<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1997.
REGISTRATION NO. 333-3784
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST-EFFECTIVE
AMENDMENT NO. 5
TO
FORM SB-2
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>
------------------------------
<TABLE>
<S> <C>
22 LOWER RAGSDALE DRIVE JEFFREY F. AIT
MONTEREY, CALIFORNIA 93940 CHIEF EXECUTIVE OFFICER
(408) 648-4000 DELTAPOINT, INC.
(Address, including zip code, and 22 LOWER RAGSDALE DRIVE
telephone number, including area code, MONTEREY, CALIFORNIA 93940
of registrant's principal executive (408) 648-4000
offices) (Name, address, including zip code,
and telephone number, including area
code, of agent for service)
</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, as amended, 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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY (1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value (1)........ 250,000 $9.625(2) $2,406,250 $830.00
Warrants (1).......................... 261,172 $ -- --
Common Stock issuable upon exercise of
Warrants (3)......................... 261,172 $7.20(4) $1,880,439 $649.00
Totals................................ -- -- $4,286,689 $1,479.00
</TABLE>
(1) Such securities have been registered for resale by the Selling Shareholders
and their assigns and transferees on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, as amended (the "Act").
(2) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(c) promulgated under the Securities Act of
1933.
(3) Represents shares of Common Stock issuable upon exercise of the Warrants.
(4) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(g) promulgated under the Act.
------------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 12, 1997
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>
PROSPECTUS
262,922 SHARES OF COMMON STOCK
71,875 COMMON STOCK PURCHASE WARRANTS
71,875 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF COMMON STOCK PURCHASE
WARRANTS
THE 262,922 SHARES (THE "SHARES") OF COMMON STOCK (THE "COMMON STOCK") OF
DELTAPOINT, INC., A CALIFORNIA CORPORATION (THE "COMPANY"), AND THE 71,875
WARRANTS, EACH REPRESENTING THE RIGHT TO PURCHASE ONE SHARE OF COMMON STOCK (THE
"WARRANTS"), COVERED BY THIS PROSPECTUS ARE OUTSTANDING SECURITIES OF THE
COMPANY THAT MAY BE SOLD FROM TIME TO TIME BY CERTAIN SHAREHOLDERS AND HOLDERS
OF WARRANTS OF DELTAPOINT, INC. (THE "SELLING SHAREHOLDERS"). THE COMPANY WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THE SHARES OR THE WARRANTS BY
THE SELLING SHAREHOLDERS. THE 71,875 SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANTS (THE "WARRANT SHARES") MAY BE ISSUED FROM TIME TO TIME
BY THE COMPANY UPON EXERCISE OF THE WARRANTS. THE EXERCISE PRICE OF THE WARRANTS
IS $7.20 PER SHARE OF COMMON STOCK IF THE WARRANTS ARE EXERCISED ON OR BEFORE
JUNE 26, 1998 AND $8.40 PER SHARE OF COMMON STOCK FROM SUCH TIME UNTIL NOVEMBER
6, 2000.
The Company has been advised by the Selling Shareholders that they may sell
all or a portion of the Shares and the Warrants from time to time
over-the-counter or on the Pacific Stock Exchange, to the extent such securities
may be traded on such markets, in negotiated transactions or otherwise, and on
terms and at prices then obtainable. The Selling Shareholders and any
broker-dealers, agents or underwriters that participate with the Selling
Shareholders in the distribution of any of the Shares and Warrants may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Shares and
Warrants purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution." The Warrant
Shares may be issued from time to time by the Company upon exercise of the
Warrants.
The Company will bear all of the cost of preparing and printing the
Registration Statement, and Prospectus and any Prospectus Supplements and all
filing fees and legal and accounting expenses associated with registration under
federal and state securities laws estimated at $145,000. The Selling
Shareholders will pay all other expenses including brokerage fees, if any,
related to the distribution of the Shares and Warrants. See "Plan of
Distribution."
On June 11, 1997, the last sale price of the Company's Common Stock, as
reported on the OTC Bulletin Board under the symbol DTPT, was $1.63.
Prior to this offering, there has been no public market for the Warrants,
and there can be no assurance that an active market will develop.
------------------------
THE COMMON STOCK AND WARRANTS 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" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
AND WARRANTS OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 12, 1997
<PAGE>
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
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."
The Company has filed with the Commission a Registration Statement on Form
SB-2, including amendments thereto, 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.
------------------------
DeltaPoint and DeltaGraph are registered trademarks of the Company and Chart
Server, DeltaPoint, WebAnimator, Web Tools and QuickSite are or may be
trademarks of the Company. All other product, brand or trade names are
trademarks or registered trademarks of their respective owners.
2
<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") develops and markets
Internet software tools designed to allow users to effectively and easily
create, manage and enhance sites on the Internet's World Wide Web. The Company
introduced QuickSite 1.0 in February 1996 to enable novice and experienced site
publishers to rapidly create, maintain and enhance robust Web sites. Since its
introduction, the Company believes that QuickSite has received more awards than
any other Web site creation and management tool, winning the PC WEEK Analyst's
Choice award in March 1996, WINDOWS MAGAZINE recommended seal and the PC WEEK
Labs IT Excellence Award in April 1996, and the PC COMPUTING 5 Star rating in
June 1996. The Company introduced WebTools in March 1996 to allow developers,
value-added resellers ("VARs") and corporate MIS directors to add Web publishing
capabilities to existing applications and introduced WebAnimator in July 1996 to
allow a broad range of Web users to easily add multimedia and interactive
animation to a Web site. In September 1996 the Company introduced QuickSite
Developer's Edition, a new high end version of QuickSite designed for
professional Web developers and corporate Intranet developers. QuickSite
Developer's Edition earned the PC COMPUTING 5 Star rating in February 1997. In
addition, in May 1997 the Company introduced QuickSite 2.5, its updated version
to QuickSite 1.0.
A key element of the Company's objective of becoming a leading Internet
software tools provider is to increase its strategic alliances with key
partners. For example, the Company has entered into agreements with Sony,
McGraw-Hill, Earthlink, Compaq and Netcom Interactive to distribute existing or
planned versions of QuickSite with their products or services.
Prior to 1996, the Company derived substantially all its revenues from the
sale of charting and graphics software products. The Company currently offers
DeltaGraph, an advanced cross-platform charting and graphics product. In 1996
and the first quarter of 1997, the Company derived approximately 62% and 59%,
respectively, of its product revenues from the sale of Deltagraph products. The
Company continues to de-emphasize its charting and graphics products and expects
that the Company may sell the DeltaGraph product line or, if the Company
continues to sell DeltaGraph products, it will continue to represent a declining
percentage of its business in the future.
The Company was incorporated in California in 1989, its headquarters are
located at 22 Lower Ragsdale Drive, Monterey, California 93940, and its
telephone number is (408) 648-4000.
------------------------
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues......................................................... $ 4,043 $ 4,950 $ 760 $ 1,023
Gross profit......................................................... 2,706 3,769 422 703
Loss from operations................................................. (2,486) (4,922) (1,721) (1,725)
Net loss............................................................. (2,632) (4,848) (1,704) (2,521)
Net loss per share (1)............................................... $ (2.42) $ (2.17) $ (0.79) $ (1.01)
Shares used to compute net loss per share (1)........................ 1,086 2,231 2,170 2,489
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
--------------- -----------
BALANCE SHEET DATA:
<S> <C> <C>
Cash and cash equivalents.................................... $ 3,142 $ 1,548
Working capital (deficit).................................... 431 (1,464)
Total assets................................................. 6,346 4,093
Accumulated deficit.......................................... (13,666) (16,187)
Total shareholders' equity (deficit)......................... $ 1,041 $ (922)
</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.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling
Shareholders.......................... 262,922 shares
Warrants offered by the Selling
Shareholders.......................... 71,875 Common Stock Purchase Warrants (the
"Warrants")
Common Stock issuable upon exercise of
Warrants.............................. 71,875 shares
Exercise price and term of Warrants.... Each Warrant entitles the registered holder thereof
to purchase, at any time over a five-year period
commencing on November 6, 1995, one share of
Common Stock at a price of $7.20 per share through
June 26, 1998 and at a price of $8.40 per share
thereafter through November 6, 2000.
Common Stock outstanding as of May 15,
1997 (1).............................. 2,762,873 shares
OTC Bulletin Board..................... DTPT
</TABLE>
- ------------------------
(1) Excludes (i) 110,000 shares of Common Stock issuable upon exercise of a
warrant (the "Representative's Warrant") granted to the representative of
the underwriters (the "Representative") in connection with the initial
public offering of the Company's Common Stock on December 20, 1995 ("IPO"),
(ii) 71,875 shares of Common Stock issuable pursuant to the Warrants, (iii)
901,337 shares of Common Stock issuable pursuant to options outstanding at
March 31, 1997, (iv) 30,000 shares of Common Stock issuable upon conversion
of Convertible Notes (as defined below) based upon an assumed conversion
price of $1.25 per share, assuming the consummation of the Series A
transaction (as defined below), (v) 16,538 shares of Common Stock issuable
upon exercise of a placement agent's warrant (the "Placement Agent's
Warrant") issued in the Debt Financing, (vi) 1,331,160 shares of Common
Stock issuable upon conversion of Series A Preferred (as defined below)
based upon an assumed conversion price of $1.25 per share, assuming the
4
<PAGE>
consummation of the Series A transaction, and (vii) shares of Common Stock
that would be issuable pursuant to the InLet Transactions (as defined
below), assuming the consummation of the InLet Transactions, which would
consist of 260,000 shares of Common Stock plus shares of Common Stock
issuable as royalty payments. See "Business -- Research and Development,"
"Management -- 1990 Key Employee Incentive Stock Option Plan," "Management
-- 1992 Non-Statutory Stock Option Plan," "Management -- 1995 Stock Option
Plan," "Description of Capital Stock -- Warrants and Convertible Notes; and
-- Preferred Stock" and Notes 5, 8, 9 and 11 to Financial Statements.
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 6.
------------------------
EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS DOES NOT
REFLECT THE EXERCISE OF OPTIONS OR WARRANTS AFTER MARCH 31, 1997. IN ADDITION,
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 MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS."
5
<PAGE>
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;
QUARTERLY FLUCTUATIONS IN PERFORMANCE
The Company incurred a net loss of $4,848,000 for the year ended December
31, 1996, and a net loss of $2,521,000 for the quarter ended March 31, 1997 and
had an accumulated deficit of $16,187,000 as of March 31, 1997. The Company
expects to incur losses for at least the next 12 months, and perhaps longer.
There can be no assurance that the Company will not incur significant additional
losses until it successfully markets and sells existing Internet software tools
or develops or acquires new Internet software tools or enhancements to existing
Internet software tools that generate significant revenues.
The Company's independent accountants' report on its financial statements as
of and for the years ended December 31, 1996 and 1995 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 factors leading to, and the existence of, the explanatory
paragraph may materially adversely affect the Company's relationship with
customers and suppliers, its ability to obtain revenue and manufacture products
and its ability to obtain financing. Although the financial statements have been
prepared assuming the Company will continue as a going concern, additional
equity or debt financing or a reduction in the level of operations or a sale of
assets will be required to enable the Company to continue its operations.
Management is currently pursuing additional capital financing and possible sales
of assets including the DeltaGraph product line. However, recent attempts to
secure debt and equity financing on acceptable terms have not been successful.
The Company has recently retained a financial advisor to assist it in raising
additional equity capital. If the Company is unable to obtain significant
financing, it will be required to reduce discretionary spending or sell assets
in order to maintain operations at a reduced level. Among other things, the
Company may seek to raise additional financing through a corporate partnering
relationship or by selling assets (such as the DeltaGraph product line) and may
seek to reduce discretionary spending by reducing existing programs. The
accompanying financial statements do not include any adjustments that may result
from the outcome of these uncertainties. See Notes 1 and 11 of Notes to
Financial Statements.
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
6
<PAGE>
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, 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.
CRITICAL NEED FOR ADDITIONAL CAPITAL; NO ASSURANCE OF FUTURE FINANCING
As of May 31, 1997, the Company's cash and cash equivalents was
approximately $650,000. The Company's actual capital needs will depend upon
numerous factors, including the progress of the Company's software development
activities and the amount of revenues generated from operations, none of which
can be predicted with certainty. The Company has a critical need for additional
capital. Recent attempts to secure capital financing have been unsuccessful. The
Company has recently retained a financial advisor to assist it in raising
additional equity capital and has been pursuing the possibility of selling the
DeltaGraph product line. In addition to providing additional capital, the
Company believes the divestiture of DeltaGraph would allow the Company to
further focus on web site development and management software solutions and
reduce the duplication of expenses it incurs as a result of supporting the
DeltaGraph product. There can be no assurance that any additional required
financing will be available to the Company on acceptable terms, or at all or
that the Company will be successful in divesting the DeltaGraph product line.
The inability to obtain significant financing would have a material adverse
effect on the Company's business, financial condition and results of operation.
In order to continue as a going concern, the Company would be required to
significantly reduce the level of its operations, seek a merger partner or sell
assets. There can be no assurance that the Company would be able to accomplish
any of such actions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
SUBSTANTIAL DEPENDENCE ON RECENTLY INTRODUCED INTERNET SOFTWARE TOOLS
Prior to 1996, DeltaPoint derived substantially all of its product revenues
from licenses of DeltaGraph, its advanced charting and graphics software
product. In 1996 and the first quarter of 1997, the Company derived
approximately 62% and 59%, respectively, of its product revenue from DeltaGraph.
However, DeltaPoint's future revenue growth will continue to depend largely on
the successful development, introduction and commercial acceptance of its
Internet software tools and that the decrease in DeltaGraph revenue as a
percentage of business will continue to decline or, if the Company is successful
in divesting the product line, be eliminated. Internet Software tools currently
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. Commercial acceptance of the Company's Internet software
tools will require the Company to establish additional distribution channels and
sales and marketing methods, of which there can also be no assurance, because
these products will be targeted to existing customers as well as to a
significantly different potential end user population. There can be no assurance
that the Company can successfully manage the introduction of new versions of its
existing Internet software tools or any other potential Internet software tools
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 to achieve significant
7
<PAGE>
market acceptance will have a material adverse effect on the Company's business,
financial condition and results of operation. See "Business -- Strategy," "--
Products" and "-- Marketing and Distribution."
DEPENDENCE ON SUCCESS OF INLET TRANSACTIONS
The Company believes that its future success depends on its ability to
continue to upgrade the functionality of and add new features to its Internet
software tools products on a timely basis. Towards that end, the Company has
sought to purchase, through the InLet transactions described under "Business --
Research and Development" (collectively, the "Inlet Transactions"), technology
that the Company believes will aid the Company in developing future versions of
QuickSite that have greater functionality and features and will allow the
Company to offer functionality and features not currently offered by the
Company's existing products. There can be no assurance the InLet Transactions,
which are contingent on certain closing conditions, including the closing of an
equity financing by the Company on or before July 15, 1997 and the negotiation
of a definitive purchase agreement and other agreements, will be consummated.
Even if the InLet Transactions are consummated, there can be no assurance that
the acquired technology can be successfully developed or integrated into the
Company's current technology on a timely basis or at all, or that products based
on this technology will receive market acceptance. Failure to successfully
consummate the InLet Transactions, develop the acquired technology or integrate
the acquired technology into the Company's website creation and management
technology or market products based upon the acquired technology could have a
material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON INTERNET
Sales of the Company's Internet software tools will depend in part upon a
robust industry and infrastructure for providing Internet access and carrying
Internet traffic. The Internet continues to be at an early stage of development.
There can be no assurance that the infrastructure or complementary products
necessary to make the Internet a viable commercial marketplace will be
developed, or, if developed, that the Internet will become a viable commercial
marketplace. If the Internet does not become a viable commercial marketplace,
the commercial benefits derived from the Company's Internet software tools would
be materially adversely effected. See "Business -- Products" and "-- Marketing
and Distribution."
DEPENDENCE ON EMERGENCE OF INTERNET SOFTWARE TOOLS MARKET
The market for the Company's Internet software tools is evolving, and its
growth depends upon broader market acceptance of Internet software tools. The
Internet software tools market continues to be an emerging market and there can
be no assurance that the market will continue to develop or that further market
development will be rapid enough to significantly benefit the Company. In
addition, there are a number of potential approaches to Internet software tools,
including Internet software tools incorporated into network operating systems or
other software. Therefore, even if Internet software tools gain broader market
acceptance, there can be no assurance that the Company's products will be chosen
by organizations which acquire Internet software tools. Furthermore, to the
extent that the Internet software tool market does continue to develop, the
Company expects that competition will increase. See "Risk Factors --
Competition" and "Risk Factors -- Risk of Inclusion of Internet Software Tool
Functionality in Other Software."
RISKS ASSOCIATED WITH RETAIL DISTRIBUTION; SUBSTANTIAL CUSTOMER CONCENTRATION
DeltaPoint sells its products to distributors for resale to certain
retailers, including computer superstores and mass merchandisers. Sales to a
limited number of distributors and retailers have constituted, and are
anticipated to continue to constitute, a significant portion of DeltaPoint's
retail software sales. In particular, revenues from licenses sold to Nippon
Polaroid Kabushiki Kaisha, the Company's Japanese distributor, constituted
approximately 35%, 21% and 33% of the Company's net revenues for the years ended
December 31, 1995, 1996 and the three months ended March 31, 1997, respectively.
Sales to Ingram Micro Inc. constituted approximately 13%, 30% and 12% of the
Company's net revenues for the years ended December 31, 1995, 1996 and the three
months ended
8
<PAGE>
March 31, 1997, respectively. Any termination or significant disruption of
DeltaPoint's relationship with any major distributor or retailer, or a
significant reduction in sales volume attributable to any of such entities,
could, 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 DeltaPoint's
existing distributors and retailers will continue to provide DeltaPoint's
products with adequate levels of shelf space or promotional support. In
addition, personal computer hardware and software companies have generally
reported declines in gross margins and greater product returns as they have
increased sales through the mass merchandise distribution channel. The Company
expects that its margins will be similarly affected as it increases sales
through this channel. See "Business -- Marketing and Distribution."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company's revenues from international operations accounted for
approximately 40%, 26% and 37% of the Company's net revenues in 1995, 1996 and
the three months ended March 31, 1997, respectively, of which approximately 87%,
79% and 88%, respectively, were derived from sales in Japan. The Company expects
that revenues from these international operations will continue to represent a
large percentage of its net revenues. 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 "-- Marketing and
Distribution."
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 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 -- Critical Dependence on InLet Transactions" "Business -- Marketing and
Distribution," "-- Research and Development."
9
<PAGE>
COMPETITION
The Company competes on the basis of certain factors, including product
quality, first-to-market product 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 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 the product. The Company anticipates increased competition in
these markets from both existing vendors and new market entrants. In the
charting market, the Company has, to date, encountered competition primarily
from larger vendors such as Adobe Systems Incorporated, Microsoft Corporation
("Microsoft"), Software Publishing Corporation, Lotus, Corel and Computer
Associates International, Inc. In the structured drawing market, the Company
has, to date, encountered competition primarily from larger vendors such as
Corel, Visio and Micrografx Incorporated. In the Internet software tools market,
the Company has encountered competition primarily from Netscape Communications
Corporation, Macromedia, Inc., Adobe Systems Incorporated, Microsoft, NetObjects
and Quarterdeck, Inc. IBM agreed in March 1997 to acquire a majority interest in
NetObjects. In addition, 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 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,
and an inability to do so would have a material adverse effect on the Company's
business, financial condition and results of operations. 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. See "Business -- Competition."
RISK OF INCLUSION OF INTERNET SOFTWARE TOOL 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 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 product, FrontPage. The
inclusion of the functionality of the Company's products, and of the
functionality of the 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 was unable to develop new
Internet software tools 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.
10
<PAGE>
RELIANCE ON MICROSOFT
Microsoft Windows has gained widespread market acceptance as the dominant
computer operating system. Accordingly, the Company's products have been and it
is intended that they will continue to be designed to function in the Microsoft
Windows, Windows '95 or Windows NT environments, and anticipates future products
will also be designed for use in these Microsoft environments. Because the
Company expects that its Microsoft-based applications of these products will
account for a significant portion of new license revenue for the foreseeable
future, sales of these products would be materially and adversely affected by
market developments adverse to Microsoft Windows, Windows '95 and Windows NT.
The Company's ability to develop products using the Microsoft Windows, Windows
'95 and NT environments is substantially dependent on its ability to gain timely
access to, and to develop expertise in, current and future developments by
Microsoft, of which there can be no assurance. Moreover, the abandonment by
Microsoft of its current operating system, product line or strategy, or the
decision by Microsoft to develop and market products that directly or indirectly
compete with the Company's products would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Strategy" and "-- Competition."
DILUTION UPON CONVERSION OF CONVERTIBLE NOTES/SERIES A PREFERRED STOCK HELD BY
HRO AND AHG
High Risk Opportunities Hub Fund Ltd. ("HRO") and American High Growth
("AHG") held, as of May 15, 1997, $1,701,450 aggregate principal amount of
convertible notes (the "Convertible Notes"). Each $1,000 principal amount of
Convertible Notes is convertible, subject to certain limitations, into the
number of shares of Common Stock determined by dividing $1,000 by the lower of
$6.70 or 80% of the average trading price of the Common Stock for the five
trading days immediately prior to conversion. See "Certain Transactions" and
"Description of Capital Stock." The Company has entered into an agreement with
HRO pursuant to which HRO has agreed to exchange the entire outstanding
principal amount of Convertible Notes held by it for shares of Series A
Preferred Stock (the "Series A Preferred") at a purchase price of $1,000 per
share. Each $1,000 principal amount of Series A Preferred will convert, subject
to certain limitations, into the number of shares of Common Stock determined by
dividing $1,000 by the lower of $3.50 or 80% of the average trading price of the
Common Stock for the five trading days immediately prior to conversion. See
"Description of Capital Stock."
If all the Convertibles Notes were to have been converted into Common Stock
on May 15, 1997, they would have been converted into 1,134,300 shares of Common
Stock, representing (after giving effect to such conversion) approximately 29%
of the issued and outstanding capital stock on May 15, 1997. To the extent that
the trailing five day average trading price of the Common Stock is lower on the
date of conversion of Convertible Notes into shares of Common Stock than on May
15, 1997, a greater number of shares of Common Stock and a greater percentage of
the then issued and outstanding shares of Common Stock would be issuable on such
conversion. Similarly, the same number of shares of Common Stock would have been
issuable in connection with any conversion of Series A Preferred. As a result of
the foregoing, the holders of Common Stock will suffer immediate and significant
dilution to their percentage ownership of the Common Stock upon the conversion
of the Convertible Notes or the Series A Preferred (following HRO's exchange of
its Convertible Notes for Series A Preferred).
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL
The Company's success depends to a significant extent upon the contributions
of several key personnel, some of whom were only recently hired by the Company.
The failure to attract and retain key personnel could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "Management -- Executive Officers and Directors" and " -- Employment
Contracts."
11
<PAGE>
RISKS ASSOCIATED WITH MANAGING BUSINESS
In recent years, the transition of the Company's business to Internet
software tools has challenged, and is expected to continue to challenge, the
Company's management and operations, including its sales, 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. Although the Company believes that its
systems and controls are adequate for its current level of operations, the
Company anticipates that it may need to add additional personnel 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."
RELIANCE ON SOLE PRODUCT ASSEMBLER
All of the Company's software products are currently assembled (i.e., the
disk media, operating manual and other documentation are inserted in shrink wrap
packaging) by a related third party assembler that beneficially owned
approximately 1.5% of the Company's Common Stock as of March 31, 1997. Although
reliance on third party assemblers is common in the software industry and
DeltaPoint believes that other assemblers are available, the Company has no
formal contract with the assembler and the termination or interruption of this
assembly arrangement could have a material adverse effect on the Company's
business, financial condition and results of operations until an alternate
assembler is secured.
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, DeltaPoint'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. 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 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.
12
<PAGE>
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."
CONCENTRATION OF SHARE OWNERSHIP
As of May 15, 1997, the executive officers and directors of the Company and
their affiliates, as a group, owned or controlled approximately 26.9% of the
outstanding capital stock of the Company. As a result, such persons and entities
will continue to exert significant influence over the business and affairs of
the Company. See "Principal and Selling Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales in the public market of substantial amounts of Common Stock (including
sales in connection with an 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. In addition to the shares
of Common Stock and warrants registered for resale and the shares of Common
Stock registered for issuance pursuant to the Registration Statement of which
this Prospectus is a part, the Company is filing with the Commission 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 and
a registration statement covering the issuance of up to 1,361,160 shares of
Common Stock that are or may be issuable upon conversion of the Convertible
Notes and the Series A Preferred (based on an assumed conversion price of $1.25
per share). In addition, the letter of intent with respect to the InLet
Transactions contemplates that InLet would have registration rights with respect
to the shares of Common Stock issuable to InLet. See "Description of Capital
Stock -- Registration Rights."
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
The Company has reserved 318,413 shares of Common Stock for issuance upon
exercise of outstanding warrants and options and 887,223 shares of Common Stock
for issuance to key employees, officers, directors and consultants pursuant to
option exercises or sales of Common Stock under the Stock Plans. The existence
of the aforementioned warrants and options and any other options or warrants may
prove to be a hindrance to future equity financing by the Company. Further, the
holders of such warrants, options and notes may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. See "Description of Capital Stock."
VOLATILITY OF STOCK PRICE; POSSIBLE ILLIQUIDITY OF TRADING MARKET; RECENT
DE-LISTING FROM NASDAQ SMALLCAP MARKET
The Company's stock price has exhibited substantial volatility since the
Company's IPO in December 1995. The trading price of the Company's Common Stock
could be subject to significant fluctuations in response to variations in
quarterly operating results, changes in analysts' estimates, announcements of
technological innovations by the Company or its competitors, general conditions
in the Internet tools and visualization software industries and other factors.
In addition, the stock
13
<PAGE>
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.
The shares of Common Stock were quoted on the Nasdaq SmallCap Market from
December 1995 until March 18, 1997 and are traded on the Pacific Stock Exchange
and 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. As a result, 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.
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."
14
<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." The Common Stock is traded over-the-counter and is quoted on the OTC
Bulletin Board under the symbol "DTPT" and on the "pink sheets" and remains on
the Pacific Exchange. There can be no assurance that the Company will continue
to be listed on the Pacific Exchange.
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 (through June 11, 1997)............................................. $ 3.00 $ 1.44
--------- ---------
</TABLE>
On June 11, 1997, the closing sale price for a share of the Company's Common
Stock, as reported on the OTC Bulletin Board, was $1.63. The Company's Common
Stock was quoted on the Nasdaq SmallCap Market from December 20, 1995 through
March 18, 1997 under the symbol "DTPT." The Common Stock was delisted from the
Nasdaq SmallCap Market effective March 19, 1997 because of Nasdaq's
determination that the Company failed to meet certain requirements for continued
listing. See "Risk Factors -- Volatility of Stock Price; Illiquidity of Trading
Market; De-Listing from Nasdaq SmallCap Market."
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.
15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at March 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------
(IN THOUSANDS)
<S> <C>
Short-term debt..................................................................... $ 2,150
--------
--------
Shareholders' deficit:
Preferred Stock, no par value, 4,000,000 shares authorized, none issued or
outstanding...................................................................... $ --
Common stock, no par value, 25,000,000 shares authorized, 2,489,873 shares issued
and outstanding; (1)............................................................. $ 15,265
Accumulated deficit............................................................... (16,187)
--------
Total shareholders' deficit..................................................... $ (922)
--------
Total capitalization.......................................................... $ (922)
--------
--------
</TABLE>
- ------------------------
(1) Excludes (i) 110,000 shares of Common Stock issuable upon exercise of a
warrant (the "Representative's Warrant") granted to the representative of
the several underwriters (the "Representative") in connection with the
initial public offering of the Company's Common Stock on December 20, 1995
("IPO"), (ii) 71,875 shares of Common Stock issuable pursuant to the
warrants, (iii) 901,337 shares of Common Stock issuable pursuant to options
outstanding at March 31, 1997, (iv) 30,000 shares of Common Stock issuable
upon the conversion of Convertible Notes, based upon an assumed conversion
price of $1.25 per share, and assuming the consummation of the Series A
Transaction, (v) 16,538 shares of Common Stock issuable upon exercise of the
Placement Agent's Warrant issued in the Debt Financing, (vi) 1,361,160
shares of Common Stock issuable upon conversion of Series A Preferred based
upon an assumed conversion price of $1.25 per share, assuming the
consummation of the Series A transaction, and (vii) shares of Common Stock
that would be issuable pursuant to the InLet Transactions, assuming the
consummation of the InLet Transactions, which would consist of 260,000
shares of Common Stock plus shares of Common Stock issuable as royalty
payments. See "Business -- Research and Development," "Management -- 1990
Key Employee Incentive Stock Option Plan," "Management -- 1992 Non-Statutory
Stock Option Plan," "Management -- 1995 Stock Option Plan," "Description of
Capital Stock -- Warrants and Convertible Notes; and -- Preferred Stock" and
Notes 5, 8, 9 and 11 to Financial Statements.
16
<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
three months ended March 31, 1996 and 1997 and the balance sheet data at March
31, 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 three months ended March 31, 1997 are not necessarily
indicative of results that may be expected for the full year or in any future
period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT FOR PER SHARE
DATA):
Net revenues.......................................................... $ 4,043 $ 4,950 $ 760 $ 1,023
Cost of revenues...................................................... 1,337 1,181 338 320
---------- ---------- ---------- ----------
Gross profit........................................................ 2,706 3,769 422 703
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing................................................. 1,922 4,685 888 1,459
Research and development............................................ 2,036 2,618 486 731
General and administrative.......................................... 1,234 1,388 769 238
---------- ---------- ---------- ----------
5,192 8,691 2,143 2,428
---------- ---------- ---------- ----------
Loss from operations.................................................. (2,486) (4,922) (1,721) (1,725)
Interest and other income (expense)................................... (146) 74 17 (796)
---------- ---------- ---------- ----------
Net loss.............................................................. $ (2,632) $ (4,848) $ (1,704) $ (2,521)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share (1)................................................ $ (2.42) $ (2.17) $ (0.79) $ (1.01)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in per share calculations (1)............................. 1,086 2,231 2,170 2,489
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Working capital (deficit)..................................................... $ 2,915 $ 431 $ (1,464 )
Total assets.................................................................. 6,764 6,346 4,093
Current liabilities........................................................... 3,315 5,305 5,015
Total shareholders' equity (deficit).......................................... $ 3,449 $ 1,041 $ (922 )
</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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SECTION AND OTHER PARTS OF THIS PROSPECTUS CONTAIN 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 MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW AND IN "RISK FACTORS" AND "BUSINESS."
OVERVIEW
DeltaPoint was incorporated on February 1, 1989 to design, develop and
market visualization software products for personal computers. DeltaPoint
commenced shipments of its initial product, DeltaGraph, at the end of 1989. In
November 1995, the Company acquired technology required to develop WebAnimator,
a multimedia authoring tool for the Web. In December 1995, the Company acquired
technology to develop QuickSite, a Web site creation and management tool which
was released in February 1996. The Company introduced WebTools in March 1996,
WebAnimator in July 1996, QuickSite Developer's Edition in September 1996 and
QuickSite 2.5 in May 1997. The Company plans to incur additional expenditures to
develop Internet software tools or new versions of existing software tools over
the next several quarters. Although prior to 1996 the Company derived
substantially all of its revenues from charting and graphics software products
for desktop applications, the Company's strategy is to realize a significant and
growing percentage of future revenues from the sale of Internet software tools.
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.
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.
Net revenues increased from $4,043,000 in 1995 to $4,950,000 in 1996. The
increase of net revenues was primarily attributable to a refocusing of the
Company's business into the Internet market. The Company believes that net
revenues may decrease or remain flat based on the continued focus of the Company
on the Internet market until it has realized significant revenues from its
Internet software tools released in 1996, such as QuickSite, QuickSite
Developer's Edition, WebTools and WebAnimator, and from products that the
Company develops or acquires in the future. Revenues from the DeltaGraph line
aggregated 62% and 59% of net revenues during 1996 and the quarter ending March
31, 1997, respectively. If the DeltaGraph product line is sold, the Company's
annual revenues for 1997 will be reduced in absolute terms and the Company's
historical operating results will not be indicative of the Company's future
operating results.
The Company's gross profit has historically fluctuated from quarter to
quarter based on the mix of revenues derived from software product sales. The
Company's gross profit has also fluctuated based on the mix of product revenues
derived from sales of the Company's higher-margin DeltaGraph product and sales
of lower-margin graphics utilities and Internet products where the Company must
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<PAGE>
pay royalties to third parties. The Company believes these factors may impact
its gross profit in the future. See "Risk Factors -- Substantial Dependence on
Recent and Anticipated Product Introductions."
The Company's limited operating history makes the prediction of future
operating results difficult or impossible. Future operating results will depend
on many factors, including demand for the Company's products, the mix of
revenues derived from product sales and royalty and packaging fees, the level of
product and price competition, the Company's success in expanding its direct
sales efforts for its software products and indirect distribution channels for
its Internet products and the ability of the Company to successfully develop and
market new products and control costs. In particular, the Company's ability to
achieve revenue growth and profitability in the future will be significantly
dependent on the timely introduction and market acceptance of products the
Company has recently introduced or is developing and the ability of the Company
to successfully develop products for new and existing markets.
The Company incurred a loss for the year ended December 31, 1995, in part
due to a charge to operations recorded in the fourth quarter of approximately
$1,240,000 resulting from the acquisition of certain Internet technologies for
the portion of the purchase price determined to be in-process research and
development and a decline in revenues from traditional products. The Company
incurred a loss of $4,848,000 for the year ended December 31, 1996, in part due
to the Company's investment in marketing and research for its Internet product
line. In addition, the Company incurred a loss of $2,521,000 for the three month
period ended March 31, 1997 in part due to the Company's continued investment in
marketing and research for its Internet product line and an interest expense
charge of $799,000 relating to the amortization of the discounted conversion
feature of the Convertible Notes and the related debt issuance costs. The
Company expects to incur losses from operations for at least the next 12 months,
and perhaps longer, particularly if revenues do not increase significantly above
current levels. There can be no assurance that the Company will not incur
significant additional losses until it successfully develops or acquires new
products or enhancements to existing products that generate significant revenues
and profits. Significant additional equity or debt financing or a reduction in
the level of operations or sale of assets will be required to enable the Company
to continue as a going concern. See "Risk Factors -- Recent and Expected Losses;
Accumulated Deficit; Quarterly Fluctuations in Performance."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain statement
of operations data as a percentage of net revenues.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH
DECEMBER 31, 31,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................................... 33.1 23.9 44.5 31.3
----- ----- ----------- -----------
Gross profit...................................... 66.9 76.1 55.5 68.7
----- ----- ----------- -----------
Operating expenses:
Sales and marketing................................. 47.5 94.6 116.8 142.6
Research and development............................ 50.4 52.9 64.0 71.5
General and administrative.......................... 30.5 28.0 101.2 23.2
----- ----- ----------- -----------
Total operating expenses.......................... 128.4 175.5 282.0 237.3
----- ----- ----------- -----------
Loss from operations.................................. (61.5) (99.4) (226.5) (168.6)
Interest and other income (expense)................... (3.6) 1.5 2.2 (77.8)
----- ----- ----------- -----------
Net loss.......................................... (65.1)% (97.9)% (224.3)% (246.4)%
----- ----- ----------- -----------
----- ----- ----------- -----------
</TABLE>
19
<PAGE>
YEARS ENDED DECEMBER 31, 1995 AND 1996
NET REVENUES. Net revenues increased by 22.4% from $4,043,000 for 1995 to
$4,950,000 for 1996. The increase in revenue was primarily attributable to the
introduction of Internet products, especially of QuickSite, DeltaPoint's
award-winning 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. The Company's
domestic and international sales are principally denominated in United States
dollars. Movements in currency exchange rates did not have a material impact on
the total revenue 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.
GROSS PROFIT. Cost of revenues consists of direct materials, labor,
overhead, freight, post customer support, royalties and contract manufacturing
costs associated with the manufacturing of the Company's products. The Company
believes that these and other factors will contribute to the fluctuations of
gross profit as a percentage of revenue. Gross profit increased from 66.9% of
net revenues in 1995 to 76.1% of net revenues in 1996, primarily as a result of
lower inventory write-offs and an absence of packaging fees in 1996. The
Company's gross profit 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, third party royalty obligations for the Company's
Internet products and packaging revenues from the Company's Japanese
distributor.
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 increased to $4,685,000 or
94.6% of revenues for 1996 from $1,922,000 or 47.5% of 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 tools which were released in 1996. The Company
expects that sales and marketing costs will increase in future periods because
the Company intends to add sales and marketing personnel to support the
anticipated introduction of new products and updated versions of the Company's
existing products.
RESEARCH AND DEVELOPMENT. Research and development expenses include
personnel, consultants and amortization of purchased software. Research and
development expenses increased to $2,618,000 or 52.9% of revenues for 1996
compared to $2,036,000 or 50.4% of revenues in 1995. The increase in research
and development expenses was primarily due to a staffing increase for the
development of QuickSite, QuickSite Developer's Edition, WebAnimator and
DeltaGraph. In addition, the Company retained several consultants to aid in the
development process. In 1995, the Company had a charge to operations of
$1,240,000 resulting from the acquisition of certain Internet technologies for
the portion of the purchase price determined to be in-process technology as such
technology had not reached technological feasibility and had no alternative
future use. The Company expects that research and development costs will
increase in future periods due to further development of the Company's new
products and updated and cross platform versions of the Company's existing
products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1,388,000 or 28.0% of revenues for 1996 compared to $1,234,000 or 30.5% of
revenues in 1995. The increase in general and administrative expenses was
primarily attributable to a severance expense charge of $505,000 relating to the
departure of the Company's former Chief Executive Officer offset by a decrease
in bad debt expenses of $176,000. The Company expects that general and
administrative expenses will increase in absolute dollars in future periods to
the extent that the Company expands its operations.
PROVISION FOR INCOME TAXES. There was no provision for taxes in 1995 or
1996 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
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<PAGE>
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.
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
NET REVENUES. Net revenues for the three month period ended March 31, 1997
increased by 34.6% to $1,023,000 from $760,000 for the corresponding period in
the prior year. The increase in revenue was primarily attributable to Internet
products introduced after March 31, 1996. Included in the increase of Internet
revenues is a milestone payment of $150,000 received under contract to develop a
custom version of one of the Company's products for an OEM. For the three month
period ended March 31, 1997, international revenue increased to 37.3% of net
revenues compared to 13.0% for the period ended March 31, 1996. The increase in
international revenues was primarily due to the introduction of Internet
products in the Japanese market. The Company's domestic and international sales
are principally denominated in United States dollars. Movements in currency
exchange rates did not have a material impact on the total revenue 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.
GROSS PROFIT. Cost of revenues consists of direct materials, labor,
overhead, freight, post customer support, royalties and contract manufacturing
costs associated with the manufacturing of the Company's products. The Company
believes that these and other factors will contribute to the fluctuations of
gross profit as a percentage of revenue. Gross profit for the three month period
ended March 31, 1997 increased as a percentage of net revenues to 68.7% from
55.5% for the corresponding period in the prior fiscal year. The Company's gross
profit 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, third party royalty obligations for the Company's Internet
products and packaging revenues from the Company's Japanese distributor.
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 three month period
ended March 31, 1997 increased to $1,459,000 or 142.6% of net revenues compared
to $888,000 or 116.8% of 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
tools 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, if the Company obtains additional financing, sales and marketing expenses
would increase in future periods because the Company would add sales and
marketing personnel to support the anticipated introduction of new products and
updated versions of the Company's existing products.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
month period ended March 31, 1997 increased to $731,000 or 71.5% of net revenues
compared to $486,000 or 63.9% of revenues for the corresponding period in the
prior year. The increase in research and development expenses was primarily due
to a staffing increase for the development of QuickSite (including the custom
version for IBM). In addition, the Company retained several consultants to aid
in the development process. The Company expects that, if the Company obtains
additional financing, research and development expenses would increase in future
periods due to further development of the Company's new products and updated and
cross platform versions of the Company's existing products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three month period ended March 31, 1997 decreased to $238,000 or 23.3% of net
revenues compared to $769,000 or 101.2% of revenues for the corresponding period
in the prior year. The decrease in general and administrative expenses was
primarily attributable to a severance expense charge in the first quarter
21
<PAGE>
of 1996 of $505,000 relating to the departure of one of the Company's founders.
The Company expects that, if the Company obtains additional financing, general
and administrative expenses would increase in future periods to the extent that
the Company expands its operations.
INTEREST AND OTHER INCOME (EXPENSE). Interest and other income (expense)
includes interest payable on the Company's Convertible Notes, amortization of
the discounted conversion feature as of the issuance date of the Company's
Convertible Notes and amortization of deferred costs incurred in connection with
the issuance of such notes payable, offset by interest income earned on cash and
cash equivalents. Interest expense increased by $817,000 to $820,000 during the
first quarter of fiscal 1997 from $3,000 during the comparable 1996 period. This
increase was primarily attributable to amortization of the discounted conversion
feature of the Convertible Notes and the related deferred issuance costs which
totaled $799,000 during the quarter ended March 31, 1997.
PROVISION FOR INCOME TAXES. There was no provision for taxes during the
three month periods ended March 31, 1997 and 1996 due to net operating losses
and the availability of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had a working capital deficit of
$1,464,000 and shareholders' deficit of $922,000. The Company has financed its
operations primarily through private and public sales of equity securities,
borrowings under a term loan and the private sale of debt securities. Since
inception, the Company has received approximately $15 million in proceeds from
private sales of preferred stock and convertible debt and from the Company's
initial public offering of common stock.
The Company used net cash in operations of $1,646,000 in 1995 and $4,618,000
in 1996. Net cash used in 1995 consisted primarily of a net loss of $2,632,000,
an increase in accounts receivable of $642,000, largely because of significant
sales of the Company's products in the last 30 days of the third quarter of 1995
with extended payment terms, a decrease in accounts payable of $751,000,
partially offset by a $1,240,000 charge to operations from the acquisition of
certain Internet technologies for the portion of the purchase price determined
to be in-process technology and an increase in accrued liabilities of $670,000.
Net cash used in 1996 consisted primarily of a net loss of $4,848,000.
The Company used net cash in operations of $1,608,000 in the three month
period ended March 31, 1997 and $1,035,000 for the corresponding period of the
prior year. Net cash used in 1997 consisted primarily of a net loss of
$2,521,000 which includes interest charges totaling $799,000 relating to the
Convertible Notes amortized from the date of issuance through the earliest
available conversion date of the Convertible Notes. Net cash used in 1996
consisted primarily of a net loss of $1,704,000 offset by an increase in
accounts payable of $356,000 and the reserve returns of $231,000.
The Company obtained net cash from financing activities of $6,499,000 in
1995 and $3,474,000 in 1996. Net cash obtained 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 from financing activities in 1996
consisted primarily of $831,000 in net proceeds from the exercise of the
overallotment from the initial public offering of common stock, proceeds
resulting from the exercise of stock options and warrants of $1,609,000 and the
issuance of Convertible Notes with net proceeds of $1,949,000 offset by the
payment of $865,000 for prior notes payable.
Net cash provided by financing activities totaled $21,000 in the three month
period ended March 31, 1997 and $835,000 for the corresponding period of the
prior year. Net cash from financing activities in 1997 consisted primarily of
the exercise of stock options for $21,000. Net cash from financing activities in
1996 consisted primarily of $831,000 in net proceeds from the Company's
overallotment from the initial public offering of common stock completed in
1995.
For the year ended December 31, 1996 and the three month period ended March
31, 1997, the Company's capital expenditures totaled approximately $343,000 and
$7,000, respectively, and were attributable to acquisitions of personal computer
and computer workstation equipment used to support the Company's development
efforts.
22
<PAGE>
In November and December of 1995, the Company acquired technology required
to develop WebAnimator, QuickSite, and WebTools. The Company acquired the
technologies for an aggregate purchase price of $1,690,000 of which $1,090,000
was to be paid in cash. As of December 31, 1996, $1,090,000 of these aggregate
cash payments had been made. The Company recorded a charge of $1,240,000 to
operations in 1995 from the acquisition of these technologies for the portion of
the purchase price determined to be in-process technology.
As of March 31, 1997 and May 31, 1997, the Company's cash and cash
equivalents totaled approximately $1,548,000 and $650,000, respectively. See
"Risk Factors -- Critical Need For Additional Capital; No Assurance of Future
Financing." To the extent the Company continues to incur losses or grows in the
future, its operating and investing activities will use cash and, consequently,
such losses or growth will require the Company to obtain additional sources of
financing. In addition, the Company's actual capital needs will depend upon
numerous factors, including the progress of the Company's software development
activities and the amount of cash generated from operations, none of which can
be predicted with certainty. There can be no assurance that the Company will not
require additional capital sooner than currently anticipated. Management is
currently pursuing additional capital financing and the possible sale of assets
including the DeltaGraph product line. However, recent attempts to secure equity
and debt financing on acceptable terms have been unsuccessful. The Company has
recently retained a financial advisor to assist it in raising additional equity
capital. There can be no assurance that any additional required financing will
be available to the Company on acceptable terms, or at all. If the Company is
unable to obtain significant additional financing or complete the divestiture of
the DeltaGraph product line on acceptable terms, it will be required reduce
discretionary spending in order to maintain operations at a reduced level, seek
a merger partner or sell other assets. The inability to obtain required
financing or reduce discretionary spending or sell assets would have a material
adverse effect on the Company's business, financial condition and results of
operation and would prevent the Company from continuing as a going concern. See
"Risk Factors -- Critical Need for Additional Capital; No Assurance of Future
Financing."
23
<PAGE>
BUSINESS
DeltaPoint, Inc. ("DeltaPoint" or the "Company") develops and markets
Internet software tools designed to allow users to effectively and easily
create, manage and enhance sites on the Internet's World Wide Web. The Company
introduced QuickSite 1.0 in February 1996 to enable novice and experienced site
publishers to rapidly create, maintain and enhance robust Web sites. Since its
introduction, the Company believes that QuickSite has received more awards than
any other Web site creation and management tool, winning the PC WEEK Analyst's
Choice award in March 1996, WINDOWS MAGAZINE recommended seal and the PC WEEK
Labs IT Excellence Award in April 1996, and the PC COMPUTING 5 Star rating in
June 1996. The Company introduced WebTools in March 1996 to allow developers,
value-added resellers ("VARs") and corporate MIS directors to add Web publishing
capabilities to existing applications and introduced WebAnimator in July 1996 to
allow a broad range of Web users to easily add multimedia and interactive
animation to a Web site. In September 1996 the Company introduced QuickSite
Developer's Edition, a new high end version of QuickSite designed for
professional Web developers and corporate Intranet developers. QuickSite
Developer's Edition earned the PC COMPUTING 5 Star rating in February 1997. In
addition, in May 1997 the Company introduced QuickSite 2.5, its updated version
to QuickSite 1.0.
A key element of the Company's objective of becoming a leading Internet
software tools provider is to increase its strategic alliances with key
partners. For example, the Company has entered into agreements with Sony,
McGraw-Hill, Earthlink, Compaq and Netcom Interactive to distribute existing or
planned versions of QuickSite with their products or services.
Prior to 1996, the Company derived most of its revenues from the sale of
charting and graphics software products such as DeltaGraph, an advanced
multi-platform charting and graphics product. In 1996 and the first quarter of
1997, the Company derived approximately 62% and 59% of its product revenue from
its sales of DeltaGraph products. The Company continues to deemphasize its
charting and graphics products and expects that the Company may sell the
DeltaGraph product line or, if the Company continues to sell DeltaGraph
products, it will continue to represent a declining percentage of its business
in the future.
BACKGROUND
The rapid growth of the Internet, combined with the emergence of the World
Wide Web, the graphical multimedia-rich portion of the Internet, has resulted in
the development of the Internet as a new mass communications medium. The demand
to access the World Wide Web has fueled the rapid growth and proliferation of
"Web browsers," such as the Netscape Navigator and Microsoft Internet Explorer,
which allow users to passively view information on the World Wide Web. In
addition, search engines such as those provided by Yahoo! and InfoSeek simplify
the process of locating information on the Web.
Increasingly, however, Web users are no longer satisfied simply to browse
and search the Web. The worldwide, cost-effective communication benefits of the
Web are leading many individuals and organizations to actively "publish"
information on the Web by creating a Web "site," a collection of individual Web
pages, each hand-crafted using a relatively new and quickly evolving tagging
language called HTML.
Many large corporations, having already established sophisticated Web sites
for external communications, and are now encouraging smaller internal groups and
departments to build private "Intranet" Web sites. Small businesses, home-based
businesses, individuals and others are also creating Web sites to reach target
audiences.
For many individuals and 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.
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A first generation of third-party Web "page creation" tools has emerged.
These limited-function tools focus on the creation of a single page at a time.
Content within pages and between pages must be manually linked and manually
maintained. Further, the content of the site has no inherent structural
intelligence, making global changes, consistency of design and reorganization of
sections difficult and time-consuming. A second generation of Web page creation
tools, such as Microsoft's Front Page and NetObjects' Fusion, has also been
introduced. Although this generation offers some ease-of-use improvements over
the first generation, these products continue to be based on architectures that
primarily emphasize the layout and design aspects of individual pages.
The Company believes that a compelling Web site consists of a robust and
growing collection of interrelated pages and links. As a result, the Company
believes that effective software tools for creating and managing Web sites must
not only simplify initial content creation but enable site authors to easily
update, maintain, expand and manage their sites on an ongoing basis, regardless
of whether the sites consist of five pages or 5,000 pages. Further, the Company
believes that an open architecture is important to maintaining maximum
flexibility as Internet standards emerge and evolve rapidly.
DELTAPOINT APPROACH
The Company offers a family of products that enables Web site creators to
easily and cost-effectively generate, manage and enhance Web content using a
structured approach. QuickSite and QuickSite Developer's Edition, the Company's
Web site creation and management products, utilize an advanced product design
featuring a database architecture and incorporate a series of query-based
"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 enables the automatic generation and maintenance of
links between Web pages, eliminating or reducing the need for any programmer or
technical intervention. Additionally, this approach enables 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 creation and management provides fundamental advantages
over existing page creation methodologies which will become increasingly
apparent as the volume and complexity of content contained in the Web sites
increases.
The Company's Web site creation and management tools are designed with full
client-side functionality to free the site designer from costly server
connection time during the site creation and testing process. Further, these
tools utilize an open architecture that provides browsers and server
independence. The Company intends to incorporate this level of flexibility into
all of its Internet software tools.
DELTAPOINT STRATEGY
DeltaPoint's objective is to be a leading provider of scaleable Web site
development and management software solutions for Web based business
environments. The Company's strategy for achieving this objective includes the
following elements:
CREATE BRAND AWARENESS. The Company intends to increase its brand awareness
through a coordinated strategy of building brand equity in the QuickSite product
name, emphasizing QuickSite's Web site management capabilities and database
architecture, and demonstrating its growing acceptance through a growing array
of relationships with industry leaders. Since March 1996, the Company has
entered into agreements with companies such as Sony, McGraw-Hill, Earthlink,
Compaq and Netcom Interactive. 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.
EXPAND DISTRIBUTION. The Company plans to expand distribution of its
Internet software tools by increasing its retail distribution relationships to
ensure wide commercial availability of its shrink-
25
<PAGE>
wrapped products and by partnering with alternative channel and vertical segment
leaders, including distribution and co-marketing relationships with key PC
manufacturers and Internet Service Providers (ISPs) that can increase market
penetration and that offer revenue sharing business models.
BROADEN PRODUCT OFFERING. The Company intends to identify and develop,
license or acquire technologies or products to extend market position in two
areas: Web site creation and Web site management. In the area of Web site
creation, the Company intends to continue expanding the range of pre-designed
templates, graphics, forms and wizards contained within the QuickSite product.
The Company also plans to develop and market complementary content enhancement
products, such as WebAnimator, which allow Web site creators to improve content
through special effects. In the area of Web site management, the Company expects
to continue to update and enhance the management features of QuickSite. In
April, 1997, the Company signed a letter of intent for a proposed acquisition by
it of Current Issues software, developed by InLet, Inc. for high-end web site
management and maintenance. With this acquisition, the Company plans to take
QuickSite to an extensible client-server web site management solution. See "--
Research and Development; and -- Proprietary Rights and Licenses."
DEVELOP PRODUCTS THAT SUPPORT OPEN ARCHITECTURE. The Company plans to
introduce Internet software tools based on an open, client-based architectures.
The Company intends to develop Web products which will support any widely used
Web browser, including Netscape Navigator and Microsoft Internet Explorer, as
well as any major server software environment, including Windows NT, Netscape
Commerce Server and Unix. Additionally, the Company plans to architech
additional products that will enable the entire Web site creation process to
occur on a client-side desktop personal computer.
TARGET CORPORATE INTRANET MARKET. The design of the Company's Internet
software tools enable them to be used with little or no modification in the
corporate Intranet environment. The Company plans to develop and implement a
focused effort to target the Intranet marketplace. Specifically, the Company
plans to create a dedicated market development and sales team with specialized
expertise in providing corporate solutions.
DELTAPOINT PRODUCTS
The Company introduced five Internet software tools in 1996. QuickSite is
designed as a low cost, easy to use Web site creation and management tool that
is designed to enable novice and experienced site publishers to rapidly create,
maintain and grow a robust Web site. QuickSite Developer's Edition offers
additional functionality and is targeted for software programmers, Webmasters,
commercial Web site developers and corporate Web site managers. WebTools has
been designed to enable developers, VAR's and corporate MIS directors to add Web
publishing capabilities to existing applications. WebAnimator is designed to
allow a broad range of Web users to easily add multimedia and interactive
animation to a Web site.
The Company's charting and graphics software products currently include
DeltaGraph, a cross platform application which is used to transform numerical
data into charts and graphs.
QUICKSITE
In December 1995, the Company acquired an exclusive license to core
technologies which serve as the basis for a family of Web site creation and
management software tools. QuickSite, the first of these tools which began
shipping to retail distributors on March 28, 1996, is designed to enable non-
technical individuals and organizational users to rapidly create and efficiently
manage a Web site. The following are the key attributes of the DeltaPoint
solution:
EASE OF SITE CREATION. The Company has designed a collection of site
creation wizards aimed at eliminating the initial stumbling blocks encountered
by novice 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.
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In the QuickSite 2.5 version, the Company has designed a module to speed the
process of establishing a commerce presence on the web and also added a WYSIWYG
(what you see is what you get) Layout Editor. The Company believes that
QuickSite can significantly shorten the time required to design and build a Web
site. 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.
EASILY UPDATABLE CONTENT. The Company's product architecture passively
enforces a Web structure such that as the author populates the site, content
components are captured as data objects which are automatically indexed and
stored within the product's database engine. As a result, content can be more
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 are
estimated to account for over 90% 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
client-biased 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 DEVELOPER'S EDITION
QuickSite 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 new features included in
QuickSite Developer's Edition are: (i) support for the emerging WWW Consortium
web style sheets standard; (ii) 3D Web Site Builder, a visual VRML (virtual
reality mark-up language) creation tool from Virtus included with the product;
(iii) advanced web site automation, including the QuickScript scripting
language, powerful page macros and unique caret technology that automate
repetitive tasks that bog down large-scale projects; (iv) embedded "graphics
factory" technology, based on a variety of DigitalStyle templates, that allows
developers to create custom graphics and style elements on-the-fly, and also
helps to enforce stylistic consistency throughout a site; and (v) sophisticated
project reporting capabilities that help the developer track and document the
on-going status of their work.
WEBTOOLS
WebTools is designed to allow database developers to add Web-enabling
features to existing database applications. DeltaPoint will license 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
In November 1995, the Company acquired core technologies which serve as the
basis for WebAnimator, a multimedia authoring tool for the Web from Richard
Blum, d.b.a. Knowledge Vision ("Knowledge Vision"). WebAnimator is designed to
enable a broad range of Web users to easily add multimedia and interactive
animation to a Web site. The Company believes that WebAnimator represents an
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advance over current commercially available products by offering the following
key attributes: (i) extensive use of predefined templates that will enable users
to combine text, graphics and sound to produce multimedia rich content
components; (ii) content components created in WebAnimator's native format are
vector based and therefore are expected to 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 are expected to enable users to easily and accurately add
sound and motion to an animated content component.
GRAPHICS PRODUCTS
The Company's charting and graphics software product, DeltaGraph, can be
used as either a stand-alone product or as a complement to software programs
such as spreadsheets, databases and presentation graphics. DeltaGraph offers a
broad range of business, scientific and technical charts with flexible
formatting features that enables charts to be fine tuned with high resolution
output. Presentation tools such as slide show managers and outliners enhance
DeltaGraph's functionality. DeltaGraph is primarily used by chemists,
biologists, geologists, pharmacists, and professionals in the financial
services, aerospace and publishing industries.
PRODUCTS UNDER DEVELOPMENT
The Company believes that its future success depends in part on its ability
to maintain and improve its core technologies, enhance and expand its products
and develop new products that meet evolving customer requirements and industry
standards. The Company's current efforts are focused on the development of
products that further enhance development capablities in the areas of Web site
creation, Web site management and productivity software solutions for Web-based
business environments.
COMPETITION
The Company competes on the basis of certain factors, including product
quality, first-to-market product 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 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
charting market, the Company has, to date, encountered competition primarily
from larger vendors such as Adobe Systems Incorporated, Microsoft Corporation
("Microsoft"), Software Publishing Corporation, Lotus, Corel and Computer
Associates International, Inc. In the structured drawing market, the Company
has, to date, encountered competition primarily from larger vendors such as
Corel, Visio and Micrografx Incorporated. In the Internet add-in market, the
Company has encountered competition primarily from Netscape Communications
Corporation, Macromedia, Inc., Adobe Systems Incorporated, Microsoft, NetObjects
and Quarterdeck, Inc. IBM agreed in March 1997 to acquire a majority interest in
NetObjects. In addition, 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,
and an inability to do so would
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adversely affect the Company's business, financial condition and results of
operations. 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 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 product, FrontPage. The
inclusion of the functionality of the Company's products, and of the
functionality of the Internet software tools, 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 tools 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 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.
MARKETING AND SALES
The Company markets and sells its products 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, Merisel and other distributors to more than 500 retail outlets
such as Best Buy, Computer City, Comp USA, Egghead, Fry's and others. The
Company intends to expand the number of U.S. retail locations in 1997 and will
seek to selectively add major new distributors.
Internationally, the Company's strategy is to work with highly-motivated
publishers who can invest in a full array of local services including marketing
and localization support as well as provide access to distribution. The Company
will continue to localize its products first for the Japanese market, which
accounted for 35% of revenues in 1995, 21% of revenues in 1996 and 33% of
revenues in the three month period ended March 31, 1997. Furthermore, the
Company intends to pursue the expansion of its international presence by
establishing new partnerships in key European markets such as the U.K. and
Germany.
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 will promote and encourage the availability of
its downloadable products.
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 Netcom
Interactive, Earthlink, and more than half a dozen regional ISPs. In addition,
the Company has entered into an agreement with McGraw Hill which will offer site
licenses to QuickSite to school districts and State Boards of Education. To
address the developers market, the Company has established an alliance with
Borland International, a leading provider of language tools for software
programmers. Under the agreement, Borland licensed the Company's WebTools
product and bundled a version of QuickSite with all Borland products through the
end of
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1996. The Company also has announced relationships with technology partners such
as DigitalStyle, a leading maker of on-the-fly graphics generation tools, and
Virtus, a leading developer of Virtual Reality Modeling Language technology for
creating 3D Web sites. See "Strategic Alliances."
Historically a significant portion of the Company's revenues have been
derived from sales of upgrades of its DeltaGraph charting product to its user
base through direct mail campaigns. As part of its continued focus on Internet
software tools, the Company is focusing on strengthening its distribution
network by adding distributors and retailers, and entering into additional
partner relationships that will enhance the distribution of the Company's
Internet products. In addition, the Company intends to continue to implement its
OEM strategy by pursuing other major PC manufactures of the Sony and Compaq
caliber.
In support of its sales organization, the Company conducts a number of
marketing programs intended to promote and market the Company's Internet
products. These efforts include product advertising, public relations and press
tours, trade show participation, direct mail and telemarketing campaigns,
preparation of marketing collateral and participation in industry programs, user
groups and forums. The Company also maintains a QuickSite Web site on the World
Wide Web that contains information on its products, distribution channels,
awards, personnel and other information relating to the Company.
As of March 31, 1997, the Company had 12 employees in marketing and sales.
For the three month period ended March 31, 1997, the Company spent $1.5 million
or 142.6% of revenue for sales and marketing expenses compared to $0.9 million
and 116.8% of revenue in the three month period ended March 31, 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 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 companies such as Sony,
McGraw-Hill, Earthlink, Compaq and Netcom Interactive.
SONY. The Company entered into an agreement in June 1996 whereby Sony will
pre-install a custom version of the Company's QuickSite product on its new line
of Vaio personal computer systems. This version of the product incorporates an
encrypted algorithm that allows the Sony customers to use the full functionality
of the product for a 30-day trial period after which the user is required to
purchase the product electronically from DeltaPoint for continued use. In
December 1996, an addendum to the contract was done. This agreement allows for
Sony to pre-install and ship an unencrypted version of QuickSite on the Vaio
personal computers. A royalty will be paid for each unit sold.
MCGRAW-HILL SCHOOL SYSTEMS. In June 1996, the Company entered into an
agreement under which McGraw-Hill will market and distribute QuickSite 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 merchandising. Earthlink
has agreed to purchase a minimum number of QuickSite licenses.
COMPAQ. In July 1996, the Company entered into an agreement under with
Compaq will offer QuickSite as part of an optional software bundle on one of its
Pressario systems and has rights to bundle on other platforms for a per unit
license fee.
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NETCOM INTERACTIVE. The Company entered into an agreement with Netcom
Interactive in July 1996 under which the companies intend to cooperate on a
custom developed, jointly marketed integrated offering.
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
Historically, the Company has licensed or acquired core technologies and has
expended its development expertise on transforming these technologies into
commercially viable, easy-to-use products. In November 1995, the Company
acquired core technology including source code and related documentation,
required to develop WebAnimator from KnowledgeVision. The purchase price for the
technology was $250,000, payable in installments. The Company will also pay a
royalty based on net revenue from sales of WebAnimator, subject to a maximum.
Under the terms of the acquisition agreement, the individual will work as a
consultant to the Company to assist in developing WebAnimator.
In December 1995, the Company acquired core technology, including source
code and related documentation, required to develop QuickSite, from Global
Technologies and from certain individuals. The purchase price for the technology
was (i) $800,000 in cash, payable in installments and (ii) the issuance of
100,000 shares of Common Stock. The Company will also pay a royalty during the
first two years of commercial shipments of QuickSite based on net revenues from
sales of QuickSite, subject to a maximum and subject to the right of the Company
to pay a portion of the royalty in its Common Stock. Pursuant to the agreement,
the individual became an employee of the Company to assist in the development of
QuickSite.
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 all of the capital stock of IDC,
whose sole significant asset is Current Issues software (including source code
and related documentation). The purchase price would be (i) $825,000 in cash,
payable in installments, and (ii) the issuance of 260,000 shares of the
Company's Common Stock. The Company would also pay a royalty to InLet in an
amount equal to 5% (five percent) of the net revenues from all sales, leases,
licenses, sublicenses or other transactions pursuant to which units of the
software product are distributed. Half of the amount of royalties would be paid
in the Company's Common Stock. Pending the closing of the purchase, the Company
and IDC are negotiating an OEM agreement which would grant 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. Both parties' obligations to consummate the
purchase are contingent upon the closing of an equity financing by the Company
within 90 days of the date of the letter of intent. Consummation of the
transactions contemplated in the letter of intent (the "InLet Transactions") is
subject to certain additional conditions, including negotiation of a definitive
purchase agreement and other agreements. There can be no assurance that the
InLet Transactions will be consummated. Even if the InLet Transactions are
consummated, there can be no assurance that the acquired technology can be
successfully developed or integrated into the Company's current technology on a
timely basis or at all, or that products based on this technology will receive
market acceptance. Failure to successfully consummate the InLet Transactions,
develop the acquired technology or integrate the acquired technology into the
Company's website creation and management technology or market products based
upon the acquired technology could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk Factors
- -- Dependence on Success of InLet Transactions."
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The Company has made substantial investments in research and development
through both internal development and technology acquisition. The Company
believes its future performance will depend in large part on its ability to
maintain and enhance its current product line, develop new products, maintain
technological competitiveness and meet an expanding range of customer
requirements.
As of March 31, 1997 the Company had 19 employees in its research and
development organization. The Company's research and development expenses for
the three month periods ended March 31, 1997 and 1996 were $731,000 and
$486,000, respectively. If the Company obtains additional financing, 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 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.
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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 June 1992, the Company entered into an agreement (the "Halcyon License
Agreement") with Halcyon Software, Inc. ("Halcyon") pursuant to which Halcyon
granted the Company a non-exclusive, perpetual, sub-licensable license to
prepare, make, reproduce, use, perform, modify, adapt, sell or otherwise dispose
of or distribute the following programs and derivative works thereof, whether or
not in combination with or incorporated into any other product: Snap, Thumbnail,
Viewer, Conversion, Trace and Paint (the "Products"). The Company pays Halcyon a
royalty equal to two to five percent of the Company's net revenues received from
sales of the Products, depending on the extent to which the Products incorporate
technology not provided by Halcyon. To date, the Company has paid Halcyon
non-refundable license fees in the amount of $150,000. No further royalty
payments are payable until accrued royalty payments exceed $150,000. Pursuant to
the Halcyon License Agreement, in November 1992 the Company granted Don Hsi an
option to purchase 18,867 shares of Common Stock at an exercise price of $6.63
per share. The option lapsed on February 20, 1996 without being exercised. The
Halcyon License Agreement has an indefinite term, but is terminable at the
Company's option upon written notice if the Company determines in good faith
that it is not technically and commercially advantageous to continue with a
Product.
The Company has also licensed from Altura Software Inc. ("Altura") the
Mac2Win Software for use in creating a Windows platform version of DeltaGraph
and WebAnimator. The Company was granted a non-exclusive license to copy,
distribute and sublicense the Mac2Win Software only when packaged with, and as
part of, DeltaGraph and WebAnimator ported to run on the Windows platforms. The
Company has made a series of payments to Altura in the total amount of $72,000.
License fees of $6,000 per month are payable by the Company in advance during
each month the agreement remains in effect. The Company also pays a royalty
equal to three percent of net revenues received from sales of DeltaGraph and
WebAnimator ported for the Windows platform with a first year minimum of $36,000
and a minimum of $48,000 for the next two years. The license agreement is
terminable by the Company upon 30 days prior written notice and the payment of
all amounts owed to Altura.
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 will also pay a royalty based on net revenues from
sales of WebAnimator, if any, subject to a maximum. Under the terms of the
acquisition agreement, the individual works as a consultant to the Company to
assist in developing WebAnimator.
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 will also
pay a royalty during the first two years of commercial shipments of QuickSite
based on net revenues from sales of QuickSite, if any, subject to a maximum and
subject to the right of the Company to pay a portion of the royalty in Common
Stock. Pursuant to the agreement, the individual became an employee of the
Company to assist in developing QuickSite.
On April 16, 1997, the Company entered into a Letter of Intent with IDC,
InLet and certain individuals pursuant to which the Company would purchase all
of the capital stock of IDC, whose sole significant asset is Current Issue
software (including source code and related documentation). The purchase price
would be (i) $825,000 in cash, payable in installments, and (ii) the issuance of
260,000 shares of the Company's Common Stock. The Company would also pay a
royalty to InLet in an amount equal to five percent of the net revenues from all
sales, leases, licenses, sublicenses or other transactions pursuant to which
units of the software product are distributed. Half of the amount of
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royalties would be paid in the Company's Common Stock. Pending the closing of
the purchase, the Company and IDC are negotiating an OEM agreement which would
grant 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. Both parties' obligations to
consummate the purchase are contingent upon the closing of an equity financing
by the Company within 90 days of the date of the letter of intent. Consummation
of the InLet Transactions is subject to certain additional conditions, including
negotiation of a definitive purchase agreement and other agreements. There can
be no assurance that the InLet Transactions will be consummated.
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. The Company believes that these 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.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company.
EMPLOYEES
As of March 31, 1997, DeltaPoint had 46 full-time employees located
throughout the United States. This number includes 25 persons in Research and
Development and Technical Support, 12 persons in Marketing, Sales and Sales
Support and 9 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of the Company, and their ages
as of May 15, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- ------------------------------------
<S> <C> <C>
Jeffrey F. Ait...................... 40 Chief Executive Officer and Director
Donald B. Witmer.................... 43 Chief Operating Officer, Chief
Financial Officer and Director
William G. Pryor.................... 46 Vice President of Development and
Director
John Hummer......................... 49 Director
Patrick Grady....................... 29 Director
</TABLE>
MR. AIT joined the Company in March 1997 as Chief Executive Officer. From
January 1996 until March 1997 he served as Vice President of Internet at the
Santa Cruz Organization, Inc. ("SCO"), a software developer and publisher. From
October 1995 until January 1996 he served as Vice President of acquistions at
SCO. From October 1993 until October 1995 he served as Vice President of Sales
and Marketing at SCO and as Vice President of SCO's Government Systems Group
from August 1990 through October 1993.
MR. WITMER joined the Company as Vice President of Finance and
Administration and Chief Financial Officer in November 1995, became a director
of the Company in December 1995 and became Chief Operating Officer in February
1996. From 1990 to 1995 he served as controller and then Chief Financial Officer
of Catalyst Semiconductor, Inc. From 1987 to 1990, Mr. Witmer served as an
accountant for Price Waterhouse LLP, independent accountants. Prior to joining
Price Waterhouse LLP, Mr. Witmer was a senior controller at United Technologies
and a legislative analyst for the State of Montana. Mr. Witmer holds a B.A. in
History from Northern Montana College and an M.B.A. from the University of
Montana. Mr. Witmer is a Certified Public Accountant.
MR. PRYOR co-founded the Company in February 1989 and has served as Vice
President of Development since such time to the present. Mr. Pryor was a
director of the Company from the Company's inception through March 1997. From
June 1988 to February 1989, Mr. Pryor served as a Director of Product
Development at Access Technology, Inc. From May 1986 to June 1988, he served as
Vice President of Research and Development at Working Software, a developer of
word processing software. Prior thereto, Mr. Pryor served as President of
Pryority Software, an entertainment software publisher. Mr. Pryor holds an A.A.
in Liberal Arts from the Monterey Peninsula College.
MR. HUMMER has been a director of the Company since October 1990. In 1989,
Mr. Hummer founded, and is currently a partner at, Hummer Winblad Venture
Partners. Mr. Hummer serves as a director of several privately held companies
including Books That Work, Centerview Software and Netgravity. From April 1991
to February 1995 he was a director of Powersoft Corporation prior to its
acquisition by Sybase Incorporated and from August 1990 to April 1995 he was a
director of Wind River Systems, Inc. Mr. Hummer received a B.A. in English from
Princeton University and an M.B.A. from the Stanford Graduate School of
Business.
MR. GRADY became a director of the Company in August 1996. Mr. Grady is
currently Managing Director, Venture Capital of H.J. Meyers & Co. Inc. 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 was Vice
President of Corporate Finance at Josephthal, Lyon & Ross. Mr. Grady serves as a
director of Borealis Technology Corp. an enterprise wide sales force automation
software company & SoloPoint, Inc. a provider of small office/home office
communication products.
35
<PAGE>
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."
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's two
former Chief Executive Officer and two other executive officers who earned
salary and bonus for the 1996 fiscal year in excess of $100,000 (collectively,
the "Named Officers") for services rendered in all capacities to the Company and
its subsidiaries for that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) 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, 1995 0 0 0 0 0
and Director
Raymond R. Kingman, Jr. (5) 1996 32,000 0 900(6) 0 141,253(7)
Chairman of the Board, 1995 108,000 0 4,708(6) 100,000 66(4)
President and Chief
Executive Officer
Donald B. Witmer 1996 120,000 0 30,000(8) 50,000 251(4)
Chief Operating Officer, 1995 19,845(9) 0 5,000(8) 135,000 0
Chief Financial Officer
and Director
William G. Pryor 1996 104,950 0 0 0 87(4)
Vice President of 1995 92,500 0 0 100,000 87(4)
Development and Director
</TABLE>
- ------------------------
(1) Mr. Ambrose served as the Company's Chief Executive Officer from April 22,
1996 through 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) Represents a $2,000 per month housing allowance and a $500 per month car
allowance.
(9) Mr. Witmer joined the Company in November 1995.
36
<PAGE>
EMPLOYMENT CONTRACTS
On November 10, 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. A Change in Control includes liquidation or dissolution
of the Company or a merger or consolidation in which at least fifty percent
(50%) of the Company's shares are transferred to an entity different than the
entity holding such shares prior to such Change in Control. Each 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 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 November, 1995, the Company 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
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
above. 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 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. The Company and Mr. Ambrose are currently in
negotiations concerning this matter. Although there can be no assurance as to
the outcome of the negotiations, the Company does not believe that this matter
will have a material adverse effect.
On April 5, 1996, the Company entered into a Separation Agreement and
Release with Mr. Kingman in connection with his resignation which, among other
things, provided for certain payments and other financial compensation. Pursuant
to the Separation 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.
37
<PAGE>
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 will become exercisable for 25% of the shares after one
year of service and for the balance in equal monthly installments over the next
36 months of service. 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 stock
options vest in full and become exercisable as to all of the shares immediately
prior to a specified change in control of the Company. A change of control
includes the acquisition by any person of at least 50% of the total outstanding
voting securities of the Company, or 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,
or a liquidation of the Company or the sale of all of the Company's assets.
EXECUTIVE BONUS PLAN
The Company plans to adopt a bonus plan for executive officers that would
provide for payment of cash bonuses based on individual and overall Company
performance in 1997. Aggregate bonuses payable under the plan would not exceed
10% of the Company's 1997 net income. Adoption of the plan is subject to
approval by the Company's Compensation Committee.
STOCK OPTION INFORMATION
The following table contains information concerning stock option grants made
to the Named 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
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED PRICE
OPTIONS TO EMPLOYEES IN ($/SH) EXPIRATION
NAME GRANTED FISCAL YEAR (2) DATE
- ------------------------------------------------------------------ ----------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
John J. Ambrose................................................... 145,000 33% $ 9.50 04/21/06
Raymond R. Kingman, Jr............................................ 0 0 0 --
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.................................................. 0 0 0 --
</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 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 officers and
a regrant of options for the same number of shares at an exercise price of
$2.25 per share.
38
<PAGE>
(3) The exercise price may be paid in cash, in previously held shares of the
Company's Common Stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving a same-day sale of the
purchased shares through a third party. The Company may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares, together with any federal and state income
tax liability incurred by the optionee in connection with such exercise.
The following table sets forth information concerning option holdings for
the year ended December 31, 1996 with respect to each of the Named Officers. No
stock appreciation rights were exercised during such year or were outstanding at
the end of that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
SHARES ACQUIRED VALUE -------------------------------- --------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
John J. Ambrose............ 0 $ 0 145,000 0 $ 0 0
Raymond R. Kingman, Jr..... 72,000 379,517 5,894 0 4,028 0
Donald B. Witmer........... 0 0 185,000 0 337,500 0
William G. Pryor........... 0 0 101,894 0 250,000 0
</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.
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
March 31, 1997, 2,143 shares had been issued under the 1990 Plan, options to
purchase an aggregate of 33,720 shares were outstanding and 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.
39
<PAGE>
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.
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 March 31,
1997, no shares had been issued under the 1992 Plan, options to purchase an
aggregate of 13,780 shares were outstanding and 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, subject to shareholder approval at the 1997 annual
meeting. As of March 31, 1997, 85,333 shares had been issued under the 1995
Plan, options for 733,837 shares were outstanding and 400,830 shares remained
available for future grant
40
<PAGE>
under the 1995 Plan, assuming that the shareholders will approve the 400,000
share increase at the 1997 annual meeting. 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 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 shares of Common Stock under the 1995 Plan
in excess of 360,000 shares of Common Stock.
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
41
<PAGE>
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.
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.
42
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH FOUNDERS
On May 31, 1994, the Company entered into a Software Acquisition Agreement
with Cary Wyman, a founder, pursuant to which Mr. Wyman acquired all the rights,
title and interest in and to certain software products. In addition, the Company
received from Mr. Wyman all of Mr. Wyman's right, title and interest in and to
11,792 shares of DeltaPoint's Common Stock previously owned and held by and in
the name of Mr. Wyman.
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 WARRANTS TO SHARES OF COMMON
SERIES A SERIES B SERIES C SERIES D PURCHASE STOCK 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. Fund, 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 per share.
(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 said 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 -- Convertible Notes and 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 Affiliates") purchased 137 units. American
High Growth Equities Retirement Fund Trust purchased 50,000 units. See
"Description of Capital Stock -- Warrants and Convertible Notes."
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.
43
<PAGE>
In December 1996, the Company issued $2,000,000 in principal amount of 6%
subordinated convertible debentures (the "Convertible Notes") to High Risk
Opportunities Hub Fund Ltd. ("HRO") pursuant to the Debt Financing (as defined
below). In April and May, 1997, HRO converted $336,050 in principal amount of
Convertible Notes into an aggregate of 198,000 shares of Common Stock, at an
average conversion price of $1.70 per share. The principal balance of such
Convertible Notes outstanding at May 15, 1997 is convertible, at the option of
the holder, into 1,331,160 shares of Common Stock, based on an assumed
conversion price of $1.25 per share; provided, however, that the holder may not
convert Convertible Notes, without the Company's prior written consent, if such
conversion would cause such holder's aggregate ownership of the Company's
capital stock to exceed 4.9% of the Company's then issued and outstanding
capital stock. In May 1997, the Company entered into an agreement with HRO
pursuant to which HRO would exchange the entire outstanding principal balance of
such Convertible Notes for shares of Series A Preferred Stock. See "Description
of Capital Stock -- Warrants and Convertible Notes and -- Preferred Stock." The
holders of Common Stock will suffer immediate and significant dilution to their
percentage ownership of the Common Stock upon the conversion of the Convertible
Notes or the Series A Preferred (following HRO's exchange of its Convertible
Notes for Series A Preferred). See "Risk Factors -- Dilution Upon Conversion of
Convertible Notes/Series A Preferred Stock Held by HRO and AHG."
The Company believes that 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.
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% of the aggregate
proceeds from the Unit Offering and a non-accountable expense allowance of 3% of
such gross 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 also retained H.J. Meyers as managing
underwriter in the IPO. For acting as managing underwriter, H.J. Meyers received
a portion of the 6% underwriting commission, a non-accountable expense allowance
equal to 2.5% of the gross proceeds from the IPO and a warrant to purchase
110,000 shares of Common Stock exercisable for a four-year period commencing
December 20, 1996. The exercise price of the Representative's Warrant is $7.20
per share. The Company has granted the holder of the Representative's Warrant
certain registration rights with respect to the warrant and the shares of Common
Stock issuable upon its exercise. The Company also agreed to indemnify H.J.
Meyers for certain liabilities, including those arising under the Securities
Act, for serving as managing underwriter.
The Company also 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 is entitled to receive a placement fee of 7% of the gross
proceeds from the Debt Financing, reimbursement of accountable expenses of 1% of
such gross proceeds and the placement agent's warrant to purchase 16,538 shares
of Common Stock at an exercise price of $6.50 per share. The Company has agreed
to grant the holder of the Placement Agent's Warrant certain registration rights
with respect to the Placement Agent's Warrant and the shares of Common Stock
issuable upon its exercise. See "Description of Capital Stock -- Registration
Rights." The Company has 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.
REPRICING OF STOCK OPTIONS
See Note 2 to "Management Option Grants in Last Fiscal Year" for a
description of the repricing of options granted under the Stock Option Plans.
44
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 15, 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 Officer (iv) all directors and
executive officers as a group, and (v) the Selling Shareholders. 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>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER OFFERING
OFFERING SHARES TO
---------------------- BE SOLD IN ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERING(1) NUMBER PERCENT
- --------------------------------------------------------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Hummer Winblad Venture Partners (2)...................... 186,321 6.7% 6,250 180,071 6.4%
5900 Hollis St., Suite R
Emeryville, CA 94608
Entities affiliated with Oak Investment
Partners V, L.P. (3).................................... 332,601 12.0% 158,047 174,554 6.2%
One Gorham Island
Westport, CT 06880
Jeffrey F. Ait (4)....................................... 244,000 8.2% -- 244,000 8.0%
c/o DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
William G. Pryor (5)..................................... 142,535 5.0% -- 142,535 4.9%
c/o DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
Donald B. Witmer (6)..................................... 203,750 6.9% 18,750 185,000 6.1%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
John Hummer (2).......................................... 186,321 6.7% 6,250 180,071 6.4%
Patrick W. Grady (7)..................................... 146,538 5.0% -- 146,538 4.9%
All directors and executive officers as a group (5
persons) (8)............................................. 923,144 26.9% 25,000 898,144 25.7%
American High Growth Equities
Retirement Trust (9).................................... 130,000 4.6% 25,000 105,000 3.7%
Jack Balter (10)......................................... 7,375 *% 7,375 0 0.0%
George L. Black.......................................... 15,750 *% 15,750 0 0.0%
Dr. Mannie Magid (10).................................... 7,375 *% 7,375 0 0.0%
Ronald Mickwee........................................... 4,375 *% 4,375 0 0.0%
Joan Plastiras-Myers (10)................................ 9,375 *% 9,375 0 0.0%
Nicholas W. and Geraldine Perilli (10)................... 9,375 *% 9,375 0 0.0%
James R. Ratliff (11).................................... 18,750 *% 18,750 0 0.0%
David Rosenberg (10)..................................... 3,125 *% 3,125 0 0.0%
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER OFFERING
OFFERING(1) SHARES TO
---------------------- BE SOLD IN ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERING NUMBER PERCENT
- --------------------------------------------------------- --------- ----------- ----------- --------- -----------
The Salzman Group, Ltd. (11)............................. 18,750 *% 18,750 0 0.0%
<S> <C> <C> <C> <C> <C>
Donald L. & Lucy A. Stoner Trust (11).................... 18,750 *% 18,750 0 0.0%
Lawrence Weisman (11).................................... 13,750 *% 13,750 0 0.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) Assumes that all shares of Common Stock owned or issuable upon exercise of
Warrants are sold in the offering.
(2) 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.
(3) 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 --
Convertible Notes and Warrants." Oak Affiliates is an affiliate of Oak
Investment.
(4) 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 May 15, 1997.
(5) Includes 101,894 shares of Common Stock subject to stock options currently
exercisable or exercisable within sixty (60) days after May 15, 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."
(6) 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
"Management -- Employment Contracts."
(7) Includes an option to purchase 20,000 shares of Common Stock granted on
August 13, 1996 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 Representative's Warrant commencing on December 20, 1996 and
16,538 shares of Common Stock that may be acquired by H.J. Meyers upon
exercise of the Placement Agent's Warrant issued in 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.
46
<PAGE>
(8) Consists of 258,462 shares of Common Stock, immediately exercisable warrants
to purchase 132,788 shares of Common Stock and 531,894 shares of Common
Stock subject to stock options currently exercisable or exercisable within
sixty (60) days of May 15, 1997.
(9) Consists of 75,000 shares of Common Stock, a Warrant to purchase 25,000
shares of Common Stock and 30,000 shares of Common Stock issuable upon the
conversion of Convertible Notes that are convertible within 60 days of May
15, 1997, based on an assumed conversion price of $1.25 per share.
(10) Includes a Warrant to purchase 3,125 shares of Common Stock.
(11) Includes a Warrant to purchase 6,250 shares of Common Stock.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of May 15, 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 May 15, 1997, there were 2,762,873 shares of Common Stock outstanding
held of record by approximately 49 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
At the closing of the Company's IPO in December 1995, all previously
outstanding shares of Preferred Stock were converted into Common Stock. As of
May 15, 1997, the Company is authorized to issue up to 4,000,000 shares of
undesignated Preferred Stock. The Board of Directors will have 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 May 1997, the Company entered into a Series A Preferred Stock Purchase
Agreement (the "Series A Purchase Agreement") with High Risk Opportunities Hub
Fund, Ltd. ("HRO"), the holder of a Convertible Note issued by the Company in
the original principal amount of $2,000,000, pursuant to which HRO agreed to
exchange the entire then-outstanding principal amount of such Convertible Note
for shares of Series A Preferred Stock (the "Series A Preferred") at a purchase
price of $1,000 per share. The Series A Purchase Agreement contains a covenant
by HRO not to convert any shares of Series A Preferred without the prior written
consent of the Company where such conversion would result in HRO being deemed
the beneficial owner of more than 4.9% of any class of the Company's equity
securities. The Company has agreed not to consummate any private placement
financing so long as HRO holds any share of Series A Preferred. The consummation
of the exchange transaction described above (the "Series A Transaction") is
contingent upon the effectiveness of a registration statement registering the
shares of Common Stock issuable upon conversion of the Series A Preferred. The
Company expects to file such registration statement substantially
contemporaneously with filing the registration statement amendment of which this
Prospectus is a part.
On May 8, 1997, in connection with the Series A Transaction, the Company
filed an Amended and Restated Certificate of Determination of Series A Preferred
Stock (the "Certificate of Determination") with the California Secretary of
State. The Certificate of Determination authorizes 2,500 shares of Series A
Preferred Stock. 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
are also automatically convertible into Common Stock on the second anniversary
of their issue date or, if earlier, upon
48
<PAGE>
the occurrence of certain other events. The holders of Series A Preferred 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 are
entitled to receive $1,000 per share plus any accrued but unpaid dividends.
The holders of Common Stock will suffer immediate and significant dilution
to their percentage ownership of the Common Stock upon the conversion of the
Convertible Notes or the Series A Preferred (following HRO's exchange of its
Convertible Notes for Series A Preferred). See "Risk Factors -- Dilution Upon
Conversion of Convertible Notes/Series A Preferred Stock Held by HRO and AHG."
WARRANTS AND CONVERTIBLE NOTES
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 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. The Registration Statement of which this Prospectus forms a
part covers those of such warrants that remain outstanding and the shares of
Common Stock issuable upon the exercise thereof. Of such warrants, warrants to
purchase an aggregate of 53,125 shares were exercised during December, 1996 and
warrants to purchase an aggregate of 71,875 shares were outstanding at May 15,
1997.
The Company issued to the Representative the Representative's Warrant to
purchase for investment a maximum of 110,000 shares of Common Stock. The
Representative's Warrant is exercisable for a four-year period commencing
December 20, 1996. The exercise price of the Representative's Warrant will be
$7.20 per share. The Representative's Warrant will not be transferable prior to
its exercise date except to officers of the Representative and members of the
selling group and officers and partners thereof. The Representative's Warrant
contains anti-dilution provisions providing adjustment in the event of any
recapitalization, stock dividend, stock split or similar transaction. The
Representative's Warrant does not entitle the Representative to any rights as a
shareholder of the Company until such warrant is exercised and shares are
purchased thereunder. The Representative'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 Securities and Exchange Commission either an
amendment to the registration statement filed upon the initial public offering
of the Company in December, 1995 or a separate registration statement, the
Representative has the right during the five-year period which commenced on
December 19, 1995 to include in such amendment or registration statement
Representative's Warrant and the shares of Common Stock issuable upon its
exercise at no expense to the Representative Additionally, the Company has
agreed 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 such Warrant.
The Company also 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 the Placement Agent's Warrant. The Placement Agent's Warrant is for
the
49
<PAGE>
purchase of 16,538 shares of Common Stock . The warrant is exercisable for five
years and will have an exercise price of $6.50 per share. The Company has agreed
to grant the holder of the warrant certain registration rights with respect to
the warrant and the shares of Common Stock issuable upon its exercise.
In December 1996, the Company raised approximately $1,949,000 in net
proceeds from the sale and issuance of the Convertible Notes to HRO and one
other investor (the "Debt Financing"). The Company issued $2,150,000 principal
amount of Convertible Notes that are 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 will 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 is
subject to adjustment in certain circumstances. The Convertible Notes may be
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 is below $4.00. Moreover, no
holder may convert any principal amount of Convertible Notes, without the
Company's prior written consent, if such conversion would cause such holder's
aggregate ownership of the Company's capital stock to exceed 4.9% of the
Company's then issued and outstanding capital stock. During April and May, 1997,
the holders of Convertible Notes converted $448,550 in principal amount of
Convertible Notes into 273,000 shares of Common Stock. As of May 15, 1997,
$1,701,450 in aggregate principal amount of Convertible Notes remains
outstanding. If the Series A Transaction is consummated, $37,500 in principal
amount of Convertible Notes would remain outstanding.
The holders of Common Stock will suffer immediate and significant dilution
to their percentage ownership of the Common Stock upon the conversion of the
Convertible Notes or the Series A Preferred (following HRO's exchange of its
Convertible Notes for Series A Preferred). See "Risk Factors -- Dilution Upon
Conversion of Convertible Notes/Series A Preferred Stock Held by HRO and AHG."
REGISTRATION RIGHTS
The Company is filing 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 is also filing a registration statement on Form SB-2
covering the issuance of up to 1,361,160 shares of Common Stock that are or may
be issuable upon conversion of the Convertible Notes and the Series A Preferred
(based on an assumed conversion price of $1.25 per share). These registration
statements are being 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.
The Company has also granted registration rights to the holder of the
Representatives' Warrant, which provide such holder with certain rights to
register such warrant and the shares of Common Stock underlying such warrant.
See "Certain Transactions -- H.J. Meyers, Inc." and "Description of Capital
Stock -- Warrants and Convertible Notes."
The Company has agreed that, if it files a registration statement covering
its equity securities, the Placement Agent shall have the right, during the
five-year period beginning on the date of issuance of the Placement Agent's
Warrant, to include in such registration statement the shares issuable upon
50
<PAGE>
exercise of the Placement Agent's Warrant. The Company has agreed to maintain
the effectiveness of such registration as long as such shares remain
outstanding. 16,538 shares of Common Stock will be issuable upon exercise of the
Placement Agent's Warrant issued in the Debt Financing.
In addition, the letter of intent with respect to the InLet Transactions
contemplates that InLet would have registration rights with respect to the
shares of Common Stock issuable to InLet.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Sale 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. See "Risk Factors -- Shares Eligible for
Future Sale" and "Description of Capital Stock -- Registration Rights."
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Shareholders that they may sell
all or a portion of the shares from time to time over-the-counter or on the
Pacific Stock Exchange, to the extent such shares may be traded on such markets,
in negotiated transactions or otherwise, and on terms and at prices then
obtainable. The shares may be sold by one or more of the following methods: (a)
a block trade in which the broker or dealer so engaged will attempt to sell the
shares as an agent, but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its own account pursuant to
this Prospectus; (c) an over the counter distribution; (d) a transaction in
accordance with the rules of the Pacific Stock Exchange; and (e) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
There is no assurance that any of the Selling Shareholders will sell any or all
of the shares offered by them.
In effecting sales, brokers or dealers engaged by the Selling Shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from the Selling Shareholders in amounts to be
negotiated prior to the sale. Participating brokers or dealers may be deemed to
be "underwriters" within the meaning of the Securities Act, in connection with
such sales. The Company will not receive any proceeds from the sale of the
shares by the Selling Shareholders.
The Company may at its discretion withdraw the Registration Statement of
which this Prospectus constitutes a part at any time.
LEGAL MATTERS
The validity of the shares offered hereby has been passed upon for the
Company by Wilson, Sonsini, Goodrich & Rosati, Palo Alto, 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.
51
<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 March 31,
1997 (unaudited)........................................... F-3
Statement of Operations for the Years Ended December 31,
1995 and 1996 and for the three months ended March 31, 1996
and 1997 (unaudited)....................................... F-4
Statement of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1995 and 1996 and for the three months
ended March 31, 1997 (unaudited)........................... F-5
Statement of Cash Flows for the Years Ended December 31,
1995 and 1996 and for the three months ended March 31, 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 (deficit) 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
January 27, 1997, except for the first paragraph
of Note 11, which is as of February 26, 1997,
and the second paragraphs of Note 1 and
Note 11, which are as of March 25, 1997.
F-2
<PAGE>
DELTAPOINT, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
-------- --------- MARCH 31
-------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,629 $ 3,142 $ 1,548
Accounts receivable, net of allowance for doubtful
accounts of $259, $118 and $118.......................... 1,225 1,904 1,577
Inventories............................................... 182 133 100
Prepaid expenses and other current assets................. 194 557 326
-------- --------- -------------
Total current assets.................................... 6,230 5,736 3,551
Property and equipment, net................................. 49 277 252
Purchased software, net..................................... 438 299 261
Deposits and other assets................................... 47 34 29
-------- --------- -------------
$ 6,764 $ 6,346 $ 4,093
-------- --------- -------------
-------- --------- -------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 665 $ 1,238 $ 1,389
Accrued liabilities....................................... 1,337 1,146 993
Reserve for returns....................................... 398 771 483
Notes payable............................................. 865 2,150 2,150
Current portion of capital lease obligations.............. 50 -- --
-------- --------- -------------
Total current liabilities............................... 3,315 5,305 5,015
Commitments and contingencies (Note 6)
Shareholders' equity (deficit):
Preferred stock, no par value, 4,000,000 shares
authorized, none issued or outstanding................... -- -- --
Common stock, no par value, 25,000,000 shares authorized,
2,025,243, 2,485,540 and 2,489,873 shares were issued and
outstanding.............................................. 12,267 14,707 15,265
Accumulated deficit....................................... (8,818) (13,666) (16,187 )
-------- --------- -------------
Total shareholders' equity (deficit).................... 3,449 1,041 (922 )
-------- --------- -------------
$ 6,764 $ 6,346 $ 4,093
-------- --------- -------------
-------- --------- -------------
</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 THREE MONTHS ENDED
DECEMBER 31 MARCH 31
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues......................................................... $ 4,043 $ 4,950 $ 760 $ 1,023
Cost of revenues..................................................... 1,337 1,181 338 320
--------- --------- --------- ---------
Gross profit....................................................... 2,706 3,769 422 703
--------- --------- --------- ---------
Operating expenses:
Sales and marketing................................................ 1,922 4,685 888 1,459
Research and development........................................... 2,036 2,618 486 731
General and administrative......................................... 1,234 1,388 769 238
--------- --------- --------- ---------
5,192 8,691 2,143 2,428
--------- --------- --------- ---------
Loss from operations................................................. (2,486) (4,922) (1,721) (1,725)
Interest and other (expense) income.................................. (146) 74 17 (796)
--------- --------- --------- ---------
Net loss............................................................. $ (2,632) $ (4,848) $ (1,704) $ (2,521)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share................................................... $ (2.42) $ (2.17) $ (0.79) $ (1.01)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares and share equivalents used in per share calculations.......... 1,086 2,231 2,170 2,489
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DELTAPOINT, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
----------- --------- ------------ ---------
<S> <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
Net loss (unaudited)......................................... -- -- (2,521) (2,521)
----------- --------- ------------ ---------
Balance at March 31, 1997 (unaudited).......................... 2,489,873 $ 15,265 $ (16,187) $ (922)
----------- --------- ------------ ---------
----------- --------- ------------ ---------
</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 THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (2,632) $ (4,848) $ (1,704) $ (2,521)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 163 254 37 70
In process research and development.............................. 1,240 -- -- --
Amortization of discounted conversion feature of notes payable... -- -- -- 537
Other............................................................ 40 -- -- --
Change in assets and liabilities:
Accounts receivable............................................ (642) (679) 46 327
Inventories.................................................... 44 49 52 33
Prepaid expenses and other current assets...................... (113) (162) (36) 231
Accounts payable............................................... (751) 573 356 151
Accrued liabilities............................................ 670 (191) (32) (153)
Reserve for returns............................................ 326 373 231 (288)
Deposits and other assets...................................... 9 13 15 5
--------- --------- --------- ---------
Net cash used in operating activities........................ (1,646) (4,618) (1,035) (1,608)
--------- --------- --------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment.............................. (29) (340) (205) (7)
Acquisition of purchased software.................................. (225) (3) -- --
--------- --------- --------- ---------
Net cash used in investing activities........................ (254) (343) (205) (7)
--------- --------- --------- ---------
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 2,440 831 21
Proceeds from issuance of notes payable, net....................... -- 1,949 -- --
Repayment of notes payable......................................... (289) (865) -- --
Repayment of capitalized lease obligations......................... (177) (50) 4 --
--------- --------- --------- ---------
Net cash provided by financing activities.................... 6,499 3,474 835 21
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents..................... 4,599 (1,487) (405) (1,594)
Cash and cash equivalents at beginning of year....................... 30 4,629 4,629 3,142
--------- --------- --------- ---------
Cash and cash equivalents at end of year............................. $ 4,629 $ 3,142 $ 4,224 $ 1,548
--------- --------- --------- ---------
--------- --------- --------- ---------
</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 and/or potential asset sales 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 such financing on acceptable terms
have been unsuccessful (see Note 11). If the Company is unable to obtain
financing or successfully execute an asset sale, 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.
The following is a summary of the Company's significant accounting policies:
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
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 91-1 (SOP 91-1) on Software
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 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.
F-7
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Revenue from international customers, primarily in Japan accounted for 40%,
26%, 13% and 37% of net revenues in 1995 and 1996 and the three months ended
March 31, 1996 and 1997, respectively. Sales to customers in excess of 10% of
net revenues is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER
31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Customer A............................................ 35% 21% 6% 33%
Customer B............................................ 13% 30% 23% 12%
Customer C............................................ -- -- -- 15%
</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.
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.
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 (FAS 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.
F-8
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 March 31, 1997 three customers accounted for 85% 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).
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.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of March 31, 1997, the statements of
operations and of cash flows for the three months ended March 31, 1996 and 1997,
and the statement of shareholders' equity for the three months ended March 31,
1997 are unaudited. In the opinion of management, the 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.
RECENT ACCOUNTING PRONOUNCEMENTS (UNAUDITED)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
is effective for the Company's year ended December 31, 1997. The Statement
redefines earnings per share under generally accepted
F-9
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
accounting principles. Under the new standard, primary earnings per share is
replace by basic earnings per share and fully diluted earnings per share. If the
Company had adopted this Statement for the years ended December 31, 1995 and
1996 and for the three month periods ended March 31, 1996 and 1997, the
Company's loss per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic loss per share................................... $ (2.42) $ (2.17) $ (0.79) $ (1.01)
Diluted loss per share................................. $ (2.42) $ (2.17) $ (0.79) $ (1.01)
</TABLE>
NOTE 2 -- BALANCE SHEET DETAILS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- ---------
MARCH 31,
1997
-----------
(UNAUDITED)
Inventories:
<S> <C> <C> <C>
Raw materials........................................ $ 119 $ 84 $ 74
Finished goods....................................... 63 49 26
--------- --------- -----------
$ 182 $ 133 $ 100
--------- --------- -----------
--------- --------- -----------
Purchased software:
Purchased software................................... $ 450 $ 453 $ 453
Less: accumulated amortization....................... (12) (154) (192)
--------- --------- -----------
$ 438 $ 299 $ 261
--------- --------- -----------
--------- --------- -----------
Property and equipment:
Computer equipment and software...................... $ 936 $ 1,160 $ 1,167
Furniture and fixtures............................... 139 139 139
Leasehold improvements............................... -- 31 31
--------- --------- -----------
1,075 1,330 1,337
Less: accumulated depreciation....................... (1,026) (1,053) (1,085)
--------- --------- -----------
$ 49 $ 277 $ 252
--------- --------- -----------
--------- --------- -----------
Accrued liabilities:
Accrued royalties.................................... $ 351 $ 315 $ 321
Accrued compensation................................. 303 369 277
Other................................................ 683 462 395
--------- --------- -----------
$ 1,337 $ 1,146 $ 993
--------- --------- -----------
--------- --------- -----------
</TABLE>
Included in the December 31, 1995, 1996 and March 31, 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
March 31, 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
F-10
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BALANCE SHEET DETAILS (IN THOUSANDS): (CONTINUED)
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 totaled $205,000.
Approximately $1,240,000 of the purchase price was allocated to in-process
technology. In connection with these acquisitions, the Company determined that
the majority of the purchase price represented in-process technology and because
such technology had not reached the stage of technological feasibility and had
no alternative future use, the amount was immediately charged to operations.
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 intellectual property
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.
Cash paid for interest totaled $146,000, $28,000, $3,000 and $0 for the
years ended December 31, 1995 and 1996 and the three months ended March 31, 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, $62,000 and $72,000 for the years ended December 31, 1995 and 1996 and
the three months ended March 31, 1996 and 1997, respectively. Amounts due to
this supplier are included in accounts payable at December 31, 1995, 1996 and
March 31, 1997 and totaled $55,000, $72,000 and $72,000, 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 and (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 three months ended March 31, 1997. The amortization
of the discounted conversion feature resulted in an increase to Common Stock of
$537,000 during the three months ended March 31, 1997.
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 three months ended March 31, 1996 and
1997 was $46,000 and $50,000, respectively.
F-11
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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>
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, under FAS 109, it is more likely than not
that the deferred tax assets at December 31, 1995 and 1996 would 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.
F-12
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMMON STOCK AND WARRANTS:
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.
WARRANTS:
The following warrants were outstanding and exercisable at March 31, 1997:
<TABLE>
<CAPTION>
ISSUED IN
WARRANTS OUTSTANDING CONNECTION WITH ISSUANCE DATE EXPIRATION DATE WARRANT 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 71,875 outstanding warrants issued in November 1995 have an exercise
price of $7.20 per share for the first thirty (30) months of the warrant term
and $8.40 per share for the remaining warrant term. 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 885,462 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. 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 fiscal 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, which was the fair market value of the Company's Common Stock on that
date.
F-13
<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 WEIGHTED AVERAGE
FOR 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
Options granted (unaudited)............................. (155,950) 155,950 2.56
Options exercised (unaudited)........................... -- (4,333) 4.80
Options canceled (unaudited)............................ 110,788 (110,788) 2.69
---------- ----------
Balance at March 31, 1997 (unaudited)................... 18,305 781,337 2.47
---------- ----------
---------- ----------
</TABLE>
The following table summarizes information about employee stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED AVERAGE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT EXERCISE PRICE AT
RANGE OF EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL 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>
The following table summarizes information about employee stock options
outstanding at March 31, 1997 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED AVERAGE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT EXERCISE PRICE AT
RANGE OF EXERCISE PRICES MARCH 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE MARCH 31, 1997 MARCH 31, 1997
- ------------------------ ----------------- ----------------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
$2.25................... 703,720 9.1 2.25 230,426 2.25
$2.50................... 40,950 10.0 2.50 -- --
$4.80-7.50.............. 36,667 9.4 6.63 6,667 4.80
-------- --------
Total............... 781,337 9.1 2.47 237,093 2.32
-------- --------
-------- --------
</TABLE>
F-14
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
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
which vest over four years and have a ten year life.
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 in FAS 123, the
Company's net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss:
As reported............................................... $ (2,632) $ (4,848) $ (1,704) $ (2,521)
Pro forma................................................. $ (2,704) $ (5,450) $ (1,796) $ (2,858)
Net loss per share:
As reported............................................... $ (2.42) $ (2.17) $ (0.79) $ (1.01)
Pro forma................................................. $ (2.49) $ (2.44) $ (0.83) $ (1.15)
</TABLE>
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, 6.07% for 1996 and the three months ended March 31, 1996 and
6.58% for the three months ended March 31, 1997 for options granted; and a
weighted average expected option term of 4.3 years for 1995 and 3.9 years for
1996 and the three months ended March 31, 1996 and 1997.
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 three months ended March 31, 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 -- SUBSEQUENT EVENTS:
On February 26, 1997, the Company reached an agreement with a third party to
issue and sell to such party an aggregate of 1,000 shares of Series A Preferred
Stock for cash in the aggregate amount of $1,000,000. Each share of Series A
Preferred Stock would have been convertible at any time, at the option of the
holder, into such number of shares of Common Stock.
For various reasons, the closing conditions to this agreement did not occur
and the financing was subsequently terminated. The Company is seeking additional
financing (see Note 1).
NOTE 12 -- SUBSEQUENT EVENTS (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 all of the capital stock of IDC,
whose sole significant asset is certain software (including source
F-15
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
code and related documentation). The purchase price would be (i) $825,000 in
cash, payable in installments, and (ii) the issuance of 260,000 shares of the
Company's Common Stock. The Company would also pay a royalty to InLet in an
amount equal to five percent of the net revenues from all sales, leases,
licenses, sublicenses or other transactions pursuant to which units of the
software product are distributed. Half of the amount of royalties would be paid
in the Company's Common Stock. Pending the closing of the purchase, the Company
and IDC are negotiating an OEM agreement which would grant 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. Both parties' obligations to consummate the
purchase are contingent upon the closing of an equity financing by the Company
within 90 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.
The Company has recently retained a financial advisor to assist it in
raising additional equity capital and has been pursuing the possibility of
selling the DeltaGraph product line which accounted for 62% and 59% of net
revenues during 1996 and the quarter ended March 31, 1997, respectively.
In May 1997, the Company entered into an agreement with substantially all of
the holders of the Convertible Notes to exchange the entire principal amount for
shares of Series A Preferred Stock (the "Series A Preferred") at a purchase
price of $1,000 per share. Under the agreement, each $1,000 principal amount of
Series A Preferred will convert, subject to certain limitations, into the number
of shares of Common Stock determined by dividing $1,000 by the lower of $3.50 or
80% of the average trading price of the Common Stock for the five trading days
immediately prior to conversion. The consummation of the exchange transaction is
contingent upon the effectiveness of a registration statement registering the
shares of Common Stock issuable upon conversion of the Series A Preferred.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR 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 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 IN 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>
Available Information............................. 2
Summary........................................... 3
Risk Factors...................................... 6
Price Range of Common Stock....................... 15
Dividend Policy................................... 15
Capitalization.................................... 16
Selected Financial Data........................... 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 18
Business.......................................... 24
Management........................................ 35
Certain Transactions.............................. 43
Principal and Selling Shareholders................ 45
Description of Capital Stock...................... 48
Shares Eligible for Future Sale................... 51
Plan of Distribution.............................. 51
Legal Matters..................................... 51
Experts........................................... 51
Financial Statements.............................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
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 registration fee.
<TABLE>
<S> <C>
SEC Registration fee..................................................... $ 1,479
Nasdaq SmallCap Market Listing fee....................................... 2,612
Printing and engraving expenses.......................................... 13,500
Legal fees and expenses.................................................. 71,000
Accounting fees and expenses............................................. 37,000
Blue sky fees and expenses............................................... 16,000
Transfer agent fees...................................................... 2,500
Miscellaneous fees and expenses.......................................... 909
---------
Total................................................................ $ 145,000
---------
---------
</TABLE>
II-1
<PAGE>
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
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.
II-2
<PAGE>
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.
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>
3.1(1) Registrant's Amended and Restated Articles of Incorporation
3.2(2) Registrant's Bylaws
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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
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
5.1 Opinion of Wilson, Sonsini, Goodrich, & Rosati
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)(4) 1995 Stock Option Plan
10.5(2) Form of Indemnification Agreement
10.6(2)(3) License Agreement between Registrant and Smart Draw Software, Inc. dated as of April 19, 1995
10.7(2) License Agreement between Registrant and Halcyon Software, Inc. dated as of June 30, 1992
10.8.1(2)(3) Distribution Agreement between Registrant and Nippon Polaroid Kabushiki Kaishi dated as of
November 12, 1991
10.8.2(2)(3) 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
10.9(2) Series C Preferred Stock Purchase Agreement dated April 6, 1994 among the Registrant and the
investors named therein
10.10(2) Series D Preferred Stock and Warrant Purchase Agreement dated May 24, 1995 among Registrant and
the investors named therein
10.11(2) Series E Preferred Stock and Warrant Purchase Agreement dated November 6, 1995 among Registrant
and the investors named therein
10.12(2) Employment Agreement dated as of November 1, 1995 between Registrant and Donald B. Witmer
10.13.1(2) Business Loan Agreement between Registrant and Silicon Valley Bank dated as of August 24, 1994
10.13.2(2) Promissory Note between Registrant and Silicon Valley Bank dated as of August 24, 1994
10.14(2) Conversion of Promissory Notes and Exchange of Warrants Agreement dated as of November 8, 1995
among Registrant, Hummer Winblad Venture Partners, Hummer Winblad Technology Fund, Oak
Investment Partners V, Limited Partnership and Oak V Affiliates Fund, Limited Partnership.
10.15(2) License Agreement between Registrant and Altura Software, Inc. dated June 7, 1994
10.16(2) Employment Agreement dated November 8, 1995 between Registrant and Raymond R. Kingman, Jr.
10.17(2) Employment Agreement dated November 8, 1995 between Registrant and William G. Pryor
10.18(2) Offer letter dated December 5, 1995 between the Registrant and Spencer A. Leyton
10.19(2)(3) Letter of Intent dated November 21, 1995 between DeltaPoint and Richard Blum
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.20(2)(3) Agreement dated December 15, 1995 among Registrant, Global Technologies Corporation and William
French
10.21(2) Termination Agreement dated as of November 8, 1995 among the Registrant and certain shareholders
of the Company named therein
10.22(2) Amendment Agreement dated as of December , 1995 among the Registrant and certain shareholders
of the Company named therein
10.23(4) Employment Agreement dated December 26, 1995 between Registrant and William A. French
10.24* Separation Agreement and Release between Registrant and Raymond R. Kingman, Jr. dated April 5,
1996
10.25* Offer letter dated March 29, 1996 between Registrant and John J. Ambrose
10.26(5) 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
10.27(5) Form of Subscription Agreement governing issuance of 6% Convertible Subordinated Debentures
10.28(6) Offer letter dated as of March 24, 1997 between the Registrant and Jeffrey F. Ait
10.29** Series A Preferred Stock Purchase Agreement dated as of May 6, 1997 between Registrant and High
Risk Opportunities Hub Fund, Ltd.
10.30** Letter of Intent dated April 16, 1997 among Registrant, InLet Divestiture Corp., InLet, Inc.,
Terry Millard and Todd Millard
23.1* Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (included in Exhibit
5.1)
23.2** Consent of Price Waterhouse LLP
24.1* Power of Attorney
</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) Confidential treatment requested as to certain portions of this exhibit.
(4) Incorporated by reference to Registrant's Registration Statement on Form S-8
filed March 6, 1996 (File No. 333-2192).
(5) 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).
(6) Incorporated by reference to Registrant's Amendment No. 1 to Registration
Statement on Form SB-2 filed April 9, 1997 (File No. 333-22565).
* Previously filed.
** 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
II-5
<PAGE>
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 Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Monterey,
State of California, on June 12, 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 REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 12 DAY OF JUNE, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ --------------------------------------
<C> <S> <C>
/s/ JEFFREY F. AIT
------------------------------------------- Chief Executive Officer and Director
Jeffrey F. Ait (Principal Executive Officer)
Chief Financial Officer, Chief
/s/ DONALD B. WITMER Operating Officer and Director
------------------------------------------- (Principal Financial and Accounting
Donald B. Witmer Officer)
/s/ JOHN HUMMER*
------------------------------------------- Director
John Hummer
/s/ PATRICK GRADY*
------------------------------------------- Director
Patrick Grady
*By: /s/ DONALD B. WITMER
--------------------------------------
Donald B. Witmer Director
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBITS NUMBERED PAGE
- ---------- ------------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
3.3 Amended and Restated Certificate of Determination of Series A Preferred Stock..............
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati..............................................
10.29 Series A Preferred Stock Purchase Agreement dated as of May 6, 1997 between Registrant and
High Risk Opportunities Hub Fund, Ltd.....................................................
10.30 Letter of Intent dated April 16, 1997 among Registrant, InLet Divestiture Corp., InLet,
Inc., Terry Millard and Todd Millard......................................................
23.2 Consent of Price Waterhouse, LLP...........................................................
</TABLE>
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF DETERMINATION
of
SERIES A PREFERRED STOCK
of
DELTAPOINT, INC.
(Pursuant to Section 401 of the
California Corporations Code)
Jeffrey F. Ait and Donald B. Witmer certify that:
A. They are the Chief Executive Officer and Secretary, respectively,
of DeltaPoint, Inc., a California corporation.
B. The number of authorized shares of Series A Preferred Stock is
two thousand five hundred (2,500), none of which has been issued.
C. The board of directors duly adopted the following resolutions:
WHEREAS, the Amended and Restated Articles of Incorporation
authorize the Preferred Stock (the "Preferred Stock") of this corporation to
be issued in series and authorize the board of directors (the "Board") to
determine the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the
number of shares and designation of any such series; and
WHEREAS, the Company adopted a Certificate of Determination of
Series A Preferred Stock (the "Original Certificate"), which was filed with
the Secretary of State of the State of California on March 13, 1997; and
WHEREAS, the Company has not issued any shares of Series A
Preferred Stock created by the Original Certificate; and
WHEREAS, the Company desires to amend and restate the Original
Certificate.
RESOLVED, that the Original Certificate shall be amended and
restated in its entirety as set forth below;
RESOLVED, that the initial series of Preferred Stock shall be
designated Series A Preferred Stock (the "Series A Preferred");
<PAGE>
RESOLVED FURTHER, that the number of shares constituting Series A
Preferred shall be two thousand five hundred (2,500); and
RESOLVED FURTHER, that the Board hereby fixes and determines the
rights, preferences, privileges and restrictions relating to the Series A
Preferred as follows:
1. DIVIDEND RIGHTS OF SERIES A PREFERRED. Subject to the rights of
additional series of Preferred Stock that may be designated by the Board from
time to time, the holder of each share of Series A Preferred shall be
entitled to receive, out of funds legally available for the purpose,
cumulative dividends at an annual rate of $90.00 per share, as adjusted to
reflect stock dividends (except stock dividends paid with respect to Series A
Preferred), stock splits, combinations, recapitalizations or the like after
the date upon which shares of Series A Preferred were first issued (the
"Initial Series A Issue Date"). Such dividends shall be paid in quarterly
installments beginning on the date three months after the Initial Series A
Issue Date. Such dividends shall be paid in cash or, at this corporation's
election, in shares of this corporation's common stock (the "Common Stock"),
which Common Stock shall be valued at 80% of the average of the Fair Market
Value thereof (as defined in Subsection 3(a)(ii) below) for the five business
days prior to the business day on which such dividends are payable. Whenever
this Certificate of Determination requires or permits the payment of
dividends, including accrued dividends, with respect to the Series A
Preferred, such dividends shall be payable in cash or, at the election of
this corporation, in shares of Common Stock. Shares of Common Stock shall be
valued at 80% of the average of the Fair Market Value thereof (as defined in
Subsection 3(a)(ii) below) for the five business days prior to the business
day on which such dividends are payable. The holder of each share of Series
A Preferred shall be entitled to receive the dividend prior and in preference
to any declaration and payment of any dividend (payable other than in stock
of this corporation) on the Common Stock.
2. LIQUIDATION PREFERENCE.
(a) Subject to the rights of additional series of Preferred Stock
that may be designated by the Board from time to time, in the event of any
liquidation, dissolution or winding up of this corporation, either
voluntarily or involuntarily, the holders of the Series A Preferred shall be
entitled to receive, prior and in preference to any distribution of any of
the assets of this corporation to the holders of the Common Stock, an amount
per share equal to $1,000 plus any accrued but unpaid dividends for each
share of Series A Preferred then held by them, such amounts being adjusted to
reflect stock dividends (except stock dividends paid with respect to Series A
Preferred), stock splits, combinations, recapitalizations or the like after
the Initial Series A Issue Date. After payment to the holders of the Series A
Preferred of the amounts set forth in this Section 2, the entire remaining
assets and funds of this corporation legally available for distribution, if
any, shall be distributed among the holders of the Common Stock in proportion
to the shares of Common Stock then held by them. If, upon the occurrence of
such event, the assets thus distributed among the holders of the Series A
Preferred shall be insufficient to permit the payment to such holders of the
full aforesaid preferential amount, then the entire assets and funds
2
<PAGE>
of this corporation legally available for distribution shall be distributed
among the holders of the Series A Preferred in proportion to the number of
shares of Series A Preferred then held by them.
(b) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall, unless holders of a
majority of the then outstanding shares of Preferred Stock elect otherwise,
be deemed to be occasioned by, or to include, (A) the acquisition of this
corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization,
merger or consolidation but, excluding any merger effected exclusively for
the purpose of changing the domicile of this corporation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of
this corporation; or (B) a sale of all or substantially all of the assets of
this corporation.
(ii) In any of such events, if the consideration received by
this corporation is other than cash, its value will be deemed its fair market
value. Any securities to be delivered to the holders of the Series A
Preferred or Common Stock, as the case may be, shall be valued as follows:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of
the closing prices of the securities on such exchange over the thirty-
day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty-day period ending three (3)
days prior to the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the then
outstanding shares of Series A Preferred.
(iii) In the event the requirements of this Subsection 2(b)
are not complied with, this corporation shall forthwith either:
(1) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(2) cancel such transaction, in which event the
respective rights, preferences and privileges of the holders of the
Series A Preferred shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of
the first notice referred to in Subsection 2(b)(iv) below.
(iv) This corporation shall give each holder of record of
Series A Preferred written notice of such impending transaction not later
than twenty (20) days prior to the
3
<PAGE>
stockholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 2,
and this corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after this corporation has given the first notice provided
for herein or sooner than ten (10) days after this corporation has given
notice of any material changes provided for herein; provided, however, that
such periods may be shortened upon this corporation's receipt of written
consent of the holders of at least a majority of the then outstanding shares
of Series A Preferred entitled to such notice rights or similar notice rights.
3. CONVERSION. The holders of the Series A Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) Each share of Series A Preferred shall be convertible
at the option of the holder thereof, at any time after the date of issuance
of such share, at the office of this corporation or any transfer agent for
the Series A Preferred, into the number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1,000 by the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
The "Conversion Price" shall be equal to the lower of (i) 80% (as adjusted
pursuant to this Subsection 3(a)(i), the "Discount Percentage") of the
average of the Fair Market Value of a share of the Common Stock for the five
business days prior to the business day (A) if conversion occurs pursuant to
this Subsection 3(a), on which a holder of shares of Series A Preferred gives
written notice to convert such shares pursuant to Subsection 3(c)(i) or (B)
if conversion occurs pursuant to Subsection 3(b), on which such conversion is
effective; or (ii) $3.50.
(ii) The Fair Market Value of the Common Stock shall be
determined as follows:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the closing sale price of the securities on
such exchange (or, if the Common Stock is traded on the Nasdaq
National Market, the closing sale price as reported by such market);
(2) If traded on the Nasdaq SmallCap Market, the closing
bid price as reported by such market;
(3) If actively traded over-the-counter, the value shall
be deemed to be the closing bid or sale prices (whichever is
applicable); and
4
<PAGE>
(4) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the then
outstanding shares of Series A Preferred.
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred shall be
automatically converted into shares of Common Stock at the Conversion Price in
effect at the time upon the earlier to occur of: (i) the acquisition of this
corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation but, excluding any merger effected exclusively for the purpose of
changing the domicile of this corporation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of this corporation, or a
sale of all or substantially all of the assets of this corporation; or (ii) the
second anniversary of the Original Series A Issue Date.
(c) MECHANICS OF CONVERSION.
(i) CONVERSION PURSUANT TO SECTION 3(a). Before any holder
of Series A Preferred shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any transfer
agent for the Series A Preferred, and shall give written notice to this
corporation at such office that he elects to convert the same, and shall
state therein the name or names which he wishes the certificate or
certificates for shares of Common Stock to be issued. This corporation shall,
as soon as practicable thereafter, issue and deliver at such office to each
holder of Series A Preferred, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Series A Preferred to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(ii) CONVERSION PURSUANT TO SECTION 3(b). If shares of
Series A Preferred are automatically converted, written notice shall be
delivered to the holder of such shares of Series A Preferred at the address
last shown on the records of this corporation for such holder or given by
such holder to this corporation for the purpose of notice or, if no such
address appears or is given, at the place where the principal executive
office of this corporation is located, notifying such holder of the
conversion to be effected, specifying the date on which such conversion is
expected to occur, the number of shares of Series A Preferred to be converted
and calling upon such holder to surrender to Company, in the manner and at
the place designated, the certificate or certificates therefor. Upon such
conversion of the shares of Series A Preferred, holders shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Series A Preferred, and shall
state therein the name or names which he wishes the certificate or
certificates for shares of Common Stock to be issued. This corporation shall,
as soon as practicable thereafter, issue and deliver at such office to each
holder of Series A Preferred, or to his nominee or nominees, a certificate or
5
<PAGE>
certificates for the number of shares of Common Stock to which he shall be
entitled. Any conversion of Series A Preferred pursuant to Section 3(b) shall
be deemed to have been made immediately prior to the closing of the issuance
and sale of shares as described in Section 3(b).
(iii) FRACTIONAL SHARES. No fractional shares shall be
issued upon conversion of the Series A Preferred. In lieu of Company issuing
any fractional shares to holders upon the conversion of the Series A
Preferred, Company shall pay to such holders an amount equal to the product
obtained by multiplying the Conversion Price by the fraction of a share not
issued pursuant to the previous sentence.
(d) ADJUSTMENT OF CONVERSION RATE. The number of shares of Common
Stock into which the Series A Preferred may be converted shall be subject to
adjustment from time to time as follows:
(i) ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the
event Company should at any time or from time to time after the date of
issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable upon conversion of the Series A Preferred
shall be increased in proportion to such increase of outstanding shares;
provided, however, that no increase shall be made for stock dividends paid
with respect to Series A Preferred.
(ii) ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of
shares of Common Stock outstanding at any time after the date hereof is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable
on conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.
(e) NO IMPAIRMENT. Except for taking the actions contemplated by
Section 6 below upon obtaining the vote or consent set forth therein, this
corporation will not, by amendment of its Amended and Restated Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by this corporation, but it will
at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all
6
<PAGE>
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred against
impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series A Preferred
pursuant to this Section 3, this corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof
and prepare and furnish to each holder of such Series A Preferred a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any holder of
Series A Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series A Preferred.
(g) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of the record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, this corporation
shall mail to each holder of Series A Preferred, at least twenty (20) days
prior to the date specified herein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distribution.
(h) RESERVATION OF STOCK. This corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock solely for the purpose of effecting the conversion of the shares
of the Series A Preferred such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series A Preferred; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding shares of the Series A Preferred, this
corporation will take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purpose.
(i) NOTICES. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Series A Preferred shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his or her address appearing on the
books of this corporation.
7
<PAGE>
4. REDEMPTION. At any time and from time to time, this corporation
may, at its option, redeem all or part of the Series A Preferred at a
redemption price per share of $1,200 plus any accrued but unpaid dividends
(such amounts being adjusted to reflect stock dividends (except dividends
with respect to Series A Preferred), stock splits, combinations,
recapitalizations or the like after the Initial Series A Issue Date);
provided, however, that such redemption is effected within 15 days after
notice of redemption is provided to the holders of Series A Preferred. If
less than all of the Series A Preferred is to be redeemed, the amount of
shares to be redeemed from the holders shall be at the discretion of the
Board of Directors.
5. VOTING MATTERS. Except as otherwise required by law, shares of
Series A Preferred shall not be entitled to vote.
6. COVENANT. In addition to any other rights provided by law, so long
as any Series A Preferred shall be outstanding, this corporation shall not,
without first obtaining the affirmative vote or written consent of the
holders of not less than a majority of the then outstanding shares of all
series of Preferred Stock voting together as a single class:
(a) alter or change the rights, preferences or privileges of the
shares of the Series A Preferred;
(b) increase or decrease the authorized number of shares of the
Series A Preferred; or
(c) authorize or create any new class of shares or additional
series of Preferred Stock having rights, preferences or privileges prior to
shares of the Series A Preferred.
7. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of
this corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
8. CONSENT FOR CERTAIN REPURCHASES OF COMMON STOCK DEEMED TO BE
DISTRIBUTIONS. Each holder of Series A Preferred shall be deemed to have
consented, for purposes of Section 502, 503 and 506 of the California
Corporations Code, to distributions made by this corporation in connection
with the repurchase of shares of Common Stock issued to or held by employees
or consultants upon termination of their employment or services or pursuant
to agreements providing for the right of said repurchase between this
corporation and such persons.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Determination of Series A Preferred Stock as of April
30, 1997.
/s/ Jeffrey F. Ait
----------------------------------------
Jeffrey F. Ait, Chief Executive Officer
/s/ Donald B. Witmer
----------------------------------------
Donald B. Witmer, Secretary
The undersigned further declare under penalty of perjury under the
laws of the State of California that the undersigned has read the foregoing
certificate and knows the contents thereof and that the same is true of the
undersigned's own knowledge.
Dated: April 30, 1997
/s/ Jeffrey F. Ait
----------------------------------------
Jeffrey F. Ait
/s/ Donald B. Witmer
----------------------------------------
Donald B. Witmer
<PAGE>
June 12, 1997
DELTAPOINT, INC.
22 LOWER RAGSDALE DRIVE
MONTEREY, CALIFORNIA 93940
(408) 648-4000
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 filed by you with
the Securities and Exchange Commission on June 12, 1997 (Registration No.
333-3784), as amended by Post-Effective Amendment No. 5 and any later amendments
(the "Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of a total of 511,172 shares of your Common
Stock (the "Shares"). We understand that the Shares are to be sold from time to
time on the NASDAQ OTC Market at prevailing prices or as otherwise described in
the Registration Statement. As your legal counsel, we have examined the
proceedings taken by you in connection with the sale of the Shares.
It is our opinion that the Shares are legally and validly issued, fully paid
and nonassessable (upon the due exercise of duly issued warrants therefor, if
applicable).
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name under the caption "Legal
Matters" in the Registration Statement, including the Prospectus constituting a
part thereof, and any amendments thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE>
DELTAPOINT, INC.
SERIES A PREFERRED
STOCK PURCHASE AGREEMENT
MAY 6, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Stock.................................................................................... 1
1.1 Sale and Issuance of Series A Preferred Stock....................................................... 1
1.2 Closing............................................................................................. 1
1.3 Subsequent Sale of Series A Preferred Stock......................................................... 1
2. Representations and Warranties of the Company................................................................. 1
2.1 Organization, Good Standing and Qualification....................................................... 1
2.2 Capitalization and Voting Rights.................................................................... 1
2.3 Subsidiaries........................................................................................ 2
2.4 Authorization....................................................................................... 2
2.5 Valid issuance of Preferred and Common Stock........................................................ 3
2.6 Governmental Consents............................................................................... 3
2.7 Offering............................................................................................ 3
2.8 No Senior Debt...................................................................................... 3
2.9 Registration Statement.............................................................................. 3
3. Representations and Warranties of the Investors............................................................... 3
3.1 Authorization....................................................................................... 3
3.2 Purchase Entirely for Own Account................................................................... 3
3.3 Disclosure of Information........................................................................... 4
3.4 Investment Experience............................................................................... 4
3.5 Accredited Investor................................................................................. 4
3.6 Restricted Securities............................................................................... 4
3.7 Further Limitations on Disposition.................................................................. 4
3.8 Legends............................................................................................. 4
3.9 Further Representations by Foreign Investors........................................................ 4
3.10 Registration Statement.............................................................................. 4
4. California Commissioner of Corporations....................................................................... 5
4.1 Corporate Securities Law............................................................................ 5
5. Conditions of Investor's Obligations at Closing............................................................... 5
5.1 Representations and Warranties....................................................................... 5
5.2 Performance.......................................................................................... 5
5.3 Compliance Certificate............................................................................... 5
5.4 Qualifications....................................................................................... 5
5.5 Opinion of Counsel................................................................................... 5
5.6 Effectiveness of Registration Statement.............................................................. 5
6. Conditions of the Company's Obligations at Closing............................................................. 5
6.1 Representations and Warranties....................................................................... 5
6.2 Payment of Purchase Price............................................................................ 5
6.3 Qualifications....................................................................................... 5
6.4 Effectiveness of Registration Statement.............................................................. 6
7. Registration Rights............................................................................................ 6
7.1 Registration......................................................................................... 6
7.2 Indemnification and Contribution..................................................................... 7
8. Miscellaneous.................................................................................................. 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.1 Survival of Warranties............................................................................... 9
8.2 Covenant Not to Convert Series A Preferred Stock..................................................... 9
8.3 Private Placement.................................................................................... 9
8.4 Successors and Assigns............................................................................... 9
8.5 Governing Law........................................................................................ 9
8.6 Counterparts......................................................................................... 9
8.7 Titles and Subtitles................................................................................. 9
8.8 Notices.............................................................................................. 9
8.9 Finder's Fee......................................................................................... 9
8.10 Attorney's Fees...................................................................................... 9
8.11 Amendments and Waivers............................................................................... 10
8.12 Severability......................................................................................... 10
8.13 Aggregation of Stock................................................................................. 10
8.14 Entire Agreement..................................................................................... 10
</TABLE>
EXHIBIT A Amended and Restated Certificate of Determination of Series A
Preferred Stock
EXHIBIT B Opinion of Counsel for the Company
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 6th day of May,
1997, by and among DeltaPoint, Inc., a California corporation (the
"Company"), and High Risk Opportunities Hub Fund, Ltd. (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK.
(a) The Company shall adopt and file with the
Secretary of State of California on or before the Closing (as defined below)
the Amended and Restated Certificate of Determination of Series A Preferred
Stock in substantially the form attached hereto as EXHIBIT A (the
"Certificate of Determination").
(b) Subject to the terms and conditions of this
Agreement, the Investor agrees to purchase at the Closing and the Company
agrees to sell and issue to the Investor at the Closing 1,746 shares of the
Company's Series A Preferred Stock for the purchase price of $1,000 per share.
1.2 CLOSING. The purchase and sale of the Series A
Preferred Stock shall take place at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park,
California, at 10:00 A.M., on May 12, 1997, or at such other time and place
as the Company and Investor mutually agree upon orally or in writing (which
time and place are designated as the "Closing"). At the Closing the Company
shall deliver to Investor a certificate representing the Series A Preferred
Stock that such Investor is purchasing, and Investor shall deliver to the
Company for cancellation the 6% Convertible Subordinated Debenture originally
dated December 31, 1996 issued by the Company to Investor (the "Note") (with
the principal amount reduced to reflect partial conversions thereof into the
Company's Common Stock). In the event that payment by an Investor is made,
in whole or in part, by cancellation of indebtedness, then such Investor
shall surrender to the Company for cancellation at the Closing any evidence
of such indebtedness or shall execute an instrument of cancellation in form
and substance acceptable to the Company. In addition, at the Closing the
Company shall deliver to Investor, cash in full payment of accrued interest
on the Note through the date of Closing.
1.3 SUBSEQUENT SALE OF SERIES A PREFERRED STOCK. The
Company may sell on or before June 30, 1997, up to the balance of the
authorized number of shares of Series A Preferred Stock not sold at the
Closing to such purchasers as it shall select, at a price not less than
$1,000 per share.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that, as of the date hereof and the
date of Closing:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to carry on its business as now conducted and
as proposed to be conducted. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect on its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized
capital of the Company consists, or will consist immediately prior to the
Closing, of:
(a) PREFERRED STOCK. 4,000,000 shares of Preferred
Stock (the "Preferred Stock"), of which 2,500 shares have been designated
Series A Preferred Stock (the "Series A Preferred Stock") and up to all of
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which will be sold pursuant to this Agreement or agreements containing
substantially similar terms. The rights, privileges and preferences of the
Series A Preferred Stock will be as stated in the Certificate of
Determination.
(b) COMMON STOCK. 25,000,000 shares of common stock
("Common Stock"), of which 2,567,873 shares were issued and outstanding as of
April 29, 1997.
(c) The outstanding shares of Common Stock are all
duly and validly authorized and issued, fully paid and nonassessable, and
were issued in accordance with the registration or qualification provisions
of the Securities Act of 1933, as amended (the "Act") and any relevant state
securities laws or pursuant to valid exemptions therefrom.
(d) Except for (A) the conversion privileges of the
Series A Preferred Stock to be issued under this Agreement and of $2,150,000
of original principal amount of the Company's 6% Convertible Subordinated
Debentures issued by the Company in December, 1996, including the Note, (the
"Debentures"), (B) the registration rights of the Series A Preferred Stock to
be issued under this Agreement and of any Debentures that remain outstanding
after the Closing, (C) options outstanding on December 31, 1996 to purchase
740,508 shares of Common Stock granted to employees, and options granted to
employees thereafter in the ordinary course of business, including options to
purchase 225,000 options granted to the Company's Chief Executive Officer,
Jeffrey F. Ait, (D) currently outstanding warrants to purchase 198,413 shares
of Common Stock, (E) warrants to purchase up to 29,615 shares of Common Stock
that may be issued to H.J. Meyers and Co., Inc. ("Meyers") pursuant to the
Engagement Agreement between the Company and Meyers dated as of October 15,
1996, (F) registration rights related to the warrants described in clauses
(D) and (E) above, (G) 260,000 shares of Common Stock that may be issuable to
InLet, Inc.("InLet") pursuant to a transaction contemplated in a Letter of
Intent (the "InLet Letter of Intent") among the Company, Inlet and InLet
Divestiture Corp. dated April 16, 1997, and shares of Common Stock that may
be issuable by the Company to InLet for royalties and other payments that may
be payable by the Company pursuant to such transaction and (H) registration
rights related to the Common Stock being registered pursuant to (1)
Post-Effective Amendment No. 2 to the Company's Registration Statement on
Form SB-2 (Reg. No. 333-17733), (2) Post-Effective Amendment No. 4 to the
Company's Registration Statement on Form SB-2 (Reg. No. 333-3784), (3)
Amendment No. 1 to the Company's Registration Statement on Form SB-2 (Reg.
No. 333-22565) and (4) registration rights of InLet pursuant to the
transaction contemplated in the InLet Letter of Intent, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. In addition to the aforementioned options, as
of December 31, 1996, the Company had reserved an additional 63,213 shares of
its Common Stock for purchase upon exercise of options to be granted in the
future under the Company's 1990 Stock Option Plan, 1992 Stock Option Plan and
1995 Stock Option Plan (the "Option Plans"). In addition to the
aforementioned options, the Board of Directors of the Company has authorized,
and the Company has solicited shareholder approval of, options to purchase an
additional 400,000 shares of Common Stock pursuant to the 1995 Stock Option
Plan The Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which affects
or relates to the voting or giving of written consents with respect to any
security of the Company or by a director of the Company.
2.3 SUBSIDIARIES. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in
any joint venture, partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company hereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Series A Preferred Stock
being sold hereunder and the Common Stock issuable upon conversion of the
Series A Preferred Stock has been taken or will be taken prior to the
Closing, and this Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance,
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injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained herein may be limited by applicable
federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
The Series A Preferred Stock that is being purchased by the
Investor hereunder, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly
and validly issued, fully paid, and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series A Preferred Stock purchased
under this Agreement has been duly and validly reserved for issuance and,
upon issuance in accordance with the terms of the Certificate of
Determination, will be duly and validly issued, fully paid, and nonassessable
and will be free of restrictions on transfer other than restrictions on
transfer under this Agreement and under applicable state and federal
securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part
of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the filing pursuant
to Section 25102(f) of the California Corporate Securities Law of 1968, as
amended, and the rules thereunder, which filing will be effected within
fifteen (15) days of the sale of the Series A Preferred Stock hereunder.
2.7 OFFERING. Subject in part to the truth and accuracy of
Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Series A Preferred Stock as contemplated by
this Agreement are exempt from the registration requirements of the Act, and
neither the Company nor any authorized agent acting on its behalf will take
any action hereafter that would cause the loss of such exemption.
2.8 NO SENIOR DEBT. Except for the Debentures and for
obligations with respect to equipment leases or other equipment financings
incurred in the ordinary course of business, the Company is not currently
indebted to any banks, commercial finance lenders, leasing or equipment
financing institutions (including the vendor financing such equipment) or
other lending institutions regularly engaged in the business of lending money
(including venture capital, investment banking or similar institutions which
sometimes engage in lending activities but which are primarily engaged in
investments in equity securities), for money borrowed or for the purchase or
leasing of equipment in the case of lease or other equipment financing,
whether or not secured.
2.9 REGISTRATION STATEMENT. The Company has filed Amendment
No. 1 to Registration Statement on Form SB-2 (Reg. No. 333-22565) ("Amendment
No. 1") with the Securities and Exchange Commission (the "SEC"). Amendment
No. 1 covers the issuance of the shares of Common Stock issuable upon
conversion of the Note. Amendment No. 1 has been declared effective by the
SEC. Such effectiveness will expire on May 14, 1997.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. Investor hereby
represents and warrants that:
3.1 AUTHORIZATION. Investor has full power and authority to
enter into this Agreement, and such Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is
made with Investor in reliance upon Investor's representation to the Company,
which by Investor's execution of this Agreement Investor hereby confirms,
that the Series A Preferred Stock to be received by Investor will be acquired
for investment for Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that
Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, Investor
further represents that Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Series A Preferred Stock.
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3.3 DISCLOSURE OF INFORMATION. Investor believes it has
received all the information it considers necessary or appropriate for
deciding whether to purchase the Series A Preferred Stock. Such Investor
further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Series A Preferred Stock and the business, properties,
prospects and financial condition of the Company. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investor to rely thereon.
3.4 INVESTMENT EXPERIENCE. Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series A
Preferred Stock. If other than an individual, Investor also represents it
has not been organized for the purpose of acquiring the Series A Preferred
Stock.
3.5 ACCREDITED INVESTOR. Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC")
Rule 501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Investor understands that the
Series A Preferred Stock and the Common Stock issuable upon conversion
thereof (collectively, the "Securities") it is purchasing are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such securities
may be resold without registration under the Act, only in certain limited
circumstances. In this connection, Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Investor further agrees not to
make any disposition of all or any portion of the Series A Preferred Stock
unless and until the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 3 and such transfer is in compliance with
applicable securities laws.
3.8 LEGENDS. It is understood that the certificates
evidencing the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under
the Securities Act of 1933, as amended. They may not be sold, offered for
sale, pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
3.9 FURTHER REPRESENTATIONS BY FOREIGN INVESTORS. If an
Investor is not a United States person, Investor hereby represents that he
has satisfied himself as to the full observance of the laws of his
jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (i) the legal requirements
within his jurisdiction for the purchase of the Securities, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained, and (iv) the income tax and
other tax consequences, if any, that may be relevant to the purchase,
holding, redemption, sale, or transfer of the Securities. Such Investor's
subscription and payment for, and his continued beneficial ownership of the
Securities, will not violate any applicable securities or other laws of his
jurisdiction.
3.10 REGISTRATION STATEMENT. Investor acknowledges that it
has reviewed the Company's Amendment No. 1 to Registration Statement on Form
SB-2 (Reg. No. 333-22565).
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4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions,
the waiver of which shall not be effective against any Investor who does
not consent thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
5.2 PERFORMANCE. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing.
5.3 COMPLIANCE CERTIFICATE. The President of the Company
shall deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 QUALIFICATIONS. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
5.5 OPINION OF COUNSEL. The Investor shall have received an
opinion of the Company's counsel in substantially the form attached hereto as
Exhibit A.
5.6 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement (as defined below) shall have been declared effective by the SEC and
no stop order shall have been issued by the SEC with respect to the securities
of the Company.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the
Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by
that Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 PAYMENT OF PURCHASE PRICE. The Investor shall have
delivered the purchase price specified in Section 1.2.
6.3 QUALIFICATIONS. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
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6.4 EFFECTIVENESS OF REGISTRATION STATEMENT. The
Registration Statement shall have been declared effective by the SEC and no
stop order shall have been issued by the SEC with respect to the securities
of the Company.
7. REGISTRATION RIGHTS
7.1 REGISTRATION.
(a) Company shall prepare and file a new registration
statement or an amendment to Amendment No. 1 ( such registration statement
or amendment, the "Registration Statement") with the SEC under the Act to
register the issuance and/or resale of the Common Stock issuable upon
conversion of the Series A Preferred Stock (the "Registrable Securities") and
shall use its best efforts to secure the effectiveness of such Registration
Statement on or before the Closing. The number of Registrable Securities to
be registered shall be based on the applicable conversion price at the time
the Registration Statement is filed. The Company shall further amend the
Registration Statement to include additional Registrable Securities, if any,
at such time as the holders of a majority of the Registrable Securities shall
direct; provided, however, that the Company shall not be obligated to effect
more than one such amendment.
(b) Company shall pay all Registration Expenses (as
defined below) in connection with any registration, qualification or
compliance hereunder, and Investor shall pay all Selling Expenses (as defined
below) and other expenses that are not Registration Expenses relating to the
Registrable Securities resold by such Investor. "Registration Expenses"
shall mean all expenses, except for Selling Expenses, incurred by Company in
complying with the registration provisions herein described, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for Company, blue
sky fees and expenses and the expense of any special audits incident to or
required by any such registration. "Selling Expenses" shall mean all selling
commissions, underwriting fees and stock transfer taxes applicable to the
Registrable Securities and all fees and disbursements of counsel for
Investor.
(c) In the case of the registration effected by the
Company pursuant to these registration provisions, Company will use its best
efforts to: (i) keep such registration effective until the earlier of (A) the
second anniversary of the Closing, (B) such date as all of the Registrable
Securities have been resold or (C) such time as all of the Registrable
Securities held by Investor can be sold within a given three-month period
without compliance with the registration requirements of the Securities Act
pursuant to Rule 144 promulgated thereunder ("Rule 144"); (ii) prepare and
file with the SEC such amendments and supplements to the Registration
Statement and the prospectus used in connection with the Registration
Statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by the
Registration Statement; (iii) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as Investor from time to time may reasonably request; (iv) cause
the Registrable Securities to be listed on each securities exchange and
quoted on each quotation service on which similar securities issued by
Company are then listed or quoted; (v) provide a transfer agent and registrar
for all securities registered pursuant to the Registration Statement and a
CUSIP number for all such securities; (vi) otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC; and (vii) file
the documents required of Company and otherwise use its best efforts to
maintain requisite blue sky clearance in (X) all jurisdictions in which
shares of the Series A Preferred Stock were originally sold and (Y) all other
states specified in writing by Investor, provided, however, that, as to
clause (Y), Company shall not be required to qualify to do business or
consent to service of process in any state in which it is not now so
qualified or has not so consented.
(d) Company shall furnish to Investor upon request a
reasonable number of copies of a supplement to or an amendment of the
prospectus used in connection with the Registration Statement as may be
necessary in order to facilitate the public sale or other disposition of all
or any of the Registrable Securities held by the Investor.
(e) With a view to making available to Investor the
benefits of Rule 144 and any other rule or regulation of the SEC that may at
any time permit Investor to sell Registrable Securities to the public
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without registration or pursuant to a registration statement on Form S-3,
Company covenants and agrees to use its best efforts to: (i) make and keep
public information available, as those terms are understood and defined in
Rule 144, until the earlier of (A) the second anniversary of the Closing or
(B) such date as all of the Registrable Securities shall have been resold;
(ii) file with the SEC in a timely manner all reports and other documents
required of Company under the Securities Act and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); and (iii) furnish to Investor upon
request, as long as the Investor owns any Registrable Securities, (A) a
written statement by Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (B) a copy of the
most recent annual or quarterly report of Company, and (C) such other
information as may be reasonably requested in order to avail Investor of any
rule or regulation of the SEC that permits the selling of any such
Registrable Securities without registration or pursuant to such registration
statement on Form S-3.
(f) If Investor shall propose to sell any Registrable
Securities pursuant to the Registration Statement, it shall notify Company of
its intent to do so by 12:00 noon Pacific time on the second business day
prior to such proposed sale. Such notice shall be deemed to constitute a
representation that any written information previously supplied by Investor
is accurate as of the date of such notice. At any time on or before 5:00
p.m. Pacific time on the business day after the business day on which the
Company receives such notice, Company may refuse to permit the Investor to
resell any Registrable Securities pursuant to the Registration Statement for
an initial period not to exceed thirty (30) days; provided, however, that in
order to exercise this right, Company must deliver a certificate in writing
to the Investor to the effect that a delay in such sale is necessary because
a sale pursuant to such Registration Statement in its then-current form would
not be in the best interests of Company and its stockholders due to
disclosure obligations of Company. For example, if the Company receives such
notice from Investor on 11:00 a.m. Pacific time on Tuesday, it must deliver
such certificate to Investor on or before 5:00 p.m. Pacific time on Wednesday
in order to exercise the foregoing right to delay the sale. If the Company
exercises such right, it shall use its best efforts to amend the Registration
Statement if necessary and to take all other actions necessary to allow such
sale, and shall notify the Investor promptly after it has determined that
such sale has become permissible. Notwithstanding the foregoing, Company
shall not be entitled to exercise its right to withdraw the registration
statement more than three (3) times in any calendar year or for more than two
consecutive thirty (30) day periods in any calendar year. Investor hereby
covenants and agrees that it will not sell any Registrable Securities
pursuant to the Registration Statement during the periods the Registration
Statement is withdrawn as set forth in this Section 7.1(f).
7.2 INDEMNIFICATION AND CONTRIBUTION.
(a) Company agrees to indemnify and hold harmless
Investor from and against any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) to which Investor may become
subject (under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any untrue statement of a material fact or
omission to state a material fact in the Registration Statement on the
effective date thereof, or arise out of any failure by Company to fulfill any
undertaking included in the Registration Statement, and Company will, as
incurred, reimburse Investor for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that Company shall not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of, or is based upon (i) an untrue statement or omission in such
Registration Statement in reliance upon and in conformity with written
information furnished to Company by or on behalf of Investor specifically for
use in preparation of the Registration Statement, (ii) the failure of
Investor to comply with the covenants and agreements contained in Section
7.1(f) hereof, or (iii) an untrue statement or omission in any prospectus
that is corrected in any subsequent prospectus, or supplement or amendment
thereto, that was delivered to the Investor prior to the pertinent sale or
sales by Investor.
(b) Investor agrees to indemnify and hold harmless
Company from and against any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) to which Company may become
subject (under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon (i) an untrue statement of a material fact or
omission to state a material fact in the Registration Statement in reliance
upon and in conformity with written information furnished to Company by or on
behalf of Investor specifically for use in preparation of the Registration
Statement;
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provided, however, that Investor shall not be liable in any such case for any
untrue statement or omission in any prospectus which statement has been
corrected, in writing, by Investor and delivered to Company before the sale
from which such loss occurred, (ii) the failure of Investor to comply with
the covenants and agreements contained in Section 7.1(f) hereof, or (iii) an
untrue statement or omission in any prospectus that is corrected in any
subsequent prospectus, or supplement or amendment thereto, that was delivered
to the Investor prior to the pertinent sale or sales by the Investor, and
Investor will, as incurred, reimburse Company for any legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any
such action, proceeding or claim.
(c) Promptly after receipt by any indemnified person
of a notice of a claim or the beginning of any action in respect of which
indemnity is to be sought against an indemnifying person pursuant to this
Section 7.2(c) such indemnified person shall notify the indemnifying person
in writing of such claim or of the commencement of such action, and, subject
to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person and the indemnifying person shall have
been notified thereof, the indemnifying person shall be entitled to
participate therein, and, to the extent that it shall wish, to assume the
defense thereof, with counsel reasonably satisfactory to the indemnified
person. After notice from the indemnifying person to such indemnified person
of the indemnifying person's election to assume the defense thereof, the
indemnifying person shall not be liable to such indemnified person for any
legal expenses subsequently incurred by such indemnified person in connection
with the defense thereof; provided, however, that if there exists or shall
exist a conflict of interest that would make it inappropriate in the
reasonable judgment of the indemnified person for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person.
(d) If the indemnification provided for in this
Section 7.2 is unavailable to or insufficient to hold harmless an indemnified
party under this Section 7.2 in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as result of such losses, claims, damages
or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of Company on the one hand and
Investor on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Company on the one hand or Investor on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. Company and Investor agree that it
would not be just and equitable if contribution pursuant to this subsection
(iv) were determined by pro rata allocation (even if Investor and all other
Investors were treated as one entity for such purpose) or by any other method
of allocation which does not take into account the equitable considerations
referred to above in this subsection (iv). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this subsection (iv)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (iv),
Investor shall not be required to contribute any amount in excess of the
amount by which the net amount received by Investor from the sale of the
Registrable Securities to which such loss relates exceeds the amount of any
damages which Investor has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Investor's
obligations in this subsection (iv) to contribute are several in proportion
to its respective sales of Registrable Securities to which such loss relates
and not joint.
(e) The obligations of Company and Investor under this
Section 7.2 shall be in addition to any liability which Company and Investor
may otherwise have and shall extend, upon the same terms and conditions, to
each person, if any, who controls Company or Investor within the meaning of
the Securities Act and the Exchange Act.
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8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The warranties, representations
and covenants of the Company and Investor contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investor or the Company.
8.2 COVENANT NOT TO CONVERT SERIES A PREFERRED STOCK. No
Investor shall, without the prior written consent of the Company, convert any
shares of Series A Preferred whereby, solely by virtue of such conversion,
such Investor will be deemed, pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, to be the beneficial owner of more than 4.9% of any
class of the Company's then issued and outstanding equity securities which
are registered pursuant to Section 12 of such Exchange Act.
8.3 PRIVATE PLACEMENT. The Company agrees not to consummate
any private placement financing as long as High Risk Opportunities Hub Fund,
Ltd. holds any shares of Series A Preferred. The rights of Investor pursuant
to this Section 8.3 are not assignable to any assignee or transferee of
Series A Preferred.
8.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
8.5 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
8.6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.7 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.8 NOTICES. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified
or upon confirmation of receipt of a facsimile transmission, or upon deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address indicated
for such party on the signature page hereof, or at such other address as such
party may designate by ten (10) days' advance written notice to the other
parties.
8.9 FINDERS' FEE. Each party represents that it neither is
nor will be obligated for any finders' fee or commission in connection with
this transaction. Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature
of a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which Investor or any of its officers,
partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless Investor
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
8.10 ATTORNEY'S FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the
Certificate of Determination, the prevailing party shall be entitled to
reasonable
9
<PAGE>
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
8.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Common Stock issued or issuable upon conversion of the
Series A Preferred Stock. Any amendment or waiver effected in accordance
with this paragraph shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding (including securities
into which such securities are convertible), each future holder of all such
securities, and the Company.
8.12 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
8.13 AGGREGATION OF STOCK. All shares of Series A Preferred
held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
8.14 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DELTAPOINT, INC.
By: /s/ Jeffrey F. Ait
---------------------------------------
Jeffrey F. Ait, Chief Executive Officer
Address: 22 Lower Ragsdale Drive
Monterey, CA 93940
HIGH RISK OPPORTUNITIES HUB FUND, LTD.:
By: /s/ Robert H. Fasulo
---------------------------------------
Robert H. Fasulo, C.F.O.
III Offshore Advisors
---------------------------------------------
Address: 250 S. Australian, Suite 600
---------------------------------------------
West Palm Beach, FL 33401
---------------------------------------------
<PAGE>
April 16, 1997
DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
Ladies and Gentlemen:
This Letter of Intent summarizes the principal terms and conditions of the
proposed acquisition by DeltaPoint, Inc. ("Purchaser") of all the issued and
outstanding capital stock of Inlet Divestiture Corp. ("IDC"). All of such
capital stock is owned by Inlet, Inc. ("Seller"). The sole significant asset of
IDC is its ownership of a software program called CurrentIssue 3.0 ("Product").
1. STOCK TO BE PURCHASED. The stock to be purchased is all of the issued and
outstanding capital stock, being common stock, of IDC ("IDC Stock"). Seller
is the owner of one hundred percent (100%) of the issued and outstanding
capital stock of IDC.
2. PURCHASE PRICE. The purchase price to be paid to Seller for the IDC Stock
("Purchase Price") by Purchaser and the manner of payment of the Purchase
Price is as follows:
a. The cash sum of $25,000.00 upon the execution of this Letter of Intent
for non-recurring engineering expenses;
b. The cash sum of $25,000.00 on or before thirty (30) days from the date
of this Letter of Intent for non-recurring engineering expenses;
c. The cash sum of $25,000.00 on or before sixty (60) days from the date
of this Letter of Intent for non-recurring engineering expenses;
d. The cash sum of $50,000.00 on the earlier of: (i) the execution by
Purchaser and IDC of the OEM Agreement described in paragraph 6 herein,
or (ii) the fifteenth (15th) day following the closing on an equity
investment in Purchaser ("Closing");
e. The cash sum of $175,000.00 on or before the fifteenth (15th) day
after the Closing;
f. The cash sum of $175,000.00 on or before the forty-fifth (45th) day
after the
<PAGE>
Closing;
g. The cash sum of $175,000.00 on or before the seventy-fifth (75th) day
after the Closing;
h. The cash sum of $175,000.00 on or before the one hundred and fifth
(105th) day after the Closing;
i. 260,000 shares of Purchaser's common stock on the date of closing on
the transfer of the IDC Stock to Purchaser; and
j. Beginning with the date of transfer of the IDC Stock to Purchaser,
royalties in an amount equal to five percent (5%) of the net revenues
from all sales, leases, licenses, sublicenses or other transactions
pursuant to which units of the Product are distributed.
3. OTHER NEGOTIATIONS. From the date of Purchaser's execution of this Letter
of Intent until the earliest of (a) the closing on the purchase and sale of
the IDC Stock, (b) ninety (90) days from the date hereof, (c) the
abandonment of this Letter of Intent by agreement of the parties, (d) the
termination of this Letter of Intent by Seller as provided for herein or
(e) the failure of the conditions set forth in paragraphs 8g, 8h, 9d or 9e
below, neither Seller, IDC, nor any agent, employee, representative,
officer, director or stockholder thereof, shall solicit any offer from any
other person or entity for acquisition or disposition of the capital stock
of IDC or the rights to the Product, nor shall Seller or IDC, its agents,
representatives, officers, directors or stockholders enter into any
negotiations or provide information with respect to any such acquisition
without the written consent of Purchaser.
4. CONFIDENTIALITY. Any press releases or other publicity relating to this
Letter of Intent and the transactions proposed herein shall be subject to
prior review and coordination between Purchaser and Seller and subject to
their respective disclosure obligations, if any, under applicable securities
laws and regulations and further subject to such disclosure as may be
necessary to satisfy the conditions of this letter of intent and the
transaction proposed herein.
Seller for itself, its agents, representatives, partners, principles,
stockholders, directors, officers and partners, both limited and general,
acknowledges that as part of the discussions, negotiations and inspections
to be conducted by Seller and Purchaser, Seller may become privy to certain
confidential information of Purchaser and that any communication of such
confidential information to third parties (whether such communication is
authorized by the other or not) could injure Purchaser. Seller, for
itself, its agents, representatives, principals, stockholders, directors,
officers and partners, both limited and general, therefore, agrees to take
all necessary and reasonable steps to insure that any information obtained
by Seller, its agents, representatives, principles,
<PAGE>
stockholders, directors, officers or partners, both limited and general,
about Purchaser or about Purchaser's agents, attorneys, representatives or
business, including information about loans or finances of Purchaser and any
other information designated as confidential by Purchaser shall remain
confidential and shall not be disclosed or revealed to outside sources.
Purchaser for itself, its agents and representatives acknowledges that as
part of the discussions, negotiations and inspections to be conducted by
Purchaser and Seller, Purchaser may become privy to certain confidential
information of Seller and IDC and that any communication of such
confidential information to third parties (whether such communication is
authorized by the other or not) could injure Seller and IDC. Purchaser,
for itself, its agents and representatives, therefore, agrees to take all
necessary and reasonable steps to insure that any information obtained by
Purchaser, its agents and representatives, about Seller or IDC or about any
of Seller's or IDC's employees, officers, agents, attorneys, representatives
or business, including information about processes, programs, techniques,
designs, concepts, inventions, trade secrets, customer lists, identity of
customers, profile of customers, identity of past, present, or prospective
security holders, borrowers, prospects or associates of Seller or IDC and
any and all knowledge as to any loans, earnings or finances of Seller or
IDC, and any other information designated as confidential by Seller or IDC,
shall remain confidential and shall not be disclosed or revealed to outside
sources.
5. TERMINATION. Seller shall have the right to terminate any and all
obligations hereunder of Seller and IDC, in the event that Purchaser has not
made substantial progress to complete and close the follow-on offering
within sixty (60) days from the date hereof. Notwithstanding termination of
this Letter of Intent whether by Seller, by mutual agreement of Seller and
Purchaser, by failure of any condition or otherwise, Purchaser shall remain
obligated to make payment of and Seller shall be entitled to retain the
$25,000.00 cash payments of paragraphs 2a, 2b and 2c above; provided,
however, should Seller terminate this Letter of Intent under this Section 5
and should there not then be an OEM Agreement between Seller and Purchaser
executed by both Seller and Purchaser, Seller shall return to Purchaser any
cash payments made by Purchaser to Seller under paragraphs 2a, 2b and 2c
above.
6. OEM AGREEMENT. Commencing with the date hereof, IDC and Purchaser agree to
negotiate a distribution agreement to provide Purchaser with the exclusive
right to distribute the Product, new versions, translations and derivatives
of the Product ("OEM Agreement"). Should IDC and Purchaser fail to execute
and
<PAGE>
deliver the OEM Agreement within twenty-one (21) days from the date hereof,
neither Purchaser nor IDC shall have any further obligation to proceed with
such negotiations or enter into such an OEM Agreement. Any such OEM
Agreement shall expire upon closing on the transfer of the IDC Stock. If
the closing on the transfer of the IDC Stock does not occur, the OEM
Agreement shall continue in force and effect and any payments made by
Purchaser under paragraph 2d above shall be credited against the royalty
payments due to IDC under the OEM Agreement.
7. SPECIAL PROVISIONS.
a. Any royalties payable in connection with the purchase and sale of the
IDC Stock shall include the following terms:
(1) Purchaser shall not be required to pay royalties in excess of
$4,000,000.00 in the aggregate. Upon mutual agreement of
Purchaser and Seller, Purchaser may terminate its royalty payment
obligation under paragraph 2j: (i) during the first twelve (12)
months after the closing on the transfer of the IDC Stock by
payment of the difference between $2,000,000.00 and the then
aggregate of all royalties paid pursuant to paragraph 2j and
(ii) during the second twelve (12) months after the closing on
the transfer of the IDC Stock by payment of the difference between
$3,000,000.00 and the then aggregate of all royalties paid under
paragraph 2j above; and
(2) Purchaser shall pay fifty percent (50%) of the amount of any
royalties due pursuant to paragraph 2j and any termination
payments made pursuant to paragraph 7a.(1) in Purchaser's common
stock to be valued at the average closing price of such common
stock over the ten (10) trading days preceding payment.
b. The shares of Purchaser's common stock to be delivered pursuant to
paragraph 2i above, shall be registered pursuant to an effective
registration statement under the Securities Act of 1993, as amended
("Securities Act") so that they are freely tradable. Seller and
Purchaser acknowledge that Seller may be required to refrain from
selling the common stock of Purchaser for a reasonable period of time
following the closing on the sale of the IDC stock and that Seller will
be entitled to make sale of Purchaser's stock prior to the expiration
of said period in the event that sales of Purchaser's common stock are
made by certain identified investors or management individuals in
certain stated volumes.
8. CONDITIONS TO SELLER'S OBLIGATIONS. Seller's and IDC's obligations to sell
the IDC
<PAGE>
Stock are subject to:
a. Negotiation, execution and delivery of a definitive agreement for the
purchase and sale of the IDC stock;
b. Approval by Seller's and IDC's board of directors of the transactions
set forth in this Letter of Intent within fifteen (15) days of the
date hereof and approval by Seller's and IDC's board of directors of
the definitive agreement for the purchase and sale of the IDC Stock;
c. Approval by each and all of Seller's shareholders of the transactions
set forth in this Letter of Intent within fifteen days of the date
hereof;
d. Completion of due diligence investigations by Seller to determine that
no development has occurred or information has been discovered that
has, or is reasonably likely to have, or indicates, a material adverse
effect on the business, assets or finances of Purchaser concerning the
transactions set forth in this Letter of Intent within fifteen days of
the date hereof;
e. Closing on an additional equity investment in Purchaser on or before
ninety (90) days from the date hereof;
Delivery by Purchaser to Seller of a perpetual site license for the Product
and any derivatives thereof;
Negotiation, execution and delivery, within twenty-one (21) days from the
date hereof, of an agreement between Seller and Purchaser for provision
of development services by Seller for the Product to include a term of
up to three (3) years and management of the Seller's development
services by Todd Millard which agreement shall be valid and effective
at such time and if all the conditions to performance of Seller, IDC
and Purchaser hereunder have been satisfied and this Letter of Intent
has not been terminated;
Negotiation, execution and delivery, within twenty-one (21) days from the
date hereof, of reasonable non-compete agreements, between Purchaser,
Seller, IDC, Todd Millard and Terry Millard regarding the Product which
agreements shall be valid and effective at such time and if all the
conditions to performance of Seller, IDC and Purchaser hereunder have
been satisfied and this Letter of Intent has not been terminated; and
i. Timely receipt by Seller of any cash payments due to Seller hereunder
before the closing on the sale and transfer of the IDC Stock.
<PAGE>
9. CONDITIONS TO PURCHASER'S OBLIGATIONS. Purchaser's obligations to purchase
the IDC Stock are subject to:
a. Negotiation, execution and delivery of a definitive agreement for the
purchase and sale of the IDC Stock;
b. Completion of due diligence investigations by Purchaser regarding the
Product within fifteen (15) days of the date hereof;
Approval of the purchase by Purchaser's board of directors within fifteen
(15) days of the date hereof;
Negotiation, execution and delivery, within twenty-one (21) days of the
date hereof, of an agreement between Seller and Purchaser for provision
of development services by Seller for the Product to include a term of
up to three years and management of the Seller's development services
by Todd Millard which agreement shall be valid and effective at such
time and if all the conditions to performance of Seller, IDC and
Purchaser hereunder have been satisfied and this Letter of Intent has
not been terminated;
Negotiation, execution and delivery, within twenty-one (21) days of the
date hereof, of reasonable non-compete agreements, between Purchaser,
Seller, IDC, Todd Millard and Terry Millard regarding the Product which
agreements shall be valid and effective at such time and if all the
conditions to performance of Seller, IDC and Purchaser hereunder have
been satisfied and this Letter of Intent has not been terminated; and
f. Closing on an additional equity investment in Purchaser on or before
ninety (90) days from the date hereof.
10. INDEMNIFICATION. Seller and IDC understand that Purchaser intends to make
reference to or use of this Letter of Intent in connection with Seller's
efforts to secure additional equity investment through the Purchaser's
proposed public offering which reference or use is hereby authorized by
Seller and IDC for that express purpose only. Purchaser agrees to indemnify
and hold harmless each of Seller and IDC, their shareholders, officers,
directors and employees from and against any and all claims, liabilities,
losses, damages and costs, including reasonable attorneys' fees, arising out
of or resulting from Purchaser's use of or reference to this Letter of
Intent or any of its contents in connection with the proposed public
offering or otherwise including any reliance thereon by third parties.
<PAGE>
11. CLOSING. The parties shall close on the purchase and sale of the IDC stock
on or before one hundred twenty (120) days from the date hereof or this
Letter of Intent shall then terminate.
12. EXPENSES. Each of the parties hereto shall pay its own expenses incident
to negotiating, entering into and carrying out the purchase and sale and
related matters.
13. MISCELLANEOUS. This Letter of Intent shall be deemed to be made in and
shall be construed pursuant to the laws of the State of Iowa without regard
to conflicts of laws provisions. This Letter of Intent sets forth the
entire and integrated agreement between the parties hereto and supersedes
all prior negotiations, representations or agreements, whether written or
oral.
Please confirm by signing and returning a copy of this Letter no later
than April 16, 1997, that the foregoing reflects our mutual understanding and
sets forth the basis for proceeding to negotiate the agreements outlined.
DELTAPOINT, INC.
BY: /s/ Jeffrey F. Ait
------------------------------------
NAME Jeffrey F. Ait
CEO
------------------------------------
TITLE
<PAGE>
The foregoing reflects our mutual understanding and sets forth the basis
for proceeding to negotiate the agreements outlined above.
DATED: April 16, 1997
-----------
INLET, INC.
BY: /s/ Terry Millard
------------------------------------
NAME Terry Millard
President
------------------------------------
TITLE
INLET DIVESTITURE CORP.
BY: /s/ Terry Millard
------------------------------------
NAME Terry Millard
President
------------------------------------
TITLE
Terry Millard and Todd Millard sign for the purpose of indicating their
intention and willingness to negotiate the non-compete agreements contemplated
by paragraph 9e above in connection with the purchase and sale of the IDC Stock.
/s/ Terry Millard
------------------------------------
TERRY MILLARD
/s/ Todd Millard
------------------------------------
TODD MILLARD
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 5 to this Registration Statement on Form SB-2 of
our report dated January 27, 1997, except for the first paragraph of Note 11
which is as of February 26, 1997, and the second paragraph of Note 1 and Note
11, which are as of March 25, 1997, relating to the financial statements of
DeltaPoint, Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
June 11, 1997
