<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K/A
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported): July 7, 2000
NETSCOUT SYSTEMS, INC.
----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 0000-26251 04-2837575
------------------------------- ----------------------- -------------------
(State of other jurisdiction of (Commission File number) (IRS Employer
Incorporation) Identification No.)
4 TECHNOLOGY PARK DRIVE, WESTFORD, MA 01886
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 614-4000
--------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 7, 2000, NetScout Systems, Inc., a Delaware corporation,
completed its acquisition of NextPoint Nextworks, Inc., a Delaware corporation,
by means of a merger of NextPoint with and into NetScout Service Level
Corporation, a Delaware corporation and a wholly-owned subsidiary of NetScout,
pursuant to an Agreement and Plan of Reorganization dated as of June 13, 2000.
The Merger was effected by the filing of a Certificate of Merger with the
Secretary of State of Delaware on July 7, 2000. NextPoint was a provider of
integrated application and network management software solutions to traditional
enterprises, e-businesses and application and management services providers.
Upon the effective time of the Merger on July 7, 2000, NetScout issued
an aggregate of 2,099,120 shares of NetScout common stock, par value $0.001 per
share and $19,532,517 in cash in exchange for all of the outstanding shares of
capital stock of NextPoint. Pursuant to the terms of the Merger Agreement, upon
the effective time of the Merger, each outstanding share of capital stock of
NextPoint converted into the right to receive the number of shares NetScout
common stock and the amount of cash as follows:
- Each outstanding share of NextPoint Series A Convertible Preferred
Stock as converted into the right to receive .277 shares of NetScout
Common Stock and $2.59 in cash.
- Each outstanding share of NextPoint Series B Convertible Preferred
Stock was converted into the right to receive .477 shares of NetScout
Common Stock and $4.45 in cash.
- Each outstanding share of NextPoint Series C Convertible Preferred
Stock was converted into the right to receive .640 shares of NetScout
Common Stock and $5.97 in cash.
- Each outstanding share of NextPoint Common Stock was converted into the
right to receive .233 shares of NetScout Common Stock and $2.17 in
cash.
Each holder of NextPoint capital stock who is otherwise entitled to a
fraction of a share of NetScout common stock will receive cash in lieu thereof,
equal to a fraction multiplied by $13.32. In accordance with the terms of the
Merger Agreement and an escrow agreement, 314,887 shares of NetScout common
stock and $2,936,267 in cash have been placed in an escrow account to secure
certain indemnification obligations of NextPoint under the Merger Agreement. In
addition, pursuant to the terms of the Merger Agreement, NetScout assumed
outstanding warrants to purchase shares of NextPoint Series C Convertible
Preferred Stock. NetScout has reserved an aggregate of 24,741 shares of its
common stock and $230,732.72 in cash for issuance upon the exercise of these
warrants. NetScout also assumed outstanding options to purchase shares of
NextPoint common stock pursuant to NextPoint's 1997 Stock Incentive Plan and
2000 Stock Incentive Plan. NetScout has reserved an aggregate of 273,906 shares
of its common stock for issuance upon exercise of these options.
The NetScout common stock issued in connection with the merger was
issued in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933 as amended. NetScout used proceeds raised by
NetScout in its initial public offering of common stock, which was consummated
in August 1999, to pay for the cash portion of the merger consideration.
2
<PAGE>
The purchase price and terms for the transaction were determined in
arms-length negotiations. The acquisition of NextPoint is intended to qualify a
tax-free reorganization under Section 368 of the Internal Revenue Code of 1986,
as amended. NetScout will account for the transaction under the purchase method
of accounting.
The terms of the Merger are more fully described in the Merger
Agreement and the Registration Rights Agreement, which are each filed as Exhibit
2.1 and 10.1, respectively, and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
<TABLE>
<CAPTION>
NEXTPOINT NETWORKS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 F-3
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Deficit for the years ended December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 F-5
Notes to Financial Statements F-6
Unaudited Condensed Consolidated Balance Sheet at June 30, 2000 and
December 31, 1999 F-20
Unaudited Condensed Consolidated Statements of Operations for
six months ended June 30, 2000 and 1999 F-21
Unaudited Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 F-22
Notes to Unaudited Condensed Consolidated Financial Statements F-23
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Combined Financial Information F-24
Unaudited Pro Forma Combined Balance Sheet as of
June 30, 2000 F-25
Unaudited Pro Forma Combined Statement of Operations
for the years ended March 31, 2000 and
December 31, 1999 F-26
Unaudited Pro Forma Combined Statement of Operations
for the three months ended June 30, 2000 and
March 31, 2000 F-27
Notes to Unaudited Pro Forma Combined Financial Information F-28
</TABLE>
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
NextPoint Networks, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of redeemable preferred stock and
stockholders' deficit and of cash flows present fairly, in all material
respects, the financial position of NextPoint Networks, Inc. and its subsidiary
at December 31, 1998 and 1999, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
June 9, 2000, except as to Note 13
for which the date is July 7, 2000
F-1
<PAGE>
NEXTPOINT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,404,330 $ 950,173
Accounts receivable, net of allowance for doubtful accounts of
$0 and $80,000 at December 31, 1998 and 1999, respectively 164,331 730,296
Prepaid expenses and other current assets 192,587 107,254
---------------- ----------------
Total current assets 9,761,248 1,787,723
---------------- ----------------
Note receivable from stockholder 35,000 35,000
Fixed assets, net 578,367 784,208
Other assets 15,211 29,442
---------------- ----------------
Total assets $ 10,389,826 $ 2,636,373
================ =================
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of note payable to bank $ 91,033 $ 85,040
Current portion of note payable - other 19,270 19,270
Accounts payable 500,226 536,060
Accrued expenses 491,648 350,686
Deferred revenue 56,483 453,083
---------------- ----------------
Total current liabilities 1,158,660 1,444,139
---------------- ----------------
Long-term portion of note payable to bank 236,958 218,673
Long-term portion of note payable - other 68,150 51,580
---------------- ----------------
Total liabilities 1,463,768 1,714,392
---------------- ----------------
Commitments (Note 10)
Series A redeemable convertible preferred stock, $0.01 par value; 1,100,000
shares authorized, issued and outstanding at December 31, 1998 and
1999 (liquidation preference of $1,100,000) 1,100,000 1,100,000
---------------- ----------------
Series B redeemable convertible preferred stock, $0.01 par value; 542,495
shares authorized, issued and outstanding at December 31, 1998 and 1999
(liquidation preference of $2,999,997) 2,999,997 2,999,997
---------------- ----------------
Series C redeemable convertible preferred stock, $0.01 par value; 1,295,177
shares authorized, 1,289,749 shares issued and outstanding at December 31,
1998 and 1999 (liquidation preference of $11,878,588) 11,878,588 11,878,588
---------------- ----------------
Stockholders' deficit:
Common stock, $0.0001 par value; 7,000,000 shares authorized, 2,428,200
and 2,437,599 shares issued and outstanding at December 31, 1998
and 1999, respectively 243 244
Additional paid-in capital 4,439 1,106,493
Treasury stock, at cost, 30,750 and 44,000 shares at December 31,
1998 and 1999, respectively (1,208) (1,340)
Deferred compensation - (954,295)
Accumulated deficit (7,056,001) (15,207,706)
---------------- ----------------
Total stockholders' deficit (7,052,527) (15,056,604)
---------------- ----------------
Total liabilities, redeemable convertible preferred stock and
stockholders' deficit $ 10,389,826 $ 2,636,373
================ =================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
<PAGE>
NEXTPOINT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Revenues:
Licenses $ 387,037 $ 1,535,323
Services 22,749 55,896
---------------- ----------------
409,786 1,591,219
---------------- ----------------
Cost of revenues:
Licenses 3,900 24,050
Services 60,827 162,481
---------------- ----------------
64,727 186,531
---------------- ----------------
Gross profit 345,059 1,404,688
---------------- ----------------
Operating expenses:
Research and development 2,215,527 2,630,913
Sales and marketing 2,313,589 5,370,761
General and administrative 1,105,197 1,563,298
Stock-based compensation - 142,061
---------------- ----------------
Total operating expenses 5,634,313 9,707,033
---------------- ----------------
Loss from operations (5,289,254) (8,302,345)
Interest income, net 115,967 150,640
---------------- ----------------
Net loss $ (5,173,287) $ (8,151,705)
=============== ================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
NEXTPOINT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C
REDEEMABLE CONVERTIBLE REDEEMABLE CONVERTIBLE REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,100,000 $1,100,000 542,495 $2,999,997 -- $ --
Issuance of Series C redeemable
convertible preferred stock 1,289,749 11,878,588
Repurchase of common stock
Net loss
---------- ---------- -------- ---------- ---------- ------------
Balance at December 31, 1998 1,100,000 1,100,000 542,495 2,999,997 1,289,749 11,878,588
Issuance of common stock upon
exercise of stock options
Repurchase of common stock
Deferred compensation
Amortization of deferred
compensation
Net loss
---------- ---------- -------- ---------- ---------- ------------
Balance at December 31, 1999 1,100,000 $1,100,000 542,495 $2,999,997 1,289,749 $ 11,878,588
========== ========== ======== ========== ========== ============
-----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON STOCK PAID-IN TREASURY STOCK DEFERRED ACCUMULATED
SHARES PAR VALUE CAPITAL SHARES AMOUNT COMPENSATION DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 2,428,200 $ 243 $ 4,439 -- $ -- $ -- $ (1,785,464) $(1,780,782)
Issuance of Series C redeemable
convertible preferred stock (97,250) (97,250)
Repurchase of common stock 30,750 (1,208) (1,208)
Net loss (5,173,287) (5,173,287)
---------- ------- --------- -------- ------- ------------ ------------ -----------
Balance at December 31, 1998 2,428,200 243 4,439 30,750 (1,208) -- (7,056,001) (7,052,527)
Issuance of common stock upon 9,399 1 5,698 5,699
exercise ofstock options
Repurchase of common stock 13,250 (132) (132)
Deferred compensation 1,096,356 (1,096,356) --
Amortization of deferred 142,061 142,061
compensation
Net loss (8,151,705) (8,151,705)
---------- ------- --------- -------- ------- ------------ ------------ -----------
Balance at December 31, 1999 2,437,99 $ 244 $1,106,493 44,000 $(1,340) (954,295) $(15,207,706) $(15,056,604)
========== ======= ========= ======== ======= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
NEXTPOINT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,173,287) $ (8,151,705)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation 124,070 279,230
Compensation expense for stock options granted - 142,061
Changes in assets and liabilities:
Accounts receivable (164,331) (565,965)
Prepaid expenses and other current assets (147,081) 85,333
Accounts payable 431,236 133,994
Accrued expenses 370,495 (239,122)
Deferred revenue 56,483 396,600
---------------- ----------------
Net cash used in operating activities (4,502,415) (7,919,574)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (444,055) (485,071)
Increase in other assets (2,100) (14,231)
---------------- ----------------
Net cash used in investing activities (446,155) (499,302)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 327,991 -
Repayments of notes payable (8,930) (40,848)
Proceeds from Series C redeemable convertible preferred stock,
net of issuance costs 11,781,338 -
Proceeds from stock option exercises - 5,699
Purchase of treasury stock, at cost (1,208) (132)
---------------- ----------------
Net cash (used in)/provided by financing activities (12,099,191) (35,281)
---------------- ----------------
Net increase in cash and cash equivalents 7,150,621 (8,454,157)
Cash and cash equivalents, beginning of period 2,253,709 9,404,330
---------------- ----------------
Cash and cash equivalents, end of period $9,404,330 $ 950,173
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 17,170 $ 41,479
Notes payable issued for fixed assets 96,350 -
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
1. NATURE OF THE BUSINESS
NextPoint Networks, Inc. (the "Company") was incorporated as a Delaware
corporation in November 1996. The Company develops, markets and
supports a family of software products for monitoring and reporting
network and application performance. Providing both network and
end-user views of network performance data, the Company's products
enable real-time management of distributed networks varying in size.
The Company was considered a development stage enterprise, as defined
in Statement of Financial Accounting Standards ("SFAS") No. 7, during
the year ended December 31, 1998. In 1999, principal operations have
commenced and, accordingly, the Company's consolidated financial
statements are no longer presented as those of a development stage
enterprise.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of the
financial statements are as follows:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company
include the accounts of NextPoint Networks, Inc. and its wholly-owned
subsidiary, NextPoint Networks Securities Corporation, a Delaware
corporation. All significant intercompany transactions and balances
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an initial maturity of three months
or less are considered to be cash equivalents. The Company invests
excess cash primarily in money market funds of major financial
institutions. Accordingly, these investments are subject to minimal
credit and market risk. At December 31, 1998 and 1999, the Company's
cash equivalents were $8,893,920 and $927,389, respectively. These
investments are carried at cost, which approximates fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, notes payable, and
other accrued expenses. The carrying amounts of these instruments at
December 31, 1998 and 1999 approximates their fair values.
ACCOUNTS RECEIVABLE, CONCENTRATION OF CREDIT RISK AND
SIGNIFICANT CUSTOMERS
Financial instruments that potentially expose the Company to
concentrations of credit risk include cash and cash equivalents and
accounts receivable. The Company maintains substantially all of its
money market funds with one financial institution which management
believes has a high credit standing. To minimize credit risk related to
accounts receivable, ongoing credit evaluations of customers' financial
condition are performed.
Revenue of $132,000 (36% of total revenue), $60,000 (15% of total
revenue), $69,000 (18% of total revenue) and $46,000 (11% of total
revenue) was attributable to individual customers in the year ended
December 31, 1998. Revenue of $161,000 (10% of total
F-6
<PAGE>
revenue) was attributable to one customer in the year ended December
31, 1999. At December 31, 1998, accounts receivable from four customers
were $154,000 (94% of gross accounts receivable). At December 31, 1999,
accounts receivable from one customer was $128,000 (16% of gross
accounts receivable).
FIXED ASSETS
Fixed assets are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Repair and
maintenance costs are charged to expense as incurred. When assets are
retired or disposed of, the assets and related accumulated depreciation
are eliminated from the accounts and any resulting gain or loss is
reflected in income.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of," the Company
periodically evaluates the net realizable value of its long-lived
assets and records impairment losses on those assets when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts.
Through December 31, 1999, the Company has not recognized an impairment
loss on its long-lived assets.
REVENUE RECOGNITION
Revenue is derived from the licensing of computer software products and
from maintenance and support services. The Company has adopted the
guidelines of Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by Statement of Position 98-9,
"Modification of SOP No. 97-2, Software Revenue Recognition, with
Respect to Certain Transactions" ("SOP 98-9"), both which provide
guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions.
Purchasers of the Company's software licenses generally enter an
initial annual maintenance and support contract, and, as such, the
Company considers these multiple elements of a single arrangement. As
software licenses are not sold individually, the Company employs the
"residual method" of accounting for revenue recognition, as defined by
SOP 98-9. The residual method requires that the portion of the total
arrangement fee attributable to undelivered elements, as indicated by
vendor specific objective evidence of fair value ("VSOE"), is deferred
and subsequently recognized in accordance with SOP 97-2. The difference
between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered
elements, if all other revenue recognition criteria of SOP 97-2 are
met. VSOE for maintenance and support services is determined based upon
the prices charged to customers when these elements are sold
separately, typically from the renewal of the annual service contracts.
Software licenses are typically sold subject to a customer evaluation
period, and requires some installation services prior to their
effective use. In accordance with SOP 97-2, the Company does not
recognize revenue from the sale of licenses until the evaluation and
installation period ends, and the license is deemed delivered and
accepted, provided that the Company has received a signed purchase
order or contract, the license fee is fixed or determinable, and
collection of the fee is probable. The Company recognizes revenue from
maintenance and support services ratably over the contract period,
recording any up-front payments as deferred revenue.
F-7
<PAGE>
Revenue on sales through resellers is not recognized until the end user
completes the evaluation period.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," requires a full set of
general purpose financial statements to be expanded to include the
reporting of "comprehensive income." Comprehensive income is comprised
of two components, net income and other comprehensive income. For all
periods presented, the Company's only component of comprehensive income
or loss was the Company's reported net losses.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs associated with the research and development of the Company's
products are expensed as incurred. Costs associated with the
development of computer software are expensed prior to establishing
technological feasibility, as defined by SFAS No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," and capitalized thereafter until commercial release of the
software products. Software development costs eligible for
capitalization have not been significant to date.
ADVERTISING COSTS
The Company expenses as incurred costs of producing advertising and
sales-related collateral materials. Advertising expense for the periods
ended December 31, 1998 and 1999, was $162,336 and $34,965,
respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed in Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation
expense is recorded for options issued to employees in fixed amounts to
the extent that the fixed exercise prices are less than the fair value
of the Company's common stock at the date of the grant. The Company
follows the disclosure requirements of SFAS 123, "Accounting for
Stock-Based Compensation." All stock-based awards to nonemployees are
accounted for at their fair value.
INCOME TAXES
Deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse. Valuation allowances are provided if, based upon
the weighted available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
RISKS AND UNCERTAINTIES
The Company's future results of operations involve a number of risks
and uncertainties that could affect the Company's future operating
results and cause actual results to vary materially from expectations.
Those factors include, but are not limited to, dependence on strategic
partners, limited operating history, ability to fund and manage growth,
and technological change.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
F-8
<PAGE>
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation. Such reclassifications had no effect on
the Company's results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. SFAS 133, as amended by
SFAS 137, is effective for all fiscal quarters of all years beginning
after June 15, 2000, with earlier application encouraged. The Company
does not currently use derivative instruments or engage in hedging
activities.
In November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 100, "Restructuring and Impairment
Charges" ("SAB 100"). In December 1999, the SEC issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB No. 100 expresses the views of the SEC staff regarding the
accounting for and disclosure of certain expenses commonly reported in
connection with exit activities and business combinations. The Company
does not expect the provisions of SAB No. 100 to have a material impact
on its financial statements. SAB No. 101 expresses the views of the SEC
staff in applying generally accepted accounting principles to certain
revenue recognition issues. The Company is currently determining the
impact that SAB No. 101 will have on its financial position and results
of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN
44"). FIN 44 clarifies the application of APB Opinion No. 25 and among
other issues clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed
stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July
1, 2000, but certain conclusions in FIN 44 cover specific events that
occurred after either December 15, 1998 or January 12, 2000. The
Company does not expect the application of FIN 44 to have a material
impact on the Company's financial position or results of operations.
3. NOTE RECEIVABLE FROM STOCKHOLDER
In November 1996, the Company loaned $25,000 to an employee. In July
1997, it loaned an additional $10,000 to the employee under the same
agreement. The note bears interest at an annual rate of 6.6% compounded
annually. The note is collateralized by the common stock owned by the
employee.
The principal and all unpaid accrued interest is payable on the earlier
of (i) November 12, 2005, (ii) the closing of an initial public
offering of the Company's common stock, (iii) the sale, transfer or
assignment of substantially all the Company's assets, (iv) the
liquidation of the Company or merger or consolidation of the Company
into or with another entity, unless the shareholders of the Company
immediately prior to such event own more than 50% of the voting power
of the surviving entity immediately after the merger or consolidation,
or (v) the termination of the borrower's employment.
F-9
<PAGE>
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
ESTIMATED
USEFUL LIFE DECEMBER 31,
(YEARS) 1998 1999
<S> <C> <C> <C>
Computer equipment 3-5 $ 470,302 $ 903,787
Furniture and fixtures 7 151,843 203,429
Leasehold improvements lease term 110,137 110,137
---------------- ----------------
732,282 1,217,353
Less: accumulated depreciation and
amortization 153,915 433,145
---------------- ----------------
$ 578,367 $ 784,208
================ ================
</TABLE>
Depreciation expense, including amortization, was $124,070 and $279,230
for the years ended December 31,1998 and 1999, respectively.
5. DEBT
The Company has agreements with a bank for a revolving working capital
line of credit and an equipment line of credit. Borrowings under the
revolving line of credit are collateralized by substantially all of the
Company's assets and may not exceed the lesser of $1,000,000 or
eligible accounts receivable, as defined by the agreements. Interest is
payable monthly at the bank's prime rate plus 0.5%. The revolving
working capital line of credit expired unused on July 14, 1999 and was
subsequently amended on January 18, 2000 (Note 13).
Under the equipment line of credit, the Company may borrow up to
$500,000 for the purchase of property and equipment. Interest is
payable monthly at the bank's prime rate (9.25% at December 31, 1999)
plus 0.75%. Drawings under this line were permitted through January 14,
1999, at which time the line converted to a term note, payable in 36
equal monthly installments of principal and interest beginning on
February 14, 1999. Borrowings are secured by all assets of the Company.
F-10
<PAGE>
Under these agreements, the Company must meet certain financial and
reporting covenants. The Company was in violation of certain of these
covenants at December 31, 1999; however, a waiver of the violations was
subsequently granted (Note 13). In connection with the revolving line
of credit, the Company issued a warrant to purchase 5,428 shares of
Series C Preferred Stock at $9.21 per share. The warrant was fully
exercisable upon issuance and expires on July 14, 2005. The value
ascribed to the warrant was not significant.
In December 1997, the Company entered into a note payable with a third
party related to certain leasehold improvements. The note is payable in
monthly installments with a stated interest rate of 10% per year
through May 2003. The note is guaranteed by the Company's landlord.
At December 31, 1999, aggregate principal maturities of long-term debt
are as follows:
<TABLE>
<S> <C>
2000 $ 104,310
2001 225,780
2002 34,488
2003 9,985
----------------
$ 374,563
================
</TABLE>
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
At December 31, 1999, the Company's outstanding Series A Redeemable
Convertible Preferred Stock ("Series A preferred stock"), Series B
Redeemable Convertible Preferred Stock ("Series B preferred stock") and
Series C Redeemable Convertible Preferred Stock ("Series C preferred
stock") had the following characteristics:
VOTING
Holders of Series A, Series B and Series C preferred stock are entitled
to the number of votes equal to the number of common shares into which
the shares of preferred stock are convertible.
DIVIDENDS
The holders of the Series A, Series B and Series C preferred stock are
entitled to cash dividends, out of funds legally available, when and if
declared by the Board of Directors. In addition, the holders of the
Series A, Series B and Series C preferred stock are entitled to receive
a payment equal to any dividend declared or paid by the Company in
respect to common stock for each share of common stock into which the
convertible preferred stock is then convertible.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding-up of the
affairs of the Company, the holders of Series A, Series B and Series C
preferred stock are entitled to receive, prior to and in preference to
holders of common stock, an amount equal to $1.00, $5.53 and $9.21 per
share, respectively, plus any declared but unpaid dividends, or, if the
remaining assets of the Company are insufficient to pay the full
amounts entitled, the holders of Series A, Series B and Series C
preferred stock will share ratably in the distribution of the remaining
assets.
F-11
<PAGE>
The merger or consolidation of the Company into or with another
corporation (except a merger or consolidation in which the holders of
capital stock of the Company immediately prior to such merger or
consolidation continue to hold immediately following such transaction
at least 50% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Company for the purposes of this characteristic.
CONVERSION
Each Series A, Series B and Series C preferred share may be converted
at any time, at the option of the stockholder, into one share of common
stock, subject to certain anti-dilution adjustments. The number of
resulting shares of common stock is determined by dividing the original
issuance price of the preferred stock, $1.00, $5.53 and $9.21 for
Series A, Series B and Series C preferred stock, respectively, by the
conversion price of each share of preferred stock in effect at the time
of conversion. At December 31, 1999, the conversion price of Series A,
Series B and Series C preferred stock was $1.00, $5.53 and $9.21,
respectively. The Series A, Series B and Series C preferred stock is
automatically converted into common stock upon the closing of an
initial public offering with net proceeds of at least $25 million and
with a price per common share of at least $23.03 or in the event that
the holders of two-thirds of the total number of each class of
preferred shares elects to convert.
REDEMPTION
At any time on or after January 24, 2004, upon the written request
of any holder of Series A, Series B or Series C preferred stock,
each holder of outstanding shares of Series A, Series B or Series C
preferred stock shall have the right to cause the Company to redeem
the then outstanding shares over a three-year period at the
respective original per share purchase price plus any declared but
unpaid dividends in increments as follows:
<TABLE>
<CAPTION>
DATE PERCENTAGE AMOUNT
<S> <C> <C>
January 24, 2004 33% $ 5,320,869
January 24, 2005 50% 2,668,423
January 24, 2006 100% 7,989,293
-----------------
$15,978,585
=================
</TABLE>
7. COMMON STOCK
Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. Common
stockholders are entitled to receive dividends, if any, as may be
declared by the Board of Directors, subject to the preferential
dividend rights of the Series A, Series B and Series C preferred
stockholders.
At December 31, 1999, the Company had 3,495,648 shares of its common
stock reserved for issuance upon conversion of the Series A, Series B
and Series C preferred stock and the exercise of stock options.
RESTRICTED STOCK AGREEMENTS
The Company has entered into stock restriction agreements with certain
common stockholders. The agreements provide that, in the event these
individuals are no longer employed by the Company, the Company has the
right to repurchase any or all unvested shares. Shares subject to
restriction vest over a three or four year period. At
F-12
<PAGE>
December 31, 1999, 16,800 shares of common stock were subject to
repurchase by the Company, at a price of $0.01 per share. The Company
repurchased 30,750 and 13,250 shares of common stock from shareholders
during the years ended December 31, 1998 and 1999, respectively, at a
total purchase price of $1,208 and $132, respectively.
At December 31, 1999, the Company's outstanding common stock is subject
to certain restrictions as to sale or transfer. The Company and its
stockholders are entitled to a right of first refusal on shares offered
for sale at the then-current fair market value.
8. STOCK OPTION PLAN
In 1997, the Company adopted the NextPoint Networks, Inc. 1997 Stock
Incentive Plan (the "1997 Plan") which provides for the grant of
incentive stock options and nonqualified stock options, stock awards
and stock purchase rights for the purchase of up to 700,000 shares of
the Company's common stock by officers, employees, consultants and
directors of the Company. The Board of Directors is responsible for
administration of the 1997 Plan. The Board determines the term of each
option, the option exercise price, the number of shares for which each
option is granted and the rate at which each option is exercisable.
Incentive stock options may be granted to any officer or employee at an
exercise price per share of not less than the fair value per common
share on the date of the grant (not less than 110% of fair value in the
case of holders of more than 10% of the Company's voting stock) and
with a term not to exceed ten years from the date of the grant (five
years for incentive stock options granted to holders of more than 10%
of the Company's voting stock). Nonqualified stock options may be
granted to any officer, employee, consultant or director at an exercise
price per share of not less than the book value per share.
Under the 1997 plan, all restricted stock and all other stock-based
awards, other than options and stock appreciation rights, become
immediately vested in full and free of all restrictions and conditions
upon (i) the merger or consolidation of the Company which results in
the voting securities of the Company outstanding immediately prior to
such event representing less than 60% of the combined voting power of
the voting securities of the surviving company or acquiring entity
after such event, (ii) any sale of all or substantially all of the
assets of the Company, (iii) the complete liquidation of the Company,
or (iv) the acquisition of 50% or more of the voting power of the
Company's then outstanding securities by another entity.
Under the 1997 plan, all options and stock appreciation rights become
immediately exercisable in full and free of all restrictions and
conditions, at the discretion of the Board of Directors, upon (i) the
merger or consolidation of the Company which results in the voting
securities of the Company outstanding immediately prior to such event
representing less than 60% of the combined voting power of the voting
securities of the surviving company or acquiring entity after such
event, (ii) any sale of all or substantially all of the assets of the
Company, or (iii) the complete liquidation of the Company. All options
and stock appreciation rights become immediately exercisable in full
and free of all restrictions and conditions upon the acquisition of 50%
or more of the voting power of the Company's then outstanding
securities by another entity.
During 1999, the Company granted stock options to purchase 358,000
shares of its common stock at various exercise prices. The Company
recorded compensation expense and deferred compensation relating to
these options totaling $127,899 and $1,053,433,
F-13
<PAGE>
respectively, representing the differences between the estimated fair
market value of the common stock on the date of grant and the exercise
price. Compensation relating to these options is recorded as a
component of stockholders' deficit and is being amortized over the
vesting periods of the related options.
In May 1999, the Company granted options to purchase 1,250 shares of
common stock to a consultant. The fair value ascribed to the shares was
$4,300 which was recorded as deferred compensation at the date of
grant, and fully amortized to expense during the year ended December
31, 1999.
In September 1999, the Company granted 87,650 stock options to purchase
common stock at $0.90 per share to certain employees. At the grant
date, the Company estimated the fair value of its common stock to be
$1.25 per share. In accordance with APB No. 25, the Company recorded
$30,678 of deferred compensation which will be charged to the Company's
operations over the vesting period of the options, generally four
years. For the year ended December 31, 1999, the Company recorded
$1,917 of compensation expense related to these options.
In December 1999, the Company granted 2,500 stock options to purchase
common stock to a consultant in exchange for services performed. The
fair value ascribed to the shares was $7,945 which was recorded as
deferred compensation at the date of grant, and fully amortized to
expense during the year ended December 31, 1999.
Activity under the Option Plan during 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------- ------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of year 53,300 $ 0.50 315,850 $ 0.75
Granted 286,000 0.77 358,000 0.97
Exercised - - (9,399) 0.61
Canceled (23,450) 0.50 (145,701) 0.75
-------------- ---------------
Outstanding at end of year 315,850 $ 0.75 518,750 $ 0.91
============== ===============
Options exercisable at end of year 7,713 $ 0.50 61,688 $ 0.76
============== ===============
Weighted-average fair value of
options granted during the year $ 0.17 $ 0.23
============== ===============
Options available for future grant 281,700 84,651
============== ===============
</TABLE>
The weighted-average remaining contractual life of stock options
outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
EXERCISE SHARES LIFE
PRICE OUTSTANDING (IN YEARS)
<S> <C> <C>
$ 0.50 38,000 8.00
$ 0.75 37,750 8.42
$ 0.90 375,500 9.16
$ 1.25 67,500 9.67
-------------
518,750 9.09
=============
</TABLE>
F-14
<PAGE>
Except as described above, no compensation costs has been recognized
for employee stock-based compensation to date. Had compensation cost
been determined based on the estimated fair value at the grant dates
consistent with the provisions of SFAS No. 123, the Company's net loss
for the years ended December 31, 1998 and 1999 would have been the pro
forma amounts indicated below. Because options vest over several years
and additional option grants are expected to be made in future years,
the above pro forma results are not representative of the pro forma
results for future years. For purposes of pro forma disclosure, the
fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions for grants in 1998 and 1999: no dividend yield; no
volatility; risk-free interest rates of 4.9% and 5.7%, respectively;
and expected lives of five years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
<S> <C> <C>
Net loss:
As reported $5,173,287 $8,151,705
Pro forma 5,179,996 8,160,991
</TABLE>
9. INCOME TAXES
No income tax provision or benefit has been recorded as the company has
incurred losses since inception.
The reconciliation of the provision for income taxes computed at the
U.S. federal statutory tax rate to the actual provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
<S> <C> <C>
Statutory federal rate of 34% $ (1,758,918) $ (2,771,580)
Research and development credit generated (107,993) (142,828)
State income taxes, net of federal benefit (376,435) (570,734)
Permanent differences 3,886 14,217
Change in valuation allowance 2,236,579 3,473,894
Other 2,881 (2,969)
---------------- ----------------
$ - $ -
================ ================
</TABLE>
F-15
<PAGE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
<S> <C> <C>
Net operating loss carryforward $2,740,146 $ 5,969,697
Research and development credit carryforwards 243,194 461,113
Other 16,231 42,655
------------ ------------
Net deferred tax assets 2,999,571 6,473,465
Deferred tax asset valuation allowance (2,999,571) (6,473,465)
------------ ------------
$ - $ -
============ ============
</TABLE>
Under generally accepted accounting principles, the benefit associated
with future deductible differences is recognized if it is more likely
than not that the benefit will be realized. Management believes that,
based on the Company's historical results of operations, it is more
likely than not that a substantial amount of the Company's deferred tax
assets will not be realized. Accordingly, the Company has recorded a
valuation allowance of $2,999,571 and $6,473,465 at December 31, 1998
and 1999, respectively. Management believes that the net deferred tax
asset represents management's best estimate, based upon the weight of
available evidence, of the deferred tax asset that will be realized. If
such evidence were to change, based upon near-term operating results
and longer-term projections, the amount of the valuation allowance
recorded against the gross deferred tax asset may be decreased or
increased.
At December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $14,692,200 and $14,649,261,
respectively, available to reduce future taxable income which expire at
various dates between 2001 and 2019. The Company also has federal and
state research and development tax credit carryforwards of
approximately $305,051 and $232,551, respectively, available to reduce
future tax liabilities which expire at various dates between 2001 and
2019.
Under the provisions of the U.S. Internal Revenue Code, certain
substantial changes in the Company's ownership may limit the amount of
federal net operating loss carryforwards and research and development
credit carryforwards which could be utilized annually to offset future
federal taxable income and taxes payable.
10. COMMITMENTS
The Company leases its facilities under noncancelable leases that
expire in May 2001. Rent expense for the year ended December 31, 1998
and 1999 was $302,753 and $192,687, respectively. Future minimum lease
commitments at December 31, 1999 are as follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
<S> <C>
2000 $ 302,753
Thereafter 142,228
----------------
Total minimum lease payments $ 444,981
================
</TABLE>
11. 401(K) SAVINGS PLAN
The Company has established a retirement savings plan under Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k)
Plan covers substantially all employees of the Company who meet minimum
age and service requirements, and allows participants to defer a
portion of their annual compensation on a pre-tax basis. Company
contributions to the 401(k) Plan may be made at the discretion of the
Board of Directors. The Company has not made any contributions to the
401(k) Plan through December 31, 1999.
12. SEGMENT AND GEOGRAPHIC INFORMATION
The Company organizes itself as one segment and conducts its operations
in the United States.
The Company sells its software licenses and services to domestic and
international customers. Revenues were generated from the following
geographic regions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
<S> <C> <C>
United States $ 385,600 $1,188,419
Other 24,200 402,800
---------------- ----------------
$ 409,800 $1,591,219
================ ================
</TABLE>
13. SUBSEQUENT EVENTS
On January 18, 2000, the Company entered into a loan modification
agreement with its bank, which, among other things, increased the
amount available under its revolving line of credit to $1,500,000,
extended the terms of its revolving line of credit and equipment credit
line to January 18, 2001 and June 1, 2003, respectively, and
established a committed bridge loan (the "bridge loan"). The bridge
loan provided advances to the Company of up to $2,000,000, $1,000,000
of which was available to the Company through January 31, 2000, and an
additional $1,000,000 of which was available to the Company contingent
upon its ability to obtain a commitment to raise $2,000,000 in
additional subordinated debt from a third party and the Company's
receipt of a commitment to purchase certain capital stock in the
Company. The bridge loan matured on April 18, 2000, and was
subsequently extended to June 30, 2000 by a second loan modification
agreement, dated June 9, 2000. Pursuant to the second loan modification
agreement, the revolving line of credit and certain unused portions of
the equipment credit line were terminated. In exchange for such
extension, the Company granted warrants to purchase 15,648 shares of
the Company's Series C preferred stock at an exercise price of $5.53
per share. The warrants are exercisable immediately and expire
F-17
<PAGE>
on June 9, 2005. Additional warrants are to be granted under the
agreement upon the maturity of the bridge loan, and as of each 30th
day thereafter, so long as the bridge loan borrowings are
outstanding. The number of Series C preferred shares to be issued
under each subsequent warrant is determined by multiplying the then
outstanding principal amount under the bridge loan and the equipment
loan by a factor of 0.025, and dividing by $9.21 per share.
Borrowings under the modified equipment credit line and bridge loan
accrued interest at the prime rate plus 0.75% and the prime rate
plus 2.00%, respectively. The agreement for this facility requires
that the Company maintain certain financial ratios and the initial
loan modification agreement waives the bank's right to accelerate
payments on borrowings outstanding as of December 31, 1999, due to
certain violations of covenants in effect at that date. On January
27, 2000, the Company borrowed $1,000,000 under the bridge loan
facility. This facility is secured by a lien against substantially
all of the Company's assets, and is guaranteed by a subsidiary of
the Company.
In conjunction with this facility, the Company issued a warrant to
purchase 17,589 shares of the Company's Series C preferred stock at an
exercise price of $9.21 per share. The exercise price for such shares
was reduced to $5.53 per share by the second loan modification
agreement. This warrant was exercisable immediately and expires on
January 18, 2005.
On January 21, 2000, the Company entered into a demand convertible loan
and security agreement with certain investors in the Company. The
agreement establishes a $2,000,000 revolving credit loan, payable on
the earlier of demand or one hundred eighty days after the initial draw
under the bank bridge loan. Interest on borrowings under the revolving
credit loan accrues at 10.00% per year, until notice of demand or
maturity, after which, interest accrues at 15.00% per year until such
borrowings are paid in full. Borrowings under this revolving credit
loan were subject to the Company borrowing $1,000,000 under its bridge
loan with its bank and is secured by a junior lien against
substantially all the assets of the Company. Upon a qualified financing
transaction, defined as a sale of the Company's common or preferred
stock for at least an aggregate of $10,000,000, the outstanding
principal amounts under the revolving credit loan are convertible, at
the holder's option, into shares of such financing at that financing's
per share price. In the event of a merger or sale of the Company,
outstanding principal amounts are convertible, at the holder's option,
into shares of Series C preferred stock at a per share price of the
lesser of (i) $9.21 per share, (ii) 75% of the preferred stock per
share price as established by the terms of the merger, or (iii) $5.53
per share if borrowings under the loan have not been repaid 60 days
following its maturity date. The agreement for this facility requires
that the Company maintain certain financial ratios.
On March 13, 2000, the Company borrowed $1,000,000 under this facility
and issued to the investors initial warrants to purchase an aggregate
of 10,857 shares of the Company's Series C preferred stock at an
exercise price of $9.21 per share. This warrant was exercisable
immediately and expires on March 13, 2005. Additional warrants to
purchase an aggregate of 21,715 shares of the Company's Series C
preferred stock was issued on May 12, 2000, and further warrants are to
be granted under the agreement as of each 30th day thereafter, so long
as the borrowings are outstanding. The number of Series C preferred
shares to be issued under each subsequent warrant is determined by
multiplying the then outstanding principal amount under the revolving
credit loan by a factor of 0.10, and dividing by the exercise price of
the warrants. The exercise price of the warrants is the lesser of (i)
$9.21 per share, or (ii) $5.53 per share if borrowings under the loan
have not been repaid 60 days following its maturity date. The term of
these additional warrants will be five years from the date of issuance.
Total warrants to be issued under these terms cannot exceed an
aggregate exercise price of $800,000.
F-18
<PAGE>
On February 9, 2000, a reseller filed suit against the Company in the
Superior Court of California, seeking specific performance for certain
alleged obligations of the Company or an award of actual consequential
and punitive damages and recovery of all legal costs. The suit alleges,
among other things, that the Company materially breached obligations
under certain contractual agreements and committed acts of fraud
against the plaintiff. Subsequent motions were filed and granted,
moving the venue of the case to the federal courts. Motions to move the
case to the Massachusetts state courts were filed on March 17, 2000. On
April 10, 2000, the Company filed a motion to dismiss all claims, and
on May 19,2000, the court dismissed the resellers claims for improper
venue. Discovery on these claims has not yet begun, and, therefore, the
Company cannot predict the outcome or range of possible loss, if any.
The Company intends to vigorously defend against these claims.
On February 10, 2000, the Board of Directors approved the NextPoint
Networks, Inc. 2000 Stock Incentive Plan, with an authorization to
grant awards of up to 750,000 shares of common stock.
On July 7, 2000, the Company was acquired by NetScout Systems, Inc.
F-19
<PAGE>
NEXTPOINT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 950,173 $ 244,688
Accounts receivable, net of allowance for doubtful accounts of $80,000
and $102,799 at December 31, 1999 and June 30, 2000 (unaudited), respectively 730,296 1,144,422
Prepaid expenses and other current assets 107,254 97,427
-------------- ---------------
Total current assets 1,787,723 1,486,537
-------------- ---------------
Note receivable from stockholder 35,000 35,000
Fixed assets, net 784,208 852,332
Other assets 29,442 30,597
-------------- ---------------
Total assets $ 2,636,373 $ 2,404,466
============== ===============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of note payable to bank $ 85,040 $ 89,350
Current portion of note payable - other 19,270 3,519,239
Accounts payable 536,060 516,440
Accrued expenses 350,686 776,072
Deferred revenue 453,083 785,240
-------------- ---------------
Total current liabilities 1,444,139 5,686,341
-------------- ---------------
Long-term portion of note payable to bank 218,673 141,472
Long-term portion of note payable - other 51,580 42,686
-------------- ---------------
Total liabilities 1,714,392 5,870,499
-------------- ---------------
Series A redeemable convertible preferred stock, $0.01 par value; 1,100,000
shares authorized, issued and outstanding at December 31, 1999 and
June 30, 2000 (unaudited) (liquidation preference of $1,100,000) 1,100,000 1,100,000
-------------- ---------------
Series B redeemable convertible preferred stock, $0.01 par value; 542,495 shares
authorized, issued and outstanding at December 31, 1999 and
June 30, 2000 (unaudited) (liquidation preference of $2,999,997) 2,999,997 2,999,997
-------------- ---------------
Series C redeemable convertible preferred stock, $0.01 par value; 1,295,177
shares authorized, 1,289,749 shares issued and outstanding at December 31,
1999 and June 30, 2000 (unaudited) (liquidation preference
of $11,878,588) 11,878,588 11,878,588
-------------- ---------------
Stockholders' deficit:
Common stock, $0.0001 par value; 7,000,000 shares authorized, 2,437,599 and
2,438,999 shares issued and outstanding at December 31, 1999 and
and June 30, 2000 (unaudited), respectively 244 245
Additional paid-in capital 1,106,493 4,049,122
Treasury stock, at cost, 44,000 and 54,250 shares at December 31, 1999
and June 30, 2000 (unaudited), respectively (1,340) (2,163)
Deferred compensation (954,295) (1,794,922)
Accumulated deficit (15,207,706) (21,696,900)
-------------- ---------------
Total stockholders' deficit (15,056,604) (19,444,618)
-------------- ---------------
Total liabilities, redeemable convertible preferred stock and
stockholders' deficit $ 2,636,373 $ 2,404,466
============== ===============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
F-20
<PAGE>
NEXTPOINT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 2000
(UNAUDITED)
<S> <C> <C>
Revenues:
Licenses $ 695,164 $ 1,993,652
Services 3,998 82,471
---------------- ----------------
699,162 2,076,123
---------------- ----------------
Cost of revenues:
Licenses 10,427 29,905
Services 60,482 56,739
---------------- ----------------
70,909 86,644
---------------- ----------------
Gross profit 628,253 1,989,479
---------------- ----------------
Operating expenses:
Research and development 1,357,212 1,495,249
Sales and marketing 2,324,013 3,390,576
General and administrative 624,686 1,440,058
Stock-based compensation 77,803 231,021
---------------- ----------------
Total operating expenses 4,383,714 6,556,904
---------------- ----------------
Loss from operations (3,755,461) (4,567,425)
Interest income 150,397 20,782
Interest expense (18,247) (1,942,551)
---------------- ----------------
Net loss $ (3,623,311) $ (6,489,194)
================ ================
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
F-21
<PAGE>
NEXTPOINT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 2000
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,623,311) $ (6,489,194)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation 103,363 187,718
Compensation expense for stock options granted 77,803 231,021
Interest expense related to beneficial conversion
feature and warrants - 1,862,682
Changes in assets and liabilities:
Accounts receivable (526,670) (414,126)
Prepaid expenses and other current assets 10,651 9,827
Accounts payable and accrued expenses (246,294) 405,767
Deferred revenue 222,688 332,157
---------------- ----------------
Net cash used in operating activities (3,981,770) (3,874,148)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (64,350) (255,842)
Increase in other assets (13,076) (1,155)
---------------- ----------------
Net cash used in investing activities (77,426) (256,997)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable - 3,500,000
Repayments of notes payable (38,807) (81,816)
Proceeds from stock option exercises 2,455 8,299
Purchase of treasury stock, at cost (67) (823)
---------------- ----------------
Net cash (used in)/provided by financing activities (36,419) 3,425,660
---------------- ----------------
Net decrease in cash and cash equivalents (4,095,615) (705,485)
Cash and cash equivalents, beginning of period 9,404,330 950,173
---------------- ----------------
Cash and cash equivalents, end of period $ 5,308,715 $ 244,688
================ ================
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
F-22
<PAGE>
NEXTPOINT NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
Nextpoint Networks, Inc. (the "Company") at June 30, 2000 and for the
six months ended June 30, 2000 and 1999 are unaudited and have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of the Company's management, the June 30, 2000 and 1999 unaudited
interim consolidated financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for
that period. The results of operations for the six-month period ended
June 30, 2000 are not necessarily indicative of the results of
operations that may be expected for any future period.
The balance sheet as of December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
2. INTEREST EXPENSE
Interest expense for the six-month period ended June 30, 2000 includes
a $1,328,990 charge for debt discount representing the fair value of a
beneficial conversion feature embedded in a $2,000,000 demand
convertible loan facility entered into on January 21, 2000. Also
included in interest expense for the six-month period ended June 30,
2000 is a $533,692 charge related to the amortization of debt discount
resulting from detachable warrants to purchase 87,524 shares of Series
C redeemable convertible preferred stock issued with various loan
facilities entered into during the period.
3. SEGMENT AND GEOGRAPHIC INFORMATION
The Company organizes itself as one segment and conducts its operations
in the United States.
The Company sells its software licenses and services to domestic and
international customers. Revenues were generated from the following
geographic regions:
SIX MONTHS ENDED
JUNE 30,
1999 2000
United States $ 504,859 $2,065,561
Other 194,303 10,562
--------------- ---------------
$ 699,162 $2,076,123
=============== ===============
4. ACQUISITION
On July 7, 2000, the Company was acquired by NetScout Systems, Inc.
F-23
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives effect
to the acquisition by NetScout Systems, Inc. ("NetScout") of NextPoint
Networks, Inc. ("NextPoint") on July 7, 2000 in a transaction to be accounted
for using the purchase method. The unaudited pro forma combined balance sheet
is based on the individual balance sheets of NetScout and NextPoint and has
been prepared as if the acquisition by NetScout of NextPoint occurred on June
30, 2000. The unaudited pro forma combined statements of operations are based
on the individual statements of operations of NetScout and NextPoint, and
combines the results of operations of NetScout for the year ended March 31,
2000 and NextPoint for the year ended December 31, 1999 as if the acquisition
occurred on April 1, 1999 and the results of operations of NetScout for the
three months ended June 30, 2000 and NextPoint for the three months ended
March 31, 2000 as if the acquisition occurred on April 1, 2000. The
allocation of the purchase price to tangible and intangible assets, including
deferred income taxes, as well as the related amortization expense, is
preliminary and based on estimates only and may change materially as a result
of the completion of NetScout's evaluation of the fair value of the net
assets acquired.
The unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or operating results that would have been achieved if the acquisition
had been consummated as of the beginning of the period presented, nor are they
necessarily indicative of the future financial position or operating results of
NetScout. The unaudited pro forma combined financial information does not give
effect to any cost savings or restructuring and integration costs which may
result from the integration of NetScout and NextPoint's operations. Such costs
related to restructuring and integration have not yet been determined and
NetScout expects to charge such costs to operations during the quarter incurred.
The unaudited pro forma combined financial information should be read in
conjunction with NetScout's audited consolidated financial statements and notes
thereto included in its Annual Report on Form 10-K for the year ended March 31,
2000 and its quarterly report on Form 10-Q for the three months ended June 30,
2000 and NextPoint's financial statements included elsewhere in this Form 8-K/A.
F-24
<PAGE>
NETSCOUT SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NETSCOUT NEXTPOINT ADJUSTMENTS COMBINED
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 56,722 $ 245 $ (19,533) A
(3,293) F $ 34,141
Marketable securities 17,611 - - 17,611
Accounts receivable, net 12,604 1,145 - 13,749
Inventories 4,362 - - 4,362
Deferred income taxes 1,022 - - 1,022
Prepaids and other current assets 4,306 97 (500) D 3,903
--------- --------- ----------- ----------
Total current assets 96,627 1,487 (23,326) 74,788
Fixed assets, net 6,051 852 - 6,903
Deferred income taxes 599 - 1,000 H 1,599
Note receivable from stockholder - 35 (35) A -
Other assets - 31 - 31
Intangible assets - - 51,153 A 51,153
--------- --------- ----------- ----------
Total assets $ 103,277 $ 2,405 $ 28,792 $ 134,474
========= ========= =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,084 $ 1,293 $ 1,425 C $ 12,802
Deferred revenue 7,357 785 (492) A 7,650
Current portion of notes payable - 3,609 (500) D
(3,109) F -
--------- --------- ----------- ----------
Total current liabilities 17,441 5,687 (2,676) 20,452
Notes payable, net of current portion - 184 (184) F -
--------- --------- ----------- ----------
Total liabilities 17,441 5,871 (2,860) 20,452
--------- --------- ----------- ----------
Redeemable convertible preferred stock - 15,979 (15,979) B -
--------- --------- ----------- ----------
Stockholders' equity:
Common stock 31 -- 2 A 33
Addition paid-in capital 67,658 4,049 (4,049) B
29,164 A
3,981 I 100,803
Deferred compensation (518) (1,795) 1,795 B
(980) A
(3,981) I (5,479)
Treasury stock (25,306) (2) 2 B (25,306)
Retained earnings 43,971 (21,697) 21,697 B 43,971
--------- --------- ----------- ----------
Total stockholders' equity 85,836 (19,445) 47,631 114,022
--------- --------- ----------- ----------
Total liabilities and stockholders' equity $ 103,277 $ 2,405 $ 28,792 $ 134,474
========= ========= =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma combined financial
information
F-25
<PAGE>
NETSCOUT SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NETSCOUT NEXTPOINT PRO FORMA PRO FORMA
MARCH 31, 2000 DECEMBER 31, 1999 ADJUSTMENTS COMBINED
------------------- ------------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue:
Product $ 57,206 $ - $ - $ 57,206
Service 12,804 56 - 12,860
License and royalty 16,149 1,535 - 17,684
------------------- ------------------------ ----------------- -----------------
Total revenue 86,159 1,591 - 87,750
------------------- ------------------------ ----------------- -----------------
Cost of revenue
Product 21,139 - - 21,139
Service 1,718 162 - 1,880
License - 24 - 24
------------------- ------------------------ ----------------- -----------------
Total cost of revenue 22,857 186 - 23,043
------------------- ------------------------ ----------------- -----------------
Gross margin 63,302 1,405 - 64,707
------------------- ------------------------ ----------------- -----------------
Operating expenses:
Research and development 9,526 2,631 122 K 12,279
Sales and marketing 27,945 5,371 131 K 33,447
General and administrative 4,631 1,563 1,915 K 8,109
Stock-based compensation - 142 (142) J -
Amortization of intangibles - - 12,230 A 12,230
------------------- ------------------------ ----------------- -----------------
Total operating expenses 42,102 9,707 14,256 66,065
------------------- ------------------------ ----------------- -----------------
Income (loss) from operations 21,200 (8,302) (14,256) (1,358)
Interest income, net 2,551 151 (1,027) E 1,675
------------------- ------------------------ ----------------- -----------------
Income (loss) before provision for
income taxes 23,751 (8,151) (15,283) 317
Provision for income taxes 8,539 - (5,138) G 3,401
------------------- ------------------------ ----------------- -----------------
Net income (loss) $ 15,212 $ (8,151) $ (10,145) $ (3,084)
=================== ======================== ================= =================
Basic net income (loss) per share $ 0.70 $ (0.13)
Diluted net income (loss) per share $ 0.56 $ (0.13)
Shares used in computing:
Basic net income (loss) per share 21,750 1,878 L 23,628
Diluted net income (loss) per share 26,496 23,628
</TABLE>
See accompanying notes to the unaudited pro forma combined financial
information.
F-26
<PAGE>
NETSCOUT SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NETSCOUT NEXTPOINT PRO FORMA PRO FORMA
JUNE 30, 2000 MARCH 31, 2000 ADJUSTMENTS COMBINED
------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue:
Product $ 17,761 $ - $ - $ 17,761
Service 3,976 21 - 3,997
License and royalty 3,432 1,031 - 4,463
------------------- -------------------- ----------------- -----------------
Total revenue 25,169 1,052 - 26,221
------------------- -------------------- ----------------- -----------------
Cost of revenue
Product 6,094 - - 6,094
Service 595 27 - 622
License - 15 - 15
------------------- -------------------- ----------------- -----------------
Total cost of revenue 6,689 42 - 6,731
------------------- -------------------- ----------------- -----------------
Gross margin 18,480 1,010 - 19,490
------------------- -------------------- ----------------- -----------------
Operating expenses:
Research and development 2,572 667 30 K 3,269
Sales and marketing 8,727 1,492 33 K 10,252
General and administrative 1,594 505 449 K 2,548
Stock-based compensation - 110 (110) J -
Amortization of intangibles - - 3,058 A 3,058
------------------- -------------------- ----------------- -----------------
Total operating expenses 12,893 2,774 3,460 19,127
------------------- -------------------- ----------------- -----------------
Income (loss) from operations 5,587 (1,764) (3,460) 363
Interest income (expense), net 1,034 (22) (257) E 755
------------------- -------------------- ----------------- -----------------
Income (loss) before provision
for income taxes 6,621 (1,786) (3,717) 1,118
Provision for income taxes 2,317 - (1,114) G 1,203
------------------- -------------------- ----------------- -----------------
Net income (loss) $ 4,304 $ (1,786) $ (2,603) $ (85)
=================== ==================== ================= =================
Basic net income (loss) per share $ 0.16 $ (0.00)
Diluted net income (loss) per share $ 0.15 $ (0.00)
Shares used in computing:
Basic net income (loss) per share 26,762 1,832 L 28,594
Diluted net income (loss) per share 27,954 28,594
</TABLE>
See accompanying notes to the unaudited pro forma combined financial
information.
F-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
The foregoing unaudited pro forma combined financial information gives effect
to the acquisition by NetScout of NextPoint in a transaction accounted for
using the purchase method. The unaudited pro forma combined balance sheet is
based on the individual balance sheets of NetScout and NextPoint and has been
prepared as if the acquisition by NetScout of NextPoint occurred on June 30,
2000. The unaudited pro forma combined statements of operations are based on
the individual statements of operations of NetScout and NextPoint, and
combines the results of operations of NetScout for the year ended March 31,
2000 and NextPoint for the year ended December 31, 1999 as if the acquisition
occurred on April 1, 1999 and the results of operations of NetScout for the
three months ended June 30, 2000 and NextPoint for the three months ended
March 31, 2000 as if the acquisition occurred on April 1, 2000.
On July 7, 2000, NetScout acquired all of the outstanding common and preferred
stock of NextPoint in exchange for 1,831,518 shares of NetScout common stock and
$19.5 million in cash. NetScout also issued options and warrants exercisable for
298,647 shares of NetScout common stock in exchange for all outstanding options
and warrants for NextPoint common stock. In addition, 267,602 shares of NetScout
common stock have been reserved and will be issued to two founding shareholders
and employees of NextPoint in accordance with the terms of the acquisition. The
initial value of the
F-28
<PAGE>
acquisition was $52.9 million based on the fair value of the consideration
paid plus direct acquisition costs.
The allocation of the purchase price is preliminary and based on estimates
only. A final allocation of the purchase price will be determined in
NetScout's second quarter and changes will result in a change to the amounts
allocated to tangible and intangible assets, including deferred income taxes,
recorded in connection with the acquisition.
2. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONSOLIDATED
FINANCIAL INFORMATION
A. The initial purchase price of $52.9 million is based on the
consideration paid to NextPoint stockholders including common stock,
options, warrants and cash, plus acquisition related expenses. For the
purposes of the presentation of the unaudited pro forma combined
financial information, NetScout has allocated $1.8 million of the
purchase price to net liabilities assumed of $0.2 million based on
the book values as of June 30, 2000, deferred income taxes of
$1.0 million and deferred compensation of $1.0 million. The
remainder of $51.1 million has been allocated to intangible assets
which are expected to include: completed technology, workforce,
trademarks, noncompetition agreements and goodwill. Based on an
estimated useful life of three to five years for such intangible
assets, the unaudited pro forma combined financial information
includes an adjustment of $12.2 million for the year ended March 31,
2000 and $3.1 million for the three months ended June 30, 2000 for
amortization expense. The allocation of the purchase price to tangible
and intangible asset, as well as the related amortization expense, may
change materially as a result of the completion of NetScout's
evaluation of the fair value of the net assets acquired.
B. Elimination of NextPoint equity accounts.
C. Increase in accrued expenses for estimated acquisition related expenses
of $1.4 million.
D. Elimination of intercompany balances between NetScout and NextPoint.
E. Decrease in interest income resulting from cash payment of $19.5
million and the repayment of notes payable of $3.3 million.
F. Decrease in notes payable to reflect NetScout repayment subsequent to
the acquisition.
G. Decrease in provision for income taxes as a result of the various pro
forma adjustments.
H. The net effect of an increase in deferred income tax assets for
applicable net operating losses acquired from NextPoint and an
increase in deferred income tax liabilities related to intangible
assets, other than goodwill.
F-29
<PAGE>
I. Increase in deferred compensation and additional paid-in capital for
the fair value of common stock to be issued to two founding
shareholders and employees of NextPoint as they remain continuously
employed by NetScout through June 30, 2002.
J. Elimination of stock-based compensation expense related to options
issued by NextPoint prior to the acquisition.
K. Increase in research and development, sales and marketing, and general
and administrative expense for the amortization of deferred
compensation on unvested options issued by NetScout in exchange for
unvested NextPoint options and for the amortization of deferred
compensation on common stock issued to two founding shareholders and
employees of NextPoint during the unaudited pro forma period presented.
L. Basic and diluted net loss per share assumes that the 1,831,518 shares
of NetScout's common stock issued in the acquisition were outstanding
for the entire period and assumes that 46,138 and 22,097 shares of
NetScout's common stock were issued to two founding shareholders and
employees of NextPoint as they remained continuously employed by
NetScout during the unaudited pro forma combined statements of
operations for the year ended March 31, 2000 and for the three months
ended June 30, 2000, respectively. All potential common stock have
been excluded from the calculation of pro forma net loss per share
as their inclusion would be anti-dilutive.
F-30
<PAGE>
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
*2.1 Agreement and Plan of Reorganization dated as of
June 13, 2000 by and among NetScout Systems, Inc.,
NetScout Service Level Corporation, NextPoint
Networks, Inc. and certain stockholders of NextPoint
Networks, Inc.
*10.1 Registration Rights Agreement dated as of July 7,
2000, by and among NetScout Systems, Inc., certain
NextPoint stockholders, certain NextPoint Warrant
Holders and Silicon Valley Bank.
23.1 Consent of PricewaterhouseCoopers LLP.
*99.1 Press Release dated as of June 14, 2000.
*99.2 Press Release dated as of July 7, 2000.
------------------
*Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned officer.
NETSCOUT SYSTEMS, INC.
September 20, 2000 By: /s/ Anil K. Singhal
----------------------------------------
Anil K. Singhal
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
*2.1 Agreement and Plan of Reorganization dated as of
June 13, 2000 by and among NetScout Systems, Inc.,
NetScout Service Level Corporation, NextPoint
Networks, Inc. and certain stockholders of NextPoint
Networks, Inc.
*10.1 Registration Rights Agreement dated as of July 7, 2000,
by and among NetScout Systems, Inc., certain NextPoint
stockholders, certain NextPoint Warrant Holders and
Silicon Valley Bank.
23.1 Consent of PricewaterhouseCoopers LLP
*99.1 Press Release dated as of June 14, 2000.
*99.2 Press Release dated as of July 7, 2000.
------------------
*Previously filed.
