<PAGE>
As filed with the Securities and Exchange Commission on May 3, 1999
Registration No. 333-72935
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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LATITUDE COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
----------------
Delaware 5045 94-3177392
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
2121 Tasman Drive
Santa Clara, CA 95054
(408) 988-7200
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
----------------
Emil C.W. Wang
President and Chief Executive Officer
Latitude Communications, Inc.
2121 Tasman Drive
Santa Clara, CA 95054
(408) 988-7200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Mark A. Medearis Jeffrey D. Saper
Edward Y. Kim Selim Day
Anita Vasudevan Ava M. Hahn
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A Professional Corporation Professional Corporation
2800 Sand Hill Road 650 Page Mill Road
Menlo Park, CA 94025 Palo Alto, CA 94304
----------------
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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 3, 1999
3,000,000 Shares
[LOGO]
Latitude Communications, Inc.
Common Stock
--------
Before this offering, there has been no public market for the common stock.
The initial public offering price of the common stock is expected to be between
$10.00 and $12.00 per share. Our common stock has been approved for listing on
The Nasdaq Stock Market's National Market under the symbol "LATD."
We have granted the underwriters an option to purchase a maximum of 450,000
additional shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" starting on
page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Latitude
------------ ------------- ------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Hambrecht & Quist
Dain Rauscher Wessels
a division of
Dain Rauscher
Incorporated
The date of this prospectus is , 1999.
<PAGE>
Description of Graphics for Inside Front Cover Pages of Prospectus
[PHOTO DESCRIPTION: Three people
standing, with their shadows forming
puzzle pieces being placed
together.]
Latitude --
extending
the workplace
<PAGE>
[PHOTO DESCRIPTION: Man with
child in baseball uniform,
with shadows on the wall of
people at a conference
table.]
"Got paged about a production
problem. Used MeetingPlace to
resolve it with suppliers, and
only missed one inning."
THE VIRTUAL MEETING
From voicemail, fax machines and
cellular phones to e-mail,
laptop computers and handheld
devices, business have adopted
communications technologies to
extend the workplace beyond the
physical office. No single,
widely deployable technology,
however, has successfully
emulated the voice and data
collaboration that occurs in a
face-to-face meeting. We believe
that enterprises today need a
cost-effective and easy-to-use
solution that enables
simultaneous real-time voice
communication and secure
document collaboration.
[PHOTO DESCRIPTION:
Photo of a clock.]
[PHOTO DESCRIPTION:
Photo of people walking to
work.]
[PHOTO DESCRIPTION:
A woman working on a laptop
computer at a table, with a
shadow on the wall of the
person working at a personal
computer along with others.]
<PAGE>
<TABLE>
<S> <C>
"I'll listen to the competitive [PHOTO DESCRIPTION: A man standing
analysis presentation later on looking at his watch holding a
MeetingPlace. Can't be late for my briefcase, with a shadow on the wall
anniversary dinner." of the person listening to a
presentation.]
WELCOME TO MEETINGPLACE MeetingPlace AN ENTERPRISE SOLUTION Our objective
is an integrated voice and data is to make MeetingPlace a standard
conferencing solution that enables communications tool within an
voice and data conferences which enterprise. MeetingPlace is a
emulate face-to face meetings, or scalable solution that integrates
what we call virtual meetings, among with an enterprise's existing
an organization's employees, vendors telephone and data networks. In
and customers, irrespective of their addition, MeetingPlace is designed
geographic locations. With to integrate seamlessly into widely
MeetingPlace, participants can deployed enterprise software
schedule and attend a meeting, share applications, such as web browsers
and edit documents, and record and and certain collaborative software
access meeting content. MeetingPlace environments such as Microsoft
extends the capabilities of the Outlook. As a result, an enterprise
basic voice conference call through can provide employees with a
a broad feature set designed to powerful productivity tool while
enhance general conferencing lowering its overall cost of
capabilities as well as to satisfy conferencing.
specific business applications.
Moreover, MeetingPlace offers users
easy access to data conferencing,
which we believe will become an
important business application of
the Internet.
"Just used MeetingPlace to finalize
the customer presentation with my
field sales team. Wonder if this
hotel has an exercise room."
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Additional Information
About Latitude.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated
Financial Data.......................................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 31
Management................................................................. 44
Related Party Transactions................................................. 57
Principal Stockholders..................................................... 58
Description of Capital Stock............................................... 60
Shares Eligible for Future Sale............................................ 63
Where You Can Find
More Information.......................................................... 64
Underwriting............................................................... 65
Notice to Canadian Residents............................................... 67
Legal Matters.............................................................. 68
Experts.................................................................... 68
Index to Financial Statements.............................................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
Latitude Communications, Inc.
---------------
We are a leading provider of integrated voice and data conferencing
solutions for geographically dispersed organizations. We develop, market and
support our MeetingPlace system, which allows companies to conduct voice and
data conferences which emulate face-to-face meetings, or what we call virtual
meetings, and extend real-time decision making processes irrespective of the
geographic location of participants. With MeetingPlace, participants can
schedule and attend a meeting, share and edit documents, and capture and
retrieve meeting content. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies such as telephones, cellular
phones and personal computers. Moreover, we expect that the dramatic growth in
web browsers and collaborative software applications will drive data
conferencing as an important business application of the Internet.
MeetingPlace consists of three components: (a) the MeetingPlace conference
server; (b) MeetingPlace software; and (c) system integration options.
MeetingPlace incorporates many easy-to-use features that allow participants to
emulate the voice and data collaboration that occurs in a face-to-face meeting,
such as breakout sessions, roll calls and meeting handouts. MeetingPlace
provides simultaneous voice and data conferencing and the ability to record and
access meeting content while lowering the enterprise's overall conferencing
costs.
Our objective is to make MeetingPlace a standard communications tool within
an enterprise. To achieve this objective, we intend to establish MeetingPlace
as a ubiquitous desktop application by continuing to integrate it seamlessly
with a wide array of enterprise software, including browsers and collaborative
software applications. Furthermore, we expect to continue to provide our
customers with a range of consulting services to promote broad deployment
within their organizations.
We began commercial shipment of MeetingPlace in December 1994 and, as of
March 31, 1999, had over 200 customers. In addition to enterprise-wide general
deployment, customers have purchased and used MeetingPlace for a variety of
specific business applications, including morning brokerage calls, crisis
management, training and education, customer and client services, supply chain
management and merger integration. MeetingPlace has been installed in some of
the world's leading enterprises, including 3Com, Aetna, Cisco, Credit Suisse
First Boston, Hewlett-Packard, Honeywell, Microsoft, Oracle, State Farm
Insurance, Union Pacific Railroad and the U.S. Federal Reserve Bank.
Our address is 2121 Tasman Drive, Santa Clara, California 95054, and our
telephone number is (408) 988-7200. "MeetingPlace" is a registered trademark of
Latitude, and "Latitude," "Latitude Communications," the Latitude logo,
"MeetingNotes" and "MeetingTime" are trademarks of Latitude. This prospectus
also includes trademarks and service marks owned by other companies.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered........................ 3,000,000 shares
Common stock to be outstanding after this
offering................................... 18,581,657 shares
Use of proceeds............................. For general corporate purposes,
including working capital,
capital expenditures, geographic
expansion and additional sales
and marketing efforts.
Nasdaq National Market symbol............... LATD
</TABLE>
This table is based on shares outstanding as of March 31, 1999 and excludes
shares that may be issued upon exercise of options or warrants.
Except as otherwise indicated, all information in this prospectus is based
on the following assumptions: (a) a three-for-two split of the common stock
before the effectiveness of this offering; (b) the conversion of each
outstanding share of convertible preferred stock into one share of common stock
immediately before the completion of this offering; (c) no exercise of the
underwriters' over-allotment option; (d) our reincorporation in Delaware which
was completed in April 1999; and (e) the filing of our amended and restated
certificate of incorporation upon completion of this offering.
Summary Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended Three Months
April 7, 1993 (date December 31, Ended March 31,
of inception) to ------------------------- -------------------
December 31, 1995 1996 1997 1998 1998 1999
------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product ............... $ 1,477 $ 5,103 $10,620 $16,506 $ 3,688 $ 4,627
Service................ 148 943 2,312 4,545 673 1,801
------- ------- ------- ------- ------- -------
Total revenue......... 1,625 6,046 12,932 21,051 4,361 6,428
Gross profit........... 683 3,877 8,969 15,094 3,116 4,708
Operating income
(loss)................ (8,822) (4,390) (2,206) 778 85 316
Net income (loss)...... (8,547) (4,252) (2,229) 703 70 288
Net income (loss) per
share--basic.......... $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
Shares used in per
share
calculation--basic.... 2,110 2,850 3,279 3,166 3,444
Net income (loss) per
share--diluted........ $ (2.02) $ (0.78) $ 0.04 $ 0.00 $ 0.02
Shares used in per
share
calculation--diluted.. 2,110 2,850 16,422 15,949 16,767
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................. $ 4,397 $34,087
Working capital............................................ 4,407 34,097
Total assets............................................... 12,379 42,069
Long-term obligations...................................... 695 695
Total stockholders' equity................................. 5,303 34,993
</TABLE>
- --------
The as adjusted numbers in the table above are adjusted to give effect to
receipt of the net proceeds from the sale of 3,000,000 shares of common stock
offered by us at an assumed offering price of $11.00 per share after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us.
5
<PAGE>
RISK FACTORS
You should carefully consider the following risks in addition to the
remainder of this prospectus before purchasing our common stock. The risks and
uncertainties described below are intended to highlight risks that are specific
to us and are not the only ones that we face. Additional risks and
uncertainties, such as those that generally apply to business enterprises in
our industry, also may impair our business operations.
Our future profitability is uncertain due to our limited operating history.
We have a limited operating history and cannot assure you that our revenue
will continue to grow or that we will maintain profitability in the future. Our
prospects must be considered in light of the risks and uncertainties
encountered by companies in the early stages of development. We rely
substantially on sales of our MeetingPlace products, which have limited market
acceptance.
In addition, we are unable to predict our future product development, sales
and marketing, and administrative expenses. To the extent that these expenses
increase, we will need to increase revenue to sustain profitability. Our
ability to increase revenue and sustain profitability also depends on the other
risk factors described in this section.
Our operating results may fluctuate significantly.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our common stock would
likely decline. The factors that may cause fluctuations of our operating
results include the following:
. changes in our mix of revenues generated from product sales and services;
. changes by existing customers in their levels of purchases of our
products and services;
. changes in our mix of sales channels through which our products and
services are sold; and
. changes in our mix of domestic and international sales.
Orders at the beginning of each quarter typically do not equal expected
revenue for that quarter. In addition, a significant portion of our orders are
received in the last month of each fiscal quarter. If we fail to ship products
by the end of a quarter in which the order is received, or if our prospective
customers delay their orders or delivery schedules until the following quarter,
we may fail to meet our revenue objectives.
6
<PAGE>
Our market is highly competitive.
Because of intense market competition, we may not be successful. Currently,
our principal competitors include:
. major telecommunications carriers that operate service bureaus for voice
conferencing, such as AT&T Corp., MCI Worldcom, Inc. and Sprint
Corporation;
. private branch exchange, or PBX, vendors that sell systems with voice
conferencing capabilities, such as Lucent Technologies Inc. and Nortel
Networks;
. providers of video conferencing systems such as PictureTel Corporation,
Pinnacle Systems, Inc. and 8x8, Inc.; and
. smaller start-up companies that offer web-based voice and data
conferencing products.
Many of these companies have longer operating histories, stronger brand
names and significantly greater financial, technical, marketing and other
resources than we do. These companies also may have existing relationships with
many of our prospective customers. In addition, these companies may be able to
respond more quickly than we can to new or emerging technologies and changes in
customer requirements.
In addition, we expect competition to persist and intensify in the future
which could adversely affect our ability to increase sales, penetrate new
markets and maintain average selling prices. In the future, we may experience
competition from potential competitors that include:
. networking companies, such as Cisco Systems, Inc., 3Com Corporation,
Lucent Technologies Inc. and Nortel Networks that are focusing on
enabling the transmission of voice over the Internet and that may offer
voice and data conferencing functionality; and
. collaborative software providers, such as Microsoft Corporation and Lotus
Development Corporation, that are focusing on data conferencing products
and that may in the future incorporate voice conferencing functionality
into their products.
Our market is in an early stage of development, and our products may not be
adopted.
If the market for our integrated voice and data conferencing products fails
to grow or grows more slowly than we anticipate, we may not be able to increase
revenues or remain profitable. The market for integrated real-time voice and
data conferencing is relatively new and rapidly evolving. Our ability to remain
profitable depends in large part on the widespread adoption by end users of
real-time voice and data conferencing.
We will have to devote substantial resources to educate prospective
customers about the uses and benefits of our products. In addition, businesses
that have invested substantial resources in other conferencing products may be
reluctant or slow to adopt our products, which might replace or compete with
their existing systems. Our efforts to educate potential customers may not
result in our products achieving market acceptance.
7
<PAGE>
Rapid technological changes could cause our products to become obsolete or
require us to redesign our products.
The market in which we compete is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements
and emerging industry standards. In particular, we expect that the growth of
the Internet and Internet-based telephony applications, as well as general
technology trends such as migrations to new operating systems, will require us
to adapt our product to remain competitive. This adaptation could be costly and
time-consuming. Our products could become obsolete and unmarketable if products
using new technologies are introduced and new industry standards emerge. For
example, the widespread acceptance of competing technologies, such as video
conferencing and the transmission of voice over the Internet, could diminish
demand for our current products. As a result, the life cycle of our products is
difficult to estimate.
To be successful, we will need to develop and introduce new products and
product enhancements that respond to technological changes or evolving industry
standards, such as the transmission of voice over the Internet, in a timely
manner and on a cost effective basis. In addition, our current full care
support agreements with our customers require us to deliver two product
upgrades per year. We cannot assure you that we will successfully develop these
types of products and product enhancements or that our products will achieve
broad market acceptance.
Our sales cycle is lengthy and unpredictable.
Any delay in sales of our products could cause our quarterly revenue and
operating results to fluctuate. The typical sales cycle of our products is
lengthy, generally between six to nine months, unpredictable, and involves
significant investment decisions by prospective customers, as well as our
education of potential customers regarding the use and benefits of our
products. Furthermore, many of our prospective customers have neither budgeted
expenses for voice and data conferencing systems nor have personnel
specifically dedicated to procurement and implementation of these conferencing
systems. As a result, our customers spend a substantial amount of time before
purchasing our products in performing internal reviews and obtaining capital
expenditure approvals. We cannot be certain that this cycle will not lengthen
in the future. The emerging and evolving nature of the real-time voice and data
conferencing market may lead to confusion in the market, which may cause
prospective customers to postpone their purchase decisions. In addition,
general concerns regarding Year 2000 compliance may further delay purchase
decisions by prospective customers.
If we fail to expand our sales and distribution channels, our business could
suffer.
If we are unable to expand our sales and distribution channels, we may not
be able to increase revenue or achieve market acceptance of our MeetingPlace
product. We have recently expanded our direct sales force and plan to recruit
additional sales personnel. New sales personnel will require training and take
time to achieve full productivity, and there is strong competition for
qualified sales personnel in our business. In addition, we believe that our
future success is dependent upon establishing successful relationships with a
variety of distribution partners. To date, we have entered into agreements with
only a small number of these distribution partners. We cannot be certain that
8
<PAGE>
we will be able to reach agreement with additional distribution partners on a
timely basis or at all, or that these distribution partners will devote
adequate resources to selling our products. Furthermore, if our distribution
partners fail to adequately market or support our products, the reputation of
our products in the market may suffer. In addition, we will need to manage
potential conflicts between our direct sales force and third-party reselling
efforts.
Our ability to expand into international markets is uncertain.
We intend to continue to expand our operations into new international
markets. In addition to general risks associated with international expansion,
such as foreign currency fluctuations and political and economic instability,
we face the following risks and uncertainties any of which could prevent us
from selling our products in a particular country or harm our business
operations once we have established operations in that country:
. the difficulties and costs of localizing products for foreign markets,
including the development of multilingual capabilities in our
MeetingPlace system;
. the need to modify our products to comply with local telecommunications
certification requirements in each country; and
. our lack of a direct sales presence in other countries, our need to
establish relationships with distribution partners to sell our products
in these markets and our reliance on the capabilities and performance of
these distribution partners.
If we fail to integrate our products with third-party technology, our sales
could suffer.
Our products are designed to integrate with our customers' data and voice
networks, as well as with enterprise applications such as browsers and
collaborative software applications. If we are unable to integrate our products
with these networks and systems, sales of our products could suffer.
In addition, we may be required to engage in costly and time-consuming
redesigns of our products because of technology enhancements or upgrades of
these systems. We may not be able to redesign our products or be certain that
any of these redesigns will achieve market acceptance. In addition, we will
need to continually modify our products as newer versions of the enterprise
applications with which our products integrate are introduced. Our ability to
do so largely depends on our ability to gain access to the advanced programming
interfaces for these applications, and we cannot assure you that we will have
access to necessary advanced programming interfaces in the future.
We may experience difficulties managing our expected growth.
Our recent growth has strained, and we expect that any future growth will
continue to strain, our management systems and resources, which could hinder
our ability to continue to grow in the future. We may also experience
difficulties meeting the demand for our products and services. If we are unable
to provide training and support for our products, the implementation process
will be longer and customer satisfaction may be lower.
We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be
9
<PAGE>
adequate to support our future operations. Competition for qualified personnel
in the San Francisco Bay area, as well as other markets in which we recruit, is
extremely intense and characterized by rapidly increasing salaries, which may
increase our operating expenses or hinder our ability to recruit qualified
candidates.
Our business could suffer if we lose the services of our current management
team.
Our future success depends on the ability of our management to operate
effectively, both individually and as a group. If we were to lose the services
of any of these key employees we may encounter difficulties finding qualified
personnel to replace them.
In addition, three of our seven executive officers joined us during the past
12 months. Accordingly, our executive officers' ability to function effectively
as a management team remains unproven.
The loss of our right to use technology licensed to us by third parties could
harm our business.
We license technology that is incorporated into our products from third
parties, including digital signal processing algorithms and the MeetingPlace
server's operating system and relational database. Any interruption in the
supply or support of any licensed software could disrupt our operations and
delay our sales, unless and until we can replace the functionality provided by
this licensed software. Because our products incorporate software developed and
maintained by third parties, we depend on these third parties to deliver and
support reliable products, enhance their current products, develop new products
on a timely and cost-effective basis and respond to emerging industry standards
and other technological changes.
Any interruption in supply of components from outside manufacturers and
suppliers could hinder our ability to ship products in a timely manner.
We rely on third parties to obtain most of the components of the
MeetingPlace server and integrate them with other standard components, such as
the central processing unit and disk drives. If these third parties are no
longer able to supply and assemble these components or are unable to do so in a
timely manner, we may experience delays in shipping our products and have to
invest resources in finding an alternative manufacturer or manufacture our
products internally.
In addition, we obtain key hardware components, including the processors and
digital signal processing devices used in the MeetingPlace server, from sole
source suppliers. In the past, we have experienced problems in obtaining some
of these components in a timely manner from these sources, and we cannot be
certain that we will be able to continue to obtain an adequate supply of these
components in a timely manner or, if necessary, from alternative sources. If we
are unable to obtain sufficient quantities of components or to locate
alternative sources of supply, we may experience delays in shipping our
products and incur additional costs to find an alternative manufacturer or
manufacture our products internally.
Our products may suffer from defects, errors or breaches of security.
Software and hardware products as complex as ours are likely to contain
undetected errors or defects, especially when first introduced or when new
versions are released. Any errors or defects
10
<PAGE>
that are discovered after commercial release could result in loss of revenue or
delay in market acceptance, diversion of development resources, damage to our
customer relationships or reputation or increased service and warranty cost.
Our products may not be free from errors or defects after commercial shipments
have begun, and we are aware of instances in which some of our customers have
experienced product failures or errors.
Many of our customers conduct confidential conferences, and transmit
confidential data, using MeetingPlace. Concerns over the security of
information sent over the Internet and the privacy of its users may inhibit the
market acceptance of our products. In addition, unauthorized users in the past
have gained, and in the future may be able to gain, access to our customers'
MeetingPlace systems. Any compromise of security could deter people from using
MeetingPlace and could harm our reputation and business and result in claims
against us.
We may be unable to adequately protect our proprietary rights, and we may be
subject to infringement claims.
Unauthorized parties may copy aspects of our products and obtain and use
information that we regard as proprietary, which could cause our business to
suffer. Furthermore, the laws of many foreign countries do not protect our
intellectual property rights to the same extent as the laws of the United
States.
In the future, we may be subject to legal proceedings and claims for alleged
infringement of third party proprietary rights. Any of these claims, even if
not meritorious, could result in costly litigation, divert management's
attention and resources, or require us to enter into royalty or license
agreements which are not advantageous to us. Parties making these claims may be
able to obtain injunctive or other equitable relief, which could prevent us
from selling our products.
Dell Computer Corporation has registered the "Latitude" mark for computers
in the United States and in other countries. Dell's United States trademark
registration and Canadian application have blocked our ability to register the
"Latitude Communications" and "Latitude" with logo marks in the United States
and the "Latitude Communications" mark in Canada. Since we believe that we have
priority of trade name usage in the United States, we have petitioned to cancel
Dell's United States registration and opposed its Canadian application. The
outcome of these proceedings is uncertain. If Dell's registration for the
"Latitude" mark is not canceled or if we are unable to obtain consent from Dell
for our registration of our marks, we may not be able to register our marks and
would have to rely solely on common law protection for these marks. We cannot
assure you that we will be free from challenges of or obstacles to our use or
registration of our marks.
We are subject to government regulation, and our failure to comply with these
regulations could harm our business.
Our products are subject to a wide variety of safety, emissions and
compatibility regulations imposed by governmental authorities in the United
States or in other countries in which we sell our products. If we are unable to
obtain necessary approvals or maintain compliance with the regulations of any
particular jurisdiction, we may be prohibited from selling our products in that
territory. In addition, to sell our products in many international markets, we
are required to obtain certifications that are specific to the local telephony
infrastructure.
11
<PAGE>
We may be subject to claims related to Year 2000 issues, and Year 2000 concerns
could adversely affect our revenues.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries, including technology, transportation,
utilities, finance and telecommunications, will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Year 2000 compliance efforts may involve significant time and
expense, and uncorrected problems could materially adversely affect our
business, financial condition and operating results. We may face claims based
on Year 2000 issues arising from the integration of multiple products within an
overall system. We may also experience reduced sales of our products as
potential customers reduce their budgets for voice and data conferencing
products due to increased expenditures on their own Year 2000 compliance
efforts. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness Disclosure."
Our stock price may be volatile.
We expect that the market price of our common stock will fluctuate as a
result of variations in our quarterly operating results. These fluctuations may
be exaggerated if the trading volume of our common stock is low. In addition,
due to the technology-intensive and emerging nature of our business, the market
price of our common stock may rise and fall in response to:
. announcements of technological or competitive developments;
. acquisitions or strategic alliances by us or our competitors; or
. the gain or loss by us of significant orders.
Our executive officers and directors and their affiliates own a large
percentage of our voting stock and could control the voting power of the common
stock.
On completion of this offering, executive officers and directors and their
affiliates will beneficially own, in the aggregate, approximately 58% of our
outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may delay, deter or prevent transactions that would
result in the change of control, which in turn could reduce the market price of
our common stock.
Future sales of our common stock may depress our stock price.
After this offering, we will have outstanding 18,581,657 shares of common
stock. Sales of a substantial number of shares of common stock in the public
market following this offering could materially adversely affect the market
price of our common stock. All the shares sold in this offering will be freely
tradable. Upon the expiration of arrangements between our stockholders and
Latitude or the underwriters in which our stockholders have agreed not to sell
or dispose of their Latitude common stock, all of the remaining 15,581,657
shares of common stock outstanding after this offering will be eligible for
sale in the public market 180 days following the date of this prospectus. Of
these shares, 11,682,572 shares will be subject to volume limitations under
federal securities laws.
12
<PAGE>
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market, the market price of our common stock could fall. See "Shares
Eligible for Future Sale" and "Underwriting."
This prospectus contains forward-looking statements that involve risks and
uncertainties.
We have made forward-looking statements under the sections entitled
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." These statements
involve risks and uncertainties that may cause our business or financial
results to materially differ from those expressed by the forward-looking
statements.
We have identified forward-looking statements by using terms such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of these terms or other
comparable terminology.
We are under no duty to update any of the forward-looking statements after
the date of this prospectus to conform these statements to actual results.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 3,000,000 shares of common stock
offered by us are estimated to be approximately $29.7 million, or approximately
$34.3 million if the underwriters' over-allotment option is exercised in full,
at an assumed public offering price of $11.00 per share, after deducting the
estimated underwriting discounts and commissions and the estimated offering
expenses.
We intend to use the net proceeds of this offering primarily for general
corporate purposes, including working capital, capital expenditures, geographic
expansion and additional sales and marketing efforts. We also may use a portion
of the net proceeds to acquire additional businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific plans, agreements or commitments
to do so and are not currently engaged in any negotiations for any acquisition
or joint venture.
The amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a
result, we will retain broad discretion in the allocation and use of the net
proceeds of this offering. Pending the uses described above, we will invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not currently anticipate paying any cash dividends
in the future. In addition, the terms of our current credit facility prohibit
us from paying dividends without our lender's consent.
ADDITIONAL INFORMATION ABOUT LATITUDE
We were originally incorporated in California under the name "Convene
Communications, Inc." in April 1993 and changed our name to "Latitude
Communications, Inc." in July 1993. We reincorporated in Delaware in April
1999. Our web site is located at www.latitude.com. Information contained on our
web site is not a part of this prospectus.
14
<PAGE>
CAPITALIZATION
The following table provides the following information:
. the actual capitalization of Latitude as of March 31, 1999;
. the pro forma capitalization of Latitude after giving effect to the
conversion of all outstanding shares of convertible preferred stock into
11,836,227 shares of common stock; and
. the pro forma as adjusted capitalization to give effect to the sale of
3,000,000 shares of common stock at an assumed initial public offering
price of $11.00 per share in this offering after deducting the estimated
underwriting discounts and commissions Latitude expects to pay in
connection with this offering and estimated offering expenses payable by
Latitude.
This table should be read in conjunction with the Consolidated Financial
Statements and the Notes to these financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------
Actual Pro Forma As Adjusted
--------- --------- -----------
(In thousands, except share
data)
<S> <C> <C> <C>
Total long term debt........................... $ 695 $ 695 $ 695
Stockholders' equity:
Preferred stock, $.001 par value per share,
12,211,366 shares authorized, 11,836,227
shares issued and outstanding, actual;
12,211,366 shares authorized, none issued or
outstanding, pro forma; and 5,000,000 shares
authorized, none issued or outstanding, as
adjusted.................................... 12 -- --
Common stock, $.001 par value per share,
22,500,000 shares authorized, 3,745,430
shares issued and outstanding, actual;
22,500,000 shares authorized, 15,581,657
shares issued and outstanding, pro forma;
and 75,000,000 shares authorized and
18,581,657 shares issued and outstanding, as
adjusted.................................... 4 16 19
Additional paid-in capital................... 22,110 22,110 51,797
Notes receivable from common stockholders.... (144) (144) (144)
Deferred stock compensation.................. (2,642) (2,642) (2,642)
Accumulated deficit.......................... (14,037) (14,037) (14,037)
--------- --------- --------
Total stockholders' equity................. 5,303 5,303 34,993
--------- --------- --------
Total capitalization..................... $ 5,998 $ 5,998 $ 35,688
========= ========= ========
</TABLE>
- --------
This table is based on shares outstanding as of March 31, 1999. This table
excludes: (a) 1,494,624 shares subject to outstanding options at a weighted
average exercise price of $2.63 as of March 31, 1999, and 84,938 shares of
common stock available for future issuance under our 1993 Stock Plan;
(b) 134,386 shares of common stock reserved for issuance on the exercise of
outstanding warrants, at a weighted average price of $1.05 per share as of
March 31, 1999; (c) 2,700,000 shares of common stock available for issuance
under our 1999 Stock Plan; (d) 250,000 shares of common stock available for
issuance under our 1999 Directors' Stock Option Plan; and (e) 500,000 shares of
common stock available for issuance under our employee stock purchase plan.
15
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on March 31, 1999
was $5,303,000 million, or approximately $0.34 per share. Pro forma net
tangible book value represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately following this offering.
After giving effect to our sale of 3,000,000 shares of common stock offered
by this prospectus and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our net tangible
book value would have been $34,993,000, or approximately $1.88 per share. This
represents an immediate increase in net tangible book value of $1.54 per share
to existing stockholders and an immediate dilution in net tangible book value
of $9.12 per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $11.00
Pro forma net tangible book value per share as of March 31,
1999.......................................................... $0.34
Increase per share attributable to new investors............... 1.54
-----
Pro forma net tangible book value per share after this offering.. 1.88
------
Dilution in pro forma net tangible book value per share to new
investors....................................................... $ 9.12
======
</TABLE>
This table excludes 1,494,624 shares subject to outstanding options and
134,386 shares issuable upon exercise of outstanding warrants as of March 31,
1999. See Note 7 of the Notes to Consolidated Financial Statements. The
exercise of outstanding options and warrants having an exercise price less than
the offering price would increase the dilutive effect to new investors.
The following table lists, as of March 31, 1999, the differences between the
number of shares of common stock purchased from us, the total price and average
price per share paid by existing investors and by the new investors, before
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us, assuming a public offering price of $11.00 per
share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ---------------------- Average Price
Number Percentage Amount Percentage Per Share
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 15,581,657 83.9% $19,024,762 36.6% $ 1.22
New investors........... 3,000,000 16.1 33,000,000 63.4 11.00
---------- ----- ----------- ----- ------
Total................. 18,581,657 100.0% 52,024,762 100.0%
========== ===== =========== =====
</TABLE>
- --------
If the underwriters' over-allotment option is exercised in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately 81.9% of the total number of shares of our
common stock outstanding after this offering; and
. the number of shares held by new investors will be increased to 3,450,000
or approximately 18.1% of the total number of shares of our common stock
outstanding after this offering.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The tables that follow present portions of our consolidated financial
statements and are not complete. You should read the following selected
financial data in conjunction with our Consolidated Financial Statements and
the Notes to these financial statements and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The consolidated statement of operations data for the years
ended December 31, 1996, 1997 and 1998, and the consolidated balance sheet data
as of December 31, 1997 and 1998, are derived from and are qualified in their
entirety by our Consolidated Financial Statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, which are included
elsewhere in this prospectus. The consolidated statement of operations data for
the years ended December 31, 1994 and 1995 and the consolidated balance sheet
data as of December 31, 1994, 1995 and 1996 are derived from audited
consolidated financial statements that are not included in this prospectus. The
consolidated statement of operations data for the three months ended March 31,
1998 and 1999 and the consolidated balance sheet data as of March 31, 1999 are
derived from unaudited consolidated financial statements included elsewhere in
this prospectus. In the opinion of management, the unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and contain all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of our
results of operations for these periods and financial condition at these dates.
The historical results presented below are not necessarily indicative of the
results to be expected for any future fiscal year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
------------------------------------------- --------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product............... $ 85 $ 1,393 $ 5,103 $10,620 $16,506 $3,688 $4,627
Service............... 17 130 943 2,312 4,545 673 1,801
------- ------- ------- ------- ------- ------ ------
Total revenue........ 102 1,523 6,046 12,932 21,051 4,361 6,428
------- ------- ------- ------- ------- ------ ------
Cost of revenue:
Product............... 33 454 1,146 2,158 3,182 644 817
Service............... 35 420 1,023 1,805 2,775 601 903
------- ------- ------- ------- ------- ------ ------
Total cost of
revenue............. 68 874 2,169 3,963 5,957 1,245 1,720
------- ------- ------- ------- ------- ------ ------
Gross profit............ 34 649 3,877 8,969 15,094 3,116 4,708
------- ------- ------- ------- ------- ------ ------
Operating expenses:
Research and
development.......... 2,057 2,071 2,466 2,213 2,607 605 903
Marketing and sales... 736 2,160 4,644 7,845 9,744 1,978 2,868
General and
administrative....... 855 636 1,157 1,115 1,666 410 425
Amortization of
deferred stock
compensation......... -- -- -- 2 299 38 196
------- ------- ------- ------- ------- ------ ------
Total operating
expenses............ 3,648 4,867 8,267 11,175 14,316 3,031 4,392
------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations............. (3,614) (4,218) (4,390) (2,206) 778 85 316
Interest income
(expense), net......... 117 115 138 (23) (41) (11) (8)
------- ------- ------- ------- ------- ------ ------
Income (loss) before
provision for income
tax.................... (3,497) (4,103) (4,252) (2,229) 737 74 308
Provision for income
tax.................... -- -- -- -- (34) (4) (20)
------- ------- ------- ------- ------- ------ ------
Net income (loss)....... $(3,497) $(4,103) $(4,252) $(2,229) $ 703 $ 70 $ 288
======= ======= ======= ======= ======= ====== ======
Net income (loss) per
share--basic........... $ (7.63) $ (3.10) $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
======= ======= ======= ======= ======= ====== ======
Shares used in per share
calculation--basic..... 459 1,325 2,110 2,850 3,279 3,166 3,444
======= ======= ======= ======= ======= ====== ======
Net income (loss) per
share--diluted......... $ (7.63) $ (3.10) $ (2.02) $ (0.78) $ 0.04 $ 0.00 $ 0.02
======= ======= ======= ======= ======= ====== ======
Shares used in per share
calculation--diluted... 459 1,325 2,110 2,850 16,422 15,949 16,767
======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------- ---------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents.. $5,938 $1,751 $5,664 $3,578 $ 3,982 $ 4,397
Working capital............ 5,831 1,574 5,655 3,501 4,470 4,407
Total assets............... 6,820 3,501 8,680 7,715 11,870 12,379
Long-term obligations...... 368 308 760 757 838 695
Total stockholders'
equity.................... 6,072 2,040 5,906 3,748 4,785 5,303
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a leading provider of integrated voice and data conferencing
solutions for geographically dispersed organizations. We develop, market and
support our MeetingPlace system, which allows companies to conduct virtual
meetings and extend real-time decision making processes irrespective of the
geographic location of participants. With MeetingPlace, participants can
schedule and attend a meeting, view, share and edit documents, and capture and
retrieve meeting content. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies such as telephones, cellular
phones and personal computers.
We were incorporated in April 1993. From inception until December 1994, our
operations consisted primarily of basic start-up activities, such as research
and development and recruiting personnel. We first recognized revenue from
product sales in December 1994 and generated revenue of $6.0 million, $12.9
million, and $21.1 million in 1996, 1997 and 1998 and $6.4 million in the
quarter ended March 31, 1999. In addition, we incurred net losses of $4.3
million in 1996 and $2.2 million in 1997 and generated net income of
approximately $703,000 in 1998 and $288,000 in the quarter ended March 31,
1999. As of March 31, 1999, we had an accumulated deficit of $14.0 million. We
cannot assure you that our revenues will continue to grow or that we will
maintain profitability in the future.
We generate revenue from sales of our MeetingPlace products and from
customer support and consulting services. Revenue derived from product sales
constituted 84%, 82% and 78% of our total revenue in 1996, 1997 and 1998 and
72% in the quarter ended March 31, 1999. Product revenue is generally
recognized upon shipment. We calculate an allowance for returns based on
historical rates. During 1998, three systems totaling $386,000 were returned
and charged to this allowance. Service revenue includes revenue from
implementation and integration services, system management services, warranty
coverage and customer support. Revenue from implementation and system
integration services is recognized as the services are performed, while revenue
from system management services, warranty coverage and customer support is
recognized ratably over the period of the contract.
We sell our MeetingPlace products primarily through our direct sales force
and, to a lesser extent, through indirect distribution channels. The majority
of our revenue is derived from Fortune 1000 companies, many of which initially
purchase MeetingPlace servers and later expand deployment of our products as
they require additional capacity for voice and data conferencing. In 1997, we
expanded into international markets by opening a sales office in the United
Kingdom and establishing distributor relationships in Hong Kong and Singapore,
and in 1998, we established a distributor relationship in Australia. While we
intend to increase sales through indirect channels and internationally, we
cannot assure you that we will be successful. In 1998, we expanded the breadth
of our support services by establishing a consulting services group to provide
expanded implementation services, system management services and customized
project consulting.
Total cost of revenue consists of component and materials costs, direct
labor costs, warranty costs, royalties and overhead related to manufacturing of
our products, as well as materials, travel
18
<PAGE>
and labor costs related to personnel engaged in our service operations. Product
gross margin is impacted by the proportion of product revenue derived from
software sales, which typically carry higher margins than hardware sales, and
from indirect distribution channels, which typically carry lower margins than
direct sales. Service gross margin is impacted by the mix of services we
provide, which have different levels of profitability, and the efficiency with
which we provide full care support to our customers. We record an allowance for
excess and obsolete inventory by identifying inventory components either
considered excess based on estimates of future usage or obsolete due to changes
in our products. Due primarily to design changes in our products in 1998 and,
to a lesser extent, increases in levels of demonstration inventory at customer
locations, we increased our allowance for excess and obsolete inventory by
$149,000. As a result of technological changes, our products may become
obsolete or we could be required to redesign our products.
Results of Operations
The following table lists, for the periods indicated, the percentage of
total revenue of each line item:
<TABLE>
<CAPTION>
Three
Months
Ended March
Years Ended December 31, 31,
------------------------------ ------------
1996 1997 1998 1998 1999
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
As a Percentage of Total Revenue:
Revenue:
Product........................ 84.4% 82.1% 78.4% 84.6% 72.0%
Service........................ 15.6 17.9 21.6 15.4 28.0
-------- -------- -------- ----- -----
Total revenue................ 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product........................ 19.0 16.7 15.1 14.7 12.7
Service........................ 16.9 14.0 13.2 13.8 14.1
-------- -------- -------- ----- -----
Total cost of revenue........ 35.9 30.7 28.3 28.5 26.8
-------- -------- -------- ----- -----
Gross profit.................... 64.1 69.3 71.7 71.5 73.2
-------- -------- -------- ----- -----
Operating expenses:
Research and development....... 40.8 17.1 12.4 13.8 14.0
Marketing and sales............ 76.8 60.6 46.3 45.4 44.6
General and administrative..... 19.1 8.6 7.9 9.4 6.6
Amortization of deferred stock
compensation.................. -- -- 1.4 0.9 3.1
-------- -------- -------- ----- -----
Total operating expenses..... 136.7 86.3 68.0 69.5 68.3
Income (loss) from operations... (72.6) (17.0) 3.7 2.0 4.9
-------- -------- -------- ----- -----
Interest income (expense), net.. 2.3 (0.2) (0.2) (0.3) (0.1)
-------- -------- -------- ----- -----
Income (loss) before provision
for income tax................. (70.3) (17.2) 3.5 1.7 4.8
-------- -------- -------- ----- -----
Provision for income tax........ -- -- (0.2) (0.1) (0.3)
-------- -------- -------- ----- -----
Net income (loss)............... (70.3)% (17.2)% 3.3% 1.6% 4.5%
======== ======== ======== ===== =====
</TABLE>
19
<PAGE>
Quarters Ended March 31, 1998 and 1999
Product Revenue
Product revenue increased 25% from $3.7 million in the quarter ended March
31, 1998 to $4.6 million in the quarter ended March 31, 1999. The increase in
product revenue was due primarily to increased sales of our MeetingPlace
products domestically to new customers, increased sales of additional products
and features to existing customers, and, to a lesser extent, increased
international sales. International sales represented less than 1% and 5% of
product revenue in the quarters ended March 31, 1998 and 1999.
Product revenue in the quarter ended March 31, 1999 included revenue derived
from the delivery of two MeetingPlace systems in exchange for marketing
services, licenses and related training and consulting and $45,000 in cash.
Because of these transactions we recognized $609,000 of revenue, $404,000 of
prepaid sales and marketing expenses and accounts receivable of $160,000. The
accounts receivable will be satisfied through the provision of licenses,
training and consulting to Latitude. The assets and services were transferred
between the parties at their estimated fair value based on the sales prices of
actual customer sales for similar MeetingPlace systems. We plan to utilize the
marketing services over the next three quarters and expect to receive the
licenses, training and consulting in the quarter ending June 30, 1999.
Service Revenue
Service revenue increased 168% from approximately $673,000 in the quarter
ended March 31, 1998 to $1.8 million in the quarter ended March 31, 1999. The
increase in service revenue was attributable primarily to growth in our
customer base during these periods, which led to increased sales of full care
support services, as well as to the introduction of additional consulting
services such as managed services and expanded implementation and integration
services.
Total Cost of Revenue
Total cost of revenue increased 42% from $1.2 million in the quarter ended
March 31, 1998 to $1.7 million in the quarter ended March 31, 1999. The
increase in total cost of revenue was attributable primarily to increased sales
of our MeetingPlace products and related services, as well as the increased
size of our services staff and the costs of providing services to support an
increasingly geographically dispersed customer base. Gross margin increased
from 71% in the quarter ended March 31, 1998 to 73% in the quarter ended March
31, 1999. The increase in gross margin is attributable primarily to increased
economies of scale resulting from increased product and service revenue, as
well as increased sales of MeetingPlace software and enhanced features to
existing customers. On a forward-looking basis, we anticipate that gross
margins may decline as the proportions of revenue derived from sales made
through distributors and from services are expected to increase as percentages
of total revenue.
Product gross margin decreased slightly from 83% in the quarter ended March
31, 1998 to 82% in the quarter ended March 31, 1999. We expect product gross
margin to decrease in the future due in part to anticipated pricing pressure
and an expected increase in the proportion of revenue derived from indirect
distribution channels.
Service gross margin increased from 11% in the quarter ended March 31, 1998
to 50% in the quarter ended March 31, 1999. The increase in service gross
margin was attributable to increased
20
<PAGE>
economies of scale. We expect service gross margin to decline in the future as
a result of anticipated pricing pressure and the expected international
expansion of our service operation.
Research and Development Expenses
Research and development expenses consist primarily of compensation and
related costs for research and development personnel, facilities expenses for
testing space and equipment and royalty payments. Research and development
expenses increased 49% from $605,000 in the quarter ended March 31, 1998 to
$903,000 in the quarter ended March 31, 1999. The increase was attributable
primarily to the addition of personnel in our research and development
organization associated with product development. We expect to continue to make
substantial investments in research and development and anticipate that
research expenses will continue to increase in absolute dollars. Research and
development expenses represented 14% of total revenue in each of the quarters
ended March 31, 1998 and 1999.
Marketing and Sales Expenses
Marketing and sales expenses consist primarily of promotional expenditures
and compensation and related costs for marketing and sales personnel. Marketing
and sales expenses increased 45% from $2.0 million in the quarter ended March
31, 1998 to $2.9 million in the quarter ended March 31, 1999. The increase
reflected the addition of personnel in our sales and marketing organizations,
as well as costs associated with increased selling efforts to develop market
awareness of our products and services. Marketing and sales expenses were 45%
of total revenue for the quarters ended March 31, 1998 and 1999.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses,
legal and accounting expenses and other general corporate expenses. General and
administrative expenses increased 4% from $410,000 in the quarter ended March
31, 1998 to $426,000 in the quarter ended March 31, 1999, due primarily to the
addition of personnel in our general and administrative organization. We expect
general and administrative expenses to increase in absolute dollars as we add
personnel and incur additional costs related to the anticipated growth of our
business and operation as a public company. General and administrative expenses
were 9% and 7% of total revenue for the quarters ended March 31, 1998 and 1999.
The decreases as a percentage of total revenue resulted primarily from
increased total revenue during these periods.
Amortization of Deferred Stock Compensation
In connection with the completion of our initial public offering, options
granted in the last quarter of 1997, 1998 and the first quarter of 1999 have
been considered to be compensatory. Total deferred stock compensation
associated with these options as of March 31, 1999 amounted to $3.1 million.
These amounts are being amortized on a straightline basis over the 48-month
vesting period of these options. Of the total deferred stock compensation,
approximately $195,000 was amortized in the quarter ended March 31, 1999. We
expect amortization of approximately $783,000 in 1999, $783,000 in 2000,
$781,000 in 2001 and $489,000 in 2002 related to these options.
21
<PAGE>
Interest Income (Expense), Net
In the quarters ended March 31, 1998 and 1999, we incurred net interest
expense of approximately $11,000 and $8,000. Interest income (expense), net is
comprised primarily of interest earned on cash and cash equivalents, offset by
interest expense related to obligations under capital leases and equipment
loans. The slight decrease in net interest expense was due primarily to
increased interest income earned on higher cash and cash equivalent balances.
Income Taxes
For the quarter ended March 31, 1999, the provision for income tax was
approximately $20,000, compared to $4,000 in the quarter ended March 31, 1998.
Fiscal Years Ended December 31, 1996, 1997 and 1998
Product Revenue
Product revenue increased 108% from $5.1 million in 1996 to $10.6 million in
1997 and increased 55% to $16.5 million in 1998. The increases in product
revenue were due primarily to increased sales of our MeetingPlace products
domestically to new customers, increased sales of additional products and
features to existing customers, and, to a lesser extent, increased
international sales. International sales represented 4% and 7% of product
revenue in 1997 and 1998.
An allowance for potential returns is recorded at the end of each period
based on our product return experience, adjusted for changes in the range of
per system sales prices of systems shipped. As a result of this analysis, we
believe that our allowance for potential sales returns of $196,000 at December
31, 1997 and $325,000 at December 31, 1998, was adequate but not excessive
based on the historical experience and increasing per system sales prices and
increasing outstanding accounts receivable balances. In addition, at December
31, 1998, consideration was given to our historical experience with software
upgrade sales returns. The increase in the allowance for potential returns at
December 31, 1998 compared to the allowance for December 31, 1997 was due to
the increase in returns, the increase in system sales prices and the increase
in outstanding accounts receivable balances. Our sales returns to date have
approximated our returns.
Service Revenue
Service revenue increased 145% from approximately $943,000 in 1996 to $2.3
million in 1997 and increased 97% to $4.5 million in 1998. The increases in
service revenue were attributable primarily to growth in our customer base
during these periods, which led to increased sales of full care support
services, as well as to the introduction of additional consulting services such
as managed services and expanded implementation and integration services.
Total Cost of Revenue
Total cost of revenue increased 83% from $2.2 million in 1996 to $4.0
million in 1997 and increased 50% to $6.0 million in 1998. The increases in
total cost of revenue were attributable primarily to increased sales of our
MeetingPlace products and related services, as well as the increased size of
our services staff and the costs of providing services to support an
increasingly
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geographically dispersed customer base. Gross margin increased from 64% in 1996
to 69% in 1997 and to 72% in 1998. The increases in gross margins are
attributable primarily to increased economies of scale resulting from increased
product and service revenue, as well as to increased sales of MeetingPlace
software and enhanced features to existing customers. On a forward-looking
basis, we anticipate that gross margins may decline as the proportions of
revenue derived from sales made through distributors and from services are
expected to increase as percentages of total revenue.
Product gross margin in 1996, 1997 and 1998 was 78%, 80% and 81%. The growth
in product gross margin over this period was attributable primarily to
increased economies of scale and the sale of software add-ons to new and
existing customers. We expect product gross margin to decrease over time due in
part to anticipated pricing pressure and an expected increase in the proportion
of revenue derived from indirect distribution channels.
An allowance for excess and obsolete inventory is recorded at the end of
each period based on an analysis of inventory on hand, considering forecasted
usage and whether component parts are useable in our current product and
whether finished goods are versions of our product for which demand is
forecasted. As a result of this analysis, we believe that our allowance for
excess and obsolete inventory of $146,000 at December 31, 1997 and $295,000 at
December 31, 1998 was adequate but not excessive based on the specific
identification of excess or obsolete inventory. The increase in the allowance
for excess and obsolete inventory at December 31, 1998 was primarily due to a
platform change in 1998 which caused some raw materials inventory to become
obsolete. We anticipate the disposal and write-off of this inventory in 1999.
Service gross margin in 1996, 1997 and 1998 was (9)%, 22% and 39%. The
growth in service gross margin was attributable to the creation and development
of our service organization in 1995 and 1996, followed by the subsequent
revenue generated by our service organization. We expect service gross margin
to decline over time as a result of anticipated pricing pressure and the
expected international expansion of our service operation.
Research and Development Expenses
Research and development expenses decreased 12% from $2.5 million in 1996 to
$2.2 million in 1997 and increased 18% to $2.6 million in 1998. The decrease in
1997 was due principally to one-time special project consulting costs incurred
in 1996, while the increase in 1998 was attributable primarily to the addition
of personnel in our research and development organization associated with
product development. Research and development expenses represented 41%, 17% and
12% of total revenue for 1996, 1997 and 1998. The decreases as a percentage of
total revenue resulted primarily from increased total revenue during these
periods.
Marketing and Sales Expenses
Marketing and sales expenses increased 69% from $4.6 million in 1996 to $7.8
million in 1997 and increased 24% to $9.7 million in 1998. The increases in
1997 and 1998 reflected the addition of personnel in our sales and marketing
organizations, as well as costs associated with increased selling efforts to
develop market awareness of our products and services. Marketing and sales
expenses were 77%, 61% and 46% of total revenue for 1996, 1997 and 1998. The
decreases in marketing and sales expenses as a percentage of revenue in 1997
and 1998 are attributable primarily to increased productivity of our sales
personnel and increased total revenue in these periods.
23
<PAGE>
General and Administrative Expenses
General and administrative expenses decreased slightly from $1.2 million in
1996 to $1.1 million in 1997, due primarily to lower legal fees and facilities
costs in 1997. General and administrative expenses increased from $1.1 million
in 1997 to $1.7 million in 1998, due primarily to the addition of personnel
performing general and administrative functions. General and administrative
expenses were 19%, 9% and 8% of total revenue for 1996, 1997 and 1998. The
decreases as a percentage of total revenue resulted primarily from increased
total revenue during these periods.
We record an allowance for doubtful accounts for credit losses at the end of
each period based on an analysis of individual aged accounts receivable
balances. As a result of this analysis, we believe that our allowance for
doubtful accounts of $147,000 at December 31, 1997 and $235,000 at December 31,
1998 was adequate but not excessive based on specific aged account balances
identified with collection risk. The increase in the allowance for doubtful
accounts as of December 31, 1998 compared with the allowance at December 31,
1997 was primarily due to the increase in the amount of specifically identified
accounts receivable with probable collection risk. We have not experienced
significant write-offs of accounts receivable to date.
Amortization of Deferred Stock Compensation
Total deferred stock compensation as of December 31, 1998 amounted to $3.1
million. Of the total deferred stock compensation, approximately $299,000 was
amortized in 1998.
Interest Income (Expense), Net
In 1996, we had net interest income of approximately $138,000, while in 1997
and 1998, we incurred net interest expense of approximately $23,000 and
$41,000. The increases in net interest expense in 1997 and 1998 were due
primarily to declining balances of cash and cash equivalents and to declining
interest rates during these periods, as well as increases in our long-term debt
obligations.
Income Taxes
From inception through September 30, 1997, we incurred net losses for
federal and state tax purposes and did not recognize any tax provision or
benefit during this period. For the quarter ended December 31, 1997, the
provision for income tax was immaterial. For the year ended December 31, 1998,
the provision for income tax was approximately $34,000. As of December 31,
1998, we had $6.7 million of federal and $3.6 million of state net operating
loss carryforwards to offset future taxable income. These carryforwards, if not
utilized, expire in 2000 through 2012. As of December 31, 1998, we had
approximately $524,000 of federal and $390,000 of state carryforwards for
research and development and other credits. These carryforwards, if not
utilized, expire in 2010 through 2018. The Tax Reform Act of 1986 limits the
use of net operating loss and tax credit carryforwards where there is an
ownership change. Under the Tax Reform Act of 1986, the determination of
whether an ownership change occurs involves a highly complex calculation;
however, an ownership change generally occurs when over 50% in value of a
company's stock is transferred in transactions involving 5% stockholders during
a given period. If we should have an ownership change, our utilization of these
carryforwards could be restricted.
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<PAGE>
We have placed a valuation allowance against our deferred tax asset due to
the uncertainty surrounding the realization of these assets. We evaluate on a
quarterly basis the recoverability of the deferred tax asset and the level of
the valuation allowance. When it is determined that it is more likely than not
the deferred tax assets are realizable, the valuation allowance will be
reduced.
Quarterly Results of Operations
The following table provides unaudited consolidated statement of operations
data for the six quarters ended March 31, 1999, as well as this data expressed
as a percentage of our total revenue for the periods indicated. This data has
been derived from unaudited consolidated financial statements that, in the
opinion of our management, include all normal recurring adjustments necessary
for a fair presentation of this information when read in conjunction with our
annual audited consolidated financial statements and notes to these financial
statements. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product............... $3,291 $3,688 $3,867 $4,270 $4,681 $4,627
Service............... 771 673 1,034 1,282 1,556 1,801
------ ------ ------ ------ ------ ------
Total revenue....... 4,062 4,361 4,901 5,552 6,237 6,428
Cost of revenue:
Product............... 623 644 631 879 1,028 817
Service............... 522 601 689 747 738 903
------ ------ ------ ------ ------ ------
Total cost of
revenue............ 1,145 1,245 1,320 1,626 1,766 1,720
------ ------ ------ ------ ------ ------
Gross profit........... 2,917 3,116 3,581 3,926 4,471 4,708
------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development.......... 525 605 600 625 777 903
Marketing and sales... 2,099 1,978 2,374 2,564 2,828 2,868
General and
administrative....... 274 410 401 412 443 425
Amortization of
deferred stock
compensation......... 2 38 61 66 134 196
------ ------ ------ ------ ------ ------
Total operating
expenses........... 2,900 3,031 3,436 3,667 4,182 4,392
------ ------ ------ ------ ------ ------
Income (loss) from
operations............ 17 85 145 259 289 316
Interest income
(expense), net........ (16) (11) (10) (13) (7) (8)
------ ------ ------ ------ ------ ------
Income (loss) before
provision for income
tax................... 1 74 135 246 282 308
Provision for income
tax .................. -- (4) (6) (10) (14) (20)
------ ------ ------ ------ ------ ------
Net income (loss)...... $ 1 $ 70 $ 129 $ 236 $ 268 $ 288
====== ====== ====== ====== ====== ======
Net income (loss) per
share--basic(1)....... $ 0.00 $ 0.02 $ 0.04 $ 0.07 $ 0.08 $ 0.08
====== ====== ====== ====== ====== ======
Shares used in per
share calculation--
basic(1).............. 3,053 3,166 3,243 3,323 3,385 3,444
====== ====== ====== ====== ====== ======
Net income (loss) per
share--diluted(1)..... $ 0.00 $ 0.00 $ 0.01 $ 0.01 $ 0.02 $ 0.02
====== ====== ====== ====== ====== ======
Shares used in per
share calculation--
diluted(1)............ 15,641 15,949 16,145 16,251 16,512 16,767
====== ====== ====== ====== ====== ======
</TABLE>
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<TABLE>
<CAPTION>
Percentage of Total Revenue
-------------------------------------------------------------
Quarters Ended
-------------------------------------------------------------
Mar.
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product............... 82.6% 81.0% 84.6% 78.9% 76.9% 75.1% 72.0%
Service............... 17.4 19.0 15.4 21.1 23.1 24.9 28.0
----- ----- ----- ----- ----- ----- -----
Total revenue....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product............... 16.8 15.3 14.7 12.9 15.8 16.5 12.7
Service............... 13.3 12.9 13.8 14.1 13.5 11.8 14.1
----- ----- ----- ----- ----- ----- -----
Total cost of
revenue............ 30.1 28.2 28.5 27.0 29.3 28.3 26.8
----- ----- ----- ----- ----- ----- -----
Gross profit........... 69.9 71.8 71.5 73.0 70.7 71.7 73.2
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Research and
development.......... 14.3 12.9 13.9 12.2 11.3 12.5 14.0
Marketing and sales... 59.7 51.7 45.4 48.4 46.2 45.4 44.6
General and
administrative....... 6.6 6.8 9.4 8.2 7.3 7.1 6.6
Amortization of
deferred stock
compensation......... -- -- 0.9 1.2 1.2 2.1 3.1
----- ----- ----- ----- ----- ----- -----
Total operating
expenses........... 80.6 71.4 69.6 70.0 66.0 67.1 68.3
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............ (10.7) 0.4 1.9 3.0 4.7 4.6 4.9
----- ----- ----- ----- ----- ----- -----
Interest income
(expense), net........ (0.5) (0.4) (0.3) (0.2) (0.2) (0.1) (0.1)
----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision for income
tax................... (11.2) 0.0 1.6 2.8 4.5 4.5 4.8
Provision for income
tax................... -- -- (0.1) (0.1) (0.2) (0.2) (0.3)
----- ----- ----- ----- ----- ----- -----
Net income (loss)...... (11.2)% 0.0% 1.5% 2.7% 4.3% 4.3% 4.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Quarterly product revenue increased in each of the five quarters ended
December 31, 1998 shown above due to increased sales of MeetingPlace products,
including increased follow-on sales of products to existing customers, and
decreased slightly in the quarter ended March 31, 1999. Quarterly service
revenue has increased in each of the four quarters ended March 31, 1999, both
in absolute dollars and as a percentage of total revenue, due primarily to the
increasing size of our customer base. Gross margins were relatively constant
during the six quarters ended March 31, 1999. The increase in gross margin in
the quarter ended June 30, 1998 was attributable primarily to a higher
proportion of sales from software add-ons during this period, which typically
carry higher margins.
Total operating expenses increased in absolute dollars in each of the
quarters presented above, but generally decreased as a percentage of total
revenue. Research and development expenses generally increased in absolute
dollars during these periods as a result of increased development efforts
related to new products and enhancements of existing products. For the quarter
ended December 31, 1998, research and development expenses increased in both
absolute dollars and as a percentage of total revenue, reflecting the addition
of research and development personnel. Sales and marketing expenses generally
increased in absolute dollars during the quarters presented above as a result
of increased spending for salary and commissions, trade show expenses, public
relations and other promotional expenses. General and administrative expenses
generally increased in absolute dollars during the quarters presented above as
a result of the addition of personnel performing general and administrative
functions.
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on our level of actual and anticipated business
activities. Research and development
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<PAGE>
expenses will vary as we develop new products and enhance existing products. In
addition, we have a limited backlog of orders, and total revenue for any future
quarter is difficult to predict. Supply, manufacturing or testing constraints
could result in delays in the delivery of our products.
Our revenue and operating results are difficult to forecast and will
fluctuate, and we believe that period-to-period comparisons of our operating
results will not necessarily be meaningful. As a result, you should not rely
upon them as an indication of future performance. It is likely that our future
quarterly operating results from time to time will not meet the expectations of
security analysts or investors, which would likely cause the price of the
common stock to decline.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of convertible preferred stock, which totaled $18.7 million in aggregate
net proceeds through March 31, 1999. We have also financed our operations
through equipment loans, which totaled $1.2 million in principal amount at
March 31, 1999. As of March 31, 1999, we had $4.4 million of cash and cash
equivalents and a $2.0 million line of credit, all of which was available at
March 31, 1999. This line of credit expires in July 1999. At this time, we do
not intend to borrow any amounts under this line of credit.
Net cash used in operating activities was $4.0 million in 1996 and $1.6
million in 1996 and 1997 and net cash provided by operating activities was $1.0
million in 1998 and $1.1 million in the quarter ended March 31, 1999. For 1997,
cash used by operating activities was attributable primarily to a net loss of
$2.2 million and an increase in trade accounts receivable of $1.1 million,
offset in part by depreciation and amortization of $619,000 and increases in
accrued expenses and deferred revenue of $471,000 and $506,000. For 1998, cash
provided by operating activities was attributable primarily to net income of
approximately $703,000, depreciation and amortization of approximately $696,000
and increases in accounts payable, accrued expenses and deferred revenue of
approximately $442,000, $629,000 and $1.9 million. These amounts were offset in
part by an increase in trade accounts receivable of $3.1 million. This increase
in trade accounts receivable was due in part to the shipment of a $1.3 million
order to a customer in December 1998. Our sales cycle is lengthy and
unpredictable, and could cause our quarterly revenue and operating results to
fluctuate. Any change in our sales cycle could adversely affect our cash
provided by operating activities. For the quarter ended March 31, 1999, cash
provided by operating activities was attributable primarily to net income of
$288,000 and a decrease in trade accounts receivable of $1.0 million, offset in
part by an increase in prepaids and other assets of $335,000 and an increase in
inventory of $243,000.
Net cash used in investing activities was approximately $778,000, $597,000
and $780,000 in 1996, 1997 and 1998 and $610,000 in the quarter ended March 31,
1999. For 1996, 1997 and 1998, cash used in investing activities was
attributable primarily to purchases of property and equipment in the quarter
ended March 31, 1999, cash used in investing activity was also due to an
increase in other assets.
Net cash provided by financing activities was $8.5 million, approximately
$287,000 and $143,000 in 1996, 1997 and 1998, and net cash used in financing
activities was $114,000 in the quarter ended March 31, 1999. For 1996, cash
provided by financing activities was attributable to proceeds for the issuance
of preferred stock and notes payable, offset in part by repayment of notes
payable and capital lease obligations. For 1997 and 1998, cash provided by
financing activities was
27
<PAGE>
attributable to proceeds from the issuance of notes payable, offset in part by
repayment of notes payable and capital lease obligations. For the quarter ended
March 31, 1999, cash used in financing activities was attributable primarily to
repayments of notes payable and capital lease obligations.
As of March 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases and capital equipment leases. Although we
have no material commitments for capital expenditures, we anticipate a
substantial increase in capital expenditures and lease commitments consistent
with our anticipated growth in operations, infrastructure and personnel. We
also may establish additional operations as we expand globally.
We have reviewed our short-term and long-term liquidity needs. Our liquidity
needs for at least the next eighteen months will be met by the net proceeds
from this offering, together with our current cash and cash equivalents. After
this time, we cannot assure you that cash generated from operations will be
sufficient to satisfy our liquidity requirements, and we may need to raise
additional capital by selling additional equity or debt securities or by
obtaining a credit facility. If additional funds are raised through the
issuance of debt securities, these securities could have rights, preferences
and privileges senior to holders of common stock, and the term of this debt
could impose restrictions on our operations. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders, and we cannot be certain that additional financing will be
available in amounts or on terms acceptable to us, if at all. If we are unable
to obtain this additional financing, we may be required to reduce the scope of
our planned product development and marketing efforts, which could harm our
business, financial condition and operating results.
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish between twentieth and twenty-first century dates. This may result
in software failures or the creation of erroneous results.
We have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes assessment,
implementation activities such as remediation, upgrading and replacement of
product versions, validation testing, and contingency planning. We continue to
respond to customer questions about prior versions of our products on a case-
by-case basis.
We have largely completed all phases of this plan, except for contingency
planning, for the current versions of our products. As a result, all current
versions of our products are "Year 2000 Compliant," as defined below, when
configured and used in accordance with the related documentation, and provided
that the underlying operating system of the host machine and any other software
used with or in the host machine or our products are also Year 2000 Compliant.
We have not tested our products on all platforms or all versions of operating
systems that we currently support.
We have defined "Year 2000 Compliant" as the ability to:
. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
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<PAGE>
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. where appropriate, respond to two-digit date input in a disclosed,
defined, and predetermined manner to unambiguously indicate the century
referred to;
. if the date elements in interfaces and data storage specify the century,
store and provide output of unambiguous date information; and
. recognize the year 2000 as a leap year.
We have tested software obtained from third parties, including licensed
software, shareware, and freeware, that is incorporated into our products, and
we are seeking assurances from our vendors that licensed software is Year 2000
Compliant. Despite testing by us and by current and potential clients, and
assurances from developers of products incorporated into our products, our
products may contain undetected errors or defects associated with Year 2000
date functions. Known or unknown errors or defects in our products could result
in delay or loss of revenue, diversion of development resources, damage to our
reputation, or increased service and warranty costs, any of which could
materially adversely affect our business, operating results or financial
condition. Some commentators have predicted significant litigation regarding
Year 2000 compliance issues, and we are aware of these types of lawsuits
against other software vendors. Because of the unprecedented nature of Year
2000 litigation, it is uncertain whether or to what extent we may be affected
by it.
Our internal systems include both our information technology, or IT, and
non-IT systems. We have initiated an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology, but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. To the extent
that we are not able to test the technology provided by third-party vendors, we
are seeking assurances from vendors that their systems are Year 2000 Compliant.
We are not currently aware of any material operational issues or costs
associated with preparing our internal IT and non-IT systems for the Year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal IT and non-
IT systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. If our current or future customers fail to achieve
Year 2000 compliance or if they divert technology expenditures, especially
technology expenditures that were reserved for conferencing products, to
address Year 2000 compliance problems, our business could suffer.
To date, we have incurred expenses of approximately $50,000 for Year 2000
compliance activities. We will incur additional costs related to the Year 2000
plan for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product engineering and
customer satisfaction. We estimate that these additional costs will total less
than $100,000. However, we may experience material problems and costs with Year
2000 compliance not currently identified in our Year 2000 plan that could
adversely affect our business, results of operations, and financial condition.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and
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<PAGE>
implementing such a plan may itself be material. We intend to develop a
contingency plan by the fourth quarter of 1999. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions.
Impact of Recently Issued Accounting Standards
In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence of the fair values
of all the undelivered elements that are not accounted for by means of long-
term contract accounting, (2) vendor-specific objective evidence of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2, other than the requirement for vendor-
specific objective evidence of the fair value of each delivered element, are
satisfied. The provisions of SOP 98-9 that extend the deferral of the second
sentence of paragraphs 10, 37, 41 and 57 of SOP 97-2 became effective December
15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for
transactions that are entered into in fiscal years beginning after March 15,
1999. Retroactive application is prohibited. We are evaluating the requirements
of SOP 98-9 and the effects, if any, on our current revenue recognition
policies.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. We are currently evaluating the impact of SOP 98-1 on our
financial statements and related disclosures.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We believe the
adoption of SOP 98-5 will not have a material impact on our results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 will be effective for fiscal
years beginning after June 15, 1999. We do not currently hold derivative
instruments or engage in hedging activities.
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BUSINESS
Overview
We are a leading provider of integrated voice and data conferencing
solutions for geographically dispersed organizations. We develop, market and
support our MeetingPlace system, which allows companies to conduct voice and
data conferences which emulate face-to-face meetings, or what we call virtual
meetings, and extend real-time decision making processes irrespective of the
geographic location of participants. With MeetingPlace, participants can
schedule and attend a meeting, view, share and edit documents, and capture and
retrieve meeting content. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies such as telephones, cellular
phones and personal computers. Moreover, we expect that the dramatic growth in
web browsers and collaborative software applications will drive data
conferencing as an important business application of the Internet.
MeetingPlace consists of three components: (a) the MeetingPlace conference
server; (b) MeetingPlace software; and (c) system integration options.
MeetingPlace incorporates many easy-to-use features that allow participants to
emulate the voice and data collaboration that occurs in a face-to-face meeting,
such as breakout sessions, roll calls and meeting handouts. MeetingPlace
provides simultaneous voice and data conferencing and the ability to record and
access meeting content while lowering the enterprise's overall conferencing
costs.
We began commercial shipment of MeetingPlace in December 1994 and, as of
March 31, 1999, had over 200 customers. In addition to enterprise-wide general
deployment, customers have purchased and used MeetingPlace for a variety of
specific business applications, including morning brokerage calls, crisis
management, training and education, customer and client services, supply chain
management and merger integration. Furthermore, over 60% of our customers have
purchased additional products or services after their initial system
installations. MeetingPlace has been installed in some of the world's leading
enterprises, including 3Com, Aetna, Cisco, Credit Suisse First Boston, Hewlett-
Packard, Honeywell, Microsoft, Oracle, State Farm Insurance, Union Pacific
Railroad and the U.S. Federal Reserve Bank.
Industry Background
The proliferation of communications technologies is revolutionizing the way
people conduct business. Today, businesses of all sizes are empowering their
employees with a diverse array of communications tools to facilitate
information flow and improve productivity. From voicemail, fax machines and
cellular phones to e-mail, laptop computers and handheld devices, businesses
have demonstrated their continued willingness to adopt technologies that enable
their employees, vendors and customers to communicate more efficiently across
disparate geographies and time zones.
An enterprise's willingness to adopt a new communications technology depends
largely on the technology's ability to efficiently replace or enhance an
existing business practice. Voicemail is a more convenient and cost effective
substitute for the traditional pad-and-paper answering service. E-mail provides
a similar improvement over traditional inter-office mail. Cellular phones and
laptop computers provide added flexibility for mobile workers over the
traditional telephone and desktop computer. In addition, enterprises have
sought to enhance their competitive advantage by creating a virtual presence
with their customers and vendors through such means as e-commerce and
extranets.
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<PAGE>
Each of these technologies has increased productivity by extending the
workplace beyond the physical office.
An integral part of this workplace extension is the ability to coordinate
communications and decision making among people in different locations. As a
result, companies are expanding their use of existing technologies such as
voice-oriented conferencing and data-oriented collaborative software. According
to Frost & Sullivan, the total market for audio and video conferencing services
and equipment in the United States is projected to grow from $8.5 billion in
1998 to more than $24 billion by 2003. Meanwhile, according to International
Data Corporation, the total installed base of collaborative software clients in
the United States is expected to grow from 47 million in 1998 to more than 114
million by 2002.
We believe that no single, widely deployable technology, however, has been
able to effectively provide the integrated voice and data collaboration that
occurs in a face-to-face meeting in a cost effective manner. To have a meeting
today, a business typically must have everyone present in a conference room or
invest in limited and often expensive technologies or services that allow
people to communicate. For example, audio conferencing, although widely used
and available, is relatively expensive and does not enable participants to
share and modify documents. Video conferencing systems enable participants to
see each other but have technical limitations, such as minimum bandwidth
requirements, and are not widely available to users. Collaborative software
applications, such as Microsoft Outlook and Lotus Notes, focus on workflow
improvements rather than sharing documents real-time and allowing users to
speak with other participants.
To address this need for efficient, real-time voice and data communication,
organizations have resorted to using a patchwork of these technologies,
including conferencing, fax, e-mail and collaborative software applications.
While these technologies have been widely implemented, they do not allow an
enterprise to create a comprehensive network for collaboration throughout the
organization to promote information flow and effective decision making. We
believe that the growing geographic dispersion and mobility of workers further
compound this problem.
As a consequence, we believe there is significant demand for an integrated,
cost-effective and easy-to-use product that enables simultaneous real-time
voice communication and secure document collaboration irrespective of
geographic location. Furthermore, we believe that such a product must leverage
the existing voice and data infrastructure within the enterprise to facilitate
widespread deployment and realize significant cost savings. Finally, the system
must provide incremental capabilities to improve the meeting itself.
Accordingly, we believe that there is a need for a solution that enables
virtual meetings to further extend an enterprise's workplace.
The Latitude Solution
We have developed a solution, MeetingPlace, that allows companies to conduct
virtual meetings which extend real-time decision making processes irrespective
of the geographic locations of participants. With MeetingPlace, users can
schedule and attend a meeting, share and edit documents, and record and access
meeting content. Attendees can participate in a meeting using widely available
communications devices such as telephones, cellular phones, laptop computers
and desktop computers. MeetingPlace is designed to be an enterprise-wide
resource and to integrate seamlessly into widely deployed enterprise software
environments, including corporate intranets and collaborative software
environments such as Microsoft Outlook.
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<PAGE>
[Graphic depicting the Latitude MeetingPlace server and methods of access and
use.]
Key benefits of MeetingPlace include:
. Seamless integration of real-time voice and data
conferencing. MeetingPlace allows participants to easily schedule and
attend meetings that combine voice conferencing with real-time sharing
and editing of data. By leveraging an enterprise's existing voice and
data networks, MeetingPlace provides reliable and robust transport of
toll-quality voice as well as real-time data sharing and editing.
. Time-displaced access to meetings. MeetingPlace provides an integrated
ability to record and archive meeting conversations and materials,
enabling information generated during a meeting to be efficiently passed
on to those unable to attend. In addition, audio or data information can
be made available to participants in advance of the meeting.
. Lower overall cost of conferencing. With a MeetingPlace server installed,
the cost of a conference is limited to the long-distance charge, if any,
for each participant. In contrast, the cost of a conference using a
third-party service bureau typically ranges between $0.30 and $0.55 per
minute per participant within the United States. As such, we believe that
a typical customer can realize significant cost savings relative to
existing voice conferencing services provided by third-party service
bureaus.
. Security and control. MeetingPlace's customer premise-based system
provides an architecture which enables an enterprise to manage data
collaboration securely behind its network security system, referred to in
the software industry as a corporate firewall, consistent with its other
information technology strategies. Additionally, MeetingPlace eliminates
several risks associated with third party conferencing service bureaus,
such as operators giving access to unwelcome participants.
. Ease of use and broad feature set. MeetingPlace allows users to schedule,
attend and review meetings easily from their telephones or familiar
desktop environments such as browsers or
33
<PAGE>
Microsoft Outlook. In addition, MeetingPlace incorporates a large number
of features that allow end users to emulate many aspects of a face-to-face
meeting such as breakout sessions, roll calls and meeting hand-outs.
. Scalability and configurability. MeetingPlace is scalable with an
enterprise's conferencing needs. MeetingPlace servers are designed to be
networked together to coordinate the deployment of servers on a global
basis and to allow for large single meeting sessions of over 1,000
simultaneous participants. Moreover, MeetingPlace can be configured in a
variety of ways to satisfy specific business applications, such as
training and supply chain management.
Strategy
Our objective is to make MeetingPlace a standard communications tool within
an enterprise. Underlying this objective is our vision of making integrated
voice and data collaboration through MeetingPlace as widely utilized as e-mail
and voice mail. Our long-term strategy is comprised of the following elements,
each of which we are pursuing on an ongoing basis:
. Establish MeetingPlace as a ubiquitous desktop application. We intend to
continue to integrate MeetingPlace seamlessly with a wide array of
enterprise software, including browsers, collaborative software and
enterprise resource planning and customer relationship management
applications. For example, MeetingPlace is already available to end users
through browser interfaces as well as Microsoft Outlook, and we
anticipate introducing at least one additional interface by mid-2000. We
intend to leverage the large installed base of these applications to
establish MeetingPlace as a standard desktop productivity tool by
deploying MeetingPlace as an integral element of these applications.
. Aggressively leverage installed customer base to increase market
penetration. We will focus on developing prominent Fortune 1000 reference
accounts to encourage widespread market acceptance of our products. We
intend to apply the expertise that we have gained in penetrating existing
vertical markets, such as financial services and high technology, to
actively pursue new markets. We are currently attempting to expand our
presence in the areas of professional services, manufacturing,
healthcare, transportation, education and government. Additionally, we
will continue to promote increased usage and deployment of our products
by our existing customers through after-market sales and support.
. Leverage technological expertise to address significant market
opportunities. We have gained significant technological expertise in both
voice and data enterprise network environments, as well as in such areas
as digital signal processing and system integration. Furthermore, we are
developing new features and applications to enhance our existing product
offerings and to address significant market opportunities such as voice
over the Internet and Internet video. In addition, our technology
platform is designed to use open standards such as the specification for
data conferencing referred to in the software and networking industries
as the T.120 specification and the specification for Internet telephony
referred to in the software and networking industries as the H.323
specification.
. Develop partnerships to expand distribution channels. We continue to
expand our direct selling efforts in domestic markets. We also plan to
increasingly utilize indirect distribution
34
<PAGE>
channels such as third party distributors and system integration partners.
We expect to focus our partnership efforts on expanding our geographic
scope to reach customers in other countries and in regions of the United
States we do not presently serve, and on entering into distribution and
co-marketing arrangements with partners that have expertise in specific
vertical markets.
. Provide value-added consulting services to our customers. In addition to
our full-care support to customers, we offer a wide variety of value-
added consulting services such as installation, training, system
administration, help desk services, and web site and systems integration.
We believe that providing these value-added services to our customers
enhances our ability to achieve broad deployment within their
enterprises.
. Extend MeetingPlace functionality to enable collaborative knowledge
management. Our long-term product development strategy includes the
development of features and applications to enable what we refer to as
collaborative knowledge management. We expect that collaborative
knowledge management will extend the current capabilities of MeetingPlace
for real-time capture, archival and retrieval of meeting content to allow
enterprises to access and manage the information generated in their
meetings. We intend to incorporate technologies such as voice recognition
and search engines, as well as integrate MeetingPlace with handheld
devices.
Products and Services
MeetingPlace Hardware and Software Platform
Our MeetingPlace system enables the enterprise-wide deployment of real-time
voice and data conferencing capabilities. Designed to integrate with an
enterprise's existing telephone and data networks, MeetingPlace facilitates
meetings among people in different locations using phones and network
connected computers. The MeetingPlace system consists of three types of
components:
MeetingPlace Conference Server. At the core of the MeetingPlace system is
the MeetingPlace conference server, an integrated hardware and software
platform. The MeetingPlace server is built around an Intel Pentium processor
and incorporates standard trunk interfaces to many analog and digital phone
systems, an Ethernet interface for local area networks, and a storage system
based on the small computer systems interface, or SCSI, to manage internal
database functions and conference recordings. In addition, the platform
utilizes our advanced high-performance digital signal processing, cards to
manage voice communications. Each MeetingPlace server can scale from 8 to 120
concurrent users in any combination of different sized conferences, enabling
customers to configure the MeetingPlace server on a concurrent user basis. In
addition to the MeetingPlace conference server, an enterprise can increase
scalability and reliability with the following options:
. MeetingPlace Network Server. An integrated hardware and software platform
that enables customers to manage up to eight MeetingPlace conference
servers with centralized scheduling, administration and reporting.
. MeetingPlace Shadow Network Server. An integrated hardware and software
platform that provides redundancy in the event of failure of the
MeetingPlace network server.
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<PAGE>
MeetingPlace Software. The MeetingPlace conference server includes system
software necessary to schedule, conduct and manage real-time voice and data
conferences. This software includes an operating system and a structured query
language, or SQL, relational database, as well as integrated voice processing,
conference scheduling and conference bridging software. The MeetingPlace system
software also includes an optional simple network management protocol, or SNMP,
agent for centralized network management. Enterprise customers can configure
their MeetingPlace systems by choosing any of the following software options:
. MeetingPlace Data Conferencing. Server-based software that facilitates
real-time data collaboration using either standards-based collaboration
software such as Microsoft NetMeeting or Java-compatible web browsers
such as Microsoft Internet Explorer and Netscape Navigator.
. MeetingNotes. Software that facilitates management of meeting agendas,
roll calls, attached electronic documents, related web hyperlinks, and
conference recordings.
. MeetingPlace Flex Menus. Software that enables customization of telephone
touch-tone menus to access particular meetings and their associated
MeetingNotes information.
. MeetingTime. Windows or Macintosh compatible client software that enables
users to schedule, configure and monitor advanced meeting functions such
as breakout sessions and lecture style, listen-only meetings.
System Integration Options. We also offer several optional modules that
enable the integration of MeetingPlace with other strategic communications
tools used by the enterprise. Currently, these modules include:
. MeetingPlace WebPublisher. Windows NT-based software that integrates
MeetingPlace with an enterprise's web server to provide end users with
browser-based scheduling and management of conferences. WebPublisher also
integrates with RealAudio to provide streaming audio playback of
conference recordings.
. MeetingPlace Outlook Interface. Windows NT-based software that integrates
MeetingPlace with Microsoft Exchange to facilitate conference scheduling
and delivery of notifications through the Microsoft Outlook calendaring
interface from the user's desktop.
. MeetingPlace E-mail Gateway. Windows NT-based software that integrates
MeetingPlace with popular e-mail systems, including Microsoft Exchange
and Lotus Notes, for automated e-mail delivery of conference
notifications and meeting materials.
. MeetingPlace Fax Gateway. Windows NT-based software that integrates
MeetingPlace with a Windows NT-based fax server for automated fax
delivery of conference notifications and meeting materials.
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<PAGE>
Our MeetingPlace system is designed for deployment in enterprise
environments with a wide array of standard and optional features for end users,
help desk employees and system managers, including:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capability Features
<S> <C>
Meeting Set-Up. . ability to schedule in advance or real-time
Automated . schedule via MeetingTime software, web browser,
scheduling and telephone or Microsoft Outlook
notification of . scheduling of recurring meetings
meetings. . password and profile restrictions
. notification through e-mail, Microsoft Outlook, fax or
pager
. automatic dial-out to participants
- ------------------------------------------------------------------------------------
In-Session Capabilities. . roll calls
Management and control . announced and screened entries
of meeting attendance . participant exclusion
and flow. . breakout sessions
. lecture style, listen-only conferences
. real-time speaker identification
. interactive question and answer format
. participant muting
. automated dial-out to late participants
- ------------------------------------------------------------------------------------
Attachments. . distribution and notification of meeting materials,
Distribution of including electronic documents, prerecorded voice or
electronic meeting video and Internet hyperlinks
materials. . access before, during or after meeting
. automatic forwarding by e-mail or fax
. access to materials via the web, by e-mail or by fax
- ------------------------------------------------------------------------------------
Recording. Recording, . on/off control during conference
storage and playback of . automatic posting for playback
conferences. . password or profile controlled access
. access through telephone, downloaded audio file or
streaming audio using RealAudio over the web
- ------------------------------------------------------------------------------------
System Administration. . remote administration via Internet protocol-based
Tools for network (e.g., Internet)
management of . help desk monitoring via standard simple network
MeetingPlace by system management protocol, or SNMP, applications
administrators. . configuration, user profile management, capacity
planning, internal billback and automated backups
through MeetingTime software
. system reporting capability
</TABLE>
We license technology that is incorporated into our products from third
parties, including digital signal processing algorithms and the MeetingPlace
server's operating system and relational database. See "Risk Factors--The loss
of our right to use technology licensed to us by third parties could harm our
business." Software and hardware products as complex as ours are likely to
contain undetected errors or defects. See "Risk Factors--Our products may
suffer from defects, errors or breaches of security."
Consulting and Support Services
In addition to our MeetingPlace hardware and software offerings, we provide
extensive follow-on consulting and support services to our customers to ensure
successful deployment of MeetingPlace in their organizations. We offer
implementation and integration services on an individual engagement basis, and
full care support and managed services on an ongoing recurring basis.
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<PAGE>
. Implementation Services. Implementation services include turnkey project
management, database design, specific business application development,
training and on-site installation. These services target seamless
integration with a wide variety of telephone systems, local area network
configurations, web servers and messaging systems.
. Integration Services. Integration services include customization of web
interfaces to MeetingPlace, custom programming of telephone access menus
through the MeetingPlace Flex Menu Option, custom reporting and billing,
integration of MeetingPlace into non-standard voice or data networking
infrastructures and advanced application support and training. These
services are designed for customers with special application or
integration needs.
. Full Care Support. Full care support is an annual or multi-year service
plan that provides telephone-based technical support to system managers.
In addition, participating customers receive a software subscription
service for new releases, access to a standby conference server and
onsite hardware maintenance.
. Managed Services. Managed services are designed for customers that desire
on-site MeetingPlace systems but wish to outsource MeetingPlace's
administration and management. Managed services include all user profile
management, help desk support, rollout, capacity planning, technical
support and monthly usage reporting.
Technology
MeetingPlace incorporates a wide variety of internally developed and third
party licensed technologies. Key aspects of our technology platform include:
. High-performance digital signal processing engine. To meet the needs of a
highly scalable conferencing system, we designed our own general purpose
digital signal processing card based on a reduced instruction set
computing, or RISC, microprocessor and programmable Texas Instruments
digital signal processing chips. MeetingPlace configurations can contain
up to four digital signal processing cards to deliver up to five billion
instructions per second, of processing power in a single server. Our
software leverages the power of these digital signal processing cards to
provide high quality conference bridging that integrates digital signal
processing algorithms for echo cancellation, automatic gain control,
background noise suppression, voice compression, and speaker and dial
tone detection.
. Conference scheduling engine. A sophisticated conference scheduling
engine efficiently allocates MeetingPlace system resources, including
conference licenses, access ports, recording space and meeting
identification numbers. The scheduling agent utilizes a structured query
language, or SQL, relational database to manage transactions originating
internally or externally from either the voice or data network. The
software allows for sufficient flexibility to encompass real-world
scenarios including early arrivals, unexpected participants, conference
no-shows and meetings that run over their scheduled times.
. Conference recording and playback. To record and play back conferences,
MeetingPlace enables voice compression and decompression in addition to a
proprietary voice file system.
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<PAGE>
The integration of conference scheduling, bridging and recording enables
MeetingPlace to facilitate impromptu recording and playback of voice
conferences without operator intervention or external equipment.
. Robust server software architecture. MeetingPlace utilizes a robust set
of internally developed application programming interfaces, or APIs, that
are designed to integrate with a variety of external applications,
including web servers, e-mail systems and fax servers.
. Distributed network architecture. MeetingPlace enables the centralized
administration and management of multiple servers distributed over an
enterprise's local or wide area network. The system also incorporates an
internal database replication engine, system-wide redundancy for
MeetingPlace network servers and fault tolerance to network outages.
To be successful, we will need to develop and introduce new products that
respond to technological changes or evolving industry standards, such as voice
over the Internet, in a timely manner and on a cost-effective basis. In
addition, we will need to integrate our products with our customers' networks
and enterprise applications on an ongoing basis. Furthermore, any significant
interruption in the supply or support of any licensed software incorporated in
our products could adversely affect our sales. See "Risk Factors--Rapid
technological changes could cause our products to become obsolete or require us
to redesign our products," "--If we fail to integrate our products with third-
party technology, our sales could suffer" and "--The loss of our right to use
technology licensed to us by third parties could harm our business."
Customers
We began commercial shipment of our products in December 1994 and, as of
March 31, 1999, had over 200 customers. Our typical customers are medium to
large businesses with geographically diverse employees, suppliers, customers
and other constituents. In addition to enterprise-wide general deployment,
customers have purchased and used MeetingPlace for a variety of specific
business applications, including crisis management, training and education,
customer and client services, supply chain management and merger integration.
Furthermore, over 60% of our existing customers have purchased additional
products or services after their initial system installations. The following is
a representative list of our customers that have purchased MeetingPlace:
- --------------------------------------------------------------------------------
High Technology
- --------------------------------------------------------------------------------
Software Hardware Networking and
America Online, Inc. Apple Computer, Inc. Telecommunications
Cadence Design Fujitsu Limited 3Com Corporation
Systems, Inc. Hewlett-Packard Aspect Telecommunications
Clarify Inc. Company Corporation
Edify Corporation Honeywell Inc. Bell Atlantic
Enterprise Systems, Hutchinson Corporation
Inc. Technology Ciena Corporation
Great Plains Incorporated Cisco Systems, Inc.
Software, Inc. Natural Microsystems Norstan Inc.
Informix Corporation Corporation Tellabs, Inc.
Microsoft Quantum Corporation
Corporation Rockwell
NetManage, Inc. International
Network Associates, Corporation
Inc. Seagate Technology,
Oracle Corporation Inc.
Qualcomm
Incorporated
- --------------------------------------------------------------------------------
39
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Financial Services
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Banking Insurance Other Financial Services
BancBoston Robertson Aetna Inc. Brown Brothers Harriman &
Stephens Inc. American International Co.
Credit Suisse First Group, Inc. Capital Group Companies
Boston CNA Financial Inc.
Corporation Corporation Conseco, Inc.
J.C. Bradford & Co. CUNA Mutual Group Fidelity Investments
Morgan Stanley Dean John Hancock Mutual Franklin Templeton
Witter & Co. Life Insurance Instinet Corp.
NationsBanc Montgomery Company Southwest Securities
Securities LLC State Farm Insurance Group, Inc.
Prudential Securities The Vanguard Group
Incorporated Commercial Banking
SG Cowen Securities ABN AMRO Bank NV
Corporation BankBoston
UBS AG Bank of America
Compass Bank
Life Savings Bank
KeyCorp
Northern Trust Bank
STAR Financial Bank
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Other Industry Sectors
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Professional Services Transportation Retail
Andersen Consulting Air Canada Best Buy Co., Inc.
Automatic Data Processing, Inc. CSX Corp. Pier 1 Imports, Inc.
A.T. Kearney, Inc. Budget Rent a Car Corporation Rite Aid Corporation
The Boston Consulting Burlington Northern Santa Fe Weight Watchers International,
Group, Inc. Corp. Inc.
Cambridge Technology Partners, Inc. Union Pacific Corp.
Deloitte & Touche, LLP Education
Electronic Data Systems, Corp. Healthcare California State University
Gartner Group, Inc. Kaiser Permanente The Ohio State University
International Data Corporation Merck-Medco Managed Care, Rio Salado College
META Group, Inc. L.L.C. University of Illinois
University of Texas
Government
U.S. Federal Reserve Bank
NASA
U.S. Court of Appeals
State of Alaska
State of New Mexico
- ----------------------------------------------------------------------------------------------------
</TABLE>
No single customer accounted for more than 10% of our total revenues in 1997
or 1998. The inclusion of the names of our customers in the table above and in
the discussion below is not intended to imply that these customers are actively
endorsing or promoting our products and services.
The following are specific examples of how customers use MeetingPlace to
solve their collaboration needs:
. Hewlett-Packard installed its first MeetingPlace servers with a total of
240 ports in January 1996 in its Palo Alto, California facilities. Since
its initial installation, Hewlett-Packard has deployed MeetingPlace as a
standard communications tool. Today, Hewlett-Packard has deployed over 23
MeetingPlace servers with a total of 2,300 ports in the United States,
Asia and Latin America, connected through Hewlett-Packard's virtual
private network. According to Hewlett-Packard, it saved approximately
$300,000 per month in 1998 based on its current
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<PAGE>
usage of approximately 6 million minutes per month. Hewlett-Packard
continues to adopt new applications for MeetingPlace and is currently
rolling out data conferencing and web integration system-wide.
. Credit Suisse First Boston's parent company, Credit Suisse, initially
rolled out MeetingPlace in January 1995 as a cost effective conferencing
solution to schedule, record and archive intraday conference calls. This
enabled their worldwide sales force and securities traders to communicate
with each other regarding market conditions and investment opportunities.
Since its initial deployment with Credit Suisse, MeetingPlace has been
adopted within divisions of Credit Suisse First Boston in North America,
Europe and Asia to satisfy their conferencing needs. In addition,
MeetingPlace's technology has resolved such issues as ambient noise from
the trading floor and poor audio quality from telephones from various
countries. Conference leaders have greater control over the calls, long
distance connection delays have been eliminated, and participation has
dramatically increased.
. Budget Rent a Car chose MeetingPlace as a vital component of its distance
learning solution. MeetingPlace creates a virtual classroom between three
training labs in Lisle, Illinois, and 127 remote workstation sites across
the United States. MeetingPlace breakout sessions enable paired role-play
exercises and dialog sessions. Sessions are also recorded so that absent
trainees can call into the MeetingPlace system and listen to them at
their convenience. According to Budget, training costs have dropped from
$2,000 to just $156 per trainee, and training penetration has increased
from 60% to 99%.
Marketing and Sales
Marketing. To create awareness, market demand and sales opportunities for
our products, we engage in a number of marketing activities which include
exhibiting products and applications at industry trade shows and on our web
site, direct marketing, advertising in selected publications aimed at targeted
markets, public relations activities with trade and business press and
distribution of sales literature, technical specifications and documentation.
Our marketing efforts focus on educating the significant influencers within
enterprises, targeting IT executives and IT managers to build a business case
and closing on initial deployment applications. In addition, we cultivate
relationships with major network and telecommunications equipment providers,
and we intend to engage in co-marketing activities with enterprise software
providers.
Sales. Our distribution strategy is to sell our products and services to
medium to large businesses with geographically dispersed employees, suppliers,
customers and other constituents. We employ a direct sales force in the United
States as our primary distribution channel to market to these enterprises. As
of March 31, 1999, our direct sales force consisted of 41 sales
representatives located in 15 cities. Latitude uses a consultative sales
approach working closely with customers to understand and define their needs
and determine how they can be addressed by our products and services. This
strategy continues after the initial product implementation, the successful
completion of which is typically a prerequisite to full scale deployment.
While the sales cycle varies from customer to customer, it typically lasts
between six and nine months. See "Risk Factors--Our sales cycle is lengthy and
unpredictable."
In addition to our direct sales force in the United States and the United
Kingdom, we use indirect channels to extend our marketing effort. The indirect
channels consist of resellers that target specific
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<PAGE>
geographic regions and vertical markets, as well as usage-based resellers who
offer access to MeetingPlace services on a per-minute basis. As of March 31,
1999, we had six domestic resellers and three international resellers. We
intend to grow all of our reseller channels. See "Risk Factors--If we fail to
expand our sales and distribution channels, our business could suffer" and "--
Our ability to expand into international markets is uncertain."
Competition
We compete in a market that is highly competitive and rapidly changing. We
expect competition to persist and intensify in the future. We believe the
principal competitive factors in our market include, or are likely to include,
overall cost of conferencing, product performance and features such as the
ability to integrate voice and data, reliability, ease of use, size of customer
base, quality of service and technical support, sales and distribution
capabilities and strength of brand name. A description of our principal
competitors and the risks associated with the competitive nature of our market
are discussed in greater detail in "Risk Factors--Our market is highly
competitive."
We cannot be certain that we will be able to compete successfully with
existing or new competitors. If we fail to compete successfully against current
or future competitors, our business could suffer.
Patents and Intellectual Property Rights
Our success is heavily dependent upon protecting our proprietary technology.
We rely primarily on a combination of patents, copyright, trademark, trade
secrets, non-disclosure agreements and other contractual provisions to protect
our proprietary rights. As of March 31, 1999, we had four issued U.S. patents
relating to voice processing interfaces, recording and retrieval of audio
conferences, and graphical computer interfaces for teleconference systems. We
cannot be certain that these patents will provide us with any competitive
advantages or will not be challenged, invalidated or circumvented by third
parties or that the patents of others will not have an adverse effect on our
ability to do business. A discussion of risks associated with the protection of
our patents and intellectual property rights and potential infringement by us
of the patents and intellectual property rights of others is presented in "Risk
Factors--We may be unable to adequately protect our proprietary rights, and we
may be subject to infringement claims."
Manufacturing
We currently outsource the manufacturing of all of the subassemblies and
components of the MeetingPlace server to third parties. This strategy allows us
to reduce costly investment in manufacturing capital and to leverage the
expertise of our vendors. Our manufacturing operation consists primarily of
final assembly and testing of fully-configured MeetingPlace servers. Some of
the components and parts used in our products are procured from sole sources,
including the processor and digital signal processing device used in our
MeetingPlace server. We typically obtain components from only one vendor even
where multiple sources are available, to maintain quality control and enhance
the working relationship with suppliers. These purchases are made under
existing contracts or purchase orders. The failure of any sole source suppliers
to deliver on schedule could delay or interrupt our delivery of products and
adversely affect our business. See "Risk
42
<PAGE>
Factors--Any interruption in supply of components from outside manufacturers
and suppliers could hinder our ability to ship products in a timely manner."
Employees
As of March 31, 1999, we had a total of 121 employees, of which 29 were in
research and development, 79 were in sales, marketing and customer support, and
13 were in finance, administration and operations. Our future performance
depends in significant part upon our ability to attract new personnel and the
continued service of existing personnel in key areas including engineering,
technical support and sales. Competition for qualified personnel is intense and
there can be no assurance that we will be successful in attracting or retaining
employees in the future. None of our employees are subject to a collective
bargaining agreement. We consider our relations with our employees to be good.
See "Risk Factors--We may experience difficulties managing our expected growth"
and "--Our business could suffer if we lose the services of our current
management team."
Facilities
We lease approximately 39,000 square feet for our headquarters facility in
Santa Clara, California, which we expect to expand to approximately 51,000
square feet in the second quarter of 1999. The current lease for the Santa
Clara facility expires in December 2000, when we have the option to extend it
for an additional five years. We also lease space at eleven other locations in
the U.S. and three internationally. Each of these other offices is leased on a
month-to-month basis or under a lease with a term of 12 months or less.
Legal Proceedings
We are not currently a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table provides information with respect to our executive
officers and directors as of March 31, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Emil C.W. Wang.......... 47 President, chief executive officer and director
Glenn A. Eaton.......... 36 Vice president, international
Roberta H. Gray......... 47 Vice president, marketing
Janet A. Gregory........ 46 Vice president, North American sales
Christopher D. Harvey... 41 Vice president, customer support
Rick M. McConnell....... 33 Chief financial officer and vice president, finance and administration
Edward D. Tracy......... 39 Vice president, product operations
Thomas H. Bredt......... 58 Director
Robert J. Finocchio,
Jr. ................... 47 Director
F. Gibson Myers, Jr. ... 57 Director
James L. Patterson...... 61 Director
</TABLE>
- --------
Mr. Wang, Latitude's founder, has served as our president and chief
executive officer and as a director since our inception in April 1993. Before
founding Latitude, Mr. Wang served in various management positions with Aspect
Telecommunications Corporation, a provider of call center systems. Before
Aspect, Mr. Wang was employed with ROLM Corporation, a manufacturer of PBX
systems, and was a consultant with Bain & Co., a management consulting firm.
Mr. Wang holds a B.S. degree in civil engineering from Princeton University and
an M.S. degree in structural engineering and an M.B.A. degree from Stanford
University.
Mr. Eaton has served as our vice president, international since January
1999, and previously served as our vice president, business development, from
December 1997 to January 1999, vice president, marketing from October 1994 to
December 1997 and director of marketing from May 1993 to October 1994. Before
Latitude, Mr. Eaton served in various management positions with Aspect,
including director of product marketing for the Aspect CallCenter from May 1989
to April 1993. Before Aspect, Mr. Eaton was employed with ROLM for six years.
Mr. Eaton holds an B.S. degree in electrical engineering from the Massachusetts
Institute of Technology.
Ms. Gray has served as our vice president, marketing since October 1998.
From September 1997 to October 1998, Ms. Gray was vice president, strategy and
business development at Intrepid Systems, Inc., a provider of retail management
software. From June 1990 to August 1997, she served in various marketing
management positions with SCO, a provider of network computing software,
including senior director of strategic marketing from August 1996 to August
1997. Before SCO, Ms. Gray was a market development manager with Sun
Microsystems, Inc. from May 1985 to June 1990 and was director of software
engineering from May 1979 to May 1985. Ms. Gray holds a B.S. degree in
mathematical sciences from Stanford University.
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Ms. Gregory has served as our vice president, North American sales since
March 1994. From July 1988 to January 1994, Ms. Gregory served in various
management positions with Octel Communications Corporation, a provider of voice
messaging systems, including director of marketing for voice information
services, director of sales for voice information services and general manager
for customer premises equipment sales. Before Octel, Ms. Gregory held various
sales management positions with ROLM from 1980 to 1988. Ms. Gregory holds a
B.A. degree in English from Guilford College.
Mr. Harvey has served as our vice president, customer support since April
1998. From January 1997 to March 1998, Mr. Harvey was an independent consultant
in the field of customer support. From May 1992 to January 1997, he served as
director of worldwide technical support at Auspex Systems, Inc. a manufacturer
of network file servers. Before Auspex, Mr. Harvey held various management
positions in technical support and systems engineering with Minerva Systems,
Inc., a provider of hardware and software for video compression, and Epoch
Systems, Inc., a provider of optical storage devices. Mr. Harvey holds a B.S.
degree in management from the University of San Francisco and an M.B.A. degree
from Golden Gate University.
Mr. McConnell has served as our chief financial officer and vice president,
finance and administration since December 1998. From January 1994 to November
1998, Mr. McConnell was chief financial officer and vice president, finance and
administration of Storm Technology, Inc., a maker of personal scanners, and
served as director of finance and administration of Storm from June 1992 until
January 1994. From July 1987 to June 1990, Mr. McConnell was employed as a
financial engineer by The First Boston Corporation, predecessor to Credit
Suisse First Boston, a financial services firm. Mr. McConnell holds a B.A.
degree in quantitative economics from Stanford University and an M.B.A. degree
from the Stanford Graduate School of Business.
Mr. Tracy has served as our vice president, product operations since March
1998 and previously served as our vice president, product development, from
December 1996 to March 1998 and director of engineering from May 1993 to
December 1996. From January 1986 to May 1993, Mr. Tracy served in various
management positions with Aspect, including director of engineering from May
1991 to May 1993. Before Aspect, Mr. Tracy worked with DAVID Systems, Inc., a
telecommunications company, as a designer of voice/data switching PBX systems.
Mr. Tracy holds an Sc.B. degree in engineering from Brown University and an
M.S.E.E. degree in electrical engineering from Stanford University.
Mr. Bredt has served as a director of Latitude since April 1993. Since April
1986, Mr. Bredt has been a general partner and managing director of Menlo
Ventures, a venture capital firm. Mr. Bredt is also a director of Clarify Inc.,
a developer and provider of integrated enterprise front office solutions. Mr.
Bredt holds a B.S.E. degree in science engineering from the University of
Michigan, an M.E.E. degree in electrical engineering from New York University
and a Ph.D. degree in computer science from Stanford University.
Mr. Finocchio has served as a director of Latitude since August 1995. Since
July 1997, Mr. Finocchio has served as chairman, president and chief executive
officer of Informix Corporation, a provider of information management software.
From December 1988 until May 1997, Mr. Finocchio was employed with 3Com
Corporation, a global data networking company, where he
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held various positions, most recently serving as president, 3Com Systems.
Before his employment with 3Com, Mr. Finocchio held various executive positions
in sales and service with ROLM, most recently as vice president of ROLM systems
marketing. Mr. Finocchio is also a regent of Santa Clara University. Mr.
Finocchio holds a B.S. degree in economics from Santa Clara University and an
M.B.A. degree from the Harvard Business School.
Mr. Myers has served as a director of Latitude since June 1997. Since 1970,
Mr. Myers has been a general partner or managing director of various entities
associated with Mayfield Fund, a venture capital firm. Mr. Myers also serves as
a director of Spectralink Corporation, a provider of on-premises wireless
telephone systems. Mr. Myers holds a B.A. degree in engineering from Dartmouth
College and an M.B.A. degree from Stanford University.
Mr. Patterson has been a director of Latitude since July 1993. Mr. Patterson
has been an independent consultant since June 1987. Mr. Patterson also serves
as a director of Aspect Telecommunications Corporation. Mr. Patterson holds a
B.S.E.E. degree in electrical engineering from the University of Colorado.
Executive officers are appointed by the board of directors and serve until
their successors are qualified and appointed. There are no family relationships
among any of our directors or officers. Storm filed for Chapter 7 bankruptcy
protection in November 1998 when Mr. McConnell was Storm's chief financial
officer and vice president, finance and administration.
Board Composition
Our bylaws currently provide for a board of directors consisting of five
members. Commencing at the first annual meeting of stockholders following the
annual meeting of stockholders when Latitude shall have had at least 800
stockholders, the board of directors will be divided into three classes, each
serving staggered three-year terms: class I, whose term will expire at the
first annual meeting of stockholders following the annual meeting of
stockholders when Latitude shall have had at least 800 stockholders; class II,
whose term will expire at the second annual meeting of stockholders following
the annual meeting of stockholders when Latitude shall have had at least 800
stockholders; and class III, whose term will expire at the third annual meeting
of stockholders following the annual meeting of stockholders when Latitude
shall have had at least 800 stockholders. As a result, only one class of
directors will be elected at each annual meeting of stockholders of Latitude,
with the other classes continuing for the remainder of their respective terms.
Messrs. Bredt and Myers have been designated as class I directors; Messrs.
Patterson and Finocchio have been designated as class II directors; and Mr.
Wang has been designated as a class III director. These provisions in our
restated certificate of incorporation may have the effect of delaying or
preventing changes in control or management of Latitude. See "Description of
Capital Stock--Anti-Takeover Effects of Delaware Law and Charter Provisions."
Messrs. Bredt and Myers were elected to the board of directors under a
voting agreement by and among Latitude and some of its principal stockholders.
This voting agreement will terminate upon completion of this offering.
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Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are employees of
Latitude are eligible to participate in our 1993 and 1999 Stock Plans and will
be eligible to participate in our employee stock purchase plan. Directors who
are not employees of Latitude will be eligible to participate in our 1999 Stock
Plan and 1999 Directors' Stock Option Plan. See "Stock Plans."
Board Committees
The compensation committee currently consists of Messrs. Myers and
Patterson. The compensation committee reviews and approves the compensation and
benefits for our executive officers, grants stock options under our stock
option plans and makes recommendations to the board of directors regarding
these matters.
The audit committee consists of Messrs. Bredt and Finocchio. The audit
committee makes recommendations to the board of directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors and reviews and
evaluates our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of Latitude's board of directors
are currently Messrs. Myers and Patterson. Neither Mr. Myers nor Mr. Patterson
has at any time been an officer or employee of Latitude.
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Executive Compensation
Summary Compensation. The following table lists the compensation earned for
services rendered to Latitude in all capacities for the year ended December 31,
1998 by our chief executive officer and the four next most highly compensated
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary ($) Bonus ($) Options (#) Compensation($)
--------------------------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Emil C.W.Wang................ $152,696 $17,348 151,200 $1,242(1)
President and chief
executive officer
Glenn A. Eaton............... 125,108 8,674 46,200 199(2)
Vice president,
international
Janet A. Gregory............. 98,754 92,061 53,700 156(2)
Vice president, North
American sales
Edward D. Tracy.............. 118,529 26,090 46,200 192(2)
Vice president, product
operations
</TABLE>
- --------
(1) Consists of life insurance premiums paid by Latitude and reimbursement for
tax preparation expenses.
(2) Consists of life insurance premiums paid by Latitude.
Under the terms of a bonus plan adopted by the board of directors, our
executive officers will receive performance bonuses in 1999 based on Latitude's
achievement of quarterly revenue targets set by the board of directors.
Option Grants. The following table provides information with respect to
stock options granted to each of the executive officers named in the summary
compensation table in the year ended December 31, 1998. In accordance with the
rules of the Securities and Exchange Commission, also shown below is the
potential realizable value over the term of the option, the period from the
grant date to the expiration date, based on assumed rates of stock appreciation
of 5% and 10%, compounded annually. These amounts are based on assumed rates of
appreciation and do not represent our estimate of future stock price. Actual
gains, if any, on stock option exercises will depend on the future performance
of our common stock.
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<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of
Total Potential Realizable Value
Number of Options at Assumed Annual Rates
Securities Granted to of Stock Price Appreciation
Underlying Employees Exercise for Option Term
Options in Fiscal Price Expiration ----------------------------
Name Granted(#) Year ($/share) Date 5%($) 10%($)
---- ---------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Emil C.W. Wang.......... 151,200 14.1% $1.00 1/16/08 $ 95,155 $ 241,179
Glenn A. Eaton.......... 46,200 4.3 1.00 1/16/08 29,075 73,693
Janet A. Gregory........ 53,700 5.0 1.00 1/16/08 33,795 85,657
Edward D. Tracy......... 46,200 4.3 1.00 1/16/08 29,075 73,693
</TABLE>
These stock options, which were granted under the 1993 Stock Plan, become
exercisable at a rate of 1/4 of the total number of shares of common stock
subject to the option on the first anniversary of the date of grant, and 1/48
of the total number of shares each month after the first anniversary, as long
as the optionee remains an employee with, consultant to, or director of
Latitude. On January 8, 1999, the following executive officers were granted
options at an exercise price of $4.33 per share: Mr. Wang, 20,337 shares; Mr.
Eaton, 5,337 shares; Ms. Gregory, 20,337 shares; and Mr. Tracy, 20,337 shares.
The percentage of total options granted to employees in the fiscal year is
based on an aggregate of 1,074,209 shares subject to options granted by
Latitude during the year ended December 31, 1998 to employees of and
consultants to Latitude, including the executive officers named in the summary
compensation table.
The exercise price per share of each option was equal to the fair market
value of our common stock on the date of grant as determined in good faith by
our board of directors on the grant date based upon such factors as the
purchase price paid by investors for shares of Latitude's preferred stock, the
absence of a trading market for Latitude's securities and Latitude's financial
outlook and results of operations.
The potential realizable value is based on the term of the option at its
time of grant, which is ten years, and assumes that the fair market value of
Latitude's common stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated
stock price.
Aggregate Option Exercises and Option Values. The following table provides
summary information concerning the shares of common stock represented by
outstanding stock options held by each of the executive officers named in the
summary compensation table as of December 31, 1998. No options were exercised
by the executive officers named in the summary compensation table during the
year ended December 31, 1998.
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<PAGE>
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options
End(#) at Fiscal Year-End($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Emil C.W. Wang............. 375 152,235 $1,225 $406,875
Glenn A. Eaton............. 375 47,325 1,225 126,875
Janet A. Gregory........... 375 54,825 1,225 146,875
Edward D. Tracy............ 375 47,325 1,225 126,875
</TABLE>
These values are based on the fair market value as of December 31, 1998, as
determined by the board of directors, minus the exercise price, multiplied by
the number of shares underlying the option.
Stock Plans
1993 Stock Plan. Our 1993 Stock Plan provides for the grant of incentive
stock options to employees and nonstatutory stock options and stock purchase
rights to employees, directors and consultants. The purposes of the 1993 Stock
Plan are to attract and retain the best available personnel, to provide
additional incentives to our employees and consultants and to promote the
success of our business.
The 1993 Stock Plan was originally adopted by our board of directors in June
1993 and approved by our stockholders in September 1993. Unless terminated
earlier by the board of directors, the 1993 Stock Plan shall terminate in June
2003. A total of 3,555,000 shares of common stock have been reserved for
issuance under the 1993 Stock Plan. As of March 31, 1999, options to purchase
1,494,624 shares of common stock were outstanding at a weighted average
exercise price of $2.63 per share, 1,975,438 shares had been issued upon
exercise of outstanding options or under restricted stock purchase agreements,
and 84,938 shares remained available for future grant.
The 1993 Stock Plan may be administered by the board of directors or a
committee of the board. The administrator determines the terms of options
granted under the 1993 Stock Plan, including the number of shares subject to
the option, exercise price, term and exercisability. Incentive stock options
granted under the 1993 Stock Plan must have an exercise price equal to at least
100% of the fair market value of the common stock on the date of grant and at
least 110% of the fair market value in the case of options granted to an
employee who holds more than 10% of the total voting power of all classes of
our stock. Nonstatutory stock options granted under the 1993 Stock Plan must
have an exercise price of at least 85% of the fair market value of the common
stock on the date of grant and at least 110% of the fair market value of our
common stock in the case of nonstatutory stock options granted to an optionee
who holds more than 10% of the total voting power of all classes of our stock.
Payment of the exercise price may be made in cash or other forms of
consideration approved by the administrator.
The administrator determines the term of options, which may not exceed 10
years or five years in the case of an option granted to a holder of more than
10% of the total voting power of all classes of our stock. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised during the lifetime of the optionee
only by the optionee.
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<PAGE>
The administrator determines when options become exercisable. Options
granted under the 1993 Stock Plan generally must be exercised within 60 days
after the termination of the optionee's status as an employee, director or
consultant of Latitude, or within 12 months if the termination is due to the
death or disability of the optionee, but in no event later than the expiration
of the option's term. Options granted under the 1993 Stock Plan generally vest
at the rate of 1/4th of the total number of shares subject to the option on the
first anniversary of the date of grant, and 1/48th of the total number of
shares subject to the option each month after the first anniversary.
In addition to stock options, the administrator may issue employees,
directors and consultants stock purchase rights under the 1993 Stock Plan. The
administrator determines the number of shares, price, terms, conditions and
restrictions related to a grant of stock purchase rights. The purchase price of
a stock purchase right granted under the 1993 Stock Plan must be at least 85%
of the fair market value of the shares as of the date of the offer. The period
during which the stock purchase right is held open is determined by the
administrator, but in no case shall the period exceed 30 days. Unless the
administrator determines otherwise, the recipient of a stock purchase right
must execute a restricted stock purchase agreement granting Latitude an option
to repurchase the unvested shares at cost upon termination of the recipient's
relationship with us.
If we merge with or into another corporation, each outstanding option and
stock purchase right may be assumed or an equivalent option or stock purchase
right substituted by the successor corporation. However, if the successor
corporation does not agree to assume or substitute an option or stock purchase
right, then the unvested shares under the option will automatically be
accelerated so that an additional 50% of the total number of unvested shares
will automatically become vested, and any rights of repurchase with respect to
a stock purchase right will automatically terminate with respect to 50% of the
total number of unvested shares. In addition, if the holder of an option or
stock purchase right is an employee and the holder's employment is
involuntarily terminated without cause at any time within 24 months following
our merger with or into another corporation, then, under most circumstances,
the unvested shares under the option will automatically be accelerated so that
an additional 50% of the total number of unvested shares will automatically
become vested, and any rights of repurchase with respect to a stock purchase
right will automatically terminate with respect to 50% of the total number of
unvested shares.
The administrator has the authority to amend or terminate the 1993 Stock
Plan; however, the administrator may not take any action that impairs the
rights of any holder of an outstanding option without the holder's consent. In
addition, stockholder approval is required to increase the number of shares
subject to the 1993 Stock Plan or to change the designation of the class of
persons eligible to be granted options and stock purchase rights.
1999 Stock Plan. Our 1999 Stock Plan was adopted by the board of directors
in February 1999 and was approved by our stockholders in April 1999. A total of
2,700,000 shares of common stock has been reserved for issuance under the 1999
Stock Plan, all of which remain available for future option grants. The
purposes of the 1999 Stock Plan are to attract and retain the best available
personnel to Latitude and to provide additional incentives to our employees and
consultants and to promote the success of our business.
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<PAGE>
The 1999 Stock Plan provides for the grant of incentive stock options to
employees, including officers and directors, and nonstatutory stock options and
stock purchase rights to employees and consultants, including nonemployee
directors. If not terminated earlier, the 1999 Stock Plan will terminate in
February 2009.
The 1999 Stock Plan may be administered by the board of directors or a
committee of the board. The 1999 Plan is currently administered by the
compensation committee. The administrator determines the terms of options
granted under the 1999 Stock Plan, including the number of shares subject to
the option, exercise price, term and exercisability. In no event, however, may
an individual employee receive option grants or stock purchase rights for more
than 2,700,000 shares under the 1999 Stock Plan in any fiscal year.
The exercise price of all incentive stock options granted under the 1999
Stock Plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of any incentive stock option granted
to an optionee who owns stock representing more than 10% of the total combined
voting power of all classes of outstanding capital stock of Latitude or any
parent or subsidiary corporation of Latitude must equal at least 110% of the
fair market value of the common stock on the date of grant. Generally, the
exercise price of all nonstatutory stock options must equal at least 85% of the
fair market value of the common stock on the date of grant. However, the
exercise price of a nonstatutory stock option granted to an individual who, on
the last day of our most recently completed fiscal year, is our chief executive
officer, or is acting in such capacity, or is one of our four highest
compensated officers, other than our chief executive officer, whose total cash
compensation exceeded $100,000 during the fiscal year, must equal at least 100%
of the fair market value of the common stock on the date of grant. Payment of
the exercise price may be made in cash or other consideration as determined by
the administrator.
The administrator determines the term of options, which may not exceed 10
years or 5 years in the case of an incentive stock option granted to a 10%
stockholder. Generally no option may be transferred by the optionee other than
by will or the laws of descent or distribution. However, the administrator may
in its discretion permit transferability of nonstatutory stock options granted
under the 1999 Stock Plan.
Each option may be exercised during the lifetime of the optionee only by the
optionee or a permitted transferee. The administrator determines when options
become exercisable. Options granted under the 1999 Stock Plan generally become
exercisable at the rate of 1/4th of the total number of shares subject to the
options on the first anniversary of the date of grant, and 1/48th of the total
number of shares subject to the options each month after the first anniversary.
In addition to stock options, the administrator may issue to employees,
directors and consultants stock purchase rights under the 1999 Stock Plan. The
administrator determines the number of shares, price, terms, conditions and
restrictions related to a grant of stock purchase rights. The purchase price of
a stock purchase right granted under the 1999 Stock Plan must be at least 85%
of the fair market value of the shares as of the date of the offer. The period
during which the stock purchase right is held open is determined by the
administrator, but in no case shall this period exceed 30 days. Unless the
administrator determines otherwise, the recipient of a stock purchase right
must execute a restricted stock purchase agreement granting Latitude an option
to repurchase the shares at cost upon termination of the recipient's
relationship with us.
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<PAGE>
If we sell all or substantially all of our assets or merge with another
corporation, then each option and stock purchase right may be assumed or an
equivalent option or stock purchase right substituted by the successor
corporation. However, if the successor corporation does not agree to assume or
substitute an option or stock purchase right, then, the unvested shares under
the option will automatically be accelerated so that an additional 50% of the
total number of unvested shares will automatically become vested, and any
rights of repurchase with respect to the stock purchase right will
automatically terminate with respect to 50% of the total number of unvested
shares. In addition, if the holder of an option or stock purchase right is an
employee and the holder's employment is involuntarily terminated without cause
at any time within 24 months following our merger with or into another
corporation, then, under most circumstances, the unvested shares under the
option will automatically be accelerated so that an additional 50% of the total
number of unvested shares will automatically become vested and any rights of
repurchase with respect to the stock purchase right will automatically
terminate with respect to 50% of the total number of unvested shares. The
administrator has the authority to amend or terminate the 1999 Stock Plan as
long as the amendment or termination does not adversely affect any outstanding
option or stock purchase right and provided that stockholder approval shall be
obtained to the extent it is required by applicable law.
1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan was
adopted by the board of directors in February 1999 and was approved by our
stockholders in April 1999. A total of 250,000 shares of common stock has been
reserved for issuance under the 1999 Directors' Stock Option Plan, all of which
remain available for future grants.
The 1999 Directors' Stock Option Plan provides for the grant of nonstatutory
stock options to nonemployee directors of Latitude. The 1999 Directors' Stock
Option Plan is designed to work automatically without administration; however,
to the extent administration is necessary, it will be performed by the board of
directors. To the extent they arise, it is expected that conflicts of interest
will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which the director has a personal
interest.
The 1999 Directors' Stock Option Plan provides that each person who is or
becomes a nonemployee director of Latitude will be granted a nonstatutory stock
option to purchase 20,000 shares of common stock on the later of the date on
which the optionee first becomes a nonemployee director of Latitude or the date
of the closing of this offering. In addition, on the date of our annual
stockholders meeting each year, each nonemployee director will be granted an
additional option to purchase 5,000 shares of common stock if, on that date, he
or she has served on our board of directors for at least six months.
The 1999 Directors' Stock Option Plan sets neither a maximum nor a minimum
number of shares for which options may be granted to any one nonemployee
director, but does specify the number of shares that may be included in any
grant and the method of making a grant. No option granted under the 1999
Directors' Stock Option Plan is transferable by the optionee other than by will
or the laws of descent or distribution or under a qualified domestic relations
order. Each option is exercisable, during the lifetime of the optionee, only by
the optionee.
The 1999 Directors' Stock Option Plan provides that the first option granted
to a director under this plan shall become exercisable in installments as to
25% of the total number of shares subject to
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<PAGE>
the first option on each of the first, second, third and fourth anniversaries
of the date of grant of the option. Each subsequent option shall become
exercisable in installments as to 50% of the total number of shares on each of
the first and second anniversaries of the date of grant of that option. If a
nonemployee director ceases to serve as a director of Latitude for any reason
other than death or disability, the director may within 90 days after the date
he ceases to be a director of Latitude, exercise options granted under the 1999
Directors' Stock Option Plan to the extent that he was entitled to exercise it
at the date of termination. If the director was not entitled to exercise this
option at the date of termination, or if the director does not exercise the
option within the 90 day period, the option shall terminate. The exercise price
of all stock options granted under the 1999 Directors' Stock Option Plan shall
be equal to the fair market value of a share of our common stock on the date of
grant of the option. Options granted under the 1999 Directors' Stock Option
Plan have a term of ten years.
In the event of the dissolution or liquidation of Latitude, a sale of all or
substantially all of our assets, our merger with or into another corporation or
any other reorganization of Latitude in which more than 50% of the shares of
Latitude entitled to vote are exchanged, each nonemployee director shall have
either (1) a reasonable time within which to exercise the option, including any
part of the option that would not otherwise be exercisable, before
effectiveness of the dissolution, liquidation, sale, merger or reorganization,
at the end of which time the option shall terminate, or (2) the right to
exercise the option, including any part that would not otherwise be
exercisable, or receive a substitute option with comparable terms, as to an
equivalent number of shares of stock of the corporation succeeding Latitude or
acquiring its business by reason of the reorganization. The board of directors
may amend or terminate the 1999 Directors' Stock Option Plan; provided,
however, that no amendment or termination may adversely affect any outstanding
option, and shareholder approval shall be obtained for any amendment as
required by applicable law. If not terminated earlier, the 1999 Directors'
Stock Option Plan will have a term of ten years.
1999 Employee Stock Purchase Plan. Our employee stock purchase plan was
adopted by the board of directors in February 1999 and was approved by our
stockholders in April 1999. A total of 500,000 shares of common stock has been
reserved for issuance under the employee stock purchase plan. The number of
shares reserved for issuance under the employee stock purchase plan will
automatically increase on the first day of each of the fiscal years beginning
in 2000, 2001, 2002, 2003 and 2004 by an amount equal to the lesser of 200,000
shares or one percent of the total shares outstanding on the last day of the
immediately preceding fiscal year.
The employee stock purchase plan, which is intended to qualify under Section
423 of the Code, will be implemented by an offering period commencing on the
date of the closing of this offering and ending on October 31, 1999. Each
subsequent offering period will have a duration of six months. Each offering
period after the first offering period will commence on November 1 and May 1 of
each year. The employee stock purchase plan will be administered by the board
of directors or by a committee appointed by the board.
Employees, including officers and employee directors, of Latitude or of any
majority-owned subsidiary designated by the board, are eligible to participate
in the employee stock purchase plan if they are employed by Latitude or any
subsidiary for at least 20 hours per week and more than five
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<PAGE>
months per year. The employee stock purchase plan permits eligible employees to
purchase common stock through payroll deductions, which may not exceed 15% of
an employee's compensation, at a price equal to the lower of 85% of the fair
market value of our common stock at the beginning or end of the offering
period. The maximum number of shares an employee may purchase during each
offering period is 1,000 shares. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with Latitude. If not terminated
earlier, the employee stock purchase plan will have a term of 20 years.
The employee stock purchase plan provides that if we merge with or into
another corporation or sell all or substantially all of our assets, each right
to purchase stock under the employee stock purchase plan will be assumed or an
equivalent right substituted by the successor corporation. If the successor
corporation refuses to assume or substitute equivalent rights, the board of
directors may shorten the offering period so that employees' rights to purchase
stock under the employee stock purchase plan are exercised before the merger or
sale of assets. The board of directors has the power to amend or terminate the
employee stock purchase plan as long as this action does not adversely affect
any outstanding rights to purchase stock under this plan. However, the board of
directors may amend or terminate the employee stock purchase plan or an
offering period even if it adversely affects outstanding options to avoid our
incurring adverse accounting charges.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as a director except for liability
. for any breach of the director's duty of loyalty to Latitude or to its
stockholders,
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law, or
. for any transaction from which a director derives an improper personal
benefit.
Our bylaws provide that Latitude shall indemnify its directors and executive
officers and may indemnify its officers, employees and other agents to the full
extent permitted by law. We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of an indemnified
party. Our bylaws also permit us to advance expenses incurred by an indemnified
party in connection with the defense of any action or proceeding arising out of
the party's status or service as a director, officer, employee or other agent
of Latitude upon an undertaking by the indemnified party to repay these
advances if it is ultimately determined that the party is not entitled to
indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to indemnify the director
or officer against expenses, including attorney's fees, judgments, fines and
settlements paid by the individual in connection with any action, suit or
proceeding arising out of the individual's status or service as a director or
officer of Latitude.
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<PAGE>
We are not required to indemnify the individual against liabilities arising
from willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest. In addition, the indemnification agreements require us to advance
expenses incurred by the individual in connection with any proceeding against
the individual with respect to which he may be entitled to indemnification by
us. We believe that our certificate of incorporation and bylaw provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. We also maintain directors' and officers'
liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Latitude where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification by these individuals.
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<PAGE>
RELATED PARTY TRANSACTIONS
Stock option grants in the last fiscal year to directors and executive
officers of Latitude are described in this prospectus under the caption
"Management--Executive Compensation."
Since our inception, we have issued, shares of preferred stock in private
placement transactions as follows: an aggregate of 4,762,500 shares of Series A
preferred stock at $0.67 per share in April 1993, an aggregate of 4,030,228
shares of Series B preferred stock at $1.83 per share in June 1994, and an
aggregate of 3,043,499 shares of Series C preferred stock at $2.67 per share in
March 1996. The share and per share data provided elsewhere in this prospectus
and in the table below reflect our reincorporation in Delaware, our three-for-
two stock split and the automatic conversion of our outstanding preferred stock
into common stock upon the completion of this offering. The following table
summarizes the shares of preferred stock purchased by directors and 5%
stockholders of Latitude and persons and entities associated with them in these
private placement transactions:
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred
Investor Stock Stock Stock
-------- --------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with Mayfield Fund (F.
Gibson Myers, Jr.)............................. 2,625,000 1,590,909 843,749
Menlo Ventures IV, L.P. (Thomas H. Bredt)....... 1,875,000 1,136,364 1,406,250
James L. Patterson.............................. 109,500 27,000 18,750
Robert J. Finocchio, Jr. ....................... -- 37,500 --
Entities affiliated with Asset Management
Associates..................................... -- 681,819 375,000
Entities affiliated with Canaan Partners........ -- 409,090 375,000
</TABLE>
In the table above, shares held by affiliated persons and entities have been
aggregated. See "Principal Stockholders."
We entered into an affinity alliance agreement with Aspect
Telecommunications Corporation under which we agreed to develop and market
software applications which are compatible with Aspect's products. James L.
Patterson, one of our directors, is a director of Aspect. We also entered into
a co-marketing agreement with Spectralink Corporation under which Spectralink
agreed to market Latitude products. F. Gibson Myers, Jr. is a director of
Spectralink. These agreements are not expected to represent material strategic
relationships.
In April 1999, we granted a stock option to purchase 5,000 shares to the
Entrepreneurs' Foundation, a nonprofit organization of which Mr. Myers is
chairman, in connection with consulting services provided by the Entrepreneurs'
Foundation.
We have entered into indemnification agreements with our officers and
directors which are described in "Management--Limitation of Liability and
Indemnification Matters."
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table summarizes information with respect to beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of common stock in this offering, by (a) each person or group of
affiliated persons known by us to own beneficially more than 5% of our
outstanding common stock, (b) each of the executive officers named in the
summary compensation table, (c) each of our directors and (d) all directors and
executive officers of Latitude as a group. As of March 31, 1999, there were
15,581,657 shares of common stock outstanding. To our knowledge and except as
otherwise indicated, we believe that the beneficial owners of the common stock
listed below, based on information furnished by them, have sole voting power
and investment power with respect to these shares, subject to community
property laws where applicable. Except as otherwise noted, the following
executive officers, directors and stockholders can be reached at the principal
offices of Latitude.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned(1)
-----------------
Number of Before After
Name and Address Shares Offering Offering
---------------- ---------- -------- --------
<S> <C> <C> <C>
Entities affiliated with Mayfield Fund(1)........ 5,059,658 32.5% 25.2%
2800 Sand Hill Road
Menlo Park, CA 94025
Menlo Ventures IV, L.P........................... 4,417,614 28.4 22.0
3000 Sand Hill Road, Bldg. 4, Ste. 100
Menlo Park, CA 94025
Entities affiliated with Asset Management 1,056,819 6.8 5.3
Associates(2)...................................
2275 E. Bayshore Road, Ste. 150
Palo Alto, CA 94303
Entities affiliated with Canaan Ventures(3)...... 784,090 5.0 3.9
2884 Sand Hill Road, Bldg. 1, Ste. 115
Menlo Park, CA 94025
Emil C.W. Wang(4)................................ 1,104,681 7.1 5.5
Glenn A. Eaton(5)................................ 357,180 2.3 1.8
Edward D. Tracy(6)............................... 285,930 1.8 1.4
Janet A. Gregory(7).............................. 200,680 1.3 1.0
F. Gibson Myers(1)............................... 5,059,658 32.5 25.2
Thomas H. Bredt(8)............................... 4,417,614 28.4 22.0
James L. Patterson(9)............................ 270,549 1.7 1.4
Robert J. Finocchio, Jr. ........................ 97,500 0.6 0.5
All directors and executive officers as a group
(11 persons).................................... 11,793,793 75.2 58.4
</TABLE>
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned by
a person includes shares of common stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of March 31, 1999.
The shares issuable under these options are deemed outstanding for computing
the percentage ownership of the person holding these options but are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. The number of shares listed in the table above for all directors
and executive officers as a group includes 111,221 shares that are currently
exercisable within 60 days of March 31, 1999.
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<PAGE>
(1) Includes 4,819,801 shares held by Mayfield VII and 239,857 shares held by
Mayfield Associates Fund II. F. Gibson Myers is a director of Latitude and
a general partner of the Mayfield Fund, the general partner of each of
Mayfield VII and Mayfield Associates Fund II. Mr. Myers disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in these shares.
(2) Includes 681,819 shares held by Asset Management Associates 1989, L.P. and
375,000 shares held by Asset Management Associates 1996, L.P.
(3) Includes 479,863 shares held by Canaan Ventures II Offshore Limited
Partnership and 304,227 shares held by Canaan Ventures II Limited
Partnership.
(4) Includes 1,021,350 shares held by Emil C.W. Wang, 10,800 shares held by Mr.
Wang as Custodian Under UGMA for Kevin E. Wang, 10,800 shares held by Mr.
Wang as Custodian Under UGMA for Brian F. Wang and 10,800 shares held by
Mr. Wang as custodian under UGMA for Katherine E. Wang. Also includes
options to purchase 50,931 shares held by Mr. Wang that are currently
exercisable or exercisable within 60 days of March 31, 1999.
(5) Includes 341,250 shares held by Mr. Eaton and options to purchase 15,930
shares held by Mr. Eaton that are currently exercisable or exercisable
within 60 days of March 31, 1999.
(6) Includes 270,000 shares held by Mr. Tracy and options to purchase 15,930
shares held by Mr. Tracy that are currently exercisable or exercisable
within 60 days from March 31, 1999.
(7) Includes 182,250 shares held by Ms. Gregory and options to purchase 18,430
shares held by Ms. Gregory that are currently exercisable or exercisable
within 60 days of March 31, 1999.
(8) Thomas H. Bredt is a director of Latitude and a general partner of MV
Management IV, L.P., the general partner of Menlo Ventures IV, L.P. Mr.
Bredt disclaims beneficial ownership of these shares except to the extent
of his pecuniary interest in these shares.
(9) Includes 155,250 shares held by the Patterson Family Trust u/d/t August 26,
1998, 75,000 shares held by the Patterson Grandchildren's Trust UDT 1/6/98,
James L. Patterson and Pamela L. Patterson Trustees, and 30,300 shares held
by Mr. Patterson. Also, includes options to purchase 9,999 shares that are
currently exercisable or exercisable within 60 days of March 31, 1999. Does
not include 504,546 shares held by Aspect Telecommunications Corporation,
of which Mr. Patterson is a director.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
75,000,000 shares of common stock, and 5,000,000 shares of preferred stock. The
following description is a summary of the material provisions of our capital
stock. For additional information on our capital stock, you should refer to our
certificate of incorporation and bylaws, which are included as exhibits to the
registration statement of which this prospectus is a part.
Common Stock
As of March 31, 1999, there were 15,581,657 shares of common stock
outstanding that were held of record by approximately 121 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio and assuming no exercise or conversion of outstanding
convertible securities after December 31, 1998. Assuming no exercise of the
underwriters' over-allotment option and no exercise or conversion of
outstanding convertible securities after March 31, 1999 and after giving effect
to the sale of the shares of common stock in this offering, there will be
18,581,657 shares of common stock outstanding.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for payment of
dividends. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Latitude, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
rights of any preferred stock then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions available to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.
Preferred Stock
Effective upon the closing of this offering, Latitude will be authorized to
issue 5,000,000 shares of undesignated preferred stock. The board of directors
will have the authority, without action by the stockholders, to issue the
undesignated preferred stock in one or more series, to fix the number of shares
constituting any series and to designate the rights, preferences and privileges
of each series, any or all of which may be greater than the rights of the
common stock. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Latitude without further action
by the stockholders and may adversely affect the voting and other rights of the
holders of common stock. At present, we have no plans to issue any shares of
preferred stock.
Registration Rights
The holders of 11,970,613 shares of common stock, including 134,386 shares
issuable upon exercise of warrants, or their transferees are entitled to rights
with respect to the registration of these shares under the Securities Act.
These rights are provided under the terms of an agreement between
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<PAGE>
Latitude and the holders of these registrable securities. Subject to the
limitations described in this agreement, the holders of the registrable
securities may require, on two occasions at any time after six months from the
effective date of this offering, that Latitude use its best efforts to register
the registrable securities for public resale. We are obligated to register
these shares only if the proposed aggregate offering price is at least
$2,000,000. In addition, if we register any of our common stock either for our
own account or for the account of other security holders, the holders of
registrable securities are entitled to include their shares of common stock in
the registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in the offering. All fees, costs and expenses of these
registrations must be borne by Latitude and all selling expenses, including
underwriting discounts, selling commissions and stock transfer taxes, relating
to registrable securities must be borne by the holders of the securities being
registered.
Effects of Delaware Anti-Takeover Law and Charter Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless the business combination or the transaction in
which the person became an interested stockholder is approved in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale or other transaction resulting in a financial benefit to the stockholder,
and an "interested stockholder" is a person who, together with affiliates and
associates, owns, or did own within the prior three years, 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deferring or preventing a change in control of Latitude without
further action by the stockholders.
In addition, upon completion of this offering, provisions of our charter
documents, including a provision eliminating the ability of stockholders to
take actions by written consent, may have the effect of delaying or preventing
changes in control or management of Latitude, which could have an adverse
effect on the market price of our common stock. Our stock option and purchase
plans generally provide for assumption of these plans or substitution of an
equivalent option of a successor corporation or, alternatively, at the
discretion of the board of directors, exercise of some or all of the optioned
stock, including non-vested shares, or acceleration of vesting of shares issued
under stock grants, upon a change of control or similar event.
The board of directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders. The rights of the holders of the common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock, and thus delay, defer or prevent a change in control
of Latitude. Furthermore, the preferred stock may have other rights, including
economic rights senior to the common stock, and, as a result, the issuance of
the preferred stock could have a material adverse effect on the market value of
the common stock. We have no present plan to issue shares of preferred stock.
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<PAGE>
Commencing at the first annual meeting of stockholders following the time as
Latitude shall have had at least 800 stockholders, the board of directors will
be divided into three classes, each serving staggered three-year terms: class
I, whose term will expire at the first annual meeting of stockholders following
the annual meeting of stockholders when Latitude shall have had at least 800
stockholders; class II, whose term will expire at the second annual meeting of
stockholders following the annual meeting of stockholders when Latitude shall
have had at least 800 stockholders; and class III, whose term will expire at
the third annual meeting of stockholders following the annual meeting of
stockholders when Latitude shall have had at least 800 stockholders. As a
result, only one class of directors will be elected at each annual meeting of
stockholders of Latitude, with the other classes continuing for the remainder
of their respective terms. These provisions in our restated certificate of
incorporation may have the effect of delaying or preventing changes in control
or management of Latitude.
Warrants
As of March 31, 1999, warrants were outstanding to purchase an aggregate of
134,386 shares of common stock at a weighted average exercise price of $1.05
per share. Of these warrants, warrants to purchase an aggregate of 90,750
shares of common stock at a weighted average exercise price of $0.67 per share
will automatically expire upon completion of this offering if they are not
exercised before the completion of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is U.S. Stock Transfer
Corporation.
Listing
Our common stock has been approved for listing on the Nasdaq National Market
under the trading symbol "LATD."
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for the common stock.
We cannot provide any assurances that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
these sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding 18,581,657 shares of common
stock. Of these shares, the 3,000,000 shares to be sold in this offering, or
3,450,000 shares if the underwriters' over-allotment option is exercised in
full, will be freely tradable in the public market without restriction under
the Securities Act, unless these shares are held by our affiliates. As defined
in Rule 144 under the Securities Act, an affiliate of an issuer is a person
who, directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with the issuer.
The remaining 15,581,657 shares outstanding upon completion of this offering
were issued and sold in private transactions in reliance on exemptions from
registration under the Securities Act. These shares may be sold in the public
market only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act, as summarized
below.
Under agreements between our stockholders and either Latitude or the
underwriters, substantially all of the holders of these shares have agreed not
to offer, sell, contract to sell or grant any option to purchase any of these
shares for a period of 180 days from the date of this prospectus. We also have
entered into an agreement with the underwriters that we will not offer, sell or
dispose of common stock for a period of 180 days from the date of this
prospectus. On the date of the expiration of these agreements, all of these
shares will be eligible for immediate sale, of which 11,682,572 shares held by
our affiliates will be subject to volume and other limitations under Rule 144.
Following the expiration of the 180-day term of these agreements, shares
issued upon exercise of options we granted before the date of this prospectus
will also be available for sale in the public market under Rule 701 of the
Securities Act. Non-affiliates may resell shares under Rule 701 in reliance
upon Rule 144 under the Securities Act but without compliance with the holding-
period, public information, volume limitation or notice provisions of Rule 144.
In general, under Rule 144 as in effect at the closing of this offering,
beginning 90 days after the date of this prospectus, a person who has
beneficially owned these shares for at least one year, including the holding
period of any prior owner who is not an affiliate of Latitude, would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (1) 1% of the then-outstanding shares of common stock
or (2) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to this sale.
Sales under Rule 144 are also subject to manner of sale and notice requirements
and to the availability of current public information about Latitude.
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<PAGE>
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Latitude at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner who is not an affiliate of
Latitude, is entitled to sell these shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately 5,029,562 shares of common
stock reserved for issuance under the 1993 Stock Plan, the 1999 Stock Plan, the
1999 Directors' Stock Option Plan and our employee stock purchase plan. The
registration statement will become effective automatically upon filing. After
the filing of a registration statement on Form S-8, shares issued under these
plans may be sold in the open market, subject to (1) the Rule 144 limitations
applicable to affiliates, (2) vesting restrictions imposed by us and (3) the
agreements described above under which our stockholders have agreed not to sell
or dispose any shares of common stock for a period of 180 days from the date of
this prospectus.
In addition, following this offering, the holders of 11,970,613 shares of
common stock, including 134,386 shares issuable upon exercise of warrants, will
have rights to require us to register their shares for future sale. See
"Description of Capital Stock--Registration Rights."
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information included in the
registration statement. Some information is included in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to Latitude and the common
stock offered by this prospectus, reference is made to the registration
statement, including the exhibits to the registration statement, and the
financial statements and notes filed as a part of the registration statement.
Statements made in this prospectus concerning the contents of any document
referred to in the prospectus are not necessarily complete. With respect to
each document filed with the Commission as an exhibit to the registration
statement, reference is made to the exhibit for a more complete description of
the matter involved. The registration statement, including exhibits to the
registration statement and the financial statements and notes filed as a part
of the registration statement, as well as the reports and other information
filed with the Commission, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, 13th Floor, New York, NY 10048, and the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of all or any part of these documents may be obtained from the
Commission upon payment of the fees prescribed by the Commission. These reports
and other information may also be inspected without charge at a web site
maintained by the Commission. The address of the web site is
http://www.sec.gov.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist LLC
and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, are acting
as representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Hambrecht & Quist LLC..............................................
Dain Rauscher Wessels..............................................
---------
Total.......................................................... 3,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 450,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share Over-allotment Over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and
commissions payable by us........ $ $ $
Expenses payable by us............ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and our stockholders have agreed that we and
they will not offer, sell, contract to sell, announce an intention to sell,
pledge or directly or indirectly dispose of, or file with the Commission a
registration statement under the Securities Act relating to, any additional
shares of common stock or securities convertible into or exchangeable or
exercisable for any shares
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<PAGE>
of common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in the case of issuances of common stock upon the exercise of employee stock
options outstanding on the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 150,000 shares of the common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not purchased will be offered
by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
The common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "LATD."
Before this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. The principal factors to be considered in determining the
public offering price include:
. the information in this prospectus and available to the underwriters;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. the prospects for our future earnings;
. the present state of our development and our current financial condition;
. the general condition of the securities markets at the time of this
offering;
. and the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the common stock in the open market
after the distribution has been completed to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by the syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market and, if commenced, may be discontinued
at any time.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any Canadian purchaser who
wishes to sell the common stock in Canada must do so satisfying applicable
securities laws which will vary depending on the relevant jurisdiction, and the
purchaser may be required to resell the common stock under available statutory
exemptions or obtain a discretionary exemption from the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
before any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under these securities laws, (2) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (3) the purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action Applicable to Ontario Purchasers
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission of rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named in
this document may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act of British Columbia
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
67
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for Latitude by Venture Law Group, A Professional Corporation, Menlo Park,
California. Mark A. Medearis, a director of Venture Law Group, is the secretary
of Latitude. Legal matters in connection with this offering will be passed upon
for the underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. An entity affiliated with Venture Law Group
and directors of Venture Law Group hold an aggregate of 49,398 shares of our
common stock.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1998 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the years ended December 31, 1996, 1997 and 1998 included in this
prospectus and in the related financial statement schedule included elsewhere
in the registration statement, have been included in reliance on the report of
PricewaterhouseCoopers, LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
68
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Latitude Communications, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Latitude Communications, Inc. and its subsidiary at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
San Jose, California
February 24, 1999, except for note 12, as to which the date is April 30, 1999
F-2
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, Pro Forma
------------------ March 31, March 31,
1997 1998 1999 1999
-------- -------- ----------- -------------
(See Note 11)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 3,578 $ 3,982 $ 4,397
Trade accounts receivable, net
of allowance for doubtful
accounts of $147 in 1997, $235
in 1998, and $204 in 1999..... 2,519 5,627 4,642
Inventory...................... 475 688 994
Prepaids and other assets...... 139 420 755
-------- -------- -------
Total current assets......... 6,711 10,717 10,788
Property and equipment, net...... 933 1,017 1,091
Deposits and other long-term
assets.......................... 71 136 500
-------- -------- -------
Total assets................. $ 7,715 $ 11,870 $12,379
======== ======== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............... $ 363 $ 805 $ 726
Accrued expenses............... 1,460 2,089 2,086
Deferred revenue............... 920 2,794 3,016
Current portion of long-term
debt.......................... 467 559 553
-------- -------- -------
Total current liabilities.... 3,210 6,247 6,381
-------- -------- -------
Long-term debt................... 757 838 695
-------- -------- -------
Total liabilities............ 3,967 7,085 7,076
-------- -------- -------
Commitments (Note 6)
Preferred stock, $0.001 par
value:
Authorized: 12,211 shares
Issued and outstanding: 11,836
shares in 1997, 1998 and 1999
and no pro forma shares (Liq-
uidation value of $18,680 at
December 31, 1998 and March
31, 1999) .................... 12 12 12 --
Common stock, $0.001 par value:
Authorized: 27,500 shares
Issued and outstanding: 3,755
shares in 1997, 3,739 shares
in 1998, 3,745 shares in 1999
and 15,582 pro forma shares... 4 4 4 $ 16
Additional paid-in capital....... 19,021 21,362 22,110 22,110
Notes receivable from common
stockholders.................... (187) (165) (144) (144)
Deferred stock compensation...... (74) (2,103) (2,642) (2,642)
Accumulated deficit.............. (15,028) (14,325) (14,037) (14,037)
-------- -------- ------- --------
Total stockholders' equity... 3,748 4,785 5,303 $ 5,303
-------- -------- ------- ========
Total liabilities and
stockholders' equity........ $ 7,715 $ 11,870 $12,379
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the
Years Ended December Three Months
31, Ended March 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product...................... $ 5,103 $10,620 $16,506 $3,688 $4,627
Service...................... 943 2,312 4,545 673 1,801
------- ------- ------- ------ ------
Total revenue.............. 6,046 12,932 21,051 4,361 6,428
Cost of revenue:
Product...................... 1,146 2,158 3,182 644 817
Service...................... 1,023 1,805 2,775 601 903
------- ------- ------- ------ ------
Total cost of revenue...... 2,169 3,963 5,957 1,245 1,720
------- ------- ------- ------ ------
Gross profit................... 3,877 8,969 15,094 3,116 4,708
------- ------- ------- ------ ------
Operating expenses:
Research and development..... 2,466 2,213 2,607 605 903
Marketing and sales.......... 4,644 7,845 9,744 1,978 2,868
General and administrative... 1,157 1,115 1,666 410 426
Amortization of deferred
stock compensation.......... -- 2 299 38 195
------- ------- ------- ------ ------
Total operating expenses... 8,267 11,175 14,316 3,031 4,392
------- ------- ------- ------ ------
Income (loss) from operations.. (4,390) (2,206) 778 85 316
Interest income................ 276 177 142 36 43
Interest expense............... (138) (200) (183) (47) (51)
------- ------- ------- ------ ------
Income (loss) before provision
for income tax................ (4,252) (2,229) 737 74 308
Provision for income tax....... -- -- (34) (4) (20)
------- ------- ------- ------ ------
Net income (loss).............. $(4,252) $(2,229) $ 703 $ 70 $ 288
======= ======= ======= ====== ======
Net income (loss) per share--
basic......................... $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
======= ======= ======= ====== ======
Shares used in per share
calculation--basic............ 2,110 2,850 3,279 3,166 3,444
======= ======= ======= ====== ======
Net income (loss) per share--
diluted....................... $ (2.02) $ (0.78) $ 0.04 $ 0.00 $ 0.02
======= ======= ======= ====== ======
Shares used in per share
calculation--diluted.......... 2,110 2,850 16,422 15,949 16,767
======= ======= ======= ====== ======
Pro forma net income per
share--basic.................. $ 0.05 $ 0.02
======= ======
Shares used in pro forma per
share calculation--basic...... 15,115 15,280
======= ======
Pro forma net income per
share--diluted................ $ 0.04 $ 0.02
======= ======
Shares used in pro forma per
share calculation--diluted.... 16,422 16,767
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three years in the period ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Preferred Capital Notes
Stock Common Stock in Excess Receivable Deferred
------------- -------------- of from Common Stock Accumulated
Shares Amount Shares Amount Par Value Shareholders Compensation Deficit Total
------ ------ ------ ------ --------- ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 8,792 $ 9 3,146 $ 3 $10,676 $(103) -- $ (8,547) $ 2,038
Issuance of Series C
preferred stock, net
of issuance costs of
$7.................... 3,044 3 -- -- 8,104 -- -- -- 8,107
Issuance of common
stock................. -- -- 547 1 134 (114) -- -- 21
Repurchase of common
stock................. -- -- (94) -- (16) 8 -- -- (8)
Net loss............... -- -- -- -- -- -- -- (4,252) (4,252)
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, December 31,
1996,.................. 11,836 12 3,599 4 18,898 (209) -- (12,799) 5,906
Issuance of common
stock................. -- -- 308 -- 86 (48) -- -- 38
Repurchase of common
stock................. -- -- (152) -- (39) 27 -- -- (12)
Payment of notes
receivable from common
stockholders.......... -- -- -- -- -- 43 -- -- 43
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 76 -- $ (76) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 2 -- 2
Net loss............... -- -- -- -- -- -- -- (2,229) (2,229)
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, December 31,
1997................... 11,836 12 3,755 4 19,021 (187) (74) (15,028) 3,748
Issuance of common
stock................. -- -- 35 -- 28 (4) -- -- 24
Repurchase of common
stock................. -- -- (51) -- (15) 9 -- -- (6)
Payment of notes
receivable from common
stockholders.......... -- -- -- -- -- 17 -- -- 17
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 2,328 -- (2,328) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 299 -- 299
Net income............. -- -- -- -- -- -- 703 703
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, December 31,
1998................... 11,836 12 3,739 4 21,362 (165) (2,103) (14,325) 4,785
Issuance of common
stock.................. -- -- 7 -- 14 -- -- -- 14
Repurchase of common
stock.................. -- -- -- -- -- -- -- --
Payment of notes
receivable from common
stockholders........... -- -- -- -- -- 21 -- -- 21
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 734 -- (734) --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 195 -- 195
Net income.............. -- -- -- -- -- -- -- 288 288
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, March 31,
1999................... 11,836 $ 12 3,746 $ 4 $22,110 $(144) $(2,642) $(14,037) $ 5,303
====== ==== ===== ==== ======= ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the
Three Months
Years Ended December Ended March
31, 31,
------------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).................. $(4,252) $(2,229) $ 703 $ 70 $ 288
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..... 528 619 696 145 172
Provision for excess and obsolete
inventory........................ 55 66 149 16 63
Provision for doubtful accounts... 59 56 88 -- --
Amortization of deferred stock
compensation..................... -- 2 299 41 195
Changes in operating assets and
liabilities:
Trade accounts receivable........ (1,038) (1,069) (3,062) (957) 985
Inventory........................ (104) (173) (496) (4) (243)
Prepaids and other assets........ (1) (8) (281) 5 (335)
Accounts payable................. (113) 133 442 465 (79)
Accrued expenses................. 583 471 629 93 (3)
Deferred revenue................. 319 506 1,874 487 222
------- ------- ------- ------ ------
Net cash provided by (used in)
operating activities........... (3,964) (1,626) 1,041 361 1,139
------- ------- ------- ------ ------
Cash flows from investing
activities:
Purchases of property and
equipment......................... (778) (597) (743) (138) (246)
Other.............................. -- -- (37) (52) (364)
------- ------- ------- ------ ------
Net cash used in investing
activities..................... (778) (597) (780) (190) (610)
------- ------- ------- ------ ------
Cash flows from financing
activities:
Deposits and other long-term
assets............................ 13 (15) (65) -- --
Decrease (increase) in restricted
cash.............................. (150) 150 -- -- --
Proceeds from issuance of preferred
stock, net of issuance costs...... 8,107 -- -- -- --
Proceeds from issuance of common
stock............................. 21 38 24 1 14
Proceeds from payment of notes
receivable from common
stockholders...................... -- 43 17 -- 21
Repurchase of common stock......... (8) (12) (6) -- --
Proceeds from issuance of notes
payable........................... 899 527 678 -- --
Repayment of notes payable and
capital lease obligations......... (377) (444) (505) (109) (149)
------- ------- ------- ------ ------
Net cash provided by financing
activities..................... 8,505 287 143 (108) (114)
------- ------- ------- ------ ------
Net increase (decrease) in cash and
cash equivalents................... 3,763 (1,936) 404 63 415
Cash and cash equivalents, beginning
of period.......................... 1,751 5,514 3,578 3,578 3,982
------- ------- ------- ------ ------
Cash and cash equivalents, end of
period............................. $ 5,514 $ 3,578 $ 3,982 $3,641 $4,397
======= ======= ======= ====== ======
Supplemental disclosure of cash flow
information:
Cash payments for interest......... $ 139 $ 193 $ 183 $ 47 $ 51
Supplemental disclosure of noncash
financing information:
Issuance of common stock for notes
receivable from stockholder....... $ 114 $ 48 $ 4 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:
Latitude Communications, Inc. (the "Company"), founded in April 1993, is a
leading provider of enterprise-based conferencing systems for geographically
dispersed organizations. The Company develops, markets and supports its
MeetingPlace system, which allows companies to conduct virtual meetings and
thereby extend decision making processes across the disparate geographic
locations of participants. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies, such as telephones, cellular
phones and personal computers. The Company has distributed its product through
distributors and a direct sales force to companies across many industries in
the United States, Europe and Asia.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements at March 31, 1999 and for
the three months ended March 31, 1998 and 1999, together with the related
notes, are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair presentation, in all material respects, of the financial position and the
operating results and cash flows for the interim date and periods presented.
Results for the interim period ended March 31, 1999 are not necessarily
indicative of results for the entire fiscal year or future periods.
Basis of Consolidation
The consolidated financial statements include the accounts of Latitude
Communications, Inc. and its wholly owned subsidiary (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Accounts denominated in foreign currencies have been remeasured into the
U.S. dollar, the functional currency. Foreign currency gains and losses from
remeasurements, which have been insignificant, are included in the consolidated
statement of operations.
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.
Revenue Recognition
The Company adopted the provisions of Statement of Position 97-2, or SOP 97-
2, Software Revenue Recognition, as amended by Statement of Position 98-4,
Deferral of the Effective Date of Certain Provisions of SOP 97-2, effective
January 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, Software
Revenue Recognition, and delineates the accounting for software product,
F-7
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
products including software that is not incidental to the product, and
maintenance revenues. Under SOP 97-2, the Company recognizes product revenues
upon shipment if a signed contract exists, the fee is fixed and determinable,
collection of resulting receivables is probable and product returns are
reasonably estimable. The Company generally does not allow product returns;
however, in the past, upon request by a customer and approval of management,
certain returns have been allowed. Therefore, provision for estimated product
returns are recorded at the time products are shipped.
For contracts with multiple obligations (e.g., deliverable and undeliverable
products, maintenance, installation and other services), revenue is allocated
to each component of the contract based on objective evidence of its fair
value, which is specific to the Company, or for products not being sold
separately, the price established by management. The Company recognizes revenue
allocated to undelivered products when the criteria for product revenue set
forth above are met. The Company recognizes revenue allocated to maintenance
fees, including amounts allocated from product revenue, for ongoing customer
support and product updates ratably over the period of the maintenance
contract. Payments for maintenance fees are generally made in advance and are
non-refundable. For revenue allocated to consulting services, such as
installation and training, the Company recognizes revenues as the related
services are performed.
Prior to the adoption of SOP 97-2, effective January 1, 1998, the Company
recognized revenue from the sale of products upon shipment if remaining
obligations were insignificant and collection of the resulting accounts
receivable was probable. The related estimated cost of product installation and
provisions for estimated product returns were accrued upon shipment. Revenue
from software maintenance contracts, including amounts unbundled from product
sales, were deferred and recognized ratably over the period of the contract.
The Company exchanged two systems and one upgrade for certain services and
licenses which resulted in recognition of $282,000 of revenue in 1997 and
research and development and marketing costs of $109,000 and $173,000,
respectively. The Company exchanged two systems with two customers for certain
marketing services and $81,000 in cash which resulted in the recognition of
$497,000 in revenue in 1998, $95,000 of sales and marketing expense and
$321,000 of prepaid sales and marketing expense. In the three months ended
March 31, 1999, the Company exchanged two systems for certain marketing
services, licenses and related training and consulting and $45,000 in cash
which resulted in recognition of $609,000 of revenue, $404,000 of prepaid sales
and marketing expenses and accounts receivable of $160,000 which will be
satisfied through the provision of licenses, training and consulting to the
Company. The assets and services were transferred between parties at their
estimated fair value.
Financial Instruments
The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to be cash
equivalents.
Commercial paper totaling $2,183,000 and $1,846,000 at December 31, 1997 and
1998, respectively, is included in cash equivalents and is classified as
available-for-sale. The commercial
F-8
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
paper generally matures in one day and is carried at cost, which equals fair
market value. Realized gains or losses are determined using the specific
identification method. There are no realized gains or losses on the sale of
commercial paper and no unrealized gross holding gains or losses in 1996, 1997
or 1998. There were no sales of commercial paper in 1996, 1997 or 1998.
Amounts reported for cash and cash equivalents, accounts receivable,
accounts payable and other accrued liabilities are considered to approximate
fair value primarily due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its notes payable and capital lease obligations approximate fair
value.
Certain Risks and Concentrations
The Company's cash and cash equivalents as of December 31, 1998 are on
deposit with two U.S. financial institutions.
The Company performs ongoing credit evaluations of its customers, and
collateral is not required. The Company maintains allowances for potential
returns and credit losses, and such returns and losses have generally been
insignificant.
The Company records an allowance for doubtful accounts for credit losses at
the end of each period based on an analysis of individual aged accounts
receivable balances. As a result of this analysis, the Company believes that
its allowance for doubtful accounts is adequate but not excessive at December
31, 1997 and 1998 based on specific account balances identified with probable
collection risk.
An allowance for potential returns is recorded at the end of each period
based on product return experience adjusted for changes in the range of per
system sales prices of systems shipped. As a result of this analysis, the
Company believes that its allowance for potential sales returns is adequate but
not excessive at December 31, 1997 and 1998 based on experience and increasing
system sales prices and increasing outstanding accounts receivable balances. In
addition, at December 31, 1998 consideration was given to the Company's
experience with software upgrade sales returns.
At December 31, 1997 and 1998, one customer accounted for 14% and another
customer accounted for 23% of accounts receivable, respectively.
MeetingPlace products and related services have accounted for substantially
all of the Company's revenue to date. The market in which the Company competes
is characterized by rapid technological change, frequent new product
introductions, changes in customer requirements and emerging industry
standards. Significant technological change could adversely affect the
Company's operating results and subject the Company to returns of product and
inventory losses. While the Company has ongoing programs to minimize the
adverse effect of such changes and considers technological change in estimating
its allowances, such estimates could change in the future.
The Company licenses technology that is incorporated into its products from
certain third parties, including certain digital signal processing alogorithms
and the MeetingPlace server's operating system and relational databases. Any
significant interruption in the supply or support of any licensed software
could adversely affect the Company's sales, unless and until the Company can
F-9
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
replace the functionality provided by this licensed software. Because the
Company's products incorporate software developed and maintained by third
parties, the Company depends on such third parties to deliver and support
reliable products, enhance their current products, develop new products on a
timely and cost-effective basis and respond to emerging industry standards and
other technological changes. The failure of these third parties to meet these
criteria could harm the Company's business.
The Company relies on third parties to obtain most of the components of the
MeetingPlace server and integrate it with other standard components, such as
the central processing unit and disk drives. If these third parties are no
longer able to supply and assemble these components or are unable to do so in a
timely manner, the Company may experience substantial delays in shipping its
products and have to invest resources in finding an alternative manufacturer or
manufacture our products internally.
In addition, although the Company generally uses standard parts and
components in its products, the Company obtains certain components, including
the processors and digital signal processing devices used in the MeetingPlace
server, from sole source suppliers. In the past, the Company has experienced
problems in obtaining some of these components in a timely manner from these
sources, and it may be unable to continue to obtain an adequate supply of these
components in a timely manner or, if necessary, from alternative sources. If
the Company is unable to obtain sufficient quantities of components or to
locate alternative sources of supply, the Company may experience substantial
delays in shipping its products and incur additional costs to find an
alternative manufacturer or manufacture its products internally.
Inventories
Inventory is stated at the lower of cost or market. Cost is determined on a
standard cost basis which approximates the first in, first out method.
An allowance for excess and obsolete inventory is recorded at the end of
each period based on an analysis of inventory on hand considering forecasted
usage and whether component parts are useable in the Company's current product
and whether finished goods are versions of the Company's product for which
demand is forecasted. As a result of this analysis, the Company believes that
its allowance for excess and obsolete inventory is adequate but not excessive
at December 31, 1997 and 1998 based on the specific identification of primarily
excess or obsolete raw materials inventory.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over the shorter of the estimated useful life of three years or the
length of the capital lease for assets acquired under capital leases. Gains and
losses from the disposal of property and equipment are taken into income in the
year of disposition. Repairs and maintenance costs are expensed as incurred.
Depreciation expense for 1996, 1997 and 1998 was $293,000, $537,000 and
$607,000, respectively.
F-10
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Research and Development Costs
Costs related to research, design and development of products are charged to
research and development expenses as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers provided research and development activities for the related hardware
portion of the product have been completed. Generally, the Company's products
include hardware and software components that are developed concurrently. As a
result, the Company has not capitalized any software development costs to date
as such costs have not been significant.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current tax laws and rates. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
Advertising
The Company expenses advertising costs as they are incurred. Advertising
expense for fiscal year 1996, 1997, and 1998 was $26,000, $19,000 and $115,000,
respectively.
Stock-Based Compensation
The Company accounts for its stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees" and presents disclosure required by
Statement of Financial Accounting Standard No. 123 ("SFAS No. 123").
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of vested
common shares outstanding for the period. Diluted net income (loss) per share
is computed giving effect to all dilutive potential common shares, including
options, warrants and preferred stock. Options, warrants and preferred stock
were not included in the computation of diluted net loss per share in 1996 and
1997 because the effect would be antidilutive.
F-11
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the numerator and denominator used in the calculation of
historical basic and diluted net (income) loss per share follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
For the Three
Month Period
Year Ended December 31, Ended March 31,
------------------------- ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Historical net loss per share, basic
and diluted:
Numerator for net income (loss),
basic and diluted................. $(4,252) $(2,229) $703 $ 70 $ 288
------- ------- ------- ------- -------
Denominator for basic earnings per
share:
Weighted average vested common
shares outstanding............... 2,110 2,850 3,279 3,166 3,444
------- ------- ------- ------- -------
Net income (loss) per share basic.. $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
======= ======= ======= ======= =======
Denominator for diluted earnings
per share:
Weighted average vested common
shares outstanding............... 2,110 2,850 3,279 3,166 3,444
Effect of dilutive securities:
Nonvested common shares......... 478 611 294
Common stock options............ 727 254 1,073
Warrants........................ 102 87 120
Convertible preferred stock..... 11,836 11,836 11,836
------- ------- ------- ------- -------
Weighted average common and common
equivalent shares................ 2,110 2,850 16,422 15,949 16,767
------- ------- ------- ------- -------
Net income (loss) per share
diluted........................... $ (2.02) $ (0.78) $0.04 $ 0.00 $ 0.02
======= ======= ======= ======= =======
Antidilutive securities not
included in diluted net income
(loss) per share calculation for
the entire year:
Nonvested common shares........... 1,082 647
Common stock options.............. 75
Warrants.......................... 134 134
Convertible preferred stock....... 11,836 11,836
------- ------- ------- ------- -------
13,052 12,692 -- -- --
======= ======= ======= ======= =======
</TABLE>
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There was no difference between the
Company's net income (loss) and its total comprehensive income (loss) for 1996,
1997 and 1998.
Impact of Recently Issued Accounting Standards
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1
on its financial statements and related disclosures.
In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9
F-12
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
amends SOP 97-2 to require that an entity recognize revenue for multiple
element arrangements by means of the "residual method" when (1) there is
vendor-specific objective evidence ("VSOE") of the fair values of all the
undelivered elements that are not accounted for by means of long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements, and (3) all revenue recognition criteria of SOP 97-2 (other
than the requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of
SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company is evaluating the requirements of SOP 98-9 and the
effects, if any, on the Company's current revenue recognition policies.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company
believes the adoption of SOP 98-5 will not have a material impact on its
results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 will be effective for fiscal
years beginning after June 15, 1999. The Company does not currently hold
derivative instruments or engage in hedging activities.
Reclassifications
Certain amounts in the financial statements have been reclassified to
conform with the current year's presentation. These reclassifications did not
change previously reported stockholders' equity or net loss.
NOTE 3--BALANCE SHEET ACCOUNTS (IN THOUSANDS):
Inventory:
<TABLE>
<CAPTION>
December
31, March 31,
--------- ---------------
1997 1998 1999
---- ---- -----------
(unaudited)
<S> <C> <C> <C> <C>
Raw materials......................................... $355 $359 $608
Work in process....................................... 3 36 18
Finished goods........................................ 117 293 368
---- ---- ----
$475 $688 $994
==== ==== ====
</TABLE>
F-13
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment, net:
<TABLE>
<CAPTION>
December 31, March 31,
---------------- ---------------
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Leasehold improvements...................... $ 150 $ 165 $ 166
Computer equipment.......................... 1,943 2,544 2,700
Office equipment............................ 508 635 724
------- ------- -------
2,601 3,344 3,590
------- ------- -------
Less accumulated depreciation and
amortization............................... (1,668) (2,327) (2,499)
------- ------- -------
$ 933 $ 1,017 $ 1,091
======= ======= =======
Accrued expenses:
<CAPTION>
December 31, March 31,
---------------- ---------------
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Accrued commission expense.................. $ 550 $ 544 $ 279
Accrued sales incentives.................... 176 143 84
Accrued vacation............................ 136 227 273
Other....................................... 598 1,175 1,450
------- ------- -------
$ 1,460 $ 2,089 $ 2,086
======= ======= =======
</TABLE>
NOTE 4--LONG-TERM DEBT:
The long-term debt consists of notes payable for the purchase of equipment
under a senior loan and security agreement with a leasing company. Under the
terms of the agreement, the notes, which bear interest in the range from 12.18%
to 16.27%, are collateralized by the underlying equipment and are due in
monthly payments of interest and principal through June 2002.
Future minimum payments under the notes payable are as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ending December 31,
<S> <C>
1999............................................................. $ 720
2000............................................................. 560
2001............................................................. 281
2002............................................................. 110
------
1,671
Less amount representing interest.................................. (274)
------
1,397
Less current portion............................................... (559)
------
$ 838
======
</TABLE>
F-14
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5--LINE OF CREDIT:
The Company has a line of credit of $2,000,000 with a major U.S. financial
institution, which bears interest at the prime rate, expires July 1999 and is
collateralized by substantially all the Company's assets. Borrowings under the
line of credit are limited to 80% of eligible accounts receivables. The line of
credit contains certain financial covenants, which include maintaining a
minimum quick ratio, minimum total net worth and a maximum debt to total net
worth ratio, and prohibits the payment of dividends without the lenders
consent.
At December 31, 1998, the Company was in compliance with these covenants and
no amounts were outstanding under the line of credit.
NOTE 6--COMMITMENTS:
The Company leases office space under a noncancellable operating lease which
provides for an option to extend for an additional five years and expires in
December 2000. Future annual minimum lease payments under the noncancellable
operating lease are as follows (in thousands):
<TABLE>
<S> <C>
1999.................................................................. $470
2000.................................................................. 493
----
$963
====
</TABLE>
Rent expense was $488,000, $639,000 and $759,000 in 1996, 1997, and 1998,
respectively. On April 1, 1999, the Company leased additional office space
under an amendment to the above operating lease. Future annual minimum lease
payments under this amendment are increased to a total of $614,000 and $645,000
in 1999 and 2000, respectively.
At December 31, 1998, the Company has committed to purchase approximately
$701,000 of raw materials inventory under noncancellable purchase orders.
NOTE 7--STOCKHOLDERS' EQUITY
Convertible Preferred Stock:
The convertible preferred stock comprise the series designated as follows
(in thousands):
<TABLE>
<CAPTION>
Common
Number of Shares
Number of Shares Reserved
Shares Issued and for Liquidation
Authorized Outstanding Conversion Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Series A..................... 4,950 4,763 4,763 $ 3,175
Series B..................... 4,074 4,029 4,029 7,389
Series C..................... 3,187 3,044 3,044 8,116
------ ------ ------ -------
12,211 11,836 11,836 $18,680
====== ====== ====== =======
</TABLE>
Each share of Series A, Series B and Series C preferred stock is convertible
into one share of the Company's common stock at the option of the holder at any
time after the date of issuance,
F-15
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subject to adjustments for certain dilutive issuances of securities, or
automatically convertible upon the closing date of a public offering of the
Company's common stock at an aggregate offering price of not less that
$10,000,000 and a price per share of not less than $5.00. The preferred
stockholders also have certain registration rights, the right to one vote for
each share of common stock into which such shares of preferred stock are
convertible and the right, voting as a class, to elect two members of the
Company's Board of Directors.
The Series A, Series B and Series C preferred stock have a liquidation
preference of $0.67, $1.83 and $2.67 per share, respectively, subject to
adjustment for splits or other recapitalizations, plus all declared but unpaid
dividends. If funds are insufficient for full payment of these amounts, the
entire assets and funds of the Company legally available are distributed
ratably among the holders of preferred stock. After the preferred stockholders
have received the full amount to which they are entitled, the remaining assets
shall be distributed ratably to the holders of the common stock.
The holders of Series A, Series B and Series C preferred stock are entitled
to annual noncumulative dividends of $0.07, $0.18 and $0.27, respectively, per
share, when and if declared by the Company's Board of Directors. As of December
31, 1998, no dividends have been declared.
Convertible Preferred Stock Warrants
The Company has issued fully exercisable warrants to purchase 91,000 shares
of Series A preferred stock and 43,000 shares of Series B preferred stock at a
price of $0.67 and $1.83 per share, respectively, which expire in June 2003 and
September 2004, respectively, or with respect to the 91,000 shares of Series A
preferred stock, upon an initial public offering. The Company has reserved
91,000 shares of Series A preferred stock and 44,000 shares of Series B
preferred stock for the exercise of these warrants. The warrants were issued in
conjunction with capital lease obligations and long-term equipment financing
arrangements. The value of the warrants at the date of issuance was not
significant.
Founders' Common Stock
The Company has sold 1,770,000 shares of its common stock to founders of the
Company under agreements which provide that if the founders desire to sell or
transfer their shares the Company has the right of first refusal at the then
current fair market value. The Company's right of first refusal terminates upon
initial public offering of the Company's common stock.
1993 Stock Plan
In March 1993, the Company's Board of Directors adopted the 1993 Plan (the
"Plan") and through December 31, 1998 authorized 3,555,000 shares of common
stock for issuance under the Plan. The Plan consists of Stock Purchase Rights
and an Option Grant Program.
Stock Purchase Rights provide for issuance of common stock at not less than
85% of the fair market value of the stock to employees and consultants. The
Plan provides that the Administrator of the Plan shall advise the offeree in
writing of the terms, conditions and restrictions related to the
F-16
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
offer. Restricted stock purchases are subject to the company's right of
repurchase at the employee purchase price upon termination of employment. The
right to repurchase generally lapses 25% one year from the date of purchase and
1/48 each month thereafter. In addition, the Company has a right of first
refusal similar to that for the founders' common stock.
The Option Grant Program provides for grants of incentive stock options to
employees and nonstatutory stock options to employees and consultants. The
exercise price of incentive stock options and nonstatutory stock options
granted under the Plan must be at least 100% and 85%, respectively, of the fair
market value of the shares on the date of grant. Options generally expire ten
years from the date of the grant or such shorter term as may be provided in the
option agreement. Options granted under the Plan typically become exercisable
over a four year period at a rate of 25% after the first year and 1/48 each
month thereafter.
Deferred Stock Compensation
During 1997 and 1998, the Company issued stock purchase rights and options
to certain employees under the 1993 Stock Plan with exercise prices below the
deemed fair market value of the Company's common stock at the date of grant. In
accordance with the requirements of APB 25, the Company has recorded deferred
compensation for the difference between the purchase price of stock issued to
employees under stock purchase rights or the exercise price of the stock
options and the fair market value of the Company's stock at the date of grant.
This deferred compensation is amortized to expense over the period during which
the Company's right to repurchase the stock lapses or options become
exercisable, generally four years. At December 31, 1998, the Company had
recorded deferred compensation related to these options in the total amount of
$2,404,000, of which $2,000, and $299,000 had been amortized to expense during
1997 and 1998. In the three months ended March 31, 1999, additional deferred
compensation of $734,000 and amortization of $195,000 was recorded. Future
compensation expense from options granted through March 31, 1999 is estimated
to be $783,000, $783,000, $781,000, and $489,000 for the years ending December
31, 1999, 2000, 2001, and 2002, respectively.
F-17
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1993 Stock Plan Activity
The activity for the stock purchase rights and stock options are as follows
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Restricted Stock Plan Stock Option Plan
----------------------- -----------------------
Weighted Weighted
Average Average
Purchase Exercise
Number Price Number Price
Shares of Per of Per
Available Shares Share Amount Shares Share Amount
--------- ------ -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 904 3,146 $0.05 $153
Shares authorized....... 150 -- -- --
Shares purchased........ (547) 547 $0.25 134
Shares repurchased...... 94 (94) $0.17 (16)
------ ----- ----- ----
Balances, December 31,
1996................... 601 3,599 $0.07 271
Shares purchased........ (308) 308 $0.28 86
Shares repurchased...... 152 (152) $0.26 (39)
Options granted......... (75) -- -- 75 $0.39 $ 29
------ ----- ----- ---- ----- ----- ------
Balances, December 31,
1997................... 370 3,755 $0.09 318 75 $0.39 29
Additional shares
reserved............... 1,125 -- -- -- -- --
Shares purchased........ (35) 35 $0.79 28 -- --
Shares repurchased...... 51 (51) $0.27 (15) -- --
Options granted......... (1,315) -- -- -- 1,315 $2.32 3,050
Options cancelled....... 38 -- -- -- (38) $1.47 (55)
------ ----- ----- ---- ----- ----- ------
Balances, December 31,
1998................... 234 3,739 $0.09 $331 1,352 $2.24 $3,024
Shares purchased........ (1) 1 10 8 -- -- --
Shares repurchased...... -- -- -- -- -- --
Options granted......... (174) -- -- -- 174 $5.61 979
Options exercised....... -- -- -- -- (6) $0.91 (6)
Options cancelled....... 27 -- -- -- (27) $2.89 (76)
------ ----- ----- ---- ----- ----- ------
Balances, March 31,
1999................... 86 3,740 $0.09 $339 1,493 $2.63 $3,921
====== ===== ===== ==== ===== ===== ======
</TABLE>
At December 31, 1996, 1997 and 1998, 1,082,000, 647,000 and 325,000 shares
of outstanding common stock, respectively, were subject to the Company's right
of repurchase at weighted average purchase prices of $0.17, $0.24, and $0.27,
respectively. No options were exercisable as of December 31, 1997 and 17,000
were exercisable as of December 31, 1998.
Pro Forma Stock Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Company's stock
option plan. Had compensation cost been determined based on the fair value at
the grant date for the awards in 1997 and 1998 consistent with the provisions
of SFAS No. 123, the Company's net income (loss) for 1997 and 1998,
respectively, would have been as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -----
<S> <C> <C>
Net income (loss)--as reported............................. $(2,229) $ 703
Net income (loss)--pro forma............................... $(2,238) $ 618
Net income (loss) per share--basic as reported............. $ (0.78) $0.21
Net income (loss) per share--basic pro forma............... $ (0.79) $0.19
Net income (loss) per share--diluted as reported........... $ (0.78) $0.05
Net income (loss) per share--diluted pro forma............. $ (0.79) $0.04
</TABLE>
F-18
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made
each year.
The weighted-average grant date fair value of stock options granted was,
$2.13 and $6.96 common stock option for 1997 and 1998, respectively.
In accordance with the provisions of SFAS 123, the fair value of each stock
option is estimated using the following assumptions for option grants during
1997 and 1998; dividend yield of 0%, volatility of 0%, risk-free interest rates
of between 4.50% to 7.20% at the date of grant and an expected term of five
years.
During 1997 and 1998, stock purchase rights for 27,000 and 35,000 shares of
the Company's common stock, with weighted-average exercise prices of $0.40 and
$0.79 per share and weighted-average fair values of $1.66 and $3.85 per share,
were granted with exercise prices below the estimated market value at the date
of grant.
During 1997 and 1998, options to purchase 71,000 and 1,315,000 shares of the
Company's common stock, with weighted-average exercise prices of $0.41 and
$2.32 per share and weighted-average fair values of $2.10 and $6.19 per share,
were granted with exercise prices below the estimated market value at the date
of grant.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.27-0.40 66,000 8.95 $0.39 17,000 $0.30
$1.00-1.40 401,000 9.09 1.02 -- --
$1.83-2.80 316,000 9.37 2.07 -- --
$3.27-3.67 569,000 9.86 3.40 -- --
---------- --------- ---- ----- ------ -----
$0.27-3.67 1,352,000 9.47 $2.23 17,000 $0.30
========== ========= ==== ===== ====== =====
</TABLE>
NOTE 8--INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal, net of benefit of net operating loss
carryforwards of $246,000 in 1998...................... $-- $-- $17
State, net of benefit of net operating loss
carryforwards of $23,000 in 1998....................... -- -- 17
---- ---- ---
$-- $-- $34
==== ==== ===
</TABLE>
F-19
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1998, income before provision for income taxes consisted of $1,420,000
of income from U.S. operations and $384,000 of loss from foreign operations.
In 1997, loss before provision for income taxes consisted of $1,816,000 of
loss from U.S. operations and $413,000 of loss from foreign operations. In
1996, loss before provision for income tax consisted of $4,252,000 of loss
from U.S. operations.
The Company's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory federal income
tax (benefit) rate....... (34.0)% (34.0)% 34.0 %
State taxes net of federal
benefits................. -- -- 4.0
Net operating losses not
benefited................ 34.0 34.0 --
Benefit of net operating
loss carryforwards....... -- -- (39.0)
Alternative minimum tax... -- -- 5.0
Other..................... -- -- 1.0
----- ----- -----
Effective tax rate...... 0.0% 0.0% 5.0%
===== ===== =====
</TABLE>
The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards........................ $ 2,702 $ 2,728
Research and development credit......................... 817 781
Property and equipment.................................. 243 279
Capitalized research and development for tax purposes... 2,116 1,366
Other................................................... 419 806
------- -------
6,297 5,960
Less valuation allowance................................ (6,297) (5,960)
------- -------
Net deferred tax asset.................................. $ -- $ --
======= =======
</TABLE>
The valuation allowance increased by $890,000 in 1997 and decreased by
$337,000 in 1998.
The Company has placed a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred
tax asset and the level of the valuation allowance. At such time as it is
determined that it is more likely than not that the deferred tax assets are
realizable, the valuation allowances will be reduced.
At December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $6,681,000 and $3,632,000, respectively,
available to offset future regular and alternative minimum taxable income. The
Company's federal and state net operating loss carryforwards expire in 2000
through 2012, if not utilized.
At December 31, 1998, the Company had federal and state research and
development and other credits of approximately $524,000 and $390,000,
respectively. The research and development credit carryforwards expire in 2010
through 2018, if not utilized.
F-20
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. If the Company should have an ownership change, as
defined, utilization of the carryforwards could be restricted.
NOTE 9--EMPLOYEE BENEFIT PLANS:
The Company sponsors the Latitude Communications Salary Savings Plan (the
"Plan") which qualifies under Section 401(k) of the Internal Revenue Code. All
employees meeting minimum age requirements are eligible to enroll in the Plan
upon initiating employment. Currently, the Company is not offering an employer
contribution.
NOTE 10--SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company has adopted the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 131, or SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information," effective for fiscal
years beginning after December 31, 1997. SFAS 131 supersedes Statement of
Financial Accounting Standards No. 14 or SFAS 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting and
also requires interim reporting of segment information.
Management uses one measurement of profitability for its business. The
Company markets its products and related services to customers in many
industries in the United States, Europe and Asia.
Revenue and long-lived-asset information by geographic area as of and for
the year ended:
<TABLE>
<CAPTION>
Long-Lived
Revenues Assets
-------- ----------
(in thousands)
<S> <C> <C>
December 31, 1996:
United States........................................ $ 6,046 $ 955
International........................................ -- --
------- ------
Total.............................................. $ 6,046 $ 955
======= ======
December 31, 1997:
United States........................................ $12,493 $ 896
International........................................ 439 37
------- ------
Total.............................................. $12,932 $ 933
======= ======
December 31, 1998:
United States........................................ $19,549 $ 979
International........................................ 1,502 38
------- ------
Total.............................................. $21,051 $1,017
======= ======
</TABLE>
In 1997 and 1998, no customer accounted for more than 10% of total revenue.
In 1996, one customer accounted for 12% of total revenue or $726,000.
F-21
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--UNAUDITED PRO FORMA NET INCOME (LOSS) PER SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY (DEFICIT):
Pro forma basic net income per share has been computed as described in Note
2 and also gives effect to common equivalent shares from preferred stock that
will automatically convert upon the closing of the Company's initial public
offering (using the as-if-converted method).
A reconciliation of the numerator and denominator used in the calculation of
pro forma basic and diluted net income per share follow (in thousands except
per share data):
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1999 1999
------------ ------------
<S> <C> <C>
Pro forma net income per share, basic and diluted:
Net income......................................... $ 703 $ 288
------- -------
Shares used in computing net income per share,
basic............................................. 3,279 3,444
Adjustment to reflect the effect of the assumed
conversion of convertible preferred stock ....... 11,836 11,836
------- -------
Shares used in computing pro forma net income per
share, basic...................................... 15,115 15,280
------- -------
Pro forma net income per share, basic.............. $ 0.05 $ 0.02
------- -------
Shares used in computing net income per share,
diluted........................................... 16,422 16,767
Adjustment to reflect the effect of the assumed
conversion of convertible preferred stock ....... -- --
------- -------
Shares used in computing pro forma net income per
share, diluted.................................... 16,422 16,767
------- -------
Pro forma net income per share, diluted............ $ 0.04 $ 0.02
======= =======
</TABLE>
If the offering contemplated by this Prospectus is consummated, all of the
convertible preferred stock outstanding, as of the closing date will
automatically be converted into an aggregate of approximately 11,836,000 shares
of common stock based on the shares of convertible preferred stock outstanding
at March 31, 1999. Unaudited pro forma stockholders' equity at March 31, 1999,
as adjusted for the conversion of preferred stock, is disclosed on the balance
sheet.
NOTE 12--SUBSEQUENT EVENTS:
On April 6, 1999, the Company authorized the outstanding shares of the
predecessor California Corporation's common stock and all classes of its
preferred stock to be converted automatically into shares of the Delaware
Corporation's common stock and its preferred stock on a three-for-two basis.
All share and per share amounts in the consolidated financial statements have
been restated to reflect the stock split and re-incorporation of the Company in
Delaware, both of which were completed in April 1999. In addition, the Company
authorized an increase in the authorized common stock to 75,000,000 shares, par
value $0.001, and 5,000,000 shares of preferred stock, par value $0.001.
In addition, on April 6, 1999, the Company adopted the 1999 Stock Option
Plan (the "1999 Plan"), the 1999 Directors' Stock Option Plan (the "Directors
Plan") and the 1999 Employee Stock Purchase Plan (the "Purchase Plan").
F-22
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 1999 Plan provides for the granting to employees, including officers and
directors, of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and for the granting to
employees and consultants (including nonemployee directors) of nonstatutory
stock options. If not terminated earlier, the 1999 Plan will terminate in
February 2009. A total of 2,700,000 shares of common stock has been reserved
for issuance under the 1999 Plan, all of which remain available for future
option grants.
The Directors' Plan provides that each person who is or becomes a
nonemployee director of Latitude will be granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the later of the date on which the
optionee first becomes a nonemployee director of Latitude or the date of the
closing of this offering. Thereafter, on the date of the Company's Annual
Stockholders Meeting each year, each nonemployee director will be granted an
additional option to purchase 5,000 shares of common stock if, on such date, he
or she has served on the Company's board of directors for at least six months.
A total of 250,000 shares of common stock has been reserved for issuance under
the Directors' Plan, all of which remain available for future grants.
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the Company's common stock at the beginning or end of the offering period. A
total of 500,000 shares of common stock has been reserved for issuance under
the Purchase Plan.
F-23
<PAGE>
Description of Graphics for Inside Back Cover Pages of Prospectus
<TABLE>
<S> <C>
[Graphic of screen capture showing [Graphic showing photo of MeetingPlace
MeetingPlace scheduling menu on Microsoft server.]
Internet Explorer.]
One or more MeetingPlace servers, in
combination with client software,
provide a complete conferencing solution
for the enterprise.
With MeetingPlace, employees have access to a [Graphic of screen capture showing
virtual meeting through the interface of MeetingTime client software.]
their choice. Simple telephone access for
voice conferencing is available through any
touch tone telephone, while data conferencing
capabilities can be utilized through a
network-connected computer. In addition,
users can schedule and set up meetings on
MeetingPlace through their corporate intranet
site, Latitude's MeetingTime client or their
personal Microsoft Outlook calendar.
[Graphic of screen capture showing
MeetingPlace meeting setup menu.]
</TABLE>
<PAGE>
[LOGO OF LATITUDE]
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Latitude in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee................................................ $ 11,510
NASD filing fee..................................................... 4,640
Nasdaq National Market listing fee.................................. 95,000
Printing and engraving expenses..................................... 200,000
Legal fees and expenses............................................. 350,000
Accounting fees and expenses........................................ 275,000
Blue Sky qualification fees and expenses............................ 2,000
Transfer Agent and Registrar fees................................... 15,000
Miscellaneous fees and expenses..................................... 46,850
----------
Total............................................................. $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
Registrant's Amended and Restated Certificate of Incorporation provides for
indemnification of its directors and officers to the maximum extent permitted
by the Delaware General Corporation Law and the Registrant's Bylaws provides
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by the Delaware General Corporation Law. In
addition, the Registrant has entered into Indemnification Agreements with its
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require the Company, among
other things, to indemnify its directors against certain liabilities that may
arise by reason of their status or service as directors (other than liabilities
arising from willful misconduct of culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' insurance if available on reasonable
terms. Reference is also made to Section 7 of the Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of the
Company against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
(a) Since January 1, 1996, the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:
II-1
<PAGE>
(1) In April 1999, the Registrant completed a three-for-two stock
split of its outstanding common stock in which every two outstanding
shares of common stock were split into three shares of common stock.
(2) In March 1996, the Registrant issued and sold shares of Series C
Preferred Stock convertible into an aggregate of 3,043,500 shares of
common stock to a total of 11 investors for an aggregate purchase price
of $8,116,000.
(3) As of December 31, 1998, 1,968,636 shares of common stock had
been issued upon exercise of options or pursuant to restricted stock
purchase agreements and 1,352,496 shares of common stock were issuable
upon exercise of outstanding options under the Registrant's 1993 Stock
Plan.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities. The issuances described in
Items 15(a)(2) were deemed to be exempt from registration under the Securities
Act in reliance upon Section 4(2) thereof as transactions by an issuer not
involving any public offering. The issuances described in Items 15(a)(3) were
deemed to be exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated thereunder in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a written
contract relating to compensation, as provided by Rule 701. In addition, such
issuances were deemed to be exempt from registration under Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
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
where affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this offering.
3.3* Bylaws of the Registrant.
4.1* Form of the Registrant's common stock certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement.
10.2* 1993 Stock Plan, as amended, and forms of stock option agreement and
restricted stock purchase agreement.
10.3* 1999 Stock Plan and forms of stock option agreement and restricted stock
purchase agreement.
10.4* 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.5* 1999 Directors' Stock Option Plan and form of stock option agreement.
10.6* Warrant To Purchase Series B Preferred Stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7* Amended and Restated Registration Rights Agreement dated March 26,
1996.
10.8* Lease Agreement dated July 31, 1995 between the Registrant and the
Arrillaga Family Trust and Richard T. Peery Separate Property Trust for
offices at 2121 Tasman Drive, Santa Clara, CA and form of amendment
thereto.
10.9* Senior Loan and Security Agreement dated September 15, 1994 between the
Registrant and Phoenix Leasing Incorporated and amendments thereto.
10.10* Master Equipment Lease dated July 2, 1998 between the Registrant and
Norstan Financial Services, Inc.
10.11* 1999 Executive Incentive Plan between the Registrant and certain
executive officers of the Registrant.
10.12* 1999 Executive Bonus Program.
21* Subsidiaries.
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
(b) Financial Statement Schedules
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
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 for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 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 this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment to Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Santa Clara, State of California, on May 3, 1999.
Latitude Communications, Inc.
/s/ Emil C.W. Wang
By: _________________________________
Emil C.W. Wang,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Emil C.W. Wang President, Chief Executive May 3, 1999
______________________________________ Officer and Director
(Emil C.W. Wang) (Principal Executive
Officer)
/s/ Rick M. McConnell Vice President of Finance May 3, 1999
______________________________________ and Administration and
(Rick M. McConnell) Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director May 3, 1999
______________________________________
(Thomas H. Bredt)
* Director May 3, 1999
______________________________________
(Robert J. Finocchio, Jr.)
* Director May 3, 1999
______________________________________
(F. Gibson Myers, Jr.)
* Director May 3, 1999
______________________________________
(James L. Patterson)
/s/ Rick M. McConnell
*By: _________________________________
Rick M. McConnell
Attorney in fact
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Latitude Communications, Inc.:
In connection with our audits of the consolidated financial statements of
Latitude Communications, Inc. and subsidiary as of December 31, 1997 and 1998,
and for each of the three years in the period ended December 31, 1998, which
financial statements are included in the Prospectus, we have also audited the
financial statement schedule listed in Item 16 herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 24, 1999
S-1
<PAGE>
Schedule II
Latitude Communications, Inc.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance at (Reductions) Balance at
Beginning to Costs and End of
of Period Expenses Write-Offs Period
---------- ------------ ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended December 31,
1996...................... $ 32 $ 59 $-- $ 91
Year ended December 31,
1997...................... 91 56 -- 147
Year ended December 31,
1998...................... 147 88 -- 235
Allowance for excess and
obsolete inventory:
Year ended December 31,
1996...................... $ 25 $ 55 $-- $ 80
Year ended December 31,
1997...................... 80 66 -- 146
Year ended December 31,
1998...................... 146 149 -- 295
Deferred tax asset valuation
allowance:
Year ended December 31,
1996...................... $3,607 $1,800 $-- $5,407
Year ended December 31,
1997...................... 5,407 890 -- 6,297
Year ended December 31,
1998...................... 6,297 (337) -- 5,960
Allowance for returns:
Year ended December 31,
1996...................... $ 86 $ 127 $ $ 213
Year ended December 31,
1997...................... 213 122 (139) 196
Year ended December 31,
1998...................... 196 515 (386) 325
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this offering.
3.3* Bylaws of the Registrant.
4.1* Form of the Registrant's common stock certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement.
10.2* 1993 Stock Plan, as amended, and forms of stock option agreement and
restricted stock purchase agreement.
10.3* 1999 Stock Plan and forms of stock option agreement and restricted
stock purchase agreement.
10.4* 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.5* 1999 Directors' Stock Option Plan and form of stock option agreement.
10.6* Warrant To Purchase Series B Preferred Stock.
10.7* Amended and Restated Registration Rights Agreement dated March 26,
1996.
10.8* Lease Agreement dated July 31, 1995 between the Registrant and the
Arrillaga Family Trust and Richard T. Peery Separate Property Trust for
offices at 2121 Tasman Drive, Santa Clara, CA and Form of amendment
thereto.
10.9* Senior Loan and Security Agreement dated September 15, 1994 between the
Registrant and Phoenix Leasing Incorporated and amendments thereto.
10.10* Master Equipment Lease dated July 2, 1998 between the Registrant and
Norstan Financial Services, Inc.
10.11* 1999 Executive Incentive Plan between the Registrant and certain
executive officers of the Registrant.
10.12* 1999 Executive Bonus Program.
21* Subsidiaries.
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-72935) of our reports, dated February 24, 1999 except for note 12, as
to which the date is April 30, 1999, on our audit of the financial statements
and the financial statement schedule of Latitude Communications, Inc. We also
consent to the references to our firm under the caption "Experts" and "Selected
Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
San Jose, California
May 2, 1999
