<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
REGISTRATION NO. 333-33263
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
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 Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
---------------
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 & Klein
VAHE H. SARRAFIAN, ESQ. 9100 Wilshire Boulevard
ELAN Q.G. NGUYEN, ESQ. Eighth Floor, East Tower
Wilson Sonsini Goodrich & Rosati Beverly Hills, California 90212
650 Page Mill Road (310) 273-1870
Palo Alto, California 94304-1050 Facsimile: (310) 274-8357
(415) 493-9300
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. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1997
[LOGO OF SOLOPOINT, INC.]
SOLOPOINT, INC.
3,000,000 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 September 30, 1997, the
last reported sale price of the Common Stock on the Nasdaq SmallCap Market was
$2.56 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 7.
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)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............. $ $ $
- -------------------------------------------------------------------------------
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 $230,400 at an assumed public offering price of $2.56
per share (or $264,960 if the Underwriter's over-allotment option described
in footnote (3) is exercised in full) and, (ii) a warrant to purchase up to
300,000 shares of Common Stock at $3.58 per share (assuming a public
offering price of $2.56 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 450,000
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
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock offered hereby will be offered on a "firm
commitment" basis by the Underwriter when, as and if delivered to and accepted
by the Underwriter and subject to prior sale, withdrawal or cancellation of the
offer without notice. It is expected that delivery of the certificates
representing the shares of Common Stock will be made at the 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 , 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.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent public
accounting firm. Unaudited quarterly reports for the first three fiscal
quarters of each fiscal year are available through the SEC's EDGAR database or
from the Company upon request.
----------------
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."
<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") and Local Exchange Company ("LEC")
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 and LEC Voice Mail customers. The S-100 is the only
commercially available product known to the Company that enables RBOC and LEC
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 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 September 1997, the Company commenced first
commercial shipment of the SmartMonitor M-200 ("M-200"), targeted at mobile
SOHO professionals who use RBOC or LEC 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. 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 currently available for customer shipment. The
Company intends to pursue relationships with the wireless operations of RBOCs
and LECs to market the M-200.
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 $ 8,862
Total assets........................................... 3,281 9,576
Deficit accumulated during the development stage....... (9,651) (9,651)
Shareholders' equity................................... 2,675 8,970
</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 3,000,000 shares of common stock
offered hereby at an assumed offering price of $2.56 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......................... 3,000,000 Shares
Common Stock Outstanding Prior to
the Offering.................... 3,499,780 Shares
Common Stock Outstanding After
the Offering.................... 6,499,780 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 $6,295,000, 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.
The 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. The Company announced in August 1997 that it
intends to accept product returns from certain distributors and customers and
that the amount of such returns accepted may be greater than new product
revenues for the quarter ended September 30, 1997 and that the Company may
report negative net revenues for such period. Future product returns or
fluctuations in orders could contribute to significant variations in the
Company's business, financial condition and results of operations.
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. The Company announced in August 1997 that it intends to
accept product returns from certain distributors and customers and that the
amount of such returns accepted may be greater than new product revenues for
the quarter ended September 30, 1997 and that the Company may report negative
net revenues for such period. 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. 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.
9
<PAGE>
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,
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.
("Hutton"), Association of Cellular Agents ("ACA") and Hello Direct, Inc.
("Hello Direct") accounted for 25%, 21% and 14% of the Company's net revenues,
respectively. Hutton and ACA have indicated a desire to return certain
products previously purchased from the Company and the Company does not
anticipate future sales to Hutton or ACA. 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
10
<PAGE>
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 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
11
<PAGE>
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 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
12
<PAGE>
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
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.
13
<PAGE>
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
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 former Vice President of
Sales recently resigned. The Company is currently seeking to hire a full time
Vice President of Sales.
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.
14
<PAGE>
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 6,499,780 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, 2,149,780 shares are
restricted shares ("Restricted Shares") under the Securities Act of 1933, as
amended (the "Securities Act"). The 3,000,000 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 608,408 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, 1,541,372 shares are subject to lockup
agreements expiring on August 6, 1998, 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 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 300,000 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
15
<PAGE>
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. 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 $2.56 per share, Purchasers of the
shares of Common Stock offered hereby will incur an immediate and substantial
dilution of $1.18 per share or approximately 46% 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 $1.38 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
16
<PAGE>
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."
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.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares being
offered hereby, after deducting underwriting discounts and commissions and
offering expenses, are estimated to be approximately $6,295,000 based upon an
assumed public offering price of $2.56 per share. 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)....................................... $3,147,500 50%
Research and development(2).................................. 1,573,750 25
Capital expenditures......................................... 188,850 3
Working capital and general corporate purposes(3)............ 1,384,900 22
---------- ---
TOTAL........................................................ $6,295,000 100%
========== ===
</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.
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<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 3,000,000 shares offered hereby at an assumed public offering price
of $2.56 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; 6,499,780 shares issued and
outstanding, as adjusted............................ 12,412 18,707
Deficit accumulated during the development stage...... (9,651) (9,651)
Notes receivable from shareholders.................... (86) (86)
------- -------
Total shareholders' equity........................... 2,675 8,970
------- -------
Total capitalization................................ $ 2,802 $ 9,097
======= =======
</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
450,000 shares of Common Stock; (iv) a warrant to purchase up to 300,000
shares of Common Stock at an exercise price of $3.58 per share (assuming a
public offering price of $2.56 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.
19
<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
3,000,000 shares of Common Stock offered hereby at an assumed public offering
price of $2.56 per share, the adjusted net tangible book value of the Company
as of June 30, 1997 would have been approximately $8,970,000 or, $1.38 per
share. This represents an immediate increase in net tangible book value of
$.62 per share to existing shareholders and an immediate dilution of $1.18 per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................ $2.56
Net tangible book value per share before the Offering........ $.76
Increase per share attributable to new investors............. .62
----
Net tangible book value per share after the Offering........... 1.38
-----
Dilution per share to new investors*......................... $1.18
=====
</TABLE>
- --------
* Represents dilution of approximately 46% 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 53.8% $12,411,641 61.8% $3.55
New investors................... 3,000,000 46.2% 7,680,000 38.2 $2.56
--------- ----- ----------- -----
Total......................... 6,499,780 100.0% $20,091,641 100.0%
========= ===== =========== =====
</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
450,000 shares of Common Stock; (iv) a warrant to purchase up to 300,000
shares of Common Stock at an exercise price of $3.58 per share (assuming a
public offering price of $2.56 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 ended September 30, 1997............................. 3.81 1.88
</TABLE>
At June 30, 1997, the Company had approximately 108 shareholders of record
of its Common Stock.
20
<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)
(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
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <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>
21
<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 commenced first commercial shipment of SmartMonitor M-200 in
September 1997. The Company's products are used by residential RBOC and LEC
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. The Company announced in August 1997 that it intends to
accept product returns from certain distributors and customers and that the
amount of such returns accepted may be greater than new product sales for its
third quarter ending September 30, 1997 and that the Company may report
negative net revenues for such period. 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
22
<PAGE>
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. 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. 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. Hutton, ACA and
Hello Direct accounted for 25%, 21% and 14%, respectively, of net revenues for
the six month period ended June 30, 1997. Hutton and ACA have indicated a
desire to return certain products previously purchased from the Company and
the Company intends to accept certain of these product returns. The Company
does not expect future sales to Hutton or ACA. As a result of these product
returns and diminished sales, the Company currently expects that the Company
may report negative net revenues for the quarter ended September 30, 1997.
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
23
<PAGE>
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.
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
24
<PAGE>
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.
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. In particular, the Company may report
negative net revenues for the quarter ending September 30, 1997. 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
25
<PAGE>
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.
RECENT DEVELOPMENTS
The Company announced in August 1997 that its net revenues for the quarter
ended September 30, 1997 will be substantially less than and its losses may be
greater than, the anticipated net revenue and losses in published analyst
reports for such period. The Company believes that the shortfall in net
revenues for the third quarter is principally the result of a continued shift
in its distribution emphasis from retail distribution channels to
telecommunications carriers such as RBOCs and LECs. During this period,
certain distributors and customers have indicated a desire to return certain
products previously purchased from SoloPoint. The Company intends to accept
certain of these product returns and expects that the amount of such returns
accepted may be greater than the new product sales for the third quarter and
that the Company may report negative net revenues for such period.
26
<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 and LEC 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 or LEC 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 and LEC Voice Mail customers, mobile
professionals, and SOHO professionals and professionals in corporate satellite
offices.
RBOC and LEC 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 and LEC 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 and LEC 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
and LEC 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 and LEC Three-Way calling service. When a
user receives a call, SmartScreen picks up the call and connects the caller to
RBOC or LEC 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 or LEC. By providing the
ability to support a fax machine on the same line, fax users are not forced to
pay for a second line.
27
<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 or LEC 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
28
<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 or LEC
customers while utilizing several RBOC and LEC 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 or LEC 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.
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<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 or LEC Voice Mail user to screen and manage
incoming calls while callers are leaving messages on the user's RBOC or LEC
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 or LEC 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>
30
<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 or LEC 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>
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<PAGE>
SmartMonitor M-200: The Company commenced commercial shipment of the
SmartMonitor M-200 in September 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
or LEC Voice Mail or answering machines. When used with RBOC or LEC Voice
Mail, the M-200 requires RBOC or LEC 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 and LEC Allows a user to use Voice Works with customers'
Voice Mail or answering Mail or an answering machine existing answering machine
machine as their messaging solution. or RBOC and LEC 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.
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<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>
33
<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 and LEC 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 and
LEC 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 and LEC 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 or LEC 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. Because mobile
professionals use cellular and PCS telephones and pagers, the Company also
intends to pursue relationships with the wireless operations of RBOCs and
LECs.
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.
34
<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, as well as 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
35
<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
36
<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 Company has sent notification to the landlord of its intent to renew
such lease. 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.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages 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
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.
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
38
<PAGE>
a bachelor's degree in accounting from Seton Hall University and a master's
degree in finance from Seton Hall University.
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."
39
<PAGE>
FAMILY RELATIONSHIPS
There are no family relationships among any of the directors or executive
officers.
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.
40
<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 $100,000 (collectively the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ --------------
ALL OTHER
NAME OF PRINCIPAL POSITION FISCAL YEAR SALARY($) 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.
41
<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.
42
<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.
43
<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.
44
<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
"Principal Shareholders" 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.
45
<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.
46
<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 4.7% 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% 6.2%
435 Tasso Street, Suite 325
Palo Alto, CA 94301
4C Ventures, L.P. (4)(5)........... 241,856 6.8% 3.7%
c/o Queensgate Bank & Trust Co.,
Ltd.
P.O. Box 30464
Ugland House
South Church Street
Grand Cayman
Cayman Islands, BWI
Hambrecht & Quist (6).............. 169,698 4.8% 2.8%
One Bush Street
San Francisco, CA 94104
Ameritech Development Corporation 240,807 6.8% 3.7%
(4)(7)............................
30 South Wacker Drive
Chicago, IL 60606
Edward M. Esber, Jr. (4)(8)........ 200,010 5.7% 3.1%
c/o SoloPoint, Inc.
130-B Knowles Dr.
Los Gatos, CA 95030
Arthur G. Chang (4)(9)............. 115,000 3.3% 1.8%
c/o SoloPoint, Inc.
130-B Knowles Dr.
Los Gatos, CA 95030
Giuliano Raviola (10).............. 241,856 6.8% 3.7%
c/o Queensgate Bank & Trust Co.,
Ltd.
P.O. Box 30464
Ugland House
South Church Street
Grand Cayman
Cayman Islands, BWI
Charles Ross (11).................. -- * *
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>
47
<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 (12)................ 10,000 * *
H.J. Meyers & Co., Inc.
433 California Street, Suite 300
San Francisco, CA 94104
Charlie Bass (13)................. 404,633 11.4% 6.2%
435 Tasso Street, Suite 325
Palo Alto, CA 94301
Bryan Kerr (14) (15).............. 26,333 * *
c/o SoloPoint, Inc.
130-B Knowles Dr.
Los Gatos, CA 95030
All directors and officers as a
group (8 persons) (14) (16)...... 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 3,000,000 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 23,100 shares of Common Stock exercisable
on June 30, 1997 or within 60 days thereafter and excludes 30,000 shares
held by the Wegbreit Trust. Ben Wegbreit is a partner of H&Q London
Ventures; Hambrecht & Quist disclaims beneficial ownership of shares
owned by the Wegbreit Trust. H&Q London Ventures is an affiliate of
Hambrecht and Quist Group.
(7) 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.
(8) 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
48
<PAGE>
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-
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.
(9) 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.
(10) 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."
(11) 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."
(12) 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."
(13) 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.
(14) Mr. Kerr resigned as the Company's Vice President of Sales, effective
August 31, 1997.
(15) Includes 23,333 shares subject to stock options exercisable on June 30,
1997 or within 60 days thereafter.
(16) 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.
49
<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 6,499,780 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 300,000
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 $3.58 per share (assuming a
public offering price of $2.56 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
50
<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.
51
<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
6,499,780 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 3,000,000 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 608,408 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 2,149,780 shares of Common Stock outstanding upon
completion of this Offering, 1,541,372 shares are subject to lock-up
agreements expiring on August 6, 1998, 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 300,000 shares of Common Stock upon the closing of this Offering.
52
<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 3,000,000 shares of Common Stock. The underwriting discount
set forth on the cover page of this Prospectus will be allowed to the
Underwriter at the time of delivery to the Underwriter of the shares so
purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
NAME OF UNDERWRITER PURCHASED
- ------------------- ------------
<S> <C>
H. J. Meyers & Co., Inc............................................ 3,000,000
</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 450,000 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 $230,400 at an assumed public
offering price of $2.56 ($264,960 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 300,000
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 $3.58 per share (assuming
a public offering price of $2.56 per share). The Underwriter's Warrant will be
restricted from sale, assignment, transfer or hypothecation 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
53
<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
54
<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.
55
<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.
56
<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
(INCEPTION) (INCEPTION)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 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........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Market for Common Stock................................................... 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 27
Management................................................................ 38
Certain Relationships and Related Transactions............................ 44
Principal Shareholders.................................................... 47
Description of Capital Stock.............................................. 50
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 53
Legal Matters............................................................. 55
Experts................................................................... 55
Additional Information.................................................... 56
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.
===============================================================================
===============================================================================
3,000,000 SHARES
[LOGO OF SOLOPOINT, INC.]
SOLOPOINT, INC.
COMMON STOCK
-------------
PROSPECTUS
-------------
H.J. MEYERS & CO., INC.
OCTOBER , 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............................................... $ 2,921
NASD filing fee.................................................... $ 1,514
Nasdaq SmallCap Market listing fee................................. $ 10,000
Underwriter's non-accountable expense allowance(1)................. $230,400
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.................................... $ 33,165
--------
Total............................................................ $675,000
========
</TABLE>
- --------
(1) Assumes a public offering price of $2.56 per share, $264,960 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.
1.2 --Financial Consulting 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-
6).
.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.
**** 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.
. Previously filed.
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 LOS GATOS, STATE OF CALIFORNIA, ON OCTOBER 3, 1997.
SOLOPOINT, INC.
/s/ Edward M. Esber, Jr.
By: _________________________________
EDWARD M. ESBER, JR.
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Edward M. Esber, Jr. President, Chief October 7, 1997
_____________________________________ Executive Officer
EDWARD M. ESBER, JR. and Director
(Principal
Executive Officer)
Ronald J. Tchorzewski* Chief Financial October 7, 1997
_____________________________________ Officer and Vice
RONALD J. TCHORZEWSKI President of
Finance (Principal
Financial and
Accounting Officer)
Arthur G. Chang* Chief Operating October 7, 1997
_____________________________________ Officer and Vice
ARTHUR G. CHANG President of
Research and
Development
Charlie Bass* Chairman of the October 7, 1997
_____________________________________ Board of Directors
CHARLIE BASS
Patrick Grady* Director October 7, 1997
_____________________________________
PATRICK GRADY
Giuliano Raviola* Director October 7, 1997
_____________________________________
GIULIANO RAVIOLA
Charles Ross* Director October 7, 1997
_____________________________________
CHARLES ROSS
/s/ Edward M. Esber, Jr.
*By: ________________________________
EDWARD M. ESBER, JR.
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 10,
1997, in Amendment #2 to the Registration Statement, (Form SB-2 No. 333-33263)
and related Prospectus of SoloPoint, Inc. for the registration of 3,750,000
shares of its common stock.
Ernst & Young LLP
Palo Alto, California
October 1, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
1.2 --Financial Consulting 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-
6).
.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.
**** 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.
. Previously filed.
<PAGE>
EXHIBIT 1.1
SOLOPOINT, INC.
130-B Knowles Avenue
Los Gatos, California 95030
UNDERWRITING AGREEMENT
----------------------
_________, 1997
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 14620
Ladies and Gentlemen:
SOLOPOINT, INC., a California corporation (the "Company"), proposes to
issue and sell pursuant to this Underwriting Agreement (the "Agreement"), an
aggregate of 3,000,000 shares of Common Stock, no par value per share (the
"Shares"), commencing on the effective date of the Registration Statement (the
"Effective Date"). In addition, the Company proposes to grant the option
referred to in Section 2(b) to purchase all or any part of an aggregate of
450,000 additional Shares.
The aggregate of 3,000,000 Shares, together with all or any part of the
450,000 Shares which you have the option to purchase, are herein called the
"Shares." The Common Stock of the Company to be outstanding after giving effect
to the sale of the Shares (including the 450,000 Shares that the Underwriter has
the option to purchase) is herein called the "Common Stock."
You have advised the Company that you desire to purchase the Shares. The
Company confirms the agreements made by it with respect to the purchase of the
Shares by you, as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-______) on Form SB-2
relating to the public offering of the Shares, including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act. "Preliminary
Prospectus" shall mean each prospectus filed pursuant to Rule 430 of the Rules
and Regulations. The registration statement (including all
1
<PAGE>
financial schedules and exhibits) as amended at the time it becomes effective
and the final prospectus included therein are respectively referred to as the
"Registration Statement" and the "Prospectus", except that (i) if the prospectus
first filed by the Company pursuant to Rule 424(b) or Rule 430A of the Rules and
Regulations or otherwise utilized and not required to be so filed shall differ
from said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b) or Rule 430A or so utilized from
and after the date on which it shall have been filed or utilized, and (ii) if
such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as defined in Section 2(b)), the term "Registration
Statement" shall include such registration statement as so amended, and the term
"Prospectus" shall include the prospectus as so amended or supplemented, or
both, as the case may be.
(b) At the time the Registration Statement becomes effective and at
all times subsequent thereto up to the Option Closing Date (as defined below),
(i) the Registration Statement and Prospectus will in all material respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of you specifically for use in the preparation thereof.
It is understood that the statements set forth in the last paragraph on the
cover page of the Prospectus, set forth in the Prospectus with respect to
stabilization, the second paragraph under the caption "Risk Factors -- De-
listing 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," the material set forth under the heading "Underwriting" and the
identity of counsel to you under the heading "Legal Matters" constitute the only
information furnished in writing by you for inclusion in the Registration
Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify is not reasonably likely to materially adversely affect the Company's
business, properties or financial condition.
(d) The authorized capital stock of the Company as of the Effective
Date was as set forth under "Capitalization" in the Prospectus. The shares of
issued and outstanding capital stock of the Company set forth thereunder have
been duly authorized, validly issued and are fully paid and non-assessable;
except as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company. The
2
<PAGE>
Shares and Underwriter's Warrant conform in all material respects to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. The certificates evidencing the Shares are and will be
in valid and proper legal form. The Underwriter's Warrant (as defined in
Section 11) will be exercisable for shares of Common Stock of the Company in
accordance with the terms of the Underwriter's Warrant and at the prices therein
provided for. The shares of Common Stock have been duly authorized and reserved
for issuance upon such exercise, and such shares, when issued upon such exercise
in accordance with the terms of the Underwriter's Warrant and when the price is
paid, shall be fully paid and non-assessable. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated in
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any securities of the
Company, except as described in the Registration Statement.
(f) This Agreement and the Underwriter's Warrant have been duly and
validly authorized, executed and delivered by the Company, and assuming due
execution by the other party or parties hereto and thereto, constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as rights to indemnity and contribution
hereunder may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles. The Company has full
power and lawful authority to authorize, issue and sell the Shares to be sold by
it hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Shares or the Underwriter's Warrant, except
such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in
material violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement and the Underwriter's Warrant will not conflict with, or result in a
breach of, any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance pursuant
to the terms of, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets of the Company are
subject, which would have a material adverse effect on the business, properties
or financial condition of the Company, nor will such action result in any
violation of the provisions of the certificate of incorporation or the By-laws
of the Company, as amended, or any statute or any order, rule or regulation
applicable to the Company of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company, which would have a
material adverse effect on the business, properties or financial condition of
the Company.
(h) The Company owns no real property and, subject to the
qualifications stated in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions,
3
<PAGE>
except such as are not materially significant or important in relation to its
business; all of the leases and subleases under which the Company is the lessor
or sublessor of properties or assets or under which the Company holds properties
or assets as lessee or sublessee as described in the Prospectus are in full
force and effect, and, except as described in the Prospectus, the Company is not
in default in any respect with respect to any of the terms or provisions of any
of such leases or subleases which would have a material adverse effect on the
business, properties or financial condition of the Company, and no claim has
been asserted by anyone adverse to rights of the Company as lessor, sublessor,
lessee or sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company to continued possession of the
leased or subleased premises or assets under any such lease or sublease except
as described or referred to in the Prospectus, which would have a material
adverse effect on the business properties or financial condition of the Company;
and the Company owns or leases all such properties described in the Prospectus
as are necessary to its operations as now conducted and, except as otherwise
stated in the Prospectus, as proposed to be conducted as set forth in the
Prospectus.
(i) Ernst & Young, who have given their report on certain financial
statements filed and to be filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are with respect
to the Company independent public accountants as required by the Act and the
Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, the Company has not incurred
any liabilities or obligations, direct or contingent, not in the ordinary course
of business, or entered into any transaction not in the ordinary course of
business, which is material to the business of the Company, and there has not
been any change in the capital stock of, or any incurrence of long-term debt by,
the Company or any issuance of options, warrants or other rights to purchase the
capital stock of the Company or any adverse change or any development involving,
so far as the Company can now reasonably foresee, a prospective adverse change
in the condition (financial or other), net worth, results of operations,
business, key personnel or properties of it which would be material to the
business or financial condition of the Company, and the Company has not become
party to, and neither the business nor the property of the Company has become
the subject of, any material litigation whether or not in the ordinary course of
business.
(l) Except as set forth in the Prospectus, there is not now pending
nor, to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters or discrimination on the basis
of age, sex, religion or race) to which the Company is a party before or by any
court or governmental agency or body, which, if adversely determined, would
result in any material adverse change in the condition (financial or other),
4
<PAGE>
business prospects, net worth or properties of the Company; and, except as set
forth in the Prospectus, no labor disputes involving the employees of the
Company exist which, if adversely determined, would result in any material
adverse change in the condition (financial or otherwise), business prospects,
net worth or property of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company
which has not been adequately reserved for on the Company's balance sheet.
(n) The Company has sufficient licenses, permits and other
governmental authorizations currently required for the conduct of its business
or the ownership of its property as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, mark registrations,
copyrights and licenses necessary for the conduct of such business and has not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the activities or
business of the Company is in violation of, or causes the Company to violate,
any law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or locality, the violation of which would have a
material adverse effect upon the condition (financial or otherwise), business
prospects, net worth or properties of the Company.
(o) The Company has not, directly or indirectly, at any time (i) made
any contributions to any candidate for foreign political office, or if made,
failed to disclose fully any such contribution made in violation of law, (ii)
made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law,
(iii) made any payment outside the ordinary course of business to any purchasing
or selling agent or person charged with similar duties of any entity to which
the Company sells or from which the Company buys products for the purpose of
influencing such agent or person to buy products from or sell products to the
Company, or (iv) except as set forth in the Prospectus, engaged in any
transaction, maintained any bank account or used any corporate funds except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the Company. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(p) On the Closing Dates (as defined in Section 2(c)), all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes imposed by any jurisdiction), if any, which are required to be paid in
connection with the sale and transfer of the Shares to the Underwriter hereunder
will have been fully paid or provided for by the Company and all laws imposing
such taxes will have been fully complied with.
5
<PAGE>
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Shares or to facilitate the sale or resale of
the Shares.
(s) The Company has no subsidiaries.
(t) Except for this Agreement and other agreements with you, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
(u) The Company's Common Stock is registered with the Commission
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(v) The Company is not in violation of any law, ordinance,
governmental rule or regulation or court decree to which it may be subject which
violation would have a material adverse effect on the financial condition,
results of operations, business or prospects of the Company.
2. Purchase, Delivery and Sale of the Shares.
-----------------------------------------
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein contained,
the Company agrees to issue and sell to you, and you agree to buy from the
Company at $_____ per Share at the place and time hereinafter specified, the
number of Shares set forth opposite your name in Schedule I hereto (the "Firm
Shares").
Delivery of the Firm Shares against payment therefor shall take
place at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, New York 14620 (or at such other place as may be designated by
agreement between you and the Company) at 9:30 a.m. New York time on ________,
1997, or at such other time and date, not later than three business days
thereafter (or four business days if the Registration Statement is declared
effective after the close of the business day), as you may designate, such time
and date of payment and delivery for the Firm Shares being herein called the
"First Closing Date." Time shall be of the essence and delivery at the time and
place specified in this subsection (a) is a further condition to your
obligations hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants you an option to purchase all or any
part of an aggregate of 375,000 additional Shares at the same price per Share as
you shall pay for the Shares being sold pursuant to the provisions of subsection
(a) of this Section 2 (such additional Shares being referred to herein as the
"Option Shares"). This option may be exercised on one occasion within 30
business days after the Effective Date upon
6
<PAGE>
notice by you to the Company advising it as to the amount of Option Shares as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Shares are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by you but shall not be earlier than four and not later than ten full
business days after the exercise of said option, nor in any event prior to the
First Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Shares against payment therefor shall take
place at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, New York 14620. Time shall be of the essence and delivery at the time
and place specified in this subsection (b) is a further condition to your
obligations hereunder.
The Option granted hereunder may be exercised only to cover over-
allotments in the sale by you of Firm Shares referred to in subsection (a)
above.
(c) The Company will make the certificates for the Shares to be
purchased by you hereunder available to you for checking at least one full
business day prior to the First Closing Date or the Option Closing Date (which
are collectively referred to herein as the "Closing Dates" and individually as a
"Closing Date"), as the case may be. The certificates shall be in such names
and denominations as you may request, at least two full business days prior to
the relevant Closing Dates. Time shall be of the essence and the availability
of the certificates at the time and place specified in this Agreement is a
further condition to your obligations.
Definitive engraved certificates in negotiable form for the Shares
to be purchased by you hereunder will be delivered by the Company to you for
your account against payment of the purchase price by you, at your option, by
certified or bank cashier's checks in New York Clearing House funds or by wire
transfer, payable to the order of the Company.
In addition, in the event you exercise the option to purchase from
the Company all or any portion of the Option Shares pursuant to the provisions
of subsection (b) above, payment for such Option Shares shall be made to or upon
the order of the Company by you, at your option, by certified or bank cashier's
checks payable in New York Clearing House funds or by wire transfer, at the
offices of H.J. Meyers & Co., Inc. at the time and date of delivery of such
Option Shares as required by the provisions of subsection (b) above, against
receipt of the certificates for such Option Shares by you, registered in such
names and in such denominations as you may request.
It is understood that you propose to offer the Shares to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
3. Covenants of the Company.
------------------------
The Company covenants and agrees with you that:
(a) Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the Effective
7
<PAGE>
Date, file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you or your counsel shall have reasonably objected in
writing or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the completion by you of the distribution of
the Shares contemplated hereby (but in no event more than nine months after the
Effective Date) the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus which, in your reasonable opinion, may be necessary or advisable
in connection with the distribution of the Shares.
Promptly after you or the Company is advised thereof, you will
advise the Company or the Company will advise you, as the case may be, and
confirm the advice in writing, of the receipt of any comments of the Commission,
of the effectiveness of any post-effective amendment to the Registration
Statement, of the filing of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for additional
information with respect thereto, of the issuance by the Commission or any state
or regulatory body of any stop orders or other order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or of the
suspension of the qualification of the Shares for offering in any jurisdiction,
or the institution of any proceedings for any of such purposes, and will use its
best efforts to prevent the issuance of any such order and, if issued, to obtain
as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company
authorizes you and selected dealers to use the Prospectus in connection with the
sale of the Shares for such period not to exceed nine months from the Effective
Date as in the reasonable opinion of counsel for you the use thereof is required
to comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period as a
Prospectus is required under the Act to be delivered in connection with sales by
an underwriter or dealer, of any event of which the Company has knowledge and
which materially affects the Company or the Shares, or which in the opinion of
counsel for the Company or counsel for you should be set forth in an amendment
to the Registration Statement or a supplement to the Prospectus in order to make
the statements therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Shares, or in case it shall be necessary to amend or supplement the
Prospectus to comply with the Act or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriter,
except that in case you are required, in connection with the sale of the Shares,
to deliver a Prospectus nine months or more after the Effective Date, the
Company will upon request of and
8
<PAGE>
at your expense, amend or supplement the Registration Statement and Prospectus
and furnish you with reasonable quantities of prospectuses complying with
Section 10(a)(3) of the Act.
(b) The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations thereunder in connection with the offering and issuance of
the Shares.
The Company will use its best efforts to qualify or register the
Shares for sale under the securities or "blue sky" laws of such jurisdictions as
you may have designated in writing prior to the execution hereof and will make
such applications and furnish such information to counsel for you as may be
required for that purpose and to comply with such laws, provided that the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service process in any
jurisdiction. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as you may reasonably request. Legal fees for
such qualifications shall be itemized based on the time expended and costs
incurred, shall be reasonable and shall not in any event exceed $35,000.00,
exclusive of filing fees (unless otherwise agreed).
(c) The Company will instruct its transfer agent to provide you with
copies of the Depository Trust Company stock transfer sheets on a weekly basis
for a period of six months from the First Closing Date and on a monthly basis
thereafter for six additional months.
(d) For so long as the Company is a reporting company under either
Section 12(g), 13 or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its shareholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such fiscal
year, together with statements of income, stockholders, equity and cash flows of
the Company and any subsidiaries as at the end of such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent accountants; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as they
are available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission; and (iv) such other information of a
public nature as you may from time to time reasonably request.
(e) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(f) The Company will deliver to you at or before the First Closing
Date one signed copy of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon your order, from time to time until the
Effective Date as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriter may reasonably
request. The Company
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will deliver to you on the Effective Date and thereafter for so long as a
Prospectus is required to be delivered under the Act, from time to time, as many
copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as you may from time to time reasonably request.
(g) The Company will make generally available to its security holders
and deliver to you as soon as it is practicable to do so, but in no event later
than 90 days after the end of 12 months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least 12
consecutive months beginning after the Effective Date which shall satisfy the
requirements of Section 11(a) of the Act.
(h) The Company will apply the net proceeds from the sale of the
Shares substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(i) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
opinion of Freshman, Marantz, Orlanski, Cooper & Klein, counsel to you may be
reasonably necessary or advisable in connection with the distribution of the
Shares and will use its best efforts to cause the same to become effective as
promptly as possible.
(j) Prior to the Effective Date, the Company will use its best efforts
to cause all the Directors and officers of the Company to enter into a written
agreement with you, which, among other things, shall provide that for a period
of 13 months following the closing date of the offering, such Directors and
officers will not sell, assign, hypothecate or pledge any of the shares of
Common Stock of the Company owned by them on the Effective Date, or subsequently
acquired by the exercise of any options or warrants or conversion of any
convertible security of the Company held by them on the Effective Date directly
or indirectly, except with your prior written consent and such Directors and
officers will permit all certificates evidencing those shares to be stamped with
an appropriate restrictive legend, and will cause the transfer agent for the
Company to note such restrictions on the transfer books and records of the
Company.
(k) The Company shall, upon the initial filing of the Registration
Statement, make all filings required to obtain approval for the quotation of the
Shares on the Nasdaq SmallCap Market ("NASDAQ") and will use its best efforts to
effect and maintain the aforesaid approval for at least five (5) years from the
date of this Agreement. The Company shall cause its listing in the Standard &
Poor's Corporate Records to be maintained for five years from the date of this
Agreement.
(l) The Company represents that it has not taken, and agrees that it
will not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Shares or to facilitate the
sale or resale the Shares.
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(m) During the period of the offering, and for a period of twelve (12)
months from the Effective Date, the Company will not sell or otherwise dispose
of any securities of the Company (except for shares of Common Stock issuable
upon exercise of options or warrants or conversion of convertible securities
outstanding on the Effective Date or upon exercise of options granted or the
grant of options under said plan less any options to purchase shares granted
prior to the Effective Date, pursuant to the Company's Stock Option Plans)
without your prior written consent, which consent shall not be unreasonably
withheld. For a period of twenty-four (24) months from the Effective Date, the
Company will not issue, sell or otherwise dispose of any securities of the
Company pursuant to Regulation S under the Act without your prior written
consent.
(n) Prior to the filing of the Registration Statement, the Company
shall retain a public relations firm acceptable to you, and shall continue to
retain such firm, or any alternate firm acceptable to you, for a minimum period
of two (2) years.
(o) The Company will reserve and keep available that maximum number of
its authorized but unissued securities which are issuable upon exercise of the
Underwriter's Warrant outstanding from time to time.
(p) The Company shall deliver to you, at the Company's expense, three
(3) bound volumes in form and content acceptable to you, containing the
Registration Statement and all exhibits filed therewith, and all amendments
thereto, and all other material correspondence, filings, certificates and other
documents filed and/or delivered in connection with this offering. The Company
shall use its best efforts to deliver such volumes with one hundred eighty (180)
days of the First Closing Date.
(q) The Company shall deliver to you an executed financial consulting
agreement in form and substance reasonably acceptable to you whereby you agree
to act as a financial consultant for a period of one year from the First Closing
Date for a fee of $6,000 per month, which shall be paid in full on the First
Closing Date.
(r) For a period of thirty-six (36) months from the closing of the
offering, the Underwriter shall have the right to designate one member of the
Board of Directors provided that the designee is acceptable to the Company.
Such member shall be entitled to the same compensation, reimbursements and
indemnification as other members of the Company's Board of Directors.
4. Conditions of Obligations of H.J. Meyers & Co., Inc.
----------------------------------------------------
Your obligations to purchase and pay for the Shares which you have
agreed to purchase hereunder are subject to the accuracy (as of the date hereof,
and as of the Closing Dates) of and compliance with the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 a.m., New York time, on
the date of this Agreement, or at such later time or on such later date as to
which you may Agree in writing; on the Closing Dates, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to the knowledge of any Underwriter or to the knowledge of the
Company, shall be contemplated by the Commission; any request on the part of the
Commission for additional information shall have
11
<PAGE>
been complied with to the reasonable satisfaction of Freshman, Marantz,
Orlanski, Cooper & Klein, counsel to you; and no stop order shall be in effect
denying or suspending effectiveness of the Registration Statement nor shall any
stop order proceedings with respect thereto be instituted or pending or
threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Company, in form and substance
reasonably satisfactory to counsel for you, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and is duly qualified or licensed to do business as a
foreign corporation in good standing in each other jurisdiction in which
the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where failure to so qualify
will not have a material adverse effect in the business, properties or
financial condition of the Company. The Company has the corporate power
to own, lease and operate its properties and to conduct its business as
described in the prospectus and to enter into and perform its
obligations under this Agreement, the Warrant Agreement and the
Underwriter's Warrant;
(ii) the authorized capitalization of the Company as of the date
of the Prospectus was as set forth in the Prospectus; all of the shares
of the Company's outstanding stock requiring authorization for issuance
by the Company's Board of Directors have been duly authorized and
validly issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company to such counsels knowledge, have not been
issued in violation of the preemptive rights of any stockholder and the
stockholders of the Company do not have any preemptive rights or other
rights to subscribe for or to purchase; except for the transfer
restrictions regarding "affiliates" contained in Rule 144 promulgated
under the Act, there are no restrictions upon the voting or transfer of,
any of the Shares; the Common Stock and the Underwriter's Warrant
conform in all material respects to the respective descriptions thereof
contained in the Prospectus; the Shares to be issued as contemplated in
the Registration Statement and this Agreement have been duly authorized
and, when paid, will be validly issued, fully paid and non-assessable
and free of preemptive rights contained in the Company's certificate of
incorporation or By-laws, or any other document, instrument or agreement
known to counsel; a sufficient number of shares of Common Stock has been
reserved for issuance upon exercise of the Underwriter's Warrant; to
such counsels knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any registration rights or other rights, other
than those contemplated by the Underwriter's Warrant or which have been
waived or satisfied, for or relating to the registration of the Shares;
(iii) this Agreement and the Underwriter's Warrant (sometimes
hereinafter collectively referred to as the "Underwriter Agreements")
have been duly and validly authorized, executed and delivered by the
Company, and assuming due execution and delivery of this Agreement by
you, such agreements are, or when duly executed will be, the
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<PAGE>
valid and legally binding obligations of the Company except as
enforceability may be limited by bankruptcy, insolvency, moratorium or
other laws affecting the rights of creditors, or by general equitable
principles; provided that no opinion need be expressed as to the
enforceability of the indemnity provisions contained in Section 6 or the
contribution provisions contained in Section 7 of this Agreement;
(iv) the certificates evidencing the Shares are in valid and
proper legal form; the Underwriter's Warrant will be exercisable for
shares of Common Stock of the Company in accordance with the terms of
the Underwriter's Warrant and at the prices therein provided for; the
shares of Common Stock of the Company issuable upon exercise of the
Underwriter's Warrant have been duly authorized and reserved for
issuance upon such exercise, and such shares, when issued upon such
exercise in accordance with the terms of the Underwriter's Warrant and
when the price is paid shall be fully paid and non-assessable;
(v) Such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which are
required to be described or referred to in the Registration Statement
which are not so described or referred to;
(vi) The execution and delivery of this Agreement and the
Underwriter's Warrant and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or
therein contemplated will not result in a violation of, or constitute a
default under, the certificate or articles of incorporation or By-laws
of the Company, or in a violation of or default under any obligation,
agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness or in any of the
material contracts, indentures, mortgages, loan agreements, leases,
joint ventures or other agreements or instruments to which the Company
is a party that are filed as Exhibits to the Registration Statement or
otherwise known to counsel;
(vii) Based upon a telephone conversation from a member of the
Staff of the Commission, the Registration Statement has become effective
under the Act, and to such counsels knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, no
proceedings for that purpose have been instituted or are pending before,
or threatened by, the Commission and the Registration Statement and the
Prospectus (except, in the case of both the Registration Statement and
any Amendment thereto, and the Prospectus and any supplement thereto for
the financial statements and notes and schedules thereto, and other
financial information or statistical data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of the
Act and the Rules and Regulations;
(viii) All descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents are accurate and fairly present the information required
to be shown, and such counsel is familiar with all contracts and other
documents referred to in the Registration Statement and the Prospectus
and any such amendment or supplement, or filed as exhibits to the
Registration Statement,
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<PAGE>
and such counsel does not know of any contracts or documents of a
character required to be summarized or described therein or to be filed
as exhibits thereto which are not so summarized, described or filed;
(ix) No authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Shares by the Company, in connection with the execution, delivery
and performance of this Agreement or the Underwriter's Warrant by the
Company or in connection with the taking of any action contemplated
herein or therein, or the issuance of the Underwriter's Warrant or the
Shares underlying the Underwriter's Warrant, other than registration or
qualification of the Shares under applicable state or foreign securities
or blue sky laws (as to which such counsel need express no opinion) and
registration under the Act; and
(x) The statements in the Registration Statement under the
caption "Description of Capital Stock," to the extent that such
statements constitute a matter of law or legal conclusion have been
reviewed by such counsel and are correct in all material respects; and
Such counsel has participated in the preparation of the
Registration Statement and the Prospectus and although such counsel has not
reviewed the accuracy or completeness of the statements contained in the
Registration Statement or Prospectus nothing has come to the attention of such
counsel that caused such counsel to have reason to believe that the Registration
Statement or any amendment thereto at the time it became effective contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make statements therein in light of the circumstances under which they
were made not misleading (except, in the case of both the Registration Statement
and any amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes and schedules thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion);
In rendering such opinion, such counsel may rely upon certificates
of any officer of the Company or public officials as to matters of fact; and in
rendering such opinion may either (i) rely as to all matters of law other than
the law of the United States or of the State of California upon opinions of
counsel satisfactory to you, in which case the opinion shall state that they
have no reason to believe that you and they are not entitled to so rely or (ii)
assume that the laws of any state other than the State of California are
identical to the laws of the State of California, in rendering such opinion.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related matters
shall be reasonably satisfactory to or approved by Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to you, and you shall have received from such counsel a
signed opinion, dated as of the First Closing Date, with respect to the validity
of the issuance of the Shares, the form of the Registration Statement and
Prospectus (other
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<PAGE>
than the financial statements and other financial data contained therein), the
execution of this Agreement and other related matters as you may reasonably
require. The Company shall have furnished to counsel for you such documents as
they may reasonably request for the purpose of enabling them to render such
opinion.
(d) You shall have received a letter on and as of the Effective Date
and again on and as of the First Closing Date, in each instance describing
procedures carried out to a date within five (5) days of the date of the letter,
from Ernst & Young LLP, independent public accountants for the Company,
substantially in the form approved by you.
(e) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of such Closing Date, and the Company
shall have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statements of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the Effective Date and the
Company shall not have incurred any material liabilities nor entered into any
agreement not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus; and (iv) except as set forth in the
Prospectus, no action, suit or proceeding at law shall be pending or threatened
against the Company which would be required to be disclosed in the Registration
Statement, and no proceedings shall be pending or threatened against the Company
before or by any commission, board or administrative agency in the United States
or elsewhere, wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, property, condition (financial or
otherwise), results of operations or general affairs of the Company. In
addition, you shall have received, at the First Closing Date, a certificate
signed by the President and the principal financial or accounting officer of the
Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (e).
(f) Upon exercise of the option provided for in Section 2(b) hereof,
your obligations to purchase and pay for the Option Shares referred to therein
will be subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness thereof
shall have been issued, and no proceedings for that purpose shall have
been instituted or shall be pending, or, to your knowledge or the
knowledge of the Company, shall be contemplated by the Commission,
15
<PAGE>
and any reasonable request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction
of Freshman, Marantz, Orlanski, Cooper & Klein, counsel to you.
(ii) At the Option Closing Date there shall have been delivered
to you the signed opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Company, dated as of the
Option Closing Date, in form and substance reasonably satisfactory to
Freshman, Marantz, Orlanski, Cooper & Klein, counsel to you, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the First Closing Date pursuant to Section
4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Shares rather than the Firm Shares. If the First Closing Date
is the same as the Option Closing Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have been delivered
to you a certificate of the President and the Chairman of the Board of
the Company dated the Option Closing Date, in form and substance
reasonably satisfactory to Freshman, Marantz, Orlanski, Cooper & Klein,
counsel to you, substantially the same in scope and substance as the
certificate furnished to you at the First Closing Date pursuant to
Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you a letter in form and substance satisfactory to you from Price
Waterhouse LLP, dated the Option Closing Date and addressed to you,
confirming the information in their letter referred to in Section 4(d)
hereof as of the date thereof and stating that, without any additional
investigation required, nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five (5) days prior to the Option Closing Date
which would require any change in said letter if it were required to be
dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Shares shall be
reasonably satisfactory in form and substance to you, and you and
Freshman, Marantz, Orlanski, Cooper & Klein, counsel to you, shall have
been furnished with all such documents and certificates as you may
request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants or
conditions contained therein.
(g) If any of the conditions herein provided for in this Section shall
not have been completely fulfilled as of the date indicated, this Agreement and
all obligations of the Underwriter under this Agreement may be canceled at, or
at any time prior to, each Closing Date by your notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of any Underwriter to
the Company, except as otherwise provided herein.
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5. Conditions of the Obligations of the Company.
--------------------------------------------
The obligation of the Company to sell and deliver the Shares is
subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 9:00 a.m. New York time, on the date of this Agreement, or on such later
date or time as you and the Company may agree in writing.
(b) on the Closing Dates, no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Shares on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless you and each
person, if any, who controls you, within the meaning of the Act, from and
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys, fees), to which you
or such controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment thereof or supplement
thereto, (B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, or any supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company through you specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto and provided further, that the indemnity
agreement provided in this Section 6(b) with respect to any preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material
17
<PAGE>
fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required by
the Act and the Rules and Regulations thereunder. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) You agree to indemnify and hold harmless the Company, each of its
directors, each nominee (if any) for director named in the Prospectus, each of
its officers who have signed the Registration Statement, and each person, if
any, who controls the Company, within the meaning of the Act, from and against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, shall include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys, fees) to which the
Company or any such director, nominee, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged untrue statement or omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company through you specifically for use in
preparation thereof. This indemnity agreement will be in addition to any
liability which you may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is any Underwriter
or a person who controls any Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter
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<PAGE>
or such controlling person and the indemnifying party, and in your judgment,
upon advice of counsel, it is advisable for such Underwriter or controlling
persons to be represented by separate counsel (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
such Underwriter or such controlling person, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld.
7. Contribution.
------------
In order to provide for just and equitable contribution under the Act
in any case in which (i) the indemnified party makes claims for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of you, then the
Company and each person who controls the Company, in the aggregate, and you
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that such Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Share appearing on the cover page of the Prospectus bears to the public offering
price per Share appearing thereon, and the Company shall be responsible for the
remaining portion, provided, however, that if such allocation is not permitted
by applicable law, then the relative fault of the Company and you and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or you, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriter
agree (a) that it would not be just and equitable if the respective obligations
of the Company and you to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate damages (even
if the Underwriter has to be treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 7 and (b) that
the contribution of any Underwriter shall not be in excess of its proportionate
share of the portion of such losses, claims, damages or liabilities for which
you are responsible. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. As used in
this paragraph, the word "Company" within the meaning of Section 15 of the Act.
Your obligations to contribute pursuant to this Section 7 are several in
proportion to their respective underwriting obligations and not joint. If the
full amount
19
<PAGE>
of the contribution specified in this paragraph is not permitted by law, then
you and each person who controls you shall be entitled to contribution from the
Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and you. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld.
8. Costs and Expenses.
------------------
(a) Whether or not this Agreement becomes effective or the sale of the
Shares to you is consummated, the Company will pay all costs and expenses
incident to the performance of this Agreement by the Company, including but not
limited to the fees and expenses of counsel to the Company and of the Company's
accountants; the costs and expenses incident to the preparation, printing,
filing and distribution under the Act of the Registration Statement (including
the financial statements therein and all amendments and exhibits thereto), each
Preliminary Prospectus and the Prospectus, as amended or supplemented, the fee
of the National Association of Securities Dealers, Inc. ("NASD") in connection
with the filing required by the NASD relating to the offering of the Shares
contemplated hereby; all expenses, including reasonable fees (but not in excess
of the amount set forth in Section 3(b)) and disbursements of counsel to you, in
connection with the qualification of the Shares under the State Securities or
Blue Sky Laws which you shall designate; the cost of printing and furnishing to
you copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus, this Agreement, the Warrant Agreement and the Blue Sky Memorandum;
the cost of printing the certificates representing the Shares, the expenses of
Company due diligence meetings and presentations, (but not of you or your
counsel in connection therewith) and the expense (which shall not exceed
$10,000) of placing one or more "tombstone" advertisements as directed by you.
The Company and shall pay any and all taxes (including any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to you
hereunder. The Company will also pay all costs and expenses incident to the
furnishing of any amended Prospectus or of any supplement to be attached to the
Prospectus as called for in Section 3(a) of this Agreement except as otherwise
set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to you the balance of a non-accountable expense allowance
3% of the gross proceeds of the offering. In the event the over-allotment
option is exercised in part or in full, the Company shall pay to you at the
Option Closing Date an additional amount equal to 3% of the gross proceeds
received upon exercise of the overallotment option. In the event the
transactions contemplated hereby are not consummated for any reason, the Company
shall be liable for your actual accountable out-of-pocket expenses including
legal fees, and further provided that if the contemplated transactions are not
consummated by reason of breach by the Company of this Agreement or of any
representation, warranty, covenant or condition contained herein, the Company
shall be liable for your accountable out-of-pocket expenses.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Underwriter or from any other person for
services as a finder in connection with
20
<PAGE>
the proposed offering, and the Company agrees to indemnify and hold harmless
you, and you agree to indemnify and hold harmless, the Company from and against
any losses, claims, damages or liabilities, (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of defense
and investigation and all reasonable attorneys' fees), to which the indemnified
party may become subject insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection wit the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. Effective Date.
--------------
The Agreement shall become effective upon its execution, except that
you may, at your option, delay its effectiveness until the earlier to occur of
10:00 A.M., New York time on the first full business day following the Effective
Date as you in your discretion shall first commence the public offering by you
of any of the Shares. The time of the public offering shall mean the time of
release by you of the first newspaper advertisement with respect to the Shares,
or the time when the Shares are first generally offered by you to dealers by
letter or telecopier, whichever shall first occur. This Agreement may be
terminated by you at any time before it becomes effective as provided above,
except that Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 shall remain in effect
notwithstanding such termination.
10. Termination.
-----------
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and
15, may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2(b), if exercised, may be canceled, at any time
prior to the Option Closing Date, by you if in your judgment it is impracticable
to offer for sale or to enforce contracts made by you for the resale of the
Shares agreed to be purchased hereunder, by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof,
(iv) a banking moratorium having been declared by federal of New York State
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company, (vii) any material adverse change in the
financial or securities markets beyond normal fluctuations in the United States
having occurred since the date of this Agreement, or (viii) any material adverse
change having occurred, since the respective dates for which information is
given in the Registration Statement and Prospectus, in the earnings, business,
prospects or general condition of the Company, financial or otherwise, whether
or not arising in the ordinary course of business.
21
<PAGE>
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or facsimile
transmission, confirmed by letter.
11. Underwriter's Warrant.
---------------------
On the First Closing Date, the Company will issue to you, for a
consideration of $5.00 and upon the terms and conditions set forth in the form
of Underwriter's Warrant annexed as an exhibit to the Registration Statement, an
Underwriter's Warrant to purchase 250,000 Shares. In the event of conflict in
the terms of this Agreement and the Underwriter's Warrant, the language of the
Underwriter's Warrant shall control.
12. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company and you, set forth in or made pursuant to
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of you, the Company or any of its officers or
directors or any controlling persons and will survive delivery of and payment
for the Shares and the termination of this Agreement.
13. Notice.
------
All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telecopied and confirmed to it at H.J. Meyers & Co., Inc., 1895 Mt. Hope
Avenue, Rochester, New York 14620-4596, with a copy sent to Thomas J. Poletti,
Esq. at Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard,
8th Floor East, Beverly Hills, California 90212-3480, or if sent to the Company,
will be mailed, delivered, or facsimiled and confirmed to Edward M. Esber, Jr.
of SoloPoint, Inc., 130-B Knowles Avenue, Los Gatos, California 95030, with copy
sent to Michael J. O'Donnell, Esq. of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050.
14. Parties in Interest.
-------------------
The Agreement herein set forth is made solely for your benefit, the
Company and, to the extent expressed, any person controlling the Company, or
you, and directors of the Company, nominees for directors of the Company (if
any) named in the Prospectus, the officers of the Company who have signed the
Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire for have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from you of the Shares.
22
<PAGE>
15. Applicable Law.
--------------
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
23
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Underwriting Agreement, whereupon it will
become a binding agreement between the Company and you in accordance with its
terms.
Very truly yours,
SoloPoint, Inc.
Dated: _______, 1997 By:________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
H.J. Meyers & Co., Inc.
Dated: _______, 1997 By:________________________________
Authorized Officer
24
<PAGE>
SCHEDULE I
----------
Underwriting Agreement dated _______, 1997
Number of Firm
Shares
Underwriter to be Purchased
---------------
H.J. Meyers & Co., Inc. 2,500,000
25
<PAGE>
EXHIBIT 1.2
FINANCIAL CONSULTING AGREEMENT
This Financial Consulting Agreement (the "Agreement") is made as of
_________, 1997 by and between, SoloPoint, Inc., a California corporation having
its business address at 130-B Knowles Avenue, Los Gatos, California 95030
(hereinafter the "Company"), and H. J. Meyers & Co., Inc., a New York
corporation having its principal place of business at 1895 Mt. Hope Avenue,
Rochester, New York 14620 (hereinafter "Consultant").
In consideration of the mutual promises contained herein and on the terms
and conditions hereinafter set forth, the Company and Consultant agree as
follows:
1. Provision of Services.
---------------------
(a) Consultant agrees, to the extent reasonably requested by the
President of the Company and reasonably required in the conduct of the business
of the Company, as determined by the Consultant, to place at the disposal of the
Company its judgment and experience and to provide business development services
to the Company including the following:
(i) assist the Company in its public equity marketing efforts;
(ii) provide access to the Consultant's retail sales force
through roadshow stops and conference calls;
(iii) provide research coverage from the Consultant's
Research Department; and
(iv) advise with regard to stockholder relations and public
relations matters.
All such services shall at all times be at the request of the Company.
(b) Consultant agrees to use its best efforts at all times in the
furnishing of advice and recommendations, and for this purpose Consultant shall
at all times maintain or keep available for the Company an adequate organization
of personnel or a network of outside professionals for the performance of its
obligations under this Agreement.
2. Compensation. In consideration for services to be rendered under this
------------
Agreement, the Company and Consultant hereby agree that hereby agree that the
Company shall pay a non-refundable fee equal to $6,000 per month for twelve (12)
months, payable in full upon the execution of this Agreement.
The Company agrees to reimburse Consultant for its expenses incurred by the
Consultant in connection with its services hereunder. All expenses shall be
approved in advance by the Company in writing.
<PAGE>
3. Expenses Payment Schedule. Consultant will invoice the Company for
-------------------------
its actual expenses for each month within fifteen (15) days of the end of the
month. Payment of invoices will be due upon receipt.
4. Liability of Consultant. In furnishing the Company with management
-----------------------
advice and other services as herein provided, neither Consultant nor any
officer, director or agent thereof shall be liable to the Company or its
creditors for errors of judgment or for anything except willful malfeasance, bad
faith or gross negligence in the performance of its duties or reckless disregard
or its obligations and duties under the terms of this Agreement.
It is further understood and agreed that Consultant may rely upon
information furnished to is reasonably believed to be accurate and reliable and
that, except as herein provided, Consultant shall not be accountable for any
loss suffered by the Company by reason of the Company's action or non-action on
the basis of any advice, recommendation or approval of Consultant, its partners,
employees or agents.
5. Status of Consultant. Consultant shall be deemed to be an independent
--------------------
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Company.
6. Other Activities of Consultant. The Company recognizes that
------------------------------
Consultant now renders and may continue to render management and other services
to other companies which may or may not have policies and conduct activities
similar to those of the Company. Consultant shall be free to render such advice
and other services and the Company hereby consents thereto. Consultant shall not
be required to devotes its full time and attention to the performance of its
duties under this Agreement, but shall devote only so much of its time and
attention as it deems reasonable or necessary for such purposes.
7. Control. Nothing contained herein shall be deemed to require the
-------
Company to take any action contrary to its Certificate of Incorporation or By-
Laws, or any applicable statute or regulation, or to deprive its Board of
Directors of their responsibility for any control of the conduct or the affairs
of the Company.
8. Term. Consultant's retention hereunder shall be for a term of one
----
year commencing upon the execution of this Agreement.
9. Miscellaneous. This Agreement sets forth the entire agreement and
-------------
understanding between the parties and supersedes all prior discussions,
agreements and understandings of every and any nature between them. This
Agreement shall be construed and interpreted according to the laws of the State
of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers or representatives duly authorized the day and year
first above written.
SOLOPOINT, INC.
2
<PAGE>
By: ____________________________________
Name:
Title:
H. J. MEYERS & CO., INC.
By: ______________________________________
Name:
Title:
3
<PAGE>
EXHIBIT 4.2
Warrant to Purchase 300,000
Shares of Common Stock
UNDERWRITER'S WARRANT
---------------------
Dated: ____________, 1997
THIS CERTIFIES THAT H.J. Meyers & Co., Inc. (herein sometimes called the
"Holder" or the "Underwriter") is entitled to purchase from SoloPoint, Inc., a
California corporation (the "Company"), at the price and during the period as
hereinafter specified, up to Three Hundred Thousand (300,000) shares of
Common Stock, no par value (the "Common Stock"), at a purchase price of $_______
per share, subject to adjustment as described below, at any time during the
four-year period commencing one (1) year from the effective date of the
Registration Statement (as defined below) ("Effective Date").
This Underwriter's Warrant (the "Underwriter's Warrant") is issued pursuant
to an Underwriting Agreement between the Company and H.J. Meyers & Co., Inc. in
connection with a public offering, through the Underwriter, of 3,000,000 shares
of Common Stock as therein described (and up to 450,000 additional shares of
Common Stock covered by an over-allotment option granted by the Company to the
Underwriter), and in consideration of $5.00 received by the Company for the
Underwriter's Warrant. Except as specifically otherwise provided herein, the
Common Stock issued pursuant to the Underwriter's Warrant shall bear the same
terms and conditions as described under the caption "Description of Securities"
in the Registration Statement on Form SB-2, File No. 333-______ (the
"Registration Statement") except that the Holder shall have registration rights
under the Securities Act of 1933, as amended (the "Act"), for issuance pursuant
thereto, the Underwriter's Warrant and the Common Stock issuable pursuant
thereto, as more fully described in paragraph 6 herein.
1. The rights represented by the Underwriter's Warrant shall be exercised
at the price, subject to adjustment in accordance with Section 8 hereof (the
"Exercise Price"), and during the periods as follows:
1
<PAGE>
(a) During the period from the Effective Date to and through
_________, 1998 (the "First Anniversary Date"), inclusive, the
Holder shall have no right to purchase any Common Stock
hereunder, except that in the event of any merger, consolidation
or sale of substantially all the assets of the Company as an
entirety prior to the First Anniversary Date (other than (i) a
merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification or
reorganization of an outstanding shares of Common Stock or (ii)
any sale/leaseback, mortgage or other financing transaction), the
Holder shall have the right to exercise the Underwriter's Warrant
concurrently with such event and into the kind and amount of
shares of stock and other securities and property (including
cash) receivable by a holder of the number of shares of Common
Stock into which the Underwriter's Warrant were exercisable
immediately prior thereto.
(b) Between _________, 1998 and ________, 2002, (five (5) years from
the Effective Date, i.e. the "Expiration Date") inclusive, the
Holder shall have the option to purchase Common Stock hereunder
at a price of $_______ per share (120% of public offering price
per share of Common Stock pursuant to the Registration
Statement).
(c) After the Expiration Date, the Holder shall have no right to
purchase any Common Stock hereunder.
2. (a) The rights represented by the Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Underwriter's Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of shares of Common Stock specified in the above-mentioned purchase
form together with applicable stock transfer taxes, if any; and (iii) delivery
to the Company of a duly executed agreement signed by the person(s) designated
in the
2
<PAGE>
purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Underwriter's Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Underwriter's Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for shares of Common
Stock shall be issuable upon such exercise shall become the holder or holders of
record of such Common Stock at that time and date. The Common Stock and the
certificates for the Common Stock so purchased shall be delivered to the Holder
within a reasonable time, not exceeding ten (10) business days, after the rights
represented by this Underwriter's Warrant shall have been so exercised.
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Underwriter's Warrant in whole or in
part by receiving shares of Common Stock equal to the value (as determined
below) of this Underwriter's Warrant, or any part hereof, upon surrender of the
Underwriter's Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the
Holder;
Y = the number of shares of Common Stock to be exercised under
this Underwriter's Warrant (the "Shares");
A = the current fair market value of one share of Common Stock;
B = the Exercise Price of the Underwriter's Warrant;
As used herein, current fair market value of Common Stock
shall mean with respect to each share
3
<PAGE>
of Common Stock the average of the closing prices of the
Company's Common Stock sold on the principal national securities
exchanges on which the Common Stock is at the time admitted to
trading or listed, or, if there have been no sales of any such
exchange on such day, the average of the highest bid and lowest
ask price on such day as reported by Nasdaq, or any similar
organization if Nasdaq is no longer reporting such information,
either (i) on the date which the form of election is deemed to
have been sent to the Company (the "Notice Date") or (ii) over a
period of five (5) trading days preceding the Notice Date,
whichever of (i) or (ii) is greater. If on the date for which
current fair market value is to be determined the Common Stock is
not listed on any securities exchange or quoted in the Nasdaq
System or the over-the-counter market, the current fair market
value of Common Stock shall be the highest price per share which
the Company could then obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless prior
to such date the Company has become subject to a binding
agreement for a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in
which case the current fair market value of the Common Stock
shall be deemed to be the value to be received by the holders of
the Company's Common Stock for each share thereof pursuant to the
Company's acquisition.
3. The Underwriter's Warrant shall not be transferred, sold, assigned, or
hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Holder, and may be assigned in
whole or in part to any person who is an officer of the Holder. This
Underwriter's Warrant must be executed immediately upon its transfer at any time
after one year from the Effective Date, and if not so executed, shall lapse.
Any such assignment shall be effected by the Holder by (i) executing the form of
assignment at the end hereof and (ii) surrendering the Underwriter's Warrant for
cancellation at the
4
<PAGE>
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an officer of the Holder if the Holder is a
corporation) stating that each transferee is a permitted transferee under this
paragraph 3; whereupon the Company shall issue, in the name or names specified
by the Holder (including the Holder), a new Underwriter's Warrant or Warrants of
like tenor and representing in the aggregate rights to purchase the same number
of shares of Common Stock as are purchasable hereunder at such time.
4. The Company covenants and agrees that all shares of Common Stock which
may be purchased hereunder will, upon issuance and delivery against payment
therefor of the requisite purchase price, be duly and validly issued, fully paid
and nonassessable. The Company further covenants and agrees that, during the
periods within which the Underwriter's Warrant may be exercised, the Company
will at all times have authorized and reserved a sufficient number of shares of
its Common Stock to provide for the exercise of the Underwriter's Warrant.
5. The Underwriter's Warrant shall not entitle the Holder to any voting
rights or other rights, including without limitation notice of meetings or other
actions or receipt of dividends, as a stockholder of the Company.
6. (a) The Company shall advise the Holder or its permitted transferee,
whether the Holder holds the Underwriter's Warrant or has exercised the
Underwriter's Warrant and holds shares of Common Stock relating thereto, by
written notice at least four weeks prior to the filing of any new registration
statement thereto under the Act, or the filing of a notification on Form 1-A
under the Act for a public offering of securities, covering any securities of
the Company, for its own account or for the account of others, except for any
registration statement filed on Form S-4 or S-8 (or other comparable form), and
will, during the five (5) year period from the Effective Date, upon the request
of the Holder, include in any such new registration statement (or notification
as the case may be) such information as may be required to permit a public
offering of, all or any of the shares of Common Stock underlying the
Underwriter's Warrant (the "Registrable Securities").
(b) At any time during the four (4) year period beginning one (1) year
after the Effective Date, a 50% Holder (as defined below) may request, on up to
an aggregate of two occasions,
5
<PAGE>
that the Company register under the Act any and all of the Registrable
Securities held by such 50% Holder. Upon the receipt of any such notice, the
Company will promptly, but no later than four weeks after receipt of such notice
(subject to the last sentence of this Section 6(b)), file a post-effective
amendment to the current Registration Statement or a new registration statement
pursuant to the Act, so that such designated Registrable Securities may be
publicly sold under the Act as promptly as practicable thereafter and the
Company will use reasonable efforts to cause such registration to become and
remain effective (including the taking of such reasonable steps as are necessary
to obtain the removal of any stop order) within 120 days (subject to the
provision of the last sentence of this Section 6 (b)) after the receipt of such
notice, provided, that such Holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request in
writing. The 50% Holder may, at its option, request the registration of any of
the Common Stock underlying the Underwriter's Warrant in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
shares of Common Stock issuable upon exercise of the Underwriter's Warrant. The
50% Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the
Underwriter's Warrant or separately as to the Common Stock, and such
registration rights may be exercised by the 50% Holder prior to or subsequent to
the exercise of the Underwriter's Warrant. Within ten days after receiving any
such notice pursuant to this subsection (b) of paragraph 6, the Company shall
give notice to any other Holders of the Underwriter's Warrant, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying that part of
the Warrant held by the other Holders, provided that they shall furnish the
Company with such appropriate information (relating to the intentions of such
Holders) in connection therewith as the Company shall reasonably request in
writing. All costs and expenses of the first post-effective amendment or new
registration statement shall be borne by the Company, except that the Holder(s)
shall bear the fees of their own counsel and any other advisors retained by them
and any underwriting discounts or commissions applicable to any of the
securities sold by them. All costs and expenses of the second such post-
effective amendment or new registration statement shall be borne by the
Holder(s). The Company will use its best efforts to maintain such registration
6
<PAGE>
statement or post-effective amendment current under the Act for a period of at
least six months (and for up to an additional three (3) months if so requested
by the Holder(s)) from the effective date thereof. The Company shall supply
prospectuses, and such other documents as the Holder(s) may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states (i) as such Holder(s) designate and (ii) with
respect to which the Company obtained a qualification in connection with its
initial public offering and furnish indemnification in the manner provided in
paragraph 7 hereof. Notwithstanding the foregoing set forth in this paragraph
6(b), the Company shall not be required to include in any registration statement
any Registrable Securities which in the opinion of counsel to the Company (which
opinion is reasonably acceptable to counsel to the Underwriter) would be
saleable immediately without restriction under Rule 144 (or its successor) if
the Underwriter's Warrant was exercised pursuant to paragraph 2(b) herein.
Notwithstanding anything to the contrary, if the Company shall furnish
to the Holders requesting a registration or filing of a post-effective amendment
pursuant to this Section 6 a certificate signed by the President of the Company
stating that, in the good faith judgement of the board of Directors of the
Company, it would be materially detrimental to the Company and its stockholders
for such registration statement or post-effective amendment to be filed and it
is therefore in the best interests of the Company to defer such filing, the
Company shall have a right to defer such filing for a period not to exceed 30
after the date on which the Company would be required to so file such
registration statement or post-effective amendment, provided, however, that the
Company shall not be entitled to provide such notice to such Holder or Holders
more than once in any 12-month period.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Underwriter's Warrant and/or the Common Stock
underlying the Underwriter's Warrant (considered in the aggregate).
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Common Stock issued upon exercise of (or issuable upon the
exercise of any Warrants purchasable under) the Underwriter's Warrant is filed
under the Act, amended or
7
<PAGE>
supplemented, the Company will indemnify and hold harmless each Holder of the
Common Stock covered by such registration statement, amendment or supplement
(such Holder being hereinafter called the "Distributing Holder"), and each
person, if any, who controls (within the meaning of the Act) the Distributing
Holder, and each underwriter (within the meaning of the Act) of such Common
Stock and each person, if any, who controls (within the meaning of the Act) any
such underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities, or actions in respect thereof, arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement as declared effective
or any final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading and will reimburse
the Distributing Holder or such controlling person or underwriter for any legal
or other expense reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final prospectus
or said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder for use in the preparation thereof and provided further, that the
indemnity agreement provided in this Section 7(a) with respect to any
preliminary prospectus shall not inure to the benefit of any Distributing
Holder, controlling person of such Distributing Holder, underwriter or
controlling person of such underwriter from whom the person asserting any
losses, claims, charges, liabilities or litigation based upon any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state therein a material fact, received such preliminary prospectus,
if a copy of the prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected has not been sent or
given to such person within the time required by the Act and the Rules and
Regulations thereunder.
8
<PAGE>
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
9
<PAGE>
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of this Underwriter's Warrant shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, (iii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, or (iv) enter into any
transaction whereby the outstanding shares of Common Stock of the Company are at
any time changed into or exchanged for a different number or kind of shares or
other security of the Company or of another corporation through reorganization,
merger, consolidation, liquidation or recapitalization, then appropriate
adjustments in the number of Shares (or other securities for which such Shares
have previously been exchanged or converted) subject to this Underwriter's
Warrant shall be made and the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination, reclassification, reorganization, merger,
consolidation, liquidation or recapitalization shall be proportionately adjusted
so that the Holder of this Underwriter's Warrant exercised after such date shall
be entitled to receive the aggregate number and kind of Shares which, if this
Underwriter's Warrant had been exercised by such Holder immediately prior to
such date, he would have been entitled to receive upon such dividend,
distribution, subdivision, combination, reclassification, reorganization,
merger, consolidation, liquidation or recapitalization. For example, if the
Company declares a 2 for 1 stock distribution and the Exercise Price hereof
immediately prior to such event was $3.15 per share and the number of Shares
purchasable upon exercise of this Underwriter's Warrant was 250,000 the adjusted
Exercise Price immediately after such event would be $1.575 per share and the
adjusted number of Shares purchasable upon exercise of this
10
<PAGE>
Underwriter's Warrant would be 500,000. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the Exercise Price on a per share basis (the "Per
Share Exercise Price") on such record date, the Exercise Price shall be adjusted
so that the same shall equal the price determined by multiplying the Per Share
Exercise Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the number of shares
outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so issued (or the aggregate conversion price of the
convertible securities so issued) would purchase at the Per Share Exercise Price
in effect immediately prior to the date of such issuance, and the denominator of
which shall be sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares of Common Stock
so issued (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of deliver of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall hereafter distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above, then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Per Share Exercise
Price in effect immediately prior thereto by a fraction,
11
<PAGE>
the numerator of which shall be the total number of shares of Common Stock then
outstanding multiplied by the current market price per share of Common Stock (as
defined in Subsection (e) below), less the fair market value (as determined by
the Company's Board of Directors) of said assets, or evidences of indebtedness
so distributed or of such rights or warrants, and the denominator of which shall
be the total number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of shareholders entitled to receive
such distribution.
(d) Whenever the Exercise Price payable upon exercise of the
Underwriter's Warrant is adjusted pursuant to Subsections (a), (b) or (c) above,
the number of Shares purchasable upon exercise of this Underwriter's Warrant
shall simultaneously be adjusted by multiplying the number of Shares issuable
upon exercise of this Underwriter's Warrant by the Exercise Price in effect on
the date hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(e) For the purpose of any computation under Subsec tion (c) above,
the current market price per share of Common Stock at any date shall be deemed
to be the average of the daily closing prices of the Common Stock for 30
consecutive business days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sale takes
place on such day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or, if not listed or admitted to
trading on such exchange, the average of the highest reported bid and lowest
reported asked prices as reported by Nasdaq, or other similar organization if
Nasdaq is no longer reporting such information, or if not so available, the fair
market price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which may by reason of
this Subsection (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be
12
<PAGE>
made hereunder. All calculations under this Section 8 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the Exercise Price,
in addition to those required by this Section 8, as it shall determine, in its
sole discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any Federal
income tax liability to the holders of the Common Stock or securities
convertible into Common Stock.
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of the Underwriter's
Warrant to be mailed to the Holder, at its address set forth herein, and shall
cause a certified copy thereof to be mailed to the Company's transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this Section 8, the Holder of the Underwriter's
Warrant thereafter shall become entitled to receive any shares of the Company
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of the Underwriter's Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Subsections (a) to (f), inclusive, above.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York without regard to conflict of laws provision.
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<PAGE>
IN WITNESS WHEREOF, SOLOPOINT, INC. has caused this Underwriter's Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Underwriter's Warrant to be dated _________, 1997.
SOLOPOINT, INC.
By: ____________________________
Name:
Title:
(Corporate Seal)
Attest:
______________________________
Name:
Title:
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<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, _______________ shares of no par value Common
Stock of SOLOPOINT, INC. and herewith makes payment of $_______ therefor, and
requests that the certificates for the shares of Common Stock be issued in the
name(s) of, and delivered to _________________, whose address(es) is (are):
Dated: _______________, 19__
By:________________________________
___________________________________
___________________________________
Address
15
<PAGE>
TRANSFER FORM
-------------
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase shares of Common Stock
represented by the foregoing Underwriter's Warrant to the extent of __________
shares of no par value Common Stock, and appoints _________________________
attorney to transfer such rights on the books of ____________ _________________,
with full power of substitution in the premises.
Dated: _______________, 19__
By:________________________________
___________________________________
___________________________________
In the presence of:
16
<PAGE>
Exhibit 5.1
October 2, 1997
SoloPoint, Inc.
130-B Knowles Avenue
Los Gatos, CA 95030
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
33263) originally filed by SoloPoint, Inc. (the "Company") with the Securities
and Exchange Commission (the "Commission") on August 8, 1997, as thereafter
amended or supplemented (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to 3,750,000
shares of the Company's Common Stock (the "Shares"). The Shares, which include
an over-allotment option granted by the Company to the Underwriters to purchase
up to 450,000 additional shares of the Company's Common Stock and a warrant to
the Underwriter to purchase up to 300,000 shares of the Company's Common Stock,
are to be sold to the Underwriters by the Company as described in the
Registration Statement for resale to the public. As your counsel in connection
with this transaction, we have examined the proceedings taken and are familiar
with the proceedings proposed to be taken by you in connection with the sale and
issuance of the shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement, and further consent to the use of our name wherever appearing in said
Registration Statement, including the prospectus constituting a part thereof,
and in any amendment of supplement thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<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.
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<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
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<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,
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<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
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<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
SMARTSCREEN MARKETING PLAN
THE MESSAGE CENTER
Pacific Bell Consumer Markets Group has planned the following marketing programs
to promote SmartScreen to The Message Center (TMC) customers for both
acquisition and retention:
A. LAUNCH
TMC CUSTOMERS
. THREE-WAY CALLING INSTALLATION WAIVED. To make it easier for customers to
get up and running with SmartScreen, Pacific Bell Consumer Market Group
will waive the non-recurring $5.00 installation charge for three-way
calling (since most TMC customers, our prime target, do not have Three-Way
Calling already). In effect, we are offering a $5.00 discount off the
SmartScreen package.
. MAY MESSAGE NEWSLETTERS. Front-page article (sharing lead with Additional
Line campaign) describing SmartScreen features. Messages has ****
readership. Also includes illustration of SmartScreen device (originally
planned to include both Message Alert from Notify and SmartScreen; changed
to give focus just to newly launched SmartScreen). Distribution: **** TMC
customers throughout May in Pacific Bell bill inserts.
. PB AWARDS NEWSLETTER. An article, including artwork, describing features
will appear. In addition, CMG and PB Awards have agreed to fund a special
introductory redemption offer, which will allow PB Awards members to
receive a SmartScreen for a 50%+ savings --35,000 Bonus Points instead of
the regular 80,000 redemption points). PB Awards members will also have the
ability to purchase for $69.95. Distribution: Approximately **** PB Awards
members (including **** who already subscribe to TMC) starting 5/16/97.
. PUBLIC RELATIONS. Pacific Bell Consumer Market Groups has committed
additional funding to work with Pacific Telesis Corporate Communications
and **** to execute SmartScreen PR, to be released by mid-May. First draft
of PR campaign to be delivered to CMG on Wednesday, April 30.
. MASS-MEDIA TV ADVERTISING. While not specific to SmartScreen, we should see
increased awareness and interest in The Message Center as we air two 30-
second spots starting in early June for an eight-week run in San Francisco,
Sacramento, San Diego, and Los Angeles. Our channel training will include
the newly available SmartScreen so as more customers call in to inquire,
our channel reps will be able to address the obstacle of call screening and
VMWI with the SmartScreen solution.
SALES TRAINING
CHANNEL TRAINING. Provide training and motivation to **** person Pacific Bell
business office representatives who account for **** of all TMC sales, plus the
PBIS Customer Care Organization (PTSS CCO) who specifically support TMC and
account for **** of all sales. Activities include providing
-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>
. BLITZ DAYS: CMG will be conducting a special promotion for The Message
Centre in June and July throughout our business offices Statewide.
SmartScreen will be lead item in this program. For example, we are giving
demo units to the three dedicated Sales Implementation Managers, who
conduct onsite desk drop and promotions including a SmartScreen drawing,
giving reps a chance to earn a SmartScreen. Timing: May-June, 1997. To
maximize SmartScreen exposure in the Channel, Pacific Bell Consumer Markets
has hired a marketing contractor who will assist the channel team by giving
up to 10-20 hours each week dedicated to SmartScreen in various Business
Offices. In addition, the dedicated Sales Implementation Managers will
include SmartScreen as part of their ongoing education and training for The
Message Center throughout the year.
. PB CHANNEL NEWSLETTER SmartScreen Article. Every PB rep receives a
newsletter to inform them of selling tips and product information. Timing:
June, 1997
B. ONGOING PROMOTION
TMC CUSTOMERS
. AUGUST MESSAGES NEWSLETTERS. Feature article in August issue, focusing on
application story of actual SmartScreen users. Since the tone of Messages
is informational and not promotional, we want to devote space telling how
one or several TMC customers uses SmartScreen, highlighting some time-
savings or other benefit the customer finds. Timing: Distributed throughout
August as bill inserts. Distribution: Projected **** TMC customers.
. NOVEMBER 1997 AND MARCH 1998 MESSAGES NEWSLETTERS. CMG will commit to a
SmartScreen feature story in each of these issues; content to be determined
as a later time. Probable focus will be on a promotional offer.
. BROADCAST MESSAGE. In Q3 we envision a SmartScreen promotion to existing
customers using our broadcast messages. **** We have revamped this program
(clearly giving subscribers a way to remove themselves from the list) and
have cautiously resumed broadcasts. With this delay, we believe it will be
September before we will be able to do a mass broadcast about SmartScreen;
the timing should work out since we can follow-up the August Messages
newsletter with this broadcast.
. PB AWARDS NEWSLETTER. Follow-up article with a similar (but different)
application story of a PB Awards member who redeemed a SmartScreen device.
. WORK@HOME DIRECT MAIL. Based on the experienced of SmartScreen during May-
June, CMG will consider a funding request for a direct mail piece targeted
to our Work@Home segment; in particular the **** customers who already
subscribe to the Work@Home Saver Pack and have TMC and Three-Way Calling.
PACIFIC BELL/SBC EMPLOYEES
. CONNECTIONS ARTICLE. Develop feature story for Q2 (June or July) that
describes SmartScreen to Pacific Bell employees in the weekly Connections
employee newspaper.
-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>
Employees (nearly **** of whom subscribe to TMC and are great ambassadors
for our products) will have two offers: 1) Regular $69.95 price plus Three-
Way Calling installation waiver if they already have TMC; 2) if they do not
subscribe to TMC, they can purchase the device at its regular price and get
a $25 savings on both TMC and Three-Way Calling non-recurring.
. PRODUCT FAIRS. CMG will commit marketing representatives to participate in
various product fairs conducted throughout the organization. Where
appropriate, we would welcome Solopoint joining us in theses efforts.
. ERIC EMPLOYEE REFERRAL PROGRAM. Pacific Bell has a very successful employee
referral and rewards program called ERIC. The SmartScreen device itself is
prohibited from participating by regulatory restrictions, however, the
SmartScreen package can earn ERIC credits for the Three-Way Calling
portion. There is also an ERIC Newsletter where we will seek publication of
a story describing SmartScreen.
-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>
