site Technologies.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
STABILIZING BIDS OR COVERING TRANSACTIONS. FOR A DISCUSSION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
The Company furnishes to its shareholders annual reports containing financial
statements audited by an independent accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS
URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
DeltaPoint, Inc. ("DeltaPoint" or the "Company") currently develops and
markets Internet software products designed to enable individuals and Small
Office/Home Office ("SOHO") professionals to effectively and easily create,
manage and enhance Web sites on the Internet's World Wide Web (the "Web" or
"WWW"). The use of Web sites by small to medium businesses ("SMBs") and
enterprise departments has recently emerged into a critical business application
that provides greater sales and marketing reach and allows these businesses to
grow faster and more cost effectively. To capitalize on the emerging
opportunities in the SMB and enterprise department user markets for scalable Web
site development and management software solutions, the Company intends to
broaden its product offerings to include a family of products designed to enable
these users, in addition to individuals and SOHO professionals, to develop,
manage, integrate, deploy and maintain next-generation Web sites. The Company's
objective is to become a leading provider of scalable Web site development and
management software solutions for Web based business environments.
The Company introduced QuickSite 1.0 in February 1996 to enable individuals
and SOHO professionals to rapidly create, manage and enhance robust Internet Web
sites. Since its introduction, the Company has received a number of industry
analyst awards for QuickSite 1.0's management capabilities and database
architecture (including the PC Week Analyst's Choice Award, PC Week Labs IT
Excellence Award and PC Computing 5 Star Rating) and has successfully sold this
product through its distribution channels (including certain original equipment
manufacturers ("OEMs") with whom the Company has a strategic relationship, such
as Sony and Compaq Computer). In September 1996, the Company introduced
QuickSite 2.0 targeted at Web site developers. QuickSite 2.0 received the PC
Computing 5 Star Rating.
In February 1997, the Company introduced QuickSite 2.5, its second
generation Web site development and management solution targeted at individuals,
SOHO professionals and SMBs seeking to conduct electronic commerce over the
Internet. In addition to the features incorporated in QuickSite 1.0, QuickSite
2.5, which began shipping in May 1997, includes advanced features such as a
WYSIWYG++ (What You See Is What You Get) layout editor, an electronic commerce
enabled catalogue builder and an enhanced HTML (hypertext markup language)
editor. The Company has distributed QuickSite 2.5 through its distribution
channels (including OEMs such as MacMillan Press and Anawave, Inc.). QuickSite
2.5 has received numerous industry awards including the ZD Online Internet
Editor's Choice Award, InfoWorld High-Point Award, and Entrepreneur Magazine 4
out of 4 rating.
In April 1997, the Company announced its intent to acquire certain
proprietary core technology from Inlet, Inc. ("Inlet," with such transaction
being referred to herein as the "Inlet Technology Acquisition"). This technology
is intended to serve as the basis for the Company's planned client/server,
multi-authoring, dynamic site development and management products, the first of
which is planned for release in the fourth quarter of 1997, at the earliest. In
July 1997, the Company acquired Site/technologies/inc. ("Site", with such
transaction being referred to herein as the "Site Tech Acquisition") pursuant to
which the Company acquired, among other things, SiteSweeper 1.0, a Web site
quality control and maintenance product. The Company is currently developing
SiteSweeper 2.0, which is being designed to enable Web development and
management professionals to maintain the quality and integrity of mission
critical Web based business environments. The Company is planning to introduce
SiteSweeper 2.0 in the third quarter of 1997, at the
3
<PAGE>
earliest. The Company intends to enhance and incorporate the core technologies
acquired in the above acquisitions into its planned family of scalable Web site
development and management software solutions.
As part of the Company's continuing strategy to focus its development, sales
and marketing efforts on Internet software products, on June 27, 1997, the
Company consummated the sale of its DeltaGraph charting and graphics product
line (the "DeltaGraph Disposition") to SPSS, Inc. ("SPSS"). Additionally, the
Company intends to change the name under which the company does business to
SiteTechnologies Inc. or a similar name to more accurately represent the
Company's business focus.
DeltaPoint and Site/technologies are registered trademarks of the Company
and QuickSite, SiteTechnologies, WebAnimator and Web Tools are or may be
trademarks of the Company. All other product, brand or trade names are
trademarks or registered trademarks of their respective owners.
The Company was incorporated in California in 1989, its headquarters are
currently located at 22 Lower Ragsdale Drive, Monterey, California, and its
telephone number is (408) 648-4000. The Company currently plans to move its
headquarters to 380 El Pueblo, Scotts Valley, California on or about October 15,
1997.
------------------------
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk and
should be considered only by persons who can afford the loss of their entire
investment. See "Risk Factors" beginning on page 10.
------------------------
NOTICE TO CALIFORNIA AND OREGON INVESTORS
EACH PURCHASER OF SHARES OF COMMON STOCK IN CALIFORNIA AND OREGON MUST MEET
ONE OF THE FOLLOWING SUITABILITY STANDARDS: (i) A LIQUID NET WORTH (EXCLUDING
HOME, FURNISHINGS AND AUTOMOBILES) OF $250,000 OR MORE AND GROSS ANNUAL INCOME
DURING 1996 AND ESTIMATED DURING 1997 OF $65,000 OR MORE FROM ALL SOURCES; OR
(ii) A LIQUID NET WORTH (EXCLUDING HOME, FURNISHINGS AND AUTOMOBILES) OF
$500,000 OR MORE. EACH CALIFORNIA AND OREGON RESIDENT PURCHASING SHARES OF
COMMON STOCK OFFERED HEREBY WILL BE REQUIRED TO EXECUTE A REPRESENTATION THAT IT
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1995 1996 1996 1996 1997 1997
------- ------- -------- ------- ------- --------
PRO PRO
ACTUAL FORMA(2) ACTUAL FORMA(2)
---------------- -------- ---------------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(3):
Net revenues.............................................. $ 4,043 $ 4,950 $ 1,911 $ 1,893 $ 1,495 $ 865
Gross profit.............................................. 2,706 3,769 1,385 1,272 1,025 582
Loss from operations...................................... (2,486) (4,922) (7,647) (2,828) (3,042) (3,494)
Net loss.................................................. $(2,632) $(4,848) $(7,531) $(2,789) $(3,088) $(4,348)
Net loss per share(1)..................................... $ (2.42) $ (2.17) $ (2.71) $ (1.27) $ (1.20) $ (1.39)
Shares used to compute net loss per share(1).............. 1,086 2,231 2,781 2,193 2,571 3,121
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, --------------------------
1996 ACTUAL AS ADJUSTED(3)
------------ ---------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 3,142 $ 1,211 7,775
Working capital....................................................... 431 134 6,548
Total assets.......................................................... 6,346 3,114 9,655
Long Term Debt........................................................ -- -- 350
Accumulated deficit................................................... (13,666) (16,754) (19,024)
Total shareholders' equity............................................ $ 1,041 $ 623 6,779
</TABLE>
- ------------------------
(1) For an explanation of the number of shares used to compute net loss per
share, see Note 1 of Notes to Financial Statements.
(2) On June 27, 1997, the Company consummated the DeltaGraph Disposition with an
effective date of May 1, 1997. On July 11, 1997, the Company consummated the
Site Tech Acquisition. The Pro Forma Condensed Statement of Operations Data
for the year ended December 31, 1996 and the six months ended June 30, 1997
give effect to the DeltaGraph Disposition and the Site Tech Acquisition as
if such transaction had occurred on January 1, 1996. See "Corporate
Developments" and "Unaudited Pro Forma Financial Information".
(3) The "As Adjusted" Balance Sheet Data gives effect to (i) the consummation of
the Offering at an assumed offering price of $2.625 per share (providing
approximately $8,400,000 million in cash) less applicable underwriting
discounts and commissions and net of other offering expenses and the
application of proceeds therefrom; (ii) the consummated Site Tech
Acquisition as if the transaction occured on June 30, 1997; (iii) the
proposed Inlet Technology Acquisition which provides for the issuance of
360,000 shares of Common Stock with an aggregate fair value of $945,000 (at
an assumed price per share of $2.625), the payment of $475,000 at the
closing ($350,000 payable in cash and prepayments of $125,000 included in
working capital) and the payment of an additional $350,000 payable with
interest, at the Company's option, on the first anniversary of the closing
of the acquisition or in four quarterly payments commencing on the first
anniversary of the closing of the acquisition and a resulting aggregate
maximum in-process research and development charge to operations of
$1,770,000; and (iv) the issuance of 1,259,479 shares of Common Stock issued
in the conversion of the Company's Series A Preferred Stock ("Series A
Preferred Stock") and 6% Convertible Subordinated Debentures ("Convertible
Notes") outstanding at June 30, 1997 at an average conversion price of $1.24
per share of Common Stock. See "Corporate Developments," "Description of
Capital Stock--Preferred Stock and Convertible Notes," "Unaudited Pro Forma
Financial Information," "Unaudited Pro Forma Financial Information" and "Use
of Proceeds."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company....................... 3,200,000
Common Stock to be outstanding upon completion of the
Offering(1)............................................. 8,241,381 shares
OTC Bulletin Board........................................ DTPT
</TABLE>
- ------------------------
(1) Includes (i) the issuance of 550,029 shares of Common Stock issued in
conjunction with the Site Tech Acquisition; (ii) the proposed issuance of
360,000 shares of Common Stock in the Inlet Technology Acquisition; and
(iii) the issuance of 1,259,479 shares of Common Stock issued in the
conversion of the Series A Preferred Stock and Convertible Notes outstanding
at June 30, 1997 at an average conversion price of $1.24 per share of Common
Stock. Excludes (i) 198,413 shares of Common Stock issuable pursuant to
warrants outstanding as of June 30, 1997; (ii) 911,837 shares of Common
Stock issuable pursuant to options outstanding at June 30, 1997; (iii)
320,000 shares of Common Stock issuable pursuant to the Underwriter's
Warrant; and 480,000 shares of Common Stock issuable upon the exercise of
the Underwriter's over-allotment option. See "Corporate Developments,"
"Description of Capital Stock--Warrants and--Preferred Stock and Convertible
Notes," "Management-- Company Stock Option Plans," "Underwriting," and Notes
5, 8, 9 and 12 of Notes to Financial Statements.
6
<PAGE>
CORPORATE DEVELOPMENTS
DELTAGRAPH DISPOSITION
On June 27, 1997, DeltaPoint consummated the DeltaGraph Disposition pursuant
to which the Company sold those assets related to its DeltaGraph software
product line to SPSS for $910,000 in cash. The DeltaGraph product line consisted
of an advanced multi-platform charting and graphics software product for desktop
applications. The effective date for the disposition was May 1, 1997 and as part
of the DeltaGraph Disposition, DeltaPoint also agreed to assist in the
transition of DeltaGraph to SPSS through July 31, 1997. In return, SPSS made an
additional $400,000 cash payment to DeltaPoint on August 11, 1997.
The DeltaGraph Disposition was part of the Company's continuing strategy to
realize a significant and growing percentage of its revenues from the sale of
Internet software products. This strategy commenced with the Company's
acquisition of the technology required to develop WebAnimator in November 1995.
Prior to 1996, the Company derived substantially all of its product revenues
from licenses of DeltaGraph. For the period from January 1, 1996 to June 30,
1997, DeltaGraph products accounted for approximately 58% of the Company's net
revenues. Without the related contribution of the DeltaGraph business, the
Company's operating losses for these periods would have been significantly
greater. The DeltaGraph Disposition also provided the Company with much needed
liquidity. See "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Position and Results of Operations" and
"Notes to Financial Statements."
As a result of its cash constraints, and in connection with its reduced
level of operations and its focus on Internet software products, the Company has
over time significantly rationalized its workforce, including administrative and
engineering resources. This rationalization could have a material adverse effect
on, among other things, the Company's ability to identify and develop, license
or acquire technologies or products to extend product functionality and market
position in the areas of Web site development and management. See "Risk
Factors--Dependence on Limited Number of Key Personnel; Key Management Openings;
Personnel Limitations; Ability to Manage Growth."
CERTAIN ACQUISITIONS
INLET TECHNOLOGY ACQUISITION. On April 16, 1997, DeltaPoint entered into
the Letter of Intent for the "Inlet Technology Acquisition" with, among others,
Inlet pursuant to which the Company agreed to acquire from Inlet certain
Internet technologies. As consideration for the Inlet Technology Acquisition,
the Company has agreed to pay to Inlet an aggregate of $825,000 in cash payable
as provided below and 360,000 shares of the Company's Common Stock payable at
closing. The aggregate cash consideration of $825,000 is payable as follows:
$350,000 is payable at the closing of the acquisition; $350,000 is payable with
interest, at the Company's option, on the first anniversary of the closing of
the acquisition or in four quarterly installments commencing on the first
anniversary of the closing of the acquisition and the aggregate payments of
$125,000 made pursuant to the Letter of Intent and OEM Agreement (described
below) will be credited against the cash consideration payable by the Company.
The Letter of Intent also provides for future royalty payments by the Company to
Inlet in an amount equal to 5% of the net revenues from all sales of the
products developed from these technologies, subject to certain limitations. The
Company intends to use a portion of the net proceeds of this Offering to fund
the cash portion of the purchase price. See "Use of Proceeds." With respect to
the stock portion of the purchase price, the Company intends to grant certain
registration rights with respect thereto. See "Description of Capital
Stock--Registration Rights."
In connection with the Inlet Technology Acquisition, on June 13, 1997, the
Company and Inlet Divestiture Corp. ("IDC"), a wholly-owned subsidiary of Inlet,
entered into a software license agreement (the "OEM Agreement") pursuant to
which IDC granted to the Company the exclusive right to market, demonstrate and
distribute products based on the Inlet technologies in exchange for specified
royalty
7
<PAGE>
amounts. See "Proprietary Rights and Licenses." The Company has made three equal
cash payments to Inlet totaling $75,000 for non-recurring engineering expenses
incurred in connection with the OEM Agreement. In addition, upon the signing of
the OEM Agreement, the Company made a $50,000 payment to Inlet as a prepayment
on the royalty amounts due Inlet under the OEM Agreement. The parties have
agreed to credit these payments, totaling $125,000, against the aggregate cash
consideration payable to Inlet pursuant to the Inlet Technology Acquisition,
subject to the consummation thereof. The OEM Agreement also provides that if the
Inlet Technology Acquisition is not consummated the two parties will use their
best efforts to enter into an additional agreement by December 31, 1997 for the
continued exclusive rights to market, demonstrate and distribute the Inlet
technologies. Although the license will remain in full force and effect in any
event, the license will become non-exclusive if the additional agreement is not
entered into by December 31, 1997. On June 13, 1997, the Company and Inlet also
entered into a consulting agreement (the "Consulting Agreement") pursuant to
which Inlet granted to the Company the right to begin customizing the source
code for development use only in exchange for monthly cash payments of $20,000
to Inlet, payable in $10,000 installments on the first and fifteenth of each
month, which shall be treated as non-recurring engineering expense by the
Company. The OEM Agreement and Consulting Agreement will terminate upon the
consummation of the Inlet Technology Acquisition. See "Business--Proprietary
Rights and Licenses."
The parties to the Letter of Intent are currently negotiating definitive
documentation relating to the Inlet Technology Acquisition. The Company expects
that the definitive documentation will contain standard conditions to closing
and, in any event, the obligations of Inlet will be subject to the consummation
of the Offering. Although there can be no assurance that the Inlet Technology
Acquisition will be consummated, the Company expects that such acquisition will
be consummated shortly after the closing of the Offering.
SITE TECH ACQUISITION. On July 11, 1997, the Company consummated the Site
Tech Acquisition pursuant to which the Company acquired, among other things,
SiteSweeper 1.0, a Web site quality control and maintenance product. The Company
is currently developing SiteSweeper 2.0, which is being designed to enable Web
development and management professionals to maintain the quality and integrity
of mission critical Web based business environments. The Company is planning to
introduce SiteSweeper 2.0 in the third quarter of 1997, at the earliest. The
Company does not intend to actively market or distribute SiteSweeper 1.0. See
"Business--Products Under Development." In connection with the Site Tech
Acquisition, the Company issued a total of 550,029 shares of Common Stock with
an aggregate fair value of $638,000 on the acquisition date to the former
stockholders of Site in exchange for all outstanding shares of Site. In
addition, the Company also agreed to pay the specified royalties on sales of
certain products developed from the technologies acquired from Site. See
"Business--Proprietary Rights and Licenses."
As part of the Site Tech Acquisition, Stephen Mendel, a member of the board
of directors of Site, was appointed as a member of the Company's Board of
Directors. In addition, the Company has granted certain registration rights with
respect to the 550,029 shares of Common Stock paid to the former Site
stockholders. See "Description of Capital Stock--Registration Rights."
The Company expects to record a charge to operations in connection with the
consummation of the Site Tech Acquisition and the Inlet Technology Acquisition
to the extent that a portion of each respective purchase price is determined to
be in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." In addition, failure
to successfully consummate the Inlet Technology Acquisition, to successfully
develop and integrate the acquired Inlet and Site technologies into the
Company's Web site development and management technology or to successfully
market products based upon the acquired technologies would adversely impact the
Company's strategy of marketing to the SMB and enterprise department user
markets (in addition to individuals and SOHO professionals) and would have a
material adverse effect on the Company's business, operating results and
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financial condition. See "Risk Factors--Risks Associated with Inlet Technology
Acquisition and Site Tech Acquisition; General Acquisition Risks."
POTENTIAL COMPANY NAME CHANGE TO SITETECHNOLOGIES INC.
In connection with the Site Tech Acquisition, the Company obtained the
rights to the name Site/ technologies/inc. The Company is currently
contemplating changing its legal name to SiteTechnologies Inc. or a similar
name. Any such name change would require an amendment to the Company's Articles
of Incorporation and, as a result, would require shareholder approval. In
anticipation of any such name change, the Company may commence branding and
marketing its products using the name SiteTechnologies Inc. or a similar name.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, EACH PROSPECTIVE
INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED
HEREBY. NO INVESTOR SHOULD PARTICIPATE IN THE OFFERING UNLESS SUCH INVESTOR CAN
AFFORD A COMPLETE LOSS OF HIS OR HER INVESTMENT. THE DISCUSSION IN THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS."
RECENT AND EXPECTED LOSSES; ACCUMULATED DEFICIT; GOING CONCERN ASSUMPTIONS;
FUTURE CAPITAL NEEDS; NO ASSURANCE OF FUTURE FINANCING
The Company incurred net losses of $4,848,000 for the year ended December
31, 1996 and $3,088,000 for the six months ended June 30, 1997, and had an
accumulated deficit of $16,754,000 as of June 30, 1997. The Company expects to
incur losses for at least the next 12 months, and possibly longer. There can be
no assurance that the Company will not incur significant additional losses, will
generate positive cash flow from its operations, or that the Company will attain
or thereafter sustain profitability in any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's independent accountants' report on its financial statements as
of and for the years ended December 31, 1995 and 1996 contains an explanatory
paragraph indicating that the Company's accumulated deficit and historical
operating losses raise substantial doubts about its ability to continue as a
going concern. The Company may require substantial additional funds in the
future, and there can be no assurance that any independent accountants' report
on the Company's future financial statements will not include a similar
explanatory paragraph if the Company is unable to raise sufficient funds or
generate sufficient cash from operations to cover the cost of its operations.
The existence of the explanatory paragraph may have a material adverse effect
on, among other things, the Company's relationships with prospective customers
and suppliers, and therefore could have a material adverse effect on the
Company's business, financial condition and results of operations. See Note 1 of
Notes to Financial Statements.
The net proceeds from this Offering are estimated to be $6,938,000, assuming
no exercise of the Underwriter's over-allotment option. As of September 22,
1997, the Company's cash and cash equivalents totaled approximately $200,000. In
the absence of receiving the proceeds of this Offering, the Company anticipates
that its existing capital resources and cash generated from operations, if any,
will be sufficient to meet the Company's cash requirements at its anticipated
level of operations only through October 1997. The Company's future capital
requirements will depend upon numerous factors, including the amount of revenues
generated from operations and the progress of the Company's software
acquisition, development and introduction efforts, none of which can be
predicted with certainty. The Company anticipates that the proceeds of this
Offering, together with existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash requirements
for the next 12 months. However, the Company may seek additional funding during
the next 12 months and will likely be required to seek additional funding after
such time. There can be no assurance that any additional financing will be
available on acceptable terms, or at all, when required by the Company.
Moreover, if additional financing is not available, the Company could be
required to reduce or suspend its operations, seek an acquisition partner or
sell securities on terms that may be highly dilutive or otherwise
disadvantageous to investors purchasing the shares of Common Stock offered
hereby. The Company has experienced in the past, and may continue to experience,
operational difficulties and delays in its product development and marketing
activities due to working capital constraints. Any such difficulties or delays
could have a materially adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 1 of Notes to
Financial Statements.
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QUARTERLY FLUCTUATIONS IN PERFORMANCE
The Company's results of operations have historically varied substantially
from quarter to quarter and the Company expects they will continue to do so. In
the past, the Company's operating results have varied significantly as a result
of a number of factors, including the size and timing of customer orders or
license agreements, product mix, the revenues derived from product sales and
license fees, the existence and terms of royalty and packaging arrangements,
seasonality, the timing of the introduction and customer acceptance of new
products or product enhancements by the Company's competitors, new product or
version releases by the Company, changes in pricing policies by the Company or
its competitors, marketing and promotional expenditures, research and
development expenditures and changes in general economic conditions.
Furthermore, the Company has often recognized a substantial portion of its
revenues in the last month of the quarter, with these revenues frequently
concentrated in the last week or weeks of the quarter.
The Company's operating and other expenses are relatively fixed in the short
term. As a result, variations in timing of revenues can cause significant
variations in quarterly results of operations. For example, if the Company
obtains additional financing, the Company intends to continue to make
significant expenditures to enhance its sales and marketing activities and to
continue to make significant expenditures for research and development
activities. As such expenditures occur, the Company may be unable to reduce such
expenditures quickly if revenue is less than expected. The Company generally
does not operate with a significant order backlog and a substantial portion of
its revenue in any quarter is derived from orders booked in that quarter, which
are difficult to forecast and which are typically concentrated at the end of the
quarter. Accordingly, the Company's sales expectations are based almost entirely
on its internal estimates of future demand and not on firm customer orders. Due
to the foregoing factors, the Company believes that quarter to quarter
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. In addition, to
the extent that the Company succeeds in its strategy to target the SMB and
corporate department user markets, among other things, the Company's results of
operations and financial condition may be subject to greater or different
fluctuations as a result of potentially larger individual product sales,
seasonality, a longer sales cycle and longer payment terms. There can be no
assurance the Company will be profitable on a quarter to quarter or any other
basis in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
DEPENDENCE ON INTERNET SOFTWARE PRODUCTS AND RELATED STRATEGY; DEPENDENCE ON
CONTINUED EMERGENCE OF INTERNET SOFTWARE MARKET
Prior to 1996, the Company derived substantially all of its product revenues
from licenses of its DeltaGraph charting and graphics software products. With
the DeltaGraph Disposition, the Company's future operating results will depend
on the successful development, introduction and commercial acceptance of the
Company's Internet software products. The Company's current Internet software
products consist of: QuickSite 1.0, its Web page creation and site management
product introduced in February 1996; WebTools, its Web publishing capability
tool introduced in March 1996; WebAnimator, its multimedia authoring tool for
the Web introduced in July 1996; QuickSite Developer's Edition, its enhanced
version of QuickSite for Web site developers and corporate Intranet developers
introduced in September 1996; and QuickSite 2.5, its updated version of
QuickSite 1.0, introduced in May 1997. In addition, the Company currently plans
to develop and market a family of products targeted at the SMB and enterprise
department user markets for scalable Web site development and management
software solutions, including SiteSweeper 2.0 an updated version of SiteSweeper
1.0 acquired in the Site Tech Acquisition (planned for release in the third
quarter of 1997, at earliest), and a client/server, multi-authoring, dynamic
site development and management product based on the technology to be acquired
in the Inlet Technology Acquisition (planned for release in the fourth quarter
of 1997, at the earliest). The Company's future operating results are dependent
on the commercial acceptance of the products targeted at the SMB and enterprise
department user markets and the size of these targeted markets. There can be no
assurance that
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the Company's strategy of targeting the SMB and enterprise department user
markets will be successful, that the Inlet Technology Acquisition will be
consummated, that the Company can successfully manage the introduction and
distribution of new versions of its existing Internet software products or any
other potential Internet software products, or that any of its existing or
potential products will achieve significant market acceptance. Failure of any of
the Company's existing or potential products (particularly those targeted at the
SMB and enterprise department user markets) to achieve significant market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operation. See "--Risks Associated with Inlet
Technology Acquisition and Site Tech Acquisition; General Acquisition Risks,"
"--Distribution Risks; Substantial Reseller Customer Concentration," and
"Business--Strategy, --Products and --Sales and Marketing."
The Company's future operating results will also depend on the continued
emergence of the Internet software product market, which continues to evolve.
There can be no assurance that the Internet software market will continue to
develop at historic growth rates or that further market development will be
rapid enough or in areas that will benefit the Company. In addition, there are a
number of potential approaches to Internet software products, including Internet
software products incorporated into network operating systems or other software.
Therefore, even if Internet software products gain broader market acceptance,
there can be no assurance that the Company's products will be chosen by
organizations which acquire Internet software products. See "Risk Factors--Risk
of Inclusion of Internet Software Tool Functionality in Other Software."
RISKS ASSOCIATED WITH INLET TECHNOLOGY ACQUISITION AND SITE TECH ACQUISITION;
GENERAL ACQUISITION RISKS
In an effort to capitalize on the emerging opportunities in the SMB and
enterprise department user markets for scalable Web site development and
management software solutions, the Company consummated the Site Tech Acquisition
in July 1997 and has entered into the pending Inlet Technology Acquisition. The
Company currently plans to introduce SiteSweeper 2.0, an updated version of the
SiteSweeper 1.0 product acquired in the Site Tech Acquisition (planned for
release in the third quarter of 1997, at the earliest), and a client/server,
multi-authoring site, dynamic development and management product based on the
technology to be acquired in the Inlet Technology Acquisition planned for
release in the fourth quarter of 1997, at the earliest). There can be no
assurance that the Inlet Technology Acquisition, which is contingent on certain
closing conditions, including the closing of this Offering and the negotiation
of a definitive purchase agreement and other agreements, will be consummated.
Although the Company will continue to have a license to the technology to be
acquired in the Inlet Technology Acquisition if the transaction is not
consummated, the Company may be required to pay greater royalties and the
license may be non-exclusive. Furthermore, there can be no assurance that any
technology acquired in the Site Tech Acquisition or the Inlet Technology
Acquisition can be successfully developed or integrated into the Company's
current technology on a timely basis or at all, or that any products based on
this technology will receive market acceptance. In order to market products to
the SMB and enterprise department user markets, the Company must significantly
increase its non-retail distribution channels. See "--Distribution Risks;
Substantial Reseller Customer Concentration" and "Business--Strategy and--Sales
and Marketing." The failure to successfully develop and integrate the acquired
technology into the Company's Web site development and management technology or
to successfully market products based upon the acquired technology would
adversely impact the Company's strategy of marketing to the SMB and enterprise
department user markets (in addition to individuals and SOHO professionals) and
would have a material adverse effect on the Company's business, operating
results and financial condition.
The Company frequently evaluates potential acquisitions of complementary
businesses, products and technologies. As part of the Company's expansion plans,
the Company may acquire companies that have an installed base of products not
yet offered by the Company, have strategic distribution channels or customer
relationships, or otherwise present opportunities which management believes may
enhance the
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Company's competitive position. The success of any acquisition could depend not
only upon the ability of the Company to acquire such businesses, products and
technologies on a cost-effective basis, but also upon the ability of the Company
to integrate the acquired operations or technologies effectively into its
organization, to retain and motivate key personnel of the acquired businesses,
and to retain the significant customers of the acquired businesses. Any
acquisition, depending upon its size, could result in the use of a significant
portion of the Company's cash, or if such acquisition is made utilizing the
Company's securities, could result in significant dilution to the Company's
shareholders. Moreover, such transactions involve the diversion of substantial
management resources and evaluation of such opportunities requires substantial
diversion of administrative, sales and marketing and engineering and
technological resources. In addition, such transactions could result in large
one-time write-offs or the creation of goodwill or other intangible assets that
would result in amortization expense. For example, in the quarter ended
September 30, 1997, a significant portion of the Site Tech purchase price will
be expensed as in-process technology. A similar charge is expected in connection
with the pending Inlet Technology Acquisition. The failure to successfully
evaluate, negotiate, effect and integrate acquisition transactions could have a
material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL; KEY MANAGEMENT OPENINGS;
PERSONNEL LIMITATIONS; ABILITY TO MANAGE GROWTH
The Company's success depends substantially upon the contributions of
several key personnel, some of whom, such as the Company's Chief Executive
Officer, Jeffrey Ait, were only recently hired by the Company. The Company is
currently seeking to hire a Chief Financial Officer and a Vice President of
Sales. The failure to attract and retain key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management--Executive Officers and Directors and--Employment
Contracts."
As a result of its cash constraints, and in connection with its reduced
level of operations and its focus on Internet software products, the Company has
significantly rationalized it workforce, including administrative and
engineering resources. While the Company endeavors to identify and develop,
license or acquire technologies or products to extend product functionality and
market position in the areas of Web site development and management, its ability
to successfully undertake these activities could be limited by, among other
things, existing administrative, engineering and other resource limitations. The
failure to attract and retain adequate levels of engineering, sales and
marketing and other resources needed to timely respond to customer needs or
market conditions or to develop products to address targeted markets would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "--Distribution Risks; Substantial Reseller Customer
Concentration" and "--Rapid Technological Change; Risk of Product Delays; Risk
of Product Defects."
The Company's rationalization of its workforce has challenged, and is
expected to continue to challenge, the Company's management and operations,
including its sales and marketing, customer support, research and development
and finance and administrative operations. The Company's future performance will
depend in part on its ability to manage growth, should it occur, both in its
domestic and international operations and to adapt its operational and financial
control systems, if necessary, to respond to changes resulting from such growth.
The Company intends to continue to invest in improving its financial systems and
controls in connection with anticipated increases in the level of its
operations. The Company anticipates that it will need to add additional
personnel beyond its present needs and expand and upgrade its financial systems
to manage any future growth. The failure of the Company's management to respond
to and manage growth effectively could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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DISTRIBUTION RISKS; SUBSTANTIAL RESELLER CUSTOMER CONCENTRATION
The Company currently sells its software products targeted at the individual
and SOHO professional market to distributors for resale to certain retailers,
including computer superstores and mass merchandisers. The Company plans to
expand distribution of its Internet software products in this retail
distribution channel by increasing distribution relationships both domestically
and internationally. The Company also intends to increase the number of products
available for sale through the retail channel, which the Company believes is
essential in securing adequate retail shelf space and retailer promotional
support. The retail distribution channel is highly competitive and there can be
no assurance as to the Company's ability to expand its distribution in this
channel. In addition, there can be no assurance that the Company will be able to
successfully develop additional products for distribution through this channel.
See "--Competition," "Business--Sales and Marketing."
The Company intends to introduce products targeted at the SMB and enterprise
department user markets. See "Business--Strategy." Successful development of
products targeted at the SMB and enterprise department user markets will depend
in part on the Company's ability to successfully integrate the technology
acquired in the Site Tech Acquisition and the Inlet Technology Acquisition. See
"--Risks Associated with Inlet Technology Acquisition and Site Tech Acquisition;
General Acquisition Risks." In addition, the Company has not historically sold
products targeted at these markets and, in order to do so, must develop a sales
and marketing department with specialized expertise in the development of value
added reseller ("VARs"), original equipment manufacturer ("OEM") and Internet
Service Provider ("ISP") relationships to provide SMB and enterprise department
users Internet software solutions. There can be no assurance that the Company
will be able to develop such a sales and marketing team on a timely basis or at
all. In addition, this market is competitive and there can be no assurance that
the Company will be successful in establishing significant relationships with
VARs, OEMs or ISPs or, if developed, there can be no assurance as to amount of
support that the Company's products will receive from these VARs, OEMs or ISPs
who may offer products that compete with the Company's products. See
"--Competition" and "Business--Sales and Marketing." To the extent that the
Company succeeds in its strategy to target the SMB and enterprise department
user markets, among other things, the Company's results of operations may be
subject to greater or different fluctuations as a result of potentially larger
individual product sales, a longer sales cycle and longer payment terms. See
"--Quarterly Fluctuations in Performance.
Sales to a limited number of distributors and retailers in the retail
distribution channel have constituted, and are anticipated to continue to
constitute in the near term, a significant portion of the Company's retail
software sales. In particular, revenues from licenses sold to Nippon Polaroid
Kabushiki Kaisha, the Company's Japanese distributor, constituted approximately
11% of the Company's revenues from the sale of Internet products for the year
ended December 31, 1996 and for the six months ended June 30, 1997. See "--Risks
Associated with International Operations." Sales to Ingram Micro Inc.
constituted approximately 45% and 30% of the Company's revenues from the sale of
Internet products for the year ended December 31, 1996 and for the six months
ended June 30, 1997, respectively. Any termination or significant disruption of
the Company's relationship with any major distributor or retailer, or any
significant reduction in sales volume attributable to any of such entities,
would, unless or until replaced, materially adversely affect the Company's
business, financial condition and results of operations. A deterioration in
financial condition or other business difficulties of a distributor or retailer
could render the Company's accounts receivable from such entity uncollectible,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
Company's existing distributors and retailers will continue to provide the
Company's products with adequate levels of shelf space or promotional support.
See "Business--Sales and Marketing."
RISK OF INCLUSION OF INTERNET SOFTWARE TOOLS FUNCTIONALITY IN OTHER SOFTWARE
In the future, vendors of operating system software or other software (such
as office or back office software suites) may continue to enhance their products
(including separate products that are bundled
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together) to include functionality that is currently provided most often by
Internet software tools such as the Company's current and planned products. This
enhancement could be achieved through the addition of functionality to operating
system software or other software or the bundling of Internet software tools
with operating system software or other products. For example, Microsoft
incorporates into its BackOffice product its Web page creation software,
FrontPage. The widespread inclusion of the functionality of the Company's
products, and of the functionality of the Internet software products, as
standard features of operating system software or other software could render
the Company's products obsolete and unmarketable, particularly if the quality of
such functionality were comparable, or perceived to be comparable, to that of
the Company's products. Furthermore, even if the Internet software tool
functionality provided as standard features by operating systems or other
software is more limited than that of the Company's products, there can be no
assurance that a significant number of customers would not elect to accept such
functionality in lieu of purchasing additional software. If the Company was
unable to develop new Internet software products to further enhance operating
systems or other software and to replace successfully any obsolete products, the
Company's business, financial condition and results of operations would be
materially adversely affected.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company's revenues from international operations accounted for
approximately 11% of the Company's revenues from the sale of Internet products
in 1996 and the six months ended June 30, 1997, all of which were derived from
sales in Japan to Nippon Polaroid Kabushiki Kaisha, the Company's Japanese
distributor. In light of the recent DeltaGraph Disposition, the Company expects
that international Internet revenues may decline until the relationship with its
Japanese distributor (principally sold DeltaGraph products) is clarified or
other international distribution channels can be established. In the longer
term, the Company intends to take measures, including the hiring of additional
sales and marketing persons, to increase its level of international sales. In
light of, among other things, the Company's current cash constraints and need to
develop additional international sales capabilities and to timely introduce and
gain broader market acceptance for its existing and planned Internet software
products, there can be no assurance that the Company will be successful in such
efforts. International revenues are subject to a number of risks, including
greater difficulties in accounts receivable collection, longer payment cycles,
exposure to currency fluctuations, political and economic instability and the
burden of complying with a wide variety of foreign laws and regulatory
requirements. The Company also believes that it is exposed to greater levels of
software piracy in international markets because of the weaker protection
afforded to intellectual property in some foreign jurisdictions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Strategy and --Sales and Marketing."
RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DELAYS; RISK OF PRODUCT DEFECTS
The markets in which the Company competes are characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. The Company's future success depends upon its ability on a timely
basis to enhance its existing products, introduce new products that address the
changing requirements of its customers and anticipate or respond to
technological advances, emerging industry standards and practices in a timely,
cost-effective manner. There can be no assurance that the Company will be
successful in developing, introducing and marketing new products or enhancements
to existing products or will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of these products,
or that its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve any significant degree of commercial
acceptance. Software products such as those offered by the Company often contain
errors or "bugs" that can adversely affect the performance of the product or
damage a user's data. The Company has in the past discovered software defects in
its products that have adversely affected
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its business and operating results. If the Company is unable, for technological
or other reasons, to develop and introduce new products or enhancements of
existing products in a timely manner or if new versions of existing products
contain unacceptable levels of product defects or do not achieve a significant
degree of market acceptance, or any of the above situations occur there could be
a material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Risks Associated with Inlet
Technologies Acquisition and Site Tech Acquisition; General Acquisition Risks,"
"Business-- Sales and Marketing and --Research and Development."
COMPETITION
The Company competes on the basis of certain factors, including product
quality, first-to-market capabilities, product performance, ease of use,
customer support and price. The Company believes it currently competes favorably
overall with respect to these factors.
The markets in which the Company competes or plans to compete are highly
competitive and characterized by rapid technological change, frequent new
product introductions, short product lives, evolving industry standards and
significant price erosion over the life of a product. The Company anticipates
increased competition in these markets from both existing vendors and new market
entrants.
In the market for Internet software tools targeted at individual and SOHO
professional users, the Company has encountered competition primarily from
Microsoft, Adobe Systems Incorporated, Soft Quad, Inc. and NetObjects,
Incorporated (majority owned by IBM). In the market for Internet software
solutions targeted at the SMB and corporate department user markets, in addition
to these competitors, the Company expects competition from HAHT Software
Incorporated, Wallop Software Incorporated, Aziza, a division of Objectivity
Incorporated, Eventus Software Incorporated, Interwoven Corporation and Vignette
Corporation. In addition, some existing vendors in the enterprise wide Internet
software solution market (such as IBM/Lotus, Oracle Corporation, Informix
Software Inc. and Sybase Incorporated, Inc.) may enter into the Company's
existing and planned markets. The Company expects that existing vendors and new
market entrants will develop products that will compete directly with the
Company's products and that competition will increase significantly to the
extent that markets for the Company's products grow. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Most of the Company's
current and potential competitors have substantially greater financial,
technical, marketing, sales and customer support resources, greater name
recognition and larger installed customer bases than the Company. Because there
are minimal barriers to entry into the software market, the Company believes
sources of competition will continue to proliferate. The market for the
Company's products is characterized by significant price competition, and the
Company expects that it will face increasing pricing pressures. There can be no
assurance the Company will be able to maintain its historic pricing structure
for its existing products or will be able to obtain its desired pricing
structure for planned products. If the Company is unable to do so or if the
Company is unable to compete effectively against current and future competitors,
the Company's business, financial condition and results of operations will be
materially adversely affected.
RISKS ASSOCIATED WITH PRODUCT RETURNS; PRICE PROTECTION
Consistent with industry practice, the Company allows distributors,
retailers and end users to return products for credits towards the purchase of
additional products. In addition, the Company's promotional activities,
including free trial and satisfaction guaranteed offers, and competitors'
promotional or other activities could cause returns to increase sharply at any
time. Further, the Company expects that the rate of product returns could
increase to the extent that the Company introduces new versions of its existing
products in the retail distribution channel. For example, product returns may
increase above historical levels as a result of new product introductions. In
addition, if the Company reduces its prices, the Company credits its
distributors for the difference between the purchase price of products remaining
in their
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inventory and the Company's reduced price for such products. Although the
Company provides allowances for anticipated returns and price protection
obligations, and believes its existing policies have resulted in the
establishment of allowances that are adequate and have been adequate in the
past, there can be no assurance that such product returns and price protection
obligations will not exceed such allowances in the future and as a result will
not have a material adverse effect on future operating results, particularly
since the Company seeks to continually introduce new and enhanced products and
is likely to face increasing price competition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's ability to compete effectively depends in large part on its
ability to develop and maintain proprietary aspects of its technology. Despite
precautions taken by the Company, it may be possible for unauthorized third
parties to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Moreover, the laws of some
foreign countries do not protect the Company's proprietary rights in its
products to the same extent as do the laws of the United States. The Company
licenses some of its products under "shrink wrap" license agreements that are
included in products shipped by the Company and are not signed by licensees,
therefore they may be unenforceable under the laws of certain jurisdictions. In
addition, some aspects of the Company's products are not subject to intellectual
property protection.
The Company cannot be certain that others will not independently develop
substantially equivalent or superseding proprietary technology, or that an
equivalent product will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's proprietary
rights. There can be no assurance that any confidentiality agreements between
the Company and its employees will provide adequate protection for the Company's
proprietary information in the event of any unauthorized use or disclosure of
such proprietary information. See "Business--Proprietary Rights and Licenses."
Although the Company is not currently engaged in any intellectual property
litigation or proceedings, there can be no assurance that the Company will not
become involved in such proceedings. An adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require disputed rights to be licensed from others or require the
Company to cease the marketing or use of certain products, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company may be required to obtain licenses to
patents or proprietary rights of others, and there can be no assurance that any
licenses required under any patents or proprietary rights would be made
available on terms acceptable to the Company, if at all. See "Business--Property
Rights and Licenses."
VOLATILITY OF STOCK PRICE
The Company's stock price has exhibited substantial volatility since
December 1995 in response to variations in quarterly operating results, failure
by the Company to meet its internal projected operating results, changes in
analysts' estimates, announcements by the Company or its competitors, general
conditions in the Internet software industry and other factors. In addition, the
stock market is subject to price and volume fluctuations that affect the market
prices for companies in general, and small capitalization, high technology
companies in particular, and are often unrelated to their operating performance.
RECENT DE-LISTING FROM NASDAQ SMALLCAP MARKET; POTENTIAL DELISTING FROM PACIFIC
EXCHANGE; POSSIBLE INABILITY OF UNDERWRITER TO MAKE A MARKET IN THE COMPANY'S
COMMON STOCK
The Company's Common Stock was quoted on the Nasdaq SmallCap Market from
December 1995 until March 18, 1997 and is traded on the Pacific Exchange
(formerly the Pacific Stock Exchange) and
17
<PAGE>
quoted on the OTC Bulletin Board and the "pink sheets." The Common Stock was
delisted from the Nasdaq SmallCap Market effective March 19, 1997 because of
Nasdaq's determination that the Company failed to maintain certain requirements
for continued listing. The shares of Common Stock are currently quoted on the
Pacific Exchange. The Company has been notified by the Pacific Exchange that it
may take action to delist the shares of Common Stock as a result of, among other
things, the Company's failure to maintain certain requirements for continued
listing. As a result of the foregoing, it is more difficult to dispose of, or to
obtain accurate quotations as to the price of, the Company's Common Stock. In
addition, because the Company's Common Stock was removed from the Nasdaq
SmallCap Market and its market price is less than $5.00 per share, it is subject
to so-called "penny stock" rules that impose additional sales practice and
market making requirements on broker-dealers who sell and/or make a market in
such securities. Consequently, removal from the Nasdaq SmallCap Market and the
applicability of such "penny stock" rules could adversely affect the ability or
willingness of broker-dealers to sell and/or make a market in the Company's
Common Stock and the ability of purchasers of the Company's Common Stock to sell
their securities in the secondary market. While the Company intends to apply for
relisting on the Nasdaq SmallCap Market should it ever satisfy the conditions of
listing and intends to take actions to prevent delisting from the Pacific
Exchange, there can be no assurance that relisting will occur or that delisting
will not occur in the future. Even if the Company achieves relisting for the
Common Stock on the Nasdaq SmallCap Market, the liquidity of the Common Stock
will remain limited as the Nasdaq SmallCap Market and the Pacific Exchange are a
significantly less liquid markets then the Nasdaq National Market. If the
Company should continue to experience losses from operations, it may be unable
to maintain the standards for continued quotation on the Nasdaq SmallCap Market
(if relisted) and the Pacific Exchange, and the shares of Common Stock could be
subject to removal from the Nasdaq SmallCap Market and the Pacific Exchange.
Any limitation on the ability of the Underwriter to make a market in the
Company's Common Stock could adversely impact the liquidity or trading price of
the Company's Common Stock, which could have a material adverse impact on the
market price of the Company's Common Stock. The Chicago office of the Securities
and Exchange Commission is conducting a private, nonpublic investigation of H.J.
Meyers & Co., Inc., the Underwriter and the principal market maker in the
Company's Common Stock, pursuant to a Formal Order of Investigation issued by
the Commission. The investigation is focused on whether the Underwriter may have
violated applicable securities laws and the rules and regulations thereunder,
with respect to sales of certain securities. The Company is currently unable to
assess the potential impact of the outcome of the Staff's investigation on the
Underwriter's ability to make a market in the Company's Common Stock (including
Common Stock in this Offering) or trading in the Company's securities.
SHARES ELIGIBLE FOR FUTURE SALE
Sales in the public market of substantial amounts of Common Stock (including
sales in connection with the exercise of certain registration rights relating to
shares of Common Stock) or the perception that such sales could occur could
depress prevailing market prices for the Common Stock from time to time.
Following the expiration of or earlier release from the 13-month lockup
agreements with the Underwriter, 6,473,405 shares will be freely tradeable
without restriction under the Securities Act and 1,407,976 will be freely
tradeable, subject to Rule 144 volume limitations. The shares offered hereby are
freely tradeable without restrictions under the Securities Act. In addition, the
Company intends to file a registration statement on Form S-8 under the
Securities Act to cover 400,000 (for an aggregate of 1,220,000) shares of Common
Stock reserved for issuance under its 1995 Option Plan. Accordingly, shares
registered under such registration statement will, subject to vesting
restrictions and Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market. Holders of warrants to purchase a total
of 198,413 shares of Common Stock, the former stockholders of Site (who hold a
total of 550,029 shares of Common Stock), Inlet (who are expected to receive
360,000 shares of Common Stock pursuant to the Inlet Technology Acquisition) and
the holders of the Underwriter's Warrant are each entitled to or are expected to
become entitled to certain rights with respect to registration of such shares of
Common Stock for offer
18
<PAGE>
or sale to the public. If such holders, by exercising their rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have a material adverse effect on the market price for the Company's
Common Stock. See "Certain Transactions," "Description of Capital Stock--
Registration Rights," "Shares Eligible for Future Sale" and "Underwriting."
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
As of September 22, 1997, the Company has reserved 318,413 shares of Common
Stock for issuance upon exercise of outstanding warrants and options and 939,519
shares of Common Stock for issuance to employees, officers, directors and
consultants pursuant to option exercises or sales of Common Stock under the
Stock Plans. The existence of the aforementioned warrants, options and any other
options or warrants may hinder the Company's ability to obtain future equity
financing. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock offered hereby will incur an
immediate and substantial dilution of $1.835 per share (at assumed offering
price of $2.625 per share) or approximately 70% of their investment in the
shares of Common Stock in that the pro forma net tangible book value of the
Company's Common Stock after this Offering will be approximately $0.79 per
share. See "Dilution."
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to 4,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. While the Company has no present intention to
issue shares of Preferred Stock, such issuance, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. See
"Description of Capital Stock--Preferred Stock and Convertible Notes."
NO ANTICIPATED DIVIDENDS
The Company has not previously paid any dividends on its Common Stock and
for the foreseeable future intends to continue its policy of retaining any
earnings to finance the development of its business and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by California General Corporation Law, the Company has included
in its Restated Articles of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In addition,
the Bylaws of the Company provide that the Company is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and the
Company is required to advance expenses to its officers and directors as
incurred in connection with proceeding against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the California General
Corporation Law. See "Management--Limitations on Liability and Indemnification
Matters."
19
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock was quoted on the Nasdaq SmallCap Market under
the symbol "DTPT" from December 20, 1995 through March 18, 1997, when it was
delisted, and has been traded on the Pacific Exchange (formerly the Pacific
Stock Exchange) since December 1995 through the present, under the symbol
"DTP.P." Since March 18, 1997 the Common Stock has traded over-the-counter and
has been quoted on the OTC Bulletin Board under the symbol "DTPT" and on the
"pink sheets."
The table below sets forth the high and low closing sale price of the Common
Stock for the periods indicated, as reported by the Nasdaq SmallCap Market
through March 18, 1997 and the OTC Bulletin Board thereafter. Prior to the
offering in December 1995, no established public trading market for the
Company's Common Stock existed.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Fourth quarter (from December 20, 1995)................................... $ 8.75 $ 8.00
YEAR ENDED DECEMBER 31, 1996
First quarter............................................................. $ 9.75 $ 6.50
Second quarter............................................................ $ 17.25 $ 9.50
Third quarter............................................................. $ 13.75 $ 5.88
Fourth quarter............................................................ $ 11.75 $ 6.00
YEAR ENDING DECEMBER 31, 1997
First quarter............................................................. $ 8.25 $ 2.25
Second quarter............................................................ $ 3.00 $ 1.38
Third quarter (through September 22, 1997)................................ $ 3.06 $ 1.13
</TABLE>
On September 22, 1997, the closing sale price for a share of the Company's
Common Stock, as reported on the OTC Bulletin Board, was $2.625.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,200,000 shares of
Common Stock being offered hereby (at an assumed public offering price of $2.625
per share), after deducting underwriting discounts and commissions and offering
expenses, are estimated to be approximately $6,938,000. The Company expects to
use the net proceeds from this Offering approximately as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------------ -----------
<S> <C> <C>
Inlet Technology Acquisition (See "Corporate Developments")............ $ 700,000 10%
Sales and marketing (See "Business--Sales and Marketing").............. $ 2,775,000 40%
Research and development (See "Business--Research and Development").... $ 2,080,000 30%
General corporate purposes............................................. $ 1,383,000 20%
------------ -----
TOTAL.................................................................. $ 6,938,000 100%
------------ -----
------------ -----
</TABLE>
The projected expenditures described above are estimates and approximations
only and do not represent firm commitments by the Company. Proceeds allocated to
general corporate purposes may be utilized for acquisitions of or investments in
complementary technologies or businesses. Except for the pending Inlet
Technology Acquisition, the Company has no agreements or understandings with
respect to any such transaction. Pending such uses, the net proceeds will be
invested in short-term, interest-bearing, investment-grade securities. The
Company anticipates that the proceeds of this Offering, together with existing
capital resources and cash generated from operations, if any, will be sufficient
to meet the Company's cash requirements for the next 12 months.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock, and the Company currently intends to retain any future earnings to fund
the development of its business and therefore does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. The Company's
Series A Preferred Stock entitles holders to cumulative dividends at an annual
rate of $90.00 per share, payable quarterly. Dividends are payable in cash, or
at the Company's election, in shares of Common Stock, valued at 80% of the
average fair market value thereof for the five business days prior to the days
on which dividends are payable. At September 22, 1997, there were no shares of
Series A Preferred Stock issued and outstanding.
21
<PAGE>
CAPITALIZATION
The following table sets forth the actual and as adjusted capitalization of
the Company as of June 30, 1997. As adjusted capitalization gives effect to (i)
the consummation of the Offering at an assumed offering price of $2.625 per
share (providing approximately $8,400,000 in cash) less applicable underwriting
discounts and commissions and net of other offering expenses; (ii) the issuance
of 550,029 shares of Common Stock issued in conjunction with the Site Tech
Acquisition with an aggregate value of $638,000 and a resulting estimated
in-process research and development charge to operations of $500,000; (iii) the
proposed Inlet Technology Acquisition which provides for the issuance of 360,000
shares of Common Stock with an aggregate fair value of $945,000 (at an assumed
price per share of $2.625), the payment of $350,000 ($475,000 less prepayments
of $125,000) at the closing and the payment of an additional $350,000 to be paid
with interest, at the Company's option, on the first anniversary of the closing
of the acquisition or in four quarterly payments commencing on the first
anniversary of the closing of the acquisition and a resulting aggregate maximum
in-process research and development charge to operations of $1,770,000; and (iv)
the issuance of 1,259,479 shares of Common Stock issued in the conversion of the
Series A Preferred Stock and Convertible Notes outstanding at June 30, 1997 at
an average conversion price of $1.24 per share of Common Stock. See "Corporate
Developments," "Description of Capital Stock-- Preferred Stock and Convertible
Notes," and "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
AS
ACTUAL ADJUSTED(1)
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Long-term debt...................................................... $ -- $ 350
----------- -----------
Shareholders' equity:
Preferred Stock, no par value, 4,000,000 shares authorized, 1,530
shares issued and outstanding actual, no shares issued and
outstanding as adjusted........................................... 1,530 --
Common stock, no par value, 25,000,000 shares authorized, 2,871,873
shares issued and outstanding actual, 8,241,381 shares issued and
outstanding as adjusted; (2)...................................... 15,847 25,803
Accumulated deficit................................................. (16,754) (19,024)
----------- -----------
Total shareholders' equity.......................................... 623 6,779
----------- -----------
Total capitalization................................................ $ 623 $ 7,129
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriter's over-allotment option or exercise
of outstanding stock options or warrants.
(2) Excludes (i) 911,837 shares of Common Stock issuable pursuant to options
outstanding at June 30, 1997, (ii) 320,000 shares of Common Stock issuable
pursuant to the Underwriter's Warrant, and (iii) 480,000 shares of Common
Stock issuable upon the exercise of the Underwriter's over-allotment option.
See "Description of Capital Stock--Warrants," "Management--Company Stock
Option Plans," "Underwriting," and Notes 8 and 9 of Notes to Financial
Statements.
22
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company's Common Stock as of
June 30, 1997 was $(1,131,000) or approximately ($0.39) per share. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities and Series A Preferred Stock, divided by 2,871,873
shares of Common Stock outstanding as of June 30, 1997.
Net tangible book value dilution per share represents the difference between
the amount per share paid by new investors who purchase shares of Common Stock
in this Offering and the pro forma net tangible book value per share of Common
Stock immediately after the closing of this Offering. The pro forma net tangible
book value of the Company as of June 30, 1997 would have been $6,530,000 or
$0.79 per share after: (i) giving effect to the sale by the Company of 3,200,000
shares of Common Stock in this Offering at an assumed public offering price of
$2.625 per share, after deduction of underwriting discounts and commissions and
estimated offering expenses aggregating $1,462,000; (ii) the issuance of 550,029
shares of Common Stock issued in conjunction with the Site Tech Acquisition that
had an aggregate value of $638,000 and a resulting estimated in-process research
and development charge to operations of $500,000; (iii) the proposed Inlet
Technology Acquisition which provides for the issuance of 360,000 shares of
Common Stock with an aggregate fair value of $945,000 (at an assumed price per
share of $2.625), the payment of $350,000 ($475,000 less prepayments of
$125,000) at the closing and the payment of an additional $350,000 to be paid
with interest, at the Company's option, on the first anniversary of the closing
of the acquisition or in four quarterly payments commencing on the first
anniversary of the closing of the acquisition and a resulting aggregate maximum
in-process research and development charge to operations of $1,770,000; and (iv)
the issuance of 1,259,479 shares of Common Stock issued in the conversion of the
Series A Preferred Stock and Convertible Notes outstanding at June 30, 1997 at
an average conversion price of $1.24 per share of Common Stock. These effects
result in an immediate net increase in net tangible book value of $1.18 per
share to existing stockholders, and an immediate dilution of $1.835 per share to
new investors. See "Corporate Developments" and "Description of Capital
Stock--Preferred Stock and Convertible Notes." The following table illustrates
this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share(l)..................................................... $ 2.625
Net tangible book value (deficit) per share at June 30, 1997................................. $ (0.39)
Increase per share attributable to new investors............................................. 1.34
Decrease per share attributable to the Site Tech Acquisition................................. (0.07)
Decrease per share attributable to the proposed Inlet Technology Acquisition................. (0.14)
Increase per share attributable to conversion of Convertible Notes and Series A Preferred
Stock...................................................................................... 0.05
---------
Pro forma net tangible book value per share after the Offering(2).............................. 0.79
---------
Pro forma net tangible book value dilution per share to new investors(3)....................... $ 1.835
---------
---------
</TABLE>
- ------------------------
(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offering to be paid by the Company and amounts to be paid in
conjunction with the Inlet Technology Acquisition.
(2) Does not give effect to an aggregate of up to 320,000 shares of Common Stock
issuable upon exercise of the Underwriter's Warrant, the Underwriter's
over-allotment option or warrants or options outstanding as of June 30,
1997. See "Description of Capital Stock--Warrants" and "Underwriting."
(3) Represents dilution of approximately 70% to purchasers of the shares of
Common Stock.
23
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On June 27, 1997, the Company consummated the DeltaGraph Disposition with an
effective date of May 1, 1997. On July 11, 1997 the Company consummated the Site
Tech Acquisition. The accompanying Unaudited Pro Forma Statement of Operations
for the year ended December 31, 1996 and the six months ended June 30, 1997 give
effect to the DeltaGraph Disposition and the Site Tech Acquisition as if such
transactions had occurred on January 1, 1996. The Unaudited Pro Forma Condensed
Balance Sheet for the six months ended June 30, 1997 reflects the effects of the
Site Tech Acquisition based on the fair market value of the acquired assets and
liabilities on July 11, 1997 as if such acquisition had been consummated on June
30, 1997. Such information is provided to give the reader an understanding of
the historical significance of the DeltaGraph product line and the historical
Site financial information. The unaudited pro forma financial information give
effect to the adjustments described in the accompanying "Notes to Unaudited
Financial Information."
The unaudited pro forma financial information does not purport to represent
what the Company's financial position or results of operations would have been
had the DeltaGraph Disposition or the Site Tech Acquisition occurred on the date
indicated or for any prior period or date. The pro forma adjustments give effect
to available information and assumptions that the Company believes are
reasonable. The unaudited pro forma financial information should be read in
conjunction with the Company's historical financial statements and the notes
thereto included elsewhere herein.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED
BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS, EXCEPT NUMBER OF SHARES, UNAUDITED)
<TABLE>
<CAPTION>
AS PRO FORMA PRO FORMA
REPORTED ADJUSTMENTS AMOUNTS
---------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2a)....................................... $ 1,211 $ (24) $ 1,187
Accounts receivable, net of allowance for doubtful accounts of $111 and
$113 (Note 2b).......................................................... 812 8 820
Inventories............................................................... 117 -- 117
Prepaid expenses and other current assets................................. 485 2 487
---------- ----- -----------
Total current assets.................................................... 2,625 (14) 2,611
Property and equipment, net (Note 2c)..................................... 235 67 302
Purchased software........................................................ 224 -- 224
Deposits and other assets (Note 2d)....................................... 30 25 55
---------- ----- -----------
$ 3,114 $ 78 $ 3,192
---------- ----- -----------
---------- ----- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable (Note 2e)................................................ 1,305 38 1,343
Accrued liabilities (Note 2e)............................................. 923 35 958
Reserve for returns....................................................... 225 -- 225
Notes payable............................................................. 38 -- 38
---------- ----- -----------
Total current liabilities............................................... 2,491 73 2,564
---------- ----- -----------
Shareholders deficit:
Preferred Stock, no par value, 4,000,000 authorized, 2,500 shares
designated as Series A, 1,530 shares issued and outstanding............. 1,530 -- 1,530
Common Stock, no par value, 25,000,000 shares authorized, 2,871,873 and
3,421,902 shares issued and outstanding
(Note 2f)............................................................... 15,847 505 16,352
Accumulated deficit (Note 2g)............................................. (16,754) (500) (17,254)
---------- ----- -----------
Total shareholders' deficit............................................. (623) 5 (628)
---------- ----- -----------
$ 3,114 $ 78 $ 3,192
---------- ----- -----------
---------- ----- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma financial statements.
25
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------------------------------------- -----------------------------------------
DELTAGRAPH SITE DELTAGRAPH SITE
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS ADJUSTMENTS AMOUNTS AS REPORTED ADJUSTMENTS ADJUSTMENTS
----------- ----------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues (Note 3)...... $ 4,950 $ (3,067) $ 28 $ 1,911 $ 1,495 $ (659) $ 29
Cost of Revenues
(Note 3)................. 1,181 (660) 5 526 470 (190) 3
----------- ----------- ----------- ----------- ----------- ----- -----
Gross Profit............... 3,769 (2,407) 23 1,385 1,025 (469) 26
----------- ----------- ----------- ----------- ----------- ----- -----
Operating Expenses: Sales
and marketing (Note 3)... 4,685 (612) 233 4,306 2,241 (232) 26
Research and development
(Note 3)................. 2,618 (502) 924 3,040 1,347 (93) 187
General and administrative
(Note 3)................. 1,388 (26) 324 1,686 479 (15) 136
----------- ----------- ----------- ----------- ----------- ----- -----
8,691 (1,140) 1,481 9,032 4,067 (340) 349
----------- ----------- ----------- ----------- ----------- ----- -----
Loss from operations....... (4,922) (1,267) (1,458) (7,647) (3,042) (129) (323)
Interest income (expense),
net...................... 74 -- 42 116 (817) -- 1
Other income (Note 5)...... -- -- -- -- 771 (771) (38)
----------- ----------- ----------- ----------- ----------- ----- -----
Net loss................... $ (4,848) $ (1,267) $ (1,416) $ (7,531) $ (3,088) $ (900) $ (360)
----------- ----------- ----------- ----------- ----------- ----- -----
----------- ----------- ----------- ----------- ----------- ----- -----
Net loss per share......... $ (2.17) $ (2.71) $ (1.20)
----------- ----------- -----------
----------- ----------- -----------
Share and share equivalents
used in per share
calculations............. 2,231 2,781 2,571
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
PRO FORMA
AMOUNTS
-----------
<S> <C>
Net Revenues (Note 3)...... $ 865
Cost of Revenues
(Note 3)................. 283
-----------
Gross Profit............... 582
-----------
Operating Expenses: Sales
and marketing (Note 3)... 2,035
Research and development
(Note 3)................. 1,441
General and administrative
(Note 3)................. 600
-----------
4,076
-----------
Loss from operations....... (3,494)
Interest income (expense),
net...................... (816)
Other income (Note 5)...... (38)
-----------
Net loss................... $ (4,348)
-----------
-----------
Net loss per share......... $ (1.39)
-----------
-----------
Share and share equivalents
used in per share
calculations............. 3,121
-----------
-----------
</TABLE>
See accompanying notes to Unaudited Pro Forma financial statements.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) On June 27, 1997, the Company consummated the sale of its DeltaGraph product
line to SPSS, Inc. ("SPSS") with an effective date of May 1, 1997 for
aggregate proceeds of $1,310,000 in cash, of which $910,000 is attributable
to the sale of the DeltaGraph product line and $400,000 is attributable to
services to be rendered by the Company pursuant to an interim management
agreement (the "Management Agreement") between the Company and SPSS. The
Company received $910,000 on June 30, 1997 pursuant to the sale. The Company
has deferred recognition of the $400,000 until completion of all obligations
to SPSS.
On July 11, 1997, the Company acquired the shares of Site/technologies/inc.
("Site") for an aggregate purchase price of $638,000. The purchase price was
comprised of a cash payment of $60,000, issuance of 550,029 shares of the
Company's Common Stock valued at $721,913 less 30% applicable to the shares
to account for the fact that they will be restricted for a period of time
and assumed debt/ liabilities of $73,000. In exchange the Company acquired
all the outstanding shares and assets of Site. The Company will record the
expense related to purchased in-process technology of approximately $500,000
during the third quarter of 1997. This amount has been excluded from the pro
forma statements of operations due to its non-recurring nature.
(2) The sale of DeltaGraph was consummated on June 27, 1997. Accordingly, the
balance sheet at June 30, 1997 (included elsewhere herein) includes the
effect of the DeltaGraph Disposition.
The pro forma condensed balance sheet reflects the effects of the
acquisition of Site based upon the fair market value of the acquired assets
and liabilities on July 11, 1997, as if such acquisition had been
consummated on June 30, 1997:
a. Decrease in cash:
<TABLE>
<S> <C>
Cash acquired from Site........................... $ 36,000
Acquisition costs................................. (60,000)
---------
Net decrease in cash.............................. $ (24,000)
---------
---------
</TABLE>
b. Increase in accounts receivable is equal to Site's accounts
receivable of $8,000 at July 11, 1997 which the Company acquired.
c. Increase in property and equipment is equal to Site's property and
equipment of $67,000 at July 11, 1997 which the Company acquired.
d. Increase in deposits and other assets:
<TABLE>
<S> <C>
Developed technology............................... $ 14,000
Goodwill........................................... 5,000
Assembled workforce................................ 6,000
---------
$ 25,000
---------
---------
</TABLE>
e. Increase in accounts payable and accrued liabilities is equal to
Site's liabilities which the Company acquired at July 11, 1997.
f. Increase in Common Stock is equal to the 550,029 shares of Common
Stock issued at a fair market value of $1.31 per share less a
restricted stock discount of 30%.
g. The increase in accumulated deficit reflects a $500,000 write-off for
the portion of the purchase price considered to be in-process
technology costs.
27
<PAGE>
(3) After the May 1, 1997 effective date of the sale of DeltaGraph, the Company
will no longer have revenues relating to DeltaGraph. The unaudited pro forma
statement of operations has been adjusted to eliminate the net revenues,
cost of revenues and operating expenses which the Company believes (i) are
directly attributable to DeltaGraph and (ii) will not continue after the
completion of the sale of DeltaGraph.
(4) Since the pro forma adjustments described above increase the Company's
pre-tax loss, there is no effect on U.S. income tax expense.
(5) The unaudited pro forma statement of operations has been prepared for
continuing operations and, therefore, does not give effect to the one time
gain of $771,000 from the sale of DeltaGraph included in the as reported
results for the six months ended June 30, 1997, the deferred fees related to
the Management Agreement, or the expense related to purchased in-process
technology of approximately $500,000 relating to the Site Tech Acquisition.
28
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The statement of operations data for the years ended
December 31, 1995 and 1996 and the balance sheet data at December 31, 1995 and
1996 have been derived from the audited financial statements of the Company
included elsewhere in this Prospectus. The statement of operations data for the
six months ended June 30, 1996 and 1997 and the balance sheet data at June 30,
1997 are derived from unaudited financial statements of the Company. The
unaudited financial statements, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results of operations for the periods. The results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of results that may be expected for the full year or in any future period. The
following data has been derived from financial statements audited by Price
Waterhouse LLP, independent accountants: the balance sheets at December 31, 1995
and 1996 and the related statements of income and of cash flows for the years
then ended December 31, 1996 and notes thereto appear elsewhere herein. The
report of Price Waterhouse LLP which also appears herein contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to such financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenues........................................................... $ 4,043 $ 4,950 $ 1,893 $ 1,495
Cost of revenues....................................................... 1,337 1,181 621 470
--------- --------- --------- ---------
Gross profit......................................................... 2,706 3,769 1,272 1,025
--------- --------- --------- ---------
Operating expenses:
Sales and marketing.................................................. 1,922 4,685 2,051 2,241
Research and development............................................. 2,036 2,618 1,088 1,347
General and administrative........................................... 1,234 1,388 961 479
--------- --------- --------- ---------
5,192 8,691 4,100 4,067
--------- --------- --------- ---------
Loss from operations................................................... (2,486) (4,922) (2,828) (3,042)
Interest (expense) income, net......................................... (146) 74 39 (817)
Other income........................................................... -- -- -- 771
--------- --------- --------- ---------
Net loss............................................................... $ (2,632) $ (4,848) $ (2,789) $ (3,088)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share (2)................................................. $ (2.42) $ (2.17) $ (1.27) $ (1.20)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in per share calculation (2)............................... 1,086 2,231 2,193 2,571
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 JUNE 30, 1997
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................. $ 2,915 $ 431 $ 134
Total assets.................................................................... $ 6,764 $ 6,346 $ 3,114
Current liabilities............................................................. $ 3,315 $ 5,305 $ 2,491
Total shareholders' equity...................................................... $ 3,449 $ 1,041 $ 623
</TABLE>
- --------------------------
(1) On June 27, 1997, the Company consummated the DeltaGraph Disposition with an
effective date of May 1, 1997. As a result, the effect of DeltaGraph
Disposition is reflected in Balance Sheet Data at June 30, 1997. On July 11,
1997, the Company consummated the Site Tech Acquisition. The Unaudited Pro
Forma Statement of Operations Data for the year ended December 31, 1996 and
the six months ended June 30, 1997 give effect to the DeltaGraph Disposition
and the Site Tech Acquisition as if such transactions had occurred on
January 1, 1996. See "Unaudited Pro Forma Information."
(2) For an explanation of the number of shares used to compute net loss per
share. See Note 1 of Notes to Financial Statements.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, WHICH CAN
BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "WILL,"
"EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR
OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE MATTERS SET FORTH UNDER
THE CAPTION "RISK FACTORS" IN THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
OVERVIEW
CORPORATE EVENTS. The Company was incorporated on February 1, 1989 to
design, develop and market visualization software products for personal
computers. The Company commenced shipments of its initial product, DeltaGraph,
at the end of 1989. The Company conducted its initial public offering in
December 1995. Commencing with its acquisition of the technology required to
develop WebAnimator (a multimedia authoring tool for the Web) in November 1995,
the Company's strategy has been to realize a significant and growing percentage
of its revenues from the sale of Internet software products. Towards that end,
the Company acquired technology to develop QuickSite (a Web site creation and
management tool) in December 1995 (released version 1.0 in February 1996) and
introduced WebTools in March 1996, WebAnimator in July 1996, QuickSite
Developer's Edition in September 1996 and QuickSite 2.5 in May 1997.
As part of its continued focus on Internet software products, DeltaPoint
consummated the DeltaGraph Disposition in June 1997 and the Site Tech
Acquisition in July 1997, and has entered into a letter of intent with respect
to the Inlet Technology Acquisition. The Inlet Technology Acquisition is
expected to close shortly after the consummation of the Offering. Moreover, the
Company plans to incur additional expenditures to develop or acquire Internet
software products or develop new versions of existing products over the next
several quarters. See "Corporate Developments," "Use of Proceeds" and
"Business--Products Currently Under Development and --Research and Development."
In addition to further focusing the Company on Internet products, the DeltaGraph
Disposition provided the Company with much needed liquidity.
REVENUES. The Company's revenues consist of license revenues from sales of
software products to distributors, resellers and end users. In addition, the
Company derives license revenues from royalty agreements with certain customers.
Under these agreements, the Company typically receives a large percentage of the
aggregate revenues in the form of a nonrefundable royalty paid upon shipping of
the master copy of software, which allows the customer to license a specified
number of copies of the Company's software. In addition, the Company currently
plans to introduce products targeted at the SMB and corporate department user
markets for scalable Web site development and management software solutions. In
connection with the planned introduction of these products, the Company plans to
significantly increase its use of non-retail distribution channels including
VARs, OEMs and Internet Service Providers ("ISPs"). See "Business--Strategy and
- --Sales and Marketing."
Software product sales are recognized upon shipment of the product, net of
appropriate allowances for estimated returns. Revenues from software royalty
agreements are recognized upon shipment of a master copy of the software product
if no significant vendor obligations remain under the term of the license
agreements and any amounts to be paid are nonrefundable. Payments received in
advance of revenue recognition are recorded as deferred revenue. The Company
grants distributors and resellers certain rights of return, price protection and
stock rotation rights on unsold merchandise. Accordingly, reserves for estimated
future returns and credits for price protection and stock rotation rights are
accrued at the time of shipment.
30
<PAGE>
IMPACT OF DELTAGRAPH DISPOSITION. As a result of the DeltaGraph
Disposition, the Company's future operating results will not be comparable to
its historical operating results and should not be relied upon as an indication
of future operating results. Moreover, the Company's future profitability will
be entirely dependent on the success of its Internet software products. Set
forth below on an actual and pro forma basis giving effect to the DeltaGraph
Disposition are the Company's net revenues, operating losses and gross profit
for the year ended December 31, 1996 and the six months ended June 30, 1997. For
the year ended December 31, 1995, substantially all the Company's revenues were
attributable to the Company's DeltaGraph visualization software products. The
sale of DeltaGraph is not expected to result in a significant reduction in
operating expenses as the Company plans to continue its investment in developing
new and updated versions of its Internet software products. See "Unaudited Pro
Forma Financial Information."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------------- --------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Revenues.......................... $ 4,950 $ 1,883 $ 1,495 $ 836
Loss from operations.................. $ (4,922) $ (6,189) $ (3,042) $ (3,171)
Gross Profit Percentage............... 76.1 % 72.3 % 68.6 % 66.5 %
</TABLE>
HISTORIC AND ANTICIPATED LOSSES. The Company incurred net losses of
$4,848,000 for the year ended December 31, 1996 and $3,088,000 for the six
months ended June 30, 1997, and had an accumulated deficit of $16,754,000 as of
June 30, 1997. The Company expects to incur losses for at least the next 12
months, and possibly longer. The Company's future operating results will depend
on many factors, including the successful development, introduction and
commercial acceptance of the Company's Internet software products (including
Internet software products targeted by the Company at the SMB and corporate
department user markets); continued emergence of the evolving Internet software
product market; the Company's success in expanding its use of non-retail
distribution channels for SMB and corporate department user Internet software
solutions including VARs, OEMs and ISPs; the mix of revenues derived from
product sales and royalty fees and the level of product and price competition.
In particular, there can be no assurance that the Company will be successful in
its efforts to introduce additional products targeted at the SMB or the
corporate department user market or to expand its distribution channels. See
"Risk Factors "--Dependence on Internet Software Products and Related Strategy;
Dependence on Continued Emergence of Internet Software Market" and
"--Distribution Risks; Substantial Reseller Customer Concentration."
FLUCTUATIONS. The Company's results of operations have historically varied
substantially from quarter to quarter and the Company expects they will continue
to do so. In the past, the Company's operating results have varied significantly
as a result of a number of factors, including the size and timing of customer
orders or license agreements, product mix, the revenues derived from product
sales and license fees, the existence and terms of royalty and packaging
arrangements, seasonality, the timing of the introduction and customer
acceptance of new products or product enhancements by the Company's competitors,
new product or version releases by the Company, changes in pricing policies by
the Company or its competitors, marketing and promotional expenditures, research
and development expenditures and changes in general economic conditions.
Furthermore, the Company has often recognized a substantial portion of its
revenues in the last month of the quarter, with such revenues frequently
concentrated in the last week or weeks of the quarter.
The Company's operating and other expenses are relatively fixed in the short
term. As a result, variations in timing of revenues can cause significant
variations in quarterly results of operations. The Company generally does not
operate with a significant order backlog and a substantial portion of its
revenue in any quarter is derived from orders booked in that quarter, which are
difficult to forecast and are typically concentrated at the end of the quarter.
Accordingly, the Company's sales expectations are based almost entirely on its
internal estimates of future demand and not on firm customer orders. Due to the
31
<PAGE>
foregoing factors, the Company believes that quarter to quarter comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. In addition, to the extent
that the Company succeeds in its strategy to target the SMB and corporate
department user markets, among other things, the Company's results of operations
and financial condition may be subject to greater or different fluctuations as a
result of potentially larger individual product sales, seasonality, a longer
sales cycle and longer payment terms. There can be no assurance the Company will
be profitable on a quarter to quarter or any other basis in the future.
SERIES A PREFERRED STOCK; CONVERTIBLE NOTES. In December 1996, the Company
issued $2,150,000 in principal amount of Convertible Notes. In April through
June 1997, $582,000 in principal amount of Convertible Notes was converted into
shares of Common Stock, and on June 30, 1997 all but $37,500 of the remaining
principal value of the Convertible Notes was converted into Series A Preferred
Stock. The Series A Preferred Stock and Convertible Notes were convertible into
shares of Common Stock generally at a price equal to 80% of the five day average
closing price on the OTC Bulletin Board for the five business days prior to
conversion. During July and August, 1997 all of the outstanding balance of the
Convertible Notes and Series A Preferred Stock were converted to Common Stock.
During the quarter ended March 31, 1997, the Company recognized the value of the
discounted conversion feature and deferred debt issuance costs of aggregating
$799,000 as additional interest expense. The Company does not expect to record
any similar charges related to these securities in future quarters. See
"Description of Capital Stock--Preferred Stock and Convertible Notes."
GOING CONCERN ASSUMPTION. Due to the Company's accumulated losses, the
report of the Company's independent accountants with respect to the Company's
financial statements for 1995 and 1996 contains an explanatory paragraph
concerning the Company's ability to continue as a going concern. If the Offering
is not consummated, additional equity or debt financing or the sale of
additional assets will be required to enable the Company to continue its
operations.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain historical
and pro forma for the DeltaGraph Disposition statement of operations data as a
percentage of net revenues. As a result of the DeltaGraph Disposition, the
Company's historical operating results should not be relied upon as an
indication of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ----------------------------------------
1995 1996 1996 1996 1997 1997
ACTUAL ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(1)
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................ 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues.................... 33.1 23.9 27.7 32.8 31.4 33.5
------ ------ ------ ------ ------ ------------
Gross profit...................... 66.9 76.1 72.3 67.2 68.6 66.5
Operating expenses:
Sales and marketing............... 47.5 94.6 216.3 108.3 149.9 240.3
Research and development.......... 50.4 52.9 112.4 57.5 90.1 150.0
General and administrative........ 30.5 28.0 72.3 50.8 32.0 55.5
------ ------ ------ ------ ------ ------------
Total operating expenses........ 128.4 175.5 401.0 216.6 272.0 445.8
------ ------ ------ ------ ------ ------------
Loss from operations................ (61.5) (99.4) (328.7) (149.4) (203.4) (379.3)
Interest (expense) income, net...... (3.6) 1.5 3.9 2.1 (54.6) (97.7)
Other income........................ -- -- -- -- 51.6 --
------ ------ ------ ------ ------ ------------
Net loss (65.1)% (97.9)% (324.8)% (147.3)% (206.4)% (477.0)%
------ ------ ------ ------ ------ ------------
------ ------ ------ ------ ------ ------------
</TABLE>
- ------------------------
(1) Pro forma to give effect to the DeltaGraph Disposition as if it had occurred
at January 1, 1996. See "Unaudited Pro Forma Financial Information."
32
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
NET REVENUES. Net revenues for the six month period ended June 30, 1997
decreased by 21.0% to $1,495,000 from $1,893,000 for the corresponding period in
the prior year. The decrease in revenue was primarily attributable to the sale
of the DeltaGraph product line which accounted for $1,140,000 of net revenue in
the six month period ended June 30, 1996 as compared to $659,000 in the six
month period ended June 30,1997. Net revenues attributable to Internet products
for the six month period ended June 30, 1996 and 1997 were $637,000 and
$760,000, respectively. Included in the increase of Internet revenues is a
one-time license fee of $150,000 received from an OEM.
For the six month period ended June 30, 1997, international revenue
increased to 26.8% of net revenues from 18.8% of net revenue in the
corresponding period in the prior year. The Company's international sales are
principally denominated in U.S. dollars. Movements in currency exchange rates
did not have a material impact on net revenues in the periods presented.
However, there can be no assurance that future movements in currency exchange
rates will not have a material adverse effect on the Company's future revenues
and results of operations. The increase in international revenues was primarily
due to the introduction of Internet products in the Japanese market. In light of
the DeltaGraph Disposition, the Company expects that in the near-term
international revenues attributable to Internet products may decline until the
relationship with its Japanese distributor (who principally sold DeltaGraph
products) is clarified or other international distribution channels can be
established.
GROSS PROFIT. Cost of revenues consists of direct materials, labor,
overhead, post customer support, royalties and contract manufacturing costs
associated with the manufacturing of the Company's products. Gross profit for
the six month period ended June 30, 1997 increased as a percentage of net
revenues to 68.6% from 67.2% for the corresponding period in the prior year. The
Company's gross profit on an actual basis and as a percentage of net revenue has
varied quarter to quarter as a result of a number of factors including changes
in customer and product mix, inventory write-offs due to new product releases
and third party royalty obligations for the Company's Internet products.
Historically, the Company's gross profit on the sale of DeltaGraph products was
consistent with the Company's overall gross profit. However, the Company
anticipates gross profit as a percentage of revenue will decline in future
periods as Internet product sales increase due to the third-party royalty
obligations associated with such sales.
SALES AND MARKETING. Sales and marketing expenses include sales
commissions, compensation of sales and marketing personnel and cost of
promotional activities. Sales and marketing expenses for the six month period
ended June 30, 1997 increased to $2,241,000 (or 149.9% of net revenues) from
$2,051,000 (or 108.3% of net revenues) for the corresponding period in the prior
year. The increase in sales and marketing expenses was primarily due to an
increase in the use of direct mail, telemarketing, consultants, and channel
promotions used in the continued promotion of the Company's Internet software
products and the activities associated with the launch of the Company's
QuickSite 2.5 web authoring tool which was released in May 1997. The Company
expects that sales and marketing costs will continue to increase in future
periods as the Company expands its use of non-retail distribution channels
including VARs, OEMs and ISPs and adds sales and marketing personnel to support
such expansion and the anticipated introduction of new products. See
"Business--Sales and Marketing."
RESEARCH AND DEVELOPMENT. Research and development expenses include
personnel, consultants and amortization of purchased software. Research and
development expenses for the six month period ended June 30, 1997 increased to
$1,347,000 (or 90.1% of net revenues) compared to $1,088,000 (or 57.5% of net
revenues) for the corresponding period in the prior year. The increase in
research and development expenses was primarily due to a staffing increase
(including the retention of several consultants) for the development of
QuickSite. The Company expects that research and development costs will increase
in future periods due to continued development of the Company's new Internet
products and updated versions of the Company's existing products. In the third
quarter of 1997, the Company expects to incur a
33
<PAGE>
charge to operations in connection with the consummation of the Site Tech
Acquisition and, if consummated, the Inlet Technology Acquisition to the extent
that a portion of the applicable purchase price is determined to be in-process
research and development. See "Corporate Developments."
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the six
month period ended June 30, 1997 decreased to $479,000 (or 32.0% of net
revenues) compared to $961,000 (or 50.8% of net revenues) for the corresponding
period in the prior year. The decrease in general and administrative expenses
was primarily attributable to a severance charge in the first quarter of 1996 of
$505,000 relating to the departure of the Company's Chief Executive Officer.
INTEREST (EXPENSE) INCOME, NET. Interest (expense) income, net includes
interest payable on the Company's Convertible Notes during the six months ended
June 30, 1997, the recognition of the discounted conversion feature on the
Convertible Notes and amortization of the related deferred debt issuance costs,
offset by interest income earned on cash and cash equivalents. Interest expense
during the first six months of 1997 increased to $852,000 from $26,000 during
the first six months of 1996. This increase was primarily attributable to the
recognition of the discounted conversion feature of the Convertible Notes and
the related deferred debt issuance costs which totaled $799,000.
OTHER INCOME. Other income for the six months ended June 30, 1997, consists
entirely of the one-time gain resulting from the DeltaGraph Disposition.
PROVISION FOR INCOME TAXES. There was no provision for taxes during the six
month periods ended June 30, 1996 and 1997 due to the Company's net operating
losses. At December 31, 1996, the Company had approximately $7,000,000 of
federal net operating loss carryforwards which expire in varying amounts through
2011. Due to certain changes in the ownership of the Company, approximately
$1,700,000 and $1,200,000 of these losses are subject to annual limitations of
approximately $142,000 and $301,000, respectively. If certain additional changes
in the Company's ownership occur, the Company's use of net operating loss
carryforwards may be subject to a lower annual limitation.
YEARS ENDED DECEMBER 31, 1995 AND 1996
NET REVENUES. Net revenues increased by 22.4% to $4,950,000 in 1996 from
$4,043,000 in 1995. The increase in revenue was primarily attributable to the
introduction of Internet products, especially QuickSite, DeltaPoint's Web site
creation and management tool. International sales accounted for 39.8% of net
revenues during 1995 and 26.3% for 1996. The decrease in international revenues
was due to fewer Japanese license agreements offset partially by the release of
QuickSite for the Japanese market.
Net revenues attributable to DeltaGraph products for 1995 and 1996 were
$3,570,000 and $3,067,000, respectively.
Net revenues attributable to Internet products for 1995 and 1996 were $0 and
$1,729,000 respectively.
GROSS PROFIT. Gross profit increased to 76.1% of net revenues in 1996 from
66.9% of net revenues in 1995, primarily as a result of lower inventory
write-offs and an absence of packaging fees in 1996.
SALES AND MARKETING. Sales and marketing expenses increased to $4,685,000
(or 94.6% of net revenues) for 1996 from $1,922,000 (or 47.5% of net revenues)
in 1995. The increase in sales and marketing expenses was primarily due to an
increase in headcount and an increase in the use of direct mail, telemarketing,
consultants, print advertising, tradeshows and channel promotions used to
promote the Company's Internet software product expenses which were released in
1996.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$2,618,000 (or 52.9% of net revenues) for 1996 compared to $2,036,000 (or 50.4%
of net revenues) in 1995. The increase in research and development expenses was
primarily due to a staffing increase for the development of the Company's
Internet software products. In addition, the Company retained several
consultants to aid in the development process. In 1995, research and development
expenses included a charge for in-process research and development of $1,240,000
resulting from the acquisition of certain Internet technologies.
34
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1,388,000 (or 28.0% of net revenues) for 1996 compared to $1,234,000 (or
30.5% of net revenues) in 1995. The increase in general and administrative
expenses was primarily attributable to above mentioned severance charge of
$505,000 offset by a decrease in bad debt expenses of $176,000.
PROVISION FOR INCOME TAXES. There was no provision for taxes in 1995 or
1996 due to net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had a working capital balance of $134,000
and shareholders' equity of $623,000. As of September 22, 1997, the Company had
cash balances of approximately $200,000.
The Company has financed its operations primarily through private and public
sales of equity securities, borrowings under a term loan (no longer in place),
the private sale of debt securities and, recently, the sale of the DeltaGraph
product line. Since inception, the Company has received approximately $15
million in proceeds from private sales of preferred stock, convertible debt and
from the Company's initial public offering of Common Stock.
The Company used net cash in operations of $2,699,000 in the six month
period ended June 30, 1997 and $2,300,000 for the corresponding period of the
prior year. Net cash used in the first six months of 1997 consisted primarily of
a net loss of $3,088,000 offset by other working capital changes. Net cash used
in operations during the six months ended June 30, 1996 consisted primarily of a
net loss of $2,789,000.
The Company used net cash in operations of $4,618,000 in 1996 and $1,646,000
in 1995. Net cash used in 1996 consisted primarily of a net loss of $4,848,000.
Net cash used in 1995 consisted primarily of a net loss, excluding non-cash
items, of $1,189,000 and certain working capital requirements.
Net cash provided by financing activities totaled $21,000 in the six month
period ended June 30, 1997 and $745,000 for the corresponding period of the
prior year. Net cash from financing activities in the first six months of 1997
consisted of the exercise of stock options. Net cash from financing activities
in 1996 consisted primarily of $831,000 in net proceeds from the exercise of the
overallotment option from the Company's initial public offering offset by
approximately $77,000 for related registration expenses. The Company also repaid
capital lease obligations of $45,000.
The Company obtained net cash from financing activities of $3,474,000 in
1996 and $6,499,000 in 1995. Net cash from financing activities in 1996
consisted primarily of $831,000 in net proceeds from the exercise of the
overallotment option from the Company's initial public offering, proceeds
resulting from the exercise of stock options and warrants of $1,609,000 and
proceeds from the issuance of Convertible Notes of $1,949,000 offset by the
repayment of $865,000 of outstanding notes payable. Net cash from financing
transactions in 1995 consisted primarily of $5,143,000 in net proceeds from the
Company's initial public offering of Common Stock and other equity financing.
Net cash provided by investing activities during the six months ended June
30, 1997 totaled $747,000 and primarily resulted from the DeltaGraph
Disposition. For the six month period ended June 30, 1997 and the year ended
December 31, 1996, the Company's capital expenditures totaled approximately
$24,000 and $343,000, respectively, and were attributable to acquisitions of
personal computer and computer workstation equipment used to support the
Company's development efforts.
The Company anticipates that the proceeds of this Offering, together with
existing capital resources and cash generated from operations, if any, will be
sufficient to meet the Company's cash requirements for the next 12 months.
However, the Company may seek additional funding during the next 12 months and
will likely be required to seek additional funding after such time. There can be
no assurance that any additional financing will be available on acceptable
terms, or at all, when required by the Company.
35
<PAGE>
BUSINESS
INTRODUCTION
The Company currently develops and markets Internet software products
designed to enable individuals and SOHO professionals to effectively and easily
create, manage and enhance Web sites on the Web. The use of Web sites by SMB and
enterprise departments has recently emerged into a critical business application
that provides greater sales and marketing reach and allows these businesses to
grow faster and more cost effectively. To capitalize on the emerging
opportunities in the SMB and enterprise department user markets for scalable Web
site development and management software solutions, the Company intends to
broaden its product offerings to include a family of products designed to enable
these users, in addition to individuals and SOHO professionals, to develop,
manage, integrate, deploy and maintain next-generation Web sites. The Company's
objective is to become a leading provider of scalable Web site development and
management software solutions for Web based business environments.
INDUSTRY BACKGROUND
The worldwide, cost-effective communication benefits of the Web are leading
many individuals and business organizations to actively "publish" information on
the Web by creating a Web "site," a collection of individual Web pages, each
handcrafted using a relatively new and quickly evolving tagging language called
hypertext markup language ("HTML").
For many individuals and small business organizations, establishing a robust
Web site remains a time-consuming and expensive proposition. The free-form
nature of HTML has inhibited the emergence to date of a standard for HTML page
creation. Further, an increasing number of competing extensions and
modifications to the HTML language continue to be proposed, making it difficult
for Web site publishers to support the latest technical advances. A generational
evolution in Web sites, based on additional functions and benefits, is also
underway.
First generation Web sites are generally characterized by small volumes of
information or "content," static pages that are infrequently updated with
limited links to other Web pages. Generally, these sites are created and managed
by a single author (the Webmaster) and published to a single Web server. To
assist in the creation of first generation Web sites, a large number of first
generation Web authoring or "page creation" tools have emerged. These
limited-function tools focus on the creation of a single page at a time and
require that content within pages and between pages be manually linked and
manually maintained. Further, the content of such sites has no inherent
structural intelligence, making global changes, consistency of design,
reorganization of sections and managing the integrity of the Web site difficult
and time-consuming.
Next generation Web sites are richer in multi-media content, consist of both
static and dynamically created pages, are continuously updated and must
integrate with existing business data. The use of these Web sites is emerging as
businesses of all sizes adopt the use of Intranets for internal communications
and begin conducting business over the Internet. Within these sites multiple
authors of varying skill levels create a variety of Web pages that are combined
into sophisticated Web based applications, which are published to multiple Web
servers and managed by multiple Webmasters. Although some second generation Web
page creation tools have been introduced, the Company believes that these
products are based on architectures that primarily emphasize the layout and
design aspects of individual pages and, as a result, are not suited to handle
these dynamic Web site environments.
The evolving market for Web site development and management software
products is segmented as follows:
INDIVIDUALS AND SOHO PROFESSIONALS (1 TO 20 EMPLOYEES). According to IDC
Link, a leading market research firm, in 1996 there were approximately 11
million individual and SOHO business users in the United States. The Internet
provides these business users with a cost-effective way of increasing their
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exposure and market reach by creating and publishing a Web site. Increasingly,
Internet shopping malls are attracting these small businesses to build catalogs
and publish product and service offerings on the Internet.
The Web site has recently evolved into a critical business application
environment that provides greater sales and marketing reach and is allowing
these businesses to grow faster and more cost effectively than ever before. The
need for easy to use robust Web site development and management software
solutions that support a wide range of Web application environments is expanding
rapidly.
SMALL TO MEDIUM BUSINESS (SMB) (1 TO 499 EMPLOYEES). Small to medium
businesses (SMBs), primarily through value added resellers ("VARs"), are
developing robust Web sites to reach broader target audiences in a more
cost-effective manner. These Web sites are extending both internally to
Intranets that enable internal company communications, and externally to
Extranets that enable business-to-business and business-to-consumer transactions
such as "electronic commerce."
Today, the SMBs and the Web professionals that support them have very few
tools to support the multi-authoring environment that is required to easily
develop an interdepartment Web site. The wide variety of content (including
text, graphics, multi-media, video and audio) and applications (including Java
and ActiveX) that can be incorporated into a robust Web site requires varying
levels of users or "content creators" (including content contributors, graphic
artist, developers, web administrators, application managers and Webmasters).
As SMBs leverage Web technology to implement Intranet applications and
Internet Web sites, they are facing a new set of management challenges such as
integrating the efforts of many diverse contributors, managing a large number of
varied application components and keeping applications up to date with ever-
changing content. These markets need an integrated Web site development and
management solution that supports a broad set of Web based business
requirements.
WEB PROFESSIONALS. In response to customer demands, many value-added
resellers ("VARs") who have historically serviced the SMB market are moving
their business focus to Web consulting and Web application development. In
addition, Internet Service Providers ("ISPs") are offering Web site hosting and
consulting services to help small and medium businesses quickly gain a presence
on the Web and reduce the up front cost of setting up a Web server. These Web
professionals require powerful software tools and solutions to aid them in their
Web site development and management businesses.
ENTERPRISE DEPARTMENT USERS. Many large corporations or enterprises, having
already established sophisticated Web sites for external communications, are now
encouraging smaller internal groups and departments to build private "Intranet"
Web sites. These departmental environments in many respects operate as small
businesses and face many of same problems identified above (including the need
for multi-authoring capabilities and managing a large number of varied
application components). There is considerable demand for Web site development
and management software solutions that support the existing enterprise
standards, as well as the interoperability with legacy data environments.
COMPANY APPROACH
The Company believes that effective Web site development and management
software solutions must not only simplify initial content creation, but enable
content contributors, developers and Webmasters to easily update diverse
content, maintain site integrity, deploy pages in a controlled methodology and
manage the variety of Web site components on an ongoing basis. Further, the
Company believes that an open architecture that supports existing components is
important to maintaining maximum flexibility as Internet standards emerge and
evolve rapidly and as Web based applications become more tightly integrated into
legacy business environments.
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The Company is developing a family of products designed to enable Web site
developers to easily and cost-effectively develop, manage, integrate, deploy and
maintain robust Web-based applications using a structured approach. The
Company's scalable Web site development and management products are being
designed to utilize an advanced product design featuring a database architecture
and incorporate a series of "wizards" that guide the site developer through a
"point and click" process that results in a completed, fully linked Web site
structure in minutes.
The Company's database design is intended to enable the automatic generation
and maintenance of links between Web pages, eliminating or reducing the need for
programmer or technical intervention. Additionally, this approach is intended to
enable all components of an entire Web site to be captured, collected and easily
managed as fully indexed data objects within the database engine. The Company
believes that its database approach to Web site development and management
provides fundamental advantages over existing page creation methodologies as the
volume and complexity of content contained in the Web sites increases and the
propagation of pages are expanded through multiple tiers of servers in larger
organizations.
The Company's scalable Web site development and management tools are
designed to work either with full client-side functionality, to free the site
designer from costly server connection time during the site creation and testing
process, or as a client/server environment supporting multi-authoring
capabilities in a group development environment. Further, these products are
designed to utilize an open architecture that provides Web browser and Web
server independence.
STRATEGY
The Company's objective is to be a leading provider of scalable Web site
development and management software solutions for Web based business
environments. The Company's strategy for achieving this objective includes the
following elements:
BROADEN PRODUCT OFFERINGS. The Company intends to identify and develop,
license or acquire technologies or products to extend product functionality and
market position in two areas: Web site creation and deployment and Web site
management and interoperability. In the area of Web site creation and
deployment, the Company intends to continue expanding the range of the
pre-designed templates, graphics, forms, WYSIWYG (What You See Is What You Get)
layout editor, HTML editor and wizards contained within the QuickSite product.
In the area of Web site management and interoperability, the Company expects
to continue to update and enhance the development, interoperability and
management features of its products to support a broader level of functionality.
Towards that end, and to capitalize on the emerging opportunities in the SMB and
enterprise department user markets for scalable Web site development and
management software solutions, the Company has agreed to acquire from Inlet
certain proprietary core technology which is intended to serve as the basis for
the Company's planned client/server, multi-authoring site, dynamic development
and management products, the first of which is planned for shipment in the
fourth quarter of 1997, at the earliest. In July 1997, pursuant to the Site Tech
Acquisition, the Company acquired, among other things, SiteSweeper 1.0, a Web
site quality control and maintenance product. The Company is currently
developing SiteSweeper 2.0, which is being designed to enable Web development
and management professionals to maintain the quality and integrity of mission
critical Web based business environments. The Company is planning to introduce
SiteSweeper 2.0 in the third quarter of 1997, at the earliest. See "Corporate
Developments" and "--Products Under Development."
EXPAND TARGET MARKETS. To date, the Company's Internet software products
have been targeted at individuals and SOHO professionals. However, the scalable
design of the Company's planned family of Web site development and management
products should enable such products to be used by the individual or SOHO
professional in a desktop environment that publishes the finished Web site on a
remote Web
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server or outside hosting site, and by the SMB or enterprise department user
that develops Intranet applications in a client/server, multi-authoring
environment.
EXPAND CHANNELS OF DISTRIBUTION. The Company has historically marketed its
Internet software products primarily through the retail distribution channel.
The Company plans to expand distribution of its Web site software products by
increasing its retail distribution relationships both domestically and
internationally. The Company also intends to increase the number of products
available for sale through this distribution channel, which the Company believes
is essential to secure adequate retail shelf space and retailer promotional
support. To effectively market its planned family of scalable Web site
development and management products to the SMB and enterprise department users,
the Company intends to implement a sales and marketing program focused on the
development of VARs, Web professionals, OEMs (such as key PC manufacturers) and
ISPs.
DEVELOP PRODUCTS THAT SUPPORT OPEN ARCHITECTURE. The Company plans to
introduce Web site development and management software products based on an open
architecture. This open architecture is designed to support industry standard
architectures, which support widely used Web browsers (including Netscape
Navigator and Microsoft Internet Explorer), major Web server software
environments (including Windows NT, Netscape and Unix) and industry standard
database environments (including Oracle, Informix and Microsoft SQL).
Additionally, the Company plans to design additional products that will
incorporate evolving technologies such as: Java, ActiveX and OLE components that
will support a wide variety of Web based client/server environments.
INCREASE DEMAND AND AWARENESS. The Company intends to increase its brand
and product awareness by emphasizing the product's ability to develop, manage,
integrate, deploy and maintain next-generation Web sites and database
architecture, and by demonstrating its broad acceptance through strategic
relationships with industry leaders. Since March 1996, the Company has entered
into agreements with companies such as Sony, Earthlink, Anawave, Inc., Compaq,
MacMillian Press, McAfee Mall and Internet Mall. To build brand identity, the
Company may also increase and expand its print and online advertising efforts
and increase its participation in major industry conferences and trade shows.
CURRENT COMPANY PRODUCTS
The Company currently offers the following Internet site creation and
management products targeted at the individual and SOHO professional market and
distributed primarily through the retail distribution channel:
QUICKSITE. QuickSite, the Company's first Web site creation and management
software tool, which began shipping to retail distributors in March 1996, is
designed to enable non-technical individuals and organizational users to rapidly
create and efficiently manage a Web site. QuickSite incorporates the following
key attributes, most of which are also incorporated into the Company's other
current products as part of the Company's design approach:
EASE OF SITE CREATION. The Company has designed a collection of site
creation wizards aimed at eliminating the initial stumbling blocks encountered
by novice and other Web site authors. These wizards guide the user through a
point-and-click process that designs and builds an entire Web site, complete
with page links, table of contents, and other important site creation elements
such as e-mail return addresses, copyright notices, consistent menu designs and
flags for pages containing special content. In the QuickSite 2.5 version, the
Company has designed a module to speed the process of establishing an electric
commerce presence on the Web and also added a WYSIWYG (What You See Is What You
Get) Layout Editor. Wizards also enable users to select and modify the stylistic
elements of a site such as the colors and textures of backgrounds, graphics,
headers and footers. By masking the complexities of HTML, Java and other site
creation conventions, these wizards eliminate the requirement for Web site
authors to develop specialized technical expertise before they can become
productive.
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EASILY UPDATABLE CONTENT. The Company's product architecture passively
enforces a Web structure so that as the author populates the site, content
components are captured as data objects that are automatically indexed and
stored within the products database engine. As a result, content can be quickly
updated and global changes can be reflected through an entire Web site with a
few simple keystrokes. Further, any content element, including text, graphics,
data files, and images, can be stored and re-used, savings users time as they
build additional sites or add to existing sites.
EXTENSIBLE ARCHITECTURE. By employing a componentized architecture, the
Company provides an extensible platform that can adapt as new technical
innovations evolve. Tables, forms, and other new extensions to HTML, as well as
user-definable functions, are supported through a point-and-click, component
library management system.
BROWSER AND SERVER INDEPENDENCE. QuickSite supports most Web browsers,
including Netscape Navigator and Microsoft Internet Explorer, which together
account for a substantial majority of the current marketplace. Additionally,
QuickSite is architected to enable all the entire Web site creation process to
occur on a client-side desktop personal computer. The Company believes that this
approach provides several key advantages including: (i) elimination of
dependencies on any single third party Internet or network-server technology;
(ii) lower overall cost by eliminating the need to connect to a server for
interim testing of an in-progress site; and (iii) reduced risk of investing in
the "wrong" server environment.
QUICKSITE 2.0 DEVELOPER'S EDITION. QuickSite 2.0 Developer's Edition is
designed for Internet Web site developers and corporate Intranet developers. The
QuickSite Developer's Edition gives professional Web site developers
significantly enhanced control over the Web site creation and management
process. Among the additional features included in QuickSite 2.0 Developer's
Edition are: (i) support for the emerging Web Style Sheet standard, sponsored by
the WWW Consortium; (ii) 3D Web Site Builder, a visual VRML (virtual reality
mark-up language) creation tool from Virtus Corporation included with the
product; (iii) advanced Web site automation, including a proprietary scripting
language and powerful page macros that automate repetitive tasks that
complicates large-scale projects; (iv) embedded "graphics factory" technology,
based on a variety of DigitalStyle Corporation templates, that allows developers
to create dynamic custom graphics and style elements, and also helps to enforce
stylistic consistency throughout a site; and (v) sophisticated project reporting
capabilities that help the developer track and document the status of their
work.
WEBTOOLS. WebTools allows database developers to add Web-enabling features
to existing database applications. The Company licenses WebTools to software
development companies, including Borland International, in return for a license
fee or royalty arrangement. Currently WebTools is available for Visual dBASE for
Windows and for CA Clipper.
WEBANIMATOR. WebAnimator is a multi-media authoring tool that enables a
broad range of Web users to easily add multi-media and interactive animation to
a Web site. WebAnimator offers the following key attributes: (i) extensive use
of predefined templates that enable users to combine text, graphics and sound to
produce multi-media rich content components; (ii) content components created in
WebAnimator's native format are vector based and can be compressed to small
files that can be quickly downloaded and played from within a Web browser; (iii)
graphic objects in WebAnimator act as interactive buttons that enable users to
branch to different Web site locations; and (iv) advanced digital sound and
motion synchronization tools enable users to easily and accurately add sound and
motion to an animated content component. The market for Web-enabled multi-media
authoring tools has emerged more slowly than originally expected and, as a
result, until such market more meaningfully develops the Company does not expect
to expend significant resources on this market.
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PRODUCTS UNDER DEVELOPMENT
The Company's two principal products currently under development are based
on the technologies acquired in connection with the Site Tech Acquisition and
the pending Inlet Technology Acquisition. These products initially will be
targeted at the SMB and enterprise department user markets.
SITESWEEPER. In July 1997, the Company acquired SiteSweeper 1.0, its
underlying technologies and additional Internet-related technologies through the
Site Tech Acquisition. See "Corporate Developments." SiteSweeper 1.0, originally
released in October 1996, is a quality control tool. The Company does not intend
to actively market or distribute SiteSweeper 1.0. The Company is developing and
plans to introduce SiteSweeper 2.0, an updated version of SiteSweeper 1.0, in
the third quarter of 1997, at the earliest. SiteSweeper 2.0 will be a quality
control tool available for Web professionals (including those who support the
SMB and enterprise department user markets) that automates time-consuming
quality assurance tasks, allowing the Webmaster to identify potential problems
quickly and easily. SiteSweeper 2.0 is being designed to (i) "sweep" Web sites
using standard Internet protocols, allowing a sweep of both static and dynamic
pages; (ii) secure Web pages that require a user name and password; and (iii)
permit the Webmaster to include or exclude specific pages, or entire folders, on
any number of Web servers.
SiteSweeper 2.0 is being designed to incorporate the following functions:
QUALITY REQUIREMENT EXAMINATION. SiteSweeper 2.0 is being designed to
examine a Web site searching for problems that impact the quality and integrity
of the Site. SiteSweeper 2.0 is designed to check for broken links, slow pages,
missing "Alt" attributes, missing "Width" or "Height" attributes, distorted
images, missing or duplicate titles, and missing meta-tags. These functions are
being designed to allow the Webmaster to identify specific quality requirements
for each problem area. For example, it is expected that the Webmaster may
designate the desired connection speed of typical users (for example, 28.8K bps
or ISDN) and the longest acceptable page download time at that speed, with
SiteSweeper 2.0 then reporting to the Webmaster how well that site meets the
specified quality requirements.
COMPREHENSIVE REPORTS. SiteSweeper 2.0 is being designed to generate
reports that identify potential quality problems. Additionally, it is expected
that a summary showing how well the site meets each quality requirement, will be
displayed graphically, using a series of easy to understand charts. A detailed
listing of specific problems will also be provided for every page in the site.
In addition, SiteSweeper 2.0 is expected to provide the Webmaster with
information necessary for site management and maintenance. This is expected to
include a detailed listing of all of the components that make up a given page,
as well as a complete list of links to and from each page, usage of various
resource types, link status codes, external links, and images. SiteSweeper's
reports are designed to be HTML-based and compatible with widely used Web
browsers. The reports are designed to use Java-based charting and visual
navigation technology, based on Javascript.
EXTENSIBLE ARCHITECTURE. SiteSweeper 2.0 is being developed upon a robust
modular software architecture, using components that are both re-usable and
extensible. SiteSweeper 2.0 is being designed to use a true multi threaded web
crawler capable of visiting many pages simultaneously. Swept data will be stored
in an industry-standard database format, and will be manipulated using the Open
Database Connectivity ("ODBC") programming interfaces. This architecture will
facilitate expansion of the SiteSweeper feature set, and is expected to result
in the development of new products based on the same underlying core
technologies.
INLET TECHNOLOGY. In April 1997, the Company announced its intent to
acquire from Inlet certain proprietary core technology (referred to herein
generally as "Inlet technology or "CI" technology). See "Corporate
Developments." The CI technology is intended to serve as the basis for the
Company's planned client/server, multi-authoring, dynamic site development and
management products. The Company intends to extend the capabilities already
present in the CI technology.
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Products under development using the CI technology are being designed to
include, design client tools and server side/backend processing, along with
powerful site management and business applications. The product is being
designed to allow non-programmers as well as developers to rapidly create
dynamic Web sites. The development environment is being designed to include many
pre-built components, which are designed to extend traditional client/server
systems to the Web site.
The CI technology is being designed to incorporate a powerful document
management system that stores the definition of a page in a database and
generates the actual HTML pages from that definition. Through this powerful
feature, users of the CI technology will be able to track every link between
pages on the site. If the user changes the location of a page, the CI technology
is expected to identify which pages need to be updated and regenerate them at
the touch of a button. Instead of creating a link by inserting an HTML link to
the other page's filename, a CI link command to the other page's definition is
inserted. When the page is generated, the CI link is expected to be converted
into the proper HTML command.
In addition, products based on the CI technology are expected to provide or
incorporate the following functions:
USE OF MACROS FOR DYNAMIC CREATION. A macro is a portion or fragment of a
page that needs to be used in multiple places. The CI technology is being
designed to track which pages use a particular macro so that it knows the pages
that need to be regenerated when that macro is changed. Additionally, Web site
developers or Webmasters may pass parameters to macros, allowing a header or
footer to be tailored for each page. Using macros within the CI technology is
expected to assure the developer of consistency throughout the site while
allowing changes to a single page, or across the entire site, to be completed
quickly.
SEPARATION OF DATA FROM THE DESIGN. Products based on the CI technology are
being designed to have the ability to query any ODBC database and insert
information from the database into a page. This feature is expected to allow Web
site developers and Webmasters to create, maintain and modify the data
associated with a Web site without additional revision of the Web pages. This
separation of the site's content (which is stored in the database) from the
site's design (which is stored in scripts and macros) is expected to enable
individuals of different skill levels to work on common projects. This
separation is also expected to permit the Web designer to focus more closely on
the layout and organization of the site and allow individuals skilled in the
creation of content to better manage such content by putting content portions
into a database and using macros to pull content into an HTML page. By combining
the macro feature with database content extraction, a designer is expected to be
able to create a standard macro for retrieving and laying out a page. When the
page layout needs to be changed, the macro is being designed to be modified and
each page regenerated with the new page format.
DYNAMIC CUSTOM PAGES AND ACTIONS. Products based on the CI technology are
being designed to create Web pages and e-mail responses based upon user input.
Instead of requiring programmers to develop proprietary Web applications in C or
Perl, the CI technology is being designed to include a powerful set of standard
actions that may be automatically performed when a Web based form is processed
by the server. In the case of a feedback form, this set of standard actions
could enable data to be saved to a database, a formatted e-mail messages with
the data sent to the customer service representative, and a "Thank You" page
displayed to the visitor.
CUSTOM COMPONENTS. Products based on the CI technology are being designed
to include a library of custom components. These pre-built interactive
components are being designed to quickly integrate into a Web site. The library
is expected to include components for:
- Threaded Discussion: This component is designed to allow site developers
to input ideas and questions and receive feedback from other users.
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- Feedback Form: This component is designed to help site developers to
immediately receive, catalog, and reply to feedback from site visitors.
- Press Releases: This component is designed to assist the Web site
developer in establishing and managing a library of press releases on a
Web site. The integrated search mechanism allows a site visitor to search
for releases by date. The online management feature is designed to allow
for posting, editing and publishing of press releases at the editor's
discretion.
- Company Directory: This component is designed to allow a site developer to
organize and display a company's personnel information. The data can be
organized and searched by department, division or location.
- Site Traffic Analyzer: This component is being designed to include a log
processor to analyze traffic on the site, a system for tracking advertiser
impressions and "click-through" links and a system for tracking
subscribers and their profiles. Such tools are designed to be scalable
from single to multi-sites. Instead of reporting hits, CI tracks pages
viewed so management and sponsors get accurate reports about the number of
people who visit the site.
REMOTE FUNCTIONS: The CI technology is being designed to provide remote
publishing functions for both dynamic and static pages. Developers are expected
to be able to maintain local control of the dynamic and interactive functions of
a site, while maintaining the content database at a remote location. This
feature is expected to provide remotely hosted Web sites with the same dynamic
and interactive functionality as locally hosted Web sites.
ADDITIONAL FEATURES: The CI technology is being designed to include the
following additional features: (i) Site creation wizards to guide users through
Web site creation and other difficult tasks; (ii) the ability to import existing
Web sites or pages into CI technology; (iii) custom E-mail list processing
(based on user profiles); (iv) set and get "cookies" for maintaining information
Management of ActiveX and Java applets; and (v) remote, publishing via local
area networking or File Transfer Protocol ("FTP") Interfaces to Netscape,
Microsoft and other popular Web servers.
The Company's success is dependent on its strategy of marketing products
targeted at the SMB and enterprise department user markets. Failure to
successfully consummate the Inlet Technology Acquisition, develop the technology
proposed to be acquired in the Inlet Technology Acquisition and Site Tech
Acquisition, integrate the acquired technologies, or market products based upon
the acquired technologies, would each have a material adverse effect on the
Company's business, operating results and financial condition. Although the
Company will continue to have a license to the technology to be acquired in the
Inlet Technology Acquisition if the transaction is not consummated, the Company
may be required to pay substantially higher royalties and the license may be
non-exclusive. See "Corporate Developments" and "Risk Factors--Dependence on
Internet Software Products and Related Strategy; Dependence on Continued
Emergence of Internet Software Market" and "--Risks Associated with Inlet
Technology and Site Tech Acquisitions; General Acquisition Risks."
COMPETITION
The Company competes on the basis of certain factors, including product
quality, first-to-market capabilities, product performance, ease of use,
customer support and price. The Company believes it currently competes favorably
overall with respect to these factors.
The markets in which the Company competes or plans to compete are highly
competitive and characterized by rapid technological change, frequent new
product introductions, short product lives, evolving industry standards and
significant price erosion over the life of a product. The Company anticipates
increased competition in these markets from both existing vendors and new market
entrants.
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In the market for Internet software tools targeted at individual and SOHO
professional users, the Company has encountered competition primarily from
Microsoft, Adobe Systems Incorporated, SoftQuad, Inc. and NetObjects,
Incorporated (majority owned by IBM). In the market for Internet software
solutions targeted at the SMB and enterprise department user markets, in
addition to these competitors, the Company expects competition from HAHT
Software Incorporated, Wallop Software Incorporated, Aziza, a division of
Objectivity Incorporated, Eventus Software Incorporated, Interwoven Corporation
and Vignette Corporation. In addition, some existing vendors in the enterprise
wide Internet software solution market (such as IBM/Lotus, Oracle Corporation,
Informix Software, Inc. and Sybase Incorporated, Inc.) may enter into the
Company's existing and planned markets. The Company expects that existing
vendors and new market entrants will develop products that will compete directly
with the Company's products and that competition will increase significantly to
the extent that markets for the Company's products grow. Increased competition
is likely to result in price reductions, reduced gross margins and loss of
market share, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Most of the Company's
current and potential competitors have substantially greater financial,
technical, marketing, sales and customer support resources, greater name
recognition and larger installed customer bases than the Company. Because there
are minimal barriers to entry into the software market, the Company believes
sources of competition will continue to proliferate. The market for the
Company's products is characterized by significant price competition, and the
Company expects it will face increasing pricing pressures. There can be no
assurance the Company will be able to maintain its historic pricing structure
for its existing products or will be able to obtain its desired pricing
structure for planned products. Any inability to do so or if the Company is
unable to compete effectively against current and future competitors, the
Company's business, financial condition and results of operations will be
materially adversely affected.
In the future, vendors of operating system software or other software (such
as office or back office software suites) may continue to enhance their products
(including separate products that are bundled together) to include functionality
that is provided by the Company's current and planned products. This enhancement
could be achieved through the addition of functionality to operating system
software or other software or the bundling of Internet software tools with
operating system software or other products. For example, Microsoft incorporates
into its BackOffice product its Web page creation software product, FrontPage.
The inclusion of the functionality of Internet software tool products, as
standard features of operating system software or other software could render
the Company's products obsolete and unmarketable, particularly if the quality of
such functionality were comparable, or perceived to be comparable, to that of
the Company's products. Furthermore, even if the Internet software tool
functionality provided as standard features by operating systems or other
software is more limited than that of the Company's products, there can be no
assurance that a significant number of customers would not elect to accept such
functionality in lieu of purchasing additional software. If the Company were
unable to develop new Internet software tool products to further enhance
operating systems or other software and to replace successfully any obsolete
products, the Company's business, financial condition and results of operations
would be materially adversely affected. See "Risk Factors--Competition and
- --Risk of Inclusion of Internet Software Tools Functionality in Other Software."
SALES AND MARKETING
The Company's current sales and marketing activities are primarily targeted
at the individual and SOHO professional users through the Company's direct sales
and marketing efforts and its retail distribution channels. Additionally, the
Company is actively engaged in developing new channels to sell its planned
family of scalable Web site development and management products to the SMB and
enterprise department user markets. The Company believes that a highly leveraged
sales and marketing model is the most effective way to get its product to market
in a timely manner. In order to reduce the upfront costs and to leverage its
sales and marketing expenditures, the Company has entered into several outsource
sales and leveraged marketing relationships.
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PRODUCTS TARGETED AT THE INDIVIDUAL AND SOHO PROFESSIONAL USER. The Company
markets and sells its products targeted at the individual and SOHO professional
user through the coordinated efforts of its corporate marketing department and
its direct sales organization. For retail, the Company uses a two-tier
distribution model with product sold through Ingram, TechData and other
distributors to retail chains such as Best Buy, Computer City, Comp USA, Egghead
and Fry's. To support the retail channel, the Company has engaged MindShare,
Inc. to train the in-store sales representatives and perform store by store
product positioning and merchandising. The Company intends to expand the number
of U.S. retail locations in 1997 and will seek to selectively add major new
distributors. To augment the distribution and retail sales effort, the Company
has engaged MicroTech, Inc. to represent the Company directly to the
headquarters of the distributors and retail chains. The Company also intends to
increase the number of products available for sale through this distribution
channel, which the Company believes is essential in securing adequate retail
shelf space and retailer promotional support. See "--Products Under
Development," "--Research and Development," and "Risk Factors--Distribution
Risks; Substantial Reseller Customer Concentration."
The Company's direct sales efforts are accomplished through a variety of
telesales, telemarketing, catalog sales and Internet activities. In July 1997,
the Company engaged Sunset Direct, Incorporated ("Sunset Direct") to perform a
dedicated, direct telemarketing effort to its extensive corporate account and
VAR database. The Company promotes catalog sales through Programmer's Paradise
Incorporated, TigerDirect Incorporated, Programmer's Super Shop and Dartek
Computer Supply Corp. The Company also allows fully functional versions of many
of its products to be downloaded from its secure Web site server
(Deltapoint.com). The downloadable versions enable worldwide access to the
products 24-hours a day and allow people to become productive with and reliant
on the product functionality. Users are prompted to purchase a license to the
product with a 30-day grace period after which encrypted technology within the
downloadable versions automatically disables the product. The Company plans to
expand the availability of its downloadable products. To that end, in June 1997,
the Company entered into an agreement with C/Net to electronically promote and
distribute the Company's products to the general public via C/Net's secure
credit card ordering system. Additionally, the Company has entered into an
agreement with Unidirect to perform a similar function targeted at the VAR
community, which the Company believes will expand its product and market
presence.
Internationally, the Company's strategy is to work with established
distributors who can invest in an array of local services including marketing
and localization support as well as provide access to distribution. The Company
will continue to localize its products for the Japanese market and intends to
pursue the expansion of its international presence by establishing new
partnerships in key European markets such as the U.K. and Germany. In addition,
in the long term the Company intends to take measures, including the hiring of
additional sales and marketing persons, to increase its level of international
sales. However, in light of the recent DeltaGraph Disposition, in the near-term
the Company expects that international Internet revenues may decline until the
relationship with its Japanese distributor (who principally sold DeltaGraph
products) is clarified or other international distribution channels can be
established. See "Risk Factors--Risks Associated with International Operations."
The Company pursues relationships and alliances with a broad spectrum of
industry leaders. Distribution alliances in the PC manufacturing area have been
announced with Compaq and Sony and in the ISP marketplace with Earthlink,
Anawave, Inc., Internet Mall, McAfee Mall and more than half a dozen regional
ISPs. In addition, the Company announced relationships with McGraw Hill, which
will offer site licenses for QuickSite to school districts and State Boards of
Education and MacMillian Press, which has included a QuickSite 2.5 express
version into a Web publishing bundle which will be sold through book stores. The
Company also has announced relationships with technology partners such as
DigitalStyle Corporation, a leading publisher of graphics generation tools, and
Virtus Corporation, a leading developer of VRML technology for creating 3D Web
sites. Many of these relationships are in the early stages of development and
have not yet resulted in material revenues to the Company. See "Strategic
Alliances."
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<PAGE>
PRODUCTS TARGETED AT SMB AND CORPORATE DEPARTMENT USERS. To effectively
market its planned family of scalable Web site development and management
products to the SMB and enterprise department users, the Company intends to
implement a sales and marketing program focused at the development of VARs, Web
professionals, OEMs (such as PC manufacturers) and ISPs.
The Company believes that many of its current relationships can be expanded
to incorporate this new market focus. Both Ingram Micro Incorporated and Tech
Data Corporation have extensive VAR programs and excel in the marketing of
software products to the VAR community. Sunset Direct, with its extensive VAR
database, provides a cost-effective means to distribute targeted product
information and VAR program sales materials. Additionally, Sunset Direct's
extensive corporate account database provides the Company access to a
significant lead generation source, which the Company may use as a basis for
engaging VARs quickly.
The Company also intends to seek strategic partnerships with Web
professionals and OEMs that focus on enterprise department users through
complete sales, support and service offerings.
In support of its sales organization, the Company conducts a number of
marketing campaigns, programs, and activities. The Company has three objectives:
(i) increase demand for its current products through its current channels; (ii)
recruit new channel members (such as distributors, VARs, Web Professionals, OEMs
and ISPs) to carry its new products into new markets; and (iii) expand awareness
and positioning of the corporate and product brand to support the first two
objectives. These efforts include product advertising, public relations and
press tours, trade show participation, direct mail and telemarketing campaigns,
product launches, preparation of marketing collateral and participation in
industry programs, special product promotions and involvement in user groups and
forums. Many of these activities are conducted jointly with distribution and
other strategic partners. This allows the Company to leverage larger firms and
extend the reach and frequency of its messages to its target customers. The
Company also maintains an extensive Web Site that provide users and channel
members with complete information on the Company, its products, distribution
channels, awards, personnel and other information.
There can be no assurance that the Company will be able to develop the sales
and marketing team needed to develop satisfactory VAR, OEM and ISP relationships
on a timely basis or at all. This market is competitive and there can be no
assurance that the Company will be successful in establishing significant
relationships with VARs, OEMs or ISPs. Furthermore, if developed, there can be
no assurance as to amount of support that the Company's products will receive
from these VARs, OEMs or ISPs, who may offer products that compete with the
Company's products. See "Risk Factors--Distribution Risks; Substantial Reseller
Customer Concentration."
As of June 30, 1997, the Company had 10 employees in sales and marketing.
For the six month period ended June 30, 1997, the Company spent $2.2 million or
149.9% of revenue for sales and marketing expenses compared to $2.1 million and
108.3% of revenue in the six month period ended June 30, 1996.
STRATEGIC ALLIANCES
A key element of the Company's strategy is the continued creation and
development of strategic alliances with key participants. The Company's goals in
establishing these relationships are to create leveraged marketing alliances
that will endorse and promote the Company's products to a larger potential
customer base than can be reached through the Company's direct marketing
efforts. To date, the Company has entered into strategic alliances with the
following companies:
MCGRAW-HILL. In June 1996, the Company entered into an agreement under
which the School Systems division of McGraw-Hill will market and distribute
QuickSite 1.0 products and site licenses to the education sector, including
school districts and state boards of education.
EARTHLINK. The Company entered into an agreement in June 1996 with
Earthlink, a leading Internet Service Provider, under which the companies will
perform mutually beneficial cross bundling and cross
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<PAGE>
merchandising. Earthlink has agreed to purchase a minimum number of QuickSite
licenses. The Company receives a referral fee for customers that sign up with
Earthlink's service. The companies intend to co-market each others products and
services.
COMPAQ. In July 1996, the Company entered into an agreement with Compaq
under which Compaq will offer QuickSite 1.0, as part of an optional software
bundle on one of its Pressario personal computer systems and has rights to
bundle on other platforms for a per unit license fee. The Company is currently
working with Compaq to upgrade the offer to QuickSite 2.5.
SONY. In December 1996, an addendum to a previous agreement was completed
that allows Sony to pre-install and ship an unencrypted version of QuickSite 1.0
on the Sony, Vaio personal computers. The Company receives a royalty for each
unit sold. The companies are currently working together to upgrade the contract
to include QuickSite 2.5.
MACMILLAN PRESS, INC. In May 1997, the Company entered into an agreement
with the Sam's Publishing division of MacMillan Press, Inc, to create a limited
function version of QuickSite 2.5 for inclusion in a Web developers bundled
product. MacMillan Press will distribute this bundle under its own brand and
packaging to its targeted book stores. The Company receives a royalty for each
distributed license and is working together with MacMillan Press to promote an
upgrade offer to a full function version of the product.
ANAWAVE, INC. The Company entered into an agreement with Anawave, Inc. in
June 1997 under which Anawave will offer an encrypted, 30 day, trial version of
QuickSite 2.5 to its customers. The Company will receive a royalty for each
license distributed and an additional royalty for upgrades to fully functional
versions of QuickSite 2.0. The Company in turn includes promotional literature
inside the QuickSite 2.5 retail packaging offering its retail customers a
discounted rate on Anawave's Web site hosting service. The Company receives a
referral fee for each customer who takes advantage of this special offer. The
companies intend to develop additional future co-marketing programs.
INTERNET MALL, INC. In July 1997, the Company entered into an agreement
with Internet Mall, Inc., a leading electronic shopping mall service provider.
Under the agreement, the Company added a direct link to Internet Mall's "Order
Easy", secure electronic credit card shopping mall service, through the addition
of a "Buy Now" button in the QuickSite 2.5 distributed by Internet Mall service.
The companies are jointly marketing the program, including marketing material in
the QuickSite 2.5 retail packaging.
Many of these relationships are in the early stages of development and have
not yet resulted in material revenue for the Company. Generally, existing
agreements outlining the Company's alliances do not impose significant financial
obligations or liabilities on either party and have terms no longer than one
year. There can be no assurance these relationships will successfully develop to
the extent that they will contribute materially to the Company's financial
results in the future.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on the
development of a family of site development and management software solutions
for Web based business environments. To date, the Company has made substantial
investments in research and development through both internal development and
technology acquisitions. The Company believes its future performance will depend
substantially on its ability to maintain and enhance its current product line
(including through technology acquisitions and licenses), to develop new
products, maintain technological competitiveness and to meet an expanding range
of customer requirements. There can be no assurance that the Company will be
successful in these efforts, and there are a significant number of other related
risks, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors--Rapid Technological Change; Risk of Product Delays; Risk of Product
Defects."
47
<PAGE>
As part of the Site Tech Acquisition and the Inlet Technology Acquisition,
the Company is acquiring certain core Internet technologies. The failure to
successfully develop and integrate the acquired technologies into the Company's
Web site development and management technology or to successfully market
products based upon the acquired technologies would adversely impact the
Company's strategy of marketing to the SMB and enterprise department user
markets (in addition to individuals and SOHO professionals) and would have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, these technology acquisitions and any other
similar acquisitions are subject to a number of other risks. See "Corporate
Developments," and "Risk Factors--Risks Associated with Inlet Technology
Acquisition and Site Tech Acquisition; General Acquisition Risks."
As a result of its cash constraints, and in connection with its reduced
level of operations and its focus on Internet software products, the Company has
significantly rationalized it workforce, including engineering resources. The
Company's research and development capabilities could be limited by, among other
things, existing engineering resource limitations. The failure to attract and
retain adequate levels of engineering resources needed to timely respond to
customer needs or market conditions or to develop products to address targeted
markets would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Dependence on
Limited Number of Key Personnel; Key Management Openings; Personnel Limitations;
Ability to Manage Growth."
As of June 30, 1997 the Company had 19 employees in its research and
development organization. The Company's research and development expenses for
the six-month periods ended June 30, 1997 and 1996 were $1.3 million and $1.1
million, respectively. The Company plans to continue to make significant
investments in research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of copyright, trademark, trade secret
laws, confidentiality procedures and other intellectual property protection
methods to protect its proprietary rights. The Company owns certain registered
trademarks in the United States and abroad. Although the Company relies to a
great extent on trade secret protection for much of its technology, and
generally obtains written confidentiality agreements from its employees, there
can be no assurance that third parties will not independently develop the same
or similar technology, obtain unauthorized access to the Company's proprietary
technology or misuse the technology to which the Company has granted access. The
Company believes that, due to the rapid proliferation of new technology in the
industry, legal protection through means such as the patent and copyright laws
will be less influential on the Company's ability to compete than such factors
as the creativity of its development staff and its ability to develop new
markets and to service its customers. The Company licenses its products to
individual end users primarily under "shrink wrap" license agreements that are
included in products shipped by the Company and that are not signed by the
licensees and therefore may be unenforceable under the laws of certain
jurisdictions. These agreements provide that by breaking the "shrink wrap" a
software purchaser agrees to be bound by the terms and conditions of the license
agreement.
There has been substantial industry litigation regarding patent, trademark
and other intellectual property rights involving technology companies. In the
future, litigation may be necessary to enforce any patents issued to the
Company, to protect trade secrets, trademarks and other intellectual property
rights owned by the Company, to defend the Company against claimed infringement
of the rights of others and to determine the scope and validity of the
proprietary rights of others. Any such litigation could be costly and result in
a diversion of management's attention, which could have material adverse effects
on the Company's business, financial condition and results of operations.
Adverse determinations in such litigation could result in the loss of the
Company's proprietary rights, subject the Company to significant liabilities,
require the Company to seek licenses from third parties or
48
<PAGE>
prevent the Company from manufacturing or selling its products, any of which
could have material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors-- Limited Intellectual
Property Protection."
The laws of certain foreign countries treat the protection of proprietary
rights of the Company in its products differently from those in the United
States, and in many cases the protection afforded by such foreign laws is weaker
than in the United States. The Company believes that its products and their use
do not infringe the proprietary rights of third parties. There can be no
assurance, however, that infringement claims will not successfully be made.
The Company has received and will continue to receive from time to time
communications from third parties asserting infringement upon intellectual
property rights of such parties as a result of either features or content of its
software products. Although the Company is not currently engaged in any
intellectual property litigation or proceedings, there can be no assurance that
the Company will not become involved in such proceedings for which the ultimate
resolution could have a material adverse effect on the Company's business
financial condition and results of operations.
In June 1997, the Company consummated the Site Tech Acquisition. As part of
that acquisition, the Company agreed to pay royalties of approximately 5% on
sales of certain products developed from the technologies acquired from Site for
a 12 month period commencing on the date of the first commercial shipment of
such products. See "Corporate Developments."
In connection with the pending Inlet Technology Acquisition, the Company has
agreed that if the acquisition is consummated it will pay to Inlet royalties in
an amount equal to 5% of the Company's net revenues from all sales of the
products developed from these technologies, subject to certain limitations. See
"Corporate Developments" and "Use of Proceeds." If the pending Inlet Technology
Acquisition is not consummated, pursuant the OEM Agreement under which Inlet
granted to the Company the exclusive right to market, demonstrate and distribute
products based on the Inlet Technology software DeltaPoint has agreed to pay
Inlet royalties in an amount equal to 18% of the Company's net revenues from all
sales of the products developed from the Inlet Technology software.
In March 1997, the Company entered into an agreement with Unisys Corporation
("Unisys") pursuant to which the Company has licensed a patent which would
require the Company to pay Unisys a license fee of 0.45% of the Company's
revenues from the sale of each product covered by such license agreement,
subject to a minimum license fee of ten cents ($0.10) for each such product. The
products subject to this agreement are QuickSite version 2.5, WebAnimator and
Graphics Tools.
In December 1995, the Company acquired core technology, including source
code and related documentation, required to develop QuickSite, from Global
Technologies Corporation, and an individual. The purchase price for the
technology was (i) $800,000 in cash, payable in installments, and (ii) the
issuance of 100,000 shares of the Company's Common Stock. The Company has
royalty obligations during the first two years of commercial shipments of
QuickSite.
In November 1995, the Company acquired core technology, including source
code and related documentation, required to develop WebAnimator from Knowledge
Vision. The purchase price for the technology was $250,000, payable in
installments. The Company also pays a royalty based on net revenues from sales
of WebAnimator.
FACILITIES
The Company currently leases an approximately 12,000 square foot office
suite located at 22 Lower Ragsdale Drive, Monterey, California under a lease
that expires in September 1998 with a monthly rental of approximately $16,200.
The Company holds an option to renew such lease at the end of the initial term
for an additional three year term. On or about October 1, 1997, the Company
intends to move its offices to a new office suite of approximately 18,000 square
feet located at 380 El Pueblo, Scotts Valley, California
49
<PAGE>
under a lease that expires in March 2001 with a monthly rental of approximately
$12,000 during the first six months and increasing to $18,000 thereafter. The
Company has retained a broker to search for another tenant to assume the lease
on its current offices. The Company believes that its new facilities will be
adequate to meet its requirements for the near term and that additional space
will be available on commercially reasonable terms if needed.
EMPLOYEES
As of June 30, 1997, the Company had 36 full-time employees located
throughout the United States. This number includes 19 persons in Research and
Development and Technical Support, 10 persons in Marketing, Sales and Sales
Support and 7 persons in Operations and Finance. None of the Company's employees
is represented by a labor union or is subject to a collective bargaining
agreement. DeltaPoint believes that its relations with its employees are good.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The current executive officers, directors and other key personnel of the
Company, and their ages as of September 22, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Jeffrey Ait.................. 41 Chief Executive Officer, Chief Financial Officer and
Director
John Hummer (1)(2)........... 49 Director
Patrick Grady (1)(2)......... 29 Director
Joseph Marengi (1)(2)........ 44 Director
Stephen Mendel (1)(2)........ 49 Director
Scott Allen (3).............. 37 Vice President of Channel Marketing
Song Huang (3)............... 34 Vice President of Product Management
Charles Batterman (3)........ 44 Vice President of Development
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Not an executive officer.
MR. AIT joined the Company in March 1997 as Chief Executive Officer. From
January 1996 to March 1997 he served as Vice President of Internet at the Santa
Cruz Operation, Inc. ("SCO"), a software developer and publisher. From October
1995 to January 1996 he served as Vice President of Acquisitions at SCO. From
October 1993 to October 1995 he served as Vice President of Channel Sales and
Marketing at SCO. From August 1990 to October 1993 he served as Vice President
Government Systems Group at SCO.
MR. HUMMER has served as a director of the Company since October 1990. Mr.
Hummer has served as a partner at, Hummer Winblad Venture Partners, a venture
capital firm, since its foundation in 1989. Mr. Hummer serves as a director of
several privately held companies, including Netgravity, an Internet and online
marketing communications company, and IMX, a provider of electronic commerce for
the mortgage industry. From June 1992 to May 1997, Mr. Hummer was a director of
Books That Work, a consumer software company, until its acquisition by CUC
International. From May 1995 to February 1997, he was a director of Centerview
Software, an enterprise software company, until its acquisition by Informix.
From April 1991 to February 1995, he was a director of Powersoft Corporation, an
application development software provider, until its acquisition by Sybase
Incorporated. From August 1990 to April 1995, Mr. Hummer was a director of Wind
River Systems, Inc., a software provider for embedded real-time applications.
MR. GRADY has served as a director of the Company since August 1996. Mr.
Grady currently serves as Managing Director, Venture Capital of H.J. Meyers &
Co., Inc., an investment banking firm. From June 1993 to March 1996, Mr. Grady
served as Senior Vice President of Corporate Finance at H.J. Meyers & Co., Inc.
From March 1991 to May 1993, he served as Vice President of Corporate Finance at
Josephthal, Lyon & Ross, an investment banking firm. Mr. Grady serves as a
director of Borealis Technology Corp., an enterprise wide sales force automation
software Company, and SoloPoint, Inc., a provider of small office/home office
communication management products.
MR. MARENGI has served as a director of the Company since July 1997. Mr.
Marengi currently serves as Senior Vice President of Dell Computer Corporation,
a computer systems manufacturer. From August
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1996 to July 1997, Mr. Marengi served as President of Novell, Inc., a network
software provider. Prior to August 1996, he served as Executive Vice President,
Worldwide Sales and as Vice President of Channel Sales at Novell. Mr. Marengi
serves as a director of Corel Corporation, an applications, graphics and
Internet software developer, Network Peripherals, Inc., an ethernet switching
solutions provider, and Borealis, Inc., an automation software company.
MR. MENDEL has served as a director of the Company since July 1997. From
January 1994 to July 1997, he served as a director of Site/technologies/inc.
From March 1993 to March 1994, Mr. Mendel served as Chief Executive Officer,
President and Director of AXS, an image database software provider. From January
1990 to March 1993, he served as Chief Executive Officer, President and Director
of Ithaca Software, a 3-D interactive portable graphics software developer. Mr.
Mendel serves as a director of Direct Language Communications, Inc., a
multilingual communication services provider, and Knowledge Revolution, Inc., a
motion simulation software provider.
MR. ALLEN has served as Vice President of Channel Marketing of the Company
since July 1997. From February 1995 to July 1997, he served as Director of
Marketing at the Santa Cruz Operation, Inc. ("SCO"), a software developer and
publisher. From January 1994 to February 1995, Mr. Allen served as Manager,
Government, Latin American, OEM and Communications Marketing at SCO. From June
1992 to January 1994, he served as Manager, North American Government Marketing.
Prior to June 1992, Mr. Allen served in a variety of additional managerial
capacities for SCO dating back to January 1986.
MR. HUANG joined the Company in January 1996 as Vice President of Internet
Products and has served as Vice President of Product Management of the Company
since July 1997. From September 1995 to December 1996, he served as Director of
Marketing at Frame Technology, an application development software provider.
From November 1990 to September 1990, Mr. Huang served as Senior Product Manager
at Borland International, Inc., an application development software provider.
MR. BATTERMAN joined the Company in August 1996 as Director of Engineering
and has served as Vice President of Development since December 1996. From
January 1994 to August 1996, he was President of Media Computer Systems, an
Internet-based marketing software provider. From 1986 to January 1994, he was
Manager of Graphics Research and Development at Borland International, Inc. an
application development software provider.
FAMILY RELATIONSHIPS
There are no family relationships among any of the directors or executive
officers.
BOARD COMMITTEES
The Board of Directors has had a Compensation and an Audit Committee since
December 1, 1995. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for the Company's officers and
employees and administers the Company's Executive Bonus Plan, 1990 Key Employee
Incentive Stock Option Plan, 1992 Non-Statutory Stock Option Plan, 1995 Stock
Option Plan and 401(k) Plan. The Audit Committee aids management in the
establishment and supervision of the Company's financial controls, evaluates the
scope of the annual audit, reviews audit responses, consults with management and
the Company's independent auditors prior to the presentation of financial
statements to shareholders and, as appropriate, initiates inquiries into aspects
of the Company's financial affairs.
DIRECTOR COMPENSATION
Directors receive reimbursement of expenses incurred in attending Board
meetings. Except as otherwise described in this Prospectus, the Company has not
paid cash or other compensation to its directors. See "--1995 Stock Option Plan"
and "Principal Shareholders."
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Hummer, Grady, Marengi and Mendel. None of these individuals were at any
time since the formation of the Company, an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
EMPLOYMENT CONTRACTS
On March 24, 1997, Jeffrey F. Ait executed an offer letter with the Company
pursuant to which Mr. Ait became Chief Executive Officer of the Company. The
offer letter provides for an annual salary of $165,000 and for the grant of
options to purchase an aggregate of 225,000 shares of Common Stock at an
exercise price equal to the fair market value per share on the date the options
are granted. The options are immediately exercisable but subject to a right of
repurchase by the Company at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The repurchase
right lapses and the optionee vests in a series of equal monthly installments
over 36 months, beginning on the one-month anniversary of the grant date. If Mr.
Ait's employment with the Company is terminated for reasons other than cause
within six months following a specified change in control of the Company, the
letter provides that Mr. Ait's base salary shall continue to be paid for one
year following his last day of employment. All of Mr. Ait's stock options vest
in full and become exercisable as to all of the shares immediately prior to the
acquisition by any person of at least 50% of the total outstanding voting
securities of the Company, a merger or consolidation of the Company (other than
a merger which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent at least 50% of the total
outstanding voting securities of the Company or the surviving entity), a
liquidation of the Company or the sale of all of the Company's assets.
See "Certain Transactions--Employment Contracts" for a description of
additional employment and termination agreements entered into between the
Company and certain Named Executive Officers.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's two
former Chief Executive Officers and two other executive officers who earned
salary and bonus for the 1996 fiscal year in excess of $100,000 (collectively,
the "Named Executive Officers") for services rendered in all capacities to the
Company and its subsidiaries for that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION NUMBER OF
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ---------------------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John J. Ambrose (1) .................... 1996 78,461 25,000(2) 4,500(3) 145,000 26(4)
Chief Executive Officer and Director 1995 -- -- -- -- --
Raymond R. Kingman, Jr. (5) ............
Chairman of the Board, President and 1996 32,000 -- 900(6) -- 141,253(7)
Chief Executive Officer 1995 108,000 -- 4,708(6) 100,000 66(4)
Donald B. Witmer (8) ...................
Chief Operating Officer, Chief 1996 120,000 -- 30,000(9) 50,000 251(4)
Financial Officer and Director 1995 19,845 -- 5,000(9) 135,000 --
William G. Pryor (10) ..................
Vice President of Development and 1996 104,950 -- -- -- 87(4)
Director 1995 92,500 -- -- 100,000 87(4)
</TABLE>
- ------------------------
(1) Mr. Ambrose served as the Company's Chief Executive Officer from April 22,
1996 to March 27, 1997.
(2) Represents a signing bonus of $25,000.
(3) Represents a $500 per month car allowance.
(4) Represents life insurance premiums made by the Company with respect to
insurance policies on the lives of Messrs. Ambrose, Kingman, Witmer and
Pryor.
(5) Mr. Kingman resigned as Chief Executive Officer and a director of the
Company, effective April 5, 1996.
(6) Represents a $300 per month car allowance.
(7) Represents a $22 life insurance premium and a severance payment of
$141,231.
(8) Mr. Witmer served as the Company's Chief Financial Officer and Chief
Operating Officer from November 1, 1995 to June 20, 1997.
(9) Represents a $2,000 per month housing allowance and a $500 per month car
allowance.
(10) Mr. Pryor has entered into a Separation Agreement and Release pursuant to
which he has resigned from the Company effective October 9, 1997. See
"Certain Transactions--Employment Contracts."
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STOCK OPTION INFORMATION
The following table contains information concerning stock option grants made
to the Named Executive Officers during the year ended December 31, 1996. No
stock appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-----------------------------------------------------------
NUMBER OF % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH)(2) DATE
- ----------------------------------------- ----------- --------------------- ----------- ----------
<S> <C> <C> <C> <C>
John J. Ambrose.......................... 145,000 33% 9.50 04/21/06
Raymond R. Kingman, Jr................... -- -- -- --
Donald B. Witmer......................... 10,000 2 9.50 04/21/06
Donald B. Witmer......................... 40,000 9 7.50 11/03/06
William G. Pryor......................... -- -- -- --
</TABLE>
- ------------------------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable thereunder are subject to repurchase by the Company at
the original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses and the
optionee vests in a series of equal monthly installments over thirty-six
months of service commencing on the date of grant of the option. These
options were granted at an exercise price equal to the fair market value of
the Company's Common Stock as determined by the Board of Directors of the
Company on the date of grant. Each option has a maximum term of ten (10)
years, subject to earlier termination in the event of the optionee's
cessation of employment with the Company.
(2) In March 1997, the Board of Directors approved a repricing of all options
granted under the Company's stock option plans that were outstanding on such
date and had an exercise price in excess of the fair market value of the
Company's Common Stock on such date of $2.25 per share. This option
repricing resulted in the cancellation of all the options granted in the
last fiscal year to the Named Executive Officers and a regrant of options
for the same number of shares at an exercise price of $2.25 per share.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
55
<PAGE>
The following table sets forth information concerning option holdings for
the year ended December 31, 1996 with respect to each of the Named Executive
Officers. No stock appreciation rights were exercised during such year or were
outstanding at the end of that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR END FISCAL YEAR END(1)
SHARES ACQUIRED VALUE ------------------------------ --------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- --------------- ----------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John J. Ambrose................ -- -- 145,000 -- $ -- $ --
Raymond R. Kingman, Jr......... 72,000 379,517 5,894 -- 4,028 --
Donald B. Witmer............... -- -- 185,000 -- 337,500 --
William G. Pryor............... -- -- 101,894 -- 250,000 --
</TABLE>
- ------------------------
(1) Based on the closing price per share of the Company's Common Stock as listed
on the Nasdaq Small Cap Market as of December 31, 1996 of $6.00, less the
per share exercise price.
COMPANY STOCK OPTION PLANS
1990 KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN. The Company's 1990 Key
Employee Incentive Stock Option Plan (the "1990 Plan") was originally adopted by
the Board of Directors and approved by the Company's shareholders effective July
1, 1990 and was restated by the Board on June 17, 1992, which restatement was
approved by the shareholders on August 27, 1992. The 1990 Plan authorizes for
issuance 38,922 shares of Common Stock. As of June 30, 1997, 2,143 shares had
been issued under the 1990 Plan, options to purchase an aggregate of 33,720
shares were outstanding and options to purchase 3,059 shares remained available
for future grant. Shares of Common Stock subject to outstanding options which
expire or terminate prior to exercise will be available for future issuance
under the 1990 Plan.
Under the 1990 Plan, key employees (including officers) may, at the
discretion of the plan administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than the fair market value of such
shares on the grant date. Options granted under the 1990 Plan become exercisable
for 25% of the option shares on the first anniversary of the grant date and for
the balance of the shares in 36 equal monthly installments thereafter, unless
otherwise provided by the plan administrator. In the event the Company or its
shareholders enter into an agreement to dispose of all or substantially all of
the assets or stock of the Company by means of a sale, a reorganization, a
liquidation or otherwise, each outstanding option shall become immediately
exercisable in full for all of the option shares. Each such option shall
thereupon terminate. Each option shall have a maximum term of ten (10) years.
The 1990 Plan may be administered by the Board or the Compensation Committee
of the Board. The plan administrator has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant, the status of any granted option as either an incentive
option or a non-statutory option under the Federal tax laws, the vesting
schedule to be in effect for each option grant and the maximum term for which
each granted option is to remain outstanding.
The exercise price for options granted under the 1990 Plan may be paid in
cash or in outstanding shares of Common Stock.
The Board may amend or modify the 1990 Plan at any time. Certain amendments
require shareholder approval. The 1990 Plan will terminate on June 30, 2000,
unless sooner terminated by the Board.
56
<PAGE>
1992 NON-STATUTORY STOCK OPTION PLAN. The Company's 1992 Non-Statutory
Stock Option Plan (the "1992 Plan") was originally adopted by the Board of
Directors and approved by the Company's shareholders effective July 1, 1992 and
was restated by the Board on June 17, 1992, which restatement was approved by
the shareholders on August 27, 1992. The 1992 Plan authorizes for issuance
28,301 shares of Common Stock. As of June 30, 1997, no shares had been issued
under the 1992 Plan, options to purchase an aggregate of 13,780 shares were
outstanding and options to purchase 14,521 shares remained available for future
grant. Shares of Common Stock subject to outstanding options which expire or
terminate prior to exercise will be available for future issuance under the 1992
Plan.
Under the 1992 Plan, key employees (including officers) and consultants of
the Company or of any subsidiary and certain entities may, at the discretion of
the plan administrator, be granted non-statutory options to purchase shares of
Common Stock at an exercise price not less than the fair market value of such
shares on the grant date. Options granted under the 1992 Plan are fully vested
and immediately exercisable on the grant date. In the event the Company or its
shareholders enter into an agreement to dispose of all or substantially all of
the assets or stock of the Company by means of a sale, a reorganization, a
liquidation or otherwise, each outstanding option shall thereupon terminate. In
no event, may an option have a term of more than five (5) years.
The 1992 Plan may be administered by the Board or the Compensation Committee
of the Board. The plan administrator has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant and the terms and conditions of exercise with respect to each
option grant.
The exercise price for options granted under the 1992 Plan may be paid in
cash, in outstanding shares of Common Stock, or through the net exercise of the
option. Shares may be deducted from the shares to be issued upon exercise of an
option granted under the 1992 Plan to satisfy the optionee's income tax
withholding obligations. Options may also be exercised on a cashless basis
through the same-day sale of the purchased shares.
The plan administrator has the authority to effect, from time to time, the
cancellation of outstanding options under the 1992 Plan, in exchange for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock on
the new grant date.
The Board may amend or modify the 1992 Plan at any time. Certain amendments
require shareholder approval. The 1992 Plan will terminate on June 30, 2002,
unless sooner terminated by the Board.
1995 STOCK OPTION PLAN. The Company's 1995 Stock Option Plan (the "1995
Plan") was adopted by the Board of Directors on November 8, 1995, and approved
by the shareholders of the Company in December, 1995. The Company initially
reserved 620,000 shares of Common Stock for issuance under the 1995 Plan. On
February 15, 1996 and April 22, 1996, the Board of Directors approved a share
increase of 200,000 shares to be reserved for issuance under the 1995 Plan to a
total of 820,000 shares, which share increase was subsequently approved by the
Company's shareholders at the 1996 annual meeting. On March 21, 1997, the Board
of Directors approved a share increase of 400,000 shares to be reserved for
issuance under the 1995 Plan to a total of 1,220,000 shares, which share
increase was subsequently approved by the Company's shareholders at the 1997
annual meeting. As of June 30, 1997, 85,333 shares had been issued under the
1995 Plan, options for 744,337 shares were outstanding and 390,225 shares
remained available for future grant under the 1995 Plan. Shares of Common Stock
subject to outstanding options which expire or terminate prior to exercise will
be available for future issuance under the 1995 Plan.
Under the 1995 Plan, employees (including officers) and independent
consultants may, at the discretion of the plan administrator, be granted options
to purchase shares of Common Stock at an
57
<PAGE>
exercise price not less than 85% of the fair market value of such shares on the
grant date. Non-employee members of the Board of Directors will be eligible
solely for automatic option grants under the 1995 Plan.
The 1995 Plan may be administered by the Compensation Committee of the
Board. The Compensation Committee has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant, the status of any granted option as either an incentive
option or a non-statutory option under the Federal tax laws, the vesting
schedule to be in effect for each option grant and the maximum term for which
each granted option is to remain outstanding. In no event, however, may any one
participant in the 1995 Plan acquire in excess of 360,000 shares of Common Stock
under the 1995 Plan.
The exercise price for options granted under the 1995 Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised on
a cashless basis through the same-day sale of the purchased shares. The
Compensation Committee may also permit the optionee to pay the exercise price
through a promissory note payable in installments over a period of years. The
amount financed may include any Federal or state income and employment taxes
incurred by reason of the option exercise.
Each option granted to an officer of the Company subject to the short-swing
profit restrictions of the Federal securities laws includes a special stock
appreciation right that provides that, upon the acquisition of more than 50% of
the Company's outstanding voting stock pursuant to a hostile tender offer, such
option, if outstanding for at least six months, may be surrendered to the
Company in exchange for a cash distribution to the officer based upon the tender
offer price per share of Common Stock at the time subject to the surrendered
option.
The Compensation Committee has the authority to effect, from time to time,
the cancellation of outstanding options under the 1995 Plan in return for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock on
the new grant date.
In the event the Company is acquired by merger, consolidation or asset sale,
except as provided otherwise in specific option grants, the shares of Common
Stock subject to each option outstanding at the time under the 1995 Plan will
immediately vest in full, except to the extent the Company's repurchase rights
with respect to those shares are to be assigned to the acquiring entity, and
options will accelerate to the extent not assumed by the acquiring entity. The
Compensation Committee also has discretion to provide for the acceleration of
one or more outstanding options under the 1995 Plan and the vesting of shares
subject to outstanding options upon the occurrence of certain hostile tender
offers. Such accelerated vesting may be conditioned upon the subsequent
termination of the affected optionee's service.
Under the automatic grant program, each individual who first joins the Board
as a non-employee director on or after the effective date of the 1995 Plan will
receive at that time, an automatic option grant for 20,000 shares of Common
Stock. In addition, at each annual shareholders meeting, beginning in 1997, each
non-employee director will automatically be granted at that meeting, whether or
not he or she is standing for re-election at that particular meeting, a stock
option to purchase 1,000 shares of Common Stock, provided such individual has
served on the Board for at least six months prior to such meeting. Each option
will have an exercise price equal to the fair market value of the Common Stock
on the automatic grant date and a maximum term of ten years, subject to earlier
termination following the optionee's cessation of Board service. Each option
will be immediately exercisable for all of the shares but the shares will be
subject to repurchase at original cost. The repurchase right shall lapse and the
optionee vest in a series of three equal annual installments over the optionee's
period of Board service, beginning one year from the grant date. However,
vesting of the shares will automatically accelerate upon (i) an acquisition of
the Company by merger, consolidation or asset sale, (ii) a hostile take-over of
the Company effected by tender offer for more than 50% of the outstanding voting
stock or proxy contest for Board membership or (iii) the death or disability of
the optionee while serving as a Board member.
58
<PAGE>
In the event that more than 50% of the Company's outstanding voting stock
were to be acquired pursuant to a hostile tender offer, each automatic option
grant that has been outstanding for at least six months may be surrendered by
the optionee in return for a cash distribution from the Company based upon the
tender offer price per share of Common Stock at the time subject to the canceled
option.
The Board may amend or modify the 1995 Plan at any time. The 1995 Plan will
terminate on November 7, 2005, unless sooner terminated by the Board.
401(k) PLAN. During 1992, the Company established a deferred compensation
plan (the "401(k) Plan") pursuant to Section 401(k) of the Internal Revenue Code
(the "Code"), whereby substantially all employees are eligible to contribute up
to 20% of their pre-tax earnings, not to exceed amounts allowed under the Code.
The Company may make contributions to the 401(k) Plan at the discretion of the
Board of Directors. No Company contributions have been made to the 401(k) Plan
by the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Restated Articles of Incorporation
that eliminate to the fullest extent permissible under California law the
liability of its directors to the Company for monetary damages. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
California law, including in circumstances in which indemnification is otherwise
discretionary under California law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
59
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT TRANSACTIONS
The Company has issued and sold the following securities to persons who are
principal shareholders or directors of the Company. Each share of Series A,
Series B, Series C and Series D Preferred Stock was affected by a one-for-5.3
reverse stock split before giving effect to the conversion of such outstanding
Preferred Stock upon the closing of the Company's initial public offering in
December 1995 (the "IPO"):
<TABLE>
<CAPTION>
SHARES OF
SHARES OF SHARES OF SHARES OF SHARES OF WARRANTS TO COMMON STOCK
SERIES A SERIES B SERIES C SERIES D PURCHASE ISSUED UPON
PREFERRED PREFERRED PREFERRED PREFERRED COMMON PROMISSORY NOTE
INVESTOR(1) STOCK(2) STOCK(3) STOCK(4) STOCK(5) STOCK(6) CONVERSION(7)
- ------------------------------------------- ----------- ----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Entities Affiliated with Hummer Winblad
Venture Partners(8)...................... 55,341 22,641 43,620 26,801 27,629 31,667
Entities Affiliated with Oak Investment
Partners V, L.P.......................... -- 60,377 34,269 48,242 45,209 31,667
</TABLE>
- ------------------------
(1) Shares held by all affiliated persons and entities have been aggregated. See
"Principal and Selling Shareholders."
(2) The shares were issued in October 1990. The per share purchase for the
Series A Preferred Stock was $18.10.
(3) The shares were issued in June 1992. The per share purchase price for the
Series B Preferred Stock was $33.13.
(4) The shares were issued in April 1994. The per share purchase price for the
Series C Preferred Stock was $5.78.
(5) The shares were issued in May 1995. The per share purchase price for the
Series D Preferred Stock was $9.33. The consideration paid for such stock
was a combination of cash and cancellation of indebtedness.
(6) The warrants were issued in March 1992, March 1993 and May 1995.
(7) Represents shares of Common Stock issued upon the conversion of the notes at
a conversion price of $3.25 per share. Of the $300,000 principal amount of
the notes, $150,000 was issued to Hummer Winblad Venture Partners ("Hummer
Winblad Ventures") and an affiliate and $150,000 was issued to Oak
Investment Partners V, L.P. ("Oak Investment") and an affiliate. In November
1995, Hummer Winblad Ventures and Oak Investment and their respective
affiliates agreed to convert the principal amount of such notes, plus
accrued interest, into an aggregate of 63,334 shares of Common Stock. In
consideration for such agreement, in November 1995 the Company issued each
of Hummer Winblad Ventures and Oak Investment warrants to purchase 31,667
shares of Common Stock exercisable at a price of $7.20 per share for a
period of 30 months following December 26, 1995 and at a price of $8.40 per
share thereafter through November 6, 2000. See "Description of Capital
Stock--Warrants."
(8) Mr. Hummer, an affiliate of Hummer Winblad Venture Partners and Hummer
Winblad Technology Fund ("Hummer Winblad Technology"), is a director of the
Company.
In November 1995, the Company issued 125,000 units (the "Unit Offering"),
each unit consisting of two shares of Series E Preferred Stock and a warrant to
purchase one share of Common Stock, for $8.00 per unit. Each share of Series E
Preferred Stock converted into one share of Common Stock upon the closing of the
Company's initial public offering in December 1995. Hummer Winblad Ventures
purchased 3,125 units, Oak Investment purchased 6,113 units and its affiliate,
Oak V Affiliates Fund, L.P. ("Oak
60
<PAGE>
Affiliates") purchased 137 units. American High Growth Equities Retirement Fund
Trust purchased 50,000 units. See "Description of Capital Stock--Warrants."
In November 1996, the Company issued 30,970 shares of Common Stock to Oak
Investment, 697 shares of Common Stock to Oak Affiliates, 30,084 shares of
Common Stock to Hummer Winblad Ventures and 1,583 shares of Common Stock to
Hummer Winblad Technology, all pursuant to the conversion of the notes described
in the chart and footnote 7 above.
In December 1996, the Company issued an aggregate of 145,547 shares of
Common Stock to Oak Investment and Oak Affiliates at a price of $5.00 per share
pursuant to the exercise of warrants, including the warrants described in the
chart and footnote 7 above, of which warrants to purchase 62,421 shares were
acquired from Hummer Winblad Ventures and Hummer Winblad Technology.
In December 1996, the Company issued $2,000,000 in principal amount of
Convertible Notes to HRO pursuant to the Debt Financing (as defined below). In
April through June, 1997, HRO converted $457,120 in principal amount of
Convertible Notes into an aggregate of 307,000 shares of Common Stock, at an
average conversion price of $1.53 per share. At June 30, 1997 the remaining
$1,530,000 principal balance of the Convertible Notes held by HRO were converted
into Series A Preferred Stock. In July and August, 1997, HRO converted all
holdings of Series A Preferred Stock into 1,214,836 shares of Common Stock, at
an average conversion price of $1.26 per share. See "Description of Capital
Stock--Preferred Stock and Convertible Notes and --Warrants."
EMPLOYMENT CONTRACTS
In November 1995, the Company entered into employment agreements with
Raymond R. Kingman, Jr., who served as President and Chief Executive Officer of
the Company until his resignation as an officer and director on April 5, 1996,
and William G. Pryor, Vice President of Development. The agreements provide for
a grant to each individual of an option to purchase 100,000 shares of Common
Stock at an exercise price of $3.50 per share. The option is immediately
exercisable but subject to a right of repurchase by the Company at the original
exercise price paid per share upon the optionee's cessation of service prior to
vesting in such shares. The repurchase right lapses and the optionee vests in a
series of equal monthly installments over 36 months, beginning on the one-month
anniversary of the grant date, and lapses in full upon a specified Change in
Control of the Company (as defined). The agreement also provides that each of
Messrs. Kingman and Pryor will receive a severance payment in the amount of six
to twelve months of his base salary and other benefits if his employment is
terminated in certain circumstances, such as an involuntary termination other
than for cause (six months base salary) or an involuntary termination within
twenty-four months of a Change in Control (twelve months base salary).
In connection with his resignation on April 5, 1996, the Company entered
into a Separation Agreement and Release with Mr. Kingman which, among other
things, provided for certain payments and other financial compensation. Pursuant
to such agreement, the Company agreed to pay Mr. Kingman a severance payment of
$108,000 and to accelerate vesting of 62,500 of his 100,000-share option grant.
The Company also agreed to provide continued health care for a period of up to
12 months.
In connection with his resignation to be effective October 9, 1997, the
Company entered into a Separation Agreement and Release with Mr. Pryor on August
5, 1997 which, among other things, provided for certain payments and other
financial compensation. Pursuant to such agreement, the Company agreed to pay
Mr. Pryor a 6 month severance payment payable bi-weekly over a 6 month period,
to accelerate vesting of his remaining unvested options totaling 33,113 and to
grant Mr. Pryor 25,000 shares of Common stock.
In November 1995, the Company also entered into an employment agreement with
Donald B. Witmer, pursuant to which Mr. Witmer became Vice President of Finance
and Administration and Chief Financial Officer of the Company. The agreement
provides for an annual salary of $120,000, a $2,000 per month housing allowance
and a $500 per month car allowance. The agreement also provides for a grant of
61
<PAGE>
an option to purchase 135,000 shares of Common Stock at an exercise price of
$3.50 per share. The option is immediately exercisable but subject to a right of
repurchase by the Company at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The repurchase
right lapses and the optionee vests in a series of equal monthly installments
over 36 months, beginning on the date Mr. Witmer commences employment, and
lapses in full upon a specified Change in Control of the Company (as defined).
The option has a maximum term of ten (10) years, subject to earlier termination
in the event of the optionee's cessation of service with the Company. The
agreement also provides that Mr. Witmer will receive a severance payment in the
amount of six to twelve months of his base salary and other benefits if his
employment is terminated in certain circumstances, such as an involuntary
termination other than for cause (six months base salary plus bonus and other
benefits) or an involuntary termination within twenty-four months of a Change in
Control (twelve months base salary plus bonus and other benefits). In May 1997,
the Company fully vested Mr. Witmer's option in lieu of payments owed to Mr.
Witmer as part of his annual salary in order to alleviate operating cash
constraints. On June 20, 1997, Mr. Witmer voluntarily terminated his employment
with the Company.
In March 1996, John J. Ambrose executed an offer letter with the Company,
pursuant to which Mr. Ambrose became Chief Executive Officer in April 1996. The
offer letter provides for an annual salary of $120,000, a signing bonus of
$25,000 and a grant of an option to purchase 145,000 shares of Common Stock.
John Ambrose's service as Chief Executive Officer and a director of the Company
ceased on March 27, 1997. On July 3, 1997, the Company and Mr. Ambrose entered
into a Separation Agreement and Release in connection with his resignation,
which provided for a severance payment of $95,000.
TRANSACTIONS WITH H.J. MEYERS & CO., INC.
Patrick W. Grady, a director of the Company, is a Managing Director Venture
Capital of H.J. Meyers & Co., Inc. ("H.J. Meyers"). The Company retained H.J.
Meyers to act as placement agent in connection with the Unit Offering. For
acting as placement agent, H.J. Meyers received a fee of 10.00% of the aggregate
proceeds from the Unit Offering and a non-accountable expense allowance of 3% of
such aggregate proceeds. The Company also agreed to indemnity H.J. Meyers for
certain liabilities, including those arising under the Securities Act, for
serving as placement agent.
The Company retained H.J. Meyers to act as placement agent in connection
with the Debt Financing. Under the terms of the placement agent agreement, H.J.
Meyers received a placement fee of 7% of the gross proceeds from the Debt
Financing, reimbursement of accountable expenses of 1% of such gross proceeds
and a warrant to purchase 16,538 shares of Common Stock at an exercise price of
$6.50 per share. The Company granted the holder of the warrant certain
registration rights with respect thereto and the shares of Common Stock issuable
upon its exercise. See "Description of Capital Stock--Registration Rights." The
Company also agreed to indemnify H.J. Meyers for certain liabilities, including
those arising under the Securities Act, for serving as placement agent in
connection with the Debt Financing.
The Company's initial public offering was underwritten and this Offering is
being underwritten by H.J. Meyers. In addition to an underwriting discount of
$660,000, in connection with the Company's initial public offering, the Company
paid H.J. Meyers a non-accountable expense allowance equal to 2.5% of the gross
proceeds from the initial public offering. In connection with its initial public
offering, the Company also issued to H.J. Meyers a warrant to purchase up to
110,000 shares of Common Stock at a price of $7.20 per share at any time during
the four-year period commencing December 20, 1996. The Company has granted the
holder of such warrant certain registration rights with respect thereto and the
shares of Common Stock issuable upon its exercise.
At the closing of this Offering, the Company will pay to H.J. Meyers an
underwriting discount in addition to a non-accountable expense allowance equal
to 3% of the gross proceeds from the Offering. The Company also will issue to
H.J. Meyers the Underwriter's Warrant to purchase up to 320,000 shares of Common
Stock at a price of $3.675 per share (assuming a public offering price of $2.625
per share), which will be exercisable at any time during the four-year period
commencing one year from the date of this
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<PAGE>
Prospectus. The Company will grant certain registration rights with respect to
the Underwriter's Warrant and the shares of Common Stock issuable upon its
exercise.
The Company has also agreed to enter into a consulting agreement with H.J.
Meyers pursuant to which the Company will pay to H.J. Meyers a non-refundable
fee of $6,000 per month for 12 months in exchange for H.J. Meyer's performance
of certain consulting services related to corporate finance. The Company has
agreed to pay to H.J. Meyers the entire one year fee upon the closing of this
Offering. See "Underwriting."
The Company believes that all of the foregoing transactions were in its best
interests. All future transactions by the Company with officers, directors, 5%
shareholders and their affiliates will be entered into only if the Company
believes that such transactions are reasonably expected to benefit the Company
and the terms of such transactions are no less favorable to the Company than
could be obtained from unaffiliated parties.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 22, 1997, and as
adjusted to reflect the sale of shares offered hereby, by (i) each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each director of the Company, (iii) each Named Executive Officer and
(iv) all directors and executive officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have investment and
voting power with respect to such shares, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES BENEFICIALLY
NUMBER OF SHARES OWNED(2)
BENEFICIALLY ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Entities affiliated with Hummer Winblad Venture Partners(3) ... 186,321 4.0% 2.3%
Two South Park
Second Floor
San Francisco, CA 94107
Entities affiliated with Oak Investment Partners V, L.P.(4) ... 332,601 7.1% 4.0%
One Gorham Island
Westport, CT 06880
Jeffrey F. Ait(5) ............................................. 244,000 5.0% 2.9%
c/o DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
William G. Pryor(6) ........................................... 141,535 3.0% 1.7%
c/o DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
Donald B. Witmer(7) ........................................... 203,750 4.2% 2.4%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
John Hummer(3) ................................................ 186,321 4.0% 2.3%
c/o Hummer Winblad Venture Partners
Two South Park
Second Floor
San Francisco, CA 94107
Patrick W. Grady(8) ........................................... 147,538 7.3% 1.8%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
Joseph Marengi(9) ............................................. 52,000 1.1% *
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
Stephen Mendel(10) ............................................ 143,713 3.1% 1.7%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
All directors and executive officers as a group (5
persons)(11)................................................. 773,572 15.1% 8.9%
</TABLE>
- ------------------------
* Less than one percent (1%).
64
<PAGE>
(1) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
(2) Percentage ownership is based on: (i) before the Offering, 4,681,381 shares
of Common Stock outstanding as of September 22, 1997 and any shares issuable
pursuant to securities convertible into or exercisable for shares of Common
Stock by the person or group in question on September 22, 1997 or within 60
days thereafter; and (ii) after the Offering, the additional 3,200,000
shares to be issued by the Company in the Offering and the 360,000 shares to
be issued in the Inlet Technology Acquisition.
(3) Consists of 181,877 shares of Common Stock held by Hummer Winblad Venture
Partners and 4,444 shares of Common Stock held by Hummer Winblad Technology
Fund ("Hummer Winblad Technology"). Mr. Hummer, a director of the Company,
is a General Partner of Hummer Winblad Equity Partners, which is the General
Partner of Hummer Winblad Venture Partners and Hummer Winblad Technology.
Mr. Hummer disclaims beneficial ownership of the securities held by these
entities except to the extent of his pecuniary interest therein arising from
his general partnership interest in Hummer Winblad Equity Partners.
(4) Consists of 325,289 shares of Common Stock held by Oak Investment Partners
V, L.P. ("Oak Investment") and 7,312 shares of Common Stock held by Oak V
Affiliates Fund, L.P. ("Oak Affiliates"). Edward F. Glassmeyer is a general
partner of Oak Investment and Oak Affiliates. Mr. Glassmeyer disclaims
beneficial ownership of the securities held by these entities, except to the
extent of his pecuniary interest therein arising from his general
partnership in Oak Investment. See "Description of Capital Stock--Warrants."
Oak Affiliates is an affiliate of Oak Investment.
(5) Includes 225,000 shares of Common Stock subject to a stock option granted
in March 1997 which is currently exercisable or exercisable within sixty
(60) days after September 22, 1997.
(6) Includes 101,894 shares of Common Stock subject to stock options currently
exercisable or exercisable within sixty (60) days after September 22, 1997,
including an option to purchase 100,000 shares of Common Stock granted on
November 10, 1995 that is immediately exercisable but subject to a right of
repurchase upon termination of employment that lapses in equal monthly
installments over 36 months and lapses in full upon a specified change in
control. See "Management--Stock Option Information" and "Certain
Transactions--Employment Contracts."
(7) Consists of 12,500 shares of Common Stock, an immediately exercisable
Warrant to purchase 6,250 shares of Common Stock and an option to purchase
135,000, 10,000 and 40,000 shares of Common Stock, respectively granted on
November 10, 1995, April 22, 1996 and November 4, 1996, respectively that is
immediately exercisable but subject to a right of repurchase upon
termination of employment that lapses in equal monthly installments over 36
months and lapses in full upon a specified change in control. See "Certain
Transactions--Employment Contracts."
(8) Includes an option to purchase 20,000 shares of Common Stock granted on
August 13, 1996 and 1,000 shares of Common Stock granted on June 20, 1997
that is immediately exercisable but subject to a right of repurchase upon
termination of service as a director that lapses in equal annual
installments over three years and lapses in full on a specified change in
control. See "Management--1995 Stock Option Plan." Also includes 110,000
shares of Common Stock that may be acquired by H.J. Meyers upon exercise of
the warrant issued to H.J. Meyers in connection with the Company's initial
public offering and 16,538 shares of Common Stock that may be acquired upon
exercise of the warrant issued to H.J. Meyers in connection with the Debt
Financing. Mr. Grady, a director of the Company, is a Managing Director,
Venture Capital of H.J. Meyers. Mr. Grady disclaims beneficial ownership of
the securities that may be acquired by H.J. Meyers except to the extent of
his pecuniary interest therein.
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(9) Consists of 50,000 shares of Common Stock subject to a stock option granted
in July 1997 which is currently exercisable or exercisable within sixty (60)
days after September 22, 1997 but subject to a right of repurchase upon
termination of service as a director that lapses in equal annual
installments over three years and lapses in full on a specified change in
control.
(10) Includes an option to purchase 20,000 shares of Common Stock granted in
July 1997 that is immediately exercisable but subject to a right of
repurchase upon termination of service as a director that lapses in equal
annual installments over three years and lapses in full on a specified
change in control. Also includes 123,713 shares of Common Stock held by SLF
Partners II, L.P. and SLF Partners III, L.P. Mr. Mendel, a director of the
Company, is a special limited partner in each of SLF Partners II, L.P. and
SLF Partners III, L.P. Mr. Mendel disclaims beneficial ownership of the
securities held by these entities except to the extent of his pecuniary
interest therein arising from his limited partnership interest in SLF
Partners II, L.P. and SLF Partners III, L.P.
(11) Consists of 331,034 shares of Common Stock, immediately exercisable
warrants to purchase 126,538 shares of Common Stock and 316,000 shares of
Common Stock subject to stock options currently exercisable or exercisable
within sixty (60) days of September 22, 1997.
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DESCRIPTION OF CAPITAL STOCK
As of September 22, 1997 the Company is authorized to issue 25,000,000
shares of Common Stock, no par value, and 4,000,000 shares of Preferred Stock,
no par value.
COMMON STOCK
As of September 22, 1997, there were 4,681,381 shares of Common Stock
outstanding held of record by approximately 60 shareholders. The holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
shareholders. In the election of directors, however, cumulative voting is
authorized for all shareholders if any shareholder gives notice at a meeting,
prior to voting for the election of directors, of his or her intention to
cumulate votes. Subject to the prior rights of holders of Preferred Stock, if
any, the holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors in its discretion
from funds legally available therefor. The Common Stock has no preemptive or
other subscription rights and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All of the outstanding
shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK AND CONVERTIBLE NOTES
At the closing of the Company's initial public offering in December 1995,
all previously outstanding shares of Preferred Stock were converted into Common
Stock. As of September 22, 1997, the Company is authorized to issue up to
4,000,000 shares of undesignated Preferred Stock. The Board of Directors has the
authority to issue the undesignated Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued shares of undesignated Preferred Stock, as well as to
fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the shareholders. The Board of
Directors, without shareholder approval, may issue Preferred Stock with voting
and conversion rights which could materially adversely affect the voting power
of the holders of Common Stock. The issuance of Preferred Stock could also
decrease the amount of earnings and assets available for distribution to holders
of Common Stock. In addition, the issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company.
In December 1996, the Company raised approximately $1,949,000 in net
proceeds from the sale and issuance of 6% Convertible Subordinated Debentures
("Convertible Notes") to HRO and an additional investor (the "Debt Financing").
The Company issued $2,150,000 principal amount of Convertible Notes that were
convertible at the option of the holders thereof, in whole or in part, into
shares of Common Stock, at a conversion price (the "Conversion Price") equal to
the lower of (i) 80% of the average closing bid price of the Common Stock, as
publicly reported, for the five business days prior to the business day on which
notice of conversion is transmitted by the note holder (or, in the event of
automatic conversion, as described below, five business days prior to the
business day on which the conversion is deemed to take place) or (ii) $6.70. All
unconverted Convertible Notes would convert automatically into Common Stock at
the Conversion Price on the second anniversary of the Debt Financing closing, or
earlier in the event of a merger of the Company into another entity, a change in
control of the Company or a sale of all or substantially all the Company's
assets. The Conversion Price was subject to adjustment in certain circumstances.
The Convertible Notes may have been redeemed by the Company at 120% of the
principal amount being redeemed, plus accrued interest, at the Company's sole
election if the average closing offer price for the Common Stock for any
five-day period was below $4.00. As of September 22, 1997 and after giving
effect to the Series A Transaction (as described below), all Convertible Notes
had been exchanged for Common Stock or Series A Preferred Stock.
In May 1997, the Company entered into a Series A Preferred Stock Purchase
Agreement (the "Series A Purchase Agreement") with HRO, pursuant to which HRO
agreed to exchange the entire then-
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outstanding principal amount of Convertible Notes held by it for shares of the
Company's Series A Preferred Stock ("Series A Preferred Stock") at a purchase
price of $1,000 principal amount of Convertible Notes per share of Series A
Preferred Stock (such transaction being referred to herein as the "Series A
Transaction").
In connection with the Series A Transaction, each share of Series A
Preferred Stock is convertible, at any time, at the option of the holder, into
the number of shares of the Company's Common Stock determined by dividing $1,000
by the lower of (i) 80% of the average of the fair market value of the Common
Stock for the five business days prior to the conversion date, or (ii) $3.50 per
share. The conversion price is subject to adjustment in certain circumstances.
The shares of Series A Preferred Stock are also automatically convertible into
Common Stock on the second anniversary of their issue date or, if earlier, upon
the occurrence of certain other events. The holders of Series A Preferred Stock
are entitled to cumulative dividends at an annual rate of $90.00 per share,
payable quarterly. Dividends are payable in cash or, at the Company's election,
in shares of Common Stock valued at 80% of the average fair market value thereof
for the five business days prior to the day on which dividends are payable. Upon
liquidation of the Company or a merger of the Company that results in the
transfer of 50% or more of the voting power of the Company or the sale of all or
substantially all of the Company's assets, holders of Series A Preferred Stock
are entitled to receive $1,000 per share plus any accrued but unpaid dividends.
The conversion of HRO's Convertible Notes into the Series A Preferred Stock
took place on June 30, 1997. As of September 22, 1997, all Series A Preferred
Stock had been exchanged for Common Stock.
WARRANTS
The Company issued warrants to purchase an aggregate of 125,000 shares of
Common Stock on November 6, 1995. The warrants are exercisable for a five-year
period commencing on November 6, 1995. The exercise price of the warrants is
$7.20 per share of Common Stock through June 26, 1998 and $8.40 per share of
Common Stock thereafter through November 6, 2000. The warrants contain
anti-dilution provisions providing adjustment in the event of certain dilutive
issuances and any recapitalization, stock dividend, stock split or similar
transaction. The warrants do not entitle the holder thereof to any rights as a
shareholder of the Company until the warrants are exercised and shares are
purchased thereunder. The warrants and the shares of Common Stock issuable upon
exercise thereof may not be offered for sale except in compliance with the
applicable provisions of the Securities Act. Of such warrants, warrants to
purchase an aggregate of 53,125 shares were exercised during November 1996 and
warrants to purchase an aggregate of 71,875 shares were outstanding at September
22, 1997. The Company has filed a registration statement in respect of such
warrants and the shares of Common Stock issuable upon the conversion thereof.
The Company has issued or will issue warrants to H.J. Meyers to purchase
shares of Common Stock in connection with the Company's initial public offering,
the Debt Financing and this Offering. With respect to (i) the warrant for
110,000 shares of Common Stock with an exercise price per share of $7.20 issued
in connection with the Company's initial public offering and exercisable for a
four-year period commencing December 20, 1996; (ii) the warrant for 16,538
shares of Common Stock with an exercise price per share of $6.50 issued in
connection with the Debt Financing and exercisable for a five-year period
commencing on December 31, 1996 and (iii) the Underwriter's Warrant to be
granted in connection with this Offering, the parties have agreed that such
warrants, subject to certain exceptions, are not transferable prior to their
exercise dates. Each of the warrants contains anti-dilution provisions providing
for adjustment in the event of any recapitalization, stock dividend, stock split
or similar transaction. The warrants do not entitle any holder thereof to any
rights as a shareholder of the Company until such warrants are exercised and
shares are purchased thereunder. The warrants and the shares of Common Stock
thereunder may not be offered for sale except in compliance with the applicable
provisions of the Securities Act. The Company has agreed that, if it shall cause
to be filed with the Securities and Exchange Commission a registration
statement, the holder(s) of the warrants have the right during certain specified
periods to include in such amendment or
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registration statement the warrant and the shares of Common Stock issuable upon
its exercise at no expense to the holder(s) thereof. H.J. Meyers has waived such
registration rights with respect to its existing warrants in connection with
this Offering. Additionally, the Company has agreed in each of the three
warrants that, upon written request by a holder or holders of 50% or more of the
warrant which is made during the exercise period of the warrant, the Company
will, on two separate occasions, register the warrant and the shares of Common
Stock issuable upon exercise thereof. The initial such registration will be at
the Company's expense and the second such registration will be at the expense of
the holder(s) of the warrant. The Company will use its best efforts to keep such
registration statement(s) for a period of at least 180 days (and up to an
additional 90 days if requested by the holder(s)) from the effective date
thereof. See "--Registration Rights" and "Underwriting."
REGISTRATION RIGHTS
On April 9, 1997, the Company has filed a post-effective amendment to a
registration statement on Form SB-2 (No. 333-17733) covering the resale of
298,396 shares of outstanding Common Stock issued upon conversion of Series D
Preferred Stock, conversion of certain promissory notes and issued in the Global
Technologies transaction. The Company also filed a post-effective amendment to a
registration statement on Form SB-2 on June 12, 1997 covering the resale of
262,922 outstanding shares of Common Stock, 71,875 shares of Common Stock
issuable upon exercise of outstanding warrants, and 71,875 outstanding warrants.
These registration statements were filed pursuant to the terms of the agreements
governing the issuance of the Common Stock issued or issuable pursuant thereto.
Such agreements require the Company to use its best efforts to maintain the
effectiveness of these registration statements for varying periods of time or
until the Company is satisfied that all of the Common Stock covered by such
registration statements could be resold pursuant to Rule 144.
The Company has granted or will grant registration rights to H.J. Meyers in
connection with the Company's grant of warrants to acquire shares of Common
Stock in connection with the Company's initial public offering, the Debt
Financing and this Offering. The Company has agreed that if it files a
registration statement covering its equity securities, H.J. Meyers shall have
the right to include in such registration statement the Common Stock shares
issuable upon exercise of the respective warrants; provided, however, that such
right shall expire (i) on December 20, 2000 with respect to the 110,000 shares
of Common Stock issuable upon conversion of the warrant granted in connection
with the Company's initial public offering; (ii) on January 1, 2002 with respect
to the 16,538 shares of Common Stock issuable upon conversion of the warrant
granted in connection with the Debt Financing; and (iii) on the day after the
fourth anniversary of the date of this Prospectus with respect to the shares
issuable upon conversion of the Underwriter's Warrant to be granted in
connection with this Offering. The Company has agreed to maintain the
effectiveness of such registration statement(s) for so long as such shares
remain outstanding. Additionally, the Company has agreed in each of the three
warrants that, upon written request by a holder or holders of 50% or more of the
warrant which is made during the exercise period of the warrant, the Company
will, on two separate occasions, register the warrant and the shares of Common
Stock issuable upon exercise thereof. The initial such registration will be at
the Company's expense and the second such registration will be at the expense of
the holder(s) of the warrant. See "Description of Capital Stock--Warrants."
In connection with the Site Tech Acquisition, the Company also granted
registration rights with respect to the 550,029 shares of Common Stock paid to
the former Site stockholders. Pursuant to such registration rights, the Company
agreed to use its best efforts within 9 months and 12 months, respectively,
following the closing of the Site Tech Acquisition to effect a registration
statement covering the sale and distribution of the 550,029 shares, subject to
certain conditions. The Company further agreed to keep each such registration
statement effective for a period of 180 days or until the holder(s) have
completed the distribution pursuant to such registration statement.
The Letter of Intent with respect to the Inlet Technology Acquisition
contemplates that Inlet will receive registration rights with respect to the
360,000 shares of Common Stock issuable to Inlet pursuant to
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such transaction. The parties to the Letter of Intent are negotiating the
definitive documentation with respect to the Inlet Technology Acquisition,
including the documentation with respect to such registration rights. See
"Corporate Developments."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering and the Inlet Technology Acquisition, the
Company will have outstanding approximately 8,241,381 shares of Common Stock,
assuming no exercise of the Underwriter's over-allotment option and no exercise
of outstanding options or warrants. Of these shares and following the expiration
or earlier release from the 13-month lockup agreements with the Underwriter,
6,473,405 will be freely tradeable without restrictions under the Securities Act
and 1,409,976 will be freely tradeable, subject to Rule 144 volume limitations.
The shares offered hereby are freely tradeable without restrictions under the
Securities Act. Sales of substantial amounts of the Company's Common Stock in
the public market or the prospect of such sales could materially adversely
affect the market price of the Common Stock.
The Company has agreed not to offer, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any rights to acquire Common Stock for a period
of one year from the date of this Prospectus without the prior written consent
of the Underwriter, subject to certain exceptions.
In addition, the holders of warrants to purchase a total of 198,413 shares
of Common Stock, the former stockholders of Site/technologies/inc., who hold a
total of 550,029 shares of Common Stock, Inlet, who is expected to receive
360,000 shares of Common Stock pursuant to the Inlet Technology Acquisition, and
the holders of the Underwriter's Warrant are each entitled to or are expected to
become entitled to certain rights with respect to registration of such shares of
Common Stock for offer or sale to the public. If such holders, by exercising
their rights, cause a large number of shares to be registered and sold in the
public market, such sales could have a material adverse effect on the market
price for the Company's Common Stock.
The Company intends to file an amendment to its registration statement on
Form S-8 under the Securities Act to cover an additional 400,000 (for an
aggregate of 1,220,000) shares of Common Stock reserved for issuance under its
1995 Option Plan. Accordingly, shares registered under such registration
statement will, subject to vesting restrictions and Rule 144 volume limitations
applicable to affiliates of the Company, be available for sale in the open
market. See "Risk Factors--Shares Eligible for Future Sale" and "Description of
Capital Stock--Registration Rights."
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UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriter, to purchase from
the Company 3,200,000 shares of Common Stock. The underwriting discount set
forth on the cover page of this Prospectus will be allowed to the Underwriter at
the time of delivery to the Underwriter of the shares so purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO
BE
NAME OF UNDERWRITER PURCHASED
- --------------------------------------------------------------------------------- -----------
<S> <C>
H. J. Meyers & Co., Inc.......................................................... 3,200,000
</TABLE>
The Underwriter has advised the Company that it proposes to offer the shares
to the public at an offering price of $per Share and that the Underwriter may
allow certain dealers who are members of the National Association of Securities
Dealers ("NASD") a concession of not in excess of $per Share. After commencement
of the Offering, the public offering price and concession may be changed.
The Company has granted to the Underwriter an option, exercisable during the
30 business-day period from the date of this Prospectus, to purchase up to a
maximum of 480,000 additional shares on the same terms set forth above. The
Underwriter may exercise such rights only to satisfy over-allotment in the sale
of the shares.
The Company has agreed to pay to Underwriter a non-accountable expense equal
to 3% of the total proceeds of the Offering ($252,000 (or $289,800 if the
Underwriter exercises the over-allotment option in full), in each case, at an
assumed public offering price of $2.625 per share). In addition to the
Underwriter's commission and the Underwriter's non-accountable expense
allowance, the Company is required to pay the costs of qualifying the shares of
Common Stock, under federal and state securities laws, together with legal and
accounting fees, printing and other costs in connection with this Offering,
estimated to total approximately $433,000.
At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 320,000 shares
of Common Stock. The Underwriter's Warrant and the underlying shares are being
registered by means of the Registration Statement of which this Prospectus forms
a part. The Underwriter's Warrant will be exercisable for a four year period
commencing one year from the date of this Prospectus. The exercise price of the
Underwriter's Warrant will be $3.675 per share (assuming a public offering price
of $2.625 per share). The Underwriter's Warrant will not be transferable prior
to its exercise date except to officers of the Underwriter and members of the
selling group and officers and partners thereof. The Underwriter's Warrant will
contain anti-dilution provisions. The Underwriter's Warrant does not entitle the
Underwriter to any rights as a shareholder of the Company until such Warrant is
exercised and the shares of Common Stock are purchased thereunder. The
Underwriter's Warrant and the shares of Common Stock thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that, if it shall cause to be filed with
the Commission either an amendment to the Registration Statement of which this
Prospectus is a part or a separate registration statement, the Underwriter shall
have the right during the five-year period commencing on the date of this
Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the Company has agreed that, upon written request by a
holder or holders of 50% or more of the Underwriter's Warrant which is made
during the exercise period of the Underwriter's Warrant, the Company will on two
separate occasions, register the Underwriter's Warrant and the shares of Common
Stock issuable upon exercise thereof. The initial such registration will be at
the Company's expense and the second such registration will be at the expense of
the holder(s) of the Underwriter's Warrant.
For the period during which the Underwriter's Warrant is exercisable, the
holder or holders will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting
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dilution in the interests of the other shareholders of the Company. The holder
or holders of the Underwriter's Warrant can be expected to exercise it at a time
when the Company would, in all likelihood, be able to obtain any needed capital
from an offering of its unissued Common Stock on terms more favorable to the
Company than those provided for in the Underwriter's Warrant. Such facts may
materially adversely affect the terms on which the Company can obtain additional
financing. To the extent that the Underwriter realizes any gain from the resale
of the Underwriter's Warrant or the securities issuable thereunder, such gain
may be deemed additional underwriting compensation under the Securities Act.
The Company has agreed to enter into a consulting agreement with the
Underwriter under the terms of which the Underwriter has agreed to perform
consulting services related to corporate finance and will be paid a
non-refundable fee of $6,000 per month for 12 months. The Company has agreed to
pay the Underwriter the entire one year fee upon the closing of this Offering.
The Company has agreed that for a period of six (6) months from the date of
this Prospectus, it will not sell any securities, with the exception of (i) the
shares of Common Stock issued upon exercise of options granted under the
Company's Stock Plans, warrants or other convertible securities outstanding
prior to the date of this Prospectus and (ii) the shares of Common Stock issued
or issuable in connection with the Inlet Technology Acquisition, without the
Underwriter's prior written consent, which consent shall not be unreasonably
withheld. In addition, for a period of twenty-four (24) months from the date of
this Prospectus, the Company will not issue any shares of Preferred Stock or
sell or issue any securities pursuant to Regulation S under the Securities Act
without the Underwriter's prior written consent.
Directors and officers of the Company are expected to be subject to lock-up
agreements under which they will agree not to sell or dispose of any shares of
Common Stock issued to them directly by the Company, for a period of 13 months
after the date of this Prospectus, without prior written consent of the
Underwriter.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The Company retained H.J. Meyers to act as placement agent in connection
with the Debt Financing. Under the terms of the placement agent agreement, H.J.
Meyers received a placement fee of 7% of the gross proceeds from the Debt
Financing, reimbursement of accountable expenses of 1% of such gross proceeds
and a warrant to purchase 16,538 shares of Common Stock at an exercise price of
$6.50 per share. The Company granted the holder of the warrant certain
registration rights with respect thereto and the shares of Common Stock issuable
upon its exercise. See "Description of Capital Stock--Registration Rights." The
Company also agreed to indemnify H.J. Meyers for certain liabilities, including
those arising under the Securities Act, for serving as placement agent in
connection with the Debt Financing.
The Company's initial public offering was underwritten by the Underwriter,
and the Underwriter also serves as a market maker with regard to the Company's
Common Stock. Patrick Grady, a director of the Company, serves as the Managing
Director, Venture Capital of the Underwriter. In addition to an underwriting
discount of $414,000, in connection with the Company's initial public offering,
the Company paid the Underwriter a non-accountable expense allowance of
$189,750. In addition, in connection with the Company's initial public offering,
the Company issued to the Underwriter a warrant to purchase up to 110,000 shares
of the Company's Common Stock at a price of $7.20 per share at any time during
the four-year period commencing on December 20, 1996.
In connection with this Offering, the Company has agreed that for a period
of 36 months from the Closing of this Offering, the Underwriter shall have the
right to designate two members to the Company's Board of Directors, provided
that the designees are acceptable to the Company and, provided further, that not
more than one of the designees will be an affiliate of H.J. Meyers.
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Any limitation on the ability of the Underwriter to make a market in the
Company's Common Stock could adversely impact the liquidity or trading price of
the Company's Common Stock, which could have a material adverse impact on the
market price of the Company's Common Stock. The Chicago office of the Securities
and Exchange Commission is conducting a private, nonpublic investigation of H.J.
Meyers & Co., Inc., the Underwriter and the principal market maker in the
Company's Common Stock, pursuant to a Formal Order of Investigation issued by
the Commission. The investigation is focused on whether the Underwriter may have
violated applicable securities laws and the rules and regulations thereunder,
with respect to sales of certain securities. The Company is currently unable to
assess the potential impact of the outcome of the Staff's investigation on the
Underwriter's ability to make a market in the Company's Common Stock (including
Common Stock in this Offering) or trading in the Company's securities.
In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may overallot the Offering, creating a syndicate
short position. In addition, the Underwriter may bid for and purchase shares of
Common Stock in the open market to cover syndicate short positions or to
stabilize the price of the Common Stock. Finally, the underwriting syndicate may
reclaim selling concessions from syndicate members in the Offering, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriter is not required to engage in these activities,
and may end any of the activities at any time.
The Underwriter has advised the Company that the Underwriter does not intend
to confirm sales to any account over which it exercises discretionary authority.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
Certain legal matters in connection with the Offering will be passed upon
for the Underwriter by Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, Beverly Hills, California.
EXPERTS
The financial statements as of December 31, 1995 and 1996 and for each of
the two years in the period ended December 31, 1996 included in this Prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern, as
described in Note 1 to the financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, registration statements and certain other
documents filed with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR. Copies
of such material may also be obtained from the Public Reference Section of the
74
<PAGE>
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol "DTPT."
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission, each statement being qualified in all respects by such reference.
The Registration Statement may be inspected without charge at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all
or any part thereof may be obtained from such office upon the payment of the
fees prescribed by the Commission.
75
<PAGE>
DELTAPOINT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997 (unaudited)............................... F-3
Statement of Operations for the Years Ended December 31, 1995 and 1996 and for the six months ended June
30, 1996 and 1997 (unaudited)............................................................................ F-4
Statement of Shareholders' Equity for the Years Ended December 31, 1995 and 1996 and for the six months
ended June 30, 1997 (unaudited).......................................................................... F-5
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the six months ended June
30, 1996 and 1997 (unaudited)............................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of DeltaPoint, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of DeltaPoint, Inc. at December 31,
1995 and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has an accumulated deficit of $13,666,000 and
has incurred recent significant losses that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
San Jose, California
March 25, 1997
F-2
<PAGE>
DELTAPOINT, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 4,629 $ 3,142 $ 1,211
Accounts receivable, net of allowance for doubtful accounts
of $259, $118 and $111.................................... 1,225 1,904 812
Inventories................................................. 182 133 117
Prepaid expenses and other current assets................... 194 557 485
--------- --------- -----------
Total current assets...................................... 6,230 5,736 2,625
Property and equipment, net................................... 49 277 235
Purchased software, net....................................... 438 299 224
Deposits and other assets..................................... 47 34 30
--------- --------- -----------
$ 6,764 $ 6,346 $ 3,114
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 665 $ 1,238 $ 1,305
Accrued liabilities......................................... 1,337 1,146 923
Reserve for returns......................................... 398 771 225
Notes payable............................................... 865 2,150 38
Current portion of capital lease obligations................ 50 -- --
--------- --------- -----------
Total current liabilities................................. 3,315 5,305 2,491
--------- --------- -----------
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred Stock, no par value, 4,000,000 shares authorized,
2,500 shares designated as Series A, 1,530 shares issued
and outstanding........................................... -- -- 1,530
Common Stock, no par value, 25,000,000 shares authorized,
2,025,243, 2,485,540 and 2,871,873 shares issued and
outstanding............................................... 12,267 14,707 15,847
Accumulated deficit......................................... (8,818) (13,666) (16,754)
--------- --------- -----------
Total shareholders' equity................................ 3,449 1,041 623
--------- --------- -----------
$ 6,764 $ 6,346 $ 3,114
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DELTAPOINT, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues........................................................... $ 4,043 $ 4,950 $ 1,893 $ 1,495
Cost of revenues....................................................... 1,337 1,181 621 470
--------- --------- --------- ---------
Gross profit....................................................... 2,706 3,769 1.272 1,025
--------- --------- --------- ---------
Operating expenses:
Sales and marketing.................................................. 1,922 4,685 2,051 2,241
Research and development............................................. 2,036 2,618 1,088 1,347
General and administrative........................................... 1,234 1,388 961 479
--------- --------- --------- ---------
Total operating expenses............................................. 5,192 8,691 4,100 4,067
--------- --------- --------- ---------
Loss from operations................................................... (2,486) (4,922) (2,828) (3,042)
Interest (expense) income, net......................................... (146) 74 39 (817)
Other income........................................................... -- -- -- 771
--------- --------- --------- ---------
Net loss............................................................... $ (2,632) $ (4,848) $ (2,789) $ (3,088)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share..................................................... $ (2.42) $ (2.17) $ (1.27) $ (1.20)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares and share equivalents used in per share calculations............ 1,086 2,231 2,193 2,571
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DELTAPOINT, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ACCUMULATED
---------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
----------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994..................... -- -- 182,717 $ 145 $ (6,186) $ (6,041)
Exercise of stock options...................... -- -- 382 1 -- 1
Issuance of warrants........................... -- -- -- 6 -- 6
Sale of Common Stock........................... -- -- 1,100,000 5,143 -- 5,143
Issuance of Common Stock for acquisition of
purchased technology......................... -- -- 100,000 600 -- 600
Conversion of mandatorily redeemable
convertible preferred stock.................. -- -- 578,810 5,992 -- 5,992
Conversion of notes payable and accrued
interest..................................... -- -- 63,334 380 -- 380
Net loss....................................... -- -- -- -- (2,632) (2,632)
----- --------- ---------- --------- ---------- ---------
Balance at December 31, 1995..................... -- -- 2,025,243 12,267 (8,818) 3,449
Issuance of Common Stock....................... -- -- 379,297 1,797 -- 1,797
Exercise of stock options...................... 81,000 643 -- 643
Net loss....................................... -- -- -- -- (4,848) (4,848)
----- --------- ---------- --------- ---------- ---------
Balance at December 31, 1996..................... -- -- 2,485,540 14,707 (13,666) 1,041
Exercise of stock options (unaudited).......... 4,333 21 -- 21
Discounted conversion feature of notes payable
(unaudited).................................. -- -- -- 537 -- 537
Conversion of notes payable to Preferred Stock
(unaudited).................................. 1,530 $ 1,530 -- -- -- 1,530
Conversion of notes payable to Common Stock
(unaudited).................................. -- -- 382,000 582 -- 582
Net loss (unaudited)........................... -- -- -- -- (3,088) (3,088)
----- --------- ---------- --------- ---------- ---------
Balance at June 30, 1997 (unaudited)............. 1,530 $ 1,530 2,871,873 $ 15,847 $ (16,754) $ 623
----- --------- ---------- --------- ---------- ---------
----- --------- ---------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DELTAPOINT, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (2,632) $ (4,848) $ (2,789) $ (3,088)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 163 254 102 342
In process research and development................................ 1,240 -- -- --
Discounted conversion feature of notes payable..................... -- -- -- 537
Gain on DeltaGraph disposition..................................... -- -- -- (771)
Other.............................................................. 40 -- -- --
Change in assets and liabilities:
Accounts receivable.............................................. (642) (679) 336 1,092
Inventories...................................................... 44 49 65 16
Prepaid expenses and other current assets........................ (113) (162) (1) (129)
Accounts payable................................................. (751) 573 410 67
Accrued liabilities.............................................. 670 (191) (283) (223)
Reserve for returns.............................................. 326 373 (158) (546)
Deposits and other assets........................................ 9 13 18 4
--------- --------- --------- ---------
Net cash used in operating activities.......................... (1,646) (4,618) (2,300) (2,699)
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment................................ (29) (340) (272) (24)
Acquisition of purchased software.................................... (225) (3) -- --
DeltaGraph disposition............................................... -- -- -- 771
--------- --------- --------- ---------
Net cash (used in) provided by investing activities............ (254) (343) (272) 747
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net....................... 1,815 -- -- --
Proceeds from issuance of Common Stock and warrants, net............. 5,150 2,440 790 21
Proceeds from issuance of notes payable, net......................... -- 1,949 -- --
Repayment of notes payable........................................... (289) (865) -- --
Repayment of capitalized lease obligations........................... (177) (50) (45) --
--------- --------- --------- ---------
Net cash provided by financing activities...................... 6,499 3,474 745 21
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents....................... 4,599 (1,487) (1,827) (1,931)
Cash and cash equivalents at beginning of period....................... 30 4,629 4,629 3,142
--------- --------- --------- ---------
Cash and cash equivalents at end of period............................. $ 4,629 $ 3,142 $ 2,802 $ 1,211
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
Founded in 1989, DeltaPoint, Inc. (the Company), has headquarters in
Monterey, California, and distribution partners in the United States, Europe,
Japan, and Asia-Pacific. DeltaPoint, Inc. provides developers of individual,
corporate and commercial Web sites with advanced Web site creation and
management tools based on database component technology. In addition, the
Company provides visualization software products that are designed to facilitate
the collection, interpretation and management of business and technical
information across multiple computing environments.
At December 31, 1996, the Company has an accumulated deficit of $13,666,000
and has incurred significant recent losses from operations. The Company plans to
continue to develop and introduce updated versions of its existing products and
to continue to promote its Web tools software products. There can be no
assurance that the Company will not incur additional losses until its planned
and existing products generate significant revenues. The accompanying financial
statements have been prepared assuming the Company will continue as a going
concern. Additional equity or debt financing will be required to enable the
Company to continue its operations and achieve its plans for 1997 and beyond.
Management is currently pursuing additional capital financing although recent
attempts to secure financing on acceptable terms have been unsuccessful. If the
Company is unable to obtain such financing, it will be required to reduce
discretionary spending in order to maintain operations at a reduced level.
Management believes that it will be able to reduce discretionary spending if
required. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
In June 1997, the Company completed the sale of its DeltaGraph product line
for aggregate proceeds of $1,310,000 in cash, of which $910,000 was attributable
to the sale of the DeltaGraph product line and $400,000 was attributable to
services to be rendered by the Company pursuant to a management agreement (See
Note 11).
The following is a summary of the Company's significant accounting policies:
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of June 30, 1997, the statements of
operations and of cash flows for the six months ended June 30, 1996 and 1997,
and the statement of shareholders' equity for the six months ended June 30, 1997
are unaudited. In the opinion of management, these statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results of interim periods. The data disclosed in these
notes to financial statements for these periods are also unaudited.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
REVENUE RECOGNITION
Software product sales are recognized upon shipment of the product, net of
appropriate allowances for estimated returns. Revenues from software royalty and
packaging agreements are recognized upon
F-7
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
shipment of a master copy of the software product and packaging if no
significant vendor obligations remain under the terms of the agreements, any
amounts paid are nonrefundable and collection is probable. Payments received in
advance of revenue recognition are recorded as deferred revenue. The Company
grants distributors and resellers certain rights of return, price protection and
stock rotation rights on unsold merchandise. Accordingly, reserves for estimated
future returns, credits for price protection and stock rotation rights are
accrued upon shipment based upon historical experience.
The Company provides a limited amount of free telephone technical support to
customers. These activities are generally considered insignificant post contract
customer support obligations. Estimated costs of these activities are accrued at
the time of product shipment.
Revenue from international customers, primarily in Japan accounted for 40%,
26%, 19% and 27% of net revenues in 1995 and 1996 and the six months ended June
30, 1996 and 1997, respectively. Sales to customers in excess of 10% of net
revenues is presented below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED
DECEMBER 31, ENDED JUNE 30,
--------------- ---------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Customer A........................................ 35% 21% -- 23%
Customer B........................................ 13% 30% 18% 23%
Customer C........................................ -- -- -- 10%
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Included in the cash
equivalent balance at December 31, 1996, were $1,000,000 in certificates of
deposit. The Company did not have any short-term investments outstanding at
December 31, 1995 and 1996 and June 30, 1997.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
stock-based compensation plans, as permitted by the Financial Accounting
Standards Board's Statement No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation." FAS 123 defines a "fair value" based method of accounting for an
employee stock option or similar equity instrument and encourages, but does not
require, entities to adopt that method of accounting for their employee stock
compensation plans. The pro forma disclosures of the difference between
compensation cost included in net loss and the related cost measured by the fair
value method are presented in Note 9.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
F-8
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method based upon the estimated useful life of the assets
ranging from three to five years. Leasehold improvements are amortized over the
shorter of the remaining term of the lease or the estimated useful life of the
asset.
PURCHASED SOFTWARE
Purchased software is recorded at cost and amortized using the straight line
method over the three-year estimated life of the asset.
SOFTWARE DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards No. 86 requires the capitalization of certain
software development costs once technological feasibility is established. The
capitalized costs are then amortized on a straight-line basis over the estimated
product life, or on the ratio of current revenues to total projected product
revenues, whichever is greater. Based upon the Company's product development
process, technological feasibility is established upon completion of a working
model. Costs incurred by the Company between completion of the working model and
the point at which the product is ready for general release have been
insignificant and accordingly have not been capitalized.
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Company to significant
concentrations of credit risks consist principally of cash and accounts
receivable. The Company places its cash in interest bearing accounts and
certificates of deposit in high quality financial institutions. The Company
sells its products primarily to end-users, distributors and resellers in a
variety of industries located primarily in the United States and Japan. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. The Company
maintains an allowance for uncollectible accounts receivable based upon the
expected collectibility of all accounts receivable. To date, the Company has not
experienced any material credit losses.
At December 31, 1995, five customers accounted for 86% of accounts
receivable. At December 31, 1996, three customers accounted for 83% of accounts
receivable. At June 30, 1997 three customers accounted for 83% of accounts
receivable.
NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of common
shares outstanding during the period. Common equivalent shares (consisting of
warrants and stock options) are excluded from the computation if their effect is
anti-dilutive except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, common and common equivalent shares issued during
the period from November 1994 to November 1995 have been included in the
calculation as if they were outstanding for all periods through November 1995
(using the treasury stock method for the options and warrants at the initial
public offering price).
F-9
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including
accounts receivable and notes payable, approximates fair values.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes and
accordingly, deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of the Company's assets and liabilities.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements in
order to conform to the 1996 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share."
This statement is effective for the Company's year ending December 31, 1997. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share. FAS 128 will
require the retroactive restatement of all previously reported amounts upon
adoption. Due to the Company's net loss, the adoption of FAS 128 will not have a
material affect on the reported loss per share.
F-10
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BALANCE SHEET DETAILS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials................................. $ 119 $ 84 $ 97
Finished goods................................ 63 49 20
--------- --------- -----------
$ 182 $ 133 $ 117
--------- --------- -----------
--------- --------- -----------
Purchased software:
Purchased software............................ $ 450 $ 453 $ 453
Less: accumulated amortization................ (12) (154) (229)
--------- --------- -----------
$ 438 $ 299 $ 224
--------- --------- -----------
--------- --------- -----------
Property and equipment:
Computer equipment and software............... $ 936 $ 1,160 $ 1,184
Furniture and fixtures........................ 139 139 139
Leasehold improvements........................ -- 31 31
--------- --------- -----------
1,075 1,330 1,354
Less: accumulated depreciation................ (1,026) (1,053) (1,119)
--------- --------- -----------
$ 49 $ 277 $ 235
--------- --------- -----------
--------- --------- -----------
Accrued liabilities:
Accrued royalties............................. $ 351 $ 315 $ 236
Accrued compensation.......................... 303 369 338
Other......................................... 683 462 349
--------- --------- -----------
$ 1,337 $ 1,146 $ 923
--------- --------- -----------
--------- --------- -----------
</TABLE>
Included in the December 31, 1995 and 1996 and June 30, 1997 balances of
computer equipment and software are $531,000 of assets acquired under capital
leases. Accumulated depreciation associated with these leases approximates
$481,000, $531,000 and $531,000 at December 31, 1995, December 31, 1996 and June
30, 1997, respectively.
In 1995, the Company acquired certain Internet technologies, including the
source code and related documentation. The aggregate purchase price of these
technologies was $1,690,000, which was comprised of (i) $1,090,000 in cash,
payable in installments through August 1996 and (ii) the issuance of 100,000
shares of the Company's common stock. The Company is also required to pay
royalties on sales of the products developed from these technologies. The
Company made installment payments for the technology of $225,000 and $865,000
for the years ended December 31, 1995 and 1996, respectively. Cash paid for
royalties on sales of the product totaled $0 in 1995 and $33,000 in 1996.
Amounts due to these suppliers for royalties are included in accrued liabilities
at December 31, 1996 and June 30, 1997 and totaled $205,000 and $124,000,
respectively. In connection with these acquisitions, the Company determined that
$1,240,000 of the aggregate purchase price represented in-process technology,
and because such technology had not reached the stage of technological
feasibility and had no alternative future use, this amount was immediately
charged to operations.
F-11
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
In December 1995, upon the closing of the Company's initial public offering,
all outstanding shares of Mandatorily Redeemable Convertible Preferred Stock
were converted into common stock. In addition, the Company converted notes
payable to preferred shareholders totaling $300,000 and accrued interest on the
notes totaling $80,000 into 63,334 shares of common stock.
In November and December 1995, the Company acquired certain Internet
technologies for a total purchase price of $1,690,000 which was comprised of the
(i) issuance of 100,000 shares of common stock at $6.00 per share, (ii) a cash
payment of $225,000 and (iii) $865,000 which was paid in installments through
August 1996.
During the six months ended June 30, 1997, holders of notes payable
converted $2,112,000 in principal value into $1,530,000 of Series A Preferred
Stock and 382,000 shares of Common Stock. In addition, during the six months
ended June 30, 1997, the recognition of the discounted conversion feature
associated with the notes payable resulted in an increase to Common Stock of
$537,000.
Cash paid for interest totaled $146,000, $28,000, $26,000 and $0 for the
years ended December 31, 1995 and 1996 and the six months ended June 30, 1996
and 1997, respectively.
NOTE 4--RELATED PARTY TRANSACTIONS:
The Company purchases goods and services from a supplier who is a
shareholder of the Company. Purchases from this supplier totaled $354,000,
$271,000, $101,000 and $103,000 for the years ended December 31, 1995 and 1996
and the six months ended June 30, 1996 and 1997, respectively. Amounts due to
this supplier are included in accounts payable at December 31, 1995 and 1996 and
June 30, 1997 and totaled $55,000, $72,000 and $58,000, respectively.
NOTE 5--NOTES PAYABLE:
On December 31, 1996, the Company issued $2,150,000 of convertible
promissory notes payable. The notes bear interest at 6% payable semi-annually
over their two year term. The notes convert into Common Stock automatically at
the end of the two year term and are convertible at the option of the holder
with a total of 33%, 67%, and 100% of the principal value of the notes
convertible on March 1, March 31, and April 30, 1997, respectively. The
conversion price of the notes is calculated as the lower of (a) 80% of the
average closing bid price of the Company's common stock for the five days prior
to notice of conversion or (b) the average offer price of the Company's Common
Stock for the five business days prior to the notes' issuance which is $6.70 per
share. The Company recognized the value of the discounted conversion feature, or
$537,000, and the deferred debt issuance costs, or $262,000, as additional
interest expense during the six months ended June 30, 1997. The amortization of
the discounted conversion feature resulted in an increase to Common Stock of
$537,000 during six months ended June 30, 1997. During the six months ended June
30, 1997, holders of notes payable converted $2,112,000 in principal value into
$1,530,000 of Series A Preferred Stock and 382,000 shares of Common Stock.
F-12
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company leases its facilities under noncancellable operating leases.
Rent expense was $262,000 and $194,000 for the years ended December 31, 1995 and
1996, respectively. Rent expense for the six months ended June 30, 1996 and 1997
was $95,000 and $100,000, respectively.
At December 31, 1996, future minimum lease payments are as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
1997............................................................................... $ 206
1998............................................................................... 155
-----
Total minimum lease payments....................................................... $ 361
-----
-----
</TABLE>
CONTINGENCIES
In the normal course of business, the Company from time to time receives
inquiries with regards to possible patent infringement. Management believes that
it is unlikely that the outcome of these inquiries will have a material adverse
effect on the Company's financial position or results of operations or
liquidity.
NOTE 7--INCOME TAXES:
No provision for income taxes has been recorded for any periods presented
due to net operating losses. At December 31, 1996, the Company had approximately
$7,000,000 of federal net operating loss carryforwards which expire in varying
amounts through 2011. Due to certain changes in the ownership of the Company,
approximately $1,700,000 and $1,200,000 of these losses are subject to annual
limitations of approximately $142,000 and $301,000, respectively.
A reconciliation of the Company's effective tax rate to the U.S. federal
statutory rate follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
U.S. federal statutory rate....................... (34.0)% (34.0)%
State and local taxes, net of U.S. federal
benefit......................................... (9.1) (8.8)
Reserved net deferred tax assets and others....... 43.1 42.8
--------- ---------
-- % -- %
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--INCOME TAXES: (CONTINUED)
The components of the net deferred tax assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating losses................................................... $ 940 $ 2,788
Reserves, accruals and depreciation.................................... 885 767
Tax credit carryforwards............................................... 10 --
--------- ---------
1,835 3,555
Deferred tax valuation allowance..................................... (1,835) (3,555)
--------- ---------
Net deferred tax asset................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has determined that it is more likely than not that the deferred
tax assets at December 31, 1995 and 1996 will not be realized and, accordingly,
a full valuation reserve has been established. Management's assessment is based
on the Company's history of net operating losses.
NOTE 8--PREFERRED STOCK, COMMON STOCK AND WARRANTS:
PREFERRED STOCK:
The Company has authorized up to 4,000,000 shares of Preferred Stock
available for issuance upon approval of the Board of Directors. On June 30,
1997, the Company issued 1,530 shares of Series A Preferred Stock at a price of
$1,000 per share in exchange for $1,530,000 in principal value of convertible
notes outstanding. Each share of Series A Preferred Stock is convertible, at any
time, at the option of the holders into the number of shares of the Company's
Common Stock determined by dividing $1,000 by the lower of (i) 80% of the
average of the fair market value of the Common Stock for the five business days
prior to the conversion date, or (ii) $3.50 per share. The conversion price is
subject to adjustment in certain circumstances. The shares of Series A Preferred
Stock are also automatically convertible into Common Stock on the second
anniversary of their issue date or, if earlier, upon the occurrence of certain
other events. The holders of Series A Preferred Stock are entitled to cumulative
dividends at an annual rate of $90.00 per share, payable quarterly. Dividends
are payable in cash or, at the Company's election, in shares of Common Stock
valued at 80% of the average fair market value thereof for the five business
days prior to the day on which dividends are payable. Upon liquidation of the
Company or a merger of the Company that results in the transfer of 50% or more
of the voting power of the Company or the sale of all or substantially all of
the Company's assets, holders of Series A Preferred Stock are entitled to
receive $1,000 per share plus any accrued but unpaid dividends.
COMMON STOCK:
In December 1995, the Company completed its initial public offering of
1,100,000 shares of its Common Stock at a per share price of $6.00 and realized
net proceeds of $5,143,000. In addition, Common Stock as of December 31, 1996
reflects the January 1996 sale of 165,000 shares of Common Stock issued in the
overallotment of the Company's initial public offering. Net proceeds to the
Company resulting from the overallotment were $831,000. Common Stock also
reflects net proceeds resulting from the exercise of warrants totaling $966,000
and the exercise of stock options from the 1995 Stock Option Plan of $643,000.
F-14
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--PREFERRED STOCK, COMMON STOCK AND WARRANTS: (CONTINUED)
WARRANTS:
The following warrants were outstanding and exercisable at December 31,
1996:
<TABLE>
<CAPTION>
WARRANTS ISSUED IN WARRANT
OUTSTANDING CONNECTION WITH ISSUANCE DATE EXPIRATION DATE EXERCISE PRICE
- ----------- -------------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
71,875 Equity Nov. 1995 Nov. 2000 $ 7.20
110,000 Equity Dec. 1995 Dec. 2000 $ 7.20
16,538 Convertible Notes Dec. 1996 Dec. 2002 $ 6.50
- -----------
198,413
- -----------
- -----------
</TABLE>
The warrants issued in November 1995 have an exercise price, subject to
adjustment, of $7.20 and $8.40 per share for the first thirty (30) month term
and the remaining warrant term, respectively. The Company has reserved 198,413
shares of common stock for issuance upon the exercise of the outstanding
warrants.
NOTE 9--STOCK OPTION PLANS:
The Company has three Stock Option Plans (the Plans) which provide for the
issuance of stock options to employees of the Company. The Company has reserved
an aggregate of 1,285,462 shares of Common Stock for issuance upon the exercise
of options granted under these plans, including 200,000 shares approved by the
Company's shareholders at the annual meeting in June 1996 and 400,000 shares
approved by the Company's shareholders at the annual meeting in June 1997.
Options to purchase 41,588 and 171,804 shares were vested and exercisable at
December 31, 1995 and 1996 respectively. Options granted under the Plans are for
periods not to exceed 10 years. Non-employee members of the Board of Directors
are eligible for automatic option grants under the 1995 Stock Option Plan (the
1995 Plan). All options granted under the Plans must be at prices not less than
fair market value at the date of grant, except for the 1995 Plan for which
options can be granted at prices not less than 85% of the fair market value at
the date of grant. The Board of Directors may amend, modify or terminate the
Plans at their discretion.
In recognition of the decline in the fair market value of the Company's
Common Stock in 1996 and 1997, the Company repriced options to purchase
approximately 699,696 shares of Common Stock in March 1997 to an exercise price
of $2.25 per share, which was the fair market value of the Company's Common
Stock on that date.
F-15
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK OPTION PLANS: (CONTINUED)
The following table summarizes activity under the Company's Stock Option
Plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -------------------------------
AVAILABLE FOR WEIGHTED AVERAGE
GRANT SHARES EXERCISE PRICE
--------------- ---------- -------------------
<S> <C> <C> <C>
Balance at December 31, 1994....................................... 27,230 38,127 6.63
Additional shares reserved......................................... 620,000 -- --
Options granted.................................................... (525,000) 525,000 4.08
Options exercised.................................................. -- (382) 6.63
Options canceled................................................... 3,321 (3,321) 6.63
--------------- ----------
Balance at December 31, 1995....................................... 125,551 559,424 3.89
Additional shares reserved......................................... 200,000 -- --
Options granted.................................................... (433,677) 433,677 8.54
Options exercised.................................................. -- (81,000) 3.64
Options canceled................................................... 171,593 (171,593) 4.85
--------------- ----------
Balance at December 31, 1996....................................... 63,467 740,508 6.68
Additional shares reserved......................................... 400,000 -- --
Options granted (unaudited)........................................ (866,146) 866,146 2.25
Options exercised (unaudited)...................................... -- (4,333) 4.80
Options canceled (unaudited)....................................... 810,484 (810,484) 6.11
--------------- ----------
Balance at June 30, 1997 (unaudited)............................... 407,805 791,837 2.46
--------------- ----------
--------------- ----------
</TABLE>
The following table summarizes information about employee stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ----------------------------------------
NUMBER OUTSTANDING WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED AVERAGE
AT DECEMBER 31, REMAINING CONTRACTUAL AVERAGE EXERCISABLE AT EXERCISE PRICE AT
RANGE OF EXERCISE PRICES 1996 LIFE EXERCISE PRICE DECEMBER 31, 1996 DECEMBER 31, 1996
- -------------------------- ------------------- --------------------- --------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
$3.50..................... 236,611 8.9 3.50 92,998 3.50
$4.80-6.63................ 75,759 9.0 5.95 37,834 5.89
$7.50..................... 140,000 9.9 7.50 2,222 7.50
$7.75-7.83................ 99,788 9.3 7.82 -- --
$9.50-11.50............... 188,350 9.4 9.78 38,750 9.50
------- -------
Total................. 740,508 9.3 6.68 171,804 5.43
------- -------
------- -------
</TABLE>
F-16
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK OPTION PLANS: (CONTINUED)
The following table summarizes information about employee stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ----------------------------------------
WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED AVERAGE
NUMBER OUTSTANDING REMAINING AVERAGE EXERCISABLE AT EXERCISE PRICE AT
RANGE OF EXERCISE PRICES AT JUNE 30, 1997 CONTRACTUAL LIFE EXERCISE PRICE JUNE 30, 1997 JUNE 30, 1997
- -------------------------- ------------------- ------------------- --------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
$1.44..................... 10,500 10.0 1.44 -- --
$2.25..................... 703,720 8.9 2.25 345,344 2.25
$2.50..................... 40,950 9.7 2.50 -- --
$4.80-7.50................ 36,667 9.2 6.46 6,667 4.80
------- -------
Total................. 791,837 8.9 2.46 352,011 2.30
------- -------
------- -------
</TABLE>
In addition to the above stock options outstanding, in March 1997 the
Company granted a stock option to a certain executive for 120,000 shares of
Common Stock with an exercise price of $2.25 per share outside of the Plans.
FAIR VALUE DISCLOSURES
Had compensation cost for the Plans been determined based on the fair value
of each stock option grant on its grant date, as prescribed by FAS 123, the
Company's net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss:
As reported.......................................................... $ (2,632) $ (4,848) $ (2,789) $ (3,088)
Pro forma............................................................ $ (2,704) $ (5,450) $ (3,024) $ (3,810)
Net loss per share:
As reported.......................................................... $ (2.42) $ (2.17) $ (1.27) $ (1.20)
Pro forma............................................................ $ (2.49) $ (2.44) $ (1.38) $ (1.48)
</TABLE>
The weighted average estimated grant date fair value, as defined by FAS123,
granted under the Plans was $2.72 and $5.46 per share for 1995 and 1996,
respectively.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the applicable period: dividend yields of 0%
for all periods reported; expected volatility of 80.6%; risk-free interest rate
of 5.57% for 1995 and 6.07% for 1996 and the six months ended June 30, 1996 and
6.58% for the six months ended June 30, 1997 for options granted; and a weighted
average expected option term of 4.3 years for 1995 and 3.9 years for 1996 and
six months ended June 30, 1996 and 3.8 years for the six months ended June 30,
1997.
F-17
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
NOTE 9--STOCK OPTION PLANS: (CONTINUED)
The above pro forma amounts include compensation expense based on the fair
value of options granted and vesting during the years ended December 31, 1995
and 1996 and the six months ended June 30, 1996 and 1997 and exclude the effects
of options granted prior to January 1, 1995. Accordingly, the above pro forma
net loss and net loss per share are not representative of the effects of
computing stock option compensation expense using the fair value method for
future periods.
NOTE 10--401(k) PLAN:
During 1992, the Company established a deferred compensation plan (the
401(k) Plan) pursuant to Section 401(k) of the Internal Revenue Code (the
"Code"), whereby substantially all employees are eligible to contribute up to
20% of their pre-tax earnings, not to exceed amounts allowed under the Code. The
Company may make contributions to the 401(k) Plan at the discretion of the Board
of Directors. No employer contributions have been made to the 401(k) Plan by the
Company.
NOTE 11--SALE OF DELTAGRAPH PRODUCT LINE (UNAUDITED):
On June 27, 1997, the Company completed the sale of its DeltaGraph product
line to SPSS, Inc. ("SPSS") with an effective date of May 1, 1997 for aggregate
proceeds of $1,300,000 in cash of which $910,000 was attributable to the sale of
the Delta Graph product line and $400,000 was attributable to services to be
rendered by the Company pursuant to a management agreement (the "Management
Agreement"). The Company received $910,000 on June 30, 1997. The Company will
recognize amounts due under the Management Agreement upon completion of all
obligations required under the Agreement.
In the quarter ended June 30, 1997, the Company recorded a non-operating
gain related to the sale of the DeltaGraph product line in other income as
follows:
<TABLE>
<S> <C>
Total sales price................................................ $ 910,000
Less:
Expenses related to the sale................................... (105,000)
Net book value of assets transferred........................... (34,000)
---------
Gain on sale of DeltaGraph product line.......................... $ 771,000
---------
---------
</TABLE>
As a result of the Company's significant tax loss carry-forwards and other
tax benefits, the Company did not incur a tax expense related to this gain.
Following the effective date of this transaction, the Company no longer has
revenues related to the sales of the DeltaGraph product line. DeltaGraph
revenues were $3,067,000 and $659,000 for the year ended December 31, 1996 and
the six months ended June 30, 1997, respectively. Such revenues were 62.0% and
44.0% of total revenues for 1996 and the six months ended June 30, 1997,
respectively. During 1996 and the six months ended June 30, 1997, cost of
revenues and operating expenses directly attributable to DeltaGraph totaled
$1,800,000 and $530,000, respectively. Such revenues and expenses have not
continued subsequent to the disposition of the product.
F-18
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
NOTE 11--SALE OF DELTAGRAPH PRODUCT LINE (UNAUDITED): (CONTINUED)
The proforma net revenues, related net loss and net loss per share of the
Company for the year ended December 31, 1996 and six months ended June 30, 1997
after giving effect to the DeltaGraph transaction as if it had been consummated
at January 1, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTH ENDED
DECEMBER 31, 1996 JUNE 30, 1997
(PRO FORMA) (PRO FORMA)
----------------- ----------------
<S> <C> <C>
Net Revenues............................................. $ 1,883,000 $ 836,000
Net Loss................................................. $ (6,115,000) $ (3,988,000)
Net Loss per Share....................................... $ (2.74) $ (1.55)
</TABLE>
NOTE 12--PENDING AND RECENT ACQUISITIONS (UNAUDITED):
On April 16, 1997, the Company entered into a Letter of Intent with Inlet
Divestiture Corp. ("IDC"), Inlet, Inc. ("Inlet") and certain individuals
pursuant to which the Company would purchase certain Internet technologies
(including source code and related documentation). The purchase price would be
(i) $825,000 in cash, payable in installments, and (ii) the issuance of 360,000
shares of the Company's Common Stock. The Company would also pay royalties on
sales, licenses, sublicenses or other transactions pursuant to which units of
the software product are distributed. Pending the closing of the purchase, the
Company and IDC entered into an OEM agreement which grants the Company the
exclusive right to distribute the software product. The Letter of Intent
contemplates that if the closing of the purchase does not occur, the OEM
agreement would continue in effect. In addition, the Company entered into a
consulting agreement in which the Company is paying $20,000 a month in
consulting fees starting July 1, 1997. Both parties' obligations to consummate
the purchase are contingent upon the closing of an equity financing by the
Company within 165 days of the date of the Letter of Intent. Consummation of the
transactions contemplated in the Letter of Intent is subject to certain
additional conditions, including negotiation of a definitive purchase agreement
and other agreements. There can be no assurance that the transactions
contemplated in the Letter of Intent will be consummated.
On July 11, 1997 the Company completed the acquisition of
Site/technologies/inc. ("Site"), a privately held company. In connection with
this acquisition, the Company issued a total of 550,029 shares of its Common
Stock, made a cash payment of $60,000 and assumed liabilities of $73,000 for a
total purchase price of $638,000 on the date of acquisition to the former
stockholders of Site, in exchange for all outstanding shares of Site. In
addition, the Company agreed to pay royalties on sales of certain products Upon
consummation of the acquisition, Stephen Mendel, a member of the Board of
Directors of Site, was appointed as a member of the Board of Directors of the
Company.
NOTE 13--SUBSEQUENT EVENTS (UNAUDITED):
Subsequent to June 30, 1997 and through September 22, 1997, the holders of
the convertible promissory notes payable and the Series A Preferred Stock
converted all outstanding balances into an aggregate of 1,259,479 shares of
Common Stock.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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, THE UNDERWRITER OR BY ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION TO WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Prospectus Summary................................ 3
Corporate Developments............................ 7
Risk Factors...................................... 10
Price Range of Common Stock....................... 20
Use of Proceeds................................... 21
Dividend Policy................................... 21
Capitalization.................................... 22
Dilution.......................................... 23
Unaudited Pro Forma Financial Information......... 24
Selected Financial Data........................... 29
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 30
Business.......................................... 36
Management........................................ 51
Certain Transactions.............................. 60
Principal Shareholders............................ 64
Description of Capital Stock...................... 67
Shares Eligible for Future Sale................... 71
Underwriting...................................... 72
Legal Matters..................................... 74
Experts........................................... 74
Available Information............................. 74
Additional Information............................ 75
Index to Financial Statements..................... F-1
</TABLE>
3,200,000 SHARES
DELTAPOINT, INC.
COMMON STOCK
, 1997
----------------
PROSPECTUS
----------------
H.J. MEYERS & CO., INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrants and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Sections 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (ii) acts or omissions that
a director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to the Registrant or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the Registrant or
its shareholders and (v) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Registrants or its shareholders. This provision does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expense) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and Bylaws contain provisions covering indemnification
of corporate directors, officers and other agents against certain liabilities
and expenses incurred as a result of proceedings involving such persons in their
capacities as directors, officers, employees or agents, including proceedings
under the Securities Act or the Securities Exchange Act of 1934, as amended. The
Company has entered into Indemnification Agreements with its directors and
executive officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC and NASD registration fees.
<TABLE>
<S> <C>
SEC Registration fee.............................................. $ 3,183
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 175,000
Underwriter's Non-Accountable expense allowance (1)............... 252,000
Consulting agreement.............................................. 72,000
Accounting fees and expenses...................................... 50,000
Blue sky fees and expenses........................................ 18,000
Transfer agent fees............................................... 1,500
Miscellaneous fees and expenses................................... 13,317
---------
Total......................................................... $ 685,000
---------
---------
</TABLE>
- ------------------------
(1) Based upon an assumed public offering price of $2.625 per share (or $289,800
if the Underwriter's over-allotment option is exercised in full).
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1994, the Registrant has issued and sold the following
securities (after giving effect to the one-for-5.3 reverse split of the Common
Stock effected on the closing of the Company's Initial Public Offering in
December 1995):
1. The Registrant has granted options to purchase 7,165 shares of
Common Stock and issued and sold 2,143 shares of its Common Stock upon
exercise of such options to a number of employees pursuant to direct
issuances and to exercises of options under its 1990 Stock Option Plan.
2. The Registrant has granted options to purchase 8,063 shares of
Common Stock and issued and sold no shares of its Common Stock upon exercise
of such options to employees and a third party pursuant to direct issuances
and to exercises of options under its 1992 Stock Option Plan, including
options granted to Raymond R. Kingman, Jr., William G. Pryor to purchase
4,283 and 1,894 shares of Common Stock, respectively.
3. The Registrant has granted options to purchase 499,844 shares of
Common Stock and issued and sold no shares of its Common Stock upon exercise
of such options to a number of employees and directors pursuant to direct
issuances and to exercises of options under its 1995 Stock Option Plan.
4. On April 6, 1994, Registrant sold and issued an aggregate of 77,894
shares of its Series C Preferred Stock for cash in the aggregate amount of
$450,000 to entities affiliated with Hummer Winblad Venture Partners and
entities affiliated with Oak V Affiliates Fund, L.P. pursuant to a Series C
Preferred Stock Purchase Agreement. See "Certain Transactions."
5. On May 24, 1995 Registrant sold and issued an aggregate of 112,564
shares of its Series D Preferred Stock for cash in the aggregate amount of
$1,050,000 to entities affiliated with Hummer Winblad Venture Partners,
entities affiliated with Oak V Affiliates Fund, L.P. and Pinnacle
Manufacturing Professionals pursuant to a Series D Preferred Stock Purchase
Agreement. See "Certain Transactions" and "Capital Stock--Convertible Notes
and Warrants."
6. On May 24, 1995, Registrant issued to Hummer Winblad Venture
Partners and entities affiliated with Oak V Affiliates Fund, L.P., Warrants
to purchase 69,272 shares of Common Stock at an exercise price of $9.33 per
share, or in the event Registrant consummates the sale of its Common
II-2
<PAGE>
Stock pursuant to a registration statement filed on Form S-1 filed under the
Securities Act for an aggregate offering price of $5 million. See "Certain
Transactions."
7. On November 6, 1995, Registrant sold and issued 125,000 units, each
unit consisting of two shares of Series E Preferred Stock, and one Warrant
at a purchase price of $8.00 per unit, for cash of $765,000, net of issuance
costs, to the following investors in the following amount of units: Hummer
Winblad Ventures (3,125 units), Oak V Affiliates Fund, L.P. (6,250 units),
American High Growth Equities Retirement Trust (50,000 units), Jack Balter
(3,125 units), Dr. Mannie Magid (3,125 units), George L. Black Trust (6,250
units), Leon Feldan (3,125 units), Ronald Mickwee (3,125 units), Joan
Plastiras Myers (3,125 units), Nicholas W. and Geraldine Perilli (3,125
units), James R. Ratliff (6,250 units), David Rosenberg (3,125 units), Alan
J. Rubin (6,250 units), The Salzman Group, Ltd. (6,250 units), Donald L. &
Lucy A. Stoner Trust (6,250 units), Lawrence S. Weisman (6,250 units),
Donald B. Witmer (6,250 units). See "Certain Transactions."
8. On November 10, 1995, Registrant granted options to purchase an
aggregate of 335,000 shares of Common Stock under its 1995 Stock Option
Plan, at an exercise price of $3.50 per share to Raymond R. Kingman, Jr.,
William G. Pryor and Donald B. Witmer to purchase 100,000, 100,000 and
135,000 shares of Common Stock, respectively.
9. On November 8, 1995 issued to each of Hummer Winblad Ventures and
Oak Affiliates a warrant to purchase 31,667 of Common Stock exercisable at a
price of $7.20 per share for a period of 30 months following December 26,
1995 and a price of $8.40 per share from such time until November 6, 2000.
10. On April 22, 1996, Registrant granted options to purchase an
aggregate of 155,000 shares of Common Stock under its 1995 Stock Option
Plan, at an exercise price of $9.50 per share to John J. Ambrose and Donald
B. Witmer to purchase 145,000 and 10,000 shares of Common Stock,
respectively.
11. On August 13, 1996, Registrant granted options to purchase 20,000
shares of Common Stock under its 1995 Stock Option Plan, at an exercise
price of $7.50 per share to Patrick Grady.
12. On November 4, 1996, Registrant granted options to purchase 40,000
shares of Common Stock under its 1995 Stock Option Plan, at an exercise
price of $7.50 per share to Donald Witmer.
13. In December 1996, holders of warrants exercised warrants to purchase
an aggregate of 189,297 shares of Common Stock at a purchase price of $5.00
per share, including warrants to purchase an aggregate of 145,547 shares of
Common Stock exercised by Oak Investment Partners V, L.P. and Oak V
Affiliates Fund, L.P. The shares issued are covered by Post-Effective
Amendment No. 2 to Registration Statement on Form SB-2 (Registration No.
333-3784).
14. On December 31, 1996, Registrant issued $2,000,000 principal amount
of 6% Convertible Subordinated Debentures to High Risk Opportunities Hub
Fund Ltd. and $150,000 principal amount thereof to American High Growth
Equities Retirement Trust.
15. In November 1996, Registrant issued 30,970 shares of Common Stock to
Oak Investment Partners V, L.P., 697 shares of Common Stock to Oak V
Affiliates Fund, L.P., 30,084 shares of Common Stock to Hummer Winblad
Venture Partners and 1,583 shares of Common Stock to Hummer Winblad
Technology Fund, all pursuant to the conversion of the notes described in
the chart and footnote 7 in "Certain Transactions." Such shares are covered
by this Registration Statement.
16. On December 31, 1996, Registrant issued the Placement Agent's
Warrant to purchase 16,538 shares of Common Stock at an exercise price of
$6.50 per share to H.J. Meyers & Co., Inc.
17. On March 27, 1997, Registrant granted options to purchase 120,000
shares of Common Stock at an exercise price of $2.25 per share to Jeffrey
Ait.
II-3
<PAGE>
18. On July 11, 1997, Registrant issued 550,029 shares of Common Stock
to the former stockholders of Site/technologies/inc.
The issuance described in Items 1 through 16 were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) under the
Securities Act as transactions by an issuer not involving a public offering or
on Rule 701 promulgated under the Securities Act. In addition, the recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1** Form Underwriting Agreement
3.1(1) Registrant's Amended and Restated Articles of Incorporation
3.2(2) Registrant's Bylaws
3.3(3) Amended and Restated Certificate of Determination of Series A Preferred Stock
4.1(2) Specimen Certificate of Registrant's Common Stock
4.2(2) Form of Warrant
4.3(2) Form of H.J. Meyers & Co.'s Warrant
4.4(2) Loan and Warrant Agreement between Registrant and certain investors dated as of March 29, 1993
4.5(2) Amended and Restated Investor Rights Agreement between Registrant and the investors specified
therein dated as of November 6, 1995
4.6** Form of H.J. Meyers & Co.'s Warrant
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1(2) Real Property Lease between Registrant and Owens Mortgage Investment Fund dated as of August 18,
1995
10.2(2) 1990 Stock Option Plan
10.3(2) 1992 Stock Option Plan
10.4(2)(5) 1995 Stock Option Plan
10.5(2) Form of Indemnification Agreement
10.6.1(2)(4) Distribution Agreement between Registrant and Nippon Polaroid Kabushiki Kaisha dated as of November
12, 1991
10.6.2(2)(4) Distributor Software License Agreement between Registrant and Nippon Polaroid K.K. Supplements
dated as of December 24, 1993, June 6, 1994 and two supplements dated as of June 28, 1995
10.7(2) Series E Preferred Stock and Warrant Purchase Agreement dated November 6, 1995 among Registrant and
the investors named therein
10.8(2) Employment Agreement dated as of November 1, 1995 between Registrant and Donald B. Witmer
10.9(2) Employment Agreement dated November 8, 1995 between Registrant and Raymond R. Kingman, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------- ---------------------------------------------------------------------------------------------------
<C> <S>
10.10(2) Employment Agreement dated November 8, 1995 between Registrant and William G. Pryor
10.11(2)(4) Agreement dated December 15, 1995 among Registrant, Global Technologies Corporation and William
French
10.12(2) Termination Agreement dated as of November 8, 1995 among the Registrant and certain shareholders of
the Company named therein
10.13(2) Amendment Agreement dated as of December , 1995 among the Registrant and certain shareholders of
the Company named therein
10.14(5) Employment Agreement dated December 26, 1995 between Registrant and William A. French
10.15(3) Separation Agreement and Release between Registrant and Raymond R. Kingman, Jr. dated April 5, 1996
10.16(3) Offer letter dated March 29, 1996 between Registrant and John J. Ambrose
10.17(6) Form of 6% Convertible Subordinated Debentures issued by Registrant on December 31, 1996 to High
Risk Opportunities Hub Fund Ltd. and American High Growth Equities Retirement Trust
10.18(7) Offer letter dated as of March 24, 1997 between the Registrant and Jeffrey F. Ait
10.19(3) Series A Preferred Stock Purchase Agreement dated as of May 6, 1997 between Registrant and High
Risk Opportunities Hub Fund, Ltd.
10.20(3) Letter of Intent dated April 16, 1997 among Registrant, Inlet Divestiture Corp., Inlet, Inc., Terry
Millard and Todd Millard
10.21.1(8) Asset Purchase Agreement dated June 27, 1997 between Registrant and SPSS, Inc.
10.21.2(8) Interim Management Agreement dated June 27, 1997 between Registrant and SPSS, Inc.
10.22.1(9) Stock Exchange Agreement dated July 11, 1997 among Registrant, Site/technologies/inc. and the
persons and entities party thereto
10.22.2(9) Registration Rights Agreement dated as of July 11, 1997 by and among Registrant and the persons and
entities party thereto
21.1** List of subsidiaries
23.1** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1)
23.2* Consent of Price Waterhouse LLP
24.1** Power of Attorney (included on Page II-7)
</TABLE>
- ------------------------
(1) Incorporated by reference to Registrant's Annual Report on Form 10-KSB filed
March 26, 1997.
(2) Incorporated by reference to Registrant's Registration Statement on Form
SB-2, filed December 19, 1995 (File No. 33-99300).
(3) Incorporated by reference to Registrant's Post-Effective Amendment No. 5 to
Registration Statement on Form SB-2 (File No. 333-3784).
(4) Confidential treatment requested as to certain portions of this exhibit.
(5) Incorporated by reference to Registrant's Registration Statement on Form S-8
filed March 6, 1996 (File No. 333-2192).
II-5
<PAGE>
(6) Incorporated by reference to Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form SB-2, filed February 28, 1997 (File No.
333-17733).
(7) Incorporated by reference to Registrant's Amendment No. 1 to Registration
Statement on Form SB-2 filed April 9, 1997 (File No. 333-22565).
(8) Incorporated by reference to Registrant's filing on Form 8-K filed on July
11, 1997.
(9) Incorporated by reference to Registrant's filing on Form 8-K filed on July
31, 1997.
* To be filed by amendment.
** Filed herewith.
ITEM 28. UNDERTAKINGS
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
That for purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The Registrant further undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the Offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on September 26, 1997.
DELTAPOINT, INC.
By: /s/ JEFFREY F. AIT
------------------------------------------
Jeffrey F. Ait
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on September 26, 1997 by the
following persons in the capacities indicated:
SIGNATURE TITLE
------------------------- --------------------------
Chief Executive Officer
/s/ JEFFREY F. AIT and Director (Principal
------------------------- Executive Officer and
Jeffrey F. Ait Acting Principal
(ATTORNEY-IN-FACT) Financial and Accounting
Officer)
* /s/ JOHN HUMMER
------------------------- Director
John Hummer
* /s/ PATRICK GRADY
------------------------- Director
Patrick Grady
* /s/ STEPHEN F. MENDEL
------------------------- Director
Stephen F. Mendel
* /s/ JOSEPH MARENGI
------------------------- Director
Joseph Marengi
* /s/ JEFFREY F. AIT
-------------------------
Jeffrey F. Ait
(ATTORNEY-IN-FACT)
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBITS NUMBERED PAGE
- ----------- ---------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
4.6 Form of H.J. Meyers & Co.'s Warrant
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
21.1 List of subsidiaries
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24.1 Power of Attorney (included on Page II-7)
</TABLE>
<PAGE>
DELTAPOINT, INC.
22 Lower Ragsdale Drive
Monterey, California 93940
UNDERWRITING AGREEMENT
_________, 1997
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 14620
Ladies and Gentlemen:
DELTAPOINT, INC., a California corporation (the "Company"), proposes to
issue and sell pursuant to this Underwriting Agreement (the "Agreement"), an
aggregate of 3,200,000 shares of Common Stock, no par value per share (the
"Shares"), commencing on the effective date of the Registration Statement
(the "Effective Date"). In addition, the Company proposes to grant the
option referred to in Section 2(b) to purchase all or any part of an
aggregate of 480,000 additional Shares.
The aggregate of 3,200,000 Shares, together with all or any part of the
480,000 Shares which you have the option to purchase, are herein called the
"Shares." The Common Stock of the Company to be outstanding after giving
effect to the sale of the Shares (including the 480,000 Shares that the
Underwriter has the option to purchase) is herein called the "Common Stock."
You have advised the Company that you desire to purchase the Shares. The
Company confirms the agreements made by it with respect to the purchase of the
Shares by you, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-______) on Form SB-2
relating to the public offering of the Shares, including a preliminary form
of prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the
Act. "Preliminary Prospectus" shall mean each prospectus filed pursuant to
Rule 430 of the Rules and Regulations. The registration statement (including
all
1
<PAGE>
financial schedules and exhibits) as amended at the time it becomes effective
and the final prospectus included therein are respectively referred to as the
"Registration Statement" and the "Prospectus", except that (i) if the
prospectus first filed by the Company pursuant to Rule 424(b) or Rule 430A of
the Rules and Regulations or otherwise utilized and not required to be so
filed shall differ from said prospectus as then amended, the term
"Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b) or
Rule 430A or so utilized from and after the date on which it shall have been
filed or utilized, and (ii) if such registration statement or prospectus is
amended or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as defined in
Section 2(b)), the term "Registration Statement" shall include such
registration statement as so amended, and the term "Prospectus" shall include
the prospectus as so amended or supplemented, or both, as the case may be.
(b) At the time the Registration Statement becomes effective and at
all times subsequent thereto up to the Option Closing Date (as defined
below), (i) the Registration Statement and Prospectus will in all material
respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made; provided, however, that the Company makes no representations,
warranties or agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of you
specifically for use in the preparation thereof. It is understood that the
statements set forth in the last paragraph on the cover page of the
Prospectus, set forth in the Prospectus with respect to stabilization, the
second paragraph under the caption "Risk Factors -- Recent De-listing from
Nasdaq SmallCap Market; Potential De-listing from Pacific Exchange; Possible
Inability of Underwriter to Make a Market in the Company's Common Stock," the
material set forth under the heading "Underwriting" and the identity of
counsel to you under the heading "Legal Matters" constitute the only
information furnished in writing by you for inclusion in the Registration
Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions in which the nature of its business or
the character or location of its properties requires such qualification,
except where failure to so qualify is not reasonably likely to materially
adversely affect the Company's business, properties or financial condition.
(d) The authorized capital stock of the Company as of the Effective
Date was as set forth under "Capitalization" in the Prospectus. The shares
of issued and outstanding capital stock of the Company set forth thereunder
have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants
or other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the
Company. The
2
<PAGE>
Shares and Underwriter's Warrant conform in all material respects to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. The certificates evidencing the Shares are and will
be in valid and proper legal form. The Underwriter's Warrant (as defined in
Section 11) will be exercisable for shares of Common Stock of the Company in
accordance with the terms of the Underwriter's Warrant and at the prices
therein provided for. The shares of Common Stock have been duly authorized
and reserved for issuance upon such exercise, and such shares, when issued
upon such exercise in accordance with the terms of the Underwriter's Warrant
and when the price is paid, shall be fully paid and non-assessable. Neither
the filing of the Registration Statement nor the offering or sale of the
Shares as contemplated in this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the
registration of any securities of the Company, except as described in the
Registration Statement.
(f) This Agreement and the Underwriter's Warrant have been duly and
validly authorized, executed and delivered by the Company, and assuming due
execution by the other party or parties hereto and thereto, constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as rights to indemnity and
contribution hereunder may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable
principles. The Company has full power and lawful authority to authorize,
issue and sell the Shares to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issue and
sale of the Shares or the Underwriter's Warrant, except such as may be
required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in
material violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement and the Underwriter's Warrant will not conflict with, or result in
a breach of, any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance pursuant to the terms of, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company are subject, which would have a material adverse effect
on the business, properties or financial condition of the Company, nor will
such action result in any violation of the provisions of the articles of
incorporation or the By-laws of the Company, as amended, or any statute or
any order, rule or regulation applicable to the Company of any court or of
any regulatory authority or other governmental body having jurisdiction over
the Company, which would have a material adverse effect on the business,
properties or financial condition of the Company.
(h) The Company owns no real property and, subject to the
qualifications stated in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by
it, free and clear of all liens, charges, encumbrances or restrictions,
3
<PAGE>
except such as are not materially significant or important in relation to its
business; all of the leases and subleases under which the Company is the
lessor or sublessor of properties or assets or under which the Company holds
properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus, the
Company is not in default in any respect with respect to any of the terms or
provisions of any of such leases or subleases which would have a material
adverse effect on the business, properties or financial condition of the
Company, and no claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease except as described or referred to in the
Prospectus, which would have a material adverse effect on the business
properties or financial condition of the Company; and the Company owns or
leases all such properties described in the Prospectus as are necessary to
its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Price Waterhouse LLP, who have given their report on certain
financial statements filed and to be filed with the Commission as a part of
the Registration Statement, which are included in the Prospectus, are with
respect to the Company independent public accountants as required by the Act
and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus or the Registration Statement present
fairly the financial position and results of operations and changes in
financial position of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which
they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied
on a basis which is consistent during the periods involved.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, the Company has not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the
ordinary course of business, which is material to the business of the
Company, and there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial
or other), net worth, results of operations, business, key personnel or
properties of it which would be material to the business or financial
condition of the Company, and the Company has not become party to, and
neither the business nor the property of the Company has become the subject
of, any material litigation whether or not in the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now pending
nor, to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters or discrimination on the basis
of age, sex, religion or race) to which the Company is a party before or by any
court or governmental agency or body, which, if adversely determined, would
result in any material adverse change in the condition (financial or other),
4
<PAGE>
business prospects, net worth or properties of the Company; and, except as
set forth in the Prospectus, no labor disputes involving the employees of the
Company exist which, if adversely determined, would result in any material
adverse change in the condition (financial or otherwise), business prospects,
net worth or property of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state and foreign income and franchise tax returns and
has paid all taxes shown as due thereon; and there is no tax deficiency which
has been or to the knowledge of the Company might be asserted against the
Company which has not been adequately reserved for on the Company's balance
sheet.
(n) The Company has sufficient licenses, permits and other
governmental authorizations currently required for the conduct of its
business or the ownership of its property as described in the Prospectus and
is in all material respects complying therewith and owns or possesses
adequate rights to use all material patents, patent applications, trademarks,
mark registrations, copyrights and licenses necessary for the conduct of such
business and has not received any notice of conflict with the asserted rights
of others in respect thereof. To the best knowledge of the Company, none of
the activities or business of the Company is in violation of, or causes the
Company to violate, any law, rule, regulation or order of the United States,
any state, county or locality, or of any agency or locality, the violation of
which would have a material adverse effect upon the condition (financial or
otherwise), business prospects, net worth or properties of the Company.
(o) The Company has not, directly or indirectly, at any time (i)
made any contributions to any candidate for foreign political office, or if
made, failed to disclose fully any such contribution made in violation of
law, (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or
quasi-public duties, other than payments or contributions required or allowed
by applicable law, (iii) made any payment outside the ordinary course of
business to any purchasing or selling agent or person charged with similar
duties of any entity to which the Company sells or from which the Company
buys products for the purpose of influencing such agent or person to buy
products from or sell products to the Company, or (iv) except as set forth in
the Prospectus, engaged in any transaction, maintained any bank account or
used any corporate funds except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and
records of the Company. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (as defined in Section 2(c)), all transfer
or other taxes (including franchise, capital stock or other tax, other than
income taxes imposed by any jurisdiction), if any, which are required to be
paid in connection with the sale and transfer of the Shares to the
Underwriter hereunder will have been fully paid or provided for by the
Company and all laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
5
<PAGE>
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Shares or to facilitate the
sale or resale of the Shares.
(s) The Company has no subsidiaries.
(t) Except for this Agreement and other agreements with you, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
(u) The Company's Common Stock is registered with the Commission
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(v) The Company is not in violation of any law, ordinance,
governmental rule or regulation or court decree to which it may be subject
which violation would have a material adverse effect on the financial
condition, results of operations, business or prospects of the Company.
2. PURCHASE, DELIVERY AND SALE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein contained,
the Company agrees to issue and sell to you, and you agree to buy from the
Company at $_____ per Share at the place and time hereinafter specified, the
number of Shares set forth opposite your name in Schedule I hereto (the "Firm
Shares").
Delivery of the Firm Shares against payment therefor shall take
place at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, New York 14620 (or at such other place as may be designated by
agreement between you and the Company) at 9:30 a.m. New York time on
________, 1997, or at such other time and date, not later than three business
days thereafter (or four business days if the Registration Statement is
declared effective after the close of the business day), as you may
designate, such time and date of payment and delivery for the Firm Shares
being herein called the "First Closing Date." Time shall be of the essence
and delivery at the time and place specified in this subsection (a) is a
further condition to your obligations hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby grants you an option to
purchase all or any part of an aggregate of 480,000 additional Shares at the
same price per Share as you shall pay for the Shares being sold pursuant to
the provisions of subsection (a) of this Section 2 (such additional Shares
being referred to herein as the "Option Shares"). This option may be
exercised on one occasion within 30 business days after the Effective Date
upon notice by you to the Company advising it as to the amount of Option
Shares as to which the option is being exercised, the names and denominations
in which the certificates for such Option Shares are to be registered and the
time and date when such certificates are to be delivered. Such time and date
6
<PAGE>
shall be determined by you but shall not be earlier than four and not later
than ten full business days after the exercise of said option, nor in any
event prior to the First Closing Date, and such time and date is referred to
herein as the "Option Closing Date." Delivery of the Option Shares against
payment therefor shall take place at the offices of H.J. Meyers & Co., Inc.,
1895 Mt. Hope Avenue, Rochester, New York 14620. Time shall be of the
essence and delivery at the time and place specified in this subsection (b)
is a further condition to your obligations hereunder.
The Option granted hereunder may be exercised only to cover
over-allotments in the sale by you of Firm Shares referred to in subsection
(a) above.
(c) The Company will make the certificates for the Shares to be
purchased by you hereunder available to you for checking at least one full
business day prior to the First Closing Date or the Option Closing Date
(which are collectively referred to herein as the "Closing Dates" and
individually as a "Closing Date"), as the case may be. The certificates
shall be in such names and denominations as you may request, at least two
full business days prior to the relevant Closing Dates. Time shall be of the
essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to your obligations.
Definitive engraved certificates in negotiable form for the
Shares to be purchased by you hereunder will be delivered by the Company to
you for your account against payment of the purchase price by you, at your
option, by certified or bank cashier's checks in New York Clearing House
funds or by wire transfer, payable to the order of the Company.
In addition, in the event you exercise the option to purchase
from the Company all or any portion of the Option Shares pursuant to the
provisions of subsection (b) above, payment for such Option Shares shall be
made to or upon the order of the Company by you, at your option, by certified
or bank cashier's checks payable in New York Clearing House funds or by wire
transfer, at the offices of H.J. Meyers & Co., Inc. at the time and date of
delivery of such Option Shares as required by the provisions of subsection
(b) above, against receipt of the certificates for such Option Shares by you,
registered in such names and in such denominations as you may request.
It is understood that you propose to offer the Shares to be
purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes
effective.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with you that:
(a) Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the Effective Date, file any amendment to
the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you or
your counsel shall have reasonably objected in writing or which is not in
compliance with the Act and the
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Rules and Regulations. At any time prior to the completion by you of the
distribution of the Shares contemplated hereby (but in no event more than
nine months after the Effective Date) the Company will prepare and file with
the Commission, promptly upon your request, any amendments or supplements to
the Registration Statement or Prospectus which, in your reasonable opinion,
may be necessary or advisable in connection with the distribution of the
Shares.
Promptly after you or the Company is advised thereof, you will
advise the Company or the Company will advise you, as the case may be, and
confirm the advice in writing, of the receipt of any comments of the
Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission for amendment
of the Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop orders or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of the suspension of the qualification of the Shares for
offering in any jurisdiction, or the institution of any proceedings for any
of such purposes, and will use its best efforts to prevent the issuance of
any such order and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to
the use of such copies for the purposes permitted by the Act. The Company
authorizes you and selected dealers to use the Prospectus in connection with
the sale of the Shares for such period not to exceed nine months from the
Effective Date as in the reasonable opinion of counsel for you the use
thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within such
period as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer, of any event of which the
Company has knowledge and which materially affects the Company or the Shares,
or which in the opinion of counsel for the Company or counsel for you should
be set forth in an amendment to the Registration Statement or a supplement to
the Prospectus in order to make the statements therein not then misleading,
in light of the circumstances existing at the time the Prospectus is required
to be delivered to a purchaser of the Shares, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act or
with the Rules and Regulations, the Company will notify you promptly and
forthwith prepare and furnish to you copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as you
may reasonably request, in order that the Prospectus, as so amended or
supplemented, will not contain any untrue statement of a material fact or
omit to state any material facts necessary in order to make the statements in
the Prospectus, in the light of the circumstances under which they are made,
not misleading. The preparation and furnishing of any such amendment or
supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriter,
except that in case you are required, in connection with the sale of the
Shares, to deliver a Prospectus nine months or more after the Effective Date,
the Company will upon request of and at your expense, amend or supplement the
Registration Statement and Prospectus and furnish you with reasonable
quantities of prospectuses complying with Section 10(a)(3) of the Act.
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<PAGE>
(b) The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations thereunder in connection with the offering and
issuance of the Shares.
The Company will use its best efforts to qualify or register
the Shares for sale under the securities or "blue sky" laws of such
jurisdictions as you may have designated in writing prior to the execution
hereof and will make such applications and furnish such information to
counsel for you as may be required for that purpose and to comply with such
laws, provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent to
service process in any jurisdiction. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as you may
reasonably request. Legal fees for such qualifications shall be itemized
based on the time expended and costs incurred, shall be reasonable and shall
not in any event exceed $35,000.00, exclusive of filing fees (unless
otherwise agreed).
(c) The Company will instruct its transfer agent to provide you
with copies of the Depository Trust Company stock transfer sheets on a weekly
basis for a period of six months from the First Closing Date and on a monthly
basis thereafter for six additional months.
(d) For so long as the Company is a reporting company under either
Section 12(g), 13 or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its shareholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail
and at its expense, will furnish to you during the period ending five years
from the date hereof, (i) as soon as practicable after the end of each fiscal
year, a balance sheet of the Company and any subsidiaries as at the end of
such fiscal year, together with statements of income, shareholders, equity
and cash flows of the Company and any subsidiaries as at the end of such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
they are available, a copy of all reports (financial or other) mailed to
security holders; (iii) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with
the Commission; and (iv) such other information of a public nature as you may
from time to time reasonably request.
(e) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
shareholders generally.
(f) The Company will deliver to you at or before the First Closing
Date one signed copy of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon your order, from time to time until the
Effective Date as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriter may reasonably
request. The Company will deliver to you on the Effective Date and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or
as thereafter amended or supplemented, as you may from time to time
reasonably request.
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<PAGE>
(g) The Company will make generally available to its security
holders and deliver to you as soon as it is practicable to do so, but in no
event later than 90 days after the end of 12 months after its current fiscal
quarter, an earnings statement (which need not be audited) covering a period
of at least 12 consecutive months beginning after the Effective Date which
shall satisfy the requirements of Section 11(a) of the Act.
(h) The Company will apply the net proceeds from the sale of the
Shares substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus, and will file such reports with the Commission with respect
to the sale of the Shares and the application of the proceeds therefrom as
may be required pursuant to Rule 463 of the Rules and Regulations.
(i) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, preliminary Prospectus or Prospectus and take any other action,
which in the opinion of Freshman, Marantz, Orlanski, Cooper & Klein, counsel
to you may be reasonably necessary or advisable in connection with the
distribution of the Shares and will use its best efforts to cause the same to
become effective as promptly as possible.
(j) Prior to the Effective Date, the Company will use its best
efforts to cause all the Directors and officers of the Company to enter into
a written agreement with you, which, among other things, shall provide that
for a period of 13 months following the closing date of the offering, such
Directors and officers will not sell, assign, hypothecate or pledge any of
the shares of Common Stock of the Company owned by them on the Effective
Date, or subsequently acquired by the exercise of any options or warrants or
conversion of any convertible security of the Company held by them on the
Effective Date directly or indirectly, except with your prior written consent
and such Directors and officers will permit all certificates evidencing those
shares to be stamped with an appropriate restrictive legend, and will cause
the transfer agent for the Company to note such restrictions on the transfer
books and records of the Company.
(k) The Company shall, upon the initial filing of the Registration
Statement, make all filings required to obtain approval for the quotation of
the Shares on OTC Bulletin Board. As soon as practicable after the offering,
the Company will make all filings required to obtain approval for the
quotation of the Shares on the Nasdaq SmallCap Market ("NASDAQ") and will use
its best efforts to effect and maintain the aforesaid approval for at least
five (5) years from the date of approval. The Company shall cause its
listing in the Standard & Poor's Corporate Records to be maintained for five
years from the date of this Agreement.
(l) The Company represents that it has not taken, and agrees that
it will not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Shares or to facilitate the
sale or resale the Shares.
(m) During the period of the offering, and for a period of twelve
(12) months from the Effective Date, the Company will not sell or otherwise
dispose of any securities of the Company (except for shares of Common Stock
issuable upon exercise of options or warrants or conversion of
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convertible securities outstanding on the Effective Date or upon exercise of
options granted or the grant of options under said plan less any options to
purchase shares granted prior to the Effective Date, pursuant to the
Company's Stock Option Plans) without your prior written consent, which
consent shall not be unreasonably withheld. For a period of twenty-four (24)
months from the Effective Date, the Company will not issue, sell or otherwise
dispose of any securities of the Company pursuant to Regulation S under the
Act without your prior written consent.
(n) Prior to the filing of the Registration Statement, the Company
shall retain a public relations firm acceptable to you, and shall continue to
retain such firm, or any alternate firm acceptable to you, for a minimum
period of two (2) years.
(o) The Company will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Underwriter's Warrant outstanding from time to time.
(p) The Company shall deliver to you, at the Company's expense,
three (3) bound volumes in form and content acceptable to you, containing the
Registration Statement and all exhibits filed therewith, and all amendments
thereto, and all other material correspondence, filings, certificates and
other documents filed and/or delivered in connection with this offering. The
Company shall use its best efforts to deliver such volumes with one hundred
eighty (180) days of the First Closing Date.
(q) For a period of thirty-six (36) months from the closing of the
offering, the Underwriter shall have the right to designate two members of
the Board of Directors provided that the designees are acceptable to the
Company and, provided further, that not more than one of the designees will
be an affiliate of the Underwriter. Such members shall be entitled to the
same compensation, reimbursements and indemnification as other members of the
Company's Board of Directors.
4. CONDITIONS OF OBLIGATIONS OF H.J. MEYERS & CO., INC.
Your obligations to purchase and pay for the Shares which you have
agreed to purchase hereunder are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by
the Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 a.m., New York time,
on the date of this Agreement, or at such later time or on such later date as
to which you may Agree in writing; on the Closing Dates, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that or any similar purpose shall have been
instituted or shall be pending or, to the knowledge of any Underwriter or to
the knowledge of the Company, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Freshman, Marantz,
Orlanski, Cooper & Klein, counsel to you; and no stop order shall be in
effect denying or suspending effectiveness of the
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<PAGE>
Registration Statement nor shall any stop order proceedings with respect
thereto be instituted or pending or threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Company, in form and substance
reasonably satisfactory to counsel for you, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
California and is duly qualified or licensed to do business as a foreign
corporation in good standing in each other jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where failure to so qualify will not
have a material adverse effect in the business, properties or financial
condition of the Company. The Company has the corporate power to own,
lease and operate its properties and to conduct its business as described
in the prospectus and to enter into and perform its obligations under this
Agreement, the Warrant Agreement and the Underwriter's Warrant;
(ii) the authorized capitalization of the Company as of the date
of the Prospectus was as set forth in the Prospectus; all of the shares of
the Company's outstanding stock requiring authorization for issuance by the
Company's Board of Directors have been duly authorized and validly issued,
are fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; the outstanding shares of Common Stock of the
Company to such counsels knowledge, have not been issued in violation of
the preemptive rights of any stockholder and the shareholders of the
Company do not have any preemptive rights or other rights to subscribe for
or to purchase which have not been effectively waived; except for the
transfer restrictions regarding "affiliates" contained in Rule 144
promulgated under the Act, there are no restrictions upon the voting or
transfer of, any of the Shares; the Common Stock and the Underwriter's
Warrant conform in all material respects to the respective descriptions
thereof contained in the Prospectus; the Shares to be issued as
contemplated in the Registration Statement and this Agreement have been
duly authorized and, when paid, will be validly issued, fully paid and
non-assessable and free of preemptive rights contained in the Company's
articles of incorporation or By-laws, or any other document, instrument or
agreement known to counsel; a sufficient number of shares of Common Stock
has been reserved for issuance upon exercise of the Underwriter's Warrant;
to such counsels knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any registration rights or other rights, other than
those contemplated by the Underwriter's Warrant or which have been waived
or satisfied, for or relating to the registration of the Shares;
(iii) this Agreement and the Underwriter's Warrant (sometimes
hereinafter collectively referred to as the "Underwriter Agreements") have
been duly and validly authorized, executed and delivered by the Company,
and assuming due execution and delivery of this Agreement by you, such
agreements are, or when duly executed will be, the valid and legally
binding obligations of the Company except as enforceability may be limited
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<PAGE>
by bankruptcy, insolvency, moratorium or other laws affecting the rights of
creditors, or by general equitable principles; provided that no opinion
need be expressed as to the enforceability of the indemnity provisions
contained in Section 6 or the contribution provisions contained in Section
7 of this Agreement;
(iv) the certificates evidencing the Shares are in valid and
proper legal form; the Underwriter's Warrant will be exercisable for shares
of Common Stock of the Company in accordance with the terms of the
Underwriter's Warrant and at the prices therein provided for; the shares of
Common Stock of the Company issuable upon exercise of the Underwriter's
Warrant have been duly authorized and reserved for issuance upon such
exercise, and such shares, when issued upon such exercise in accordance
with the terms of the Underwriter's Warrant and when the price is paid
shall be fully paid and non-assessable;
(v) Such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which are required
to be described or referred to in the Registration Statement which are not
so described or referred to;
(vi) The execution and delivery of this Agreement and the
Underwriter's Warrant and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or
therein contemplated will not result in a violation of, or constitute a
default under, the articles of incorporation or By-laws of the Company, or
in a violation of or default under any obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence
of indebtedness or in any of the material contracts, indentures, mortgages,
loan agreements, leases, joint ventures or other agreements or instruments
to which the Company is a party that are filed as Exhibits to the
Registration Statement or otherwise known to counsel;
(vii) Based upon a telephone conversation from a member of
the Staff of the Commission, the Registration Statement has become
effective under the Act, and to such counsels knowledge, no stop order
suspending the effectiveness of the Registration Statement is in effect, no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission and the Registration Statement and the
Prospectus (except, in the case of both the Registration Statement and any
Amendment thereto, and the Prospectus and any supplement thereto for the
financial statements and notes and schedules thereto, and other financial
information or statistical data contained therein, or omitted therefrom, as
to which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the Rules
and Regulations;
(viii) All descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents are accurate and fairly present the information required to be
shown, and such counsel is familiar with all contracts and other documents
referred to in the Registration Statement and the Prospectus and any such
amendment or supplement, or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or documents of
a character required to be
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<PAGE>
summarized or described therein or to be filed as exhibits thereto which are
not so summarized, described or filed;
(ix) No authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale or delivery of the Shares
by the Company, in connection with the execution, delivery and performance
of this Agreement or the Underwriter's Warrant by the Company or in
connection with the taking of any action contemplated herein or therein, or
the issuance of the Underwriter's Warrant or the Shares underlying the
Underwriter's Warrant, other than registration or qualification of the
Shares under applicable state or foreign securities or blue sky laws (as to
which such counsel need express no opinion) and registration under the Act;
and
(x) The statements in the Registration Statement under the
caption "Description of Capital Stock," to the extent that such statements
constitute a matter of law or legal conclusion have been reviewed by such
counsel and are correct in all material respects; and
Such counsel has participated in the preparation of the
Registration Statement and the Prospectus and although such counsel has not
reviewed the accuracy or completeness of the statements contained in the
Registration Statement or Prospectus nothing has come to the attention of
such counsel that caused such counsel to have reason to believe that the
Registration Statement or any amendment thereto at the time it became
effective contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or any
supplement thereto contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make statements therein in
light of the circumstances under which they were made not misleading (except,
in the case of both the Registration Statement and any amendment thereto and
the Prospectus and any supplement thereto, for the financial statements,
notes and schedules thereto and other financial information and statistical
data contained therein, as to which such counsel need express no opinion);
In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters
of fact; and in rendering such opinion may either (i) rely as to all matters
of law other than the law of the United States or of the State of California
upon opinions of counsel satisfactory to you, in which case the opinion shall
state that they have no reason to believe that you and they are not entitled
to so rely or (ii) assume that the laws of any state other than the State of
California are identical to the laws of the State of California, in rendering
such opinion.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus, and other related
matters shall be reasonably satisfactory to or approved by Freshman, Marantz,
Orlanski, Cooper & Klein, counsel to you, and you shall have received from
such counsel a signed opinion, dated as of the First Closing Date, with
respect to the validity of the issuance of the Shares, the form of the
Registration Statement and Prospectus (other than the financial statements
and other financial data contained therein), the execution of this
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<PAGE>
Agreement and other related matters as you may reasonably require. The
Company shall have furnished to counsel for you such documents as they may
reasonably request for the purpose of enabling them to render such opinion.
(d) You shall have received a letter on and as of the Effective
Date and again on and as of the First Closing Date, in each instance
describing procedures carried out to a date within five (5) days of the date
of the letter, from Price Waterhouse LLP, independent public accountants for
the Company, substantially in the form approved by you.
(e) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and
correct with the same effect as if made on and as of such Closing Date, and
the Company shall have performed all of its obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statements of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances under which they were made; (iii) there shall have been,
since the respective dates as of which information is given, no material
adverse change in the business, properties, condition (financial or
otherwise), results of operations, capital stock, long-term or short-term
debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the
Effective Date and the Company shall not have incurred any material
liabilities nor entered into any agreement not in the ordinary course of
business other than as referred to in the Registration Statement and
Prospectus; and (iv) except as set forth in the Prospectus, no action, suit
or proceeding at law shall be pending or threatened against the Company which
would be required to be disclosed in the Registration Statement, and no
proceedings shall be pending or threatened against the Company before or by
any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, property, condition (financial
or otherwise), results of operations or general affairs of the Company. In
addition, you shall have received, at the First Closing Date, a certificate
signed by the President and the principal financial or accounting officer of
the Company, dated as of the First Closing Date, evidencing compliance with
the provisions of this subsection (e).
(f) Upon exercise of the option provided for in Section 2(b)
hereof, your obligations to purchase and pay for the Option Shares referred
to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness thereof
shall have been issued, and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of
the Company, shall be contemplated by the Commission, and any reasonable
request on the part of the Commission for additional information shall
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<PAGE>
have been complied with to the reasonable satisfaction of Freshman, Marantz,
Orlanski, Cooper & Klein, counsel to you.
(ii) At the Option Closing Date there shall have been delivered
to you the signed opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Company, dated as of the Option Closing Date,
in form and substance reasonably satisfactory to Freshman, Marantz,
Orlanski, Cooper & Klein, counsel to you, which opinion shall be
substantially the same in scope and substance as the opinion furnished to
you at the First Closing Date pursuant to Section 4(b) hereof, except that
such opinion, where appropriate, shall cover the Option Shares rather than
the Firm Shares. If the First Closing Date is the same as the Option
Closing Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the President and the Chairman of the
Board of the Company dated the Option Closing Date, in form and substance
reasonably satisfactory to Freshman, Marantz, Orlanski, Cooper & Klein,
counsel to you, substantially the same in scope and substance as the
certificate furnished to you at the First Closing Date pursuant to Section
4(e) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you a letter in form and substance satisfactory to you from Price
Waterhouse LLP, dated the Option Closing Date and addressed to you,
confirming the information in their letter referred to in Section 4(d)
hereof as of the date thereof and stating that, without any additional
investigation required, nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a
date not more than five (5) days prior to the Option Closing Date which
would require any change in said letter if it were required to be dated the
Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Shares shall be
reasonably satisfactory in form and substance to you, and you and Freshman,
Marantz, Orlanski, Cooper & Klein, counsel to you, shall have been
furnished with all such documents and certificates as you may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
therein.
(g) If any of the conditions herein provided for in this Section
shall not have been completely fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
canceled at, or at any time prior to, each Closing Date by your notifying the
Company of such cancellation in writing or by telegram at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of
any Underwriter to the Company, except as otherwise provided herein.
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5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to sell and deliver the Shares is
subject to the following conditions:
(a) The Registration Statement shall have become effective not
later than 9:00 a.m. New York time, on the date of this Agreement, or on such
later date or time as you and the Company may agree in writing.
(b) on the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Option Shares
on exercise of the option provided for in Section 2(b) hereof shall be
affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless you and each
person, if any, who controls you, within the meaning of the Act, from and
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys, fees), to
which you or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment thereof or supplement thereto, (B) any blue sky application or
other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
or any supplement thereto, or in any Blue Sky Application, a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any
such case to the extent, but only to the extent, that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company
through you specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto and provided further, that the indemnity
agreement provided in this Section 6(b) with respect to any preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material
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fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required
by the Act and the Rules and Regulations thereunder. This indemnity will be
in addition to any liability which the Company may otherwise have.
(b) You agree to indemnify and hold harmless the Company, each of
its directors, each nominee (if any) for director named in the Prospectus,
each of its officers who have signed the Registration Statement, and each
person, if any, who controls the Company, within the meaning of the Act, from
and against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, shall include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys,
fees) to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged untrue
statement or omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or omission
or alleged untrue statement or omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished to the Company through you specifically for use in preparation
thereof. This indemnity agreement will be in addition to any liability which
you may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed
the defense of the action with counsel reasonably satisfactory to the
indemnified party; provided that if the indemnified party is any Underwriter
or a person who controls any Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized
in writing by the indemnifying party or (ii) the named parties to any such
action (including any impleaded parties) include both such Underwriter
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<PAGE>
or such controlling person and the indemnifying party, and in your judgment,
upon advice of counsel, it is advisable for such Underwriter or controlling
persons to be represented by separate counsel (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of such Underwriter or such controlling person, it being understood, however,
that the indemnifying party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys). No settlement of any action against an indemnified party shall
be made without the consent of the indemnified party, which shall not be
unreasonably withheld.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the
Act in any case in which (i) the indemnified party makes claims for
indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of you, then the Company and each person who controls
the Company, in the aggregate, and you shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to,
all reasonable costs of defense and investigation and all reasonable
attorneys' fees) in either such case (after contribution from others) in such
proportions that such Underwriter is responsible in the aggregate for that
portion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discount per Share appearing on the cover
page of the Prospectus bears to the public offering price per Share appearing
thereon, and the Company shall be responsible for the remaining portion,
provided, however, that if such allocation is not permitted by applicable
law, then the relative fault of the Company and you and controlling persons,
in the aggregate, in connection with the statements or omissions which
resulted in such damages and other relevant equitable considerations shall
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of a material
fact or the omission to state a material fact, such statement or omission
relates to information supplied by the Company or you, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. The Company and the
Underwriter agree (a) that it would not be just and equitable if the
respective obligations of the Company and you to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriter has to be treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this Section 7 and (b) that the contribution of any Underwriter shall not be
in excess of its proportionate share of the portion of such losses, claims,
damages or liabilities for which you are responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the word "Company"
within the meaning of Section 15 of the Act. Your obligations to contribute
pursuant to this Section 7 are several in proportion to their respective
underwriting obligations and not joint. If the full amount
19
<PAGE>
of the contribution specified in this paragraph is not permitted by law, then
you and each person who controls you shall be entitled to contribution from
the Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and you.
No contribution shall be requested with regard to the settlement of any
matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of
the Shares to you is consummated, the Company will pay all costs and expenses
incident to the performance of this Agreement by the Company, including but
not limited to the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), each Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the National Association of Securities Dealers, Inc.
("NASD") in connection with the filing required by the NASD relating to the
offering of the Shares contemplated hereby; all expenses, including
reasonable fees (but not in excess of the amount set forth in Section 3(b))
and disbursements of counsel to you, in connection with the qualification of
the Shares under the State Securities or Blue Sky Laws which you shall
designate; the cost of printing and furnishing to you copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Warrant Agreement and the Blue Sky Memorandum; the cost of
printing the certificates representing the Shares, the expenses of Company
due diligence meetings and presentations, (but not of you or your counsel in
connection therewith) and the expense (which shall not exceed $10,000) of
placing one or more "tombstone" advertisements as directed by you. The
Company and shall pay any and all taxes (including any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to you
hereunder. The Company will also pay all costs and expenses incident to the
furnishing of any amended Prospectus or of any supplement to be attached to
the Prospectus as called for in Section 3(a) of this Agreement except as
otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to you the balance of a non-accountable expense
allowance 3% of the gross proceeds of the offering. In the event the
over-allotment option is exercised in part or in full, the Company shall pay
to you at the Option Closing Date an additional amount equal to 3% of the
gross proceeds received upon exercise of the overallotment option. In the
event the transactions contemplated hereby are not consummated for any
reason, the Company shall be liable for your actual accountable out-of-pocket
expenses including legal fees, and further provided that if the contemplated
transactions are not consummated by reason of breach by the Company of this
Agreement or of any representation, warranty, covenant or condition contained
herein, the Company shall be liable for your accountable out-of-pocket
expenses.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Underwriter or from any other person
for services as a finder in connection with
20
<PAGE>
the proposed offering, and the Company agrees to indemnify and hold harmless
you, and you agree to indemnify and hold harmless, the Company from and
against any losses, claims, damages or liabilities, (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to
which the indemnified party may become subject insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon the claim of any person (other than an employee of the
party claiming indemnity) or entity that he or it is entitled to a finder's
fee in connection wit the proposed offering by reason of such person's or
entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that
you may, at your option, delay its effectiveness until the earlier to occur
of 10:00 A.M., New York time on the first full business day following the
Effective Date as you in your discretion shall first commence the public
offering by you of any of the Shares. The time of the public offering shall
mean the time of release by you of the first newspaper advertisement with
respect to the Shares, or the time when the Shares are first generally
offered by you to dealers by letter or telecopier, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14
and 15 shall remain in effect notwithstanding such termination.
10. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14
and 15, may be terminated at any time prior to the First Closing Date, and
the option referred to in Section 2(b), if exercised, may be canceled, at any
time prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by you for the
resale of the Shares agreed to be purchased hereunder, by reason of (i) the
Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree, (ii) trading in
securities on the New York Stock Exchange or the American Stock Exchange
having been suspended or limited, (iii) material governmental restrictions
having been imposed on trading in securities generally which are not in force
and effect on the date hereof, (iv) a banking moratorium having been declared
by federal of New York State authorities, (v) an outbreak of major
international hostilities or other national or international calamity having
occurred, (vi) the passage by the Congress of the United States or by any
state legislative body of similar impact, of any act or measure, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by you to have a material adverse impact
on the business, financial condition or financial statements of the Company,
(vii) any material adverse change in the financial or securities markets
beyond normal fluctuations in the United States having occurred since the
date of this Agreement, or (viii) any material adverse change having
occurred, since the respective dates for which information is given in the
Registration Statement and Prospectus, in the earnings, business, prospects
or general condition of the Company, financial or otherwise, whether or not
arising in the ordinary course of business.
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<PAGE>
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 10 or in Section 9,
the Company shall be promptly notified by you, by telephone or facsimile
transmission, confirmed by letter.
11. UNDERWRITER'S WARRANT.
On the First Closing Date, the Company will issue to you, for a
consideration of $5.00 and upon the terms and conditions set forth in the
form of Underwriter's Warrant annexed as an exhibit to the Registration
Statement, an Underwriter's Warrant to purchase 320,000 Shares. In the event
of conflict in the terms of this Agreement and the Underwriter's Warrant, the
language of the Underwriter's Warrant shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company and you, set forth in or made pursuant to
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of you, the Company or any of its officers
or directors or any controlling persons and will survive delivery of and
payment for the Shares and the termination of this Agreement.
13. NOTICE.
All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed,
delivered or telecopied and confirmed to it at H.J. Meyers & Co., Inc., 1895
Mt. Hope Avenue, Rochester, New York 14620-4596, with a copy sent to Thomas
J. Poletti, Esq. at Freshman, Marantz, Orlanski, Cooper & Klein, 9100
Wilshire Boulevard, 8th Floor East, Beverly Hills, California 90212-3480, or
if sent to the Company, will be mailed, delivered, or facsimiled and
confirmed to Jeffrey Ait of DeltaPoint, Inc. 22 Lower Ragsdale Drive,
Monterey, California 93940, with copy sent to Jeffrey D. Saper, Esq. of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill
Road, Palo Alto, California 94304-1050.
14. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for your benefit, the
Company and, to the extent expressed, any person controlling the Company, or
you, and directors of the Company, nominees for directors of the Company (if
any) named in the Prospectus, the officers of the Company who have signed the
Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire for have any right
under or by virtue of this Agreement. The term "successors and assigns"
shall not include any purchaser, as such purchaser, from you of the Shares.
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15. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
23
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Underwriting Agreement, whereupon it
will become a binding agreement between the Company and you in accordance
with its terms.
Very truly yours,
DeltaPoint, Inc.
Dated: ____________, 1997 By:________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as
of the date first above written.
H.J. Meyers & Co., Inc.
Dated: ____________, 1997 By:________________________________
Authorized Officer
24
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SCHEDULE I
----------
Underwriting Agreement dated ____________, 1997
Number of Firm
Shares
Underwriter to be Purchased
- ----------- ---------------
H.J. Meyers & Co., Inc. 3,200,000
25
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Warrant to Purchase 320,000
Shares of Common Stock
UNDERWRITER'S WARRANT
Dated: ____________, 1997
THIS CERTIFIES THAT H.J. Meyers & Co., Inc. (herein sometimes called the
"Holder" or the "Underwriter") is entitled to purchase from DeltaPoint, Inc.,
a California corporation (the "Company"), at the price and during the period
as hereinafter specified, up to Two Hundred Twenty-One Thousand Eight Hundred
(320,000) shares of Common Stock, no par value (the "Common Stock"), at a
purchase price of $5.00 per share, subject to adjustment as described below,
at any time during the four-year period commencing one (1) year from the
effective date of the Registration Statement (as defined below) ("Effective
Date").
This Underwriter's Warrant (the "Underwriter's Warrant") is issued
pursuant to an Underwriting Agreement between the Company and H.J. Meyers &
Co., Inc. in connection with a public offering, through the Underwriter, of
3,200,000 shares of Common Stock as therein described (and up to 480,000
additional shares of Common Stock covered by an over-allotment option granted
by the Company to the Underwriter), and in consideration of $5.00 received by
the Company for the Underwriter's Warrant. Except as specifically otherwise
provided herein, the Common Stock issued pursuant to the Underwriter's
Warrant shall bear the same terms and conditions as described under the
caption "Description of Securities" in the Registration Statement on Form
SB-2, File No. 333-______ (the "Registration Statement") except that the
Holder shall have registration rights under the Securities Act of 1933, as
amended (the "Act"), for issuance pursuant thereto, the Underwriter's Warrant
and the Common Stock issuable pursuant thereto, as more fully described in
paragraph 6 herein.
1. The rights represented by the Underwriter's Warrant shall be
exercised at the price, subject to adjustment in accordance with Section 8
hereof (the "Exercise Price"), and during the periods as follows:
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(a) During the period from the Effective Date to and through
_________, 1998 (the "First Anniversary Date"), inclusive, the
Holder shall have no right to purchase any Common Stock
hereunder, except that in the event of any merger, consolidation
or sale of substantially all the assets of the Company as an
entirety prior to the First Anniversary Date (other than (i) a
merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification or
reorganization of an outstanding shares of Common Stock or (ii)
any sale/leaseback, mortgage or other financing transaction), the
Holder shall have the right to exercise the Underwriter's Warrant
concurrently with such event and into the kind and amount of
shares of stock and other securities and property (including
cash) receivable by a holder of the number of shares of Common
Stock into which the Underwriter's Warrant were exercisable
immediately prior thereto.
(b) Between _________, 1998 and ________, 2002, (five (5) years from
the Effective Date, i.e. the "Expiration Date") inclusive, the
Holder shall have the option to purchase Common Stock hereunder
at a price of $_______ per share (120% of public offering price
per share of Common Stock pursuant to the Registration
Statement).
(c) After the Expiration Date, the Holder shall have no right to
purchase any Common Stock hereunder.
2. (a) The rights represented by the Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in
part, by (i) the surrender of the Underwriter's Warrant (with the purchase
form at the end hereof properly executed) at the principal executive office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company); (ii) payment to the Company of the
exercise price then in effect for the number of shares of Common Stock
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the
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purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Underwriter's Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Underwriter's Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for shares of
Common Stock shall be issuable upon such exercise shall become the holder or
holders of record of such Common Stock at that time and date. The Common
Stock and the certificates for the Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten (10)
business days, after the rights represented by this Underwriter's Warrant
shall have been so exercised.
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Underwriter's Warrant in whole or
in part by receiving shares of Common Stock equal to the value (as determined
below) of this Underwriter's Warrant, or any part hereof, upon surrender of
the Underwriter's Warrant at the principal office of the Company together
with notice of such election in which event the Company shall issue to the
Holder a number of shares of Common Stock computed using the following
formula:
X = Y(A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the
Holder;
Y = the number of shares of Common Stock to be exercised under
this Underwriter's Warrant (the "Shares");
A = the current fair market value of one share of Common Stock;
B = the Exercise Price of the Underwriter's Warrant;
As used herein, current fair market value of Common Stock
shall mean with respect to each share
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of Common Stock the average of the closing prices
of the Company's Common Stock sold on the principal national
securities exchanges on which the Common Stock is at the time
admitted to trading or listed, or, if there have been no sales
of any such exchange on such day, the average of the highest
bid and lowest ask price on such day as reported by Nasdaq, or
any similar organization if Nasdaq is no longer reporting such
information, either (i) on the date which the form of election
is deemed to have been sent to the Company (the "Notice Date")
or (ii) over a period of five (5) trading days preceding the
Notice Date, whichever of (i) or (ii) is greater. If on the
date for which current fair market value is to be determined
the Common Stock is not listed on any securities exchange or
quoted in the Nasdaq System or the over-the-counter market,
the current fair market value of Common Stock shall be
the highest price per share which the Company could then obtain
from a willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company
has become subject to a binding agreement for a merger,
acquisition or other consolidation pursuant to which the Company
is not the surviving party, in which case the current fair market
value of the Common Stock shall be deemed to be the value to be
received by the holders of the Company's Common Stock for each
share thereof pursuant to the Company's acquisition.
3. The Underwriter's Warrant shall not be transferred, sold, assigned,
or hypothecated for a period of one year commencing on the Effective Date
except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part to any person who is an officer of the Holder.
This Underwriter's Warrant must be executed immediately upon its transfer at
any time after one year from the Effective Date, and if not so executed,
shall lapse. Any such assignment shall be effected by the Holder by (i)
executing the form of assignment at the end hereof and (ii) surrendering the
Underwriter's Warrant for cancellation at the
4
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office or agency of the Company referred to in paragraph 2 hereof,
accompanied by a certificate (signed by an officer of the Holder if the
Holder is a corporation) stating that each transferee is a permitted
transferee under this paragraph 3; whereupon the Company shall issue, in the
name or names specified by the Holder (including the Holder), a new
Underwriter's Warrant or Warrants of like tenor and representing in the
aggregate rights to purchase the same number of shares of Common Stock as are
purchasable hereunder at such time.
4. The Company covenants and agrees that all shares of Common Stock
which may be purchased hereunder will, upon issuance and delivery against
payment therefor of the requisite purchase price, be duly and validly issued,
fully paid and nonassessable. The Company further covenants and agrees that,
during the periods within which the Underwriter's Warrant may be exercised,
the Company will at all times have authorized and reserved a sufficient
number of shares of its Common Stock to provide for the exercise of the
Underwriter's Warrant.
5. The Underwriter's Warrant shall not entitle the Holder to any voting
rights or other rights, including without limitation notice of meetings or
other actions or receipt of dividends, as a stockholder of the Company.
6. (a) The Company shall advise the Holder or its permitted
transferee, whether the Holder holds the Underwriter's Warrant or has
exercised the Underwriter's Warrant and holds shares of Common Stock relating
thereto, by written notice at least four weeks prior to the filing of any new
registration statement thereto under the Act, or the filing of a notification
on Form 1-A under the Act for a public offering of securities, covering any
securities of the Company, for its own account or for the account of others,
except for any registration statement filed on Form S-4 or S-8 (or other
comparable form), and will, during the five (5) year period from the
Effective Date, upon the request of the Holder, include in any such new
registration statement (or notification as the case may be) such information
as may be required to permit a public offering of, all or any of the shares
of Common Stock underlying the Underwriter's Warrant (the "Registrable
Securities").
(b) At any time during the four (4) year period beginning one (1)
year after the Effective Date, a 50% Holder (as defined below) may request,
on up to an aggregate of two occasions,
5
<PAGE>
that the Company register under the Act any and all of the Registrable
Securities held by such 50% Holder. Upon the receipt of any such notice, the
Company will promptly, but no later than four weeks after receipt of such
notice (subject to the last sentence of this Section 6(b)), file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, so that such designated
Registrable Securities may be publicly sold under the Act as promptly as
practicable thereafter and the Company will use reasonable efforts to cause
such registration to become and remain effective (including the taking of
such reasonable steps as are necessary to obtain the removal of any stop
order) within 120 days (subject to the provision of the last sentence of this
Section 6 (b)) after the receipt of such notice, provided, that such Holder
shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request in writing. The 50% Holder
may, at its option, request the registration of any of the Common Stock
underlying the Underwriter's Warrant in a registration statement made by the
Company as contemplated by Section 6(a) or in connection with a request made
pursuant to this Section 6(b) prior to acquisition of the shares of Common
Stock issuable upon exercise of the Underwriter's Warrant. The 50% Holder
may, at its option, request such post-effective amendment or new registration
statement during the described period with respect to the Underwriter's
Warrant or separately as to the Common Stock, and such registration rights
may be exercised by the 50% Holder prior to or subsequent to the exercise of
the Underwriter's Warrant. Within ten days after receiving any such notice
pursuant to this subsection (b) of paragraph 6, the Company shall give notice
to any other Holders of the Underwriter's Warrant, advising that the Company
is proceeding with such post-effective amendment or registration statement
and offering to include therein the securities underlying that part of the
Warrant held by the other Holders, provided that they shall furnish the
Company with such appropriate information (relating to the intentions of such
Holders) in connection therewith as the Company shall reasonably request in
writing. All costs and expenses of the first post-effective amendment or new
registration statement shall be borne by the Company, except that the
Holder(s) shall bear the fees of their own counsel and any other advisors
retained by them and any underwriting discounts or commissions applicable to
any of the securities sold by them. All costs and expenses of the second
such post-effective amendment or new registration statement shall be borne by
the Holder(s). The Company will use its best efforts to maintain such
registration
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statement or post-effective amendment current under the Act for a period of
at least six months (and for up to an additional three (3) months if so
requested by the Holder(s)) from the effective date thereof. The Company
shall supply prospectuses, and such other documents as the Holder(s) may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register
and qualify any of the Registrable Securities for sale in such states (i) as
such Holder(s) designate and (ii) with respect to which the Company obtained
a qualification in connection with its initial public offering and furnish
indemnification in the manner provided in paragraph 7 hereof.
Notwithstanding the foregoing set forth in this paragraph 6(b), the Company
shall not be required to include in any registration statement any
Registrable Securities which in the opinion of counsel to the Company (which
opinion is reasonably acceptable to counsel to the Underwriter) would be
saleable immediately without restriction under Rule 144 (or its successor) if
the Underwriter's Warrant was exercised pursuant to paragraph 2(b) herein.
Notwithstanding anything to the contrary, if the Company shall
furnish to the Holders requesting a registration or filing of a
post-effective amendment pursuant to this Section 6 a certificate signed by
the President of the Company stating that, in the good faith judgement of the
board of Directors of the Company, it would be materially detrimental to the
Company and its stockholders for such registration statement or
post-effective amendment to be filed and it is therefore in the best
interests of the Company to defer such filing, the Company shall have a right
to defer such filing for a period not to exceed 30 after the date on which
the Company would be required to so file such registration statement or
post-effective amendment, provided, however, that the Company shall not be
entitled to provide such notice to such Holder or Holders more than once in
any 12-month period.
(c) The term "50% Holder" as used in this paragraph 6 shall mean
the Holder(s) of at least 50% of the Underwriter's Warrant and/or the Common
Stock underlying the Underwriter's Warrant (considered in the aggregate).
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Common Stock issued upon exercise of (or issuable upon the
exercise of any Warrants purchasable under) the Underwriter's Warrant is
filed under the Act, amended or
7
<PAGE>
supplemented, the Company will indemnify and hold harmless each Holder of the
Common Stock covered by such registration statement, amendment or supplement
(such Holder being hereinafter called the "Distributing Holder"), and each
person, if any, who controls (within the meaning of the Act) the Distributing
Holder, and each underwriter (within the meaning of the Act) of such Common
Stock and each person, if any, who controls (within the meaning of the Act)
any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling
person or any such underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities, or actions
in respect thereof, arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any such
registration statement as declared effective or any final prospectus
constituting a part thereof or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading and will reimburse the Distributing
Holder or such controlling person or underwriter for any legal or other
expense reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, said preliminary prospectus,
said final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder or
any other Distributing Holder for use in the preparation thereof and provided
further, that the indemnity agreement provided in this Section 7(a) with
respect to any preliminary prospectus shall not inure to the benefit of any
Distributing Holder, controlling person of such Distributing Holder,
underwriter or controlling person of such underwriter from whom the person
asserting any losses, claims, charges, liabilities or litigation based upon
any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact, received such
preliminary prospectus, if a copy of the prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required
by the Act and the Rules and Regulations thereunder.
8
<PAGE>
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act)
against any losses, claims, damages or liabilities, joint or several, to
which the Company or any such director, officer or controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder for use in the
preparation thereof; and will reimburse the Company or any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party, give the indemnifying party notice of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
9
<PAGE>
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of this Underwriter's Warrant shall
be subject to adjustment from time to time upon the happening of certain
events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, or (iv) enter into
any transaction whereby the outstanding shares of Common Stock of the Company
are at any time changed into or exchanged for a different number or kind of
shares or other security of the Company or of another corporation through
reorganization, merger, consolidation, liquidation or recapitalization, then
appropriate adjustments in the number of Shares (or other securities for
which such Shares have previously been exchanged or converted) subject to
this Underwriter's Warrant shall be made and the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization shall
be proportionately adjusted so that the Holder of this Underwriter's Warrant
exercised after such date shall be entitled to receive the aggregate number
and kind of Shares which, if this Underwriter's Warrant had been exercised by
such Holder immediately prior to such date, he would have been entitled to
receive upon such dividend, distribution, subdivision, combination,
reclassification, reorganization, merger, consolidation, liquidation or
recapitalization. For example, if the Company declares a 2 for 1 stock
distribution and the Exercise Price hereof immediately prior to such event
was $3.30 per share and the number of Shares purchasable upon exercise of
this Underwriter's Warrant was 320,000 the adjusted Exercise Price
immediately after such event would be $1.65 per share and the adjusted number
of Shares purchasable upon exercise of this
10
<PAGE>
Underwriter's Warrant would be 640,000. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the Exercise Price on a per share basis
(the "Per Share Exercise Price") on such record date, the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Per Share Exercise Price in effect immediately prior to the
date of issuance by a fraction, the numerator of which shall be the sum of
the number of shares outstanding on the record date mentioned below and the
number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so issued (or the
aggregate conversion price of the convertible securities so issued) would
purchase at the Per Share Exercise Price in effect immediately prior to the
date of such issuance, and the denominator of which shall be sum of the
number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock so issued (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and
shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants;
and to the extent that shares of Common Stock are not delivered (or
securities convertible into Common Stock are not delivered) after the
expiration of such rights or warrants the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
deliver of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to all holders
of its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above, then in each such case the Exercise
Price in effect thereafter shall be determined by multiplying the Per Share
Exercise Price in effect immediately prior thereto by a fraction,
11
<PAGE>
the numerator of which shall be the total number of shares of Common Stock
then outstanding multiplied by the current market price per share of Common
Stock (as defined in Subsection (e) below), less the fair market value (as
determined by the Company's Board of Directors) of said assets, or evidences
of indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of the
Underwriter's Warrant is adjusted pursuant to Subsections (a), (b) or (c)
above, the number of Shares purchasable upon exercise of this Underwriter's
Warrant shall simultaneously be adjusted by multiplying the number of Shares
issuable upon exercise of this Underwriter's Warrant by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsection (c) above,
the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices of the Common Stock for
30 consecutive business days before such date. The closing price for each
day shall be the last sale price regular way or, in case no such reported
sale takes place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, or, if
not listed or admitted to trading on such exchange, the average of the
highest reported bid and lowest reported asked prices as reported by Nasdaq,
or other similar organization if Nasdaq is no longer reporting such
information, or if not so available, the fair market price as determined by
the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which may by
reason of this Subsection (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be
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<PAGE>
made hereunder. All calculations under this Section 8 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section 8 to the contrary notwithstanding, the Company shall
be entitled, but shall not be required, to make such changes in the Exercise
Price, in addition to those required by this Section 8, as it shall
determine, in its sole discretion, to be advisable in order that any dividend
or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by the
Company shall not result in any Federal income tax liability to the holders
of the Common Stock or securities convertible into Common Stock.
(g) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of the
Underwriter's Warrant to be mailed to the Holder, at its address set forth
herein, and shall cause a certified copy thereof to be mailed to the
Company's transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the Board of Directors
(who may be the regular accountants employed by the Company) to make any
computation required by this Section 8, and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment
made pursuant to the provisions of this Section 8, the Holder of the
Underwriter's Warrant thereafter shall become entitled to receive any shares
of the Company other than Common Stock, thereafter the number of such other
shares so receivable upon exercise of the Underwriter's Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (f), inclusive, above.
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York without regard to conflict of laws provision.
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<PAGE>
IN WITNESS WHEREOF, DELTAPOINT, INC. has caused this Underwriter's
Warrant to be signed by its duly authorized officers under its corporate
seal, and this Underwriter's Warrant to be dated _________, 1997.
DELTAPOINT, INC.
By: ____________________________
Name:
Title:
(Corporate Seal)
Attest:
______________________________
Name:
Title:
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, _______________ shares of no par value Common
Stock of DELTAPOINT, INC. and herewith makes payment of $_______ therefor, and
requests that the certificates for the shares of Common Stock be issued in the
name(s) of, and delivered to _________________, whose address(es) is (are):
Dated: _______________, 19__
By:________________________________
___________________________________
___________________________________
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase shares of Common
Stock represented by the foregoing Underwriter's Warrant to the extent of
__________ shares of no par value Common Stock, and appoints
_________________________ attorney to transfer such rights on the books of
____________ _________________, with full power of substitution in the
premises.
Dated: _______________, 19__
By:________________________________
___________________________________
___________________________________
In the presence of:
<PAGE>
EXHIBIT 5.1
DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 to be filed by
DeltaPoint, Inc., a California corporation (the "Company"), with the Securities
and Exchange Commission on September 2, 1997, in connection with the
registration under the Securities Act of 1933, as amended, of 3,680,000 shares
of the Company's Common Stock, par value $0.001 per share (the "Shares")
(including an over-allotment option to purchase 480,000 shares). The Shares are
to be sold to the underwriters for resale to the public as described in the
Registration Statement and pursuant to the Underwriting Agreement filed as an
exhibit thereto. As legal counsel to the Company, we have examined the
proceedings proposed to be taken in connection with said sale and issuance of
the Shares.
Based upon the foregoing, we are of the opinion that the Shares, when issued
in the manner described in the Registration Statement, will be duly authorized,
validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Site/technologies/inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated March 25, 1997 relating
to the financial statements of DeltaPoint, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
September 24, 1997
