<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
SOLOPOINT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
CALIFORNIA 3661 77-0337580
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
--------------
130-B KNOWLES AVENUE, LOS GATOS, CALIFORNIA 95030
(408) 364-8850
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
EDWARD M. ESBER, JR.
CHIEF EXECUTIVE OFFICER
130-B KNOWLES AVENUE, LOS GATOS, CALIFORNIA 95030
(408) 364-8850
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
--------------
COPIES TO:
MICHAEL J. O'DONNELL, ESQ. THOMAS J. POLETTI, ESQ.
RICK S. ARNOLD, JR., ESQ. Freshman, Marantz, Orlanski, Cooper &
VAHE H. SARRAFIAN, ESQ. Klein
ELAN Q.G. NGUYEN, ESQ. 9100 Wilshire Boulevard
Wilson Sonsini Goodrich & Rosati Eighth Floor, East Tower
650 Page Mill Road Beverly Hills, California 90212
Palo Alto, California 94304-1050 (310) 273-1870
(415) 493-9300 Facsimile: (310) 274-8357
Facsimile: (415) 493-6811
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
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
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE PER OFFERING REGISTRATION
REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par
value(2)(3)........... 2,875,000 shares $2.63 $7,561,250 --
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Underwriter's War-
rant(4)............... 1 warrant $5.00 $5 --
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Common Stock issuable
upon exercise of
Underwriter's
Warrant(5)(6) ......... 250,000 shares $3.16 $790,000 --
- --------------------------------------------------------------------------------
Totals ................. -- -- $8,351,255 $2,530.68
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(2) For the purpose of calculation of the registration fee, the shares of
Common Stock registered hereunder have been assumed to have a proposed
maximum offering price per share of $2.63 (the average of the high and low
prices reported in the Nasdaq SmallCap market on August 1, 1997).
(3) Includes 375,000 shares which the Underwriter has the option to purchase
to cover over-allotments, if any.
(4) In connection with the Registrant's sale of Common Stock, the Registrant
is granting to the H.J. Meyers & Co., Inc. (the "Underwriter") a warrant
to purchase up to 250,000 shares of Common Stock (the "Underwriter's
Warrant"). The price to be paid by the Underwriter for the Underwriter's
Warrant is $5.00.
(5) Such shares are being registered for resale by the Underwriter and its
assigns and transferees on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933.
(6) For purposes of calculation of the registration fee, each share of Common
Stock issuable upon exercise of the Underwriter's Warrant has been assumed
to have a proposed maximum offering price of $3.16 (120% of the average of
the high and low prices reported in the Nasdaq SmallCap Market on August
1, 1997).
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 8, 1997
[LOGO OF SOLOPOINT, INC.]
SOLOPOINT, INC.
2,500,000 SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by SoloPoint,
Inc. ("SoloPoint" or the "Company"). The Company's Common Stock is traded on
the Nasdaq SmallCap Market under the symbol SLPT. On August 1, 1997, the last
reported sale price of the Common Stock on the Nasdaq SmallCap Market was
$2.625 per share. See "Price Range of Common Stock."
THE SHARES OF 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
UNDERWRITING
PRICE DISCOUNTS AND, PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............. $ $ $
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Total(3).............. $ $ $
================================================================================
</TABLE>
(1) Does not include additional compensation to be received by the H.J. Meyers
& Co., Inc. (the "Underwriter") in the form of (i) a non-accountable
expense allowance of $196,875 at an assumed public offering price of $2.625
per share (or $226,406 if the Underwriter's over-allotment option described
in footnote (3) is exercised in full) and, (ii) a warrant to purchase up to
250,000 shares of Common Stock at $3.15 per share (assuming a public
offering price of $2.625 per share), exercisable over a period of four
years, commencing one year from the date of this Prospectus (the
"Underwriter's Warrant"). In addition, the Company has agreed to indemnify
the Underwriter against certain civil liabilities under the Securities Act
of 1933. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $675,000, including the Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriter an option, exercisable within 45
business days of the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock on the same terms and conditions set
forth above to cover over-allotments, if any. If all such additional shares
of Common Stock are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be increased to
$7,546,875, $754,688 and $6,092,187, respectively. See "Underwriting."
The shares of Common Stock offered hereby will be offered on a "firm
commitment" basis by the Underwriter when, as and if delivered to and accepted
by the Underwriter and subject to prior sale, withdrawal or cancellation of the
offer without notice. It is expected that delivery of the certificates
representing the shares of Common Stock will be made at the office of H.J.
Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620 on or about
1997.
H.J. MEYERS & CO., INC.
THE DATE OF THIS PROSPECTUS IS AUGUST , 1997
<PAGE>
[GRAPHICS]
A color pictorial entitled "SoloPoint's Family of Personal Communications
Management Products." Six pictures are arranged in a circle displaying the
Company's products. Beginning with the far left picture, in a clockwise
direction are pictured, with accompanying titles, the Company's SmartMonitor
M-200, SmartMonitor M-100, Pacific Bell SmartScreen S-100-TMC, SmartScreen S-
150, SmartCenter C-120 and SmartScreen S-100.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
The Company furnishes to its shareholders annual reports containing
financial statements audited by an independent accounting firm and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial information.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the 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, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
SoloPoint, Inc. ("SoloPoint" or the "Company") designs, develops and markets
innovative and easy-to-use personal communications management products that
connect people more effectively. The Company's products are used by residential
Regional Bell Operating Company ("RBOC") voice mail system ("Voice Mail")
customers, Small Office Home Office ("SOHO") professionals and professionals in
corporate satellite offices. The Company's products are designed to allow users
to balance three essential needs of communications dependent individuals:
Mobility, the ability to receive critical calls while away from their primary
office; Accessibility, the ability to be available on an as-needed basis; and
Control, the ability to monitor calls in order to decide, in real time, from
whom and when to accept a call. The Company's objective is to be a leading
provider in the emerging personal communications management products market.
In February 1997, the Company introduced the SmartScreen S-100, targeted at
residential RBOC Voice Mail customers. The S-100 is the only commercially
available product known to the Company that enables RBOC Voice Mail users to
screen incoming calls, connect to a caller leaving a Voice Mail message and
support a fax machine on the same telephone line. In addition, the SmartScreen
S-100 provides a Visual Message Waiting Indicator ("VMWI") to indicate that
there are new messages in Voice Mail. In May 1997, the Company introduced
SmartScreen S-150 targeted at SOHO professionals. The S-150 incorporates all
the features of the S-100 and provides Caller ID information on a connected
personal computer ("PC"). International Data Corporation estimates that there
are over 9 million residential RBOC Voice Mail customers in the United States
as of year-end 1996, growing to over 18 million at the end of 2001. The Company
believes that the primary channels of distribution for the SmartScreen product
family are RBOCs and Local Exchange Companies ("LECs"). In May 1997, the
Company entered into a marketing agreement with Pacific Bell, an RBOC, to
market a co-branded version of the S-100 to Pacific Bell's residential Voice
Mail customers.
In September 1996, the Company introduced the SmartMonitor M-100, targeted at
mobile SOHO professionals who use an answering machine. The M-100 is the only
commercially available product known to the Company that enables mobile
professionals to monitor and take office calls from their cellular or Personal
Communications Service ("PCS") phone, thereby minimizing "phone tag" and
increasing their effectiveness. In August 1997, the Company intends to
introduce the SmartMonitor M-200 ("M-200"), targeted at mobile SOHO
professionals who use RBOC Voice Mail. The wireless market (including cellular
and PCS phones) is expected to grow from approximately 55 million users in 1997
to over 95 million in the year 2001 according to Bear Stearns & Co. According
to BIS Strategic Decisions, 47% of SOHO workers, or approximately 17 million
individuals, had cellular phones in 1995. The Company believes the primary
channel of distribution for the M-100 is the network of retailers, dealers and
distributors currently marketing cellular and PCS phones and the primary
channels of distribution for the M-200 are RBOCs and LECs. The M-200 is
expected to be available for customer shipment in the fourth quarter of 1997.
In June 1997, the Company entered into distribution arrangements with
Association of Cellular Agents ("ACA") and Hutton Communications, Inc., two
large domestic cellular distributors.
3
<PAGE>
In March 1996, the Company introduced the SmartCenter C-100, the predecessor
to the SmartCenter C-120. The Smart Center C-120 was introduced in February
1997 as an enhanced version of the C-100. The C-120 is targeted at SOHO
professionals and professionals in corporate satellite offices that need to be
integrated into the corporate communications infrastructure. The C-120 is a
highly integrated, multifunction, personal call management solution that
includes a self-contained communications hardware device and SmartStart, a
graphical configuration and management software application that runs on the
Windows 95 operating system for PCs. The C-120 provides, among other features,
call routing, filtering and interactive menuing features, which allow the user
to choose an optimal balance between mobility, accessibility and control.
According to International Data Corporation, the number of SOHO professionals
who have home-offices grew from 36 million in 1994 to over 39 million in 1995.
The Company believes that the primary sales distribution channel for the C-120
targeted at SOHO professionals is office supply retailers. In November 1996,
the Company received an initial stocking order from Office Depot. The Company
believes that the primary sales channel for the C-120 targeted at professionals
in corporate satellite offices is direct from the Company or through Value
Added Resellers ("VARs"). Accordingly, the Company plans to spend a portion of
the proceeds of this offering to develop a direct corporate sales force and VAR
sales and support programs.
The Company was incorporated in California on March 26, 1993. Its
headquarters is located at 130-B Knowles Dr., Los Gatos, CA 95030, and its
telephone number is (408) 364-8850.
"SoloPoint" and "SoloCall" are trademarks of the Company. This Prospectus
also contains trademarks of other companies.
----------------
NOTICE TO CALIFORNIA AND OREGON INVESTORS
EACH PURCHASER OF SHARES OF COMMON STOCK IN CALIFORNIA AND OREGON MUST MEET
ONE OF THE FOLLOWING SUITABILITY STANDARDS: (i) A LIQUID NET WORTH (EXCLUDING
HOME, FURNISHINGS AND AUTOMOBILES) OF $250,000 OR MORE AND GROSS ANNUAL INCOME
DURING 1996 AND ESTIMATED DURING 1997, OF $65,000 OR MORE FROM ALL SOURCES; OR
(ii) A LIQUID NET WORTH (EXCLUDING HOME, FURNISHINGS AND AUTOMOBILES) OF
$500,000 OR MORE. EACH CALIFORNIA AND OREGON RESIDENT PURCHASING SHARES OF
COMMON STOCK OFFERED HEREBY WILL BE REQUIRED TO EXECUTE A REPRESENTATION THAT
IT COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES.
4
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 26,
YEAR ENDED SIX MONTHS ENDED 1993
DECEMBER 31, JUNE 30, (INCEPTION)
---------------- ----------------------- THROUGH
1995 1996 1996 1997 JUNE 30, 1997
------- ------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $ -- $ 380 $ 34 $ 363 $ 743
Operating loss......... (2,664) (3,671) (1,739) (2,309) (9,736)
Net loss............... (2,672) (3,594) (1,745) (2,260) (9,618)
Net loss per share(1).. $ (1.35) $ (1.46) $ (0.88) $ (0.65)
Shares used in
computing net loss per
share(1).............. 1,974 2,462 1,973 3,500
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
AS
ACTUAL ADJUSTED(2)
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $2,568 $7,799
Total assets........................................... 3,281 8,603
Deficit accumulated during the development stage....... (9,651) (9,651)
Shareholders' equity................................... 2,675 7,906
</TABLE>
- --------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of shares used in computing net loss per share.
(2) Adjusted to reflect the sale of the 2,500,000 shares of common stock
offered hereby at an assumed offering price of $2.625 per share and the use
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company......................... 2,500,000 Shares
Common Stock Outstanding Prior to
the Offering.................... 3,499,780 Shares
Common Stock Outstanding After
the Offering.................... 5,999,780 Shares
Use of Proceeds.................. Sales and marketing, research and
development, capital expenditures and working
capital and general corporate purposes. See
"Use of Proceeds."
Nasdaq SmallCap Symbol........... SLPT
</TABLE>
Except as otherwise specified, all information in this Prospectus assumes no
exercise of the Underwriter's over-allotment option, the Underwriter's Warrant,
other outstanding warrants or stock options outstanding or reserved for
issuance under the Company's incentive stock plan. See "Description of Capital
Stock--Warrants," and "Management--Benefit Plans."
6
<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 COMMON STOCK OFFERED HEREBY. NO
INVESTOR SHOULD PARTICIPATE IN THE OFFERING UNLESS SUCH INVESTOR CAN AFFORD A
COMPLETE LOSS OF HIS OR HER INVESTMENT. 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, INCLUDING BUT NOT LIMITED
TO THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS.
HISTORY OF OPERATING LOSSES; NO ASSURANCE OF FUTURE PROFITABILITY; FUTURE
CAPITAL NEEDS; NO ASSURANCE OF FUTURE FINANCING
The Company was incorporated in March 1993 and has incurred significant
operating losses in every fiscal period since inception. As of June 30, 1997,
the Company had an accumulated deficit of $9,650,927. The Company expects to
incur substantial quarterly operating losses at least through the end of 1998,
and possibly longer. There can be no assurance that sales of the Company's
products will ever generate significant revenue, that the Company will ever
generate positive cash flow from its operations, or that the Company will
attain or thereafter sustain profitability in any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The net proceeds from this Offering are estimated to be $5,231,250, assuming
no exercise of the Underwriter's over-allotment option. In the absence of
receiving the proceeds of this Offering, the Company anticipates that its
existing capital resources and cash generated from operations, if any, will be
sufficient to meet the Company's cash requirement through the end of 1997 at
its anticipated level of operations. The Company's future capital requirements
will depend upon numerous factors, including the amount of revenues generated
from operations, the cost of the Company's sales and marketing activities and
the extent of the Company's research and development activities, none of which
can be predicted with certainty. The Company anticipates that the proceeds of
this Offering, together with existing capital resources and cash generated
from operations, if any, will be sufficient to meet the Company's cash
requirements through the end of 1998. However, the Company may seek additional
funding during the next 12 months and will likely be required to seek
additional funding after such time.
There can be no assurance that any additional financing will be available on
acceptable terms, or at all, when required by the Company. Moreover, if
additional financing is not available, the Company could be required to reduce
or suspend its operations, seek an acquisition partner or sell securities on
terms that may be highly dilutive or otherwise disadvantageous to investors
purchasing the shares of Common Stock offered hereby. The Company has
experienced in the past, and may continue to experience, operational
difficulties and delays in its product development and marketing activities
due to working capital constraints. Any such difficulties or delays could have
a materially adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RECENT PRODUCT INTRODUCTIONS; EMERGING MARKET; DEPENDENCE ON MARKET ACCEPTANCE
OF PRODUCTS; LACK OF ADEQUATE MARKETING RESOURCES
The Company has only recently introduced its current products and to date
the Company has received only limited revenue from the sale of these products.
The market for personal communications management products is only beginning
to emerge, and there can be no assurance that it will develop sufficiently to
enable the Company to achieve broad commercial acceptance of its products.
Because this market is relatively new and because current and future
competitors are likely to introduce a variety of competing products and
services, it is difficult to predict the rate at which this market will grow,
if at all, or the degree of market penetration which the Company will be able
to achieve, if any. To date, the market for personal communications management
products
7
<PAGE>
has developed at a significantly slower rate than the Company had originally
anticipated. If the personal communications management market fails to grow or
grows at a slower rate than the Company currently anticipates, or if the
Company fails to achieve sufficient market penetration, the Company's
business, financial condition and results of operations will be materially
adversely affected. Even if the market for personal communications management
products does grow, there can be no assurance that the Company's current
products or any future personal communications management products introduced
by the Company will achieve commercial acceptance within such a market.
Marketing newly introduced products such as those of the Company in a
developing market requires extensive financial resources and marketing
efforts. To date, the Company has not had sufficient financial resources to
adequately market its products and there can be no assurance that the proceeds
from this offering will be sufficient to enable the Company to adequately
market its products.
LACK OF SIGNIFICANT MARKETING, SALES AND DISTRIBUTION CAPABILITIES; RISKS
ASSOCIATED WITH STRATEGIC RELATIONSHIPS
Commercial acceptance of the Company's products will require the Company to,
among other things, successfully establish and maintain significant sales and
distribution channels and hire and retain key marketing and sales personnel.
The Company does not currently have sufficient sales and marketing personnel
to adequately support sales of its products, nor has the Company yet
established significant sales and distribution relationships with third
parties. There can be no assurance that the Company will be able to recruit
the required personnel or successfully establish and maintain significant
sales and distribution channels to market its products.
The Company believes that its future success, if any, will be largely
dependent on its ability to either sell its products to or enter into joint
marketing arrangements with RBOCs and LECs in the United States. In
particular, the Company believes that certain of its products can be sold
profitably only if they are sold to or in conjunction with RBOCs and LECs.
Selling a product to or entering into a marketing relationship with an RBOC or
LEC is generally a lengthy process. A failure by the Company to develop
significant relationships with RBOCs and LECs would have a materially adverse
effect on the Company's business and operating results. The Company has
entered into a marketing agreement with Pacific Bell which calls for Pacific
Bell to market a co-branded version of the Company's SmartScreen S-100
product. There can be no assurance that the marketing agreement with Pacific
Bell will be successful or that the Company will be able to establish
relationships with other RBOCs. Even if the Company is successful in
establishing alliances or relationships with RBOCs, LECs or other strategic
partners, there can be no assurance that such alliances or relationships will
result in an increase in the Company's distribution channels or product
revenues or otherwise provide any benefit to the Company. In addition, the
strategic partners may be in direct or indirect competition with the Company
or among each other. The presence of potential or actual conflicts of interest
could materially adversely affect the Company's relationships with potential
strategic partners, which in turn could have a material adverse effect on the
Company's business, financial condition and results of operations.
THIRD PARTY DISTRIBUTION RISKS
The Company intends to develop distribution channels for its products,
including certain authorized service resellers of RBOCs and LECs, retail
stores and mail order catalogs ("Distributors"). Development of any of these
channels will require the expenditure of substantial time and effort by the
Company's management. Based upon its experience to date, the Company believes
that certain Distributors may not be appropriate for certain of the Company's
products, and that the Company must identify and establish the appropriate
channels of distribution for each of its products or market such products
directly. There can be no assurance that the Company will be able to identify
and establish the appropriate channel of distribution for each of its products
or successfully market such products directly, and in the event that an
inappropriate channel is selected, the Company's business, financial condition
and results of operations will be adversely affected. See "Business-- Sales
and Marketing."
8
<PAGE>
The Company has limited experience in marketing its products through
Distributors and to date has not generated significant revenue from the sale
of its products through these channels. Additionally, certain Distributors may
have little or no experience offering personal communication management
products or may offer products that compete with the Company's personal
communications management products. Distributors may also give higher priority
to products of other suppliers, thus reducing their efforts to sell the
Company's personal communications management products, and agreements with
these Distributors may be terminable at the Distributors' option. There can be
no assurance that the Company will be able to establish relationships with
Distributors or, if established, that such relationships will be sustained.
The Company's inability to develop relationships with Distributors, or a
reduction in sales effort or termination of a Distributor's relationship with
the Company, if established, could have a material adverse effect on the
Company's business, financial condition and results of operations. Use of
Distributors also entails the risk that such Distributors will accumulate
inventories in anticipation of a growth in sales. If such growth does not
occur as anticipated, these Distributors may substantially decrease the amount
of product ordered in subsequent quarters or return previously purchased
product. The Company does not believe that a significant amount of its
products sold into these channels to date have sold through to end customers
and there can be no assurance that these products will sell through to end
customers in the future. Such product returns or fluctuations in orders could
contribute to significant variations in the Company's business, financial
condition and results of operations.
The Company intends to permit Distributors, under certain circumstances, to
return a portion of their inventory to the Company for full credit against
other purchases. Although the Company currently has no contractual obligation
or plan to reduce the prices of its products, there can be no assurance that
the Company will not choose or be required to reduce its prices in the future.
If the Company reduces its prices, the Company may, under certain
circumstances, credit its Distributors for the difference between the purchase
prices of products remaining in their inventory and the Company's reduced
prices for such products ("Price Protection"). There can be no assurance that
actual returns and price protection will not have a material adverse effect on
the Company's business, financial condition and results of operations,
particularly since the Company intends to introduce new and enhanced products
and is likely to face increasing price competition. The distribution industry
has been characterized by rapid change, including consolidations and financial
difficulties of Distributors, and the emergence of alternative distribution
channels. In addition, there are an increasing number of companies competing
for access to these channels. The loss or ineffectiveness of the Distributors
would have a material adverse effect on the Company's business, financial
condition and results of operations.
POTENTIAL PRODUCT RETURNS AND WARRANTY CLAIMS
The Company establishes allowances, including allowances for stock balancing
and product rotation, based upon estimated future returns of product and after
taking into account channel inventory levels, the timing of new product
introductions and other factors. While the Company maintains measures to
monitor these factors and to provide appropriate allowances, actual product
returns may differ from the Company's reserve estimates and such differences
could be material. In addition, the Company currently offers a 30-day
unconditional money back guarantee on its products as well as a limited two
year warranty for SmartCenter and a limited one year warranty for its other
products. SmartCenter has only a limited sales history and the Company's other
two products, SmartMonitor and SmartScreen, have less than a year's experience
in the marketplace and therefore the Company does not have a significant
product return or warranty history for its products. Product returns and
warranty expenditures to date have been within management's estimates.
However, future warranty claims, returns, stock rotation exchanges, or price
protection adjustments could exceed management's estimates and therefore could
have a material adverse effect on the Company's business, financial condition
and results of operations.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company has experienced and expects to continue to experience
fluctuations in operating results. Fluctuations in operating results may
result in volatility in the price of the Company's common stock. Operating
results may fluctuate as a result of many factors, including the volume and
timing of orders received or product returns, if any, during the period, the
timing of commercial introduction of future products and enhancements,
9
<PAGE>
competitive products and the impact of price competition on the Company's
average selling prices, product announcements by the Company and its
competition and the Company's level of research and development and sales and
marketing activities. Many of these factors are beyond the Company's control,
particularly those related to sales and product returns on behalf of the
Company's marketing partners and Distributors.
The Company's operating and other expenses are relatively fixed in the short
term. As a result, variations in timing of revenues, if any, will cause
significant variations in quarterly results of operations. Notwithstanding the
difficulty in forecasting future sales, the Company generally must undertake
its sales and marketing, research and development, and other commitments
months or years in advance. Accordingly, any shortfall in product revenues, in
a given quarter may materially adversely affect the Company's business,
financial condition and results of operations due to the inability to adjust
expenses during the quarter to match the level of product revenues, if any,
for the quarter. Once commitments for such expenditures are undertaken, the
Company may be unable to reduce them quickly if product revenues are less than
expected. In addition, the Company's sales expectations are based entirely on
its internal estimates of future demand. Due to these and other 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.
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS
During the six month period ended June 30, 1997, Hutton Communications,
Inc., ACA and Hello Direct, Inc. ("Hello Direct") accounted for 25%, 21% and
14% of the Company's net revenues, respectively. The Company expects that
sales to relatively few customers will continue to account for a significant
percentage of the Company's revenues for the foreseeable future. Substantially
all of the Company's sales are made on a purchase order basis, and none of the
Company's customers has entered into an agreement requiring them to purchase
the Company's products. The loss of, or any reduction in orders from, a
current customer would have a material adverse effect on the Company's
business, financial condition and results of operations in the near term.
The Company's ability to increase its sales will depend in part upon its
ability to obtain orders from new customers. In this regard, the Company
intends to expand its efforts to sell to RBOCs and LECs. The Company has had
only nominal sales to one RBOC to date and there can be no assurance of
significant sales to any RBOC or LEC in the future. In the event that such
sales do not materialize, the Company's business, financial condition and
results of operations would be materially adversely affected.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS; POTENTIAL PATENT
INFRINGEMENT
The Company relies upon a combination of patents, trademarks, copyrights,
trade secrets and non-disclosure agreements in order to establish and protect
its proprietary rights. The Company has filed applications for patents
covering SmartCenter, and intends to continue to file applications, as
appropriate, for any of the Company's future products. There can be no
assurance that patents will issue from any of its pending applications or, if
patents do issue, that the claims allowed will be sufficiently broad to
protect the Company's technology. In addition, there can be no assurance that
any patents issued to the Company will not be challenged, invalidated or
circumvented, or that the right granted thereunder will provide proprietary
protection to the Company. Since United States patent applications are
maintained in secrecy until patents issue, and since the publication of
inventions in technical or patent literature tend to lag behind such
inventions by several months, the Company cannot be certain that it was the
first creator of inventions covered by its pending patent applications, that
it was the first to file patent applications for such inventions or that the
Company is not infringing on the patents of others.
The Company has in the past and intends in the future to trademark some of
its proprietary product names and logos and claims copyright protection for
its proprietary software. There can be no assurance that the Company can
obtain additional trademarks or that any copyright protection will be
adequate. Litigation may be necessary to enforce the Company's patents, if
issued, trademarks, copyrights or other intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement.
Such litigation could result in substantial costs and diversion of resources
and could have a material adverse effect on the Company's business, financial
condition and results
10
<PAGE>
of operations regardless of the final outcome of such litigation. Despite the
Company's efforts to safeguard and maintain its proprietary rights, there can
be no assurance that the Company will be successful in doing so or that the
Company's competitors will not independently develop or patent technologies
that are substantially equivalent or superior to the Company's technologies.
In addition, the laws of certain foreign countries do not protect the
Company's intellectual property rights to the same extent, as do the laws of
the United States. Although the Company continues to implement protective
measures and intends to defend its proprietary rights vigorously, there can be
no assurance that these efforts will be successful. In the absence of
effective protection of its intellectual property, there can be no assurance
that third parties will not develop and market copies of the Company's
products.
The Company may be involved from time to time in litigation to determine the
enforceability, scope and validity of any proprietary rights of the Company or
of third parties asserting infringement claims against the Company. Any such
litigation could result in substantial costs to the Company and diversion of
efforts by the Company's management and technical personnel. In particular,
the Company is in discussions with a manufacturer of computer telephony
products that has a patent covering the storage of a telephone number used in
a menuing system to allow a caller to redirect their call to another
destination. The manufacturer asserts that some of the Company's products
infringe upon this patent. The Company intends to challenge either the
validity of the patent or its application to the Company's products or enter
into a licensing agreement with the patent holder. There can be no assurance
that the Company will be able to challenge the patent successfully or if
necessary, enter into a licensing arrangement on commercially reasonable
terms. A failure of the Company to challenge the patent successfully or enter
into a licensing arrangement, would, in all probability, force the Company to
cease selling the affected products and would have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company is aware that another manufacturer of computer telephony
products has filed a patent application purporting to cover any device which
electronically detects stutter dial tone signaling. The Company expects that
the patent will be issued and believes that the manufacturer may assert that
the Company's SmartMonitor M-200, SmartScreen S-100 and SmartScreen S-150
products infringe upon the patent. If the patent is issued and such assertion
is made, the Company intends to challenge either the validity of the patent or
its application to the Company's products or enter into a licensing agreement
with the patent holder. There can be no assurance that the Company will be
able to challenge the patent successfully or if necessary, enter into a
licensing arrangement on commercially reasonable terms. A failure of the
Company to challenge the patent successfully or enter into a licensing
arrangement, would, in all probability, force the Company to cease selling the
affected products and would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
expense associated with a successful challenge to the patent or a licensing
arrangement could have a materially adverse effect on the Company's business,
financial condition and results of operations. See "Business--Intellectual
Property Rights."
DEPENDENCE ON BELLCORE SPECIFICATIONS
The Company has designed all of its personal communications management
products to comply with specifications published by Bell Communications
Research (the "Bellcore specifications"), which the Company believes are used
by most United States local telephone service providers. Due, however, to the
wide range of parameters contained within the Bellcore specifications, there
are potentially a large number of local switch configurations utilized by such
service providers. The Company has tested its products on only a limited
number of local switch configurations and has discovered that the SmartCenter
C-120, SmartMonitor M-200, SmartScreen S-100 and SmartScreen S-150 products
are not currently compatible with GTE Voice Mail, a service provider that is
heavily used in Los Angeles and the Saratoga/Los Gatos area of Northern
California. The Company believes that GTE is currently attempting to address
this problem, however, there can be no assurance that these products or any of
the Company's future personal communications management products will work in
conjunction with existing or future switch configurations, or that local
service providers have configured their switches to fully conform to the
Bellcore specifications. The failure of its current products or
11
<PAGE>
any of the Company's future personal communications management products to
work in conjunction with existing or future switch configurations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Since the Bellcore specifications are not predominantly used by service
providers outside the United States, the Company may have difficulty in
selling or may be unable to sell its products to markets in foreign countries.
While the Company intends to develop future personal communications management
products to address foreign markets, there can be no assurance that the
Company will be successful in its development efforts, or that any developed
personal communications management products will function effectively, if at
all, in any foreign markets.
PRODUCT DEFECTS
Products such as those currently offered by the Company frequently contain
undetected software or hardware errors when introduced or as new versions are
released. The Company has experienced such errors in the past as the Company
has performed alpha and beta testing on products in development. In addition,
the Company has experienced a product recall of its SmartCenter product in the
past. Although the Company is not presently aware of such an error which would
materially and adversely affect product performance, there can be no assurance
that these products and any of the Company's future personal communications
management products will not experience errors in the future. From time to
time, the Company may temporarily suspend, delay or recall shipments or divert
development resources from other projects to correct a particular product
deficiency. Such efforts to identify and correct errors and make design
changes may be expensive and time consuming. Failure to discover product
defects in the future could result in delayed product introductions or
shipments, the recall of previously shipped products, increased service and
warranty costs, design modifications, unfavorable publicity, or strained
relationships with Distributors and strategic partners, any of which could
have material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Research and Development."
COMPETITION
The market for communications products is highly competitive and
characterized by rapid technological change, frequent new product
introductions, short product life cycles, evolving industry standards and
significant price erosion over the life of a product. Within specific ranges
of functionality, the Company experiences and expects to continue to
experience competition from many sources, including but not limited to: (i)
companies that provide communications management services, such as Priority
Call Management, Inc., Wildfire Communications, AccessLine Technologies, Inc.,
MCI Communications Corporation and RBOCs such as Ameritech Corporation
("Ameritech") and U.S. West; (ii) companies that directly provide personal
communications management products, such as Bogen Communications, Inc., Beond
Communications, Centrepoint s/w Technologies, Inc., CIDCO, Inc., Jetstream
Communications and Notify Corporation; and (iii) large consumer electronics
companies that offer telephony products, such as enhanced answering machines,
including AT&T Corporation, Sony Corporation, Panasonic Company and others.
The Company believes that there will be intense competition between companies
that provide communications management services, such as RBOCs, and companies
that directly provide communications management products. Most of the
Company's present and potential competitors have substantially greater
financial, marketing, technical and other resources than the Company.
Furthermore, the Company also expects to compete with companies that have
substantial manufacturing, marketing and distribution capabilities, areas in
which the Company has limited or no experience. Increased competition, direct
and indirect, could materially adversely affect the Company's revenues and
profitability through pricing pressure and loss of market share. There can be
no assurance that the Company will be able to compete successfully against
existing and new competitors as the market evolves, and the level of
competition increases. The failure to compete successfully against existing
and new competitors would have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Business--
Competition."
Current and potential competitors have established and may establish
additional cooperative relationships with third parties to market and sell
their products and to increase the ability of their products to address the
12
<PAGE>
needs of the Company's prospective customers. To the extent such third parties
enter into relationships with competitors of the Company, it is likely such
third parties would be unable or unwilling to enter into similar relationships
with the Company. It is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. As a
result, such competitors may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements or to devote
greater resources to the development, promotion and sales of their products
than can the Company. There can be no assurance that these competitive
pressures will not materially adversely affect the Company's business,
financial condition and results of operations.
TELECOMMUNICATIONS ACT OF 1996
RBOCs heretofore have been prohibited from manufacturing telecommunications
and customer premise equipment due to concerns relating to the potential for
discrimination by monopoly providers of local exchange service. The
Telecommunications Act of 1996 (the "Act") allows an RBOC to engage in
equipment manufacturing and close collaboration with manufacturers during the
design and development of hardware and software when the Federal
Communications Commission ("FCC") has verified that a parent RBOC, and each
RBOC within the parent company's region, is in compliance with the access and
interconnection requirements set forth in the Act.
This change in law permits RBOCs that provide communications management
services, such as U.S. West, to compete with the Company in the design and
manufacture of communication products. There can be no assurance that the
Company will be able to compete successfully with RBOCs in the personal
communications management market, and failure to do so would have a material
adverse effect upon the Company's business, financial condition and results of
operations.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT
The market in which the Company competes is characterized by rapidly
changing technology, frequent new product introductions, evolving industry
standards and short product life cycles. Accordingly, the Company's success
will be substantially dependent upon a number of factors, including its
ability to identify and conform to emerging standards in the communications
industry, differentiate its products from those of its competitors, achieve
superior or competitive performance in its products, reduce manufacturing
costs and quickly bring products to market. Further, short product life cycles
are expected to expose its current products and any of the Company's future
products to the risk of obsolescence, and therefore may require the Company to
frequently introduce competitive new and enhanced products. If the Company is
unable to develop or obtain access to advanced communications technologies as
they become available or is unable to design, develop, contract for the
manufacture of and introduce competitive new and enhanced products on a timely
basis, its business, financial condition and results of operations would be
materially adversely affected.
RELIANCE ON SOLE SOURCE CONTRACT MANUFACTURERS AND COMPONENT SUPPLIERS
The Company subcontracts the manufacture of all of the subassemblies of the
SmartCenter and SmartMonitor families on a sole source basis to AC
International, Inc. (for circuit board fabrication) and Wellex Corporation
(for circuit board assembly). The Company subcontracts the manufacturing of
all of the subassemblies of the SmartScreen product family on a sole source
basis to CT Continental. The Company believes that there are alternative
contract manufacturers which could produce such subassemblies, but it is not
currently pursuing agreements or understandings with such alternative sources.
Sole source integrated circuit suppliers include but are not limited to
Motorola, Inc., Zilog Corporation, Texas Instruments, National Semiconductor
Corporation, Exar Corporation and DSP Technology, Inc. There can be no
assurance that such contract manufacturers or sole source integrated circuit
suppliers will be able to supply the Company with sufficient quantities of
subassemblies or components in a timely manner. If a contract manufacturer or
sole source supplier were unable to assemble or deliver the Company's
subassemblies or components in a timely manner, for any reason, the Company's
business, financial condition and results of operations would be materially
13
<PAGE>
adversely affected. In the event of a reduction or interruption of supply to
the Company of such subassemblies or components, it could take a significant
period of time for the Company to qualify alternative suppliers, redesign the
product as necessary and commence manufacturing. The Company's inability to
obtain sufficient quantities of subassemblies or sole or limited source
components in the future or to develop alternative sources in the future,
could result in delays in product introductions or shipments, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL
The Company's future success depends substantially upon the efforts of
certain of its executive officers and key technical and other employees, many
of whom have only recently joined the Company and none of whom are covered by
key man life insurance. Edward M. Esber, Jr. joined the Company in October
1995 as President, Chief Executive Officer and Director. Arthur G. Chang
joined the Company in February 1996 as Chief Operating Officer and Vice
President of Research and Development. Ronald J. Tchorzewski joined the
Company in October 1996 as Vice President of Finance and was elected Chief
Financial Officer in July 1997. Don Nanneman, Vice President of Marketing,
joined the Company in January 1997. The Company's current Vice President of
Sales, Bryan Kerr, has resigned and is leaving the Company on August 31, 1997.
The Company is currently seeking to hire a full time officer to replace Mr.
Kerr.
The Company's ability to successfully market and distribute its current
products and any future personal communications management products will
require it to attract, retain and motivate additional key employees, including
product support, research and development, and sales and marketing personnel.
There can be no assurance that the Company will be successful in achieving any
of these goals, and the failure to do so would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management" and "Business--Personnel."
RISKS ASSOCIATED WITH MANAGING GROWTH
The Company's anticipated level of growth, should it occur, will challenge
the Company's management and its sales and marketing, customer support,
research and development and finance and administrative operations. The
Company's future performance will depend in part on its ability to manage any
such growth, should it occur, and to adapt its operational and financial
control systems, if necessary, to respond to changes resulting from any such
growth. There can be no assurance that the Company will be able to
successfully manage any future growth or to adapt its systems to manage such
growth, if any, and its failure to do so would have a material adverse effect
on the Company's business, financial condition and results of operations.
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. Upon completion of this Offering, the
Company will have outstanding approximately 5,999,780 shares of Common Stock,
assuming no exercise of the Underwriter's over-allotment option and no
exercise of outstanding options or warrants. Of these shares, approximately
2,104,000 shares are restricted shares ("Restricted Shares") under the
Securities Act of 1933, as amended (the "Securities Act"). The 2,500,000
shares offered hereby, along with the 1,350,000 shares of Common Stock sold in
the Company's initial public offering, will be immediately eligible for sale
in the public market without restriction on the closing of this Offering. An
additional 45,000 shares are eligible for sale in the public market following
the closing of this Offering subject in certain cases to certain volume and
other resale restrictions under Rule 144. Of the Restricted Shares,
approximately 504,000 and approximately 1,595,000 shares are subject to lockup
agreements expiring on September 6, 1997 and August 6, 1998, respectively,
under which the holders of such shares have agreed not to sell or otherwise
dispose of any of their shares without the prior written consent of the
Underwriter. The Underwriter may release some or all of the shares from the
lockup
14
<PAGE>
at its discretion from time to time without notice to the public.
Additionally, the Underwriter's Warrant may be exercised at any time during
the four year period beginning 12 months after the closing of this Offering in
which case up to 250,000 shares of Common Stock would be eligible for sale in
the public markets. The Company has filed registration statements on Form S-8
under the Securities Act covering 775,170 shares of Common Stock reserved for
issuance under the Company's Amended and Restated 1993 Incentive Stock Plan.
Shares of Common Stock issued upon exercise of options under such registration
statements will be available for sale in the public market, subject in some
cases to volume and other limitations, including the Lockup Agreements
referred to above. Sales in the public market of substantial amounts of Common
Stock (including sales in connection with an exercise of certain registration
rights by one or more holders of approximately 1,450,986 shares of Common
Stock) or the perception that such sales could occur could depress prevailing
market prices for the Common Stock. See "Management--Benefit Plans," "Shares
Eligible for Future Sale," "Underwriting" and "Description of Capital Stock--
Registration Rights."
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been subject and may
continue to be subject to wide fluctuations in response to quarterly
variations in operating results, failure by the Company to meet analysts'
expectations with respect to operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, new strategic or distribution
relationships, the operating and stock price performance of other companies
that investors deem comparable to the Company and other events or factors. In
addition, the stock market in general and the market prices for small
technology companies in particular, have experienced extreme volatility that
often has been unrelated to the operating performance of such companies. These
broad market and industry fluctuations may adversely affect the trading price
of the Company's Common Stock, regardless of the Company's operating
performance.
DELISTING OF SECURITIES FROM THE NASDAQ MARKET; LIMITED LIQUIDITY OF TRADING
MARKET; POSSIBLE INABILITY OF UNDERWRITER TO MAKE A MARKET IN THE COMPANY'S
COMMON STOCK
Shares of the Company's Common Stock are quoted on the Nasdaq SmallCap
Market. The Nasdaq Small- Cap Market is a significantly less liquid market
than the Nasdaq National Market. If the Company should continue to experience
losses from operations, it may be unable to maintain the standards for
continued quotation on the Nasdaq SmallCap Market. Trading, if any, in the
Common Stock would therefore be conducted in the over-the-counter market on an
electronic bulletin board established for securities that do not meet the
Nasdaq SmallCap Market listing requirements, or in what are commonly referred
to as the "pink sheets." As a result, an investor would find it more difficult
to dispose of, or to obtain accurate quotations of the price of, the Company's
Common Stock. Nasdaq has recently promulgated new rules which make continued
listing of companies on the Nasdaq SmallCap Market more difficult and has
significantly increased its enforcement efforts with regard to the Nasdaq
standards for such listing. In addition, if the Company's Common Stock were
removed from the Nasdaq SmallCap Market, the Company's Common Stock would be
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, if
it were to occur, could 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. In addition, because the market price of the Company's
Common stock is less than $5.00 per share, the Company may become subject to
certain penny stock rules even if still quoted on the Nasdaq SmallCap Market.
Such rules may further limit the market liquidity of the Common Stock and the
ability of purchasers in this Offering to sell such Common Stock in the
secondary market.
Any limitation on the ability of the Underwriter to make a market in the
Company's Common Stock could adversely effect the liquidity or trading price
of the Company's Common Stock, which could have a material adverse effect on
the market price of the Company's Common Stock. The Company believes that the
Chicago office of the Securities and Exchange Commission is conducting a
private, nonpublic investigation of H.J.
15
<PAGE>
Meyers & Co., Inc., the Underwriter and the principal market maker in the
Company's Common Stock, pursuant to a Formal Order of Investigation issued by
the Commission as to whether the Underwriter may have violated applicable
securities laws and the rules and regulations thereunder, with respect to
sales of certain securities. The Company is currently unable to assess the
potential impact of the outcome of the Staff's investigation on the
Underwriters ability to make a market in the Company's Common Stock or this
Offering.
On July 16, 1996, the National Association of Securities Dealers, Inc.
("NASD") issued a notice of Acceptance, Waiver and Consent (the "AWC") whereby
the Underwriter was censured and ordered to pay fines and restitution to
retail customers in the amount of $250,000 and approximately $1.025 million,
respectively. The AWC was issued in connection with claims by the NASD that
the Underwriter charged excessive markups and markdowns in connection with the
trading of four certain securities originally underwritten by the Underwriter;
the activities in question occurred during periods between December 1990 and
October 1993. The Underwriter has informed the Company that the fines and
refunds will not have a material adverse effect on the Underwriter's
operations and that the Underwriter has effected remedial measures to help
ensure that the subject conduct does not recur.
IMMEDIATE AND SUBSTANTIAL DILUTION
Based upon an assumed offering price of $2.625 per share, Purchasers of the
shares of Common Stock offered hereby will incur an immediate and substantial
dilution of $1.31 per share or approximately 50% of their investment in the
shares of Common Stock in that the pro forma net tangible book value of the
Company's Common Stock after this Offering will be approximately $1.32 per
share. See "Dilution."
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
earnings, if any, to finance the development and expansion of its business.
The Company's ability to pay dividends is currently restricted pursuant to a
loan agreement. See "Dividend Policy."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by California General Corporation Law, the Company has included
in its Amended and 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 proceedings 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."
ISSUANCE OF PREFERRED STOCK MAY ADVERSELY AFFECT HOLDERS OF COMMON STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
undesignated Preferred Stock and to determine the rights, preferences,
privileges and restrictions of such shares without any further vote or action
by the shareholders. Although at present the Company has no plans to issue any
of the Preferred Stock, the Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to the rights of the Common
Stock. The voting power of the officers and directors or the issuance of
Preferred Stock under certain circumstances could have the effect of delaying
or preventing a change in control of the Company. See "Description of Capital
Stock."
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<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements may be deemed to include
the Company's plans to create a line of personal communications management
products, establish strategic alliances and business relationships, implement
a multichannel distribution strategy, expend resources to create end-user
demand and brand name recognition and file additional patent applications.
Such forward-looking statements may also be deemed to include the Company's
expectations concerning factors affecting the market for its current products
and any future personal communications management products it may develop,
including growth in the personal communications management product
marketplace, the dependence of mobile individuals on the ability to manage
business communications effectively in a mobile environment and the
shortcomings of commercially available personal communications management
products. Such forward-looking statements also may include the Company's
planned uses of the proceeds of this Offering. Actual results could differ
from those projected in any forward-looking statements for the reasons
detailed in the other sections of this "Risk Factors" portion of the
Prospectus. The forward-looking statements are made as of the date of this
Prospectus and the Company assumes no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ from
those projected in the forward-looking statements.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares being
offered hereby, after deducting underwriting discounts and commissions and
offering expenses, are estimated to be approximately $5,231,250. The Company
expects to use the net proceeds from this offering approximately as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
---------- -------
<S> <C> <C>
Sales and marketing(1)....................................... $2,615,625 50%
Research and development(2).................................. 1,307,812 25
Capital expenditures......................................... 156,938 3
Working capital and general corporate purposes(3)............ 1,150,875 22
---------- ---
TOTAL........................................................ $5,231,250 100%
========== ===
</TABLE>
- --------
(1)See "Business--Sales and Marketing."
(2)See "Business--Research and Development."
(3) Funds are to be used for working capital and general corporate purposes,
including salaries, office expenses and other general overhead costs.
The projected expenditures described above are estimates and approximations
only and do not represent firm commitments by the Company. Proceeds allocated
to working capital and general corporate purposes may be utilized for
acquisitions of or investments in complementary technologies or businesses.
The Company currently plans no such acquisitions or investments. Pending such
uses, the net proceeds will be invested in short-term, interest-bearing,
investment-grade securities.
The Company believes that the net proceeds from this Offering, together with
its existing cash resources, and revenues from operations, if any, will be
adequate to satisfy its working capital requirements through 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently anticipates that it will retain earnings for the
expansion and operation of its business and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The Company's ability
to pay dividends is currently restricted pursuant to a loan agreement with
Venture Lending and Leasing, Inc.
17
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company (i) as of June 30, 1997 and (ii) as adjusted to reflect the sale by
the Company of 2,500,000 shares offered hereby at an assumed public offering
price of $2.625 per share, less applicable underwriting discounts and
commissions and net of expenses:
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Notes payable, current portion......................... $ 32 $ 32
======= =======
Notes payable, non-current portion..................... $ 127 $ 127
Shareholders' equity:
Preferred Stock, no par value:
5,000,000 shares authorized; no shares issued and
outstanding, actual and as adjusted................. -- --
Common Stock, no par value:
35,000,000 authorized; 3,499,780 shares issued and
outstanding, actual; 5,999,780 shares issued and
outstanding, as adjusted............................ 12,412 17,643
Deficit accumulated during the development stage...... (9,651) (9,651)
Notes receivable from shareholders.................... (86) (86)
------- -------
Total shareholders' equity........................... 2,675 7,906
------- -------
Total capitalization................................ $ 2,802 $ 8,033
======= =======
</TABLE>
- --------
(1) Does not include: (i) options outstanding as of June 30, 1997 to purchase
247,713 shares of Common Stock at a weighted average exercise price of
$2.42 per share under the Company's 1993 Incentive Stock Plan (the "Stock
Plan"); (ii) warrants outstanding as of June 30, 1997 to purchase 454,240
shares of Common Stock at a weighted average exercise price of $5.27 per
share; (iii) the Underwriter's over-allotment option to purchase up to
375,000 shares of Common Stock; (iv) a warrant to purchase up to 250,000
shares of Common Stock at an exercise price of $3.15 per share (assuming a
public offering price of $2.625 per share) to be issued to the Underwriter
upon the closing of this Offering; and (v) options granted in July 1997 to
purchase 66,000 shares of Common Stock at a weighted average exercise
price of $2.13 per share under the Company's Stock Plan.
18
<PAGE>
DILUTION
As of June 30, 1997, the Company had a net tangible book value of
approximately $2,675,000 or $0.76 per share of Common Stock. "Net tangible
book value" represents the total tangible assets less total liabilities
divided by the number of shares of Common Stock outstanding. After giving
effect to the receipt by the Company of the net proceeds from the sale of the
2,500,000 shares of Common Stock offered hereby at an assumed public offering
price of $2.625 per share, the adjusted net tangible book value of the Company
as of June 30, 1997 would have been approximately $7,906,000 or, $1.32 per
share. This represents an immediate increase in net tangible book value of
$.56 per share to existing shareholders and an immediate dilution of $1.31 per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C> <C>
Assumed public offering price per share.................... $2.625
Net tangible book value per share before the Offering.... $.76
Increase per share attributable to new investors......... .56
----
Net tangible book value per share after the Offering....... 1.32
------
Dilution per share to new investors*..................... $ 1.31
======
</TABLE>
- --------
* Represents dilution of approximately 50% to purchasers of the shares of
Common Stock offered hereby.
The following table summarizes as of June 30, 1997, the differences between
existing shareholders and purchasers of shares in the offering with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... 3,499,780 58.3% $12,411,641 65.4% $ 3.55
New investors................... 2,500,000 41.7 6,562,500 34.6 $2.625
--------- ----- ----------- -----
Total......................... 5,999,780 100.0% $18,974,141 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Does not include: (i) options outstanding as of June 30, 1997 to purchase
247,713 shares of Common Stock at a weighted average exercise price of
$2.42 per share under the Company's 1993 Incentive Stock Plan (the "Stock
Plan"); (ii) warrants outstanding as of June 30, 1997 to purchase 454,240
shares of Common Stock at a weighted average exercise price of $5.27 per
share; (iii) the Underwriter's over-allotment option to purchase up to
375,000 shares of Common Stock; (iv) a warrant to purchase up to 250,000
shares of Common Stock at an exercise price of $3.15 per share (assuming a
public offering price of $2.625 per share) to be issued to the Underwriter
upon the closing of this Offering; and (v) options granted in July 1997 to
purchase 66,000 shares of Common Stock at a weighted average exercise
price of $2.13 per share under the Company's Stock Plan.
MARKET FOR COMMON STOCK
The Company's Common Stock is traded on the Nasdaq SmallCap Market under the
symbol SLPT. Subsequent to the Company's initial public offering on August 6,
1996, the following high and low closing prices were reported by Nasdaq each
quarter:
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Quarter ended September 30, 1996 (subsequent to August 6,
1996)....................................................... $5.34 $2.61
Quarter ended December 31, 1996.............................. 3.50 1.75
Quarter ended March 31, 1997................................. 3.38 1.75
Quarter ended June 30, 1997.................................. 3.50 1.63
Quarter ending September 30, 1997 (through August 4, 1997)... 2.63 1.88
</TABLE>
At June 30, 1997, the Company had approximately 108 shareholders of record
of its Common Stock.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data, for the years ended
December 31, 1995 and 1996 and the period from March 26, 1993 (inception)
through December 31, 1996 and the balance sheet data at December 31, 1995 and
1996 are derived from financial statements of the Company included elsewhere
in this Prospectus, which have been audited by Ernst & Young LLP, independent
auditors', as indicated in their report included elsewhere in this Prospectus,
and are qualified by reference to such financial statements including the
related notes thereto. The selected statements of operations data for the six
month periods ended June 30, 1996 and 1997 and the balance sheet data at June
30, 1997 have been derived from unaudited interim condensed financial
statements of the Company contained elsewhere herein and reflect in
management's opinion, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of financial position and
results of operations for these periods. Results of operations for the six
months ended June 30, 1997 are not necessarily indicative of results to be
expected for the year ending December 31, 1997. The selected financial data
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements, notes thereto and the independent auditors' report
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 26,
FISCAL YEAR SIX MONTHS 1993
ENDED DECEMBER ENDED (INCEPTION)
31, JUNE 30, THROUGH
---------------- ----------------------- DECEMBER 31,
1995 1996 1996 1997 1996
------- ------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $ -- $ 380 $ 34 $ 363 $ 380
Cost of sales........... -- 289 40 261 289
------- ------- ------- ------- -------
Gross margin............ 91 (6) 102 91
Costs and expenses:
Research and
development........... 1,386 1,524 771 762 3,354
Sales and marketing.... 501 1,120 371 1,073 1,622
General and
administrative........ 777 1,118 591 576 2,542
------- ------- ------- ------- -------
Total operating
expenses............... 2,664 3,762 1,733 2,411 7,518
------- ------- ------- ------- -------
Operating loss.......... (2,664) 3,671 (1,739) (2,309) (7,427)
Other income (expense).. (8) 77 (6) 49 69
------- ------- ------- ------- -------
Net loss................ $(2,672) $(3,594) $(1,745) $(2,260) $(7,358)
======= ======= ======= ======= =======
Net loss per share...... $ (1.35) $ (1.46) $ (0.88) $ (0.65)
======= ======= ======= =======
Shares used in computing
net loss per share..... 1,974 2,462 1,973 3,500
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit).............. $(1,118) $ 4,788 $ 2,568
Total assets............ 938 5,483 3,281
Long-term portion of
notes payable.......... 91 140 127
Redeemable convertible
preferred stock........ 2,799 -- --
Shareholders' equity
(net capital
deficiency)............ (3,769) 4,861 2,675
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following section contains forward-looking statements that involve risks
and uncertainties, including those referring to the period of time the
Company's existing capital resources will meet the Company's future capital
needs, the Company's future operating results, the market acceptance of the
products of the Company, the Company's efforts to establish and maintain
distribution partners, the development of new products, and the Company's
planned investment in the marketing and distribution of its current products
and research and development with regard to future products. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including:
dependence on market acceptance of multifunction personal communications
management products; lack of significant sales and distribution channels; the
Company's ability to timely develop new products; business conditions and
growth in the personal communications management industry and general economy;
competitive factors, such as rival providers of personal communications
management products and services and price pressures; compatibility with a
wide variety of switching configurations; reliance on sole source contract
manufacturers and component suppliers; dependence on a limited number of key
personnel; rapid technological changes; as well as other factors set forth
elsewhere in this Prospectus.
OVERVIEW
The Company was incorporated on March 26, 1993. As of June 30, 1997, the
Company was still in the development stage. Since inception, the Company's
focus has been on the design and development of personal communications
management solutions for communications-dependent individuals. The Company
introduced the SmartCenter C-100, the predecessor of the SmartCenter C-120, in
March 1996. The SmartCenter C-120 was introduced in February 1997, as an
enhanced version of the C-100. The Company introduced the SmartMonitor M-100
in September 1996, SmartScreen S-100 in February 1997, SmartScreen S-150 in
May 1997 and intends to introduce SmartMonitor M-200 in August 1997. The
Company's products are used by residential RBOC Voice Mail customers, SOHO
professionals and professionals in corporate satellite offices.
To date, the Company's working capital requirements have been met through
the sale of equity and debt securities and minimal revenues from product
sales. The Company has sustained significant operating losses in every fiscal
period since inception and expects to incur substantial quarterly operating
losses at least through the end of calendar year 1998 and possibly longer. In
order to transition from a development stage company, the Company must achieve
commercial acceptance of its products and generate material product revenues
with sufficient gross margins to cover the Company's operating expenses.
Commercial acceptance will require the Company to, among other things,
successfully establish significant sales and distribution channels and hire
and retain key marketing and sales personnel. See "--Liquidity and Capital
Resources."
The Company's products currently have a 30-day, unconditional, money-back
guarantee. Revenue is recognized 30 days after the date that products are
shipped. Allowances are provided for product returns based on estimated future
product returns, the timing of expected new product introductions and other
factors. These allowances are recorded as direct reductions of revenue and
accounts receivable.
The Company establishes allowances, including allowances for stock balancing
and product rotation, based upon estimated future returns of product and after
taking into account channel inventory levels, the timing of new product
introductions and other factors. While the Company maintains measures to
monitor these factors and to provide appropriate allowances, actual product
returns may differ from the Company's reserve estimates and such differences
could be material. In addition, the Company currently offers a 30-day
unconditional money back guarantee as well as a limited two-year warranty on
SmartCenter and a limited one-year warranty for its other products.
SmartCenter has only a limited operating history and the Company's other two
products, SmartMonitor and SmartScreen, have less than a year's experience in
the marketplace and therefore the Company does not have a significant product
return or warranty history for these products. Product returns and
21
<PAGE>
warranty expenditures to date have been within management's estimates.
However, future warranty claims, returns, stock rotation exchanges, or price
protection adjustments could exceed management's estimates and accordingly
could have a material adverse effect on the Company's business, financial
condition and results of operations.
RESULTS OF OPERATIONS
Net Revenues
Net revenues for the year ended December 31, 1996, were $380,113. Two
customers accounted for 56% and 19% of 1996 net revenues. The Company received
no revenues during the year ended December 31, 1995. The increase in net
revenues in 1996 was mainly attributable to shipment of the Company's first
product, SmartCenter. Net revenues for the six-month period ended June 30,
1997 were $362,847 compared to $34,141 for the six month period ended June 30,
1996. Three customers accounted for 25%, 21% and 14% of net revenues for the
six month period ended June 30, 1997. The increase in net revenues for the six
month period ended June 30, 1997 was primarily due to revenues generated from
sales of the Company's SmartCenter, SmartMonitor and SmartScreen products
which were in distribution during the first six months of 1997 as compared to
only the Company's SmartCenter product being sold during the same period of
1996.
Gross Margin
Cost of sales for the year ended December 31, 1996 was $289,050, while no
goods were sold during the year ended December 31, 1995. The low gross margin
for the year ended December 31, 1996 was primarily due to discounted or free
units offered to customers and prospective customers in order to open new
distribution channels as well as costs associated with the initiation of
manufacturing and low production volume. Cost of sales for the six month
period ended June 30, 1997 was $260,434 compared to $39,847 for the six month
period ended June 30, 1996. Gross margin for the year ended December 31, 1996
was 24%. Gross margin for the six month period ended June 30, 1997 was 28%
compared to (17%) for the six month period ended June 30, 1996. Although gross
margin for the six month period ended June 30, 1997 was positively impacted by
product mix due to the higher margins on the Company's SmartScreen and
SmartMonitor products, overall gross margin remained low due to costs
associated with the commencement of manufacturing of these products and low
production volume.
Operating Expenses
Research and Development. Research and development expenses were $1,523,599
for the year ended December 31, 1996 as compared to $1,385,769 for the year
ended December 31, 1995. This increase of 10% resulted principally from higher
average headcount for the twelve months ended December 31, 1996 relative to
the prior year and increased engineering expenses incurred for prototypes and
tooling for products under development. Research and development expenses for
the six month period ended June 30, 1997 were $761,716 as compared to $771,246
for the six month period ended June 30, 1996. The Company anticipates that
research and development expenses may increase slightly in the foreseeable
future should the Company expand its existing product line.
Sales and Marketing. Sales and marketing expenses were $1,120,400 for the
year ended December 31, 1996 as compared to $501,580 for the year ended
December 31, 1995. This increase of 123% was primarily due to increased
expenses related to the marketing and the launch of the Company's first
product, SmartCenter, in March 1996 as well as the introduction of its second
product, SmartMonitor S-100, at the end of September 1996. Sales and marketing
expenses increased 189% during the six month period ended June 30, 1997 to
$1,073,003 as compared to expenses of $370,784 for the six month period ended
June 30, 1996. The increase was primarily due to an increase in personnel and
related costs and advertising and marketing efforts to support the Company's
expanded product line. The Company anticipates that sales and marketing
expenses will continue to grow in future periods should the Company increase
marketing activities and efforts to expand distribution of its products.
22
<PAGE>
General and Administrative. General and administrative expenses were
$1,117,974 for the year ended December 31, 1996, as compared to $777,123 for
the year ended December 31, 1995. This increase of 44% was primarily due to
increased headcount and the higher professional services costs associated with
being a public company. General and administrative expenses decreased 3%
during the six month period ended June 30, 1997 to $576,280 from $591,057 in
the first six months of 1996. The decrease was primarily due to lower
headcount and related personnel expenses. The Company anticipates that general
and administrative expenses may grow modestly in future periods in the event
it is necessary to accommodate expanded operations and to support a growing
customer base.
Other Income (Expense)
Other income is comprised primarily of interest income on cash balances,
which had been nominal until the completion of the Company's initial public
offering in August 1996. The net proceeds from the initial public offering
earned interest through investment in money market funds. For the year ended
December 31, 1996 the Company recognized interest income of $108,774 compared
with interest income of $12,850 for the year ended December 31, 1995. This was
offset by interest expense of $32,476 for the year ended December 31, 1996 and
interest expense of $22,857 for the year ended December 31, 1995. For the six
month period ended June 30, 1997 the Company recognized interest income of
$63,279 offset by interest expense of $14,351 as compared with interest income
of $5,883 offset by interest expense of $11,658 for the same period of the
prior year.
Provision for Income Taxes
There was no provision for federal or state income taxes for the year ended
December 31, 1996 as the Company incurred net operating losses. As a result,
the net operating loss carryforwards increased. At December 31, 1996, the
Company had federal and state net operating loss carryforwards of
approximately $3,800,000 and $3,700,000, respectively. The Company also had
federal and state research and development tax credit carryforwards of
approximately $80,000 and $50,000, respectively. The net operating loss
carryforwards will expire at various dates beginning in 1998 through 2011, if
not utilized. Utilization of the net operating losses and credits is subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization. For financial reporting purposes, a valuation
allowance of $3,052,000 has been recorded to offset deferred tax assets
recognized under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," primarily related to the net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had cash of $4,066,825 and working
capital of $4,788,146. The Company used cash of $4,142,417 in its operating
activities for the year ended December 31, 1996. Principal uses of cash were
to fund the Company's net loss and increases in accounts receivable of
$327,916 and inventories of $479,060. During 1996, the Company financed its
working capital requirements and capital expenditures primarily from the sale
of equity securities and convertible debt. The Company received proceeds from
the issuance of preferred stock totaling $1,178,657 and convertible loans from
Ameritech and 4C Ventures totaling $1,500,000. The $1,500,000 in convertible
loans was converted to common stock concurrent with the Company's initial
public offering during the quarter ended September 30, 1996. In August 1996,
the Company completed an initial public offering of its common stock, which
provided the Company with net proceeds of approximately $5,200,000. The
Company had cash of $1,678,377 as of June 30, 1997 and working capital of
$2,567,823. The Company used cash of $2,361,689 in its operating activities
for the six month period ended June 30, 1997. During the six month period
ended June 30, 1997, the Company's principal uses of cash were to fund the
Company's working capital requirements and an increase in inventory levels. In
the absence of receiving the proceeds of this Offering, the Company
anticipates that its existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash requirement
only through the end of 1997 at its anticipated level of operations.
23
<PAGE>
The Company expects to incur additional substantial losses at least through
the end of calendar year 1998, and possibly longer. The Company's future
capital requirements will depend upon numerous factors, including the amount
of revenues generated from operations, the cost of the Company's sales and
marketing activities and the extent of the Company's research and development
activities, none of which can be predicted with certainty. The Company
anticipates that the proceeds of this Offering, together with existing capital
resources and cash generated from operations, if any, will be sufficient to
meet the Company's cash requirements through the end of 1998. However, the
Company may seek additional funding during the next 12 months and will likely
be required to seek additional funding after such time. There can be no
assurance that any additional financing will be available on acceptable terms,
or at all, when required by the Company. Moreover, if additional financing is
not available, the Company could be required to reduce or suspend its
operations, seek an acquisition partner or sell securities on terms that may
be highly dilutive or otherwise disadvantageous to investors purchasing the
shares of Common Stock offered hereby. The Company has experienced in the
past, and may continue to experience, operational difficulties and delays in
its product development and marketing activities due to working capital
constraints. Any such difficulties or delays could have a material adverse
effect on the Company's business, financial condition and results of
operations. In February 1997, the Company entered into a $1,500,000 line of
credit with Silicon Valley Bank, which is based upon accounts receivable.
Subject to meeting certain covenants the Company is entitled to borrow up to
80% of the value of eligible accounts receivable at an interest rate equal to
the prime rate plus 1%. This line of credit expires in February 1998. No
amounts have been drawn on the line as of June 30, 1997. As of June 30, 1997,
the Company did not have any significant commitments for capital or other
expenditures.
FUTURE OPERATING RESULTS
Since its inception in 1993, the Company has incurred significant losses,
has had substantial negative cash flow, and has realized limited revenues. At
June 30, 1997, the Company had an accumulated deficit of $9,650,927, and had
incurred operating losses of $2,308,586 in the six month period ended June 30,
1997, $3,670,910 for the year ended December 31, 1996 and $1,738,793 in the
six month period ended June 30, 1996. The Company expects to continue to incur
substantial operating losses at least through its fiscal year ending December
31, 1998.
The Company has experienced and expects to continue to experience
fluctuations in operating results. Fluctuations in operating results may
result in volatility in the price of the Company's common stock. Operating
results may fluctuate as a result of many factors, including the volume and
timing of orders received or product returns, if any, during the period, the
timing of commercial introduction of future products and enhancements,
competitive products and the impact of price competition on the Company's
average selling prices, product announcements by the Company and its
competition and the Company's level of research and development and sales and
marketing activities. Many of these factors are beyond the Company's control,
particularly those related to sales and product returns.
The Company's operating and other expenses are relatively fixed in the short
term. As a result, variations in timing of revenues, if any, will cause
significant variations in quarterly results of operations. Notwithstanding the
difficulty in forecasting future sales, the Company generally must undertake
its sales and marketing and research and development activities and other
commitments months or years in advance. Accordingly, any shortfall in product
revenues, if any, in a given quarter may materially adversely affect the
Company's business, financial condition and results of operations due to the
inability to adjust expenses during the quarter to match the level of product
revenues, if any, for the quarter. In addition, the Company's sales
expectations are based entirely on its internal estimates of future demand.
Due to these and other 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.
24
<PAGE>
BUSINESS
The following Business section 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, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
SoloPoint, Inc. designs, develops and markets innovative and easy-to-use
personal communications management products that connect people more
effectively. The Company's products are used by residential RBOC Voice Mail
customers, Small Office Home Office professionals and professionals in
corporate satellite offices. The Company's products are designed to allow
users to balance three important needs of communications dependent
individuals: Mobility, the ability to receive critical calls while away from
their primary office; Accessibility, the ability to be available on an as-
needed basis; and Control, the ability to monitor calls in order to decide, in
real time, from whom and when to accept a call.
The Company currently offers three product lines: SmartScreen, which allows
a residential RBOC Voice Mail customer to locally screen an incoming call and
take the call, if desired; SmartMonitor, which allows a mobile professional to
remotely monitor and take office calls from a cellular or PCS phone; and
SmartCenter, which provides a feature rich call management environment for
SOHO professionals and professionals in corporate satellite offices.
INDUSTRY OVERVIEW
The number of communications-dependent individuals has increased
significantly in recent years. These individuals can be categorized into three
broad market categories: residential RBOC Voice Mail customers, mobile
professionals, and SOHO professionals and professionals in corporate satellite
offices.
RBOC Voice Mail Users
International Data Corporation estimates that as of the end of 1996 there
were over 9 million residential RBOC Voice Mail customers in the United
States, growing to over 18 million at the end of 2001. RBOC Voice Mail has
several advantages over traditional answering machines, including the ability
to take messages when the line is busy, better remote access, enhanced message
management capabilities and improved reliability. The Company believes that
the three major drawbacks to RBOC Voice Mail are the inability to screen a
call, the lack of a visual message waiting indicator and the inability to
share a fax machine on the same line as Voice Mail. If a call has gone to
Voice Mail, a subscriber must wait until the caller has left a message, then
dial a number, enter an access code, retrieve the message and call back the
caller if they choose. The lack of a visual message waiting indicator forces
the user to pick up his or her phone and listen for a stutter dial tone to
determine if a message has been left. As a result, important calls may be
missed and messages are often received later than if the blinking light of a
traditional answering machine had been available. The Company believes that
the lack of screening and a visual message waiting indicator light are
significant factors causing the low penetration and frequent cancellation of
Voice Mail service. Finally, the inability to support a fax machine on the
same line requires a fax user to add a second line.
The SoloPoint Solution--SmartScreen
The Company's SmartScreen product line remedies these deficiencies in RBOC
Voice Mail by providing users with the ability to screen incoming calls,
visually determine if there are new messages, and utilize a fax machine on the
same line as Voice Mail. SmartScreen connects to a Voice Mail user's telephone
line and utilizes RBOC Three-Way calling service. When a user receives a call,
SmartScreen picks up the call and connects the caller to RBOC Voice Mail.
Simultaneously, SmartScreen turns on a built-in speaker so that the user can
hear the caller as they leave a message. If the user wishes to talk to the
caller, he/she can pick up any phone connected to the line and be immediately
connected to the caller. In order to provide a visual message waiting
indicator, SmartScreen is designed to work with stutter dial tone ("FSK")
signaling provided by the RBOC. By providing the ability to support a fax
machine on the same line, fax users are not forced to pay for a second line.
25
<PAGE>
Mobile Professionals
The mobile professional's success is dependent upon the ability to
effectively manage business communications in a mobile environment, thereby
enabling the user to receive critical calls and be more responsive to
customers. Missed calls, delayed responses to messages, or the appearance of
an unprofessional image can cause potential customers or clients to take their
business elsewhere. A large percentage of these mobile professionals utilize a
cellular or PCS phone to stay in touch while out of the office. Because their
office number and cellular or PCS number are not connected, phone calls to the
office are not immediately received in the field resulting in "phone tag" or
missed calls which can result in customer dissatisfaction and lost business.
The SoloPoint Solution--SmartMonitor
The SmartMonitor product line enables users to screen incoming office calls
from a cellular or PCS phone and connect to those callers the user chooses.
When a caller dials the user's office number, SmartMonitor simultaneously
rings the user's office telephone and remote cellular or PCS phone. The
SmartMonitor M-100 allows users to optionally monitor the call as the caller
leaves a message on his/her office answering machine. The Company's upcoming
SmartMonitor M-200 is designed to allow a user to monitor a message being left
in RBOC Voice Mail. If the user wants to talk with the caller, he/she can be
immediately connected by simply pressing a button on his or her remote
cellular or PCS telephone. A key benefit of SmartMonitor is that it enables a
user to be more accessible to customers without disclosing their cellular or
PCS telephone number. In addition, since the user's office and cellular or PCS
telephone rings simultaneously, the user can seamlessly move in and out of
their office without having to enable or disable the device or service.
SOHO Professionals and Professionals in Corporate Satellite Offices
While many corporations provide a communications infrastructure for their
employees that includes, among other things, secretarial and administrative
support and computer and telephony services, SOHO professionals and
professionals in corporate satellite offices must address their own personal
communications management needs. These needs usually include the ability to
provide a professional image through an Interactive Voice Response ("IVR")
system, the ability to filter and route calls automatically, and the ability
to tie all their communications devices and services together to work more
efficiently and effectively. These individuals have previously attempted to
address these needs through the use of an array of disparate, single function
communication devices, such as cellular or PCS phones, pagers, fax machines
and e-mail applications, and separate, basic broad-based communications
services, such as Voice Mail, Call Forwarding, Caller ID and Three-Way
Calling.
The SoloPoint Solution--SmartCenter
The Company's SmartCenter C-120 product responds to the needs of SOHO
professionals and professionals in corporate satellite offices who require an
automated method of ensuring that incoming calls are answered and properly
filtered and routed. The C-120 is attached to the professional's main line and
functions as an automated receptionist for incoming calls. Incoming calls are
answered by the C-120, which plays a greeting and provides the caller with a
set of options. These options can include transferring the caller to a
particular department, extension or person, providing the caller with pre-
recorded information (such as directions to the business), or providing the
caller with another set of menu options. The caller responds to the C-120 by
pressing the buttons on his touch-tone phone.
The C-120 was designed to give businesses a robust set of features typically
found on more expensive PC-based systems without the complicated installation
and configuration procedures typically associated with such systems. The C-120
can answer a business' phone, play a greeting, provide a series of options to
the caller, transfer the call to a specified extension and transfer the call
to another set of menu options. Other features include multiple greetings for
business hours and off business hours, a name directory, and extension
dialing. The C-120 also tracks a variety of call statistics, such as number of
calls processed at different times of the day. A non-technical user can
configure the C-120 by simply responding to the interactive voice prompts,
which are
26
<PAGE>
imbedded in the system. Although an optional graphical Windows-based PC
software program is provided and can assist users in creating more complex
procedures for handling calls, it is not required for normal operation of the
SmartCenter device. Installation is accomplished by plugging standard
telephone lines into the product. The Company believes that the C-120's
suggested retail price of under $500 makes it a cost-effective solution to the
call-processing needs of small business users.
STRATEGY
The Company's objective is to be a leading provider in the emerging personal
communications management products market. The Company's strategy for
achieving this objective includes the following key elements:
Leverage Proprietary Technology to Create an Innovative Line of Personal
Communications Products
The Company intends to continue to leverage the proprietary technology
incorporated in its initial SmartCenter product to design and bring to market
a broad line of personal communications management products designed to meet
the needs of a wide range of communications dependent individuals. In
accordance with this strategy, the Company has introduced SmartScreen and
SmartMonitor, which are substantially based upon the sophisticated technology
contained in the SmartCenter product. The Company plans to similarly develop
additional personal communications management products which the Company
believes will leverage its research and development expenditures, facilitate
the establishment of brand name recognition and expand the Company's
distribution and marketing capabilities.
Develop Telephone Company and Related Distribution Channels
The Company's products are designed to meet the needs of RBOC customers
while utilizing several RBOC services, such as Voice Mail, Three-Way Calling
and Caller ID. In May 1997, the Company entered into a marketing agreement
with Pacific Bell and is working to establish OEM or additional marketing
agreements with other RBOCs and with LECs so that its products can be bundled
with RBOC services to provide a complete personal communications management
solution. In addition, the Company's long term objective is to leverage these
relationships to access RBOCs' and LECs' authorized resellers which the
Company believes would also be appropriate resellers of its products.
Establish Strategic Alliances and Business Relationships
The Company intends to establish additional strategic alliances and business
relationships with leading participants in various segments of the
communications markets. The Company believes these alliances and
relationships, if established, will enable it to take advantage of the
superior financial resources, technological capabilities, proprietary
positions and market presence of these companies. In accordance with this
strategy, the Company has received an equity investment from Ameritech. The
Company's objective is to establish a strategic relationship with Ameritech
involving marketing, distribution or manufacturing agreements.
27
<PAGE>
SOLOPOINT PRODUCTS
SmartScreen Family
SmartScreen S-100: The SmartScreen S-100 was introduced in January 1997, is
currently sold by Pacific Bell for $69.95 and is also available through
various retail outlets for prices between $99.95 and $119.95. The S-100
enables a residential RBOC Voice Mail user to screen and manage incoming calls
while callers are leaving messages on the user's RBOC Voice Mail. The user can
connect with a caller while he/she is leaving a Voice Mail message at any time
during the call. The following table lists the key features of SmartScreen S-
100 and the benefits the Company believes they bring to the end customer:
<TABLE>
<CAPTION>
FEATURE DESCRIPTION BENEFIT TO CUSTOMER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Voice Mail Screening Allows a user to screen Control over who to talk
incoming calls on a Voice with on a call by call
Mail enabled line. basis.
Identify the caller and the
purpose of the call before
picking up the phone.
- -----------------------------------------------------------------------------------------
Anytime Connection with Allows a user to Real time connection to
Caller in Voice Mail instantaneously connect at important callers.
anytime with a caller while
the caller is leaving a
message in Voice Mail.
- -----------------------------------------------------------------------------------------
Visual Message Waiting A red light flashes to Eliminates need to dial
Indicator indicate new messages in voice mail to determine if
Voice Mail. a message has been left.
- -----------------------------------------------------------------------------------------
Voice Mail Fax Switch Allows an external fax More effective use of
machine to work on a Voice single telephone line.
Mail enabled line.
Avoids additional cost of a
second phone line.
</TABLE>
SmartScreen S-150: The SmartScreen S-150 was introduced in May 1997 and
currently retails for approximately $119.95. The S-150 is designed to meet the
needs of SOHO professionals who have a PC and use RBOC Voice Mail. The S-150
provides an RS-232 interface to a PC and PC software that integrates Voice
Mail, Caller ID and the user's PC. In addition to providing all the features
and benefits of the SmartScreen S-100, the SmartScreen S-150 provides the
following additional features and the benefits:
<TABLE>
<CAPTION>
FEATURE DESCRIPTION BENEFIT TO CUSTOMER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PC Caller ID screen pop Caller ID information pops Provides visual information
up on the PC screen. about the person calling
prior to picking up the
call.
Personal call management.
- -----------------------------------------------------------------------------------------
Detailed call logging Key information for each Accurate record of call
call is saved and can be activity for billing or
stored or exported to other other purposes.
software applications.
- -----------------------------------------------------------------------------------------
TAPI driver Sends Caller ID information Automatic access of
to any TAPI compliant caller's record and
database or Personal information on any TAPI
Information Manager (PIM). compliant software
application.
- -----------------------------------------------------------------------------------------
Call indicator screen saver Screen saver indicates Allows user to ascertain
number of new calls. call status on a PC.
</TABLE>
28
<PAGE>
SmartMonitor Family
SmartMonitor M-100: The SmartMonitor M-100 was introduced in September 1996
and currently retails for $199.95. The M-100 is designed to meet the needs of
mobile professionals who have a direct access office number and an answering
machine. The M-100 enables users to screen incoming office calls from either
their cellular or PCS telephone. When a caller dials the user's office number,
SmartMonitor simultaneously rings the user's office number and cellular or PCS
telephone. The user can optionally monitor calls as messages are being left on
the user's office answering machine. The user can also elect to instantly
connect to callers by simply pushing a button. A key benefit of the M-100 is
that it enables users to be more accessible to their customers without
disclosing their cellular or PCS numbers or the user's current location. Since
the user's office telephone and Cellular or PCS telephone ring simultaneously,
the user can answer either telephone without having to disable or enable any
of the screening features of the M-100, an advantage over RBOC Call
Forwarding. The following table lists the key features of the SmartMonitor M-
100 and the benefits the Company believes they bring to the end customer:
<TABLE>
<CAPTION>
FEATURE DESCRIPTION BENEFIT TO CUSTOMER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Remote Monitoring of Office Allows a user to discretely Control of inbound cellular
Calls monitor and then optionally calls.
take incoming office calls
from either a remote Reduced "phone tag" with
cellular or PCS telephone. customers.
Single number access
(office number).
- -----------------------------------------------------------------------------------------
Simultaneous Ringing of Rings the user's office Eliminates needs for the
Office and Remote Telephone phone and the remote user to routinely
cellular or direct-dialed enable/disable unit.
land based telephone at the
same time. Single number access
(office number).
- -----------------------------------------------------------------------------------------
Remote Programming Allows the user to remotely User does not need to
change the monitor telephone return to office to change
number. monitor telephone number.
</TABLE>
29
<PAGE>
SmartMonitor M-200: The Company intends to introduce the SmartMonitor M-200
in August 1997 and is planning to retail it for $249.95. The Company expects
that this product will be available for customer shipment in the fourth
quarter of 1997. The M-200 will be designed to meet the needs of high-end
mobile professionals who have a direct access office number and RBOC Voice
Mail or answering machines. When used with RBOC Voice Mail, the M-200 requires
RBOC Three-Way Calling service. In addition to providing all the features and
benefits of the SmartMonitor M-100, the SmartMonitor M-200 provides the
following additional features.
<TABLE>
<CAPTION>
FEATURE DESCRIPTION BENEFIT TO CUSTOMER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Permits local screening of Allows a user to discretely Ultimate control of inbound
Voice Mail and answering monitor and then optionally calls.
machines take incoming office calls
from either a cordless or Gives the customer the
stationary telephone. ability to utilize a
cordless phone and still
monitor phone calls.
- -----------------------------------------------------------------------------------------
Return callers to Voice Mail Allows a user to send a Maximize call management.
after talking with them caller back into Voice Mail
after talking with them. Voice Mail records
information when you are
busy.
- -----------------------------------------------------------------------------------------
Voice prompted set up menus Natural human voice menuing Simplifies setup.
system for setup and
configuration. Simplifies normal
interactions.
- -----------------------------------------------------------------------------------------
Pause and special character Allows the user to enter Supports centralized
dialing pauses and special corporate Voice Mail
characters into the dialing configurations.
string.
Supports Credit Card and
other forms of call
payment.
Supports consolidation of
messages into cellular
Voice Mail systems.
- -----------------------------------------------------------------------------------------
Supports both RBOC Voice Allows a user to use Voice Works with customers'
Mail or answering machine Mail or an answering machine existing answering machine
as their messaging solution. or RBOC Voice Mail.
</TABLE>
SmartCenter Family
The SmartCenter C-120 is the successor to the SmartCenter C-100, which the
Company introduced in March 1996. The C-120 currently retails for $495 per
unit and is a complete, multifunction, communications management platform
designed to meet the needs of mobile, communications-dependent SOHO
individuals. The SmartCenter C-120 is an integrated communications management
hardware device that fits under a telephone, connects to two analog telephone
lines and provides four general purpose extensions for connecting personal
office telephone equipment. The core building block of the C-120 is its
efficient, feature rich, analog switching matrix, which provides many of the
PBX-like functions of larger, more expensive switches. The configuration and
management of the C-120 can be accomplished through either the convenience of
a voice-prompted, touch-tone menuing interface or a graphical configuration
software application running on a PC that can be connected to the C-120's
serial interface. The C-120 can route, filter, prioritize and manage both
incoming and outgoing calls through the use of its proprietary technology.
30
<PAGE>
The SmartCenter C-120 supports a number of features that provide a complete
personal communications management system for mobile, communications-dependent
individuals. These features are entirely dependent upon the Bellcore
Specifications. The following table lists the key features of the SmartCenter
C-120 and the benefits the Company believes they bring to the end customer:
The SmartCenter C-120 can be configured and managed through a customized,
voice-prompted touch-tone menuing interface, either remotely or locally, or
through SmartStart, the C-120's graphical configuration software application.
Most basic features of the C-120 can be configured through voice-prompted
touch-tone sequences, either from a local extension telephone or a remote
telephone. Callers dialing in are required to enter a PIN to access the
configuration menus, thus ensuring a secure communications environment.
SmartStart, a graphical user interface, can be used to configure and manage
the SmartCenter C-120. SmartStart is a full 32-bit Windows-based software
application that can run under Windows 95, Windows NT and Windows 3.11 (with
32-bit extensions). With SmartStart, the user can configure any number of
"call handlers" and store them on a PC. A call handler is a set of
instructions that directs the SmartCenter C-120 on how to handle an incoming
call. Call handlers are created "visually" through the use of a call handler
template editor. Once handlers are configured and downloaded, the SmartStart
application can be terminated and the PC disconnected from the SmartCenter C-
120.
<TABLE>
<CAPTION>
FEATURE DESCRIPTION BENEFIT TO CUSTOMER
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Remote Monitoring Allows a user to discreetly Control of inbound cellular
monitor and then optionally calls.
take an incoming office
calls from either a remote Reduced "phone tag" with
cellular or direct-dial land customers.
based telephone.
Single number access
(office number).
- -----------------------------------------------------------------------------------------
Local Monitoring Allows a user to locally Caller identification for
screen undetected incoming better control of calls.
calls on a telephone line
utilizing RBOC Voice Mail
services.
- -----------------------------------------------------------------------------------------
Auto Attendant Menuing Allows a user to present a More professional image.
customized, voice-prompted
menu to a caller who can More effective handling of
then direct the call to an calls.
answering machine, Voice
Mail, pager, extension, fax Improved ability to find
machine, or other remote the customer.
telephone number.
- -----------------------------------------------------------------------------------------
Direct Routing Allows a user to Single number access.
specifically define where to
route a specific incoming More convenient for caller.
call. Routing can be
determined based on Caller Improved ability to have
ID, distinctive ring, phone calls follow the
fax/voice type, time of day, customer.
or day of week.
- -----------------------------------------------------------------------------------------
Fax Routing Allows a user to receive and Better utilization of
transmit faxes from either telephone lines.
telephone line, re-route
incoming faxes to a remote Single number fax access.
fax machine automatically,
and prevents accidental fax More reliable fax
interruption if an extension reception.
is picked up.
</TABLE>
31
<PAGE>
CORE TECHNOLOGY
The Company has developed a number of technology building blocks which the
Company believes enables it to relatively quickly and efficiently develop new
hardware and software personal communications management products. The
Company's most important hardware building block is the low cost, highly
flexible analog-switching core. In addition to implementing the basic PBX-like
switching function, this circuit implements additional higher level PBX
features such as DTMF detection/generation, silence detect, full/half duplex
separation and call progress monitoring. Another key hardware building block
is the automatic gain recovery circuitry, used to dynamically control the
voice quality and volume between two central office lines that are connected
together in either a half duplex or full duplex manner. The Company believes
that this circuit significantly reduces any line loss, which might result in
poor signal quality upon the connection of the two central office lines. The
Company believes that the nature of its core technology will enable it to
implement its strategy of developing a broad line of personal communications
management products.
The Company has a library of telephony-based software algorithms and
Application Programming Interfaces ("APIs") which provide the basis of all the
features in SmartCenter, SmartMonitor and SmartScreen. These algorithms and
APIs work in conjunction with the hardware to provide unique functionality.
SALES AND MARKETING
Since March 1996, the Company has introduced three product lines that are
designed to address specific market segments and customers. The Company's
products are sold to residential RBOC Voice Mail customers, mobile
professionals and SOHO professionals and professionals in corporate satellite
offices. The Company has identified distribution channels for each of these
product lines and intends to market to these channels accordingly.
The Company's SmartScreen product line is targeted at residential RBOC Voice
Mail customers. The Company believes that the primary channels of distribution
for the SmartScreen family are RBOCs and LECs. The Company's strategy is to
encourage these telephone companies to co-brand, market and sell SmartScreen
products to Voice Mail subscribers at discounted prices and/or on favorable
terms to enhance the benefits of RBOC Voice Mail in order to retain existing
subscribers or acquire new subscribers. In May 1997, the Company entered into
a marketing agreement with Pacific Bell to market a co-branded version of the
S-100 to Pacific Bell's residential Voice Mail customers. The Company believes
that its current relationship with Pacific Bell and the future relationships
with the other RBOCs and LECs which it intends to establish in connection with
marketing the SmartScreen S-100 product will aid it in developing the
telephone companies as a distribution channel for its other products, the
SmartCenter C-120 and the SmartMonitor M-100.
The Company's SmartMonitor product line is targeted at mobile professionals.
The SmartMonitor M-100 is designed for mobile professionals who use answering
machines and the SmartMonitor M-200 is designed for mobile professionals who
use RBOC Voice Mail. The M-200 is expected to be available for customer
shipment in the fourth quarter of 1997. The Company believes that the primary
channel of distribution for the M-100 is the network of retailers, dealers and
distributors currently marketing cellular and PCS telephones and the primary
channels of distribution for the M-200 are RBOCs and LECs. In March 1997, the
Company entered into a distribution arrangement for the M-100 with ACA and
Hutton, two large domestic cellular distributors. Because mobile professionals
use cellular and PCS telephones and pagers, the Company also intends to pursue
relationships with the cellular, PCS and pager operations of RBOCs.
The Company's SmartCenter product line is targeted at SOHO professionals and
professionals in corporate satellite offices that need to be integrated into
the corporate communications infrastructure. The Company believes the primary
sales distribution channel for the C-120 targeted at SOHO professionals is
office supply retailers. In November 1996, the Company received an initial
stocking order from Office Depot. The Company believes the primary sales
channel for the C-120 targeted at corporate satellite offices is direct from
the Company or through VARs. Accordingly, the Company plans to spend a portion
of the proceeds of this Offering to develop a direct corporate sales force and
VAR sales and support programs.
32
<PAGE>
In addition to the foregoing targeted distributed channels, in order to make
its products more widely available to end-users the Company also markets its
products through catalogs targeted at telephony customers, such as Hello
Direct.
MANUFACTURING
The Company's manufacturing operations consist of final integration and test
of its products at the Company's facilities, in order to maintain overall
product quality. The Company subcontracts the manufacture of all of the
subassemblies of SmartCenter on a sole source basis offshore to CT Continental
(for circuit board fabrication) and Wellex Corporation (for circuit board
assembly). The Company subcontracts the manufacture of the subassemblies of
SmartMonitor on a sole source basis to Wellex Corporation (for circuit board
assembly) and AC International, Inc. (for circuit board fabrication). The
Company is currently subcontracting the subassemblies of SmartScreen on a sole
source basis to CT Continental offshore. The Company believes that there are
alternative contract manufacturers which could produce such subassemblies, but
it is not currently pursuing agreements or understandings with such
alternative sources. To date, the contract manufacturers have not been
required to assemble and deliver material quantities of subassemblies of any
of the Company's current products. Sole source integrated circuit suppliers
include but are not limited to Motorola, Inc., Texas Instruments, National
Semiconductor Corporation, Exar Corporation and DSP Technology, Inc. There can
be no assurance that such contract manufacturers or sole source integrated
circuit suppliers will be able to supply the Company with sufficient
quantities of subassemblies or components in a timely manner. If a contract
manufacturer or sole source supplier were unable to assemble or deliver the
Company's subassemblies or components in a timely manner, for any reason, the
Company's business, financial condition and results of operations would be
materially adversely affected. In the event of a reduction or interruption of
supply to the Company of such subassemblies or components, it could take a
significant period of time for the Company to qualify alternative suppliers,
redesign the product as necessary and commence manufacturing. The Company's
inability to obtain sufficient quantities of subassemblies or sole or limited
source components in the future or to develop alternative sources in the
future, could result in delays in product introductions or shipments, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
RESEARCH AND DEVELOPMENT
Since its inception, the Company has made a substantial investment of
approximately $4,100,000 as of June 30, 1997 in the research and development
of its core technology. This investment has resulted in the modular hardware
and software technology which the Company has utilized in its three product
lines: SmartCenter, SmartMonitor and SmartScreen. The Company intends to
continue to leverage this core technology to develop additional products to
broaden its product line. While the Company believes that its future success,
if any, will depend in large part on its ability to develop additional
products that meet the unique needs of each RBOC or LEC, the Company expects
to continue to derive substantially all of its revenues, if any, over the next
12 months from the sale of its existing products. As of June 30, 1997, the
Company's product development staff consisted of four engineers. The Company
also utilizes consultants on a project basis from time to time. The Company's
total expenses for research and development for the years ended December 31,
1995 and 1996 and for the period from inception to December 31, 1996 were
$1,385,769, $1,523,599 and $3,353,717, respectively.
COMPETITION
The market for communications products is highly competitive and
characterized by rapid technological change, frequent new product
introductions, short product life cycles, evolving industry standards and
significant price erosion over the life of a product. The Company believes
that the principal competitive factors affecting this market include product
features, compatibility with a wide variety of switching configurations,
price, ease of use, quality, customer service and support, and Company and
product reputation. Within specific ranges of functionality, the Company
experiences and expects to continue to experience competition from many
sources, including but not limited to: (i) companies that provide
communications management services, such as Priority Call Management, Inc.,
Wildfire Communications, MCI, AccessLine Technologies, Inc. and RBOCs such as
33
<PAGE>
Ameritech Corporation and U.S. West; (ii) companies that directly provide
personal communications management products, such as Bogen Communications,
Inc., Beond Communications, Centrepoint s/w Technologies, Incorporated,
Datacom, Jetstream Communications, Inc. and Notify Corporation; and (iii)
large consumer electronics companies that offer telephony products, such as
enhanced answering machines, including AT&T Corporation, Sony Corporation,
Panasonic Company and others. The Company believes that there will be intense
competition between companies that provide communications management services,
such as RBOCs, and companies that directly provide communications management
products.
Most of the Company's present and potential competitors have substantially
greater financial, marketing, technical and other resources than the Company.
Furthermore, the Company also expects to compete with companies that have
substantial manufacturing, marketing and distribution capabilities, areas in
which the Company has limited or no experience. Increased competition, direct
and indirect, could materially adversely affect the Company's revenues and
profitability through pricing pressure and loss of market share. There can be
no assurance that the Company will be able to compete successfully against
existing and new competitors as the market evolves and the level of
competition increases. The failure to compete successfully against existing
and new competitors would have a material adverse effect upon the Company's
business, financial condition and results of operations.
Current and potential competitors have established and may establish
cooperative relationships with third parties to increase the ability of their
products to address the needs of the Company's prospective customers. To the
extent such third parties enter into such relationships with competitors of
the Company, such third parties are likely to be unable or unwilling to enter
into similar relationships with the Company. It is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. As a result, such competitors may be able to respond
more quickly to new or emerging technologies and to changes in customer
requirements or to devote greater resources to the development, promotion and
sales of their products than can the Company. There can be no assurance that
these competitive pressures will not materially adversely affect the Company's
business, financial condition and results of operations.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of patents, trademarks and non-
disclosure agreements in order to establish and protect its proprietary
rights. The Company has filed applications for certain patents covering its
current products and intends to continue to file applications, as appropriate,
for any of the Company's future products. There can be no assurance that
patents will issue from any of its pending applications or, if patents do
issue, that the claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
issued to the Company will not be challenged, invalidated or circumvented, or
that the right granted thereunder will provide proprietary protection to the
Company. Since United States patent applications are maintained in secrecy
until patents issue and since the publication of inventions in technical or
patent literature tend to lag behind such inventions by several months, the
Company cannot be certain that it was the first creator of inventions covered
by its pending patent applications, that it was the first to file patent
applications for such inventions or that the Company is not infringing on the
patents of others.
The Company has in the past and intends in the future to trademark some of
its proprietary product names and logos and claims copyright protection for
its proprietary software. There can be no assurance that the Company can
obtain additional trademarks or that any copyright protection will be
adequate. Litigation may be necessary to enforce the Company's patents, if
issued, trademarks, copyrights or other intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement.
Such litigation could result in substantial costs and diversion of resources
and could have a material adverse effect on the Company's business, financial
condition and results of operations regardless of the final outcome of such
litigation. Despite the Company's efforts to safeguard and maintain its
proprietary rights, there can be no assurance that the Company will be
successful in doing so or that the Company's competitors will not
independently develop or patent technologies that are substantially
34
<PAGE>
equivalent or superior to the Company's technologies. In addition, the laws of
certain foreign countries do not protect the Company's intellectual property
rights to the same extent, as do the laws of the United States. Although the
Company continues to implement protective measures and intends to defend its
proprietary rights vigorously, there can be no assurance that these efforts
will be successful. In the absence of effective protection of its intellectual
property, there can be no assurance that third parties will not develop and
market copies of the Company's products.
The Company has received a letter from a third party asserting certain
patents for various telephone call processing products and seeking to enter
into licensing agreements with the Company with respect to such patents. The
Company is currently reviewing this matter to determine the need for any such
licensing agreements. There can be no assurance that the Company will not be
obligated to defend itself in court against allegations of infringement of
third-party patents or that the Company would prevail in any such litigation
seeking either damages or an injunction against the sale of the Company's
products. An adverse outcome in such a suit could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease using such
technology.
PERSONNEL
As of June 30, 1997, the Company employed 18 people on a full-time basis. Of
these, five were responsible for research and development, four were in
customer support and quality assurance, six were responsible for sales and
marketing, two were responsible for finance and administration, and one was
responsible for operations. The Company also utilizes consultants to fulfill
certain projects in the area of engineering, manufacturing and corporate
marketing. A union does not represent the Company's employees and the Company
considers its relationship with its employees to be good.
PROPERTY
The Company leases approximately 8,200 square feet in a facility in Los
Gatos, California. The facility is subject to a lease, which expires in
September 1997 and is renewable at the Company's option for one additional
year. The current monthly rent is approximately $7,442. The Company believes
that its current facilities are sufficient to meet its needs for the
foreseeable future.
LITIGATION
The Company is not a party to any material legal proceedings.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as of
June 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charlie Bass(1)............. 55 Chairman of the Board of Directors
Edward M. Esber, Jr......... 45 President, Chief Executive Officer and Director
Arthur G. Chang............. 38 Chief Operating Officer and Vice President of
Research
and Development
Ronald J. Tchorzewski....... 47 Chief Financial Officer and Vice President of
Finance
Bryan Kerr(3)............... 42 Vice President of Sales
Donald Nanneman............. 43 Vice President of Product Marketing
Patrick Grady(2)............ 29 Director
Giuliano Raviola(1)......... 64 Director
Charles Ross(2)............. 32 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Mr. Kerr has notified the Company that he is resigning effective August
31, 1997.
Charlie Bass has served as Director and Chairman of the Board since he co-
founded the Company in March 1993. Dr. Bass served as Chief Executive Officer
of the Company from March 1995 until October 1995. Dr. Bass is the general
partner of Bass Associates, a venture capital firm and has served in that
capacity since September 1989. Dr. Bass also currently serves as a Director of
Meridian Data, Inc., and Socket Communications, Inc. Dr. Bass is also a
consulting professor of electrical engineering at Stanford University. Dr.
Bass holds a Ph.D. in electrical engineering from the University of Hawaii.
Edward M. Esber, Jr. joined the Company as President, Chief Executive
Officer, and Director in October 1995 and assumed the position of Chief
Financial Officer for the period from May 1996 to July 1997. From May 1994 to
June 1995, Mr. Esber was Chairman, Chief Executive Officer and President of
Creative Insights, Inc., a computer toys company. From May 1993 to June 1994,
Mr. Esber was President and Chief Operating Officer of Creative Labs, Inc.,
the US subsidiary of Creative Technology Ltd. From 1985 to 1990, Mr. Esber was
Chairman, President, Chief Executive Officer and Director of Ashton-Tate, a
database software company and maker of dBase. Mr. Esber has served as a
director of Quantum Corp. since 1988, Borealis Technology Corporation since
1996 and Integrated Circuit Systems Technology since 1997. Mr. Esber holds a
bachelor's degree in computer engineering from Case Western Reserve
University, a master's degree in electrical engineering from Syracuse
University and a M.B.A. in general management from Harvard Business School.
Arthur G. Chang joined the Company as Chief Operating Officer and Vice
President of Research and Development in February 1996. From November 1993 to
April 1995, Mr. Chang was Chairman, President, Chief Executive Officer and
Director of CommVision Corporation, a wide area remote access company. From
February 1988 to April 1993, Mr. Chang was co-founder and Senior Vice
President of Product Development and Product Marketing for Parallan Computer,
Inc. (now Meridian Data, Inc.), a company that made fault-tolerant
superservers for PC networks. Mr. Chang holds a bachelor's degree in
electrical engineering from Northwestern University and a master's degree in
electrical engineering and computer science from the University of California
in Berkeley.
Ronald J. Tchorzewski joined the Company in October 1996 as Vice President
of Finance and was elected Chief Financial Officer in July 1997. From July
1996 to October 1996, Mr. Tchorzewski was an independent consultant. From
September 1993 to July 1996, Mr. Tchorzewski served as Chief Financial Officer
of ULTRADATA Corporation. From July 1987 to September 1993, Mr. Tchorzewski
held various positions with Cadence Design Systems, Inc., most recently as
Vice President and Corporate Controller. Mr. Tchorzewski holds
36
<PAGE>
a bachelor's degree in accounting from Seton Hall University and a master's
degree in finance from Seton Hall University.
Bryan Kerr joined the Company as a consultant in April 1996 and was elected
Vice President of Sales in June 1996. From February 1995 to April 1996, Mr.
Kerr was employed by Qualtos Computer Corporation, most recently as Chief
Operations Officer. From March 1993 to February 1995, Mr. Kerr served as Vice
President, Sales and Marketing for Action Technologies, Inc. In 1988, Mr. Kerr
co-founded Positive Corporation where he served as Vice President, Sales and
Marketing until it was acquired in April 1992 by Tandon Corporation. Mr. Kerr
has informed the Company that he is resigning his position with the Company
effective August 31, 1997.
Donald Nanneman joined the Company in January 1997 as Vice President of
Marketing. From March 1992 to December 1996, Mr. Nanneman was Group Marketing
Manager at Octel Communications. Prior to joining Octel, Mr. Nanneman was Vice
President of Sales and Marketing for MediaWorks, a workgroup software
publisher. Prior to MediaWorks, Mr. Nanneman held marketing management
positions with Apple Computer, Britton Lee and other technology companies.
Patrick Grady has served as a Director of the Company since July 1996. Mr.
Grady has been a Managing Director, Venture Capital for H.J. Meyers & Co.,
Inc., an investment bank, since March 1996. From June 1993 to March 1996 Mr.
Grady was Senior Vice President of Corporate Finance at H.J. Meyers & Co.,
Inc. From March 1991 to May 1993, Mr. Grady was Vice President of Corporate
Finance at Josephthal Lyon & Ross, an investment bank. Mr. Grady also
currently serves as a Director of Deltapoint, Inc., and Borealis Technology
Corporation. Mr. Grady attended Pace University in New York. Mr. Grady was
nominated by the Underwriter to serve on the Board of Directors.
Giuliano Raviola has served as a Director of the Company since September
1996. Mr. Raviola has been a Managing Director of the corporate general
partner of 4C Ventures, L.P., a Venture Capital limited partnership, since
March 1995. From January 1993 to February 1995, Mr. Raviola was self-employed
as an independent consultant. From January 1991 to December 1992, Mr. Raviola
was President of Olivetti ATC Inc., a developer of computers and information
systems. From September 1990 to December 1992, Mr. Raviola was President of
International Technology Ventures, Inc., a venture capital firm. Mr. Raviola
also currently serves as director of several private companies. Mr. Raviola
holds degrees in engineering from Politecnico in Turin, Italy, and from
Columbia University in New York. Mr. Raviola was nominated by 4C Ventures to
serve on the Board of Directors.
Charles Ross has served as a Director of the Company since September 1996.
Mr. Ross has been a Director of Venture Capital for Ameritech Development
Corporation, a subsidiary of Ameritech Corporation, since May 1993. From May
1992 to May 1993, Mr. Ross was a Manager of General Electric Medical Systems,
a manufacturer of diagnostic imaging systems. Mr. Ross holds a bachelor's
degree in Electrical Engineering from Marquette University and a M.B.A. from
Indiana University. Mr. Ross was nominated by Ameritech to serve on the Board
of Directors.
The Company currently has authorized five directors. All directors are
elected to hold office until the next annual meeting of shareholders of the
Company and until their successors have been elected. Officers are elected by
and serve at the discretion of the Board of Directors. The Company has granted
to each of 4C Ventures, L.P. ("4C Ventures") and Ameritech the right to
nominate one member of the Board of Directors so long as they respectively own
more then 3% of the outstanding Common Stock of the Company. Certain principal
shareholders of the Company have agreed to vote in favor of such nominees.
Additionally, H.J. Meyers & Co., Inc. has the right to nominate one member of
the Board of Directors. See "Principal Shareholders" and "Underwriting."
FAMILY RELATIONSHIPS
There are no family relationships among any of the directors or executive
officers.
37
<PAGE>
COMPENSATION OF DIRECTORS
The Company's directors do not currently receive any cash compensation for
service on the Board of Directors, but directors may be reimbursed for
reasonable expenses incurred in connection with attendance at Board and
committee meetings. The Company has, however, recently initiated a policy of
providing directors with an automatic grant of an option to purchase 12,000
shares of Common Stock of the Company each year on the day immediately
following the annual shareholders' meeting of the Company. In July 1997 the
Company granted options exercisable for 12,000 shares of Common Stock to each
of Directors Bass, Raviola, Grady and Ross or their affiliates.
EMPLOYMENT AGREEMENTS
In October 1995, The Company entered into an employment agreement with
Edward M. Esber, Jr., President and Chief Executive Officer of the Company.
Pursuant to such agreement, Mr. Esber received an annual base salary of
$180,000 plus a performance bonus of up to $45,000 for 1996. Mr. Esber's base
salary for 1997 remains at $180,000. Also pursuant to such agreement, Mr.
Esber received a right to purchase 140,000 shares of Common Stock. If Mr.
Esber's employment is involuntarily terminated without cause prior to November
1, 1999, Mr. Esber will continue to receive his base salary and benefits for a
period of six months from the date of termination. See "Certain Relationships
and Related Transactions."
In February 1996, the Company entered into an employment agreement with
Arthur G. Chang, the Chief Operating Officer of the Company. Pursuant to such
agreement, Mr. Chang received an annual salary of $85,000. In July 1996, Mr.
Chang's annual salary was increased to $132,000. Mr. Chang's base salary was
increased to $156,000 in March 1997. Also pursuant to such agreement, Mr.
Chang received the right to purchase 75,000 shares of Common Stock. See
"Certain Relationships and Related Transactions."
The Company currently has no other compensatory plan or arrangement with any
of the Named Officers where the amounts to be paid exceed $100,000 and which
are activated upon resignation, termination or retirement of any such
executive officer upon a change in control of the Company.
38
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
paid by the Company to the Chief Executive Officer and each of the other
executive officers of the Company whose total salary and bonus for fiscal year
1996 exceeded $100,000 (collectively the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ --------------
NAME OF PRINCIPAL ALL OTHER
POSITION FISCAL YEAR SALARY($) BONUS($) OPTIONS/SARS # COMPENSATION($)
----------------- ----------- --------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Edward M. Esber, Jr.(1). 1995 $ 32,637 $ -- -- $1,124(3)
Chief Executive 1996 180,000 45,000(2) -- 4,496(3)
Officer, President and
Director
Arthur G. Chang (4)..... 1996 104,583 -- -- 4,197(3)
Chief Operating Officer
</TABLE>
- --------
(1) Mr. Esber joined the Company in October 1995.
(2) Represents bonus earned by the Named Officer based upon his performance in
the year noted but credited in the subsequent year against the Named
Officer's indebtedness to the Company. See "Certain Relationships and
Related Transactions."
(3) Consists of life and health insurance premiums paid by the Company.
(4) Mr. Chang joined the Company in February 1996. As of December 31, 1996,
Mr. Chang earned an annualized salary of $132,000.
During the fiscal year ended December 31, 1996, there were no grants of
stock options to, nor any exercise of stock options by the Named Officers.
BENEFIT PLANS
Amended and Restated 1993 Incentive Stock Plan. The Company has reserved an
aggregate of 897,000 shares of Common Stock for issuance under its Amended and
Restated 1993 Incentive Stock Plan (the "Stock Plan"). The Stock Plan was
originally adopted by the Board of Directors in March 1993. The plan was
amended and restated by the Board of Directors in April 1997 and approved by
the shareholders in May 1997. As of June 30, 1997, options to purchase a total
of 28,516 shares (net of cancellations) had been exercised, options to
purchase a total of 247,713 were outstanding, stock grants totaling 93,314 had
been made, and 27,457 shares remained available for future grants. The Stock
Plan will be in effect for a term of ten years unless terminated earlier. The
Stock Plan provides for grants of incentive stock options, nonstatutory stock
options, and stock purchase rights to employees (including employees who are
officers) of the Company and its subsidiaries and grants of nonstatutory stock
options to non-employee directors of the Company; provided however, that no
employee may be granted options or stock purchase rights to purchase more than
75,000 shares in any one fiscal year. The Plan also provides for grants of
nonstatutory stock options and stock purchase rights to consultants. The Stock
Plan may be administered by the Board of Directors or by a committee appointed
by the Board (the "Administrator"), in a manner that satisfies the legal
requirements relating to the administration of stock plans and issuance of
shares under all applicable laws. The Stock Plan is currently administered by
the Board of Directors.
39
<PAGE>
The exercise price of options granted under the Stock Plan is determined by
the Administrator. With respect to incentive stock options granted under the
Stock Plan, the exercise price must be at least equal to the fair market value
per share of Common Stock on the date of grant, and the exercise price of any
incentive stock option granted to a participant who owns more than 10% of the
voting power of all classes of the Company's outstanding capital stock must be
equal to at least 110% of the fair market value of the Common Stock on the
date of grant. The maximum term of an incentive stock option granted under the
Stock Plan may not exceed ten years from the date of grant (five years in the
case of a participant who owns more than 10% of the voting power of all
classes of the Company's outstanding capital stock). The term of a
nonstatutory stock option is determined by the Administrator. In the event of
termination of an optionee's employment or consulting arrangement, options may
only be exercised, to the extent vested as of the date of termination, for a
period specified in the notice of grant. If the notice of grant does not
specify the period for exercise, the optionee will have three months following
the date of termination. Options and stock purchase rights may not be sold or
transferred other than by will or the laws of descent and distribution, and
may be exercised during the life of the optionee only by the optionee.
A stock purchase right allows an employee or consultant to purchase shares
of the Company's Common Stock pursuant to a restricted stock agreement. Unless
otherwise determined by the Administrator, the restricted stock purchase
agreement gives the Company an option, exercisable upon termination of the
purchaser's employment for any reason including death or disability, to
repurchase the shares at the original price paid by the purchaser. Such
repurchase option lapses at a rate determined by the Administrator.
In the event of a merger or sale of substantially all of the Company's
assets, all outstanding options and stock purchase rights may be assumed or an
equivalent option or stock purchase right substituted by the successor
corporation or its parent or subsidiary. In the absence of such assumption or
substitution, all options and stock purchase rights will become fully
exercisable and vested. Any options and stock purchase rights not assumed or
substituted for will terminate thirty days after the Administrator gives
notice.
The Board has the right to amend or terminate the Stock Plan, provided that
no such action may impair the rights of any optionee without the written
consent of any such optionee, and provided further that certain amendments are
by law subject to shareholder approval. The Stock Plan will terminate in 2003
unless terminated sooner by the Board.
The 401(k) Plan. The Company adopted a 401(k) savings plan (the "401(k)
Plan") effective in January 1995. In January 1997, the Company adopted a
restated 401(k) Plan, effective as of January 1, 1996. Eligible employees who
have attained age 18 may participate in the 401(k) Plan. Participants in the
401(k) Plan may defer compensation in an amount not in excess of the annual
statutory limit ($9,500) in 1997. The Company may make matching contributions
in the amount determined annually by the Board of Directors. All contributions
are credited to separate accounts maintained in trust for each participant and
are invested, at the participant's direction, in one or more of the investment
funds made available under the 401(k) Plan. Matching contributions, if any,
vest over a six-year period. The 401(k) Plan is intended to qualify under
Section 401 and 501 of the Internal Revenue Code so that contributions to the
401(k) Plan and income earned on the plan contributions are not taxable to
employees until withdrawn and so that the contributions will be deductible by
the Company when made. There were no contributions made by the Company for the
year ended December 31, 1996.
40
<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Articles of Incorporation provide that to
the fullest extent permitted by the California Business Corporation Act, the
Company's Directors will not be liable for monetary damages to the Company or
its shareholders. The Company's Bylaws provide that the Company will indemnify
its directors and, by action of the Board of Directors, may indemnify its
officers, employees and other agents of the Company to the fullest extent
permitted by applicable law, except for any legal proceeding that is initiated
by such Directors, officers, employees or agents without authorization from
the Board of Directors. The Company has entered into indemnification
agreements with its officers and Directors containing provisions which 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 expense incurred as a
result of any proceeding against them as to which they could be indemnified.
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 that may result in a claim for such
indemnification.
41
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the Company's inception in March 1993, the Company issued, in private
placement transactions (collectively, the "Private Placement Transactions"),
shares of Preferred Stock and warrants to purchase Preferred Stock as follows:
an aggregate of 25,013 shares of Series A-1 Preferred Stock at $10.00 per
share in January 1994; an aggregate of 7,500 shares of Series A-1 Preferred
Stock was exchanged for 300,000 shares of Common Stock in a recapitalization
in January, 1994 (the Company received no cash as a result of this
recapitalization); an aggregate of 79,527 shares of Series A-2 Preferred Stock
at $3.50 per share and warrants to purchase 8,570 shares of Series A-2
Preferred Stock at $3.50 per share in May 1994; an aggregate of 143,750 shares
of Series A-3 Preferred Stock at $4.00 per share in July and August 1994; an
aggregate of 100,795 shares of Series A-4 Preferred Stock at $4.50 per share
in December 1994 and January 1995; an aggregate of 154,000 shares of Series A-
5 Preferred Stock at $5.00 per share in March and April 1995; an aggregate of
85,000 shares of Series A-6 Preferred Stock at $6.00 per share in June 1995;
warrants to purchase an aggregate of 57,320 shares of Series A-7 Preferred
Stock at $5.00 per share in September and October 1995; an aggregate of
532,853 shares of Series A-7 Preferred Stock and warrants to purchase 186,950
shares of Series A-7 Preferred Stock at $5.00 per share in February and March
1996, in exchange for cash of $1,200,500 and cancellation of $1,433,000 of
convertible notes payable plus $30,770 of accrued interest. Investors
purchasing Series A-7 Preferred Stock for cash were issued a warrant to
purchase 50% of the number of shares they purchased resulting in the issuance
of warrants for 120,050 shares of Series A-7 Preferred Stock at an exercise
price of $5.00 per share. Holders of convertible notes payable who converted
their notes into Series A-7 Preferred Stock and purchased shares of Series A-7
Preferred Stock for cash as requested by the Company, were issued additional
warrants to purchase the number of shares of Series A-7 Preferred Stock that,
when combined with the warrants previously issued in connection with the
convertible promissory notes, equaled 50% of the number of shares of Series A-
7 Preferred Stock purchased in the financing by cash or cancellation of
indebtedness. This resulted in the issuance of warrants to purchase an
additional 66,900 shares of Series A-7 Preferred Stock at $5.00 per share. As
part of the Series A-7 financing, approximately 76,667 shares of Series A-6
Preferred Stock were converted into 92,000 shares of Series A-7 Preferred
Stock. Additionally, after the closing of the Series A-7 financing, a
consultant of the Company was issued 8,000 shares of Series A-7 Preferred
Stock in exchange for services rendered to the Company.
Participants in the Private Placement Transactions included the following
directors, executive officers and holders of more than 5% of the outstanding
shares of Common Stock:
<TABLE>
<CAPTION>
WARRANTS FOR WARRANTS FOR
SERIES A-1 SERIES A-2 SERIES A-2 SERIES A-3 SERIES A-4 SERIES A-5 SERIES A-7 SERIES A-7
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK STOCK STOCK STOCK STOCK STOCK
-------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bass Associates......... 27,500 14,521 2,428 12,500 14,210 10,000 66,774 28,200
Ameritech Development
Corporation............ 104,119 16,000
Hambrecht & Quist Group. 35,000 24,624 12,200
H&Q: London Ventures.... 35,000 21,974 10,900
Charles Simony.......... 71,166 35,000
New Jersey Wolfson
Trust.................. 68,790 33,800
J.F. Shea Co., Inc...... 100,748 50,000
</TABLE>
Upon the closing of the Company's initial public offering on August 6, 1996,
all outstanding shares of Preferred Stock automatically converted into an
aggregate of 1,145,438 shares of Common Stock and all warrants to purchase
Preferred Stock became exercisable for an equivalent number of shares of
Common Stock at an identical per share exercise price.
42
<PAGE>
In February 1996, Edward M. Esber, Jr., Chief Executive Officer, President,
Director, and the Company, entered into a Restricted Stock Purchase Agreement
pursuant to which Mr. Esber bought 140,000 shares of the Company's Common
Stock, at a price of $0.50 per share. These shares are subject to repurchase
by the Company, at the original $0.50 purchase price per share, upon Mr.
Esber's cessation of service prior to vesting in those shares. In conjunction
with the share purchase, the Company loaned $70,000 to Mr. Esber pursuant to a
promissory note secured by the 140,000 shares of restricted Common Stock
purchased by Mr. Esber. As of June 30, 1997, Mr. Esber still owes
approximately $3,400 on this promissory note. Mr. Esber serves pursuant to an
employment agreement under which he is entitled to severance payments. See
"Beneficial Security Ownership of Management & Certain Beneficial Owners" and
"Executive Compensation."
In February 1996, Bass Associates and the Company entered into a Restricted
Stock Purchase Agreement pursuant to which Bass Associates bought 11,000
shares of the Company's Common Stock, at a price of $0.50 per share. Charlie
Bass, the Chairman of the Board of Directors, is the General Partner of Bass
Associates. These shares are subject to repurchase by the Company, at the
original $0.50 price per share, upon Dr. Bass's cessation of service prior to
vesting in these shares.
In February 1996, Arthur G. Chang, Chief Operating Officer, and the Company,
entered into a Restricted Stock Purchase Agreement pursuant to which Mr. Chang
bought 75,000 shares of the Company's Common Stock, at a price of $0.50 per
share, pursuant to the Incentive Plan. These shares are subject to repurchase
by the Company, at the original $0.50 purchase price per share, upon Mr.
Chang's cessation of service prior to vesting in those shares. In conjunction
with the share purchase, the Company loaned $37,500 to Mr. Chang pursuant to a
promissory note secured by the 75,000 shares of restricted Common Stock
purchased by Mr. Chang. Mr. Chang still owes $37,500 on this promissory note.
In April 1996, the Board of Directors approved a sale of 60,000 shares of
the Company's Common Stock at a price of $0.50 per share to Mr. Esber pursuant
to a Restricted Stock Purchase Agreement. In May 1996, Mr. Esber executed the
Restricted Stock Purchase Agreement pursuant to which the shares are subject
to repurchase by the Company, at the original $0.50 purchase price per share,
upon Mr. Esber's cessation of service prior to vesting in those shares. In
conjunction with the share purchase, the Company loaned $30,000 to Mr. Esber
pursuant to a promissory note secured by the 60,000 shares of restricted
Common Stock purchased by Mr. Esber. As of June 30, 1997, Mr. Esber still owes
$30,000 on this promissory note.
In April 1996, the Board of Directors approved the sale of 40,000 shares of
the Company's Common Stock at a price of $0.50 per share to Mr. Chang pursuant
to a Restricted Stock Purchase Agreement. In May 1996, Mr. Chang executed the
Restricted Stock Purchase Agreement pursuant to which the shares are subject
to repurchase by the Company, at the original $0.50 purchase price per share,
upon Mr. Chang's cessation of service prior to vesting in those shares. In
conjunction with the share purchase, the Company loaned $20,000 to Mr. Chang
pursuant to a promissory note secured by the 40,000 shares of restricted
Common Stock purchased by Mr. Chang. As of June 30, 1997, Mr. Chang still owes
$20,000 on this promissory note.
In June 1996, the Company issued $1,000,000 and $500,000 in principal amount
of the Convertible Notes to 4C Ventures and Ameritech, respectively. The
Convertible Notes were automatically converted into 302,544 shares of Common
Stock upon the closing of the Company's initial public offering in August
1996. In connection therewith, the Company granted such parties warrants to
purchase an aggregate of 60,000 shares of Common Stock at a per share exercise
price of $5.00. In addition, the Company granted to each of 4C Ventures and
Ameritech the right to nominate one member of the Board of Directors as long
as they respectively own more than 3% of the outstanding Common Stock of the
Company. Certain principal shareholders of the Company have agreed to vote in
favor of such nominees.
In March 1997, pursuant to his employment agreement, Mr. Esber elected to
forgive $45,000 of indebtedness to the Company incurred to purchase stock, in
lieu of a $30,000 cash bonus for his performance in 1996. In April 1997 Mr.
Esber elected to have the Company forgive $27,000 of his indebtedness to the
Company incurred to purchase stock, as a one time discretionary bonus, in lieu
of a proposed $18,000 increase in base salary.
43
<PAGE>
The Company's initial public offering was underwritten by and this Offering
is being underwritten by the Underwriter, a firm that also serves as a market
maker with regard to the Company's Common Stock. Patrick Grady, a director of
the Company, serves as the Managing Director, Venture Capital of the
Underwriter. In addition to the underwriting discount of $675,000 in
connection with the Company's initial public offering, the Company paid the
Underwriter a non-accountable expense allowance of $202,500 and $10,000
related to the publishing of a "tombstone" notice. In addition, in connection
with the Company's initial public offering, the Company issued to the
Underwriter a warrant to purchase up to 135,000 shares of the Company's Common
Stock at a price of $6.00 per share at any time during the four-year period
commencing on August 6, 1997.
Unless otherwise indicated, transactions with affiliates have been made on
terms no less favorable to the Company than those available from unaffiliated
parties. In the future, the Company will continue to seek the most favorable
terms available from both affiliates and nonaffiliates.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of June 30,
1997 by (i) each shareholder known by the Company to be the beneficial owner
of more than 5% of the Company's Common Stock, (ii) each director, (iii) the
Company's Chief Executive Officer and each of the other executive officers of
the Company other than the Chief Executive Officer whose total salary and
bonus for fiscal year 1996 exceeded $100,000 (together, the Named Officers)
and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(2)
------------------------
BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) NUMBER OF SHARES OFFERING OFFERING
- --------------------------- ---------------- ----------- ----------
<S> <C> <C> <C>
Bass Associates (3)(4)............. 404,633 11.5% 6.7%
435 Tasso Street, Suite 325
Palo Alto, CA 94301
4C Ventures, L.P. (4)(5)........... 241,856 6.8% 4.0%
c/o Queensgate Bank & Trust Co.,
Ltd.
P.O. Box 30464
Ugland House
South Church Street
Grand Cayman
Cayman Islands, BWI
Ameritech Development Corporation 240,807 6.8% 4.0%
(4)(6)............................
30 South Wacker Drive
Chicago, IL 60606
Edward M. Esber, Jr. (4)(7)........ 200,010 5.7% 3.3%
c/o SoloPoint, Inc.
130-B Knowles Dr.
Los Gatos, CA 95030
Arthur G. Chang (4)(8)............. 115,000 3.3% 1.9%
c/o SoloPoint, Inc.
130-B Knowles Dr.
Los Gatos, CA 95030
Giuliano Raviola (9)............... 241,856 6.8% 4.0%
c/o Queensgate Bank & Trust Co.,
Ltd.
P.O. Box 30464
Ugland House
South Church Street
Grand Cayman
Cayman Islands, BWI
Charles Ross (10).................. -- * *
Ameritech Development Corporation
30 South Wacker Drive
Chicago, IL 60606
Ronald J. Tchorzewski.............. -- * *
c/o SoloPoint, Inc.
130-B Knowles Dr.
Los Gatos, CA 95030
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
-----------------------
FIVE PERCENT SHAREHOLDERS, NUMBER OF SHARES BEFORE AFTER
DIRECTORS AND EXECUTIVE OFFICERS(1) BENEFICIALLY OWNED OFFERING OFFERING
- ----------------------------------- ------------------ ---------- ----------
<S> <C> <C> <C>
Patrick Grady (11)................ 10,000 * *
H.J. Meyers & Co., Inc.
433 California Street, Suite 300
San Francisco, CA 94104
Charlie Bass (12)................. 404,633 11.4% 6.7%
435 Tasso Street, Suite 325
Palo Alto, CA 94301
Bryan Kerr (13)................... 26,333 * *
c/o SoloPoint, Inc.
130-B Knowles Dr.
Los Gatos, CA 95030
All directors and officers as a
group (8 persons) (14)........... 997,832 27.8% 16.4%
</TABLE>
- --------
* Less than 1%
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes to this
table.
(2) Percentage ownership is based on: (i) before the Offering, 3,499,780
shares of Common Stock outstanding as of June 30, 1997 and any shares
issuable pursuant to securities convertible into or exercisable for
shares of Common Stock by the person or group in question on June 30,
1997 or within 60 days thereafter; and (ii) after the Offering, an
additional 2,500,000 shares to be issued by the Company in the Offering.
(3) Includes warrants to purchase 30,628 shares of Common Stock exercisable
on June 30, 1997 or within 60 days thereafter. Dr. Bass is the
controlling General Partner of Bass Associates and may be deemed to share
voting and investment power with respect to those shares. However, Dr.
Bass disclaims beneficial ownership of shares owned by Bass Associates
except to the extent of his pecuniary interest.
(4) In connection with the issuance of the certain convertible notes, the
Company has agreed to grant to each of 4C Ventures and Ameritech the
right to nominate one member of the Board of Directors so long as they
respectively own more than 3% of the outstanding Common Stock of the
Company. These shareholders by a Voting Agreement dated July 14, 1996
have agreed to vote in favor of such nominees. See "Certain Relationships
and Related Transactions."
(5) Includes warrants to purchase 40,000 shares of Common Stock exercisable
on June 30, 1997 or within 60 days thereafter.
(6) Includes warrants to purchase 36,000 shares of Common Stock exercisable
on June 30, 1997 or within 60 days thereafter. Ameritech Development
Corporation is a subsidiary of Ameritech Corporation.
(7) 200,000 of Mr. Esber's shares are subject to repurchase options granted
to the Company under two separate agreements. The first agreement grants
the Company an option to repurchase 140,000 of Mr. Esber's shares within
90 days following the termination of Mr. Esber's employment with the
Company. Under the agreement, one-fourth (35,000) of the shares were
released from the repurchase option on October 26, 1996, and one-forty-
eighth (approximately 2,917) of the shares were released from the
repurchase option on November 26, 1996 and one-forty-eighth of the share
will be released on the twenty-sixth day of each month thereafter until
all of the shares were released. In the event of a Change of Control of
the Company (as defined in the agreement), an additional number of shares
equal to one-half of the number of shares that have not been released
from the Company's repurchase option as of the closing of such Change in
Control shall become immediately exercisable on the consummation of such
Change in Control. The second agreement grants the Company an option to
repurchase the remaining 60,000 shares within 90 days following the
termination of Mr. Esber's employment with the Company. Under the
agreement, one-forty-eighth (1,250) of the shares were released on June
1, 1996, and an additional one-
46
<PAGE>
forty-eighth of the shares are to be released on the first day of each
month thereafter until all of the shares have been released. The second
agreement contains identical Change of Control provisions as the agreement
governing the aforementioned 140,000 shares.
(8) Mr. Chang's shares are subject to repurchase options granted to the
Company under two separate agreements. The first agreement grants the
Company an option to repurchase 75,000 of Mr. Chang's shares within 90
days following the termination of Mr. Chang's employment with the
Company. Under the agreement, one-fourth (18,750) of the shares will be
released from the repurchase option upon the earliest of (i) January 1,
1997, or (ii) following an equity financing of the Company of at least $3
million, the voluntary termination by Mr. Chang of his employment with
the Company or the termination of Mr. Chang's employment by the Company
without cause (as defined in the agreement). One-forty-eighth
(approximately 1,563) of the shares were released from the repurchase
option on February 1, 1997 and on the first day of each month thereafter
until all of the shares have been released. In the event of a Change of
Control of the Company (as defined in the agreement), an additional
number of shares equal to one-half of the number of shares that have not
been released from the Company's repurchase option as of the closing of
such Change in Control shall become immediately exercisable on the
consummation of such Change in Control. The second agreement grants the
Company an option to repurchase the remaining 40,000 shares within 90
days following the termination of Mr. Chang's employment with the
Company. Under the agreement, one-forty-eighth (approximately 833) of the
shares were released on June 1, 1996, and an additional one-forty-eighth
of the shares will be released on the first day of each month thereafter
until all shares have been released. The second agreement contains
identical Change of Control provisions as the agreement governing the
aforementioned 75,000 shares.
(9) Mr. Raviola, a director of the Company, is a Limited Partner of 4C
Associates, L.P., which is the General Partner of 4C Ventures, L.P. Mr.
Raviola may be deemed to be the beneficial owner of shares owned by 4C
Ventures, L.P. Mr. Raviola is 4C Ventures' nominee to the Board of
Directors pursuant to agreement with the Company. See "Certain
Relationships and Related Transactions."
(10) Mr. Ross, a director of the Company, is Ameritech's nominee to the Board
of Directors pursuant to agreement with the Company. See "Certain
Relationships and Related Transactions."
(11) Mr. Grady, a director of the Company, is H.J. Meyers & Co., Inc's.
nominee to the Board of Directors pursuant to agreement with the Company.
See "Certain Relationships and Related Transactions."
(12) Dr. Bass, a director of the Company, is the controlling General Partner
of Bass Associates and may be deemed to share voting and investment power
with respect to those shares. However, Dr. Bass disclaims beneficial
ownership of shares owned by Bass Associates except to the extent of his
pecuniary interest therein. Includes warrants to purchase 30,628 shares
of Common Stock issued to Bass Associates exercisable on June 30, 1997 or
within 60 days thereafter.
(13) Includes 23,333 shares subject to stock options exercisable on June 30,
1997 or within 60 days thereafter.
(14) Includes warrants to purchase 70,628 shares of Common Stock and 23,333
shares subject to stock options exercisable on June 30, 1997 or within 60
days thereafter.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
COMMON STOCK
As of June 30, 1997, there were approximately 3,499,780 shares of Common
Stock outstanding held by approximately 108 shareholders of record. There will
be 5,999,780 shares of Common Stock outstanding after giving effect to the
sale of the shares of Common Stock offered hereby. The holders of Common Stock
are entitled to one vote per share on all matters to be voted on by
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, if any, the holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion out of funds legally available therefor.
See "Dividend Policy." In the even of a liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior rights of
Preferred Stock, if any, then outstanding. 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 nonassessable.
WARRANTS
In connection with the Company's initial public offering, the Company issued
to H.J. Meyers & Co., Inc., the underwriter of such offering, a warrant to
purchase a maximum of 135,000 shares of Common Stock. This warrant becomes
exercisable for a four-year period commencing August 6, 1997. The exercise
price of this warrant is $6.00 per share. The warrant contains anti-dilution
provisions providing adjustment in the event of any recapitalization, stock
dividend, stock split or similar transaction. The warrant does not entitle
H.J. Meyers & Co., Inc. to any rights as a shareholder of the Company until
such warrant is exercised and shares are purchased thereunder. The 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 a registration statement, the Underwriter shall have the
right during the four-year period commencing on August 6, 1996 to include in
such registration statement the warrant and the shares of Common Stock
issuable upon its exercise at no expense to the Underwriter. 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 the warrant.
At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 250,000
shares of Common Stock. The Underwriter's Warrant will be exercisable for a
four-year period commencing one year from the date of this Prospectus. The
exercise price of the Underwriter's Warrant is $3.15 per share (assuming a
public offering price of $2.625 per share). The Underwriter's Warrant will
contain anti-dilution provisions. The Underwriter's Warrant does not entitle
the Underwriter to any rights as a shareholder of the Company until such
Warrant is exercised and shares are purchased thereunder. The Underwriter's
Warrant and the shares of Common Stock thereunder may not be offered for sale
except in compliance with the applicable provisions of the Securities Act. The
Company has agreed that, if it shall cause to be filed with the Securities and
Exchange Commission either an amendment to the Registration Statement of which
this Prospectus is a part or a separate registration statement, the
Underwriter shall have the right during the four-year period commencing on the
date of this Prospectus to include in such amendment or Registration Statement
the Underwriter's Warrant and the shares of Common Stock issuable upon
48
<PAGE>
its exercise at no expense to the Underwriter. Additionally, the Company has
agreed that, upon written request by a holder or holders of 50% or more of the
Underwriter's Warrant which is made during the exercise period of the
Underwriter's Warrant, the Company will, on two separate occasions, register
the Underwriter's Warrant and the shares of Common Stock issuable upon
exercise thereof. The initial such registration will be at the Company's
expense and the second registration will be at the expense of the holder(s) of
the Underwriter's Warrant.
In June 1996, the Company granted 4C Ventures and Ameritech warrants to
purchase an aggregate of 60,000 shares of Common Stock at a per share exercise
price of $5.00. In addition, as of June 30, 1997, there were outstanding
warrants for (i) 8,570 shares of Common Stock at an exercise price of $3.50
per share, and (ii) 250,670 shares of Common Stock at an exercise price of
$5.00 per share, and (iii) 135,000 shares of Common Stock at an exercise price
of $6.00 per share.
REGISTRATION RIGHTS
Holders of approximately 1,450,986 shares of Common Stock ("Registrable
Securities") will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. If the Company proposes
to register any of its securities under the Securities Act for its own
account, holders of Registrable Securities will be entitled to notice of such
registration and are entitled to include Registrable Securities therein,
provided, among other conditions, that the underwriters of any such offering
have the right to limit the number of shares included in such registration.
The Company is not obligated to effect more than two of these shareholder-
initiated registrations. Further, holders of Registrable Securities may
require the Company to file additional registration statements on Form S-3,
subject to certain conditions and limitations. The officers, directors and
affiliates of the Company who purchased shares and warrants in the Private
Placement Transactions are included in the shareholders of Registrable
Securities. See "Certain Relationships and Related Transactions."
In addition, the Company granted 4C Ventures and Ameritech, the holders of
an aggregate total of 302,544 shares of the Registrable Securities, certain
rights with respect to the registration of the Common Stock. Further, the
Company has agreed that, thereafter to the extent necessary to permit resale
of such Common Stock, the Company shall use its best efforts to maintain the
effectiveness of such registration statement and keep current the prospectus
included therein until the Company is satisfied that Rule 144(k) is available
for the resale by the then-current holders of such Common Stock.
The Company has also granted registration rights to the holder of the
warrant issued to H.J. Meyers & Co., Inc. in connection with the Company's
initial public offering and to the holder of the Underwriter's Warrant, which
provide such holders with certain rights to register the shares of Common
Stock underlying the such Warrants. See "Description of Capital Stock--
Warrants" and "Underwriting."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market or
the perception that such sales could occur could materially adversely affect
the market price of the Common Stock and the ability of the Company to raise
capital in the future.
Upon completion of this Offering, the Company will have outstanding
approximately 5,999,780 shares of Common Stock, assuming no exercise of the
Underwriter's over-allotment option, the Underwriter's Warrant and no exercise
of outstanding options or warrants. The 2,500,000 shares of Common Stock that
are sold by the Company to the public in this Offering and an additional
1,350,000 shares will be freely tradeable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. An additional approximately
45,000 shares are eligible for sale in the public market following the closing
of this Offering, subject in certain cases to certain volume and resale
restrictions under Rule 144.
Of the remaining approximately 2,104,000 shares of Common Stock outstanding
upon completion of this Offering, approximately 504,000 and approximately
1,595,000 shares are subject to lock-up agreements expiring on September 6,
1997 and August 6, 1998, respectively, providing that the holders of such
shares will not offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of the shares of stock owned by them or that could be
purchased by them through the exercise of options to purchase stock of the
Company without the prior written consent of the Underwriter.
For twelve months from the closing of this Offering, the Company has agreed
that it will not sell or otherwise dispose of any securities without the prior
written consent of the Underwriter, which consent shall not be unreasonably
withheld, with the exception of (i) shares issued pursuant to the exercise of
options, warrants or other convertible securities outstanding prior to the
closing of this Offering, (ii) shares issued pursuant to the Company's
incentive stock plans to officers, directors, employees and consultants or
(iii) shares issued pursuant to strategic alliance or corporate partnership
transactions at a price per share equal to the average closing bid price of
the Company's Common Stock as quoted on the Nasdaq Small Cap Market for the
ten-day trading period prior to the date of the closing of such transaction.
For twenty-four months from the closing of this Offering, the Company has
agreed not to sell or issue any securities pursuant to Regulation S or
Regulation D, or securities at a discount to market or in a discounted
transaction, under the Securities Act without the Underwriter's prior written
consent.
The Company has filed registration statements on Form S-8 under the
Securities Act covering 775,170 shares of Common Stock reserved for issuance
under the Stock Plan. Accordingly, shares registered under such registration
statements are, subject to Rule 144 volume limitations applicable to
affiliates of the Company, available for sale in the open market, subject to
vesting restrictions and the lock-up agreements described above. See
"Management--Benefit Plans."
As of June 30, 1997, the Company has issued warrants to purchase 454,240
shares of Common Stock, and will issue the Underwriter's Warrant to purchase
up to 250,000 shares of Common Stock upon the closing of this Offering.
50
<PAGE>
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriter, to purchase
from the Company 2,500,000 shares of Common Stock. The underwriting discount
set forth on the cover page of this Prospectus will be allowed to the
Underwriter at the time of delivery to the Underwriter of the shares so
purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
NAME OF UNDERWRITER PURCHASED
- ------------------- ------------
<S> <C>
H. J. Meyers & Co., Inc............................................ 2,500,000
</TABLE>
The Underwriter has advised the Company that they propose to offer the
shares to the public at an offering price of $ per Share and that the
Underwriter may allow certain dealers who are members of the National
Association of Securities Dealers ("NASD") a concession of not in excess of
$ per Share. After commencement of the Offering, the public offering price
and concession may be changed.
The Company has granted to the Underwriter an option, exercisable during the
45 business-day period from the date of this Prospectus, to purchase up to a
maximum of 375,000 additional shares on the same terms set forth above. The
Underwriter may exercise such rights only to satisfy over-allotment in the
sale of the shares.
The Company has agreed to pay to Underwriter a non-accountable expense equal
to 3% of the total proceeds of the Offering, or $196,875 at an assumed public
offering price of $2.625 ($226,406 if the Underwriter exercises the over-
allotment option in full). In addition to the Underwriter's commission and the
Underwriter's non-accountable expense allowance, the Company is required to
pay the costs of qualifying the shares of Common Stock, under federal and
state securities laws, together with legal and accounting fees, printing and
other costs in connection with this Offering, estimated to total approximately
$475,000.
At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 250,000
shares of Common Stock. The Underwriter's Warrant and the underlying shares
are being registered by means of the Registration Statement of which this
Prospectus forms a part. The Underwriter's Warrant will be exercisable for a
four year period commencing one year from the date of this Prospectus. The
exercise price of the Underwriter's Warrant will be $3.15 per share (assuming
a public offering price of $2.625 per share). The Underwriter's Warrant will
not be transferable prior to its exercise date except to officers of the
Underwriter and members of the selling group and officers and partners
thereof. The Underwriter's Warrant will contain anti-dilution provisions. The
Underwriter's Warrant does not entitle the Underwriter to any rights as a
shareholder of the Company until such Warrant is exercised and the shares of
Common Stock are purchased thereunder. The Underwriter's Warrant and the
shares of Common Stock thereunder may not be offered for sale except in
compliance with the applicable provisions of the Securities Act.
The Company has agreed that, if it shall cause to be filed with the
Commission either an amendment to the Registration Statement of which this
Prospectus is a part or a separate registration statement, the Underwriter
shall have the right during the five-year period commencing on the date of
this Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the Company has agreed that, upon written request by
a holder or holders of 50% or more of the Underwriter's Warrant which is made
during the exercise period of the Underwriter's Warrant, the Company will on
two separate occasions, register the Underwriter's Warrant and the shares of
Common Stock issuable upon exercise thereof. The initial such registration
will be at the Company's expense and the second such registration will be at
the expense of the holder(s) of the Underwriter's Warrant.
For the period during which the Underwriter's Warrant is exercisable, the
holder or holders will have the opportunity to profit from a rise in the
market value of the Company's Common Stock, with a resulting dilution
51
<PAGE>
in the interests of the other shareholders of the Company. The holder or
holders of the Underwriter's Warrant can be expected to exercise it at a time
when the Company would, in all likelihood, be able to obtain any needed
capital from an offering of its unissued Common Stock on terms more favorable
to the Company than those provided for in the Underwriter's Warrant. Such
facts may materially adversely affect the terms on which the Company can
obtain additional financing. To the extent that the Underwriter realizes any
gain from the resale of the Underwriter's Warrant or the securities issuable
thereunder, such gain may be deemed additional underwriting compensation under
the Securities Act.
The Company has agreed to enter into a consulting agreement with the
Underwriter under the terms of which the Underwriter has agreed to perform
consulting services related to corporate finance and will be paid a non-
refundable fee of $6,000 per month for 12 months. The Company has agreed to
pay the Underwriter the entire one year fee upon the closing of this Offering.
For twelve months from the closing of this Offering, the Company has agreed
that it will not sell or otherwise dispose of any securities without the prior
written consent of the Underwriter, which consent shall not be unreasonably
withheld, with the exception of (i) shares issued pursuant to the exercise of
options, warrants or other convertible securities outstanding prior to the
closing of this Offering, (ii) shares issued pursuant to the Company's
incentive stock plans to officers, directors, employees and consultants or
(iii) shares issued pursuant to strategic alliance or corporate partnership
transactions at a price per share equal to the average closing bid price of
the Company's Common Stock as quoted on the Nasdaq Small Cap Market for the
ten-day trading period prior to the date of the closing of such transaction.
For twenty-four months from the closing of this Offering, the Company has
agreed not to sell or issue any securities pursuant to Regulation S or
Regulation D, or securities at a discount to market or in a discounted
transaction, under the Securities Act without the Underwriter's prior written
consent.
Directors and officers of the Company are expected to be subject to lock-up
agreements under which they will agree not to sell or dispose of any shares of
Common Stock issued to them directly by the Company, for a period of 12 months
after the date of this Prospectus, without prior written consent of the
Underwriter.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection
with the Registration Statement, including liabilities under the Securities
Act.
The Company's initial public offering was underwritten by the Underwriter,
and the Underwriter also serves as a market maker with regard to the Company's
Common Stock. Patrick Grady, a director of the Company, serves as the Managing
Director, Venture Capital of the Underwriter. In addition to an underwriting
discount of $675,000, in connection with the Company's initial public
offering, the Company paid the Underwriter a non-accountable expense allowance
of $202,500 and $10,000 related to the publishing of a "tombstone" notice. In
addition, in connection with the Company's initial public offering, the
Company issued to the Underwriter a warrant to purchase up to 135,000 shares
of the Company's Common Stock at a price of $6.00 per share at any time during
the four-year period commencing on August 6, 1997.
In connection with its initial public offering, the Company agreed that
until June 1999, the Underwriter shall have the right to designate one member
to the Company's Board of Directors, provided that the designee is acceptable
to the Company. Patrick Grady is the current designee of the Underwriter
pursuant to this agreement. In connection with this Offering, the Company has
agreed with the Underwriter that Mr. Grady, or any successors designated by
him, will continue to serve on the Company's Board of Directors, subject to
shareholder approval, until the date that is 36 months from the closing of
this Offering.
Any limitation on the ability of the Underwriter to make a market in the
Company's Common Stock could adversely effect the liquidity or trading price
of the Company's Common Stock, which could have a material
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<PAGE>
adverse effect on the market price of the Company's Common Stock. The Company
believes that the Chicago office of the Securities and Exchange Commission is
conducting a private, nonpublic investigation of H.J. Meyers & Co., Inc., the
Underwriter and the principal market maker in the Company's Common Stock,
pursuant to a Formal Order of Investigation issued by the Commission as to
whether the Underwriter may have violated applicable securities laws and the
rules and regulations thereunder, with respect to sales of certain securities.
The Company is currently unable to assess the potential impact of the outcome
of the Staff's investigation on the Underwriters ability to make a market in
the Company's Common Stock or this Offering.
On July 16, 1996, the National Association of Securities Dealers, Inc.
("NASD") issued a notice of Acceptance, Waiver and Consent (the "AWC") whereby
the Underwriter was censured and ordered to pay fines and restitution to
retail customers in the amount of $250,000 and approximately $1.025 million,
respectively. The AWC was issued in connection with claims by the NASD that
the Underwriter charged excessive markups and markdowns in connection with the
trading of four certain securities originally underwritten by the Underwriter;
the activities in question occurred during periods between December 1990 and
October 1993. The Underwriter has informed the Company that the fines and
refunds will not have a material adverse effect on the Underwriter's
operations and that the Underwriter has effected remedial measures to help
ensure that the subject conduct does not recur.
In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may over allot the Offering, creating a
syndicate short position. In addition, the Underwriter may bid for and
purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
in the Offering, if the syndicate repurchases previously distributed Common
Stock in syndicate covering transactions, in stabilizing transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriter is not
required to engage in these activities, and may end any of the activities at
any time.
The Underwriter has advised the Company that the Underwriter does not intend
to confirm sales to any account over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of the date of this Prospectus, Wilson Sonsini Goodrich &
Rosati beneficially owns 5,782 shares of the Common Stock of the Company.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriter by Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, Beverly Hills, California.
EXPERTS
The financial statements of SoloPoint, Inc. at December 31, 1995 and 1996,
and for the years then ended and the period from March 26, 1993 (Inception)
through December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
53
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company's Common
Stock is quoted for trading on the Nasdaq SmallCap Market and reports, proxy
statements and other information concerning the Company may also be inspected
at the offices of the National Association of Securities Dealers, 1735 K
Street, N. W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Securities and Exchange
Commission pursuant to the Securities Act and the rules and regulations of the
Securities and Exchange Commission thereunder. For further information with
respect to the Company and the shares of Common Stock, reference is made to
the Registration Statement and the exhibits and schedules thereto. The
Registration Statement, including exhibits thereto, as well as the Company's
Exchange Act filings, may be inspected and copied at the public reference
facilitates maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices at 75 Park Place, Room 1400, New York, New York 10007 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and copies may be obtained at the prescribed rates from the Public Reference
Section of the Commission at its principal office in Washington, D.C.
Statements contained in the Prospectus as to the contents of such contract of
other document filed as a exhibit to the Registration Statement, each such
statement being qualified in its entirety by such reference. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
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<PAGE>
SOLOPOINT, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Audited Financial Statements
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Shareholders'
Equity
(Net Capital Deficiency)................................................. F-5
Statements of Cash Flows.................................................. F-7
Notes to Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
SoloPoint, Inc.
We have audited the accompanying balance sheets of SoloPoint, Inc. (a
development stage company, formerly SoHo Communications, Inc.) as of December
31, 1995 and 1996 and the related statements of operations, redeemable
convertible preferred stock and shareholders' equity (net capital deficiency)
and cash flows for the years then ended and for the period from inception
(March 26, 1993) to December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SoloPoint, Inc. (a
development stage company) at December 31, 1995 and 1996, and the results of
its operations and its cash flows for the years then ended and for the period
from inception (March 26, 1993) to December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
February 10, 1997
F-2
<PAGE>
SOLOPOINT, INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 331,017 $ 4,066,825 $ 1,678,377
Accounts receivable, net of allowances
of $20,777 and $97,367 at December 31,
1996 and June 30, 1997 (unaudited),
respectively.......................... -- 327,916 274,300
Inventories............................ 356,194 835,254 990,949
Other current assets................... 11,671 39,330 103,225
----------- ----------- -----------
Total current assets.................... 698,882 5,269,325 3,046,851
Furniture and equipment, at cost:
Computers and software................. 128,994 231,479 266,715
Furniture and fixtures................. 147,156 148,944 192,933
----------- ----------- -----------
276,150 380,423 459,648
Accumulated depreciation and
amortization.......................... 99,609 205,165 263,540
----------- ----------- -----------
176,541 175,258 196,108
Deposits and other assets............... 28,000 37,997 37,997
Notes receivable from shareholder....... 35,000 -- --
----------- ----------- -----------
Total assets............................ $ 938,423 $ 5,482,580 $ 3,280,956
=========== =========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND SHAREHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable....................... $ 350,712 $ 299,926 $ 306,487
Accrued compensation................... 23,853 137,872 100,287
Convertible notes payable to
shareholders.......................... 1,120,000 -- --
Convertible notes payable.............. 313,000 -- --
Notes payable, current portion......... 9,710 39,594 31,875
Other accrued liabilities.............. -- 3,787 40,379
----------- ----------- -----------
Total current liabilities............... 1,817,275 481,179 479,028
Notes payable, non-current portion...... 91,400 140,165 126,714
Commitments and contingencies
Redeemable convertible preferred stock,
no par value:
Authorized shares--10,000,000 in 1995
Issued and outstanding shares--599,585
in 1995, 0 in 1996 and at June 30,
1997.................................. 2,798,513 -- --
Shareholders' equity (net capital
deficiency):
Preferred stock, no par value:
Authorized shares--5,000,000 in 1996
Issued and outstanding shares--see
redeemable convertible preferred stock
above
Common stock, no par value:
Authorized shares--35,000,000
Issued and outstanding shares--425,164
in 1995, 3,499,780 in 1996 and at June
30, 1997.............................. 17,852 12,410,005 12,411,641
Deficit accumulated during the
development stage..................... (3,786,617) (7,391,269) (9,650,927)
Notes receivable from shareholders..... -- (157,500) (85,500)
----------- ----------- -----------
Total shareholders' equity (net capital
deficiency)............................ (3,768,765) 4,861,236 2,675,214
----------- ----------- -----------
Total liabilities, redeemable
convertible preferred stock and
shareholders' equity.................... $ 938,423 $ 5,482,580 $ 3,280,956
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SOLOPOINT, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 26, 1993 MARCH 26, 1993
SIX MONTHS ENDED JUNE (INCEPTION) (INCEPTION)
YEAR ENDED DECEMBER 31, 30, THROUGH THROUGH
------------------------ ------------------------ DECEMBER 31, JUNE 30,
1995 1996 1996 1997 1996 1997
----------- ----------- ----------- ----------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ -- $ 380,113 $ 34,141 $ 362,847 $ 380,113 $ 742,960
Cost of sales........... -- 289,050 39,847 260,434 289,050 549,484
----------- ----------- ----------- ----------- ----------- -----------
Gross margin........... -- 91,063 (5,706) 102,413 91,063 193,476
Costs and expenses:
Research and
development........... 1,385,769 1,523,599 771,246 761,716 3,353,717 4,115,433
Sales and marketing.... 501,580 1,120,400 370,784 1,073,003 1,621,980 2,694,983
General and
administrative........ 777,123 1,117,974 591,057 576,280 2,542,390 3,118,670
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations.... (2,664,472) (3,670,910) (1,738,793) (2,308,586) (7,427,024) (9,735,610)
Other income (expense):
Interest income........ 12,850 108,774 5,883 63,279 126,346 189,625
Other income........... 2,000 1,000 -- -- 3,000 3,000
Interest expense....... (22,857) (32,476) (11,658) (14,351) (60,473) (74,824)
----------- ----------- ----------- ----------- ----------- -----------
Net loss................ $(2,672,479) $(3,593,612) $(1,744,568) $(2,259,658) $(7,358,151) $(9,617,809)
=========== =========== =========== =========== =========== ===========
Net loss per share...... $ (1.35) $ (1.46) $ (.88) $ (.65)
=========== =========== =========== ===========
Shares used in computing
net loss per share..... 1,974,329 2,461,715 1,972,933 3,499,780
</TABLE>
See accompanying notes.
F-4
<PAGE>
SOLOPOINT, INC.
(a development stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
REDEEMABLE DEFICIT TOTAL
CONVERTIBLE ACCUMULATED NOTES SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK DURING THE RECEIVABLE EQUITY (NET
------------------ ------------------ DEVELOPMENT FROM CAPITAL
SHARES AMOUNT SHARES AMOUNT STAGE SHAREHOLDERS DEFICIENCY)
------- ---------- --------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of founders'
stock in November 1993
at $.001 per share.... -- $ -- 300,000 $ 300 $ -- $ -- $ 300
Common stock to be
issued in January
1994.................. -- -- -- 3,675 -- -- 3,675
Series A-1 redeemable
preferred stock to be
issued in January
1994.................. -- 250,000 -- -- -- -- --
Issuance of Series A-1
redeemable preferred
stock................. 25,000 -- -- -- -- -- --
Recapitalization
exchange of common
stock for Series A-1
redeemable preferred
stock at $.04 per
share................. 7,500 300 (300,000) (300) -- -- (300)
Issuance of Series A-1
redeemable preferred
stock in exchange for
services in January
1994 at $10.00 per
share................. 13 125 -- -- -- -- --
Issuance of common
stock from January
1994 through April
1994 at $.01 per
share................. -- -- 396,100 286 -- -- 286
Issuance of common
stock in exchange for
services, from
February 1994 through
October 1994 at prices
ranging from $.01 to
$.40 per share........ -- -- 16,870 4,935 -- -- 4,935
Issuance of Series A-2
redeemable preferred
stock in May 1994 at
$3.50 per share, less
issuance costs of
$8,653................ 78,571 266,347 -- -- -- -- --
Issuance of Series A-2
redeemable preferred
stock in May 1994 at
$3.50 per share in
exchange for interest
payable............... 956 3,345 -- -- -- -- --
Issuance of Series A-3
redeemable preferred
stock in July and
August of 1994 at
$4.00 per share, less
issuance costs of
$13,292............... 143,750 561,708 -- -- -- -- --
Issuance of Series A-4
redeemable preferred
stock in December 1994
at $4.50 per share,
less issuance costs of
$6,587................ 82,378 364,114 -- -- -- -- --
Net loss from inception
through December 31,
1994.................. -- -- -- -- (1,092,060) -- (1,092,060)
------- ---------- --------- ------- ----------- --------- -----------
Balance at December 31,
1994................... 338,168 1,445,939 412,970 8,896 (1,092,060) -- (1,083,164)
Issuance of common
stock in exchange for
services from January
1995 through December
1995 at prices ranging
from $.40 to $.50 per
share................. -- -- 14,086 6,873 -- -- 6,873
Issuance of common
stock from July 1995
through November 1995
at $.50 per share..... -- -- 2,400 1,200 -- -- 1,200
Exercise of stock
options............... -- -- 2,375 950 -- -- 950
Repurchase of common
stock................. -- -- (6,667) (67) -- -- (67)
Issuance of Series A-4
redeemable preferred
stock in January 1995
at $4.50 per share,
less issuance costs of
$3,583................ 18,417 79,295 -- -- -- -- --
Issuance of Series A-5
redeemable preferred
stock from March 1995
through May 1995 at
$5.00 per share, less
issuance costs of
$13,227............... 154,000 756,773 -- -- -- -- --
Issuance of Series A-6
redeemable preferred
stock in June 1995 at
$6.00 per share, less
issuance costs of
$15,572............... 85,000 494,428 -- -- -- -- --
Net loss............... -- -- -- -- (2,672,479) -- (2,672,479)
Accretion of redeemable
preferred stock....... -- 22,078 -- -- (22,078) -- (22,078)
------- ---------- --------- ------- ----------- --------- -----------
Balance at December 31,
1995................... 595,585 2,798,513 425,164 17,852 (3,786,617) (3,768,765)
</TABLE>
See accompanying notes.
F-5
<PAGE>
SOLOPOINT, INC.
(a development stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)--(CONTINUED)
<TABLE>
<CAPTION>
REDEEMABLE DEFICIT TOTAL
CONVERTIBLE ACCUMULATED NOTES SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK DURING THE RECEIVABLE EQUITY (NET
----------------------- ---------------------- DEVELOPMENT FROM CAPITAL
SHARES AMOUNT SHARES AMOUNT STAGE SHAREHOLDERS DEFICIENCY)
---------- ----------- --------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Exercise of stock
options............... -- $ -- 26,141 $ 11,281 $ -- $ -- $ 11,281
Repurchase of common
stock................. -- -- (52,813) (528) -- -- (528)
Conversion of A-6 to A-
7 redeemable preferred
stock................. 17,000 -- -- -- -- -- --
Issuance of common
stock at $.50 per
share................. -- -- 11,000 5,500 -- -- 5,500
Issuance of Series A-7
redeemable preferred
stock for bridge notes
in February 1996...... 286,600 1,433,000 -- -- -- -- --
Issuance of Series A-7
redeemable preferred
stock from February
1996 through March
1996 at $5.00 per
share, less issuance
costs of $18,843...... 239,500 1,178,657 -- -- -- -- --
Issuance of common
stock for notes
receivable............ -- -- 315,000 157,500 -- (157,500) --
Issuance of redeemable
preferred stock in
exchange for services
from January 1996
through July 1996..... 8,004 40,000 -- -- -- -- --
Issuance of Series A-7
redeemable preferred
stock in March 1996 at
$5.00 per share in
exchange for interest
payable............... 6,753 33,767 -- -- -- -- --
Accretion of redeemable
preferred stock....... -- 11,040 -- -- (11,040) -- (11,040)
Issuance of common
stock in exchange for
services for 1996..... -- -- 16,302 26,767 -- -- 26,767
Issuance of common
stock in exchange for
bridge note........... -- -- 300,000 1,500,000 -- -- 1,500,000
Issuance of common
stock in exchange for
interest associated
with bridge note...... -- -- 2,544 12,720 -- -- 12,720
Shares repurchased..... (5,000) (20,000) (42,000) (63,000) -- -- (63,000)
Conversion of
redeemable preferred
stock to common stock
upon public offering
in August 1996 (1,148,442) (5,474,977) 1,148,442 5,474,977 -- -- 5,474,977
Issuance of common
stock upon the initial
public offering net of
issuance costs of
$1,483,064............ -- -- 1,350,000 5,266,936 -- -- 5,266,936
Net loss............... -- -- -- -- (3,593,612) -- (3,593,612)
---------- ----------- --------- ----------- ----------- -------- ------------
Balance at December 31,
1996................... -- -- 3,499,780 12,410,005 (7,391,269) (157,500) 4,861,236
Proceeds from note
receivable from
shareholder
(unaudited)........... -- -- -- -- -- 72,000 72,000
Exercise of stock
options (unaudited)... -- -- -- 1,636 -- -- 1,636
Net loss (unaudited)... -- -- -- -- (2,259,658) -- (2,259,658)
---------- ----------- --------- ----------- ----------- -------- ------------
Balance at June 30, 1997
(unaudited)............ -- $ -- 3,499,780 $12,411,641 $(9,650,927) $(85,500) $(2,675,214)
========== =========== ========= =========== =========== ======== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
SOLOPOINT, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD PERIOD FROM
MARCH 26, 1993 MARCH 26, 1993
YEAR ENDED SIX MONTHS ENDED (INCEPTION) (INCEPTION)
DECEMBER 31, JUNE 30, THROUGH THROUGH
------------------------ ------------------------ DECEMBER 31, JUNE 30,
1995 1996 1996 1997 1996 1997
----------- ----------- ----------- ----------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(2,672,479) $(3,593,612) $(1,744,568) $(2,259,658) $(7,358,151) $ (9,617,809)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Common stock and
preferred stock issued
for services.......... 6,873 66,767 17,817 -- 78,700 78,700
Preferred stock issued
for interest payable.. -- 46,487 33,767 -- 49,832 49,832
Depreciation and
amortization.......... 68,381 105,556 47,181 58,375 205,274 263,649
Changes in operating
assets and
liabilities:
Accounts receivable.... -- (327,916) (33,895) 53,616 (327,916) (274,300)
Inventories............ (356,194) (479,060) (91,713) (155,695) (835,254) (990,949)
Other current assets... (6,548) (23,872) (79,317) (63,895) (35,543) (99,438)
Accounts payable....... 282,210 (50,786) 10,693 (31,024) 299,926 268,902
Accrued compensation... (151) 114,019 53,580 36,592 137,872 174,464
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
operating activities... (2,677,908) (4,142,417) (1,786,455) (2,361,689) (7,785,260) (10,146,949)
INVESTING ACTIVITIES
Acquisitions of
furniture and
equipment.............. (125,935) (104,273) (38,917) (79,225) (366,025) (445,250)
Loan to shareholder..... (35,000) -- -- -- (35,000) (35,000)
Payment received from
shareholder............ -- 1,500 1,500 -- 1,500 1,500
Deposits and other
assets................. (3,050) (9,997) -- -- (38,107) (38,107)
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
investing activities... (163,985) (112,770) (37,417) (79,225) (437,632) (516,857)
FINANCING ACTIVITIES
Proceeds from
convertible notes
payable to
shareholders........... 1,120,000 -- 1,120,000 1,120,000
Proceeds from
convertible notes
payable................ 313,000 1,500,000 1,250,000 -- 1,813,000 1,813,000
Proceeds from notes
payable................ 101,110 90,386 92,408 -- 191,496 191,496
Proceeds from notes
receivable from
shareholders........... -- -- -- 72,000 -- 72,000
Principal payments on
capital lease
obligations............ (8,996) (11,737) (2,023) (21,170) (26,134) (47,304)
Proceeds from sale of
preferred stock, net of
issuance costs......... 1,330,496 1,178,657 1,178,657 -- 3,951,622 3,951,622
Repayment of bridge
loan...................
Issuance of common
stock, net of
repurchases............ 2,083 5,233,689 8,847 1,636 5,239,731 5,241,367
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
financing activities... 2,857,693 7,990,995 2,527,889 52,466 12,289,717 12,342,183
----------- ----------- ----------- ----------- ----------- ------------
Net increase (decrease)
in cash................ 15,800 3,735,808 704,017 (2,388,448) 4,066,825 1,678,377
Cash at beginning of
period................. 315,217 331,017 331,017 4,066,825 -- --
----------- ----------- ----------- ----------- ----------- ------------
Cash at end of period... $ 331,017 $ 4,066,825 $ 1,035,034 $ 1,678,377 $ 4,066,825 $ 1,678,377
=========== =========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for:
Interest............... $ 2,080 $ 33,831 $ 11,658 $ 14,351 $ 39,866 $ 54,217
Income taxes........... $ 1,600 $ 800 $ 800 $ 800 $ 6,400 $ 7,200
SUPPLEMENTAL DISCLOSURES
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES
Equipment acquired under
capital lease
financing.............. $ -- $ -- $ -- $ -- $ 14,397 $ 14,397
Conversion of preferred
stock to common stock.. $ 5,474,977 $ -- $ -- $ 5,474,977 $ 5,474,977
Accretion of preferred
stock.................. $ 22,078 $ 11,040 $ 11,040 $ -- $ 33,118 $ 33,118
Common stock issued for
note receivable from
shareholder............ $ -- $ 157,500 $ 157,500 $ -- $ 157,500 $ 157,500
Common and preferred
stock forfeited for
note receivable........ $ -- $ 33,500 $ 33,500 $ -- $ 33,500 $ 33,500
Conversion of notes
payable to common
stock.................. $ -- $ 1,500,000 $ -- $ -- $ 1,500,000 $ 1,500,000
Conversion of notes
payable to preferred
stock.................. $ -- $ 1,433,000 $ 1,433,000 $ -- $ 1,433,000 $ 1,433,000
</TABLE>
See accompanying notes.
F-7
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
SoloPoint, Inc. (the "Company") was incorporated on March 26, 1993. The
Company changed its name from SoHo Networks, Inc. to SoHo Communications, Inc.
in September 1993 and from SoHo Communications, Inc. to SoloPoint, Inc. in
October 1995. The Company designs, develops and markets personal
communications management solutions for communications dependent individuals.
Through December 31, 1995, the Company was active in product development,
financial planning, the acquisition of facilities and equipment, raising
capital and had begun to build inventory. The Company began shipping its first
product in March 1996 with its second product shipping in September 1996. Only
limited revenues have been realized through December 31, 1996; as a result,
the Company is still considered to be in the development stage.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited but reflect all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of financial position and results of
operations. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997.
Inventories
Inventories consist principally of fabricated boards and integrated circuits
and are valued at the lower of cost (determined on the first-in, first-out
(FIFO) basis) or market. Realization of the value of inventories is dependent
upon the Company achieving adequate levels of revenues. Inventories consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials..................................... $183,049 $345,886 $590,267
Work-in-process................................... 142,427 355,236 232,140
Finished goods.................................... 30,718 134,132 168,542
-------- -------- --------
$356,194 $835,254 $990,949
======== ======== ========
</TABLE>
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed using
the straight-line method over the assets' estimated useful lives of three to
five years.
Software Development Costs
The Company expenses software development costs incurred prior to
establishing technological feasibility as incurred. Software development
expenses that would be capitalized pursuant to Statement of Financial
Accounting Standards No. 86, "Software Development Costs," which have been
incurred after the product has reached technological feasibility have not been
material and, accordingly, have been charged to operations as incurred.
F-8
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Revenue Recognition
Revenue is recognized when products are shipped and the 30-day money-back
guarantee period has lapsed. Allowances are provided for product returns based
on estimated future product returns, the timing of expected new product
introductions and other factors. These allowances are recorded as direct
reductions of revenue and accounts receivable. While the Company closely
monitors product returns to maintain appropriate allowances, actual product
returns may differ from the Company's estimates, and such differences may be
material to the financial statements.
Per Share Data
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from redeemable
convertible preferred stock and from stock options and warrants are not
included in the computation as they are antidilutive. In accordance with
Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued by the Company at prices below the public
offering price during the period beginning one year prior to the initial
filing of the registration statement for the Company's initial public offering
have been included in the calculation as if they were outstanding for periods
prior to the initial public offering (using the treasury stock method and the
initial public offering price).
The 1995 calculation of net loss per share presented in the statement of
operations has been computed as described above and also gives effect to the
conversion of all outstanding shares of redeemable convertible preferred stock
into shares of common stock upon the closing of the Company's initial public
offering using the if-converted method.
NOTE 2. NOTES RECEIVABLE FROM SHAREHOLDER
The Company loaned $35,000 in cash to a shareholder in two installments in
November 1995. The notes were secured by common and redeemable convertible
preferred stock owned by the shareholder. Interest was payable bimonthly at 7%
per annum. Payments for these notes were received in August 1996 upon the
completion of the Company's initial public offering.
NOTE 3. NOTES PAYABLE
In December 1995, the Company borrowed $101,110 from Venture Lending and
Leasing pursuant to a promissory note. The note is secured by the Company's
furniture and equipment. The note is due in monthly installments of $2,841
with interest payable monthly and at specified dates at rates ranging from 12%
to 15.17%. In April 1996 and June 1996 the Company borrowed an additional
$45,193 and $45,193, respectively, from Venture Lending and Leasing pursuant
to promissory notes. The 1996 notes are secured by the Company's furniture and
equipment. The notes are due in monthly installments of $1,270 each with
interest payable monthly and at specific dates at a rate of 15.53%. In
connection with the loans, the Company issued to the lender a warrant to
purchase the Company's Series B redeemable convertible preferred stock in the
amount of $32,000 at a per share price equal to the most recent venture
capital equity financing after December 11, 1995. The redeemable convertible
preferred stock was converted to common stock and the warrants were converted
into warrants to purchase the same number of common shares at the completion
of the Company's initial public offering in August 1996.
F-9
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Future maturities of notes payable for the years ended December 31 are as
follows:
<TABLE>
<S> <C>
1997............................................................. $ 39,594
1998............................................................. 46,107
1999............................................................. 51,078
2000............................................................. 42,980
--------
$179,759
========
</TABLE>
In June 1996, the Company issued a total of $1,500,000 of convertible notes
to Ameritech and 4C Ventures. The notes accrued interest at 5.76% per annum
and were due on June 14, 1997. In connection with the issuance of these notes,
the Company also issued to the note holders warrants to purchase an aggregate
of 60,000 shares of the Company's common stock at an exercise price equal to
the Company's initial public offering price. Pursuant to the convertible notes
and warrant agreements, the Company appointed one representative from each of
the two convertible note holders to the Company's Board of Directors. These
notes were converted to 300,000 shares of common stock in connection with the
Company's initial public offering.
NOTE 4. CONVERTIBLE NOTES PAYABLE TO SHAREHOLDERS
In October and November 1995, the Company borrowed $1,120,000 from certain
existing preferred and common shareholders and $313,000 from others in
exchange for promissory notes and warrants to purchase $286,000 of the
Company's Series A-7 redeemable convertible preferred stock at an exercise
price per share equivalent to the Series A-7, redeemable convertible preferred
stock issuance price. The notes were unsecured with interest at 5.75% per
annum.
In February 1996, the notes were converted into 286,600 shares of Series A-7
redeemable convertible preferred stock (see Note 6). At the completion of the
Company's initial public offering, the warrants to purchase Series A-7
preferred stock were converted into warrants to purchase the same number of
common shares.
NOTE 5. INCOME TAXES
As of December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately $3,800,000 and $3,700,000, respectively.
The Company also had federal and state research and development tax credit
carryforwards of approximately $80,000 and $50,000, respectively. The net
operating loss carryforwards will expire at various dates beginning in 1998
through 2011, if not utilized.
Utilization of the net operating losses and credits is subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
F-10
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Deferred income taxes reflect the net tax effects of carryforwards and
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets at December 31,
are as follow:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 722,000 $ 1,500,000
Research credits.................................. 101,000 133,000
Capitalized research costs........................ 654,000 1,383,000
Other............................................. 23,000 36,000
----------- -----------
Total deferred tax assets.......................... 1,500,000 3,052,000
Valuation allowance for deferred tax assets........ (1,500,000) (3,052,000)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
The valuation allowance increased by $1,040,000 and $1,552,000 for 1995 and
1996, respectively.
NOTE 6. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
In February 1996, the Company amended its Articles of Incorporation to
increase the number of shares of authorized common and preferred stock to
35,000,000 and 25,000,000, respectively. The Company then issued 624,855
shares of Series A-7 preferred stock at $5.00 per share, in exchange for cash
of $1,200,500 and cancellation of $1,433,000 of convertible notes payable plus
$30,770 of accrued interest. Investors purchasing Series A-7 preferred shares
for cash were issued a warrant to purchase 50% of the number of shares they
purchased resulting in the issuance of warrants for 120,500 shares of Series
A-7 preferred stock at an exercise price of $5.00 per share. Holders of
convertible notes payable who converted their notes into Series A-7 preferred
and purchased shares of Series A-7 preferred for cash as requested by the
Company, were issued additional warrants to purchase the number of shares of
Series A-7 preferred stock that when combined with the warrants previously
issued in connection with the convertible promissory notes, equaled 50% of the
number of shares of Series A-7 preferred purchased in the financing by cash or
cancellation of indebtedness. This resulted in the issuance of warrants to
purchase an additional 66,900 shares of Series A-7 preferred stock at $5.00
per share. As part of the Series A-7 financing, 76,667 shares of Series A-6
preferred stock were converted into 92,000 shares of Series A-7 preferred
stock.
In connection with the completion of the Company's initial public offering
in August 1996, all of the shares of preferred stock were converted into
shares of common stock and the warrants to purchase Series A-7 preferred stock
converted into warrants to purchase common stock.
In July 1996 the Company amended its Articles of Incorporation to reduce the
number of shares of authorized preferred stock to 5,000,000 and to effect a
one for ten reverse stock split. All share and per share information has been
restated to reflect the reverse stock split.
Common Stock
Certain issuances of common stock are subject to repurchase agreements. At
December 31, 1995, there were approximately 23,990 shares subject to such
repurchase rights by the Company at $.01 to $.50 per share.
F-11
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
In February and May 1996, the Company issued a total of 215,000 and 100,000
shares respectively, of common stock at $.50 per share to certain officers in
exchange for promissory notes totaling $107,500 and $50,000 respectively,
secured by such stock. These notes receivable are recorded as an offset to
shareholders' equity in the balance sheet. The Company also issued 11,000
shares of common stock at $.50 per share for $5,500 in cash to a director.
Employee Stock Option Plan
The Company's 1993 Incentive Stock Plan (the Plan) provides for the grant of
incentive stock options and nonstatutory stock options to employees, directors
and consultants of the Company. Incentive stock options may be granted at
prices ranging from 100% to 110% (depending on the type of grant) of the fair
market value of the common stock on the date of grant as determined by the
Board of Directors. The price for nonstatutory stock options is determined by
the Board of Directors. The options generally vest at a rate of 25% one year
after the grant date and one-forty eighth every month thereafter. The vesting
and exercise provisions of the option grants are determined by the Board of
Directors. Common stock purchased prior to the Company's initial public
offering on August 6, 1996 under the Plan is subject to a right of repurchase
by the Company.
Activity under the Plan was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at March 26, 1993.............................. -- $ --
Granted............................................... 64,700 $ .40
------- -----
Balance at December 31, 1994........................... 64,700 $ .40
Granted............................................... 62,300 $ .50
Exercised............................................. (2,375) $ .40
------- -----
Balance at December 31, 1995........................... 124,625 $ .45
Granted............................................... 161,667 $3.07
Exercised............................................. (26,141) $ .44
Canceled.............................................. (75,060) $ .46
------- -----
Balance at December 31, 1996........................... 185,091 $2.77
Granted (unaudited)................................... 110,500 $1.97
Exercised (unaudited)................................. -- --
Canceled (unaudited).................................. (47,878) $2.71
------- -----
Balance at June 30, 1997 (unaudited)................... 247,713 $2.42
======= =====
</TABLE>
As of December 31, 1996, 90,079 shares were available for grant under the
Plan and 20,825 options outstanding were exercisable.
Stock-based Compensation
As permitted under FASB No. 123, "Accounting for Stock-based Compensation"
("FASB 123"), the Company has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") in
accounting for stock-based awards to employees. Under APB 25, the Company
generally recognizes no compensation expense with respect to such awards.
F-12
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Pro forma information regarding net income and earnings per share is
required by FASB 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of FASB 123. The fair value of the Company's stock-based awards
to employees was estimated using a Black-Scholes option pricing model.
Limitations of the effectiveness of the Black-Scholes option valuation model
are that it was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable and that
the model requires the use of highly subjective assumptions including expected
stock price volatility. Because the Company's stock-based awards to employees
have characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock-
based awards to employees. The Company's plan awards employee stock options,
("Options"), at time of hire and occasionally as incentive awards. The fair
value of the Company's stock-based awards to employees for the years ended
December 31, was estimated assuming no expected dividends and the following
weighted-average assumptions:
<TABLE>
<CAPTION>
OPTIONS TO PURCHASE COMMON STOCK 1995 1996
-------------------------------- ---- -----
<S> <C> <C>
Expected life (in years)........................................ 3.33 4.00
Expected volatility............................................. 0.70 0.70
Risk free interest rate......................................... 6.42% 6.45%
Fair value...................................................... $.20 $1.44
</TABLE>
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
-------------------------- ---------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACT AVERAGE NUMBER AVERAGE
OF LIFE IN EXERCISE OF EXERCISE
RANGE OF EXERCISE PRICE SHARES YEARS PRICE SHARES PRICE
----------------------- ------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$ .40-$3.00..................... 93,591 9.07 $1.38 20,045 $ .79
$3.13-$4.25..................... 91,500 9.52 $4.20 780 $4.25
------- ------
185,091 20,825
======= ======
</TABLE>
The effect of applying the Black-Scholes value method in determining the
fair values of stock options did not result in pro forma net loss and net loss
per share that are materially different from historical amounts reported.
Therefore, such pro forma information is not presented herein.
Warrants
In connection with a debt financing agreement entered into in November 1993,
the Company issued warrants to purchase 8,570 shares of Series A-2 preferred
stock at $3.50 per share. The warrants are currently exercisable, subject to
certain antidilution provisions and expire ten years after the date of grant.
As of December 31, 1996 the Company had issued 6,400 warrants to a third party
at an exercise price of $5.00 per share as part of an equipment financing
agreement. In connection with the Series A-7 redeemable convertible preferred
financing agreement the Company issued warrants to purchase 244,270 shares of
Series A-7 preferred stock at $5.00 per share between August 1995 and March
1996. In connection with a bridge note, entered into in June 1996, the Company
issued warrants to purchase 60,000 shares of common stock at $5.00 per share.
In connection with the Company's initial public offering, in August 1996, the
Company issued warrants to purchase 135,000
F-13
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
shares of common stock at $6.00 per share. Upon the closing of the Company's
initial public offering on August 6, 1996, all warrants to purchase preferred
stock became exercisable for an equivalent number of shares of common stock at
an identical per share exercise price.
Warrants outstanding at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
TYPE OF SHARES SHARES PER SHARE EXPIRATION DATE
-------------- --------- -------------- ---------------
<S> <C> <C> <C>
Common...................... 8,570 $3.50 November 2003
Common...................... 6,400 $5.00 December 2005
Common...................... 244,270 $5.00 August 1999-March 2000
Common...................... 60,000 $5.00 June 2000
Common...................... 135,000 $6.00 August 2000
</TABLE>
The Company believes that the value of these warrants at the date of
issuance was not material and no value has been attributed to them in these
financial statements.
Common Stock Reserved
As of December 31, 1996, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Warrants........................................................... 454,240
Stock option plan.................................................. 275,170
-------
729,410
=======
</TABLE>
NOTE 7. RETIREMENT PLAN
The Company has a deferred compensation plan for all full-time employees
which qualifies under Section 401(k) of the Internal Revenue Code. The Plan
provides for discretionary employer contributions to the Plan. As of December
31, 1996 there have been no employer contributions to the Plan.
NOTE 8. COMMITMENT
The Company leases its facilities under a noncancelable operating lease that
expires on September 30, 1997. The lease is renewable at the Company's option
for one additional year. Total rent expense for the years ended December 31,
1995 and 1996 was $78,138 and $116,000, respectively. Future minimum lease
payments under the noncancelable facilities lease total $66,986.
NOTE 9. MAJOR CUSTOMERS
During the year ended December 31, 1996, two customers, Office Depot and
Hello Direct, accounted for approximately 56% and 19% of revenues,
respectively.
F-14
<PAGE>
SOLOPOINT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
NOTE 10. CONTINGENCIES (UNAUDITED)
The Company is in discussions with a manufacturer of computer technology
products that has a patent covering the storage of a telephone number used in
a menuing system to allow a caller to redirect their call to another
destination. The manufacturer asserts that some of the Company's products
infringe upon this patent. The Company intends to challenge either the
validity of the patent or its application to the Company's products or enter
into a licensing agreement with the patent holder. At this time, based upon
available information, management of the Company does not believe that the
ultimate outcome of this matter will have a material adverse effect on the
Company's financial position, results of operations or cash flows.
The Company may be involved from time to time in various legal proceedings
arising from the normal course of business activities. In management's
opinion, resolution of these matters is not expected to have a material
adverse impact on the Company's results of operations or its financial
position. However, depending on the amount and timing, an unfavorable
resolution of a matter could materially affect the Company's business,
financial condition and results of operations.
F-15
<PAGE>
[GRAPHICS]
A series of four pictures depicting the Company's products in various
settings. The upper left picture has the Company's SmartScreen product
displayed on a desk with the following text to the right of the picture:
"SmartScreen provides call screening, anytime pickup, message waiting light,
and fax machine support for telephone company Voice Mail customers." The
picture to the right is of the Company's SmartMonitor product displayed on a
desk and includes a semi-superimposed picture of a man on a cellular phone.
The text to the left of these pictures provides: "SmartMonitor allows mobile
professionals to screen their office calls from their mobile phone." The
picture at the bottom left is of the Company's SmartCenter product displayed
in an office setting. The text to the right of this picture provides:
"SmartCenter provides a complete call management environment including
menuing, follow-me phoning, selective call routing and remote and local
monitoring for the corporate professional."
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company, the Underwriter or by any other
person. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy, any security other than the shares of Common Stock offered
hereby nor does it constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby to any person in any jurisdiction
to which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made hereunder shall
under any circumstances create any implication that the information contained
herein is correct as of any date subsequent to the date hereof.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Market for Common Stock................................................... 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 25
Management................................................................ 36
Certain Relationships and Related Transactions............................ 42
Principal Shareholders.................................................... 45
Description of Capital Stock.............................................. 48
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 51
Legal Matters............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 54
Index to Financial Statements............................................. F-1
</TABLE>
----------------
Until , 1997 (25 calendar days after the date of this Prospectus) all
dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
[LOGO OF SOLOPOINT, INC.]
SOLOPOINT, INC.
COMMON STOCK
-------------
PROSPECTUS
-------------
H.J. MEYERS & CO., INC.
AUGUST , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporation Code authorizes a court to award,
or a corporation's Board of Directors to grant, indemnity to any person who is
or was a director or officer in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Article
V of the Company's Amended and Restated Articles of Incorporation (see Exhibit
3.1) provides for indemnification of its directors, officers, employees and
other agents to the maximum extent permitted under California law. Section 29
of the Company's Bylaws (see Exhibit 3.2) provides for indemnification of its
directors, officers, employees and other agents to the maximum extent
permitted under California law. In addition, the Company has entered into
Indemnification Agreements (see Exhibit 10.2) with its officers and directors.
Reference is also made to the Underwriting Agreement contained in Exhibit 1.1
hereto, pursuant to which the Underwriters will agree to indemnify officers
and directors of the Company against certain liabilities.
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 and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee............................................... $ 2,530
NASD filing fee.................................................... $ 1,354
Nasdaq SmallCap Market listing fee................................. $ 10,000
Underwriter's non-accountable expense allowance(1)................. $196,875
Printing and engraving expenses.................................... $100,000
Legal fees and expenses............................................ $120,000
Accounting fees and expenses....................................... $ 80,000
Consulting Fee..................................................... $ 72,000
Blue sky fees and expenses......................................... $ 20,000
Transfer agent fees................................................ $ 5,000
Miscellaneous fees and expenses.................................... $ 67,241
--------
Total............................................................ $675,000
========
</TABLE>
- --------
(1) Assumes a public offering price of $2.625 per share. $226,406 if the
Underwriter's over-allotment option is exercised in full.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1, 1993, the Company issued, in private placement transactions
(collectively, the "Private Placement Transactions"), the following:
1. In January 1994, the Company issued an aggregate of 25,013 shares of Series
A-1 Preferred Stock at a price of $10.00 per share to the Company's
founders. The Company also issued 7,500 shares of Series A-1 Preferred
Stock in exchange for 300,000 shares of Common Stock held by the Company's
Founders pursuant to a recapitalization agreement. The Company received no
cash as a result of the recapitalization.
2. In May 1994, the Company issued 79,527 shares of Series A-2 Preferred Stock
and warrants to purchase 8,570 shares of Series A-2 Preferred Stock to
certain of the Company's investors, management and employees for an
aggregate consideration of $278,345.
3. In July and August 1994, the Company issued an aggregate of 143,750 shares
of Series A-3 Preferred Stock to certain of the Company's investors,
management and employees for an aggregate consideration of $575,000.
II-1
<PAGE>
4. In December 1994 and January 1995, the Company issued an aggregate of
100,796 shares of Series A-4 Preferred Stock to certain of the Company's
investors, management and employees for an aggregate consideration of
$453,579.
5. In March and April 1995, the Company issued an aggregate of 154,000 shares
of Series A-5 Preferred Stock to certain of the Company's investors,
management and employees for an aggregate consideration of $770,000.
6. In June 1995, the Company issued an aggregate of 85,000 shares of Series A-
6 Preferred Stock to certain of the Company's investors for an aggregate
consideration of $510,000.
7. In February 1996, the Company issued 548,186 shares of Series-7 Preferred
Stock and warrants to purchase 244,270 shares of Series A-7 Preferred Stock
to certain of the Company's investors, management and employees in exchange
for cash of $1,200,500 and cancellation of $1,463,767 of convertible notes
payable (including $33,767 of accrued interest). Investors purchasing
Series A-7 Preferred Stock for cash were issued a warrant to purchase 50%
of the number of shares they purchased resulting in the issuance of
warrants for 120,050 shares of Series A-7 Preferred Stock at an exercise
price of $5.00 per share. Holders of convertible notes payable who
converted their notes into Series A-7 Preferred Stock and purchased shares
of Series A-7 Preferred Stock for cash as requested by the Company, were
issued additional warrants previously issued in connection with the
convertible promissory notes, equaled 50% of the number of shares of Series
A-7 Preferred Stock purchased in the financing by cash or cancellation of
indebtedness. This resulted in the issuance of warrants to purchase an
additional 111,500 shares of Series A-7 Preferred Stock at $5.00 per share.
As part of the Series A-7 financing, approximately 76,667 shares of Series
A-6 Preferred Stock were converted into approximately 92,00 shares of
Series A-7 Preferred Stock.
8. In February 1996, the Company issued 140,000 shares of Common Stock to
Edward M. Esber, Jr., the Chief Executive Officer, President and Director
of the Company, in exchange for a promissory note in the amount of $70,000.
9. In May 1996, the Company issued 60,000 shares of Common Stock to Mr. Esber,
in exchange for a promissory note in the amount of $30,000.
10. In February 1996, the Company issued 75,000 shares of Common Stock to
Arthur G. Chang, the Chief Operating Officer and Vice President of
Research and Development of the Company, in exchange for a promissory note
in the amount of $37,500.
11. In May 1996, the Company issued 40,000 shares of Common Stock to Mr.
Chang, in exchange for a promissory note in the amount of $20,000.
12. In June 1996, the Company issued $1,000,000 and $500,000 in principal
amount of the Convertible Notes to 4C Ventures and Ameritech,
respectively. The Convertible Notes were automatically converted into
302,544 shares of Common Stock upon the closing of the Company's initial
public offering in August 1996. In connection therewith, the Company
granted such parties warrants to purchase an aggregate of 60,000 shares of
Common Stock at a per share exercise price of $5.00. In addition, the
Company granted to each of 4C Ventures and Ameritech the right to nominate
one member of the Board of Directors as long as they respectively own more
than 3% of the outstanding Common Stock of the Company. Certain principal
shareholders of the Company have agreed to vote in favor of such nominees.
The issuance of the stock, promissory notes and warrants were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
promulgated 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 Company, to information about the Company.
II-2
<PAGE>
ITEM 27. EXHIBITS
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
***1.1 --Form of Underwriting Agreement.
+3.1 --Company's Articles of Incorporation, as currently in effect.
+3.2 --Company's Bylaws, as currently in effect.
+4.1 --Specimen Certificate of Company's Common Stock.
***4.2 --Form of Representative's Warrant.
+4.3 --Amended and Restated Information and Registration Rights
Agreement.
+4.4 --Form of Series A-2 Preferred Stock Warrant and Warrant Amendment
Agreement.
+4.5 --Form of Series A-7 Preferred Stock Warrant.
***5.1 --Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
+9.1 --Voting Agreement (included in Exhibit 10.9).
+10.1 --Multi-Tenant Net Lease Agreement dated August 24, 1995, between
the Company and Del Enterprises, as amended.
+10.2 --Form of Indemnification Agreement.
+10.3 --Purchase Agreement dated December 18, 1995, by and between
Ameritech Corporation and the Company.
+10.4 --Supplier Agreement dated February 22, 1996, by and between Hello
Direct, Inc. and the Company.
+10.5 --Amended and Restated 1993 Incentive Stock Plan.
+10.6 --1995 Profit Sharing 401(k) Plan.
+10.7 --Employment Letter dated October 26, 1995, between the Company
and Edward M. Esber, Jr.
+10.8 --Loan Agreement dated as of December 11, 1995, between SoloPoint,
Inc. and Venture Lending & Leasing, Inc.
+10.9 --Bridge Loan and Warrant Purchase Agreement dated June 14, 1996,
by an between Ameritech Corporation, 4C Ventures, L.P., and the
Company, including a Security Agreement, a Patent Security
Agreement, a Voting Agreement, an Amended and Restated
Information and Registration Rights Agreement, Warrants and
Secured Convertible Promissory Notes.
+10.10 --Employment Letter dated February 1, 1996, between the Company
and Arthur Chang.
+10.11 --Employment Letter dated July 1, 1996, between the Company and
Bryan Kerr.
+10.12 --Agreement dated June 14, 1996 between Ameritech Corporation and
the Company.
*10.13 --Employment Letter dated October 8, 1996, between the Company and
Ronald J. Tchorzewski.
**10.14 --Line of Credit Agreement with Silicon Valley Bank dated February
7, 1997.
****10.15 --Product Referral Agreement dated May 1, 1997 amongst the
Company, Pacific Bell and Pacific Bell Information Services.
11.1 --Statement Regarding Computation of Net Income (Loss) Per Share.
***23.1 --Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 --Consent of Ernst & Young LLP, Independent Auditors (see page II-
7).
24.1 --Power of Attorney (see page II-5).
27.1 --Financial Data Schedule
</TABLE>
- --------
+ Incorporated by reference to the Registration Statement on Form SB-2 (No.
333-5056-LA) filed by the Registrant with the Securities and Exchange
Commission and declared effective on August 6, 1996.
* Incorporated by reference to the Form 10-KSB (No. 000-21037) filed by the
Registrant with the Securities and Exchange Commission on March 31, 1997.
** Incorporated by reference to the Form 10-QSB (No. 000-21037) filed by the
Registrant with the Securities and Exchange Commission on May 15, 1997.
*** To be filed by amendment.
**** Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Company hereby undertakes to provide to the Underwriter at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions referenced in Item 24 of this
Registration Statement or otherwise, the Company 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 Company of expenses incurred or
paid by a director, officer, or controlling person of the Company 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 Company 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 Company 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; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
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 Company 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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF PALO ALTO, STATE OF CALIFORNIA, ON AUGUST 4, 1997.
SOLOPOINT, INC.
/s/ Edward M. Esber, Jr.
By: _________________________________
EDWARD M. ESBER, JR.
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward M. Esber, Jr. and Arthur G. Chang
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendment to this
Registration Statement on Form SB-2 (including a registration statement filed
pursuant to Rule 462) and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Edward M. Esber, Jr. President, Chief August 4, 1997
_____________________________________ Executive Officer
EDWARD M. ESBER, JR. and Director
(Principal
Executive Officer)
/s/ Ronald J. Tchorzewski Chief Financial August 4, 1997
_____________________________________ Officer and Vice
RONALD J. TCHORZEWSKI President of
Finance (Principal
Financial and
Accounting Officer)
/s/ Arthur G. Chang Chief Operating August 4, 1997
_____________________________________ Officer and Vice
ARTHUR G. CHANG President of
Research and
Development
/s/ Charlie Bass Chairman of the August 4, 1997
_____________________________________ Board of Directors
CHARLIE BASS
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Patrick Grady Director August 4, 1997
_____________________________________
PATRICK GRADY
/s/ Giuliano Raviola Director August 4, 1997
_____________________________________
GIULIANO RAVIOLA
/s/ Charles Ross Director August 4, 1997
_____________________________________
CHARLES ROSS
II-6
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 10,
1997, in the Registration Statement (Form SB-2) and related prospectus of
SoloPoint, Inc. for the registration of 2,875,000 shares of its common stock.
Ernst & Young LLP
Palo Alto, California
August 5, 1997
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
***1.1 --Form of Underwriting Agreement.
+3.1 --Company's Articles of Incorporation, as currently in effect.
+3.2 --Company's Bylaws, as currently in effect.
+4.1 --Specimen Certificate of Company's Common Stock.
***4.2 --Form of Representative's Warrant.
+4.3 --Amended and Restated Information and Registration Rights
Agreement.
+4.4 --Form of Series A-2 Preferred Stock Warrant and Warrant Amendment
Agreement.
+4.5 --Form of Series A-7 Preferred Stock Warrant.
***5.1 --Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
+9.1 --Voting Agreement (included in Exhibit 10.9).
+10.1 --Multi-Tenant Net Lease Agreement dated August 24, 1995, between
the Company and Del Enterprises, as amended.
+10.2 --Form of Indemnification Agreement.
+10.3 --Purchase Agreement dated December 18, 1995, by and between
Ameritech Corporation and the Company.
+10.4 --Supplier Agreement dated February 22, 1996, by and between Hello
Direct, Inc. and the Company.
+10.5 --Amended and Restated 1993 Incentive Stock Plan.
+10.6 --1995 Profit Sharing 401(k) Plan.
+10.7 --Employment Letter dated October 26, 1995, between the Company
and Edward M. Esber, Jr.
+10.8 --Loan Agreement dated as of December 11, 1995, between SoloPoint,
Inc. and Venture Lending & Leasing, Inc.
+10.9 --Bridge Loan and Warrant Purchase Agreement dated June 14, 1996,
by an between Ameritech Corporation, 4C Ventures, L.P., and the
Company, including a Security Agreement, a Patent Security
Agreement, a Voting Agreement, an Amended and Restated
Information and Registration Rights Agreement, Warrants and
Secured Convertible Promissory Notes.
+10.10 --Employment Letter dated February 1, 1996, between the Company
and Arthur Chang.
+10.11 --Employment Letter dated July 1, 1996, between the Company and
Bryan Kerr.
+10.12 --Agreement dated June 14, 1996 between Ameritech Corporation and
the Company.
*10.13 --Employment Letter dated October 8, 1996, between the Company and
Ronald J. Tchorzewski.
**10.14 --Line of Credit Agreement with Silicon Valley Bank dated February
7, 1997.
****10.15 --Product Referral Agreement dated May 1, 1997 amongst the
Company, Pacific Bell and Pacific Bell Information Services.
11.1 --Statement Regarding Computation of Net Income (Loss) Per Share.
***23.1 --Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 --Consent of Ernst & Young LLP, Independent Auditors (see page II-
7).
24.1 --Power of Attorney (see page II-5).
27.1 --Financial Data Schedule
</TABLE>
- --------
+ Incorporated by reference to the Registration Statement on Form SB-2 (No.
333-5056-LA) filed by the Registrant with the Securities and Exchange
Commission and declared effective on August 6, 1996.
* Incorporated by reference to the Form 10-KSB (No. 000-21037) filed by the
Registrant with the Securities and Exchange Commission on March 31, 1997.
** Incorporated by reference to the Form 10-QSB (No. 000-21037) filed by the
Registrant with the Securities and Exchange Commission on May 15, 1997.
*** To be filed by amendment.
**** Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT 10.15
S-100-TMC PRODUCT REFERRAL AGREEMENT
BETWEEN PACIFIC BELL, PACIFIC BELL INFORMATION
SERVICES AND SOLOPOINT, INC.
This Agreement ("Agreement"), effective May 1, 1997 between SOLOPOINT,
INC. ("SoloPoint"), a California corporation ("SoloPoint"), PACIFIC BELL
("Pacific"), a California corporation ("Pacific") and PACIFIC BELL INFORMATION
SERVICES ("PBIS"), a California corporation ("PBIS").
BACKGROUND
WHEREAS, PBIS, a wholly owned subsidiary of Pacific Bell, offers a
service called The Message Center service ("TMC");
WHEREAS, PBIS wishes to make available to its customers, in
conjunction with TMC a call screening device which enable a customer to listen
to incoming calls and either answer the call or let the caller record the
message as well as receive a visual message waiting indication; and
WHEREAS, PBIS does not offer such customer premise equipment to its
customers and SoloPoint sells such device known as S-100 ("S-100") at retail;
and
WHEREAS, Pacific owns PBIS and acts as PBIS' marketing and sales
agent; and
WHEREAS, PBIS and SoloPoint desire, subject to the license provisions
set forth in this Agreement, to have SoloPoint co-brand the S-100 with both
SoloPoint's and Pacific's name and. insignia ("S-100-TMC"); and
WHEREAS, SoloPoint desires to enter into this Agreement to enable
SoloPoint or its authorized agent to receive customer referrals from PBIS and
Pacific, acting as PBIS' agent, and offer such S-100-TMC for sale directly to
Pacific and/or PBIS' customers; and
WHEREAS, PBIS has agreed that SoloPoint may, with PBIS' express
written approval, use a third party to act as its authorized agent and receive
such customer referrals; and
WHEREAS, PBIS has agreed to grant SoloPoint certain rights to receive
referrals from PBIS and Pacific, acting as PBIS' agent, in consideration for
SoloPoint's agreement to offer certain S-100-TMC co-branded with both
SoloPoint's and Pacific's name and insignia to customers referred by Pacific
and/or PBIS; and
WHEREAS, this Agreement sets forth the terms and conditions under
which PBIS and Pacific will make such referrals to SoloPoint, or its agent, and
SoloPoint will offer such S-100-TMC to customers referred by PBIS and Pacific.
<PAGE>
NOW THEREFORE, the parties, intending to be legally bound, agree as
follows:
TERMS AND CONDITIONS
--------------------
1. Term.
----
This Agreement shall be effective on May 1, 1997, and shall remain in
force for an initial term of one year. Following the initial term, this
Agreement shall remain in effect until terminated or canceled by either party,
on 60 days prior written notice to the other setting forth the effective date of
such termination or cancellation in accordance with Section 9 ("Termination and
Cancellation").
2. PBIS' Obligations.
-----------------
(a) During the term of this Agreement, PBIS shall provide
to SoloPoint:
(1) A description of any PBIS package insert material
to be included with the S-100-TMC product; and
(2) Any special terms or conditions relating to
manufacturer's warranties or exchange practices that SoloPoint might be expected
to support.
(b) PBIS and Pacific, acting as PBIS' agent, will inform
PBIS' customers of the need for S-100-TMC to screen calls and record messages
and of the fact that SoloPoint offers such S-100-TMC for sale and that SoloPoint
accepts orders for such S-100-TMC when such orders are placed by telephone
(including telecommunications devices for deaf or hearing impaired customers).
PBIS or Pacific, acting as PBIS' agent, will request permission to refer PBIS'
customers to SoloPoint, or its authorized agent, and, when the customer grants
such permission, the customer's call will be forwarded to one of the Inbound
WATS telephone numbers that SoloPoint, or its authorized agent, will maintain
for such referrals, as provided in Section 3. Residence customers ordering TMC
will not be transferred to any person or entity other than SoloPoint, or its
authorized agent, for S-100-TMC related to TMC.
(c) During the term of this Agreement, PBIS and Pacific,
acting as PBIS' agent, will inform PBIS' customers of the need for three-way
calling in conjunction with S-100-TMC for correct operation and will offer this
service to those PBIS customers that do not already have this service prior to
referring the customer to SoloPoint, or its authorized agent, for sale of S-100-
TMC. Should three-way calling service be offered as both a measured and flat-
rate service, PBIS and Pacific will inform PBIS' customers that the flat-rate
service is more appropriate for S-100-TMC and offer this service prior to
referring the PBIS customer to SoloPoint, or its authorized agent. Once ordered
by the customer, Pacific will have the correct service in operation prior to the
PBIS customer receiving S-100-TMC.
-2-
<PAGE>
(d) During the term of this Agreement, Pacific will provide
SoloPoint, or its authorized agent, an Inbound WATS number for referral of calls
from SoloPoint, or its authorized agent, for customers that have purchased
S-100-TMC product but need either three-way calling or TMC services installed
prior to receiving the S-100-TMC product. Once ordered by the customer, Pacific
and PBIS will use all reasonable commercial efforts to have the correct service
in operation prior to the PBIS customer receiving S-100-TMC.
(e) During the term of this Agreement, PBIS and Pacific,
acting as PBIS' agent, will market S-100-TMC to both Pacific and PBIS customers.
Accordingly, Pacific will provide a marketing plan to SoloPoint outlining its
plans to market the S-100-TMC which will include, subject to changes by Pacific
(1) the effective date (2) a description of the marketing program, including
objectives, tasks, schedule, projected budgetary expenses and projected
forecast. Such marketing plan will be incorporated into this Agreement as
Exhibit D.
(f) Certain information received by Pacific or PBIS in the
course of performance under this Agreement may be confidential and subject to
the Non-Disclosure Agreement signed by both companies and attached as Exhibit E
which may include, but is not limited to, any future product plans, product
pricing to PBIS and/or Pacific, product forecasts and any non-public financials.
Accordingly, Pacific and/or PBIS will maintain all such information separately
from its other information, and use such information solely for the purposes of
performing its obligations under this Agreement.
3. SoloPoint's Obligations.
-----------------------
(a) During the term of this Agreement, either SoloPoint or
with PBIS' express approval, SoloPoint's agent, will maintain and operate a
retail sale and service center ("fulfillment center") for the purpose of selling
S-100-TMC products to customers whose calls are referred by PBIS or Pacific,
acting as PBIS' agent, and potentially for the purpose of satisfying the repair
or replacement warranties applicable to such S-100-TMC products. SoloPoint, or
its authorized agent, will maintain and operate the fulfillment center in
accordance with the following standards:
(1) SoloPoint or its agents will maintain sufficient
numbers of Inbound WATS lines to receive the volume of calls reasonably expected
to be referred by PBIS or Pacific, acting as PBIS' agent, under this Agreement
during the hours:
Monday through Friday 8:00am to 8:00pm PST
Saturday 8:00am to 5:00pm PST
Sunday and Holidays CLOSED*
The following have been identified as holidays: New Year's Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Upon mutual agreement of the parties, one or more of the
foregoing holidays may be excluded from this list. In that
-3-
<PAGE>
event, business will be conducted by the parties in accordance with the above
schedule or a schedule to be agreed upon by the parties.
SoloPoint, or its agent, may also maintain such lines for the purpose
of responding to customer requests for repair, or warranty support.
(2) SoloPoint, or its agent, will employ sufficient numbers
of sales representatives to respond to calls so referred to such Inbound WATS
numbers by telephone or when equipment is available at SoloPoint or its
authorized agent, telecommunications devices for the deaf or hearing impaired,
with sufficient numbers of sales representatives to respond to the reasonably
anticipated volumes of calls placed in the following languages: English.
(3) SoloPoint will use all reasonable commercial efforts to
manufacture sufficient quantities and maintain sufficient inventories of S-100-
TMC to allow shipment to customers placing orders within one business day from
the date the customer places an order with SoloPoint or its authorized agent and
has passed any reasonable credit checks that SoloPoint and/or its authorized
agent may require.
(4) Sales representatives of SoloPoint, or its authorized
agent, will conduct all calls, respond to inquiries and customer requests, and
solicit customer orders in a thorough, courteous, and businesslike manner.
(5) SoloPoint will provide warranty and exchange practices
associated with S-100-TMC, and will use all reasonable commercial efforts to
provide for the shipment of products repaired under warranty, or warranty
replacement products within five business days from the date when SoloPoint, or
its authorized agent, receives the S-100-TMC product to be repaired or replaced
under warranty.
(6) Whenever SoloPoint, or its agent, ships any product
covered by this Agreement, including any repaired product or replacement
product, SoloPoint, or its authorized agent, will include an Inbound WATS
customer support telephone number with the shipment.
(7) SoloPoint, or its authorized agent, will use all
reasonable commercial efforts to maintain supplies of manufacturer's printed
instructions or sales literature, separate from S-100-TMC product inventories,
for provision to customers who call to request such information, and shall ship
such information within five business days from the date of customer's request.
The above points in this section are subject to change upon mutual
agreement of the parties.
(b) SoloPoint, or its authorized agent, will provide PBIS
with such regular, periodic reports as PBIS reasonably requests, showing the
number of S-100-TMC shipped,
-4-
<PAGE>
including, new units, repaired units, and units shipped as replacements, and
showing the number shipped within the time limits required by this Agreement.
(c) SoloPoint and/or its authorized agent, will instruct its
sales representatives that their calls may be monitored, for purposes of
assuring quality of customer services, and will direct its sales representatives
to inform their customers that such calls may be monitored. SoloPoint, or its
authorized agent, shall permit PBIS to monitor reasonable numbers, comprising
statistically valid samples, of such calls, from time to time, for purposes of
assuring compliance with the standard of this Agreement.
(d) Certain information received by SoloPoint and/or its
authorized agent from PBIS' customers in the course of performance under this
Agreement may be confidential and subject to an expectation of privacy under the
California Public Utilities Code or the Federal Telecommunications Act,
including, but not limited to, any customer's billing telephone number, billing
name, billing address, nonpublished telephone number of a customer, information
concerning the fact that the customer has subscribed to TMC or other services,
or other subscriber information protected by statute, order, rule, or
regulation. Accordingly, SoloPoint and/or its authorized agent will maintain all
such information separately from its other information, and use such information
solely for the purposes of performing its obligations under this Agreement and
its obligations to customers referred by PBIS or Pacific, acting as PBIS' agent,
under this Agreement.
(e) SoloPoint and/or its authorized agent will permit PBIS
access to its premises and specific information pertaining to this Agreement, at
reasonable times, on reasonable notice, solely for the purpose of auditing
SoloPoint's performance of its obligations under this Agreement.
(f) In the event that SoloPoint elects to enter into an
agreement with a third party to act as its authorized agent, SoloPoint shall
first obtain PBIS' written approval, not to be unreasonably withheld, and shall
incorporate the terms and conditions set forth herein, which are applicable to
such authorized agent, into such agreement, unless otherwise mutually agreed to
by SoloPoint and Pacific. SoloPoint agrees to provide PBIS with a signed copy of
the agreement within five business days of final signature.
4. NonExclusive Agreement and Conflicts of Interest.
------------------------------------------------
(a) PBIS expressly retains the right to enter into product
referral and marketing agreements with other parties. PBIS reserves the right to
promote the sale of the S-100-TMC through retail distribution channels other
than SoloPoint's.
(b) SoloPoint expressly retains the right to enter into
licensing and marketing agreements with other providers of messaging services
offering service similar to TMC. Specifically, in the geographic areas that PBIS
and/or Pacific actively market TMC at the time of signing of this
-5-
<PAGE>
Agreement, SoloPoint will give 90 days prior written notice to Pacific of its
intent to enter to a licensing and/or marketing agreement with another provider
of messaging services similar to TMC.
5. License Rights.
--------------
(a) Subject to the terms of the Agreement, PBIS grants to
SoloPoint a personal, nontransferable, nonexclusive license to reproduce and
display the trademark "PACIFIC BELL" and insignia and the service mark "The
Message Center" .(collectively "the Pacific Trademarks") as shown in Exhibit B,
attached and made a part of this Agreement, on its S-100-TMC. The rights granted
under this license shall run concurrently with the term of the Agreement.
(b) Subject to the terms of the Agreement, SoloPoint grants
to Pacific and PBIS a personal, nontransferable, nonexclusive and license to
reproduce and display the trademark "SoloPoint" and insignia ("SoloPoint
Trademarks") as shown in Exhibit C, attached and made a part of this Agreement,
on marketing material associated with S-100-TMC. The rights granted under this
license shall run concurrently with the term of the Agreement.
(c) SoloPoint shall display the Pacific Trademarks only on
or in connection with its S-100-TMC unless otherwise agreed to by Pacific. The
license granted herein shall not extend to any, other item not identified in the
Agreement. No ownership of, or other right, title or interest in the Pacific
Bell Trademarks are conveyed by any license granted hereunder.
(d) PBIS represents and warrants that (1) all rights in and
title to the Pacific Trademarks belong to its parent company, Pacific Telesis
Group and (2) PBIS has all the necessary rights and title to license such
Pacific Trademarks to SoloPoint.
6. Use of Trademarks and Quality Control.
-------------------------------------
(a) Both parties shall use and display the other party's
trademarks ("Trademarks") only in conformance with the basic graphic standards
set forth by each party. PBIS's standard is attached and incorporated into this
Agreement as Exhibit B: The Pacific Telesis Group document entitled "Four Basic
Rules" and SoloPoint's standard is attached and incorporated into this Agreement
as Exhibit C.
(b) SoloPoint shall submit one sample of S-100-TMC, branded
with the Pacific Trademarks, to PBIS for written approval prior to the sale of
S-100-TMC.
(c) Both parties shall be responsible for ensuring and
monitoring that its employees, agents and subcontractors conform to the
standards for use of the Trademarks set forth in Exhibits B and C as applicable.
-6-
<PAGE>
(d) (1) PBIS shall have the right, at reasonable times
and upon reasonable notice to SoloPoint, to inspect the manner in which
SoloPoint uses the licensed Pacific Trademarks and the quality of the S-100-TMC
on which the Pacific Trademarks are affixed. Such reasonable inspection may, at
PBIS' option, be by personal visit to SoloPoint's premises or by written request
for information or samples of S-100-TMC. SoloPoint agrees to cooperate with such
inspections or request for information or samples.
(2) SoloPoint shall have the right, at reasonable
times and upon reason able notice to Pacific and/or PBIS, to inspect the manner
in which Pacific and/or PBIS uses the licensed Trademarks on their marketing
material. Upon request of SoloPoint, Pacific will provide samples of information
or marketing materials to SoloPoint for inspection. Pacific and/or PBIS agrees
to cooperate with such request for information or samples.
(3) In the event that either party determines that the
manner in which the other party uses its respective Trademarks is inconsistent
with Exhibits B or C as applicable, or that the quality of any of the S-100-TMC
on 'which the Trademarks are affixed is not consistent with maintaining the
goodwill inherent in the Trademarks, then the initiating party shall so advise
the other party in writing, and the other party shall immediately cease any such
disapproved usage and shall make any necessary corrections to improve the
quality of the applicable product or material on which the Trademarks are
affixed to the other party's satisfaction.
(4) Within 30 days of written notice from the
initiating party that a particular usage has been disapproved, or the quality of
S-100-TMC or marketing material does not meet the initiating party's standards,
the other party shall certify in writing to the initiating party that it has
taken corrective action and/or has ceased the disapproved usage, and/or, taken
action to correct any defect in the quality of the applicable S-100-TMC or
marketing material.
(e) Upon termination or cancellation of this Agreement,
SoloPoint shall advise PBIS in writing within 30 days of such termination or
cancellation, that it has removed the Pacific Trademarks from any existing
S-100-TMC prior to selling or disposing of such S-100-TMC. PBIS and/or Pacific
will bear the cost of converting the existing S-100-TMC units with the Pacific
Trademarks to non-trademarked S-100-TMC and for reprinting any associated S-100-
TMC product material bearing the Pacific Trademarks; provided, however, that the
cost of converting such existing [****] shall not exceed [****] and the number
of [****] units to be converted shall not exceed [****].
7. Trademark Obligations.
---------------------
Neither party shall contest, or assist any third party in contesting,
the other party's claim that they are the owner of the exclusive right, title
and interest in all trademark and service mark interests embodied in or
connected with each party's Trademarks. At the initiating party's request and
expense, the other party shall render its full cooperation to the initiating
party, for the purpose of
-7-
****Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
protecting, asserting or defending the initiating party's right, title and
interest in all trademarks and service marks embodied in or connected with the
applicable Trademarks. Neither party shall take or cause any action to impair or
infringe the other party's right, title and interest so claimed. Neither party
shall in any manner represent that they have any right, title or trademark
interest in connection with the use of the other party's Trademarks nor shall
either party attempt to register the other party's Trademarks under the
trademark or service mark laws and regulations of the United States or any State
or Country. During the term of the Agreement, both parties shall use the
respective Trademarks only for the benefit of the other party as provided in the
Agreement. Neither party shall adopt or use any other trademark or service mark
which is likely to be confusing with or similar to the other party's Trademarks.
8. Independent Contractor.
----------------------
(a) Each party shall perform its obligations under this
Agreement as an independent contractor, and neither party shall act as, or
represent itself to be, an agent of the other with respect to any action to be
performed under this Agreement. Each party shall be solely responsible for the
management and supervision of its own employees, agents, and contractors. Each
party will bear its own costs and expenses of preparing to perform and
performing under this Agreement, including all direct and indirect costs of
preparation and performance, unless specified in this Agreement. PBIS' estimates
of the number of customer lines that it expects to serve with TMC are offered
for planning purposes only, and do not represent binding commitments that PBIS
will achieve such expectations or that any percentage of PBIS' customers will
order SoloPoint's S-100-TMC even if such expectations are achieved. PBIS does
not represent, warrant, or guarantee that SoloPoint will achieve any volume of
sales with respect to any S-100-TMC that SoloPoint offers for sales as provided
in this Agreement.
(b) No provision of this Agreement, expressed or implied,
shall be construed to create a legal partnership, joint venture or ether
business entity among the parties hereto. Except as expressly stated herein,
PBIS and SoloPoint shall be free to enter into any agreement with another party
for similar products, services or marketing agreements. PBIS is not obligated to
purchase anything from SoloPoint at any time except as specified in this
Agreement.
9. Termination and Cancellation.
----------------------------
(a) If either party is in material default of any of its
obligations under this Agreement and no mutually agreed to corrective action is
taken within 30 days after written notice is given by the party not in default
and such default continues for 30 days after such written notice is given, such
nondefaulting party may cancel this Agreement.
(b) If any obligation undertaken by PBIS in connection with
this Agreement, including any related obligation undertaken by PBIS in
connection with a fulfillment center, becomes the subject of a violation of any
restriction set forth in the Telecommunications Act of 1996
-8-
<PAGE>
or any order, rule, decision, or regulation of the Federal Communications
Commission, the United States Department of Justice, or the California Public
Utilities Commission (collectively "Violation"), Pacific and/or PBIS may
immediately suspend this Agreement and shall give SoloPoint written notice of
such Violation. If such Violation is the result of Services provided by
SoloPoint, SoloPoint shall have 30 days to take corrective action to eliminate
such Violation. If no corrective action is taken within 30 days after written
notice is given by PBIS and/or Pacific, PBIS may terminate this Agreement. Upon
termination of this Agreement PBIS and/or Pacific will pay for the actual cost
of converting all existing S-100-TMC inventory to non-PBIS specific S-100-TMC in
saleable condition and the actual cost to reprint associated S-100-TMC
literature to non-S-100-TMC specific literature; provided, however, that the
cost to convert the [****] shall not exceed [****] and the number of [****]
units to be converted shall not exceed [****].
(c) After the initial term of the Agreement, either party
may terminate this Agreement upon 60 days prior written notice to the other
party setting forth the effective date of such termination. Should PBIS elect to
terminate this Agreement, PBIS and/or Pacific will pay the actual cost of
converting all existing S-100-TMC inventory and associated S-100-TMC literature
to non-PBIS specific S-100-TMC as specified in (b) above.
10. Indemnification.
---------------
(a) Each party will indemnify and hold the other harmless
from and against any liability or loss arising from any claim of a third party
arising out of each party's performance under this Agreement. Each party, as
appropriate, will promptly inform the other of any such claim. Each party will
defend or settle any such claim, proceeding, or suit against its respective
parties and pay any costs, including attorney's fees, that may be incurred under
this Section. Each party shall control its own defense and settlement of any
such claim, proceeding, or suit, except that each party shall keep the other
informed of the course of the settlement and defense. Each party shall cooperate
with the other in the defense or settlement and shall afford the other an
opportunity to appoint its own separate counsel, at its expense, to monitor its
defense and settlement.
(b) Each party's performance under this Agreement shall not
be deemed to be the other party's performance, even if SoloPoint uses the
identifier "Pacific Bell Information Services", "Pacific Bell" or another term
including PBIS' or Pacific's name or PBIS and/or Pacific uses "SoloPoint" or
other terms including "SmartScreen" when accepting calls under this Agreement.
(c) SoloPoint agrees, at its own expense, to indemnify PBIS
and Pacific and their customers from and to defend and at its option, to settle,
any claim, suit or proceeding brought against PBIS, Pacific or their customers
on the issue of infringement of any United States patent, copyright or trademark
by the S-100-TMC sold hereunder or the use thereof; subject to the limitations
hereinafter set forth. SoloPoint shall have sole control of any such action or
settlement negotiations and SoloPoint agrees to pay, subject to the limitations
hereinafter set forth, any final judgment entered against PBIS, Pacific or their
customers on such issue in any such suit or
-9-
****Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
proceeding defended by SoloPoint. PBIS and Pacific agree that PBIS and Pacific
will promptly notify SoloPoint in writing, upon receipt of notice of, any such
claim, suit or proceeding and SoloPoint will proceed as described herein, and,
at SoloPoint's expense, PBIS and Pacific will give SoloPoint proper and full
information and assistance to settle and/or defend any such claim, suit or
proceeding. SoloPoint will keep PBIS and Pacific fully informed as to the
progress of such defense and/or settlement and agree to protect PBIS' and
Pacific's interests in resolving any claim or suit or entering into any
settlement regarding the S-100-TMC.
If the S-100-TMC, or any part thereof, are, or in the opinion of
SoloPoint may become, the subject of any claim, suit or proceeding for
infringement of any United States patent, copyright or trademark, or if it is
adjudicatively determined that the S-100-TMC, or any part thereof, infringe any
United States patent, copyright or trademark, or if the sale or use of the S-
100-TMC, or any part thereof is, as a result enjoined, then SoloPoint may, at
its option and expense either: (i) procure for PBIS, Pacific and their customers
the right under such patent, copyright or trademark to sell or use, as
appropriate, the S-100-TMC or such part thereof or (ii) replace the S-100-TMC,
or part thereof, with other suitable products or parts, or (iii) suitably modify
the S-100-TMC, or part thereof, or (iv). if SoloPoint shall determine the
foregoing is not commercially reasonable, refund the purchase price for the S-
100-TMC to PBIS, Pacific or their customers, as appropriate, in exchange for the
return of the S-100-TMC unit, and thereafter at the option of SoloPoint, cease
sales of the S-100-TMC hereunder. SoloPoint shall not be liable for any costs or
expenses incurred by PBIS or Pacific without its prior written authorization.
(d) Limitation. Notwithstanding the provisions of Subsection
10(c) above, SoloPoint assumes no liability for (i) infringements covering
completed equipment or any assembly, circuit, combination, method or process in
which any of the S-100-TMC maybe used but not covering the S-100-TMC when used
alone; (ii) trademark infringement involving any marking or branding not applied
by SoloPoint or involving any marking or branding applied at the request of PBIS
and Pacific; or (iii) infringements involving the modification or servicing of
the S-100-TMC, or any part thereof, unless such modification or servicing was
done by SoloPoint.
(e) Entire Liability. The foregoing provisions of this
Section 10 state the entire liability and obligations of SoloPoint and the
exclusive remedy of PBIS, Pacific and their customers, with respect to any
alleged infringement of patents, copyrights, trademarks or other intellectual
property rights by the S-100-TMC or any part thereof.
11. Insurance.
---------
SoloPoint and its authorized agent will maintain all insurance and
bonds required by law, including, but not limited to, workers' compensation
insurance as prescribed by the laws of each state in which S-100-TMC is provided
or any warranty service is performed; employer's liability insurance with a
minimum of $100,000 per person, $300,000 each occurrence, and Commercial General
Liability insurance (including automobile liability insurance) with a combined
limit of at
-10-
<PAGE>
least $1,000,000 per occurrence. SoloPoint and its authorized agent will furnish
certificates of insurance to PBIS. The fulfillment of the insurance obligations
hereunder shall not otherwise limit any obligation of SoloPoint or relieve
SoloPoint of any obligation under this Agreement or in any way modify
SoloPoint's obligation to indemnify PBIS.
12. No Waiver.
---------
No course of dealing or failure of either party to strictly enforce
any term, right or condition of this Agreement shall be construed as a waiver or
modification of such term, right, or condition.
13. Notices.
-------
Notices and other communications under this Agreement shall be
transmitted via Fax or in writing by U.S. mail, postage prepaid, addressed to
the parties as follows, and shall be presumed effective five days after the date
of deposit in the mail.
To PBIS: PACIFIC BELL INFORMATION SERVICES
3401 Crow Canyon Road
Suite 100
San Ramon, California 94583
Attn: Jim LaFollette
To Pacific Bell: PACIFIC BELL
2420 Camino Ramon, Rm. 340DD
San Ramon, California 94583
Attn: Tim Stentiford
To SoloPoint: SOLOPOINT, INC.
130-B Knowles Dr.
Los Gatos, CA 95030
Attn: President
14. Publicity.
---------
Except as provided in this Agreement, neither PBIS and Pacific nor
SoloPoint and its authorized agent shall use the other party's name, trademark,
or service mark, or use symbols or expressions from which the other party's name
or identity might reasonably be implied, in any advertisement, press release or
other publication or publicity, until the party has first submitted such
proposed use to the other party and obtained the other party's written approval,
except as required by applicable securities or other laws. The requesting party
or its agent may use such expressions after receiving such consent in the
marketing, advertising, sale and/or rental of the S-100-TMC. Neither PBIS, its
agent, SoloPoint, or its authorized agent, shall release, issue or publish a
public statement
-11-
<PAGE>
or press release of any sort related to this Agreement, the license granted
hereunder or the business relationship created hereby, without first providing
the other parties a reasonable opportunity to review and comment upon such
public statement or press release.
15. Choice of Law.
-------------
This Agreement shall be governed and construed in accordance with the
laws of the State of California, as though executed and to be performed entirely
within the Sate of California by two parties both domiciled there.
16. Dispute Resolution.
------------------
(a) The parties will attempt in good faith to resolve any
controversy or claim arising out of this Agreement promptly by negotiations
between senior executives of the parties who have authority to settle the
controversy and who do not have direct responsibility for administration of this
Agreement.
(b) The disputing party shall give the other party written
notice of the dispute. Within 20 days after receipt of said notice, the
receiving party shall submit to the other a written response. The notice and
response shall include (i) a statement of each party's position and a summary of
the evidence and arguments supporting its position, and (ii) the name and
title of the executive who will represent that party. If the receiving party has
provided a written response, the disputing party may suspend its obligations
under this Agreement and the provisions of Section 9(a) shall not apply until
such dispute is resolved pursuant to this Section 16. The executives shall meet
at a mutually acceptable time and place within 30 days of the date of the
disputing party's notice and thereafter as often as they deem reasonably
necessary to exchange relevant information and to attempt to resolve the
dispute.
(c) If the matter has not been resolved within 60 days of
the disputing party's notice, or if the party receiving said notice will not
meet within 30 days, either party may initiate mediation of the controversy or
claim in accordance with the Center for Public Resources Model Procedure for
Mediation of Business Disputes.
(d) If the matter has not been resolved pursuant to the
aforesaid mediation procedure within 60 days of the initiation of such
procedure, or if either party will not participate in a mediation, the
controversy shall be settled by arbitration in accordance with the Center for
Public Resources Rules for Non-Administered Arbitration of Business Disputes, by
a sole arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sections 1 through 16, and judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The place of the arbitration shall be San Francisco, California. The
arbitrator is not empowered to award damages in excess of actual damages,
including punitive damages.
-12-
<PAGE>
(e) All deadlines specified in this Section 16 may
be extended by mutual written agreement.
(f) The procedures specified in this Section 16 shall be the
sole and exclusive procedures for the resolution of disputes between the parties
arising out of this Agreement; provided, however, that a party may seek a
preliminary injunction or other preliminary judicial relief if in its judgment
such action is necessary to avoid irreparable damage. Despite such action the
parties will continue to participate in good faith in the procedures specified
in this Section 16. Applicable statutes of limitation shall be tolled while the
procedures specified in this Section 16 and pending. The parties will take such
action, if any, rejected to effectuate the tolling.
17. Assignment.
----------
Except as otherwise provided by law, neither party shall assign its
rights or delegate its duties ("Assigns") under this Agreement, without the
prior written consent of the other party, which will not be unreasonably
withheld; provided, however that either party may assign its rights under this
Agreement at any time upon written notice to the other party, to any present or
future affiliate or subsidiary of the assigning party or in connection with a
merger, consolidation or sale of substantially all the assets of such party.
This Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns, if any, of SoloPoint and PBIS. Except as indicated above
regarding affiliates, the assigning party shall provide 30 days prior written
notice to the non-assigning party of any permissible Assignment hereunder.
18. Survival.
--------
Provisions contained in this Agreement that by their sense and context
are intended to survive completion of performance, termination or cancellation
of this Agreement shall so survive.
19. Entire Agreement.
----------------
This Agreement and any Attachments, including all exhibits and
subordinate documents attached to or referenced in this Agreement, and all
proposals, descriptions, drawings, and other literature published by either
party in connection with or in contemplation of this Agreement shall constitute
the entire Agreement between PBIS, Pacific and SoloPoint with respect to the
subject matter.
(Signature Page Follows)
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized representatives.
SOLOPOINT, INC. PACIFIC BELL INFORMATION SERVICES
By: By:
------------------------------- ----------------------------------
Print Name: Print Name:
----------------------- --------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
PACIFIC BELL
By:
-------------------------------
Print Name:
-----------------------
Title:
----------------------------
Date:
-----------------------------
<PAGE>
EXHIBIT A
DESCRIPTION OF PRODUCTS, SERVICES AND
PRICES
The following terms are subject to change upon mutual written agreement of
both parties.
1. PRODUCT DESCRIPTION AND PRICES
------------------------------
(a) DESCRIPTION
Product Model: S-100-TMC co-branded with SoloPoint and Pacific Bell/TMC
logos
Key Product Features:
. Ability to screen The Message Center voice mail utilizing
three way calling
. Ability to visually indicate a new message using either
stuttered dial tone detect or VMWI
. Ability to connect to callers leaving a message in The
Message Center
. Ability to connect a fax machine on the same line as TMC
Product Color: White
Product Shipping Contents:
. S-100-TMC unit (Pacific Bell branded)
. 12 VAC Power Brick
. User's Guide (Pacific Bell branded)
. 3' 4-Wire Phone Cord
(b) PRICING
The price of the S-100-TMC to PBIS customers shall be comprised of the sum
of three parts:
(1) Base Component. The "Base Component" of the
S-100-TMC will be $69.95.
(2) Adjustable Component. The "Adjustable Component"
will be based on the percentage of bad debt. for the
S-100-TMC product. The adjustable component is
equal to half of the bad debt percentage when the
total bad debt percentage is [****] or the difference
between the total bad debt percentage and [****] when
the total bad debt percentage is greater than [****]
times' the Base Component price ($69.95). An initial
projected bad debt percentage of [****] will be used
for the first year of this Agreement. Therefore, the
Adjustable Component will be [****] per S-100-TMC
unit, for the first year. Within 30 days from the
yearly anniversary date of the
****Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
Agreement, the prior year's bad debt percentage for
S-100-TMC will be calculated based on actual PBIS
and/or Pacific records. This percentage will be used
to reconcile between the projected bad debt
percentage ("PBDP") and the actual bad debt
percentage ("ABDP"). If the ABDP is greater than the
PBDP, then SoloPoint will invoice Pacific for the
amount equal to the difference between ABDP and PBDP
times the previous year's revenue. If the ABDP is
less than the PBDP, then PBIS will invoice SoloPoint
for the amount equal to the difference between PBDP
and ABDP times the previous year's revenue. Payment
is due from the receiving party within 30 days of the
invoice date.
(3) Shipping and Handling. The shipping and handling
charge for S-100-TMC is $5.95.
Thus, the total price to PBIS or Pacific for the S-100-TMC is the sum of
the above components. Assuming the Adjustable Component is [****].
2. PAYMENT TERMS.
-------------
Unless otherwise agreed to in writing by the parties hereto, the payment
terms shall be the full invoiced amount within 30 days after the invoice date.
Any invoiced amount not received within 30 days after the invoice date shall be
subject to a service charge of one and one-half percent (1.5%) per month.
Pacific and/or PBIS shall pay all of SoloPoint's costs and expenses (including
reasonable attorney's fees) to enforce and preserve its rights under this
Subsection 2.
Pacific shall pay SoloPoint the Adjustable Component price of the S-100-TMC
on a monthly basis Net 30 days from receipt of invoice from SoloPoint.
3. SHIPPING INTERVAL.
-----------------
SoloPoint will use all reasonable commercial efforts to manufacture
sufficient quantities and maintain sufficient inventories of S-100-TMC to allow
shipment to customers placing orders within one business day from the date the
customer places an order with SoloPoint or its authorized agent and has passed
any reasonable credit checks that SoloPoint and/or its authorized agent
may require. Upon receipt of notification from PBIS of termination or
cancellation of this Agreement, SoloPoint and its authorized agent will utilize
its existing inventory to fill any outstanding customer orders. PBIS and
SoloPoint will agree on the number of additional S-100-TMC units above the
existing inventory that will be required to fill any outstanding orders. Such
additional units will be covered under the terms and conditions of this
Agreement.
-2-
****Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
4. WARRANTIES, REPAIRS AND REPLACEMENTS.
------------------------------------
SoloPoint will support the warranties and exchange practices as provided in
the attached Appendix A, and will use all reasonable commercial efforts to
provide for the shipment of products repaired under warranty, or warranty
replacement products within five business days from the date when SoloPoint, or
its authorized agent, receives the S-100-TMC to be repaired or replaced under
warranty, providing that the customer is in good standing with SoloPoint, its
authorized agent, PBIS and Pacific.
5. SPECIAL CONDITIONS.
------------------
(a) SoloPoint, or its authorized agent, will use all reasonable
commercial efforts to maintain supplies of manufacturer's printed instructions
or sales literature, separate from S-100-TMC product inventories, for provision
to customers who call to request such information, and shall ship such
information within five business days from the date of customer's request.
(b) SoloPoint expressly retains the right to enter into
licensing and marketing agreements with other providers of messaging services
offering service similar to TMC. Specifically, in the geographic areas that PBIS
and/or Pacific actively market TMC at the time of signing of this Agreement,
SoloPoint will give 90 days prior written notice to Pacific of its intent to
enter into a licensing and/or marketing agreement with another provider of
messaging services similar to TMC.
(c) SoloPoint, and not its authorized agent, if any, assumes
ownership of all S-100-TMC provided hereunder and all bad debts. PBIS and
Pacific will make all reasonable attempt to collect bad debt, in accordance with
its normal business practices, from S-100-TMC customers who elect to pay for the
S-100-TMC in monthly installment payments on their Pacific bill.
(d) SoloPoint will include any PBIS' package insert materials
with the S-100-TMC product as reasonably requested by PBIS. Such materials will
not increase the size or weight class of the S-100-TMC product to be shipped
unless written approval by SoloPoint is given. PBIS will pay for any expenses
associated with fulfilling this request.
(e) SoloPoint may include other reasonable package insert
material with the S-100-TMC product. SoloPoint will pay for any additional
expenses associated with this material.
(f) SoloPoint or its authorized agent, commits to maintain and
operate a fulfillment center for the purpose of distributing the S-100-TMC
product to customers whose calls are referred by PBIS or Pacific, acting as
PBIS' agent.
-3-
<PAGE>
6. REPORTS.
-------
(a) SoloPoint, or its authorized agent, will provide PBIS
written results of customer input on products and service as requested by PBIS.
These reports shall be generated upon PBIS' request and shall include, but not
be limited to:
. Number of units shipped
. Daily/monthly model mix
. Calls per hour
. Calls per rep
. Calls per day
. Average talk time per rep
. Average hold time
. Call to order ratio
. Call activity by 1/4 hour
. Service levels
. Number of abandoned calls
. Number of rerouted calls
(b) SoloPoint, or its authorized agent, will provide PBIS with
individual information that will include, but not be limited to, the follow data
elements:
. Customer telephone number
. Date S-100-TMC product purchased
. Customer name
. Customer address
Such information will be provided in an electronic format approved by PBIS.
6. PBIS FORECAST.
-------------
(a) SoloPoint and/or its agent will work with PBIS to monitor
and update S-100-TMC forecasts on the 1st (or thereabouts) of each month.
(b) SoloPoint will use all reasonable commercial efforts to
manufacture sufficient quantities and maintain sufficient inventories of S-100-
TMC to allow shipment to customers placing orders within one business day from
the date the customer places an order with SoloPoint or its authorized agent and
has passed any reasonable credit checks that SoloPoint and/or its authorized
agent may require.
-4-
<PAGE>
EXHIBIT B
PACIFIC TELESIS GROUP
TRADEMARK GUIDELINES
<PAGE>
EXHIBIT C
SOLOPOINT TRADEMARK GUIDELINES
GUIDELINES FOR USING SOLOPOINT'S CORPORATE AND PRODUCT NAMES
CORPORATE NAME
The following statements apply to the corporate name when it appears in
written form:
SoloPoint, Inc. is the full corporate name. SoloPoint is acceptable.
CORPORATE LOGO
The logo should appear only in the following scenarios:
1. COLOR: SoloPoint logotype in PMS 424, company symbol in PMS 220.
See Corporate Colors on next page.
----------------
2. Black & White: SoloPoint logotype and company symbol in black.
3. White on Black: SoloPoint logotype and company symbol in white.
TRADEMARKS
The following trademarks of SoloPoint are shown with the products with
which they are used:
There are no SoloPoint trademarked products at this time.
A trademark is an adjective that modifies a noun. Legally, a trademark
should appear with the noun it modifies or be used in an adjectival sense and
never used as a verb or noun. For example, "To SoloCall through your day" is
incorrect. Incorrect use of the mark may dilute our claim to that mark. The
first or most prominent use of the trademark MUST appear in the full form; i.e.
trademark plus the noun it modifies. Because repetitious use of the full form is
awkward, you may use the trademark without the noun in subsequent uses, BUT
please use the full form as often as possible. If you do not use the full form,
include a trademark disclaimer at the end of your document. See Boilerplate
-----------
Disclaimer Notices, Tradename Disclaimer on next page.
- ------------------
SoloPoint is in process to obtain the following registered trademarks:
<PAGE>
SoloPoint(R)
SoloPoint, Inc.(R)
You are not required to use the (R) with the written form of SoloPoint
and SoloPoint, Inc at this time. Use the /TM/ with the SoloPoint logo the first
time it appears in a document as prescribed above.
-2-
<PAGE>
BOILERPLATE DISCLAIMER NOTICES
SPECIFICATION DISCLAIMER
This disclaimer should appear as the first item in a paragraph of disclaimers at
the end of the document:
Specifications subject to change without notice.
TRADEMARK NOTICE DISCLAIMER
Here is the wording that should appear on documents (not including general
correspondence) that are for the public:
(R) and /TM/ are trademarks of SoloPoint, Inc.,
---------- ----------
Los Gatos, CA, U.S.A.
COPYRIGHT NOTICE DISCLAIMER
Copyright protection exists for "original works of authorship." These
copyrightable works include (1) literary works, including computer software
programs; (2) pictorial, graphic, and sculptural works; (3) motion pictures and
other audiovisual works; (4) sound recordings; and (5) musical works, including
any accompanying words.
Adding the following notice claims copyright:
(C)Copyright 19* , 19** SoloPoint, Inc. All rights reserved. Printed in U.S.A.
-- --
*Date of first publication
date(s) of revision(s)
USE OF SOLOPOINT, INC. TRADEMARKS BY OTHER COMPANIES
If another company uses any of the previously listed trademarks that company
should include the following as a footnote in its documentation:
(R) and /TM/ are trademarks of SoloPoint, Inc.,
---------- ----------
Los Gatos, CA, U.S.A.
CORPORATE COLORS
If you have something printed in the corporate colors, specify the following PMS
colors. Your printer will understand these designations.
Color Coated Paper Uncoated Paper
- -------------------------------------------------------
Burgundy PMS 220c PMS 220u
Grey PMS 424c PMS 424u
-3-
<PAGE>
EXHIBIT D
[****]
-1-
****Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
[****]
-2-
****Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
[****]
-3-
****Confidential treatment has been requested with respect to certain portions
of this Exhibit. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT E: NON-DISCLOSURE AGREEMENT
BETWEEN PBIS AND SOLOPOINT, INC.
AND PACIFIC BELL AND SOLOPOINT, INC.
-1-
<PAGE>
CONFIDENTIAL NON-DISCLOSURE AGREEMENT
This agreement is made on August 21, 1996 between SoloPoint, Inc., a California
corporation ("SoloPoint") and Pacific Bell Information Services ("PBIS").
1. Purpose. Company and SoloPoint wish to explore a business
-------
possibility under which each party may disclose its Confidential Information to
the other party.
2. Definition. "Confidential Information" means any information,
----------
technical data, or know-how, including, but not limited to that which relates to
research, products, software, services, development, inventions, processes,
designs, drawings, formulas, engineering, marketing, finances, financial models,
and business plans, which Confidential Information is designated in writing to
be confidential or proprietary, or if given orally, is confirmed promptly in
writing as having been disclosed as confidential or proprietary. Confidential
Information does not include information, technical data, or know-how (i) is in
the possession of the receiving party at the time of disclosures shown by the
receiving party's files and records immediately prior to the time of disclosure;
or (ii) prior to or after the time of disclosure becomes part of the public
knowledge or literature, not as a result of any inaction or action of the
receiving party, or (iii) is required by law to be disclosed by the receiving
party; (iv) is independently developed by the receiving party without
utilization of the Confidential Information.
3. Non-Disclosure of Confidential Information. Each party agrees
------------------------------------------
not to use the Confidential Information disclosed to it by the other party for
its own use or for any purpose except to carry out discussions concerning the
completion of any business relationship between the two. Each party will not
disclose the Confidential Information of the other party to third parties or to
its employees except employees who are required to have the information in order
to carry out the contemplated business. Each party will have employees to whom
Confidential Information of the other party is disclosed sign a Non-Disclosure
Agreement in content substantially similar to this agreement if such persons
have not already signed such agreements obligating them to hold the Confidential
Information in confidence. Each party agrees that it will take all reasonable
steps to protect the secrecy of and avoid disclosure or use of Confidential
Information of the other party on order to prevent of unauthorized falling into
the public domain or the possession of unauthorized persons. Each agrees to
immediately notify the other party in writing of any misuse or misappropriation
of such Confidential Information of the other party which may come to its
attention.
4. Return of Information. Upon request of the disclosing party,
---------------------
the receiving party agrees to promptly return all documents furnishes to it by
the disclosing party, together with all copies thereof in its possession.
5. Term. The term of this Agreement shall be five (5) years.
----
-1-
<PAGE>
6. General Provisions. This Agreement will be governed by the
------------------
laws of the State of California. This Agreement will be binding upon the
successors of each party, and will be for the benefit of each party, its
successors, and its assigns. Each party agrees that it would be difficult to
measure the damage to such party from the breach of the other party's
obligations hereunder, that injury to such party from any such breach would be
impossible to calculate, and that monetary damages would therefor be an
inadequate remedy; accordingly, each party agrees that the other party shall be
entitled, in addition to all other remedies it might have, to injunctions or
other appropriate orders to restrain any such breach without showing or proving
any actual damage.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year written above.
Company:
Pacific Bell Information Services SoloPoint, Inc.
By: By:
---------------------------------- ----------------------------------
Title: Title:
------------------------------- -------------------------------
-2-
<PAGE>
CONFIDENTIAL NON-DISCLOSURE AGREEMENT
This agreement is made on August 21, 1997 between SoloPoint, Inc., a California
corporation ("SoloPoint") and Pacific Bell (" ").
--------
1. Purpose. Company and SoloPoint wish to explore a business
-------
possibility under which each party may disclose its Confidential Information to
the other party.
2. Definition. "Confidential Information" means any information,
----------
technical data, or know-how, including, but not limited to that which relates to
research, products, software, services, development, inventions, processes,
designs, drawings, formulas, engineering, marketing, finances, financial models,
and business plans, which Confidential Information is designated in writing to
be confidential or proprietary, or if given orally, is confirmed promptly in
writing as having been disclosed as confidential or proprietary. Confidential
Information does not include information, technical data, or know-how (i) is in
the possession of the receiving party at the time of disclosures shown by the
receiving party's files and records immediately prior to the time of disclosure;
or (ii) prior to or after the time of disclosure becomes part of the public
knowledge or literature, not as a result of any inaction or action of the
receiving party, or (iii) is required by law to be disclosed by the receiving
party; (iv) is independently developed by the receiving party without
utilization of the Confidential Information.
3. Non-Disclosure of Confidential Information. Each party agrees
------------------------------------------
not to use the Confidential Information disclosed to it by the other party for
its own use or for any purpose except to carry out discussions concerning the
completion of any business relationship between the two. Each party will not
disclose the Confidential Information of the other party to third parties or to
its employees except employees who are required to have the information in order
to carry out the contemplated business. Each party will have employees to whom
Confidential Information of the other party is disclosed sign a Non-Disclosure
Agreement in content substantially similar to this agreement if such persons
have not already signed such agreements obligating them to hold the Confidential
Information in confidence. Each party agrees that it will take all reasonable
steps to protect the secrecy of and avoid disclosure or use of Confidential
Information of the other party on order to prevent of unauthorized falling into
the public domain or the possession of unauthorized persons. Each agrees to
immediately notify the other party in writing of any misuse or misappropriation
of such Confidential Information of the other party which may come to its
attention.
4. Return of Information. Upon request of the disclosing party,
---------------------
the receiving party agrees to promptly return all documents furnishes to it by
the disclosing party, together with all copies thereof in its possession.
5. Term. The term of this Agreement shall be five (5) years.
----
-1-
<PAGE>
6. General Provisions. This Agreement will be governed by the
------------------
laws of the State of California. This Agreement will be binding upon the
successors of each party, and will be for the benefit of each party, its
successors, and its assigns. Each party agrees that it would be difficult to
measure the damage to such party from the breach of the other party's
obligations hereunder, that injury to such party from any such breach would be
impossible to calculate, and that monetary damages would therefor be an
inadequate remedy; accordingly, each party agrees that the other party shall be
entitled, in addition to all other remedies it might have, to injunctions or
other appropriate orders to restrain any such breach without showing or proving
any actual damage.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year written above.
Company:
Pacific Bell SoloPoint, Inc.
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
-2-
<PAGE>
APPENDIX A: WARRANTY AND
EXCHANGE GUIDELINES FOR S-100-TMC
-1-
<PAGE>
LIMITED WARRANTY
SoloPoint, Inc., the original manufacturer, warrants this SmartScreen hardware
product against defects in materials and workmanship for a period of one (1)
year from the date of original retail purchase. Except as stated below, if you
return a defective product to us, along with proof of purchase, within such one
(1) year period, we will, at our option, either repair or replace the product
with a similar or better product, without charge, or if we cannot reasonably do
so, we will refund your full purchase price. All replaced parts become our
property. Replacement products and parts may be new or used.
Our warranty does not apply to damage; malfunctions or product failures caused
by: (1) accident, misuse or abuse; (2) the repair or modification of our product
by anyone other than us; (3) non-SoloPoint products attached to or used with our
product; or (4) any other condition not arising under normal operating
conditions. If the serial number on the product has been altered, removed or
defaced, this warranty is void.
Warranty service is performed at our facilities in Los Gatos, California, or
such other U.S. facility as we may designate. You must first obtain a return
authorization number by contacting our Customer Service department. For
information regarding warranty service, call us at 1-888-SLPT-HELP (757-8435).
You are responsible for transportation charges to our facility.
THE WARRANTY AND REMEDIES SET FORTH ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL
OTHERS, WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED. SOLOPOINT DISCLAIMS ALL
IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION, WARRANTIES OR MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. No SoloPoint dealer,
agent or employee is authorized to make any modification, extension or
alteration to this warranty. No written or oral information or advice given by
SoloPoint or any dealer or distributor will create any warranty nor in any way
increase the scope of this warranty. Any implied warranties are limited in
duration to ninety (90) days.
These limitations on liability and types of damages apply regardless of the form
of any lawsuit or claim you may bring, whether in tort, contract or otherwise.
Some states do not allow the exclusion or limitations of incidental or
consequential damages or exclusion of implied warranties, so the above
limitation or exclusions may not apply to you. This warranty gives you specific
legal rights, and you may also have other rights that vary from state to state.
THIRTY-DAY MONEY-BACK GUARANTEE
SmartScreen comes with a thirty-day money-back guarantee. If, for any reason,
you are not satisfied with the product, simply contact 1-888-SLPT-HELP
(757-8435) within 30 days to return your unit.
SOLOPOINT
130 B KNOWLES AVE., LOS GATOS, CA 95030 (408) 364-8850
"WE'LL GET YOU WORKING!" HOTLINE: 1-888-SLPT-HELP (757-8435)
[email protected]
WWW.SOLOPOINT.COM
<PAGE>
EXHIBIT 11.1
SOLOPOINT, INC.
WEIGHTED AVERAGE SHARES COMPUTATION
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30
-------------------- -------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding.......................... 924,144 2,461,715 922,748 3,499,780
Common equivalent shares from stock
options, warrants, and Series A-6 and
A-7 preferred stock granted or issued
during the twelve-month period(1).... 1,050,185 1,050,185
Convertible preferred stock, as if
converted............................
--------- --------- --------- ---------
1,974,329 2,461,715 1,972,933 3,499,780
========= ========= ========= =========
(1)Calculated as follows:
Series A-6 and A-7 convertible
preferred stock issued during the
period June 15, 1995 through June
14, 1996........................... 642,853
Issuance of common stock during the
period June 15, 1995 through June
14, 1996........................... 362,062
Options granted during the period
June 15, 1995 through June 14,
1996............................... 50,300
---------
1,055,215
Shares assumed repurchased under the
treasury stock method.............. (5,030)
---------
1,050,185
=========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheets as of December 31, 1995 and 1996 and the related statements of operations
and cash flows for the years then ended and for the period from inception (March
26, 1993) to December 31, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,678,377
<SECURITIES> 0
<RECEIVABLES> 371,667
<ALLOWANCES> 97,367
<INVENTORY> 990,949
<CURRENT-ASSETS> 3,046,851
<PP&E> 459,648
<DEPRECIATION> 263,540
<TOTAL-ASSETS> 3,280,956
<CURRENT-LIABILITIES> 479,028
<BONDS> 0
0
0
<COMMON> 12,411,641
<OTHER-SE> (85,500)
<TOTAL-LIABILITY-AND-EQUITY> 3,280,956
<SALES> 362,847
<TOTAL-REVENUES> 362,847
<CGS> 260,434
<TOTAL-COSTS> 2,410,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,351
<INCOME-PRETAX> (2,259,658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,259,658)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,259,658)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
