<PAGE>
Filed Pursuant to Rule 424(b)(4)
File No. 333-18335
2,125,000 SHARES
[LOGO FIELDWORKS INC.]
COMMON STOCK
All of the 2,125,000 shares of Common Stock offered hereby are being issued
and sold by FieldWorks, Incorporated ("FieldWorks" or the "Company"). Prior to
this offering, there has been no public market for the Common Stock of the
Company. The initial public offering price is $6.50 per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Company has been approved for quotation of
the Common Stock on the Nasdaq National Market System under the symbol "FWRX."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $6.50 $0.455 $6.045
- --------------------------------------------------------------------------------
Total(3).............................. $13,812,500 $966,875 $12,845,625
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Company has agreed to pay the Representative a non-accountable expense
allowance of two percent of the total Price to Public, to sell to the
Representative a four-year warrant to purchase 212,500 shares of Common
Stock at 120% of the Price to Public and to indemnify the Underwriters
against certain liabilities. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $646,250,
including printing costs, filing fees, legal and accounting fees and the
two percent non-accountable expense allowance referred to above.
(3) Assumes no exercise of the 30-day option the Company has granted to the
Underwriters to purchase up to 318,750 additional shares of Common Stock
solely to cover over-allotments, if any. If the Underwriters exercise this
option in full, the Price to Public will total $15,884,375, the
Underwriting Discount will total $1,111,906 and the Proceeds to Company
will total $14,772,469. See "Underwriting."
-----------------------------
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters and are subject to
various prior conditions, including their right to reject any order in whole
or in part. It is expected that delivery of the certificates representing such
shares will be made against payment therefor at the offices of R. J. Steichen
& Company on or about March 25, 1997, in Minneapolis, Minnesota.
[LOGO R J STEICHEN&CO]
The date of this Prospectus is March 20, 1997
<PAGE>
INSIDE FRONT COVER
[Company "fieldworks, inc." logo.]
FieldWorks, Incorporated designs, manufactures, markets and supports
portable rugged computing platforms and computer system solutions for use in
demanding field environments.
[Photograph of open Company computer.]
Agriculture
Communications
Construction
Engineering
Field Sales
Field Service
Industrial Control
Instrumentation
Logistics
Manufacturing
Telemedicine
Military
Public Safety
Transportation
Utilities
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
FieldWorks (TM) and Field WorkStation (TM) are trademarks of the Company.
This Prospectus also includes trade names, trademarks and registered
trademarks of companies other than the Company.
2
<PAGE>
INSIDE PAGES OF GATEFOLD COVER
Computer Platforms for the field. FieldWorks computer platforms meet four
design criteria that address the needs of field professionals . . .
Rugged
Meet stringent military standards and operate in extreme temperatures,
shock, vibration and moisture.
Expandable
Accomodate current and future needs of users by allowing the integration of
application-specific technology.
Upgradeable
Allow for easy replacement of standard component parts and major subsystems,
including processors, screens, disk drives, memory and keyboards.
Customizable
Adapt to customers' unique needs and specifications.
Rugged field applications
Face it--computers don't just sit on desks any more. Today, many field
professionals take their computers outside the office to service equipment or
implement complex computer systems. Ideally, these professionals would like to
have one tool that addresses all their needs and can withstand outside
environments. Enter FieldWorks platforms--designed to house a variety of tools
needed in one rugged package. FieldWorks makes the "toolbox" that accomodates
communications technologies, data acquisition hardware and test
instrumentation for real-time information transfer and efficient problem-
solving. FieldWorks addresses the specialized needs of those professionals who
demand rugged, expandable, upgradeable and customizable computer platforms.
[Photograph of maintenance worker wearing hardhat and using flashlight with
open FieldWorks computing platform.]
Utilities, mining crews, telecommunications test crews and field service
fleets utilize rugged computers as electronic toolboxes to expedite
installation, repair and troubleshooting tasks.
[Photograph of soldier in camaflouge uniform standing in front of muddy tank
with open FieldWorks computing platform.]
Militaries use rugged computers as operations, communications and training
devices.
[Photograph of open FieldWorks computing platform on top of police car hood.]
Rugged computers with special software and hardware help law enforcement
officers collect fingerprints and background information from a centralized
database.
[Two photographs of technicians, one in front of truck cab and one leaning
over interior of a motor, both with open FieldWorks computing platforms.]
Service bay applications in automotive, trucking and heavy equipment
maintenance require rugged computer platforms to provide wireless on-line
links, parts inventories and electronic technical manuals.
<PAGE>
[Photograph of technician examining interior of an aircraft engine with open
FieldWorks computing platform.]
Commercial and business aircraft maintenance groups use rugged computers to
interface with onboard aircraft computers to troubleshoot and diagnose
communication data problems within the aircraft.
[Photograph of technician wearing hardhat and testing outside electricity or
telephone control box with open FieldWorks computing platform.]
Field service engineers and technicians require rugged systems that include
all communications, troubleshooting aids and test equipment in one
lightweight, rugged package.
[Photograph of technician wearing hospital clothing in front of television
monitor and open FieldWorks computing platform.]
Medical and telemedicine applications require high reliability and precision
for applications from instrumentation and monitoring to remote video
conferencing.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information in this
Prospectus, including financial information and share and per share data, (i)
assumes no exercise of the Underwriters' over-allotment option and (ii) gives
effect to the automatic conversion of all outstanding Preferred Stock into
Common Stock upon the consummation of this offering. See "Capitalization,"
"Description of Capital Stock" and "Underwriting."
THE COMPANY
FieldWorks, Incorporated ("FieldWorks" or the "Company") designs,
manufactures, markets and supports portable rugged computing platforms and
computer system solutions for use in demanding field environments. In addition
to providing the full range of computer features, performance and functionality
typically found in high-end desktop computers, the Company's portable computing
platforms have been designed to meet rigorous military standards for ruggedness
and to function despite exposure to extreme temperature, mechanical shock,
vibration and moisture. The Company's computing platforms are expandable
through multiple expansion slots to provide a flexible electronic "toolbox"
that can integrate all of a user's application-specific, multi-media and
communications needs into one portable, rugged device. The Company's products
have been designed with a modular system configuration that allows a user to
easily upgrade the central processing unit ("CPU") or any of the other
technological components without purchasing a new computer. Further, the
Company has the ability to customize its computing platforms to meet the unique
needs of its customers.
The worldwide market for portable personal computers is expanding rapidly,
and Frost & Sullivan has predicted that it may reach nearly $80 billion in
annual sales by 2001. Within this market, the market for mobile computing and
field force automation products is predicted to be one of the fastest growing
sectors over the next decade, with annual growth predicted at as much as 35% or
more. According to International Data Corp. ("IDC") estimates, the rugged
portable computer market is currently over $500 million and is expected to grow
by more than 50% over the next three years. Organizations are increasingly
seeking to computerize field personnel, and industries such as
telecommunications, utilities, farming, law enforcement, the military and
transportation have recognized the need for computerization and automation in
the field. However, the effectiveness of these efforts has often been limited
by the nature of the products that have been available. Consumer portable
personal computers frequently become inoperable under field conditions, are
typically available only with a standard set of features that cannot be
expanded or customized to meet the specialized needs of field users, and are
not designed to be upgraded. Similarly, custom-designed portable personal
computers are expensive, generally limited in their applications and often
unable to withstand conditions typically present in the field, while mobile
single-purpose diagnostic and data collection instruments generally have little
independent computing capability.
The Company's products have been designed to accomodate the demands of a wide
variety of users who are looking for mobile computing platforms that are rugged
and expandable, easily upgraded as technology changes and that can be
customized to meet the specialized needs of field force users. The Company
targets those markets that require portable computing platforms that can
perform multiple functions, including diagnostics, data acquisition and
electronic testing and monitoring, and simultaneously provide communications
and computer capability even under adverse conditions in the field. FieldWorks
rugged computing platforms are in use in a variety of market applications,
including: electronic toolboxes for telecommunications test crews to simplify
and expedite installation, repair and troubleshooting tasks; data collection
and transmission for in-flight commercial airplane testing; collection and
analysis of Global Positioning System ("GPS") geographical information and
agricultural data to aid in the selection of crops, chemicals and farming
methods; diagnostic
3
<PAGE>
system analysis and wireless communication for use with trucking fleets; and
video surveillance and monitoring for law enforcement purposes. The Company
believes that its rugged computing technology has enabled its customers to
create new applications that improve the productivity of their field personnel
and believes further that additional markets and customers will develop as more
businesses recognize the benefits of providing field personnel with effective,
sophisticated computing power.
The Company's objective is to be the leading designer, manufacturer and
marketer of rugged computing platforms and computer system solutions. The
Company's strategy is to: (i) penetrate key vertical markets, (ii) expand
strategic OEM relationships, (iii) establish relationships with large-volume,
repeat customers, (iv) develop new products and enhance existing products and
(v) establish product recognition.
The Company shipped its first commercial product, the 7000 Series Field
WorkStation rugged laptop computing platform, which is now offered in a range
of models, in June 1994. In June 1996, the Company commercially introduced its
5000 Series Field WorkStation rugged notebook computing platform to meet the
needs of customers who require a smaller, more lightweight toolbox but do not
require the full expansion capability of the 7000 Series. The Company is
currently developing additional series of computing platforms designed to
address broader customer preferences for products with varying degrees of
expandability, size and price, all of which provide the ruggedness, processing
power and ease of upgrade that characterize the Company's current products.
The Company assembles its products to its customers' specifications as orders
are received, which enables the Company to provide each customer with a
computing platform that satisfies its specific requirements.
The Company was incorporated under the laws of the State of Minnesota in
October 1992. The Company's executive offices are located at 9961 Valley View
Road, Eden Prairie, Minnesota 55344, and its telephone number is (612) 947-
0856.
RISK FACTORS
Prospective purchasers should carefully consider the information set forth
under "Risk Factors" before purchasing any of the shares of Common Stock
offered hereby.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company..................... 2,125,000 shares
Common Stock to be
outstanding after this
offering.................... 8,582,659 shares(/1/)
Use of Proceeds.............. For repayment of outstanding indebtedness (in-
cluding amounts owed to affiliates of the Compa-
ny); capital expenditures; and working capital
and other general corporate purposes.
Nasdaq National Market System
Symbol...................... FWRX
</TABLE>
- -----------------
(1) Based on the number of shares of Common Stock outstanding as of January 5,
1997, adjusted to reflect the automatic conversion of all of the Company's
outstanding Series A Convertible Preferred Stock into 576,923 shares of
Common Stock. Excludes: (a) 778,400 shares of Common Stock issuable upon
exercise of outstanding options at a weighted average exercise price of
$3.40 per share, (b) 600,899 shares of Common Stock issuable upon exercise
of outstanding warrants at a weighted average exercise price of $4.34 per
share and (c) up to 192,308 shares of Common Stock issuable within 30 days
of the effective date of the registration statement of which this
Prospectus is a part upon conversion (at a conversion price equal to 80% of
the initial public offering price of $6.50) of up to an aggregate of
$1,000,000 of the principal amount of certain outstanding Promissory Notes.
See "Capitalization" and "Description of Capital Stock."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(OCTOBER 2, YEARS ENDED YEAR
1992) TO DECEMBER 31, ENDED
DECEMBER 31, ----------------------- JANUARY 5,
1992 1993 1994 1995 1997
------------ ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED STATE-
MENTS OF OPERATIONS DATA:
Net sales................... $ -- $ -- $ 2,742 $8,242 $ 13,111
Cost of sales............... -- -- 1,978 4,980 8,311
----- ------ ------- ------ --------
Gross profit................ -- -- 764 3,262 4,800
----- ------ ------- ------ --------
Operating expenses:
Sales and marketing......... -- 36 904 1,523 3,235
General and administrative.. -- 160 762 1,169 2,232
Research and development.... -- 289 765 948 1,896
----- ------ ------- ------ --------
Total operating expenses... 485 2,431 3,640 7,363
----- ------ ------- ------ --------
Operating loss.............. -- (485) (1,667) (378) (2,563)
Interest expense and other,
net........................ -- -- (21) (69) (356)
----- ------ ------- ------ --------
Net loss from continuing op-
erations................... -- (485) (1,688) (447) (2,919)
Loss from discontinued oper-
ation(/1/)................. -- -- -- (180) (377)
----- ------ ------- ------ --------
Net loss.................... $ -- $ (485) $(1,688) $ (627) $ (3,296)
===== ====== ======= ====== ========
Pro forma net loss per com-
mon share(/2/):
Net loss per common share
from continuing opera-
tions...................... $ -- $ (.15) $ (.30) $ (.07) $ (.44)
Loss per common share from
discontinued opera-
tion(/1/).................. -- -- -- (.03) (.06)
----- ------ ------- ------ --------
Net loss per common share... $ -- $ (.15) $ (.30) $ (.10) $ (.50)
===== ====== ======= ====== ========
Weighted average common
shares outstanding......... 3,087 3,153 5,590 6,291 6,602
===== ====== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 5, 1997
-------------------------
ACTUAL AS ADJUSTED(/3/)
------- ----------------
<S> <C> <C>
SELECTED CONSOLIDATED BALANCE SHEET DATA:
Cash................................................ $ 2,132 $ 7,981
Working capital..................................... 1,042 12,918
Total assets........................................ 9,906 15,755
Long-term debt and capital lease obligations, less
current portion.................................... 67 67
Total debt.......................................... 6,150 124
Accumulated deficit(/4/)............................ (6,303) (6,628)
Total shareholders' equity.......................... 1,813 13,689
</TABLE>
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(1) In November 1996, the Company's Board of Directors approved the
distribution of all of the issued and outstanding shares of the common
stock of the Company's wholly-owned subsidiary, Paragon Technology, Inc.
("Paragon"), as a dividend to shareholders of record of the Company as of
November 15, 1996. Paragon's results of operations for the years ended
December 31, 1995 and January 5, 1997, as well as the estimated loss from
disposition, have been presented as a discontinued operation in the above
Statements of Operations Data. See "Recent Events--Dividend of Shares of
Paragon Technology, Inc."
(2) Computed on the basis described for pro forma net loss per common share in
Note 2 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect (a) the sale of 2,125,000 shares of Common Stock
offered hereby at the public offering price of $6.50 per share and the
application of the estimated net proceeds therefrom and (b) the automatic
conversion of all outstanding Preferred Stock into Common Stock upon the
consummation of this offering. See "Use of Proceeds" and "Capitalization."
(4) Reflects the write-off of debt issuance costs totaling $325,000 incurred in
conjunction with bridge financing.
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
and involves a high degree of risk. In evaluating an investment in the shares
of Common Stock offered by this Prospectus, prospective investors should
carefully consider the following factors, in addition to the other information
in this Prospectus. The discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business," as
well as those discussed elsewhere in this Prospectus.
UNCERTAINTY OF MARKET ACCEPTANCE
The market for rugged computing platforms is a relatively new, limited
sector of the portable computer market. The Company's success will depend upon
increasing the market acceptance of its two current series of products, which
are both heavier and more expensive than most consumer portable personal
computers. There can be no assurance that the Company's products will gain
widespread acceptance or that the Company will generate sufficient sales to
allow the Company to attain profitable operations. In addition, the failure of
the rugged computing platform market to expand would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Strategy" and "--Markets and Customers."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company was incorporated in October 1992 and shipped its first
commercial product in June 1994. The Company has incurred operating losses in
each year since inception and, at January 5, 1997, had an accumulated deficit
of approximately $6.3 million. Net losses for the years ended December 31,
1993, 1994, 1995 and January 5, 1997, were approximately $0.5 million, $1.7
million, $0.6 million and $3.3 million, respectively. Future operating results
will depend on many factors, including the growth of the rugged computing
platform market, demand for the Company's products, the level of product and
price competition, the Company's ability to develop and market new products,
general economic conditions and other factors. There can be no assurance that
the Company will achieve or sustain profitability in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Strategy" and "--Markets and Customers."
COMPETITION
The Company believes that it currently occupies a niche in the portable
computer market with its rugged computing platforms. The Company currently
faces direct competition in this market niche from companies producing
portable computers intended for field use such as Amrel Technology, Inc.,
Badger Computers (a unit of Group Financial Partners, Inc.), Dolch Computer
Systems, Getac Corporation, Husky Computers Inc., Itronix Corporation, Kontron
Elektronik Corporation (a subsidiary of Kontron Elektronik GmbH) and Panasonic
Personal Computer Company. To the extent FieldWorks and its direct competitors
expand and develop this market niche, other manufacturers may turn their
attention to this niche and begin to produce products directly competitive
with those offered by the Company. The Company's computing platforms also face
indirect competition from a variety of different companies and products,
including consumer portable personal computers, customized portable personal
computers and single-purpose diagnostic and data collection instruments.
Both the portable computer industry and the diagnostic and data collection
instrument industry are intensely competitive. Many of the companies that
produce or may produce devices that compete, directly or indirectly, with the
Company's products have substantially greater financial, technological and
marketing resources than the Company. There can be no assurance that the
Company will be able to compete effectively against current or future
competitors, or that such competitors will not succeed in adapting more
rapidly and effectively to changes in technology or in the market or in
developing or marketing products that will be more widely accepted. See
"Business--Competition."
7
<PAGE>
RISK OF TECHNOLOGICAL OBSOLESCENCE
Both the computer industry and the diagnostic and data collection instrument
industry are characterized by rapid technological change, including changes in
customer requirements, frequent new product introductions and enhancements,
and evolving industry standards. The Company's success will depend in part on
its ability to keep pace with technological developments and emerging industry
standards and to respond to customer requirements by enhancing its current
products and developing and introducing new products. Failure to anticipate or
respond rapidly to advances in technology and to adapt the Company's products
appropriately could have a material adverse effect on the success of the
Company's products and thus on the Company's business, financial condition and
results of operations. Similarly, failure to institute and maintain effective
policies intended to prevent the building of an inventory of parts that have
become obsolete will require the Company to write off portions of such
inventory as was done in 1995 and 1996. Any significant future write-offs
could have an adverse effect on the Company's financial condition.
Technological advances may also increase the level of competition in the
rugged computing platform market. See "Recent Events" and "Business--
Competition."
RISKS ASSOCIATED WITH MANAGING GROWTH
If the Company is to grow successfully, it must increase its manufacturing
output and capacity significantly. The anticipated growth of the Company's
operations will place significant strain not only on the manufacturing
resources of the Company, but also on the Company's management, sales and
marketing, operating and financial systems and resources. If such growth
occurs, the Company may encounter difficulties, including problems involving
lower than projected production rates, disrupted quality control and
assurance, decreased product reliability, increased manufacturing costs,
difficulties in maintaining internal accounting controls, malfunctioning of
existing and new equipment, insufficient or untimely component supplies and
shortages of personnel. There can be no assurance that the Company will be
able successfully to plan for or manage increased production and marketing of
its products. The failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
anticipates that, at projected sales growth levels, it will be required to
move into expanded production and administrative facilities by mid-1997, and
has begun to search for such new facilities. While the Company currently
anticipates that it will be able to lease appropriate expansion space for its
manufacturing operations as necessary, there can be no assurance that such
facilities will be available when needed on acceptable terms, if at all. In
addition, in the process of moving its operations, the Company may encounter
difficulties that could impair the Company's operations, including, among
others, delays in occupying the new facilities, cost overruns, malfunctioning
of new or moved equipment, production inefficiencies due to facility design or
lack of familiarity with the new facilities, disrupted quality control and
assurance as a result of the move and resulting decreased product reliability.
Any such difficulties could have an adverse effect on the Company's business,
financial condition and results of operations. See "Recent Events,"
"Business--Manufacturing," "--Backlog" and "--Facilities."
RISKS ASSOCIATED WITH DEVELOPING SALES CHANNELS
The Company is engaged in building its sales organization and refining its
sales strategies. Failure to develop this sales organization sufficiently or
to implement appropriate sales strategies in a timely manner could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company distributes a substantial portion of its products through
independent sales representatives and distributors. The Company also sells its
products to OEMs, value added resellers ("VARs") and systems integrators. The
success of the Company is dependent in large part upon the performance of
these resellers, many of whom may also carry competitive products, and on its
ability to attract new resellers. The Company operates pursuant to written
agreements, most of which may be terminated by the reseller on 30 days'
written notice with or without cause. The loss of any of the Company's major
resellers or a failure to make acceptable arrangements with resellers in new
markets could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Markets and
Customers" and "--Sales and Marketing."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS
Although the Company performs some mechanical subassembly and all final
assembly of its products, the Company relies on sub-contract manufacturers to
produce a number of subassemblies. Utilization of sub-contract
8
<PAGE>
manufacturers results in dependence on the timely delivery of high quality
products from these manufacturers and may leave the Company with less
flexibility and control over the manufacturing process than if it conducted
all of these operations internally. There can be no assurance that the timely
delivery of quality subassemblies will not be interrupted. Any interruption in
the timely supply of quality subassemblies would have a material adverse
effect on the Company's ability to deliver its products until acceptable
arrangements could be made with a qualified alternative subassembly
manufacturer. There can be no assurance that the Company would be able to
reach an arrangement with such a manufacturer at acceptable prices and
adequate quality levels on a timely basis. If the Company were unable to do
so, such an interruption would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Manufacturing."
DEPENDENCE ON AVAILABILITY OF COMPONENTS
The Company's rugged computing platforms employ a number of components not
generally used in off the shelf personal computers, such as special hard disk
drives, CD-ROM drives, floppy disk drives, displays and power supplies. There
can be no assurance that such components will continue to be produced.
Further, a number of components contained in the Company's products are single
sourced. While the Company believes that there are other companies that could
provide these components, changing suppliers can create uncertainty and be
costly and time-consuming. In the event that the Company could not obtain
adequate or timely quantities of necessary components from its current
suppliers, there can be no assurance that the Company would be able to
identify or access alternative sources of such components within a reasonable
period of time, on acceptable terms, or at all. Some of the Company's current
vendors use tools that have been designed for and are the property of the
Company; if the Company were required to change suppliers for these
components, it would need either to move the necessary tools or to obtain new
tools, either of which could entail significant cost and delay. Moreover, the
Company's buying power may be limited by its small size, and the Company may
receive less favorable allocations and other terms such as price, timing or
other factors than larger companies buying from the same suppliers. The
unavailability of adequate quantities, the inability to develop alternative
sources, a reduction or interruption in supply or a significant increase in
the price of components could have a material adverse effect on the Company's
ability to manufacture and market its products. See "Business--Manufacturing."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter due to such factors as changes in customer buying patterns, the timing
of the announcement and introduction of new products by the Company or its
competitors, the tactics of the Company's competitors, technological
developments affecting the rugged computing platform market, and the overall
strength of the economy. The Company has experienced some seasonality in
orders for its products, with relatively fewer orders received in the first
quarter of the year, a decline in European orders in the summer, and a rise in
orders in the last quarter. In addition, the Company has experienced long
sales cycles in connection with sales to many of its customers, especially
those that are government agencies or large corporations, and also believes
that such customers may place orders that are disproportionate in size
compared to the Company's other orders. Furthermore, a decision by a customer
to return a large order, or a decision by a customer to return a smaller order
that had been customized such that it could not easily be resold, could have
an adverse impact on the Company's results in any quarter, as occurred in 1995
and 1996. All of these factors, along with the uncertainties associated with
the introduction of any new product or product enhancement, in gauging
ultimate customer demand, and in predicting general trends in the market for
the Company's products, may limit management's ability to plan for production
and to forecast quarterly results of operations accurately. The Company's
operating results for any particular quarter are not necessarily indicative of
results that the Company may achieve for any subsequent quarter or full year.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DEPENDENCE ON INTELLECTUAL PROPERTY
The Company's success will depend in part on its ability to protect its
proprietary rights and to operate without infringing on the proprietary rights
of third parties. As of the date of this Prospectus, no patents have been
issued to the Company. The Company has filed two U.S. patent applications
covering various aspects of its 7000 Series Field WorkStation laptop computing
platforms and its 5000 Series Field WorkStation notebook computing platforms
and the technology incorporated in such platforms, and the Company may apply
for additional patents in the future. There can be no assurance that any of
the Company's current or future patent
9
<PAGE>
applications will result in issued patents, that the scope of the claims in
any patents issued to the Company will prevent competitors from introducing
competitive products or that any patents issued to the Company would be
enforceable if challenged. In addition, even if patents for which the Company
has applied or applies in the future are ultimately issued, other parties may
hold or receive patents that contain claims covering other technology included
in the Company's current or future products that could hinder or prevent the
sale of the Company's products or require the Company to obtain licenses to
such technology, which might not be available on acceptable terms or at all.
In addition to patents, the Company intends to rely upon unpatented trade
secrets and know-how and on the expertise of its employees. Although the
Company believes that it has in the past taken, and intends in the future to
take, appropriate steps to protect its unpatented proprietary rights,
including requiring that its employees and third parties granted access to the
Company's proprietary technology enter into confidentiality agreements with
the Company, there can be no assurance that these measures will be sufficient
to protect the Company's rights against third parties. Likewise, there can be
no assurance that others will not independently develop or otherwise acquire
unpatented technologies or products similar or superior to those of the
Company.
The Company claims trademark rights in four marks used in connection with
its products in the United States and filed for registration of such
trademarks in June 1996. The U.S. Patent and Trademark Office (the "PTO") has
not determined the registrability of the trademarks. United States trademark
rights are acquired by use rather than by registration, and there can be no
assurance that others do not have conflicting or superior rights to the
Company's trademarks. The Company is aware that there are third parties that
have claimed or may claim superior rights, in certain territories in the
United States, to the use of certain of the marks in which the Company claims
rights; there can thus be no assurance that no third party will contest the
Company's right to use or register its trademarks. In addition, the PTO can
deny registration to trademarks that it determines are "merely descriptive" or
"generic." There can thus be no assurance that any of the trademarks covered
by the Company's applications for registration will be found registrable, that
registrations will issue, or that the Company can support the cost of defense
of its trademarks.
The Company licenses from third parties certain software that it includes in
its products. If any such licenses were terminated, the Company could be
required to license similar software from other third parties; there can be no
assurance that the Company could do so in a timely fashion, on acceptable
terms, or at all.
The high technology area frequently features disputes over intellectual
property. The Company may in the future be required to defend its intellectual
property rights against infringement, duplication, discovery and
misappropriation by third parties or to defend itself against third-party
claims of infringement. Likewise, disputes may arise in the future with
respect to ownership of technology developed by employees who were previously
employed by other companies. Any such litigation or disputes could result in
substantial costs to, and a diversion of effort by, the Company. An adverse
determination could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from or pay royalties to third
parties or require the Company to develop appropriate alternative technology.
There can be no assurance that any such licenses would be available on
acceptable terms or at all, or that the Company could develop alternate
technology at an acceptable price or at all. Any of these events could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Intellectual Property."
NEED TO ATTRACT AND RETAIN KEY PERSONNEL
The success of the Company is dependent on its ability to attract and retain
personnel needed for its business. The Company's personnel needs include
highly trained personnel for such areas as management, sales and engineering,
including Gary J. Beeman and Robert C. Szymborski, the Company's co-founders
and currently the President and Chief Executive Officer, and Executive Vice
President and Chief Technical Officer, respectively, of the Company. Qualified
individuals in such areas are in high demand and are often subject to
competing employment opportunities. In addition, as the Company increases its
production and sales levels, it will need to attract and retain additional
qualified skilled and unskilled workers for its manufacturing and related
operations. In recent years there has been great demand for qualified skilled
and unskilled employees in the
10
<PAGE>
Minneapolis area, where the Company's manufacturing operations are located.
There can be no assurance that the Company will be successful in attracting
and retaining the personnel needed for its business. Any failure to do so
would adversely affect the Company's business, financial condition and results
of operations. See "Business--Employees."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
In the year ended January 5, 1997, international sales of the Company's
products represented approximately 24% of the Company's net sales.
International sales are subject to inherent risks, including longer payment
cycles, greater difficulty or delay in accounts receivable collection, U.S.
and foreign import and export restrictions and tariffs, the burdens of
complying with a variety of foreign laws, potentially adverse tax
consequences, potentially inadequate protection of intellectual property
rights, restrictions on repatriation of earnings, and exposure to increased
political and economic instability. In addition, the Company's net receipts
from international sales are typically lower than net receipts from domestic
sales as the result of the Company bearing some of the cost of foreign import
tariffs and the time required to collect foreign sales receivables is
generally longer than that required for domestic receivables. The loss of a
key foreign distributor or the inability to maintain a foreign distribution
network could have an adverse effect on the Company's business, financial
condition and results of operations.
All of the Company's export sales are currently denominated in United States
dollars. An increase in the value of the United States dollar relative to
foreign currencies could make the Company's products more expensive and,
therefore, potentially less competitive in foreign markets. In the future, if
the Company's export sales were to be denominated in local currencies, foreign
currency translations may contribute to significant fluctuations in the
Company's financial condition and results of operations. If for any reason
currency exchange or price controls or other restrictions on foreign
currencies were imposed, the Company's business, financial condition and
results of operations could be materially adversely affected. See "Business--
Markets and Customers" and "--Sales and Marketing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates that the net proceeds of this offering, together
with cash on hand, interest expected to be earned thereon and anticipated cash
from operations will be sufficient to finance the Company's operations at
least through 1997, although there can be no assurance that additional capital
will not be required sooner. In order to meet its needs beyond such time, the
Company may be required to raise additional capital. There can be no assurance
that sufficient capital will be available if and when required on terms
acceptable to the Company, if at all. Any additional equity financings may be
dilutive to purchasers in this offering, and any debt financing may involve
restrictive covenants. Failure to secure additional financing if and when
needed could adversely affect the Company and its operations, including
requiring the Company to delay, scale back, or eliminate market expansion
activities and research and development on existing or new products, or
forcing the Company to cease operations entirely. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF OFFERING PRICE
Prior to this offering there has been no public market for the Common Stock.
Consequently, the initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Underwriter and may
bear no relation to the market prices for the shares that will prevail in the
public market following this offering. The Common Stock has been approved for
quotation on The Nasdaq National Market; there can, however, be no assurance
that an active trading market in the Common Stock will develop or be sustained
upon completion of this offering or that the market price of the Common Stock
will not decline below the initial public offering price. For factors
considered in determining the initial public offering price, see
"Underwriting."
11
<PAGE>
POSSIBLE STOCK PRICE VOLATILITY
The trading prices of the Common Stock could be subject to wide fluctuations
in response to a variety of events or factors, many of which are beyond the
Company's control. These could include, without limitation (i) quarterly
variations in the Company's operating results, (ii) the liquidity of the
market for the Common Stock, (iii) announcements of business developments by
the Company or its competitors, (iv) developments or disputes concerning
proprietary rights, (v) technological innovations or newly introduced
products, and (vi) general conditions in the computer industry and the
economy. Moreover, the stock markets recently have experienced extreme price
and volume fluctuations, which have particularly affected the market prices of
many high technology companies and which have often been unrelated to the
operating performance of such companies.
CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER PROVISIONS
Upon completion of this offering, the Company's directors and executive
officers and persons or entities affiliated with them will beneficially own in
the aggregate approximately 31% of the Company's outstanding Common Stock
(assuming the exercise of certain shares subject to outstanding options and
warrants). If these shareholders vote together as a group, they will be able
to substantially influence the business and affairs of the Company, including
the election of individuals to the Company's Board of Directors (the "Board of
Directors"), and to otherwise affect the outcome of certain actions that
require shareholder approval, including the adoption of amendments to the
Company's articles of incorporation and certain mergers, sales of assets and
other business acquisitions or dispositions. See "Principal Shareholders."
Upon completion of this offering, the Company will be authorized to issue
five million shares of undesignated preferred stock, $.001 par value, which
may be issued by the Board of Directors on such terms, and with such rights,
preferences and designations, as the Board of Directors may determine, without
further shareholder action. The rights of the holders of the Common Stock will
be subject to, and may be adversely affected by, the rights of any holders of
any preferred stock so issued. In addition, the Company is subject to certain
provisions of the Minnesota Business Corporation Act that limit the voting
rights of shares acquired in certain acquisitions and restrict certain
business combinations. Exercise of voting control by principal shareholders,
the existence or issuance of "blank check" preferred stock and the effect of
other anti-takeover provisions in the Company's charter documents or Minnesota
law, individually or in the aggregate, may render more difficult or discourage
any attempt to obtain control of the Company by means of a tender offer,
merger, proxy contest or otherwise, which could deprive the Company's
shareholders of opportunities to sell their shares of Common Stock at prices
higher than prevailing market prices. See "Description of Capital Stock--
Preferred Stock" and "--Provisions of the Company's Articles and Bylaws and
the Minnesota Business Corporation Act."
POSSIBLE ADVERSE MARKET EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE;
REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price
of the Common Stock or the future ability of the Company to raise capital
through an offering of its equity securities. Upon completion of this
offering, the Company will have outstanding 8,582,659 shares of Common Stock
(or 8,901,409 shares if the Underwriter's over-allotment option is exercised
in full). Of those shares, 2,125,000 shares (or 2,443,750 shares if the
Underwriter's over-allotment option is exercised in full) will be eligible for
immediate sale in the public market without restriction unless they are held
by "affiliates" of the Company within the meaning of Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
6,457,659 shares of Common Stock will be "restricted securities," as that term
is defined in Rule 144 under the Securities Act, and may be sold in the public
market only if registered or if they qualify for an exemption from
registration under Rule 144, Rule 144(k), Rule 701 or otherwise. All
directors, executive officers and other affiliates of the Company, who own, in
the aggregate, 2,364,802 shares of Common Stock, have agreed that they will
not sell, directly or indirectly, any Common Stock without the prior consent
of the Representative for a period of 180 days from the date of this
Prospectus, and certain other shareholders, who own, in the aggregate,
2,836,690 shares of Common Stock, have agreed that they
12
<PAGE>
will not sell, directly or indirectly, any Common Stock without the prior
consent of the Representative for a period of 90 days from the date of this
Prospectus. Of the shares not subject to these agreements, (i) approximately
824,500 shares will be eligible for immediate sale without restriction
pursuant to Rule 144(k) on the effective date of this offering, (ii)
approximately 248,433 shares will be eligible for sale, subject to compliance
with the volume limitations and other restrictions of Rule 144, 90 days after
the effective date of this offering, and (iii) approximately 183,234 shares
will become eligible for sale under Rule 144 after the expiration of the two-
year holding periods from the dates of acquisition, which end between June 5,
1997 and November 1, 1998. Beginning on the 91st day after the date of this
Prospectus, when the first agreement not to sell shares expires, of the shares
subject to such agreement, (iv) approximately 1,463,000 shares will become
eligible for sale without restriction pursuant to Rule 144(k), (v)
approximately 324,334 shares will become eligible for sale, subject to
compliance with the volume limitations and other restrictions of Rule 144 and
(vi) approximately 1,049,356 shares will become eligible for sale under Rule
144 after the expiration of the two-year holding periods from the dates of
acquisition, which end between March 29, 1997 and November 18, 1998. Beginning
on the 181st day after the date of this Prospectus, when the second agreement
not to sell shares expires, (vii) all of the 2,364,802 shares subject to such
agreement will become eligible for sale, subject to compliance with the volume
limitations and other restrictions of Rule 144. In addition, certain
shareholders and holders of warrants, options and convertible promissory
notes, who in the aggregate beneficially own 1,370,130 shares of Common Stock,
have the right, subject to certain conditions, to include their shares in
future registration statements relating to the Company's securities and to
cause the Company to register for public sale certain Common Stock owned by
them. The Securities and Exchange Commission has recently approved a
reduction, effective on April 29, 1997, of the two and three year holding
periods under Rule 144 and Rule 144(k) to one and two years, respectively.
When this reduction becomes effective, approximately 1,072,933 shares not
subject to the agreements described above will become eligible for immediate
sale pursuant to Rule 144(k) and the number of shares eligible for sale under
Rule 144 will increase. Such reduction, however, will not affect the 90 and
180 day periods under the agreements with the Representative described above.
See "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of $4.91 (at the
initial public offering price of $6.50 per share). Investors may also
experience additional dilution as a result of the exercise of outstanding
stock options and warrants. See "Dilution."
NO DIVIDENDS
The Company has never paid or declared a cash dividend on its capital stock
and does not anticipate doing so for the foreseeable future. See "Dividend
Policy."
13
<PAGE>
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Common Stock
offered hereby are estimated to be approximately $12,199,000 ($14,085,000 if
the Underwriter's over-allotment option is exercised in full), after deducting
the underwriting discount and estimated expenses of this offering, based on
the initial public offering price of $6.50 per share. The Company intends to
apply such net proceeds substantially as follows:
<TABLE>
<S> <C>
Repayment of convertible bridge notes........................... $ 5,104,000
Repayment of affiliate bridge notes............................. 1,420,000
Capital expenditures............................................ 1,000,000
Working capital and general corporate purposes.................. 4,675,000
-----------
Total........................................................... $12,199,000
===========
</TABLE>
REPAYMENT OF CONVERTIBLE BRIDGE NOTES. Approximately $5,104,000 of the net
proceeds will be used to pay principal and accrued interest on the Company's
subordinated promissory notes issued in December 1996, assuming none of the
principal amount of such notes is converted into Common Stock. Up to 20% of
the principal amount of each such note is convertible for a period of 30 days
after the effective date of the registration statement of which this
Prospectus forms a part, at the option of the holder thereof, into the
Company's Common Stock at a conversion price of 80% of the Price to Public in
this offering. To the extent that any principal amount of such notes is
converted, the net proceeds that would have been used to repay such principal
amount will be used for general working capital purposes. The outstanding
principal and accrued interest on such notes will be due and payable on June
30, 1997; provided, that the Company may extend such maturity to December 31,
1997, and provided, further, that the outstanding principal and accrued
interest on such notes will be due and payable in full within 30 days after
the effective date of the registration statement of which this Prospectus
forms a part. Such notes bear interest at the rate of 10% per annum. Such
notes were purchased by various investors, none of whom are "affiliates" of
the Company. The proceeds from such notes were used to pay off approximately
$2,030,000 outstanding under bank lines of credit, $1,500,000 of which was
personally guaranteed by George E. Kline, a director of the Company, and for
general working capital purposes. See "Description of Capital Stock--Bridge
Loans."
REPAYMENT OF AFFILIATE BRIDGE NOTES. The Company entered into a series of
transactions from July through September 1996 resulting in unsecured loans of
which approximately $1,420,000 in principal and accrued interest is currently
outstanding, $1,314,000 of which is due to entities affiliated with George E.
Kline, a director of the Company. The remaining amount is due to a
nonaffiliate. These loans bear interest at rates from 10% to 12% per annum.
The proceeds from the short-term loans were used for general working capital
purposes. See "Certain Transactions" and "Description of Capital Stock--Bridge
Loans."
CAPITAL EXPENDITURES. The Company intends to spend approximately $1,000,000
in 1997 on capital expenditures, including the procurement of injection
molding tools for the production of the 5000 Series chassis and for leasehold
improvements to the expanded facilities that the Company anticipates requiring
in mid-1997.
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. The remainder of the net
proceeds, approximately $4,675,000 will be allocated to working capital and
will be used for purposes including the addition of manufacturing and
administrative infrastructure to support expansion.
In addition, the Company may also use a portion of the net proceeds to
acquire businesses, products or technologies that management believes may
complement the Company's operations, although the Company currently has no
agreements or understandings regarding any such acquisition and is not
involved in any negotiations with respect to any such transactions.
The amounts given above are estimates, and the amount and timing of actual
expenditures will depend on numerous factors, including competition,
manufacturing activities and the level of market acceptance of the Company's
products.
14
<PAGE>
Pending the use of the net proceeds of this offering, the Company will
invest the funds in short-term, interest-bearing, investment grade securities.
The Company believes that the proceeds of this offering, together with cash
on hand, interest expected to be earned thereon, and anticipated revenues will
be sufficient to fund its operations at least through 1997. In order to meet
its needs beyond such time, the Company may be required to raise additional
capital. There can be no assurance that sufficient capital will be available
if and when required on terms acceptable to the Company, if at all. See "Risk
Factors--Future Capital Needs; Uncertainty of Additional Funding."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all of its earnings, if any, to
finance the development and continued expansion of its business, and does not
intend to pay dividends in the foreseeable future. The payment of dividends,
if any, in the future will be at the discretion of the Board of Directors and
will depend on the Company's earnings, financial condition, capital
requirements, and other relevant factors.
In November 1996, the Company's Board of Directors approved the distribution
of all of the issued and outstanding shares of the capital stock of a wholly-
owned subsidiary as a dividend to shareholders of record as of November 15,
1996. See "Recent Events--Dividend of Shares of Paragon Technology, Inc."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 5, 1997 and as adjusted to give effect to the issuance and sale by the
Company of the 2,125,000 shares of Common Stock offered hereby at the initial
public offering price of $6.50 per share and the application of the estimated
net proceeds therefrom and the automatic conversion of all outstanding
Preferred Stock into Common Stock upon the consummation of this offering. This
table should be read in conjunction with, and is qualified in its entirety by,
the more detailed information, including "Risk Factors" and the Consolidated
Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JANUARY 5, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt....................................... $ 6,083 $ 57
======= =======
Long-term debt and capital lease obligations, less
current portion...................................... $ 67 $ 67
------- -------
Shareholders' equity:
Series A Convertible Preferred Stock, $.001 par val-
ue, 300,000 shares authorized actual and no shares
authorized as adjusted; 300,000 shares issued and
outstanding actual and no shares issued and out-
standing as adjusted............................... -- --
Undesignated Preferred Stock, $.001 par value, no
shares authorized actual and 5,000,000 authorized
as adjusted; no shares issued and outstanding ac-
tual and as adjusted............................... -- --
Common Stock, $.001 par value, 14,700,000 shares au-
thorized actual, 30,000,000 shares authorized as
adjusted; 5,880,736 shares issued and outstanding
actual; 8,582,659 shares issued and outstanding as
adjusted(/1/)...................................... 6 9
Common stock warrants............................... 232 232
Additional paid-in capital.......................... 7,878 20,076
Accumulated deficit(/2/)............................ (6,303) (6,628)
------- -------
Total shareholders' equity........................ 1,813 13,689
------- -------
Total capitalization............................ $ 1,880 $13,756
======= =======
</TABLE>
- -----------------
(1) Excludes: (a) 778,400 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $3.40 per
share, (b) 600,899 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $4.34 per
share and (c) up to 192,308 shares of Common Stock issuable within 30 days
of the effective date of the registration statement of which this
Prospectus is a part upon conversion (at a conversion price equal to 80%
of the initial public offering price of $6.50) of up to $1,000,000 of the
principal amount of certain outstanding Promissory Notes. See "Description
of Capital Stock."
(2) Reflects the write-off of debt issuance costs totaling $325,000 incurred
in conjunction with bridge financing.
16
<PAGE>
DILUTION
Pro forma net tangible book value per share represents total assets, less
total liabilities, divided by the number of shares outstanding as of January
5, 1997 (adjusted to reflect the conversion of the Preferred Stock into Common
Stock upon the consummation of this offering). The Company's pro forma net
tangible book value as of January 5, 1997, was approximately $1,813,000, or
approximately $0.28 per share. Without taking into account any changes in such
net tangible book value per share after January 5, 1997, other than to give
effect to the sale of the shares of Common Stock offered hereby at the initial
public offering price of $6.50 per share and the receipt of the net proceeds
of such sale, the pro forma net tangible book value per share as of January 5,
1997, would have been approximately $13,689,000, or approximately $1.59 per
share. This represents an immediate increase in net tangible book value per
share of $1.31 to existing shareholders and an immediate dilution of $4.91 per
share to new investors. The following table sets forth this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $6.50
Pro forma net tangible book value per share as of January 5,
1997............................................................ $0.28
Increase per share attributable to new investors................. 1.31
-----
Pro forma net tangible book value per share after this offering.... 1.59
-----
Dilution per share to new investors................................ $4.91
=====
</TABLE>
The following table sets forth, on a pro forma basis as of January 5, 1997,
the differences between existing shareholders and new investors with respect
to the total number of shares of Common Stock and Preferred Stock (all of
which Preferred Stock will be converted into Common Stock upon the
consummation of this offering) purchased from the Company, the total
consideration paid and the average price per share paid (assuming the sale of
2,125,000 shares of Common Stock at the initial public offering price of $6.50
per share and before deducting underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 6,457,659 75.2% $ 7,884,772 36.3% $1.22
New investors............... 2,125,000 24.8 13,812,500 63.7 6.50
--------- ----- ----------- -----
Total..................... 8,582,659 100.0% $21,697,272 100.0%
</TABLE>
The above calculations do not give effect to the possible issuance of (i)
778,400 shares of Common Stock issuable upon exercise of options outstanding
at a weighted average exercise price of $3.40 per share, (ii) 600,899 shares
of Common Stock issuable upon exercise of warrants outstanding at a weighted
average exercise price of $4.34 per share and (iii) up to 192,308 shares of
Common Stock issuable within 30 days of the effective date of the registration
statement of which this Prospectus is a part upon conversion (at a conversion
price equal to 80% of the initial public offering price of $6.50) of up to
$1,000,000 of the principal amount of certain outstanding Promissory Notes. To
the extent that these options, warrants and conversion rights become
exercisable and are exercised or to the extent additional options or warrants
are granted or exercised, there will be further dilution to new investors. See
"Description of Capital Stock."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the Consolidated Financial Statements and Notes thereto included elsewhere
herein. The statements of operations data as of and for the period from
inception (October 2, 1992) to December 31, 1992, and as of and for the years
ended December 31, 1993, 1994 and 1995 and January 5, 1997, are derived from,
and are qualified by reference to, the audited consolidated financial
statements included elsewhere in this Prospectus and should be read in
conjunction with those consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(OCTOBER 2, 1992) YEARS ENDED DECEMBER 31, YEAR ENDED
TO DECEMBER 31, --------------------------- JANUARY 5,
1992 1993 1994 1995 1997
----------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Net sales............... $ -- $ -- $ 2,742 $ 8,242 $13,111
Cost of sales .......... -- -- 1,978 4,980 8,311
------ ------- -------- -------- -------
Gross profit........... -- -- 764 3,262 4,800
Operating expenses:
Sales and marketing.... -- 36 904 1,523 3,235
General and administra-
tive.................. -- 160 762 1,169 2,232
Research and develop-
ment.................. -- 289 765 948 1,896
------ ------- -------- -------- -------
Total operating ex-
penses................ -- 485 2,431 3,640 7,363
------ ------- -------- -------- -------
Operating loss.......... (485) (1,667) (378) (2,563)
Interest expense and
other, net............. -- -- (21) (69) (356)
------ ------- -------- -------- -------
Net loss from continuing
operations............. -- (485) (1,688) (447) (2,919)
Loss from discontinued
operation(/1/)......... -- -- -- (180) (377)
------ ------- -------- -------- -------
Net loss................ $ -- $ (485) $ (1,688) $ (627) $(3,296)
====== ======= ======== ======== =======
Pro forma net loss per
common share(/2/):
Net loss per common
share from continuing
operations............ $ -- $ (.15) $ (.30) $ (.07) $ (.44)
Loss per common share
from discontinued
operation(/1/)........ -- -- -- (.03) (.06)
------ ------- -------- -------- -------
Net loss per common
share................. $ -- $ (.15) $ (.30) $ (.10) $ (.50)
====== ======= ======== ======== =======
Weighted average common
shares outstanding..... 3,087 3,153 5,590 6,291 6,602
====== ======= ======== ======== =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 5, 1997
----------------------------- -----------------------------
1992 1993 1994 1995 ACTUAL AS ADJUSTED(/3/)
---- ------ ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
BALANCE SHEET DATA:
Cash.................... $ -- $1,230 $ 126 $ 113 $ 2,132 $ 7,981
Working capital......... -- 1,845 1,317 1,685 1,042 12,918
Total assets............ 2 2,008 3,603 4,559 9,906 15,755
Long-term debt and
capital lease
obligations, less
current portion........ -- -- 11 62 67 67
Total debt.............. -- -- 809 1,254 6,150 124
Accumulated defi-
cit(/4/)............... -- (485) (2,173) (2,805) (6,303) (6,628)
Total shareholders' eq-
uity................... 2 1,919 1,636 2,132 1,813 13,689
</TABLE>
- -----------------
(1) In November 1996, the Company's Board of Directors approved the
distribution of all of the issued and outstanding shares of the common
stock of the Company's wholly-owned subsidiary, Paragon, as a dividend to
shareholders of record of the Company as of November 15, 1996. Paragon's
results of operations for the years ended December 31, 1995 and January 5,
1997, as well as the estimated loss from disposition, have been presented
as a discontinued operation in the above Statements of Operations Data.
See "Recent Events--Dividend of Shares of Paragon Technology, Inc."
(2) Computed on the basis described for pro forma net loss per common share in
Note 2 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect (a) the sale of 2,125,000 shares of Common Stock
offered hereby at the public offering price of $6.50 per share and the
application of the estimated net proceeds therefrom and (b) the automatic
conversion of all outstanding Preferred Stock into Common Stock upon the
consummation of this offering. See "Use of Proceeds" and "Capitalization."
(4) Reflects the write-off of debt issuance costs totaling $325,000 incurred
in conjunction with bridge financing.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
This Prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed below, as well as those discussed elsewhere in this
Prospectus. See "Risk Factors."
GENERAL
FieldWorks was incorporated in 1992 to provide rugged computing platforms
and computer system solutions for use by field personnel. From its inception
through June 1994, the Company's activities consisted primarily of developing
its products and building its infrastructure. The Company shipped its first
commercial product, the 7000 Series Field WorkStation rugged laptop computing
platforms, in June 1994, and the 5000 Series Field WorkStation rugged notebook
computing platforms in June 1996.
Effective in fiscal 1996, the Company changed to a 52/53-week fiscal year
ending on the first Sunday on or after December 31st. All references herein to
"1996," "1995" and "1994" represent the 53-week fiscal year ended January 5,
1997 and the years ended December 31, 1995 and December 31, 1994,
respectively. The Company does not believe that this change affects
comparability of the financial statements.
The Company recognizes revenue upon shipment of product. Although the
Company's revenues have increased significantly over the last two years, the
Company has incurred net losses with an accumulated deficit of $6.3 million as
of January 5, 1997. The Company's limited operating history makes the
prediction of future operating results difficult. Accordingly, although the
Company has experienced revenue growth, such growth should not be considered
indicative of future revenue growth, if any, or of future operating results.
See "Risk Factors--Limited Operating History; History of Operating Losses;
Uncertainty of Future Profitability" and "--Fluctuations in Quarterly
Operating Results."
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, YEAR ENDED
---------------- JANUARY 5,
1994 1995 1997
------ ------ ----------
<S> <C> <C> <C>
Net sales........................................ 100% 100% 100%
Cost of sales.................................... 72 60 63
------ ------ ---
Gross profit................................... 28 40 37
Operating expenses:
Sales and marketing............................ 33 18 25
General and administrative..................... 28 14 17
Research and development....................... 28 12 14
------ ------ ---
Total operating expenses..................... 89 44 56
Operating loss................................... (61) (4) (19)
Interest expense and other, net.................. (1) (1) (3)
------ ------ ---
Net loss from continuing operations.............. (62) (5) (22)
Loss from discontinued operation................. -- (3) (3)
------ ------ ---
Net loss......................................... (62)% (8)% (25)%
====== ====== ===
</TABLE>
20
<PAGE>
COMPARISON OF YEARS ENDED JANUARY 5, 1997 AND DECEMBER 31, 1995
Net Sales. The Company's net sales increased 59% from $8.2 million for 1995
to $13.1 million for 1996. Of the increase in net sales, $4.4 million was due
to an increase in the number of units sold. In addition, $0.5 million was due
to an increase in the average selling prices of the 7000 Series driven by the
levels of optional features included in units sold, such as Pentium chips, RAM
memory and CD-ROM drive upgrades, enhanced wet and cold weather packages, and
electromagnetic emission control packages, as well as peripheral equipment
purchases such as batteries and carrying cases. International sales decreased
from 35% of net sales for 1995 to 24% of net sales for 1996 as a result of the
Company's focus on building its domestic sales force and testing to
demonstrate continued compliance with new European EMI standards following
certain changes to the 7000 Series, and continuing efforts to achieve
compliance to these standards for the 5000 Series. The Company believes that
international sales as a percentage of total net sales will continue at levels
similar to those in 1996, with little impact on the Company's results of
operations or liquidity.
Gross Profit. Gross profit increased 45% from $3.3 million in 1995 to $4.8
million in 1996. As a percentage of net sales, gross profit decreased from 40%
in 1995 to 37% in 1996. In 1995 the Company incurred approximately $0.3
million, or 4% of net sales, in inventory disposal costs related to upgrading
computer components due to technological advances. This compares to $0.8
million, or 6% of net sales, in 1996. The introduction in the second half of
1996 of the 5000 Series, which carries lower pricing and profit margins, and
the introduction of a new lower base price 7000 Series model in the fourth
quarter, reduced margins as a percent of net sales by approximately 5% for the
fourth quarter. In addition, the Company's fourth quarter focus on the 5000
Series resulted in reduced shipments of the 7000 Series in that quarter. Such
reduction had a negative impact of 5% on margins as a percent of net sales for
the fourth quarter due to the fixed nature of certain expenses in the cost of
goods sold. With unit volume increases and improvements in manufacturing
efficiencies, the Company believes it will maintain gross margins in the mid
to high 30% range in 1997.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, bonuses and commissions, promotions and advertising and travel.
Sales and marketing expenses increased from $1.5 million or 18% of net sales
for 1995 to $3.2 million or 25% of net sales for 1996. The increase was due
primarily to increased advertising, staffing and promotion expenses, all of
which were intended to build general product recognition and to introduce the
5000 Series. The Company expects that its sales and marketing expenses will
continue to increase as it seeks to expand its sales channels.
General and Administrative. General and administrative expenses consist
primarily of salaries, professional services, facilities, bad debt and
incentive compensation costs. General and administrative expenses increased
from $1.2 million or 14% of net sales for 1995 to $2.2 million or 17% of net
sales for 1996. The increase was due primarily to increased staffing, legal
fees, professional services and facilities expenses. The Company expects to
continue to increase its general and administrative expenses in the
foreseeable future as it adds general and administrative infrastructure.
Research and Development. Research and development expenses consist
primarily of salary and materials costs incurred in the development and
testing of new products and of computing platforms customized for special
applications. Research and development costs are expensed as incurred.
Research and development expenses increased from $0.9 million or 12% of net
sales for 1995 to $1.9 million or 14% of net sales for 1996. The increase in
research and development expenses was primarily due to significant investment
in the introduction of the 5000 Series and also to continued development of
the 7000 Series. The Company expects research and development expenses to
increase for the foreseeable future.
Interest Expense and Other, Net. Interest expense increased from
approximately $69,000 for 1995 to $356,000 for 1996, primarily due to higher
levels of indebtedness. Forms of indebtedness used included the Company's
terminated bank line of credit, loans from affiliated parties and the December
bridge notes, all of which were required to fund working capital requirements.
See "--Liquidity and Capital Resources."
21
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Sales. Net sales increased 201% from $2.7 million in 1994, the Company's
first year of commercial sales, to $8.2 million in 1995. This increase was due
primarily to an increase in the number of units sold partially offset by a 6%
decrease in the average selling prices for the 7000 Series. Sales to the
Company's international distributors accounted for 37% and 35% of net sales
for 1994 and 1995, respectively.
Gross Profit. Gross profit increased 327% from $0.8 million in 1994 to $3.3
million in 1995. As a percentage of net sales, gross profit increased from 28%
in 1994 to 40% in 1995. This increase in gross profit was the result of
improved economies of scale realized from increases in production volume and
also of enhanced manufacturing and procurement efficiencies.
Sales and Marketing. Sales and marketing expenses increased from $0.9
million or 33% of net sales for 1994 to $1.5 million or 18% of net sales for
1995, primarily as the result of increased expenditures in advertising,
promotion and staffing. Sales and marketing expenses as a percentage of sales
decreased due to increased market acceptance of the Company's products.
General and Administrative. General and administrative expenses increased
from $0.8 million or 28% of net sales in 1994 to $1.2 million or 14% of net
sales in 1995. The increase resulted from a move to a new facility, the
addition of staff and an increase in professional service expenses.
Research and Development. Research and development expenses increased from
$0.8 million or 28% of net sales in 1994 to $0.9 million or 12% of net sales
in 1995. These increases were the result of the Company's efforts to build and
support its engineering infrastructure related to development of the 7000
Series. In addition, the Company's research and development costs increased in
the second half of 1995 as the result of efforts related to the development of
the 5000 Series.
Interest Expense and Other, Net. Interest expense increased from $21,000 in
1994 to $69,000 for 1995, primarily due to increased line of credit borrowings
to fund additional working capital requirements.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited financial data for each of
the eight consecutive quarters ended January 5, 1997. This data has been
derived from unaudited consolidated financial statements that, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. Such
statement of operations data should be read in conjunction with the Company's
audited Consolidated Financial Statements and Notes thereto.
The Company's operating results may vary significantly from quarter to
quarter due to a wide range of factors, such as changes in customer buying
patterns, the timing of the announcement and introduction of new products by
the Company or its competitors, the tactics of the Company's competitors,
technological developments affecting the rugged computing platform market, and
the overall strength of the economy. As a result, the Company's operating
results for any particular quarter are not necessarily indicative of results
that the Company may achieve for any subsequent quarter or full fiscal year.
See "Risk Factors--Fluctuations in Quarterly Operating Results."
22
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED JANUARY 5, 1997
---------------------------------- ----------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $1,784 $1,853 $2,238 $2,367 $2,830 $3,066 $3,702 $ 3,513
Cost of sales........... 1,048 1,100 1,266 1,566 1,735 1,840 2,269 2,467
------ ------ ------ ------ ------ ------ ------ -------
Gross profit............ 736 753 972 801 1,095 1,226 1,433 1,046
------ ------ ------ ------ ------ ------ ------ -------
Operating expenses:
Sales and marketing.... 368 353 380 422 591 775 910 959
General and
administrative........ 240 262 300 367 465 507 501 759
Research and
development........... 142 147 213 446 430 420 515 531
------ ------ ------ ------ ------ ------ ------ -------
Total operating
expenses.............. 750 762 893 1,235 1,486 1,702 1,926 2,249
------ ------ ------ ------ ------ ------ ------ -------
Operating income
(loss)................. (14) (9) 79 (434) (391) (476) (493) (1,203)
Interest expense and
other, net............. (19) (17) (17) (16) (64) (54) (104) (134)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss) from
continuing operations.. (33) (26) 62 (450) (455) (530) (597) (1,337)
Income (loss) from
discontinued
operation.............. (2) 7 (90) (95) (70) (137) (140) (30)
------ ------ ------ ------ ------ ------ ------ -------
Net loss................ $ (35) $ (19) $ (28) $ (545) $ (525) $ (667) $ (737) $(1,367)
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
The following table sets forth certain unaudited financial data for each of
the eight consecutive quarters ended January 5, 1997, expressed as a percentage
of the Company's net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED JANUARY 5, 1997
------------------------------- -------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of sales........... 59 59 57 66 61 60 61 70
--- --- --- --- --- --- --- ---
Gross profit............ 41 41 43 34 39 40 39 30
--- --- --- --- --- --- --- ---
Operating expenses:
Sales and marketing.... 21 19 17 18 21 25 25 27
General and
administrative........ 13 14 13 15 16 17 13 22
Research and develop-
ment.................. 8 8 9 19 16 14 14 15
--- --- --- --- --- --- --- ---
Total operating
expenses.............. 42 41 39 52 53 56 52 64
--- --- --- --- --- --- --- ---
Operating income
(loss)................. (1) -- 4 (18) (14) (16) (13) (34)
Interest expense and
other, net............. (1) (1) (1) (1) (2) (2) (3) (4)
--- --- --- --- --- --- --- ---
Net income (loss) from
continuing operations.. (2) (1) 3 (19) (16) (18) (16) (38)
Loss from discontinued
operation ............. -- -- (4) (4) (3) (4) (4) (1)
--- --- --- --- --- --- --- ---
Net loss................ (2)% (1)% (1)% (23)% (19)% (22)% (20)% (39)%
=== === === === === === === ===
</TABLE>
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has principally financed its operations and
capital expenditures through the private sale of equity securities, loans
(including the sale of debt) and bank lines of credit. The Company generated
net proceeds from the private sale of common stock of $1.3 million in 1994 and
$1.6 million in 1995. The Company received net proceeds of $3.0 million from
the sale of preferred stock during 1996. Borrowings on loans generated $0.3
million in 1994, which was repaid in 1995, and $7.6 million in 1996, of which
$1.5 million was repaid prior to year end. As of January 5, 1997, the Company
had outstanding loans of $6.4 million, including $1.3 million with affiliated
parties. Borrowings under bank lines of credit generated $0.5 million in 1994,
$0.7 million in 1995 and $1.8 million in 1996. All bank lines of credit were
repaid in December 1996 and no bank lines were open as of January 5, 1997. The
Company is currently in negotiations with a bank to establish a new operating
line of credit, although there can be no assurances that such negotiations
will be successful. Cash provided by financing activities, including those
listed above, totaled $2.1 million in 1994, $2.0 million in 1995 and $8.1
million in 1996.
Cash used for operating activities totaled $2.9 million in 1994, $1.7
million in 1995 and $5.4 million in 1996. Inventories, which include primarily
raw materials, work in process and demonstration units, increased from $1.8
million at December 31, 1995 to $4.4 million at January 5, 1997. The increase
was primarily due to a build up of raw materials to fill the Company's backlog
of orders, an increase in work in process due to expanded production capacity
and an increase in the number of demonstration units in light of the Company's
larger potential customer base. Despite the 59% increase in net sales from
1995 to 1996, accounts receivable only increased 5.3% from $1.9 million at
December 31, 1995 to $2.0 million at January 5, 1997, primarily due to the
Company's collection efforts. Prepaid expenses and other current assets
increased from $0.1 million at December 31, 1995 to $0.4 million at January 5,
1997, primarily due to prepaid expenses related to this offering and a deposit
with a subcontractor who produces components for the Company's products.
Accrued warranty and other increased from $0.1 million at December 31, 1995 to
$0.5 million at January 5, 1997 due to warranties related to increased sales,
accruals for expenses related to this offering and interest on outstanding
notes. The Company purchased property and equipment of $0.3 million in 1994,
$0.3 million in 1995, and $0.6 million in 1996.
As of January 5, 1997 the Company had cash and cash equivalents of $2.1
million.
The Company believes that the proceeds of this offering, together with cash
on hand, interest expected to be earned thereon, and anticipated revenues will
be sufficient to fund its operations at least through 1997. In order to meet
its needs beyond such time, the Company may be required to raise additional
capital. There can be no assurance that sufficient capital will be available
if and when required on terms acceptable to the Company, if at all. See "Risk
Factors--Future Capital Needs; Uncertainty of Additional Funding."
24
<PAGE>
RECENT EVENTS
During the first half of 1996, the Company began shipping demonstration
units of its 5000 Series Field WorkStation for customer test trials.
Complexities in engineering development delayed the shift from production of
demonstration units to commercial production of the 5000 Series beyond the
time that the Company had initially anticipated. The Company began shipping
commercial production units of the 5000 Series to domestic customers in June
1996, with more than 15% of its 1996 unit volume represented by sales of that
model. However, strong early customer response caused a significant increase
in total order bookings in the third and fourth quarters of 1996, as shown in
the following table:
<TABLE>
<CAPTION>
ORDER BOOKINGS
1996 QUARTER
---------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
7000 Series................................... $2,651 $2,909 $3,621 $3,603
5000 Series................................... 161 435 2,214 1,772
------ ------ ------ ------
Total......................................... $2,812 $3,344 $5,835 $5,375
</TABLE>
In light of the time necessary to introduce full-scale commercial production
of the 5000 Series, this large volume of orders contributed to a September 30,
1996, backlog of approximately $2.8 million, and an approximately $4.1 million
backlog as of January 5, 1997 (both figures include an order of approximately
$0.7 million deliverable in 1997). The re-design of critical 5000 Series
components to ease future manufacturability and the attendent delay
contributed to the continued build up of the Company's backlog during the
third and fourth quarters. In addition, testing and changes to printed circuit
boards, cabling, and the enclosure of the 7000 Series led to an approximately
three month hold, late in the year, on shipments to Europe to allow the
Company to demonstrate continued compliance with European EMI standards
following these changes. See "Business--Backlog."
The above factors have contributed to a substantial increase in inventories
from $1.8 million at December 31, 1995 to $4.4 million at January 5, 1997.
This increase in inventories raises the risk of future expenses due to
technological changes in the form of inventory obsolescence. The Company
currently has in place and is continuing to develop procedures to identify
changes in technology early and minimize the extent of inventory disposal
costs, although there can be no assurances that there will not be future
write-offs of obsolete inventory, which may be significant. See "Risk
Factors--Risk of Technological Obsolescence."
The Company had fulfilled approximately 50% of the September 30 backlog in
the 5000 Series by the end of 1996 and approximately 65% of the September 30
backlog in the 7000 Series by the end of 1996.
The Company is currently quoting lead times of six to eight weeks for
delivery of new 7000 Series orders and twelve weeks for 5000 Series orders.
The Company currently anticipates that it will have filled all current backlog
orders and will have reduced its average fulfillment time to its goal of four
weeks by the end of the first half of 1997. There can, however, be no
assurance that the Company will be able to do so; for factors that might
prevent this, see "Risk Factors--Risks Associated with Managing Growth," "--
Dependence on Third-Party Manufacturers" and "--Dependence on Availability of
Components."
The delay in the commercial introduction of the 5000 Series, together with
expenses incurred by the Company in connection with building its corporate
infrastructure to support the anticipated volume of sales of the 5000 Series,
adversely affected the Company's profits in the second half of 1996.
DIVIDEND OF SHARES OF PARAGON TECHNOLOGY, INC.
In August 1995 the Company acquired a wholly-owned subsidiary, Paragon
Technology, Inc. ("Paragon"), which designs and sells high performance
graphics subsystems for the commercial and OEM markets, including MPEG-II
video compression decoding solutions, image manipulation software and digital
video disk ("DVD") technology. The Company incorporates certain of Paragon's
technology in its computing platforms. Paragon also licenses its products to
large personal computer manufacturers, which include the Paragon products in
commercially available personal computers. In November 1996, the Company's
Board of Directors approved the distribution of all of the issued and
outstanding shares of Paragon's capital stock as a dividend to shareholders of
25
<PAGE>
record of the Company as of November 15, 1996, and the distribution of this
dividend was completed by December 31, 1996. The decision to distribute
Paragon's capital stock was based on the determination by the Company's Board
of Directors that, in light of the difference between the business plans being
pursued by the Company and Paragon and between the primary industry areas
addressed by each, the spin-off of Paragon would enable each company to focus
more effectively on meeting its separate goals and to raise capital for the
pursuit of those goals more easily. From November 1996 to January 1997 the
Company loaned an aggregate of $173,465 in working capital to Paragon; all
such amounts were repaid, together with an aggregate of $885 in interest, on
February 5, 1997. Two of the Company's directors and officers, Gary Beeman and
Robert Szymborski, currently serve as directors of Paragon, and Mr. Beeman
currently serves as Paragon's Chairman of the Board. The Company and Paragon
intend to enter into strategic relationships in the areas of product
development and marketing.
26
<PAGE>
BUSINESS
THE COMPANY
FieldWorks designs, manufactures, markets and supports portable rugged
computing platforms and computer system solutions for use in demanding field
environments. In addition to providing the full range of computer features,
performance and functionality typically found in high-end desktop computers,
the Company's portable computing platforms have been designed to meet rigorous
military standards for ruggedness and to function despite exposure to extreme
temperature, mechanical shock, vibration and moisture. The Company's computing
platforms are expandable through multiple expansion slots to provide a
flexible electronic "toolbox" that can integrate all of a user's application-
specific, multi-media and communications needs into one portable, rugged
device. The Company's products have been designed with a modular system
configuration that allows a user to easily upgrade the central processing unit
("CPU") processor or any of the other technological components without
purchasing a new computer. Further, the Company has the ability to customize
its computing platforms to meet the unique needs of its customers.
The Company targets those markets that require portable computing platforms
that can perform multiple functions, including diagnostics, data acquisition
and electronic testing and monitoring, and simultaneously provide
communications and computer capability even under adverse conditions in the
field. FieldWorks rugged computing platforms are in use in a variety of market
applications, including: electronic toolboxes for telecommunications test
crews to simplify and expedite installation, repair and troubleshooting tasks;
data collection and transmission for in-flight commercial airplane testing;
collection and analysis of Global Positioning System ("GPS") geographical
information and agricultural data to aid in the selection of crops, chemicals
and farming methods; diagnostic system analysis and wireless communication for
use with trucking fleets; and video surveillance and monitoring for law
enforcement purposes. The Company believes that its rugged computing
technology has enabled its customers to create new applications that improve
the productivity of their field personnel and believes further that additional
markets and customers will develop as more businesses recognize the benefits
of providing field personnel with effective, sophisticated computing power.
The Company markets its products worldwide through a direct sales force,
independent sales representatives and distributors, OEMs, VARs and systems
integrators. The Company's ten top customers during 1995 and 1996 were The
Freightliner Corporation ("Freightliner"), Liberty Technologies, Inc.
("Liberty"), Texas Instruments Incorporated ("Texas Instruments"), Keithley
Metrabyte, a division of Keithley Instruments Inc., Dateppli Inc. (for sale to
Ford Motor Company), Strategic Solutions, Inc., JoR A.B. (for sale to L.M.
Ericsson A.B., Sweden), U.S. Department of Defense, AT&T Corporation and
Pacific Avionics, Inc. In July 1996, one of the Company's customers, Network
General, entered into an agreement with the Company pursuant to which Network
General made a $3 million equity investment in the Company.
FIELD COMPUTING MARKET
Due to rapid technological advances over the past several years,
organizations have become increasingly dependent on mobile computing and
communications devices, such as portable computers, pagers and cellular
telephones, to enhance workforce productivity. Highlighting this trend is the
growth in the market for consumer portable computers, which Frost & Sullivan,
a source the Company believes is reliable, has predicted may reach annual
worldwide sales of nearly $80 billion by 2001. Although this demand has to
date been largely attributable to offices and office staff, organizations are
increasingly seeking to computerize field personnel, in particular those who
(i) have direct contact with customers, (ii) install, diagnose and maintain
company or customer equipment, or (iii) collect the critical information that
allows the business to better meet the needs of its customers. Such
computerization can provide sophisticated field diagnostic and analytic
capabilities, enhance field access to data and on-line information, eliminate
paperwork and improve electronic dispatching and communication. As a result,
the market for mobile computing and field force automation products is
predicted to be one of the fastest growing sectors of the computer industry
through 1999, with annual growth predicted at as much as 35% or more.
According to International Data Corp. ("IDC") estimates, as reported in Mobile
Office magazine, a source the Company believes is reliable, the rugged
portable computer market is currently over $500 million and is expected to
grow by more than 50% over the next three years.
27
<PAGE>
Industries such as telecommunications, utilities, farming, law enforcement,
the military and transportation have recognized the need for computerization
and automation in the field. However, the effectiveness of field force
computerization and automation efforts has often been limited by the nature of
the products that have been available. Computers are now being used in the
field to perform a wide range of tasks, but both off the shelf, consumer
portable computers and custom-designed portable computers generally have
significant shortcomings that limit their use by field personnel. In part as a
result of these limitations, some companies still prefer to employ only
single-purpose diagnostic and data collection machines in the field, foregoing
the benefits of full computerization.
Consumer portable personal computers that are designed for office or home
use frequently become inoperable under the harsher conditions present in the
field. The chart below illustrates the durability problems encountered when
attempting to use a consumer personal computer in the field.
[This graph shows the percentage of buyers reporting types of damage for the
following events:
Accidental drops/pavement:
Damage has happened: approximately 62%
Damage rendered computer inoperable: approximately 52%
Food/liquid spills:
Damage has happened: approximately 45%
Damage rendered computer inoperable: approximately 23%
Dirt/other contamination:
Damage has happened: approximately 43%
Damage rendered computer inoperable: approximately 9%
User negligence:
Damage has happened: approximately 42%
Damage rendered computer inoperable: approximately 23%
Objects dropped on unit:
Damage has happened: approximately 32%
Damage rendered computer inoperable: approximately 14%]
(1) Based on a random survey of 589 InfoWorld subscribers
involved in purchasing portable personal computers. Damage
as reported is not representative of damage per single
computer or over any particular time period, and should
not be deemed to represent the likelihood that any
particular computer will be damaged over any particular
time period. This study was commissioned by Norand
Corporation, a source the Company believes is reliable.
Frost & Sullivan has reported that in one survey it conducted, respondents
reported that between 20% and 25% of all notebook computers used were sent in
for repairs each year, with average "down time" of five and one-half days per
computer. The frequent repair necessary for typical consumer portable
computers that are used in the field results not only in the cost of repair
itself, but also in the lost productivity and associated expense caused by
repair down time.
In addition, consumer portable personal computers are typically available
only with a standard set of features that cannot be expanded or customized to
meet the unique requirements of field personnel. For example, field
technicians require diagnostic and data collection capabilities in addition to
typical office environment computer functionality. Thus, standard portable
personal computers' lack of expandability limits their usefulness as complete
electronic toolboxes for field personnel.
Further, consumer portable personal computers generally are not designed to
be upgraded. Rapidly changing technology results in frequent changes in the
availability of portable personal computers as models change. Large
organizations can discover that their attempts to deploy effective and
consistent field force computerization over a period of time are impaired when
they are unable to continue to purchase the same models of portable personal
computers or when the computers become outmoded.
The alternatives to off the shelf, fragile, non-expandable, portable
personal computers have been either custom-designed personal computers or
mobile single-purpose diagnostic and data collection instruments. While
custom-designed portable personal computers can be configured to serve
specific field uses, they are expensive, generally limited in their
applications and often unable to withstand conditions typically present in the
field. Mobile single-purpose diagnostic and data collection instruments are
designed to withstand field conditions, but
28
<PAGE>
generally have little independent computing capability. Data analysis and
manipulation, therefore, must be performed later on a separate, non-portable
computer.
THE FIELDWORKS SOLUTION
The Company has focused on delivering products that address the varied and
specialized requirements of field force personnel. The Company's products
feature four critical design characteristics that it believes purchasers of
field computing platforms require.
Rugged. The Company's computing platforms have been designed to meet
stringent military standards of ruggedness, and to function despite extreme
temperatures, mechanical shock while operating up to 100 Gs (100 times the
force of gravity), vibration and moisture. The Company achieves this by using,
among other things: (i) high-strength cast magnesium chassis, (ii) special
shock absorbers for internal components, (iii) durable gold-plated
interconnect systems and (iv) rubber sealing.
Expandable. The Company has focused on providing computing platforms that
are expandable to accommodate both current and future needs of the field force
user. The Company's computing platforms allow for the integration of
application-specific equipment, including auxiliary test, measurement and
diagnostic subsystems and multi-media and communications modules. These
expansion capabilities also allow the Company's computing platforms to adapt
to the evolving requirements of the user, whose needs can change as additional
technology is developed in the future.
Upgradeable. The pace of change in technology such as processors, memory and
display methods can rapidly render non-upgradeable computers obsolete. Unlike
typical consumer portable computers, the Company's computing platforms are
designed to be easily upgraded using standard component parts. The modularity
of the Company's computing platforms allows for easy replacement of all major
subsystems, including processors, screens, disk drives, memory and keyboards,
thereby extending useful life and reducing the overall cost of ownership.
Customizable. Many of the Company's customers have unique needs that require
some degree of customization, from the incorporation of unique functions to
the design and production of special purpose machines. The modular design of
the Company's computing platforms allows the Company to readily adapt its
machines to a customer's specifications. Customization has ranged from fairly
simple mechanical adaptations to sophisticated electrical and mechanical
modifications. Examples of customized features have included: (i) designing
modifications to reduce electro-magnetic emissions, (ii) including
particularly delicate magneto-optical disk drives and (iii) incorporating
specialized high performance graphic subsystems to allow full-motion video
applications.
STRATEGY
The Company's objective is to be the leading designer, manufacturer and
marketer of rugged computing platforms and computer system solutions. The
Company's strategy consists of the following key components:
Penetrate Key Vertical Markets. The Company is seeking to penetrate key
vertical markets including military/government, utilities, transportation,
aviation, telecommunications and law enforcement. The Company intends to
employ a variety of approaches in these various markets, including building
strategic OEM relationships and focusing on relationships with large volume
repeat customers, depending on the characteristic purchasing patterns of
each vertical market. Where appropriate, the Company develops specialized
product features and functions to address the special needs of a particular
vertical markets.
Expand Strategic OEM Relationships. Certain of the Company's key vertical
markets are characterized by dominant third party OEMs. In those markets,
the Company sells its computing platforms to be bundled into computer
system solutions that the OEMs then sell to end users. Examples of existing
relationships include an OEM relationship with Texas Instruments, which
provides surveillance systems for military and law enforcement uses through
its Phototelesis division; an exclusive OEM supply relationship with
Liberty, the major producer of testing systems for the nuclear power
industry; and an OEM relationship with Network General, a major producer of
telecommunications testing systems.
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<PAGE>
Establish Relationships with Large-Volume, Repeat Customers. The Company
intends to focus the efforts of its direct sales force and sales channel
partners on meeting the ongoing needs of large-volume purchasers. The
Company believes that its products are particularly attractive to such
customers given the Company's ability to customize its computing platforms
for specialized needs and the ease with which the Company's computing
platforms can be upgraded and standardized throughout an organization. The
Company believes that its ability to accommodate developing technologies
addresses the concerns many large organizations have regarding the impact
of technological obsolescence in the context of large computer equipment
investments.
Develop New Products and Enhance Existing Products. During the past four
years the Company has made a substantial investment in developing its
current computing platform technologies, which it believes have provided it
with significant expertise with regard to rugged computing platforms. The
Company intends to leverage this expertise to develop new products and
enhance existing products. The Company is currently developing additional
series of computing platforms designed to address broader customer
preferences for products with varying degrees of expandability, size and
price, all of which provide users with the ruggedness, processing power and
ease of upgrade that characterize the Company's current products. The
Company is also constantly working to add new features and functions to its
existing products.
Establish Product Recognition. The Company's goal is to establish the
Company's products as the standard for quality portable rugged computing
platforms. The Company's approach in this respect was to begin by
establishing the Company's products and their reputation for quality with
those customers who demand the greatest number of features. Accordingly,
the Company initially entered the rugged computing platform market with the
7000 Series Field WorkStation rugged laptop computing platform. The Company
intends to continue to build its reputation in the high-end portion of the
market while also utilizing its product recognition to penetrate portions
of the market where customers have different preferences for expandability,
size and price.
CURRENT PRODUCTS
The Company introduced its first commercial product, the 7000 Series Field
WorkStation rugged laptop computing platform, in June 1994. The 7000 Series,
available in a range of models, offers significant expansion capacity and is
targeted at the high end of the rugged field computing platform market. In
June 1996, the Company commercially introduced its 5000 Series Field
WorkStation rugged notebook computing platform, which is also offered in a
range of models. This Series is designed to meet the needs of those customers
with uses that require a smaller, more lightweight toolbox but do not require
the same degree of expandability.
The Company's 7000 Series and 5000 Series share many significant design and
performance characteristics. In particular, both series satisfy military
standards for battlefield equipment with respect to shock (up to 100Gs while
operating) and vibration. Both series share a modular design that allows for
ease of upgrading. Both series can be configured with a variety of screens,
memory capacities up to 128 Megabytes and disk drives up to 2.1 Gigabytes and
are available with x486 or Pentium processors, as well as various networking
and communications options. All of the Company's computing platforms are
compatible with DOS, Windows, Unix, OS/2 and other operating systems and come
with a sealed keyboard and a Field MousePad pointing device that can also
serve as a signature and drawing pad.
7000 Series Field WorkStation Rugged Laptop Computing Platform. The
structure of the 7000 Series Field WorkStation laptop computing platform is
based on a high-strength cast magnesium alloy external housing. Internal
components that are sensitive to shock and vibration are contained within this
housing and isolated with special tuned shock absorbing polymers, while a
shock absorbing bushing system suspends all drives and the CPU. The 7000
Series incorporates the Company's backplane/card cage design, which provides
up to six ISA/PCI expansion card slots within the housing. These slots permit
the integration of instrumentation, data acquisition and communications
capabilities in the computing platform. Also contained within the housing are
PCMCIA expansion capability, integrated AC/DC power, battery capability,
desktop ISA/PCI slots, optional integrated CD-ROM, optional dual removable
hard drive system and optional Motion Picture Experts Group
30
<PAGE>
("MPEG-II") video compression decoding boards. The units in the 7000 Series
weigh approximately 14 1/2 pounds.
5000 Series Field WorkStation Rugged Notebook Computing Platform. The
structure of the 5000 Series Field WorkStation rugged notebook computing
platform is based on an internal frame cast from a high-strength magnesium
alloy, and is encased in a specially-developed urethane coating. The skeleton
and coating protect internal sub-systems from shock and vibration. In
addition, some of the internal subsystems are suspended by a shock absorbent
bushing system. Virtually all of the electronics of the 5000 Series are
contained in a "technology module" that has been designed for easy removal,
making it possible for customers to service the units themselves and
simplifying upgrades. In addition to two optional ISA or PCI expansion slots,
all computing platforms in the 5000 Series have four universal bays in two
sizes. The two larger bays can house batteries, CD-ROM drives, an internal AC
adapter, hard drives or floppy drives. The two smaller bays can house
removable drives and/or PCMCIA slots. 5000 Series units weigh approximately 10
1/2 pounds.
The Company does not currently maintain an inventory of assembled computer
platforms; instead, it assembles its products to its customers' specifications
as orders are received. This enables the Company to provide each customer with
a computing platform that satisfies the customer's specific requirements.
The Company's 7000 Series Field WorkStation computing platforms have current
base list prices to end users of approximately $6,000 with standard features.
The Company's 5000 Series Field WorkStation computing platforms have base list
prices to end users of approximately $5,000 with standard features.
MARKETS AND CUSTOMERS
The markets for the Company's products consist of those businesses and other
entities that are seeking effective mobile computing platforms for field
personnel and functions. Users of the Company's field computing platforms and
their demands vary widely, and include: (i) the military, which needs mobile
units capable of withstanding battlefield conditions, (ii) utilities and
telecommunications test crews, which require electronic toolboxes that can
perform data acquisition, diagnostic, communications and analysis tasks to
expedite installation, repair and troubleshooting, and (iii) field sales
personnel, who need multi-media capabilities in a mobile unit that also
provides networking capabilities. Customers have found a wide variety of
specific uses for the Company's rugged computing platforms in the field, such
as the following examples drawn from some of the Company's target market
segments.
Law Enforcement. A federal law enforcement agency is conducting surveillance
and monitoring using a reconnaissance device that includes a FieldWorks
computing platform. This device was employed at the 1996 Summer Olympic Games
in Atlanta to capture digital images and to communicate sensitive information
to major intelligence agencies around the world. Among other functions, the
FieldWorks computing platform provided the expandability necessary to house
and control the device's encryption, digital image capture and satellite
communications subsystems and functions.
Aviation. The Company's computing platform is used for in-flight commercial
airplane testing, where it is connected to the plane's data logging computer
to collect information that is then transmitted to engineers for analysis.
Since the computing platform must operate in areas of the plane that are
sensitive to electro-magnetic interference ("EMI"), the Company's engineers
customized the FieldWorks computing platform to develop an EMI-certified
portable computing platform.
Agriculture. A software developer has integrated the Company's computing
platform into an on-board "precision farming" system that utilizes GPS
technology to collect and analyze geographic information, fertilizer levels,
plant population, yield and other variables present on a specific farm. These
data can then be used to select the most appropriate crops, chemicals and
farming methods. Detachable mounts allow the computing platform to be moved
from one farm vehicle to another or to the home office.
Telecommunications. Test crews use the Company's computing platforms as
electronic toolboxes to simplify and expedite installation, repair and
troubleshooting tasks, such as network testing. The expandability of the
Company's computing platforms allow for the integration of the diagnostic
instrumentation necessary for these tasks.
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<PAGE>
Transportation. The Company's computing platforms are used in a portable
technical information and diagnostic system for use with fleets of trucks.
Maintenance personnel use the FieldWorks computing platforms incorporated in
this system not only to collect information from each vehicle's electronic
control and data logging units but also to view or graph the information and
to perform on the spot diagnostic routines that utilize the information.
The chart below lists some of the vertical markets that the Company has
targeted, along with the names of the largest FieldWorks customers in those
vertical markets:
<TABLE>
<CAPTION>
VERTICAL MARKET SIGNIFICANT CLIENTS
--------------- -------------------
<S> <C>
Military/Government U.S. Department of Defense
SAIC
California Microwave, Inc.
Lockheed Sanders, Inc.
Rockwell International
Utilities The Columbia Gas System, Inc.
International Atomic Energy Agency
Union Electric
Transportation Freightliner Corporation
Caterpillar
Detroit Diesel
Aviation Pacific Avionics
United Air Lines, Inc.
The Boeing Company
Bell Helicopter
Automotive Dateppli Inc. (for sale to Ford Motor Company)
Mercedes Benz
Chrysler Corporation
Law Enforcement Harris
New York Police Department
Telecommunications AT&T Corporation
Network General Corporation
Motorola, Inc.
JoR A.B. (for sale to L.M. Ericsson A.B., Sweden)
Instrumentation Liberty Technologies, Inc.
Gould Electronics Inc.
Minnesota Mining & Manufacturing Company (3M)
Honeywell Inc.
Imaging Texas Instruments Corporation
The Walt Disney Company
Eastman Kodak Company
Northrop Grumman Corp.
</TABLE>
During 1996, sales to two customers, Freightliner and Texas Instruments,
each accounted for more than 5% of net sales. During the same period, sales to
international customers represented approximately 24% of net sales. During
1995, sales to Freightliner accounted for more than 5% of net sales. During
the same period, sales to international customers represented approximately
35% of net sales. The Company does not believe that it is dependent upon sales
to any single customer given the Company's history of a relatively large
number of different customers and wide variations in the size and timing of
orders from both new and repeat customers.
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The Company believes that additional markets and customers will continue to
develop as more businesses recognize the benefits of providing field personnel
with effective, sophisticated computing power.
The market for portable rugged computing platforms is in the early stages of
its development. There can be no assurance that a substantial market will
develop for the Company's products within the timeframe it anticipates or at
all. See "Risk Factors--Uncertainty of Market Acceptance."
SALES AND MARKETING
The Company markets its products worldwide through a direct sales force,
independent sales representatives and distributors, OEMs, VARs and systems
integrators. The Company's sales and marketing efforts are based on the
recognition that each of the Company's target vertical markets purchase from
different channels.
The Company's direct sales force focuses its efforts on building and
maintaining relationships with large-volume, repeat purchasers of the
Company's computing platforms and with entities that the Company considers to
be dominant manufacturers or sales channel entities within their vertical
markets. The Company also utilizes a network of approximately 27 independent
sales representatives for domestic sales. Other segments of the market are
addressed by sales to VARs and systems integrators that typically sell systems
that have been configured for specific end-user applications through the
addition of hardware, software or service. For international sales, the
Company maintains a network of approximately 38 international distributors,
which are managed by the Company's director for international sales. To date,
the Company's international sales have been principally in Europe, the Far
East and Australia, with recent sales in South America and Africa.
As of January 5, 1997, the Company employed 22 people in sales and
marketing. The direct sales effort is managed by a Vice President of Sales,
five regional sales managers within the United States, one director for
federal government sales and one director for international sales. Six of the
employees are engaged principally in marketing efforts and the remaining
persons are engaged primarily in sales. The Company conducts its sales
activities from its headquarters in Minnesota as well as sales offices in
Virginia, New Jersey, California, Texas and Alabama.
The Company advertises its products both in industry-specific trade
publications in the Company's target markets, such as Aviation Week and
Maintenance Technology, and in general interest computer magazines, such as PC
Week and BYTE. In addition, the Company participates in industry trade shows
in the Company's target markets and in computer industry trade shows. For
example, the Company participates in the UTC (Utilities Trade Conference) and
the AFCEA, a government and military trade show, in addition to the COMDEX
fall and spring shows. The Company has also employed direct mail campaigns
aimed at potential customers in its target markets.
BACKLOG
The Company's order backlog at January 5, 1997, was approximately
$4,077,000, compared to approximately $599,000 at December 31, 1995. The
Company's sales are made through purchase orders. Orders are generally
shippable within the upcoming quarters unless noted as a committed future
release date order. The Company's goal is to deliver orders within four weeks
of receipt; however, the factors discussed above under "Recent Events"
contributed during the third and fourth quarters of 1996 to the creation of a
backlog of orders that currently exceeds the Company's ability to fulfill
orders within such time period. The Company currently anticipates that it will
have filled all current backlog orders and will have reduced its average
fulfillment time to its goal of four weeks by the end of the first half of
1997. There can, however, be no assurance that the Company will be able to do
so; for factors that might prevent this, see "Risk Factors--Risks Associated
with Managing Growth."
RESEARCH AND DEVELOPMENT
As of January 5, 1997, 17 of the Company's 92 employees were engaged in
research and development and engineering. The Company designs many of the
aspects and components of its computing platforms, including
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<PAGE>
lay-out, housings and circuit boards, rather than incorporating other
manufacturers' products. The Company believes that its past efforts in this
area have provided it with significant technological advantages with regard to
rugged computing platforms, and the Company intends to continue to focus
research and development efforts on improving its core technologies. In
addition, the Company is beginning research and development efforts that are
focused on developing additional series of products that will address broader
customer preferences by providing toolboxes with a greater range of
expandability, size and price, all of which will provide the ruggedness,
processing power and ease of upgrade that characterize the Company's current
products. Finally, the Company's research and development efforts also involve
developing customized solutions for its customers who have unique, specialized
requirements. The Company has developed a number of customized solutions for
customers in the transportation, government and military, entertainment, field
service and engineering markets, and expects to continue to do so in
appropriate cases.
The Company spent approximately $0.3 million (on no net sales), $0.8 million
(representing 28% of net sales), $0.9 million (representing 12% of net sales),
and $1.9 million (representing 14% of net sales) on research and development
in 1993, 1994, 1995 and 1996, respectively.
INTELLECTUAL PROPERTY
In April 1996 the Company filed a provisional patent application related to
certain aspects of the design of its 5000 Series Field WorkStation notebook
computing platforms, including the technology module and features that enhance
its upgradeability and ruggedness. In July 1996, the Company filed a patent
application relating to the backplane design employed in its 7000 Series Field
WorkStation laptop computing platforms.
The Company claims trademark rights in the following marks used in
connection with its products: FieldWorks, FieldWorks with design, Field
MousePad, Field WorkStation, and Technology Module. In June 1996 the Company
filed applications in the U.S. Patent and Trademark Office to register
FieldWorks with design, Field Mousepad, Field WorkStation, and Technology
Module. Trademark applications are not normally examined for at least six
months from the date of filing, and the registrability of these trademarks has
not yet been determined. The Company is aware that there are third parties
that have claimed and may claim superior rights, in certain territories in the
United States, to the use of certain of the marks in which the Company claims
rights. See "Risk Factors--Dependence on Intellectual Property."
The Company places copyright notices on all software that it develops for
inclusion in its products.
In order to protect its trade secrets and other proprietary information, the
Company requires that all vendors and those customers that request
customization work execute non-disclosure agreements with respect to
confidentiality and ownership of the Company's proprietary information and of
any related innovations. The Company also requires all new employees to enter
into agreements covering confidentiality, non-disclosure, assignment of
inventions and non-solicitation of employees.
The Company licenses the source code for Basic Input/Output System ("BIOS")
software that is included in the Company's products from two companies, Award
Software, Inc. and Phoenix Technologies, Ltd. The licenses are covered by
license agreements that, among other things, provide for the payment of
royalties by the Company and grant the Company the right to modify the
software as necessary. Each of these licenses may be terminated by the
licensor in the event that the Company fails to remedy a breach of the license
agreement within a set time following notice thereof or immediately following
certain events relating to bankruptcy and insolvency. In addition, the Company
purchases video controller chips for inclusion in its products from Cirrus
Logic, Incorporated and also licenses the software associated with these
chips. The Company believes that the terms of these licenses are standard for
the industry.
There can be no assurance that the measures the Company takes with respect
to intellectual property will be sufficient to protect its intellectual
property or that such intellectual property will provide the Company with any
competitive advantage. See "Risk Factors--Dependence on Intellectual
Property."
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<PAGE>
SERVICE AND SUPPORT
The Company maintains a service and support program for the benefit of its
customers. The Company's staff is available to monitor order status, to
provide simple troubleshooting and to answer technical questions and questions
on post-installation issues and other product information. The Company
provides a one-year warranty program under which the Company agrees to
diagnose, repair and test any product, and the Company's goal is to return the
product to the customer within 48 hours. In addition to the standard warranty,
the Company also offers limited warranty programs for extended periods. The
Company provides product training, either at the Company's in-house training
facility or at the customer's site, including in some cases customized
programs. The Company also provides customers with updates on additions to the
Company's product line and on new options, accessories and software, and
performs upgrades for its customers. In the past, the most common upgrades
have been processors and display technology.
COMPETITION
The Company believes that it currently occupies a niche in the market with
its rugged computing platforms. The Company currently faces direct competition
in this market niche from companies producing portable computers intended for
field use such as Amrel Technology, Inc., Badger Computers (a unit of Group
Financial Partners, Inc.), Dolch Computer Systems, Getac Corporation, Husky
Computers Inc., Itronix Corporation, Kontron Elektronik Corporation (a
subsidiary of Kontron Elektronik GmbH) and Panasonic Personal Computer
Company. To the extent the Company and its direct competitors expand and
develop this market niche, other manufacturers may turn their attention to
this niche and begin to produce products directly competitive with those
offered by the Company. The Company's computing platforms also face indirect
competition from a variety of different companies and products, including
consumer portable personal computers, customized portable personal computers
and single-purpose diagnostic and data collection instruments.
Both the computer industry and the diagnostic and data collection instrument
industry are intensely competitive. Many of the companies that produce or may
produce devices that compete, directly or indirectly, with the Company's
products have substantially greater financial, technological and marketing
resources than the Company. There can be no assurance that the Company will be
able to compete effectively against current or future competitors, or that
such competitors will not succeed in adapting more rapidly and effectively to
changes in technology or in the market or in developing or marketing products
that will be more widely accepted.
Both the computer industry and the diagnostic and data collection instrument
industry are characterized by rapid technological change, changes in customer
requirements, frequent new product introductions and enhancements, and
evolving industry standards. The Company's success will depend in part on its
ability to keep pace with technological developments and emerging industry
standards and to respond to customer requirements by enhancing its current
products and introducing new products. Failure to anticipate or respond
rapidly to advances in technology and to adapt the Company's products
appropriately could have a material adverse effect on the success of the
Company's products and thus on the Company's business, financial condition and
results of operations. Technological advances may also increase the level of
competition in the rugged computing platform market.
The Company's products compete with other rugged computer products primarily
on the basis of product reliability, functional expandability and system
design, which facilitates upgradeability and customization. See "Risk
Factors--Competition" and "--Risk of Technological Obsolescence."
MANUFACTURING
The Company's manufacturing process consists primarily of the mechanical
subassembly, final assembly and testing of components and subassemblies
acquired from third party suppliers and subcontractors. These functions, along
with the final packaging of its products, are performed at the Company's
production facilities in Eden Prairie, Minnesota. The Company generally
assembles products upon receiving customer orders, and operates with little
finished goods inventory. The Company's goal is to fill customer orders within
four weeks; recently, however, the Company has experienced an increase in its
order backlog. See "Recent Events" and "--Backlog."
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<PAGE>
The Company works with a number of subcontractors to assemble mechanical
components, to manufacture printed circuit boards, and to produce certain
components, all to the Company's design specifications. A number of these
components are made using tools that have been designed for, and belong to,
the Company, but that are located on the manufacturer's premises. The Company
has relationships with subcontractors who provide subassemblies on a turn-key
basis. The Company also purchases components directly from one or more third
party suppliers before forwarding them to subcontractors for assembly. In
general, the Company believes that these services are available from a number
of different companies.
The Company employs extensive quality control systems and has a quality
assurance department that consists of seven full-time employees. The Company
received ISO 9001 quality assurance certification of its facilities in March
1996.
The Company currently has a limited manufacturing capability, and has, to
date, had no experience with high volume production runs of its products.
There can be no assurance that the Company will successfully develop this
manufacturing capability. See "Risk Factors--Risks Associated with Managing
Growth." Further, the Company's products employ a number of advanced high
technology components and there can be no assurance that these components will
continue to be available on acceptable terms or at all. See "Risk Factors--
Dependence on Availability of Components."
EMPLOYEES
As of January 5, 1997, the Company employed 92 full-time employees, of whom
36 were engaged primarily in manufacturing, 22 were engaged primarily in sales
and marketing, 17 were engaged primarily in engineering and research and
development, 13 were engaged primarily in administration and four were engaged
primarily in customer service. The Company also employs part-time or temporary
employees, mostly in manufacturing. None of the Company's employees are
represented by any labor union or other collective bargaining unit. The
Company believes that its relations with its employees are good.
The Company maintains $1 million key man life insurance policies on the
lives of each of Gary J. Beeman, the Company's President and Chief Executive
Officer, and Robert C. Szymborski, the Company's Executive Vice President and
Chief Technical Officer, with the proceeds payable to the Company.
FACILITIES
The Company currently leases an approximately 24,000 square foot facility in
Eden Prairie, Minnesota. This space houses the Company's headquarters and
manufacturing operations. This lease term expires in June 1999. The Company
believes that its existing facilities are adequate to meet its requirements
only through early to mid-1997 and has recently begun searching for additional
expansion space, although no facility has been located to date. The Company
believes that suitable expansion space is available in the proximity of its
existing facilities. There can, however, be no assurance that suitable
facilities will be available when needed on acceptable terms, if at all, or
that the Company can relocate its manufacturing and other operations without
significant disruption. See "Risk Factors--Risks Associated with Managing
Growth."
The Company also leases approximately 2,700 square feet in Springfield,
Virginia, and approximately 200 square feet in Woodland Hills, California. The
office of the Company's director of federal business, a repair center,
training center and demonstration center are located at the Springfield
facility, where the lease term expires in June 2000. The offices of the
Company's regional sales manager for the Western Region are located at the
Woodland Hills facility, where the lease term expires on December 31, 1997,
subject to extension.
LEGAL PROCEEDINGS
On June 25, 1996, a shareholder of the Company commenced an action in
Minnesota state district court against the Company and certain directors of
the Company. The essence of the shareholder's allegations was that the Company
issued shares of Common Stock without the authorization of all shareholders in
violation of certain agreements and that certain of the Company's directors
treated the plaintiff unfairly. The shareholder requested unspecified
equitable relief. On October 8, 1996, the district court judge granted the
Company's motion for summary judgment dismissing the lawsuit, and on October
29, 1996, judgment was entered in favor of the Company. By notice dated
January 15, 1997, the shareholder filed an appeal with the Minnesota Court of
Appeals, Rejsa vs. Beeman et al. No briefing schedule has been set and no date
for oral arguments has been determined.
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MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ------------------------------------------------
<S> <C> <C>
Gary J. Beeman.......... 43 President, Chief Executive Officer, Treasurer
and Director
Robert C. Szymborski.... 48 Executive Vice President, Chief Technical
Officer, Secretary and Director
G. Paige Hiatt.......... 47 Vice President of Sales
Steven A. Manske ....... 41 Vice President of Finance
Robert W. Heller........ 51 Director
George E. 61 Director
Kline(/1/)(/2/)........
David C. Malm- 53 Chairman of the Board of Directors
berg(/1/)(/2/).........
</TABLE>
- -----------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Gary J. Beeman was a co-founder of the Company and has served as its
President, Chief Executive Officer, Treasurer and a member of the Board of
Directors of the Company since the Company's inception in October 1992. He
also served as the Company's Chairman of the Board of Directors until January
1997. Mr. Beeman was also a co-founder of Network Communications Corporation
("NCC"), a Minneapolis-based designer and manufacturer of portable LAN/WAN
data communications diagnostic instrumentation, and served as Vice President
of Marketing and director of NCC from 1983 to 1991. Prior to that, Mr. Beeman
served as a marketing manager for ADC Telecommunications, Inc. ("ADC") and as
a program manager for Texas Instruments Corporation.
Robert C. Szymborski was a co-founder of the Company and has served as
Executive Vice President, Chief Technical Officer and Secretary and a member
of the Board of Directors since the Company's inception in October 1992. Mr.
Szymborski was also a co-founder of NCC and served as its Vice President of
Engineering from 1983 to 1992. Prior to that, Mr. Szymborski served as
Director of Engineering for ADC.
G. Paige Hiatt has served as the Company's Vice President of Sales since
July 1996. From 1994 to July 1996, Mr. Hiatt was a self-employed
manufacturer's representative who represented the Company in the San Francisco
area. From 1992 to 1993 he served as Vice President Sales for The Vantive
Corporation, a developer of client-server based customer response software.
From 1982 to 1992, Mr. Hiatt held various positions, including Director
Western Region and Vice President European Systems Sales, with Grid Systems
Corporation, a manufacturer of high performance portable computer systems.
Steven A. Manske has served as Vice President of Finance of the Company
since July 1995. Prior to his employment with the Company, Mr. Manske was
employed by Jostens, Inc., a provider of recognition and affiliation products,
from 1986, most recently as a division controller. Mr. Manske has also served
as a management consultant for Pragmatek Consulting Group.
Robert W. Heller has served as a director of the Company since January 1997.
He is the President and Chief Executive Officer of MiTech Research &
Development, Inc., a company involved in environmental cleanup using
bioremediation technology, and also works as a consultant to growing companies
regarding strategic, operational and international issues. From 1977 to 1996,
Mr. Heller held a variety of positions, including most recently Chief
Executive Officer, at Advance Circuits, Inc., a fabricator of printed circuit
boards that was acquired by Johnson Matthey Public Limited Company in 1995.
Mr. Heller is also a member of the boards of directors of Reuter
Manufacturing, Inc., and Capri, Inc.
George E. Kline has served as a director of the Company since February 1994.
He has been President of Venture Management, a financial consulting services
corporation, since 1966. Mr. Kline has also served as the General Partner of
Brightstone Capital, Ltd., a venture fund, since 1985 and has been a private
investor and
37
<PAGE>
financial consultant for over five years. He is also a member of the boards of
directors of Applied Biometrics, Inc., Health Fitness Physical Therapy, Inc.,
Rimage Corporation, CyberOptics Corporation and Nutrition Medical, Inc.
David C. Malmberg has served as Chairman of the Board of Directors since
January 1997 and as a director of the Company since October 1996. Since 1994,
Mr. Malmberg has been the president of David C. Malmberg, Inc., a management
consulting and private investment management firm. From 1972 to 1994 he served
in various positions, including Vice Chairman, President and Chief Operating
Officer, at National Computer Systems Inc., a provider of information systems
and services to the education, commercial and financial markets. Mr. Malmberg
is the Chairman of the Board of National City Bank in Minneapolis and serves
on the boards of directors of National City Bancorporation, Three Five
Systems, Inc. and PPT/Vision, Inc.
Each member of the Board of Directors holds office until the regular meeting
of shareholders next held after such director's election and until such
director's successor shall have been elected and shall qualify or until the
earlier death, resignation, removal, or disqualification of such director.
The Company's executive officers are elected or appointed by resolution
approved by the affirmative vote of a majority of the members of the Board of
Directors, and serve until their successors are elected or appointed. Any
officer may be removed from his or her office by the board of directors at any
time, with or without cause.
DIRECTORS' COMPENSATION
The Company at present does not pay any directors' fees. The Company may
reimburse its outside directors for expenses actually incurred in attending
meetings of the Board of Directors. In the past, non-employee directors have
each automatically been granted non-qualified options to purchase shares of
Common Stock under a plan adopted in February 1994: 25,000 shares at the time
of election to the Board of Directors and 10,000 shares at each re-election.
All such options have an exercise price equal to the fair market value of a
share of Common Stock on the day of grant and expire ten years after the date
of grant. Such options vest over varying periods not exceeding three years.
In connection with an agreement relating to consulting services to be
provided by David Malmberg, the Company's Chairman of the Board, as of January
21, 1997, the Company granted Mr. Malmberg an option to purchase 100,000
shares of Common Stock under the Company's 1994 Long-Term Incentive and Stock
Option Plan (the "1994 Stock Option Plan"). This option vested as to 25% on
the date of grant and will vest in full on January 20, 2007, subject to
accelerated vesting in cumulative 25% increments upon the satisfaction of
certain specified management and performance goals; has a per share exercise
price equal to the Price to Public in this offering; and expires ten years
from the date of grant. In addition, the Company entered into an oral
agreement whereby it will pay Mr. Malmberg $5,000 per month for such
consulting services.
In December 1996, the Board of Directors approved the FieldWorks,
Incorporated 1996 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"), which was approved by the shareholders of the Company in January 1997.
See "--Stock Plans."
COMMITTEES
The Board of Directors has established a Compensation Committee and an Audit
Committee. The Compensation Committee makes recommendations concerning
executive salaries and incentive compensation for employees of the Company,
subject to ratification by the full Board of Directors, and administers the
Company's 1994 Stock Option Plan.
The Audit Committee reviews the results and scope of the audit and other
services provided by the Company's independent public accountants, as well as
the Company's accounting principles and its system of internal controls, and
reports the results of its review to the full Board of Directors and to
management.
LIMITATION OF LIABILITY; INDEMNIFICATION
Both the Company's Amended and Restated Articles of Incorporation, as
currently in effect, and its Second Amended and Restated Articles of
Incorporation, which will be effective upon the closing of this offering,
provide that, to the fullest extent permitted by Minnesota law, a director
shall not be liable to the Company or its shareholders for monetary damages
for breach of fiduciary duty as a director.
38
<PAGE>
Both the Company's Amended and Restated Bylaws, as currently in effect, and
its Second Amended and Restated Bylaws, which will be effective upon the
closing of this offering, limit the liability of directors in their capacity
as directors to the full extent permitted by Minnesota law. As permitted by
Minnesota law, a director shall not be liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except (i) for any breach of the director's duty of loyalty to the Company or
its shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
dividends, stock repurchases and other distributions made in violation of
Minnesota law or for violations of the Minnesota securities laws, (iv) for any
transaction from which the director derived an improper personal benefit or
(v) for any act or omission occurring prior to the effective date of the
provision in the Company's Amended and Restated Bylaws limiting such
liability. These provisions do not affect the availability of equitable
remedies, such as an action to enjoin or rescind a transaction involving a
breach of fiduciary duty, although, as a practical matter, equitable relief
may not be available. The above provisions also do not limit liability of the
directors for violations of, or relieve them from the necessity of complying
with, the federal securities law.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the cash and noncash
compensation for 1996, 1995 and 1994 awarded to or earned by the Chief
Executive Officer and all executive officers of the Company whose salary and
bonus earned in 1996 exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) COMPENSATION(2)
--------------------------- ---- -------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Gary J. Beeman.................. 1996 $140,000 $17,500 $5,400 $185
President, Chief Executive 1995 131,846 1,732 5,400 185
Officer and Treasurer 1994 120,000 -- -- 185
Robert C. Szymborski ........... 1996 140,000 17,500 5,400 185
Executive Vice President, Chief 1995 131,846 1,732 5,400 185
Technical Officer, Secretary 1994 120,000 -- -- 185
and Director
</TABLE>
- -----------------
(1) Represents payment of auto allowance.
(2) Represents premiums paid by the Company on life insurance policies for the
benefit of the Named Executive Officers.
Option Grants. The following table summarizes options granted to the Named
Executive Officers during 1996:
<TABLE>
<CAPTION>
OPTION GRANTS IN YEAR ENDED JANUARY 5, 1997
-----------------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF SHARES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ----------------
NAME GRANTED(1) 1996 PER SHARE DATE 5% 10%
- ---- ---------------- ---------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary J. Beeman.......... 50,000 15.6% $5.00 4/23/2001 $69,070 $152,628
Robert C. Szymborski.... 50,000 15.6 5.00 4/23/2001 69,070 152,628
</TABLE>
- -----------------
(1) Incentive stock options granted under the 1994 Stock Option Plan on April
23, 1996. Such options vested as to all shares on the date of grant.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission (the
"SEC") and do not represent the Company's estimate or projection of the
Company's future stock prices. These amounts represent certain assumed
rates of appreciation and may not necessarily be achieved. Actual gains,
if any, on stock option exercises are dependent on the future performance
of the Common Stock and overall stock market conditions.
39
<PAGE>
Option Values. The following table summarizes the value of options held at
January 5, 1997, by the Named Executive Officers. Neither Named Executive
Officer exercised any options during 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION VALUES AT JANUARY 5, 1997
----------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JANUARY 5, 1997 JANUARY 5, 1997(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------------------------- -------------------------
<S> <C> <C>
Gary J. Beeman............. 50,000/0 $125,000/$0
Robert C. Szymborski....... 50,000/0 125,000/ 0
</TABLE>
- -----------------
(1) Value is based on the difference between an assumed initial public
offering price of $7.50 per share and the exercise price of such options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. George E. Kline has served as a member of the Compensation Committee of
the Board of Directors since the establishment of the Compensation Committee
in February 1995. Mr. David C. Malmberg has served as a member of the
Compensation Committee of the Board of Directors since October 1996.
In December 1993, Venture Management, Inc., Profit Sharing Plan (of which
Mr. Kline is the sole trustee) purchased 1,500 shares of Common Stock for
$1,500.
Mr. Kline personally guaranteed the $500,000 bank line of credit that the
Company secured in July 1994 and amended in April 1995 to provide borrowing
capacity of up to $800,000. As consideration for Mr. Kline's guaranty, the
Company granted to Mr. Kline a warrant to purchase 100,000 shares of Common
Stock at an exercise price of $1.00 per share. Mr. Kline exercised this
warrant in December 1995. In December 1995, the line of credit was replaced by
a revolving line of credit agreement, with a borrowing capacity of $1,500,000.
This line of credit was also personally guaranteed by Mr. Kline; in
consideration of the guarantee, the Company issued a three-year warrant to Mr.
Kline to purchase 40,000 shares of the Company's common stock at $5.00 per
share. (In March 1996, the term of the December 1995 line of credit was
extended through April 1997 and the borrowing capacity was increased to
$2,000,000; the additional $500,000 was guaranteed by a non-affiliate
shareholder of the Company who received a three-year warrant to purchase
25,000 shares of the Company's common stock at $5.00 per share.) In December
1996, the Company repaid all amounts outstanding under this line of credit and
terminated this line of credit.
On May 30, 1996, Mr. Kline exercised a non-incentive stock option to
purchase 25,000 shares of the Company's common stock, which option had been
granted in March 1994, at an exercise price of $1.00 per share. Such shares
were issued in the name of Venture Management, Inc., a company of which Mr.
Kline is president. On June 21, 1996, Mr. Kline exercised a non-incentive
stock option to purchase 10,000 shares of the Company's common stock, which
option had been granted in August 1995, at an exercise price of $3.00 per
share.
Mr. Kline is also a member of a limited liability company that is the
general partner of certain venture capital limited partnerships (such limited
liability company and limited partnerships, collectively, the "Brightstone
Entities," as more fully described in Note 7 to the table under "Principal
Shareholders"). As such, Mr. Kline may be deemed to share voting and
investment of power for the shares held by the Brightstone Entities; Mr.
Kline, however, disclaims beneficial ownership of all such shares except to
the extent of his proportionate pecuniary interest in the Brightstone
Entities. Mr. Kline also disclaims beneficial ownership of certain shares of
the Company's common stock owned of record by his wife. See "Principal
Shareholders" and "Certain Transactions."
STOCK PLANS
1994 Stock Option Plan. The Board of Directors adopted the 1994 Stock Option
Plan on March 23, 1994, and the shareholders approved it on June 16, 1994.
Pursuant to the 1994 Stock Option Plan, executive officers, other employees
and consultants of the Company may receive options to purchase Common Stock.
The 1994 Stock Option Plan provides for the grant both of incentive stock
options intended to qualify for preferential tax
40
<PAGE>
treatment under Section 422 of the Internal Revenue Code of 1986, as amended,
and nonqualified stock options that do not qualify for such treatment. The
exercise price of incentive stock options must equal or exceed the fair market
value of the Common Stock at the time of grant. The 1994 Stock Option Plan
also provides for grants of stock appreciation rights, restricted stock awards
and performance awards and allows for the grant of restoration options.
The Compensation Committee administers the 1994 Stock Option Plan and
approves awards thereunder. A total of 720,000 shares of Common Stock was
initially reserved for issuance under the 1994 Stock Option Plan. In May 1996,
the 1994 Stock Option Plan was amended to increase the number of shares of
Common Stock available for issuance to 1,100,000. In January 1997, the 1994
Stock Option Plan was amended to increase the number of shares of Common Stock
available for issuance to 1,500,000. Incentive stock options may only be
granted under the Stock Option Plan to any full or part-time employee of the
Company (including officers and directors who are also employees) and of its
present and future subsidiary corporations. Full or part-time employees,
directors who are not employees, and consultants and independent contractors
to the Company or its subsidiaries or affiliates are eligible to receive
options which do not qualify as incentive stock options, as well as other
awards. In determining the persons to whom options and awards shall be granted
and the number of shares subject to each, the Board of Directors may take into
account the nature of services rendered by the respective employees or
consultants, their present and potential contributions to the success of the
Company, and such other factors as the Board of Directors in its discretion
shall deem relevant.
The Board of Directors may amend or discontinue the 1994 Stock Option Plan
at any time, but may not make any revisions or amendments to the 1994 Stock
Option Plan without shareholder approval that increase the number of shares
subject to the 1994 Stock Option Plan, decrease the minimum exercise price,
extend the maximum exercise term, or modify the eligibility requirements. The
Board of Directors may not alter or impair any award granted under the 1994
Stock Option Plan without the consent of the holder of the award. The 1994
Stock Option Plan will expire March 23, 2004.
Pursuant to the terms of the 1994 Stock Option Plan, appropriate adjustments
to the 1994 Stock Option Plan and outstanding options will be made in the
event of changes in the Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, or other change
in corporate structure.
Directors' Plans. On February 1, 1994, the Board of Directors adopted a
stock option plan for non-employee directors that provided for the automatic
grant of a non-qualified option covering 25,000 shares of Common Stock to each
non-employee director at the time of his or her initial election to the Board
of Directors, and an automatic grant of a non-qualified stock option to
purchase 10,000 shares of Common Stock each time such director was re-elected
for a subsequent term. All such options, which were granted outside of the
1994 Stock Option Plan, have an exercise price equal to the fair market value
of the Common Stock on the date of grant, vest over varying periods not
exceeding three years and have terms of 10 years from the date of grant.
In January 1997, the shareholders of the Company approved the Directors'
Plan, which had been approved by the Board of Directors in December 1996.
Under the Directors' Plan, each non-employee director will automatically
receive non-qualified options to purchase shares of Common Stock as follows:
25,000 shares (each an "Initial Grant") at the time of election to the Board
of Directors and 10,000 shares (each an "Annual Grant") at each re-election.
All such options will have an exercise price equal to the fair market value of
a share of Common Stock on the day of grant and will expire ten years after
the date of grant. Initial Grants will vest one third on the date of grant and
one third on each of the first and second anniversaries, and Annual Grants
will vest six months from the date of grant. The Directors' Plan will expire
January 19, 2007. Pursuant to the terms of the Directors' Plan, appropriate
adjustments will be made in the event of certain changes in the Common Stock.
Savings Plan. The Company's savings plan (the "401(k) Plan") was adopted by
the Company effective January 1996.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March 15, 1997 (after giving effect to the
automatic conversion of all shares of Preferred Stock into Common Stock upon
the consummation of this offering) and as adjusted to reflect the sale by the
Company of the 2,125,000 shares of Common Stock offered hereby by: (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES OWNED
SHARES ---------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(/1/) OFFERING(/1/) OFFERING(/1/)
---- ------------ ------------- -------------
<S> <C> <C> <C>
Robert C. Szymborski(/2/)......... 832,916 12.8% 9.6%
Gary J. Beeman(/3/)............... 768,152 11.8 8.9
George E. Kline(/4/).............. 244,900 3.8 2.8
David C. Malmberg(/5/)............ 37,400 * *
Robert W. Heller(/6/)............. 33,500 * *
Brightstone Entities(/7/)......... 743,334 11.3 8.5
Network General Corporation(/8/).. 623,077 9.6 7.2
All executive officers and
directors as a group
(7 persons)(/9/)................. 1,945,652 29.1 22.1
</TABLE>
- -----------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and generally includes voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days of March 15, 1997, are deemed outstanding for computing the
percentage of the person holding such options or warrants but are not
deemed outstanding for computing the percentage of any other person. This
table does not reflect any shares of Common Stock that these existing
shareholders may acquire in this offering. Except as indicated by
footnote, the Company believes that the persons named in this table, based
on information provided by such persons, have sole voting and investment
power with respect to the shares of Common Stock indicated.
(2) Includes 50,000 shares of Common Stock issuable pursuant to currently
exercisable options. Mr. Szymborski's address is 9961 Valley View Road,
Eden Prairie, Minnesota 55344.
(3) Includes 50,000 shares of Common Stock issuable pursuant to currently
exercisable options. Mr. Beeman's address is 9961 Valley View Road, Eden
Prairie, Minnesota 55344.
(4) Includes 41,500 shares of Common Stock held of record by Venture
Management, Inc., Profit Sharing Plan, of which Mr. Kline is the sole
trustee; 43,400 shares of Common Stock issuable pursuant to currently
exercisable options and warrants; and 60,000 shares of Common Stock held
of record by Mr. Kline's wife, of which Mr. Kline disclaims beneficial
ownership. Excludes an aggregate of 743,334 shares owned of record by, or
issuable upon exercise of outstanding warrants to, the Brightstone
Entities. The Brightstone Entities are a series of limited partnerships
and one entity, a limited liability company, which is the general partner
of each of the limited partnerships. Mr. Kline is a member of the limited
liability company, and as such may be deemed to share voting and
investment of power for the shares held by the Brightstone Entities,
however, Mr. Kline disclaims beneficial ownership of all such shares
except to the extent of his proportionate pecuniary interest in the
Brightstone Entities. See Note 7.
(5) Includes 33,500 shares of Common Stock issuable pursuant to currently
exercisable options.
(6) Includes 8,500 shares of Common Stock issuable pursuant to currently
exercisable options.
(7) Includes 200,000 shares of Common Stock held of record by Brightstone IV
Partners ("Brightstone IV"); 200,000 shares of Common Stock held of record
by Brightstone Fund V Partnership ("Brightstone V"); 100,000 shares of
Common Stock held of record by Brightstone Fund VI L.P. ("Brightstone
VI"); 83,334 shares of Common Stock held of record by Brightside Fund
Limited Partnership ("Brightside"); 50,000 shares of Common Stock held of
record by Brightstone Fund VII L.P. ("Brightstone VII"); 30,000 shares of
Common Stock issuable upon the exercise of warrants issued to Brightstone
Capital Ltd., LLC ("Brightstone Capital"); 20,000 shares of Common Stock
issuable upon the exercise of warrants issued to Brightstone Fund VII;
20,000 shares of Common Stock issuable upon the exercise of warrants
issued to Brightbridge Fund I L.P. ("Brightbridge," and, together with
Brighstone IV, Brightstone V, Brightstone VI, Brightstone VII,
Brightbridge and Brightstone Capital, the "Brightstone Entities"); 15,000
shares of Common Stock issuable upon the exercise of warrants issued to
Brightstone IV; 15,000 shares of Common Stock issuable upon exercise of
warrants issued to Brightstone V; and 10,000 shares of Common Stock
issuable upon the exercise of warrants issued to Brightstone VI.
Brightstone IV, Brightstone V, Brightstone VI, Brightstone VII, Brightside
and Brightbridge are all limited partnerships of which Brightstone Capital
is the general partner; Brightstone Capital is a limited liability company
of which Mr. Kline is a member. The address of the Brightstone Entities is
7200 Metro Boulevard, Edina, Minnesota 55439.
(8) Includes 46,154 shares of Common Stock issuable upon exercise of warrants.
The address of Network General Corporation is 4200 Bohannon Drive, Menlo
Park, California 94025.
(9) Includes 28,784 shares of Common Stock issuable pursuant to currently
exercisable options in addition to those shares of Common Stock reflected
in notes 2 through 6.
42
<PAGE>
CERTAIN TRANSACTIONS
For certain information regarding George Kline, a director of the Company,
see "Management--Compensation Committee Interlocks and Insider Participation."
On September 13, 1994, Brightstone IV and Brightstone V, partnerships of
which George Kline, a director of the Company, is a general partner, loaned
the Company an aggregate of $300,000 (the "1994 Loans"). The 1994 Loans bore
interest at an annual rate of 10% and were due on February 28, 1995. In
connection with the 1994 Loans, the Company issued warrants to purchase an
aggregate of 30,000 shares of Common Stock at a price of $3.00 per share to
Brightstone IV and Brightstone V. In March 1995, the Company repaid $200,000
original principal amount of the 1994 Loans, together with $13,750 interest.
In June 1995, the Company repaid the remaining $100,000 original principal
amount of the 1994 Loans, together with $2,500 interest.
In May and June 1996, Brightstone VI and Brightstone VII loaned the Company
an aggregate of $1,540,000 (the "June Loans"). The June Loans bore interest at
an annual rate of 10% and were due on August 2, 1996. In connection with the
June Loans, the Company issued to Brightstone Capital warrants (the "June
Warrants") to purchase 15,000 shares of Common Stock at a price of $10.00 per
share.
On July 15, 1996, Brightbridge loaned the Company $500,000. This loan, which
is represented by a promissory note (the "July Note"), bears interest at 10%
per year and was initially due on December 31, 1996; provided, that the July
Note would become payable in full within thirty (30) days after the effective
date of any registration statement relating to an initial public offering of
the Company's equity securities. In connection with this loan, the Company
issued to Brightbridge warrants (the "July Warrants") to purchase a number of
shares determined in accordance with a formula contained in the July Warrants
at an exercise price equal to 80% of the price to public of shares of the
Company's common stock in the Company's first registration statement to be
declared effective.
On July 29, 1996 the Company sold 300,000 shares of Series A Convertible
Preferred Stock to Network General Corporation for $10.00 per share and in
connection therewith issued warrants to purchase 24,000 shares of Common Stock
at $10.00 per share. The number of shares to be issued upon conversion, the
number of shares subject to the warrants and the exercise price of the
warrants are all subject to adjustment in the event that the Price to Public
in this Offering is less than $12.50 per share. In that event, the conversion
price will be reduced to a price equal to 80% of the Price to Public and the
warrant exercise price and the number of warrant shares will be similarly
adjusted.
As of August 2, 1996, the Company and Brightbridge amended the July Note to
subordinate it to certain bank indebtedness of the Company and to extend its
due date from December 31, 1996, to May 1, 1997.
On August 2, 1996, the Company repaid all principal amounts outstanding on
the June Loans, together with an aggregate of $27,168 in interest.
In September 1996, Brightstone VI and Brightstone VII loaned the Company an
aggregate of $750,000. These loans, which are represented by Promissory Notes
(the "September Notes"), bear interest at 12% per year and were initially due
on the date 180 days from the date of each such loan; provided, that the
September Notes would become payable in full within thirty (30) days after the
effective date of any registration statement relating to an initial public
offering of the Company's equity securities. In connection with the September
Notes, the Company issued to Brightstone VI, Brightstone VII and Brightstone
Capital warrants (the "September Warrants") to purchase a number of shares
determined in accordance with a formula contained in the September Warrants,
which formula (other than the formula in the warrants issued to Brightstone
Capital) depended on whether the September Notes were repaid before or after
the date 90 days after the date of each such note, at an exercise price equal
to 80% of the price per share received by the Company in its next sale of
equity securities with gross proceeds of $2.5 million or more.
43
<PAGE>
As of October 15, 1996, the Company agreed with Brightstone Capital,
Brightstone VI, Brightstone VII and Brightbridge to amend the June Warrant,
the July Warrants, the September Notes and the September Warrants. Pursuant to
these amendments, the final due date of each of such Notes was extended to May
1, 1997; provided, that all such Notes are payable in full within 30 days
after the effective date of any registration statement relating to an initial
public offering of the Company's equity securities; the exercise price under
each of such Warrants was amended to $5.00 per share; and the September
Warrants were amended to provide that they are exercisable for an aggregate of
45,000 shares of Common Stock. As a result of the exercise price amendment,
the July Warrants are currently exercisable for 20,000 shares of Common Stock.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the Company will be authorized to issue 30
million shares of Common Stock, $.001 par value, and five million shares of
undesignated preferred stock, $.001 par value. As of January 5, 1997 (assuming
the automatic conversion of the Preferred Stock into Common Stock), there were
6,457,659 shares of Common Stock outstanding, which were held of record by 210
shareholders, and no shares of undesignated preferred stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors, and the holders of more than
50% of the outstanding Common Stock can elect all directors. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor and
in liquidation proceedings. Holders of Common Stock have no preemptive or
subscription rights and there are no redemption rights with respect to such
shares. The outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Second Amended and Restated Articles of Incorporation of the Company to
be in effect upon the closing of this offering authorize the Company's Board
of Directors, without further shareholder action, to issue preferred stock in
one or more series and to fix the voting rights, liquidation preferences,
dividend rights, repurchase rights, conversion rights, redemption rights,
terms, including sinking fund provisions, and certain other rights and
preferences, of any such preferred stock.
WARRANTS AND OPTIONS
As of January 5, 1997, the Company had outstanding warrants to purchase a
total of 600,899 shares of Common Stock at a weighted average exercise price
of $4.34 per share. Such warrants are all currently exercisable and expire on
dates ranging from December 20, 1998 to July 31, 2001. All outstanding warrant
agreements provide for antidilution adjustments in the event of certain
mergers, consolidations, reorganizations, recapitalizations, stock dividends,
stock splits, or other changes in the corporate structure of the Company.
As of January 5, 1997, the Company had outstanding options to purchase a
total of 778,400 shares of Common Stock at a weighted average exercise price
of $3.40 per share.
REGISTRATION RIGHTS
Following the completion of this offering, (i) the holders of 304,745 of the
warrants described above will be entitled to certain incidental or "piggyback"
rights to include the shares issued or issuable upon exercise of such warrants
in certain registration statements filed by the Company, (ii) the holder or
holders of the 576,923 shares of Common Stock issued upon the automatic
conversion of the Preferred Stock and the holder or holders of 46,154 shares
issuable upon the exercise of the warrants described above shall be entitled,
if the Company qualifies for the use of Form S-3 and subject to certain other
limitations, to require the Company to file registration statements on such
Form covering the sale of such shares and (iii) the holders of up to 192,308
shares of Common Stock issued or issuable upon conversion of certain of the
principal amounts of certain outstanding bridge loans and of 250,000 shares of
Common Stock issued or issuable upon exercise of the warrants described above
shall have certain incidental or "piggyback" rights to include the shares
issued or issuable upon exercise of such warrants or conversion of such notes
in certain registration statements filed by the Company and shall also have
the right, more than one year after the completion of this offering and on a
one-time basis only, to require the Company to file a registration statement
on Form S-3 and keep it effective for a period of nine months.
45
<PAGE>
BRIDGE LOANS
The Company has outstanding an aggregate of $1,350,000 in original principal
amount of loans which the Company received between May and September 1996 (the
"September Loans"). All original principal amount of the September Loans,
together with interest thereon, is due on May 1, 1997; provided, that the
September Loans shall be payable in full within 30 days after the effective
date of the registration statement of which this Prospectus forms a part.
The Company has outstanding an aggregate of $5,000,000 in original principal
amount of bridge loans which the Company received in December 1996 (the
"December Loans"). All original principal amount of the December Loans,
together with interest thereon, is due on June 30, 1997; provided, that the
Company may extend the final maturity of the December Loans to December 31,
1997, by written notice delivered to holders at any time before June 30, 1997;
provided, further, that the December Loans shall be payable in full within 30
days after the effective date of the registration statement of which this
Prospectus forms a part. During the 30 days after the effective date of the
registration statement of which this Prospectus forms a part, up to 20% of the
original principal amount of each of the December Loans is convertible into
shares of Common Stock at the option of the holder at a conversion price equal
to 80% of the Price to Public in this offering. In connection with the
December Loans, the Company issued five-year warrants to purchase an aggregate
of 250,000 shares of Common Stock at an exercise price equal to 80% of the
Price to Public in this offering.
PROVISIONS OF THE COMPANY'S ARTICLES AND BYLAWS AND THE MINNESOTA BUSINESS
CORPORATION ACT
The existence of authorized but unissued preferred stock, described above,
and certain provisions of the Company's Second Amended and Restated Articles
of Incorporation and Second Amended and Restated Bylaws (both of which will be
effective upon the closing of this offering) and of Minnesota law, described
below, could have an anti-takeover effect. These provisions are intended to
provide management flexibility, to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage an unsolicited takeover
of the Company if the Board of Directors determines that such a takeover is
not in the best interests of the Company and its shareholders. However, these
provisions could have the effect of discouraging certain attempts to acquire
the Company which could deprive the Company's shareholders of opportunities to
sell their shares of Common Stock at prices higher than prevailing market
prices.
Section 302A.671 of the Minnesota Business Corporation Act (the "MBCA")
applies, with certain exceptions, to any acquisition of voting stock of the
Company (from a person other than the Company, and other than in connection
with certain mergers and exchanges to which the Company is a party) resulting
in the beneficial ownership of 20% or more of the voting stock then
outstanding. Section 302A.671 requires approval of any such acquisitions by a
majority vote of the shareholders of the Company prior to its consummation. In
general, shares acquired in the absence of such approval are denied voting
rights and are redeemable at their then fair market value by the Company
within 30 days after the acquiring person has failed to give a timely
information statement to the Company or the date the shareholders voted not to
grant voting rights to the acquiring person's shares.
Section 302A.673 of the MBCA generally prohibits any business combination by
the Company, or any subsidiary of the Company, with any shareholder which
purchases 10% or more of the Company's voting shares (an "interested
shareholder") within four years following such interested shareholder's share
acquisition date, unless the business combination or the acquisition of shares
is approved by the affirmative vote of a majority of a committee of all of the
disinterested members of the Board of Directors, before the interested
shareholder's share acquisition date.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Common Stock will be
Norwest Bank Minnesota, N.A.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect the prevailing market price and
impair the Company's ability to raise additional funds.
Upon completion of this offering, the Company will have outstanding
8,582,659 shares of Common Stock (or 8,901,409 shares if the Underwriters'
over-allotment option is exercised in full). Of those shares, 2,125,000 shares
(or 2,443,750 shares, if the Underwriters' over-allotment option is exercised
in full) will be freely tradeable without restriction or further registration
under the Securities Act, unless held by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act (whose sales would be
subject to certain volume limitations and other restrictions described below).
The remaining 6,457,659 shares of Common Stock will be "restricted
securities," as that term is defined in Rule 144 under the Securities Act, and
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144, Rule 144(k), Rule 701 or
otherwise. All directors, executive officers and other affiliates of the
Company who own, in the aggregate, 2,364,802 shares of Common Stock, have
agreed that they will not sell, directly or indirectly any Common Stock
without the prior consent of the Representative for a period of 180 days from
the date of this Prospectus, and certain other shareholders, who own, in the
aggregate, 2,836,690 shares of Common Stock, have agreed that they will not
sell, directly or indirectly, any Common Stock without the prior consent of
the Representative for a period of 90 days from the date of this Prospectus.
Of the shares not subject to these agreements, (i) approximately 824,500
shares will be eligible for immediate sale without restriction pursuant to
Rule 144(k) on the effective date of this offering, (ii) approximately 248,433
shares will be eligible for sale, subject to compliance with the volume
limitations and other restrictions of Rule 144, 90 days after the effective
date of this offering, and (iii) approximately 183,234 shares will become
eligible for sale under Rule 144 after the expiration of the two-year holding
periods from the dates of acquisition, which end between June 5, 1997 and
November 1, 1998. Beginning on the 91st day after the date of this Prospectus,
when the first agreement not to sell shares expires, of the shares subject to
such agreement, (iv) approximately 1,463,000 shares will become eligible for
sale without restriction pursuant to Rule 144(k), (v) approximately 324,334
shares will become eligible for sale, subject to compliance with the volume
limitations and other restrictions of Rule 144 and (vi) approximately
1,049,356 shares will become eligible for sale under Rule 144 after the
expiration of the two-year holding periods from the dates of acquisition,
which end between March 29, 1997 and November 18, 1998. Beginning on the 181st
day after the date of this Prospectus, when the second agreement not to sell
shares expires, (vii) all of the 2,364,802 shares subject to such agreement
will be eligible for sale, subject to compliance with the volume limitations
and other restrictions of Rule 144.
In general, under Rule 144, as currently in effect, if at least two years
have elapsed from the date that shares of Common Stock were acquired from the
Company or an affiliate of the Company, then the holder is entitled to sell in
"brokers' transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares
of Common Stock (85,826 shares immediately after this offering) or (ii)
generally, the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale, subject to certain other limitations and restrictions. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above.
The Securities and Exchange Commission has recently approved a reduction,
effective on April 29, 1997, of the two and three year holding periods under
Rule 144 and Rule 144(k) to one and two years, respectively. When this
reduction becomes effective, of the shares not subject to the agreements
described above, (i) approximately 1,072,933 shares will be eligible for
immediate sale without restriction pursuant to Rule 144(k), (ii) approximately
174,034 shares will be eligible for sale, subject to compliance with the
volume limitations and
47
<PAGE>
other restrictions of Rule 144, 90 days after the effective date of this
offering, and (iii) approximately 9,200 shares will become eligible for sale
under Rule 144 after the expiration of the one-year holding periods from the
dates of acquisition, which end on November 1, 1997. Beginning on the 91st day
after the date of this Prospectus, when the first agreement not to sell shares
expires, of the shares subject to such agreement, (iv) approximately 1,787,334
shares will become eligible for sale without restriction pursuant to Rule
144(k), (v) approximately 393,599 shares will become eligible for sale,
subject to compliance with the volume limitations and other restrictions of
Rule 144 and (vi) approximately 655,757 shares will become eligible for sale
under Rule 144 after the expiration of the one-year holding periods from the
dates of acquisition, which end between July 15, 1997 and November 18, 1997.
Beginning on the 181st day after the date of this Prospectus, when the second
agreement not to sell shares expires, (vii) all of the 2,364,802 shares
subject to such agreement will be eligible for sale, subject to compliance
with the volume limitations and other restrictions of Rule 144.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701, which
permits non-affiliates to sell their Rule 701 share without complying with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and which permits Affiliates to sell their Rule 701 shares without
complying with the Rule 144 holding period restrictions, in each case
commencing 90 days after the date of this Prospectus. The Company has issued
644,500 shares under plans or contracts that satisfy the requirements of Rule
701.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register the sale of the 1,500,000 and 300,000 shares
reserved for issuance under, respectively, the 1994 Stock Option Plan and the
Directors' Plan. The filing of such registration statements will permit the
resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. Such registration statements are
expected to be filed soon after the date of this Prospectus and will
automatically become effective upon filing. "See "Management--Stock Option
Plans" and "Description of Capital Stock--Warrants and Options."
In addition, after this offering, the holders of approximately 769,231
shares of Common Stock (including the maximum of 192,308 shares of Common
Stock issuable upon conversion of $5,000,000 of the principal amount of
certain loans) and warrants to purchase approximately 600,899 shares of Common
Stock (together, the "Registrable Securities") will be entitled to certain
rights to cause the Company to register the sale of such shares under the
Securities Act. After this offering, if the Company proposes to register any
of its securities under the Securities Act for its own account, holders of
Registrable Securities are entitled to notice of such registration and are
entitled to include Registrable Securities therein, provided, among other
conditions, that the underwriters of any such offering have the right to limit
the number of shares included in such registration. The holders of certain of
the Registrable Securities may require the Company to prepare and file one or
more registration statements on Form S-3 at its expense, and the Company is
required to use its best efforts to effect such registration, subject to
certain conditions and limitations. Registration of such shares would result
in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of Common Stock for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public markets or the
perception that such sales will occur could adversely affect the market price
or the future ability to raise capital through an offering of its equity
securities. See "Risk Factors--Shares Eligible for Future Sale; Registration
Rights."
48
<PAGE>
UNDERWRITING
The Underwriters below, for whom R. J. Steichen & Company is acting as
representative (the "Representative"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company, the number of shares of Common Stock set forth opposite their
names below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
R. J. Steichen & Company ............................... 1,785,000
Josephtal, Lyon & Ross, Inc............................... 100,000
Needham & Company......................................... 100,000
John G. Kinnard & Co...................................... 40,000
Smith, Moore & Company.................................... 40,000
Commonwealth & Associates................................. 40,000
Summit Investment Corp.................................... 20,000
---------
Total................................................... 2,125,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other considerations. The nature of obligations is such
that they are committed to purchase and pay for all of the above shares of
Common Stock if any are purchased.
The Underwriters, through the Representative, have advised the Company that
they propose to offer the Common Stock initially at the Price to Public set
forth on the cover page of this Prospectus; that the Underwriters may allow to
selected dealers a concession of $0.27 per share; and that such dealers may
reallow a concession of $0.05 per share to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriters. Application has been made for the Common Stock to be
included for quotation on the Nasdaq National Market System. The
Representative has advised the Company that it does not intend to confirm
sales to any account over which it exercises discretionary authority.
The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to an aggregate of 318,750 additional shares of Common Stock,
exercisable at the Price to Public less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof as the number of shares of
Common Stock to be purchased by it as shown in the above table, bears to the
2,125,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby. In addition, the Company has agreed
to pay the Representative at the closing of this offering a non-accountable
expense allowance of 2% of the aggregate public offering price (including the
aggregate public offering price of any over-allotment shares) to cover
expenses incurred by the Underwriters in connection with this offering,
reduced by amounts advanced by the Company, which totaled $10,000 on the date
of this Prospectus.
In connection with this offering, the Company has agreed to issue and sell
to the Representative, for nominal consideration, warrants to purchase a
number of shares of Common Stock equal to 10% of the shares of Common Stock
sold in this offering, exclusive of any shares of Common Stock sold pursuant
to the Underwriters' over-allotment option (the "Representative's Warrants").
The Representative's Warrants will be initially exercisable at a price per
share equal to 120% of the Price to Public, commencing one year from the date
of this Prospectus, and will continue to be exercisable for a period of four
years after such date. The Representative's Warrants are restricted from sale,
transfer, assignment or hypothecation for a period of 12 months from the
effective date of this offering, except to officers or successors of the
Representative. The exercise price of the Representative's Warrants and the
number of shares of Common Stock issuable upon exercise thereof are subject to
adjustment
49
<PAGE>
under certain circumstances. The Representative's Warrants grant to the holder
or holders thereof certain rights regarding the registration of the Common
Stock issuable upon exercise of the Representative's Warrants.
At the request of the Representative, the Company solicited all of its
shareholders to agree that they will not publicly sell or dispose of any
shares of Common Stock for periods of 90 days (for non-affiliates of the
Company) and 180 days (for affiliates of the Company) after the date on which
the Registration Statement is declared effective by the Commission, without
the prior written consent of the Representative. Shareholders who will
beneficially own 2,836,690 shares of Common Stock after the offering have
agreed to the 90 day period and shareholders who will beneficially own
2,364,802 shares of Common Stock after the offering have agreed to the 180 day
period. See "Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined
through negotiations between the Company and the Representative. Among the
factors considered in determining the initial public offering price were
prevailing market and economic conditions, estimates of the business potential
and prospects of the Company, the present state of the Company's business
operations, an assessment of the Company's management and the consideration of
the above factors in relation to the market valuation of companies in related
businesses. See "Risk Factors--No Prior Market for Common Stock; Determination
of Offering Price."
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot this offering,
creating a syndicate short position. Underwriters may bid for and purchase
Common Stock in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase Common Stock in the open
market to stabilize the price of the Common Stock. These activities may
stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these
activities, and may end these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Fredrikson & Byron, P.A. Members of Dorsey & Whitney LLP
beneficially own 90,589 shares of Common Stock.
EXPERTS
The financial statements of the Company included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
50
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed with the Commission. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto. In particular, statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or documents filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement, including exhibits and schedules thereto, may be
inspected by anyone without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: 13th
Floor, Seven World Trade Center, New York, New York, and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of all or any part of such material may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of certain fees prescribed by the Commission. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. The Web site's address is
http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
51
<PAGE>
FIELDWORKS, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and January 5, 1997
(actual and pro forma)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1994 and 1995 and January 5, 1997........................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994 and 1995 and January 5, 1997 .......................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994 and 1995 and
January 5, 1997.......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FieldWorks, Incorporated:
We have audited the accompanying consolidated balance sheets of FieldWorks,
Incorporated (a Minnesota corporation) and Subsidiaries as of December 31,
1995 and January 5, 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended January 5, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FieldWorks, Incorporated
and Subsidiaries as of December 31, 1995 and January 5, 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended January 5, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 5, 1997
F-2
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 5, 1997
----------- ------------------------
PRO FORMA
1995 ACTUAL (NOTE 5)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equiva-
lents.................... $ 112,602 $ 2,132,089 $ 2,132,089
Accounts receivable, net
of allowance for doubtful
accounts of $110,600 and
$201,400................. 1,887,928 2,008,693 2,008,693
Inventories............... 1,821,301 4,417,322 4,417,322
Note receivable from sale
of common stock (Note
6)....................... 100,000 -- --
Note receivable from re-
lated party.............. -- 92,175 92,175
Prepaid expenses and oth-
er....................... 90,106 418,189 418,189
Net assets of discontinued
operation (Note 1)....... 38,251 -- --
---------- ----------- -----------
Total current assets.... 4,050,188 9,068,468 9,068,468
---------- ----------- -----------
PROPERTY AND EQUIPMENT:
Computers and equipment... 604,474 1,125,379 1,125,379
Furniture and fixtures.... 82,120 125,374 125,374
Leasehold improvements.... 51,150 98,585 98,585
Less: Accumulated depreci-
ation.................... (251,655) (553,178) (553,178)
---------- ----------- -----------
Property and equipment,
net.................... 486,089 796,160 796,160
DEPOSITS AND OTHER ASSETS,
net....................... 22,952 41,491 41,491
---------- ----------- -----------
$4,559,229 $ 9,906,119 $ 9,906,119
========== =========== ===========
LIABILITIES AND SHAREHOLD-
ERS' EQUITY
CURRENT LIABILITIES:
Lines of credit........... $1,160,000 $ -- $ --
Notes payable............. -- 4,675,838 4,675,838
Notes payable to related
parties (Note 4)......... -- 1,350,000 1,350,000
Accounts payable.......... 899,927 1,111,526 1,111,526
Accrued compensation and
benefits................. 143,025 264,035 264,035
Accrued warranty and oth-
er....................... 130,003 567,201 567,201
Current maturities of
capitalized lease
obligations.............. 32,244 57,411 57,411
---------- ----------- -----------
Total current liabili-
ties................... 2,365,199 8,026,011 8,026,011
CAPITALIZED LEASE
OBLIGATIONS, less current
maturities................ 61,886 66,722 66,722
---------- ----------- -----------
Total liabilities....... 2,427,085 8,092,733 8,092,733
---------- ----------- -----------
COMMITMENTS AND
CONTINGENCIES (Notes 8 and
10)
SHAREHOLDERS' EQUITY:
Series A convertible pre-
ferred stock, $.001 par
value, 300,000 shares au-
thorized, issued and out-
standing at January 5,
1997..................... -- 300 --
Common stock, $.001 par
value, 15,000,000 and
14,700,000 shares
authorized; 5,840,068 and
5,880,736 issued and
outstanding (6,457,659
pro forma at January 5,
1997).................... 5,840 5,881 6,458
Common stock warrants..... 115,185 231,985 231,985
Additional paid-in capi-
tal...................... 4,816,262 7,878,591 7,878,314
Accumulated deficit....... (2,805,143) (6,303,371) (6,303,371)
---------- ----------- -----------
Total shareholders' eq-
uity................... 2,132,144 1,813,386 1,813,386
---------- ----------- -----------
$4,559,229 $ 9,906,119 $ 9,906,119
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31 FOR THE
----------------------- YEAR ENDED
1994 1995 JANUARY 5, 1997
----------- ---------- ---------------
<S> <C> <C> <C>
NET SALES............................. $ 2,741,914 $8,241,791 $ 13,111,077
COST OF SALES......................... 1,978,157 4,979,504 8,310,933
----------- ---------- ------------
Gross profit....................... 763,757 3,262,287 4,800,144
----------- ---------- ------------
OPERATING EXPENSES:
Sales and marketing................. 904,129 1,523,648 3,234,692
General and administrative.......... 761,455 1,168,626 2,232,040
Research and development............ 765,081 948,406 1,896,448
----------- ---------- ------------
Total operating expenses........... 2,430,665 3,640,680 7,363,180
----------- ---------- ------------
Operating loss..................... (1,666,908) (378,393) (2,563,036)
INTEREST EXPENSE AND OTHER, net....... (21,310) (68,678) (356,328)
----------- ---------- ------------
NET LOSS FROM CONTINUING OPERATIONS... (1,688,218) (447,071) (2,919,364)
LOSS FROM DISCONTINUED OPERATION
(NOTE 1)............................. -- (179,848) (376,682)
----------- ---------- ------------
NET LOSS.............................. $(1,688,218) $ (626,919) $ (3,296,046)
=========== ========== ============
PRO FORMA (NOTE 2) (UNAUDITED):
Net loss per common share from
continuing operations.............. $ (.30) $ (.07) $ (.44)
Loss per common share from
discontinued operation............. -- (.03) (.06)
----------- ---------- ------------
Net loss per common share........... $ (.30) $ (.10) $ (.50)
=========== ========== ============
Weighted average common shares
outstanding........................ 5,589,835 6,291,108 6,602,207
=========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON ADDITIONAL TOTAL
----------------- ---------------- STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT EQUITY
--------- ------- --------- ------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993................... -- $ -- 4,850,000 $4,850 $ -- $2,398,350 $ (484,515) $1,918,685
Issuance of common
stock, net of
offering costs of
$113,700............. -- -- 479,100 479 -- 1,323,121 -- 1,323,600
Issuance of common
stock warrants....... -- -- -- -- 81,435 -- -- 81,435
Net loss.............. -- -- -- -- -- -- (1,688,218) (1,688,218)
--------- ------ --------- ------ -------- ---------- ----------- ----------
BALANCE, December 31,
1994................... -- -- 5,329,100 5,329 81,435 3,721,471 (2,172,733) 1,635,502
Issuance of common
stock, net of
offering costs of
$111,750............. -- -- 354,334 355 -- 950,895 -- 951,250
Exercise of stock op-
tions................ -- -- 31,334 31 -- 31,971 -- 32,002
Issuance of common
stock warrants....... -- -- -- -- 33,750 -- -- 33,750
Exercise of warrants.. -- -- 100,000 100 -- 99,900 -- 100,000
Merger with Paragon
(Note 1)............. -- -- 25,300 25 -- 12,025 (5,491) 6,559
Net loss.............. -- -- -- -- -- -- (626,919) (626,919)
--------- ------ --------- ------ -------- ---------- ----------- ----------
BALANCE, December 31,
1995................... -- -- 5,840,068 5,840 115,185 4,816,262 (2,805,143) 2,132,144
Issuance of preferred
stock................ 300,000 300 -- -- -- 2,999,700 -- 3,000,000
Exercise of stock
options.............. -- -- 40,668 41 -- 62,629 -- 62,670
Issuance of common
stock warrants....... -- -- -- -- 116,800 -- -- 116,800
Spin-off of Paragon
(Note 1)............. -- -- -- -- -- -- (202,182) (202,182)
Net loss.............. -- -- -- -- -- -- (3,296,046) (3,296,046)
--------- ------ --------- ------ -------- ---------- ----------- ----------
BALANCE, January 5,
1997................... 300,000 $ 300 5,880,736 $5,881 $231,985 $7,878,591 $(6,303,371) $1,813,386
========= ====== ========= ====== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
----------------------- FOR THE YEAR ENDED
1994 1995 JANUARY 5, 1997
----------- ---------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................... $(1,688,218) $ (626,919) $(3,296,046)
Adjustments to reconcile net loss
to net cash used for operating
activities-
Depreciation and amortization.. 147,141 183,336 373,662
Change in operating items:
Accounts receivable.......... (727,421) (1,174,941) (120,765)
Inventories.................. (1,713,959) (121,476) (2,596,021)
Prepaid expenses and other... (49,302) (12,039) (348,991)
Net assets of discontinued
operation................... -- -- (163,931)
Accounts payable............. 951,132 (44,320) 211,599
Accrued expenses............. 139,917 83,302 558,208
----------- ---------- -----------
Net cash used for operating
activities.................. (2,940,710) (1,713,057) (5,382,285)
----------- ---------- -----------
INVESTING ACTIVITIES:
Purchase of property and
equipment....................... (303,226) (251,409) (556,120)
Loan to related party............ -- -- (92,175)
----------- ---------- -----------
Net cash used for investing
activities.................... (303,226) (251,409) (648,295)
----------- ---------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of common
stock........................... 1,356,848 1,616,354 162,670
Proceeds from issuance of
preferred stock................. -- -- 3,000,000
Net line of credit borrowings
(repayments).................... 490,000 670,000 (1,160,000)
Net proceeds from notes payable.. -- -- 4,735,952
Proceeds from notes payable to
related parties................. 300,000 10,341 2,890,000
Payment of notes payable to
related parties................. -- (300,000) (1,540,000)
Payment of capitalized lease
obligations..................... (7,287) (17,670) (38,555)
----------- ---------- -----------
Net cash provided by financing
activities.................... 2,139,561 1,979,025 8,050,067
----------- ---------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. (1,104,375) 14,559 2,019,487
CASH AND CASH EQUIVALENTS,
beginning of year................. 1,230,258 125,883 112,602
----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of
year.............................. $ 125,883 $ 140,442 $ 2,132,089
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
Operating Activities
FieldWorks, Incorporated (FieldWorks or the Company), a Minnesota
corporation, was organized on October 2, 1992, and was in the development
stage until significant revenue-generating activities commenced in 1994.
FieldWorks is engaged in the design, development and marketing of portable
field-based computer workstations, and has integrated certain field
instrumentation platforms with state-of-the-art computer technology to produce
a new class of portable instrumentation equipment capable of simultaneously
supporting many types of diagnostic communication and computing capabilities
required by the field service, medical and engineering professions. FieldWorks
markets its products worldwide through a direct sales force, independent sales
representatives and distributors, original equipment manufacturers, value
added resellers and system integrators.
The Company's future operations are dependent upon the attainment of certain
objectives, including the continued successful development, marketing and sale
of its products, and the continued design and implementation of new
technology. After products have been successfully introduced into a market,
additional time may be necessary before continuing profitability is achieved.
During this time, the Company may require additional financing which may not
be available at favorable terms and conditions.
Merger With Paragon Technology, Incorporated and Subsequent Distribution
In August 1995, FieldWorks completed a merger agreement with Paragon
Technology, Incorporated (Paragon), a Pennsylvania company engaged in software
research and development. The merger was effected through a share-for-share
exchange of 25,300 shares of FieldWorks' common stock for all of the
outstanding shares of Paragon common stock. The merger was accounted for as a
pooling of interests and, accordingly, the accompanying consolidated financial
statements reflect the combined activities of FieldWorks and Paragon
(collectively, the Company) for the entire 1995 fiscal year. Amounts in the
1994 financial statements have not been restated to reflect Paragon amounts,
as the effects are not material to the Company's results of operations or
financial position.
On November 11, 1996, the Company's board of directors approved the
distribution of all of the issued and outstanding common stock of Paragon, as
a dividend to Company shareholders of record as of November 15, 1996. The
distribution was effected in order to take advantage of anticipated capital-
raising and product development opportunities on a separate-company basis. All
shares of Paragon stock were distributed prior to January 5, 1997. At January
5, 1997, the Company had a note receivable from Paragon of $92,175. This note
was repaid in full on February 5, 1997.
Paragon's results of operations for the year ended December 31, 1995 and for
the period ended November 15, 1996 have been presented as a discontinued
operation in the accompanying statements of operations. Revenues applicable to
Paragon were approximately $274,000 and $183,000 for the year ended December
31, 1995 and the period from January 1, 1996 to November 15, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
Effective in fiscal 1996, the Company changed to a 52/53-week fiscal year
ending on the first Sunday on or after December 31st. All references herein to
"1996", "1995" and "1994" represent the 53-week fiscal year ended January 5,
1997 and the years ended December 31, 1995 and December 31, 1994,
respectively. The Company does not believe that this change affects
comparability of the financial statements.
F-7
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
the Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Pro Forma Net Loss Per Common Share
Unaudited pro forma net loss per common share was computed by dividing net
loss by the weighted average number of shares of common stock outstanding
during each period, including the effect of the conversion of preferred stock
to common stock (see Note 5). The impact of common stock equivalents has been
excluded from the computation of weighted average common shares outstanding,
except as follows, as the effect would be antidilutive. Pursuant to Securities
and Exchange Commission rules, stock options and warrants granted within one
year of the date of the contemplated initial public offering have been
included in the calculation of common stock equivalents, using the treasury
stock method, as if they were outstanding for all periods presented.
Cash and Cash Equivalents
Cash consists of amounts held in the Company's checking accounts and money
market funds with original maturities of 90 days or less. The carrying value
approximates fair value due to the short maturity of the instruments.
Inventories
Inventories are stated at the lower of cost or market value, as determined
by the first-in, first-out cost method, and consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 5
1995 1997
----------- ----------
<S> <C> <C>
Raw materials............................................ $1,450,074 $2,772,219
Work in process.......................................... 188,963 1,066,189
Finished goods........................................... 182,264 578,914
---------- ----------
Total.................................................. $1,821,301 $4,417,322
========== ==========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost. Repair and maintenance costs
which do not significantly extend the lives of the respective assets are
charged to expense as incurred. Depreciation is computed using the straight-
line method over the related assets' useful lives, ranging from three to five
years.
Warranties
The Company provides a one-year warranty from the date of sale. Estimated
warranty costs are accrued in the same period in which the related revenue is
recognized, based on anticipated parts and labor costs utilizing historical
experience. Ultimate results may differ from such estimates.
Revenue Recognition
The Company recognizes product revenue, net of estimated returns, at the
time the products are shipped. Revenue for services performed is recognized as
earned.
F-8
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant Customers and Export Sales
For the year ended December 31, 1994, sales to one customer represented 14%
of net sales. For the years ended December 31, 1995 and January 5, 1997, there
were no customers representing over 10% of net sales.
Export sales by major region were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Europe................................... $ 785,000 $1,925,000 $2,087,000
Americas................................. 83,000 292,000 342,000
Middle East/Africa....................... 43,000 137,000 299,000
Asia..................................... 75,000 249,000 158,000
Australia................................ 42,000 178,000 154,000
Russia................................... -- 70,000 152,000
---------- ---------- ----------
$1,028,000 $2,851,000 $3,192,000
========== ========== ==========
</TABLE>
Research and Development Costs
Research and development costs are charged to expense as incurred.
Concentrations of Credit Risk
The Company's exposure to concentrations of credit risk relates primarily to
trade receivables. Such exposure is limited due to the large number of
customers and their dispersion across many industries and geographies. The
Company controls credit risk by performing credit evaluations for all new
customers and requires letters of credit, bank guarantees and advance
payments, if deemed necessary. Through 1996, bad debt write-offs have not been
material.
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
disclosures of contingent assets and liabilities as of the date of the
financial statements. Estimates also affect the reported amounts of revenues
and expenses during the periods presented. Ultimate results could differ from
those estimates.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," establishes standards for the recognition and measurement of impairment
of long-lived assets and certain identifiable intangibles. The adoption of
this pronouncement in fiscal 1996 did not have a material impact on the
Company's results of operations or financial position.
3. INCOME TAXES:
The Company accounts for income taxes under the liability method, which
requires recognition of deferred income tax assets and liabilities for the
expected future income tax consequences under enacted tax laws of temporary
differences between the financial reporting and tax bases of assets and
liabilities.
F-9
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the Company's statutory tax rate to the effective rate
is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate..................................... 34% 34% 34%
State taxes, net of federal tax benefit.................... 6 6 6
Valuation allowance........................................ (40) (40) (40)
--- --- ---
--% --% --%
=== === ===
</TABLE>
As of January 5, 1997, the Company had approximately $4,400,000 of net
operating loss carryforwards for federal income tax purposes that are
available to offset future taxable income through the year 2011. Certain
restrictions caused by the change in ownership resulting from sales of stock
will limit annual utilization of the net operating loss carryforwards.
The components of the Company's deferred tax asset are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards........ $ 789,000 $ 877,000 $ 1,760,000
Deductible differences.................. 47,000 260,000 448,000
Valuation allowance..................... (836,000) (1,137,000) (2,208,000)
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
4. LINES OF CREDIT AND NOTES PAYABLE:
Lines of Credit
In July 1994, the Company entered into a $500,000 line-of-credit agreement
with a bank, which was amended in April 1995 to provide increased borrowing
capacity of up to $800,000.
In December 1995, this line of credit matured and was replaced by a new
revolving line-of-credit agreement (the New Line), with borrowing capacity of
$1,500,000, limited to a borrowing base, as defined in the agreement.
Availability as of December 31, 1995 was $340,000. This credit facility bears
interest at prime plus 1.5%, payable monthly, and is collateralized by
substantially all assets of the Company. Additionally, the New Line is
personally guaranteed by a shareholder of the Company.
In March 1996, the New Line was extended through April 1997 and its
borrowing limit increased to $2,000,000. The incremental borrowing capacity of
$500,000 was personally guaranteed by a shareholder of the Company.
The following information relates to the Company's lines of credit for the
fiscal years ended:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Amount outstanding at end of year....................... $1,160,000 $ --
Maximum amount outstanding during the year.............. 1,160,000 2,000,000
Average borrowings during the year...................... 586,000 1,652,000
Weighted average interest rate during the year.......... 11.16% 9.77%
Interest rate at end of year............................ 10.00% --
</TABLE>
F-10
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1996, the Company repaid all amounts owed under its lines of
credit with bridge financing proceeds received in December 1996 and terminated
the New Line agreement.
Notes Payable
At December 31, 1994, the Company had two 10%, $150,000 unsecured notes
payable to related parties. These notes were repaid in March and June 1995.
In May through September 1996, the Company entered into certain short-term
financing agreements with related and other parties, for a total of
$2,890,000. These borrowings are due the earlier of 30 days following the
consummation of an initial public offering of common stock or May 1, 1997,
bear interest at rates ranging from 10% to 12%, and are unsecured. At January
5, 1997, outstanding borrowings under these agreements were $1,350,000.
During December 1996, the Company raised approximately $4,684,000 through a
private debt offering, net of $316,000 in offering costs. Such bridge notes
bear interest at 10% and mature at the earlier of June 30, 1997, which date
may be extended to December 31, 1997 at the option of the Company, or thirty
days following the effective date of a registration statement filed in
connection with an initial public offering.
5. SHAREHOLDERS' EQUITY:
The Company was originally capitalized by the founders who contributed
personal property and computer equipment in exchange for 2,350,000 shares of
$.001 par value common stock.
In December 1993, the Company completed a private placement of 2,500,000
shares of common stock at $1 per share, receiving $1,833,650 in proceeds prior
to December 31, 1993. The remaining proceeds of $666,350 were received through
March 20, 1994 and are reflected as notes receivable from sale of common stock
in the accompanying 1994 consolidated financial statements.
In December 1994, the Company completed a private placement (1994 Placement)
of 479,100 shares of common stock at $3 per share, receiving proceeds of
$804,198 prior to December 31, 1994. The remaining proceeds of $633,102 were
received through February 23, 1995 and are reflected as notes receivable from
sale of common stock in the accompanying 1994 financial statements. In 1995,
the Company extended the 1994 Placement to allow for issuance of an additional
354,334 shares of common stock at $3 per share.
In July 1996, the Company sold 300,000 shares of Series A, $.001 par value
preferred stock (Preferred Stock) at $10 per share. The Preferred Stock
contains a liquidation preference of $10 per share and is redeemable at the
option of the holder for $10 per share, exercisable beginning in the year
2001. The Preferred Stock is convertible into common stock at the option of
the holder at a rate of 80% of the price obtained in an initial public
offering. Conversion to shares of common stock is automatic upon the
consummation of an initial public offering. The accompanying pro forma
consolidated balance sheet at January 5, 1997 reflects the conversion of all
preferred shares to common stock.
The holder of the preferred stock was also granted warrants to purchase
24,000 shares of the Company's common stock at an exercise price of $10 per
share. The warrants are exercisable through July 2001.
F-11
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. WARRANTS:
In December 1993, the Company entered into an agreement with the owner of
its leased office space, offering the lessor the opportunity to earn warrants
to purchase up to 115,000 shares of the Company's common stock at an exercise
price of $1 per share, the estimated cash rent value, expiring in February
1999. The economic value of these warrants was allocated over the term of the
lease. In August 1994, the lease was terminated, and rights to unearned
warrants as of the lease termination date were forfeited.
Warrants for the purchase of 100,000 and 40,000 shares at exercise prices of
$1 and $5 per share were issued to a shareholder in 1994 and 1995,
respectively, in connection with personal guarantees of the Company's line-of-
credit agreements (see Note 4). In December 1995, the 1994 $1 per share
warrants were exercised for the purchase of 100,000 shares. As the proceeds
from this stock exercise were received in January 1996, this amount has been
classified as notes receivable from sale of common stock in the accompanying
1995 consolidated balance sheet.
In January 1995, five-year warrants for the purchase of 44,400 shares at an
exercise price of $3.35 per share were granted to an accredited investor in
connection with the 1994 Placement (see Note 5).
In May 1995, the Company issued warrants for a total of 30,000 shares to two
shareholders. The warrants are exercisable at $3 per share any time on or
prior to May 10, 2000 and were granted in connection with loans made to the
Company in 1994.
In March 1996, three-year warrants for the purchase of 25,000 shares at an
exercise price of $5 per share were granted to a shareholder in exchange for a
personal guarantee of the Company's amended line-of-credit agreement (see Note
4).
In June through September 1996, the Company granted warrants for the
purchase of 84,000 shares of common stock in connection with the bridge
financing agreements discussed in Note 4. These warrants are exercisable at $5
per share, at any time subsequent to the consummation of an initial public
offering, expiring at dates ranging from June through September 1999.
In connection with the December 1996 bridge financing, five-year warrants
for the purchase of 250,000 shares of the Company's common stock were issued
at an exercise price equal to 80% of the price obtained in an initial public
offering, or $6.40 in the event such an offering does not occur prior to
December 31, 1997.
7. STOCK OPTION AND 401(K) PLANS:
Stock Option Plan
In June 1994, the Company adopted a long-term incentive and stock option
plan (the Plan) for employees, directors and consultants of the Company. Under
the Plan, options are granted at an exercise price equal to the fair market
value of the common stock, as determined by the Company's board of directors,
at the date of grant. Incentive stock options are granted to employees, and
vest over varying periods not to exceed three years. The Plan also provides
for nonqualified options to be granted to directors and consultants, including
automatic grants of 25,000 stock options to each nonemployee director of the
Company on the date that each director is elected and an automatic grant of
10,000 stock options upon reelection. The nonemployee director options vest
over varying periods not to exceed three years.
F-12
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1995, the Plan authorized the issuance of up to 720,000
shares of common stock for such options. In May 1996, the Company increased
the number of shares authorized for grant under the Plan to 1,100,000. In
December 1996, the board of directors amended the Plan to increase the number
of shares of common stock available for issuance to 1,500,000, which was
approved at a shareholder meeting held on January 20, 1997. At December 31,
1995 and January 5, 1997, 245,666 and 249,598 shares were available for future
grants.
In December 1996, the Company's board of directors approved the Non-Employee
Directors' Stock Option Plan (the Directors' Plan), which was approved at a
shareholder meeting held on January 20, 1997. Under the Directors' Plan, each
nonemployee director will receive 25,000 nonqualified options upon election
and 10,000 options at each reelection date.
Shares subject to option are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED NON- WEIGHTED
INCENTIVE AVERAGE QUALIFIED AVERAGE
STOCK EXERCISE STOCK EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1993............. -- -- -- --
Options granted...................... 258,000 $1.11 80,000 $1.00
------- ----- ------- -----
Balance, December 31, 1994............. 258,000 1.11 80,000 1.00
Options granted...................... 123,000 2.99 20,000 3.00
Options canceled..................... (6,666) 2.25 -- --
Options exercised.................... (31,334) 1.02 -- --
------- ----- ------- -----
Balance, December 31, 1995............. 343,000 1.77 100,000 1.40
Options granted...................... 320,900 5.25 57,500 5.00
Options canceled..................... (2,332) 3.57 -- --
Options exercised.................... (5,668) 1.35 (35,000) 1.57
------- ----- ------- -----
Balance, January 5, 1997............... 655,900 $3.47 122,500 $3.04
======= ===== ======= =====
Options exercisable at:
December 31, 1994.................... 120,720 $1.11 80,000 $1.00
======= ===== ======= =====
December 31, 1995.................... 199,450 $1.48 86,800 $1.16
======= ===== ======= =====
January 5, 1997...................... 471,103 $2.92 81,217 $2.13
======= ===== ======= =====
</TABLE>
Additional information regarding options outstanding at January 5, 1997 is
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
TYPE OF NUMBER OF EXERCISE WEIGHTED AVERAGE REMAINING
OPTION OPTIONS PRICE RANGE EXERCISE PRICE CONTRACTUAL LIFE
------- --------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Incentive 335,000 $1.00-$3.00 $1.76 2.7 years
Incentive 320,900 $5.00-$6.50 5.25 4.4 years
-------
655,900
=======
Nonqualified 65,000 $1.00-$3.00 $1.31 7.3 years
Nonqualified 57,500 $5.00 $5.00 9.4 years
-------
122,500
=======
</TABLE>
F-13
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
in the accompanying statements of operations. Had compensation cost been
recognized based on the fair values of options at the grant dates consistent
with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per common share would have
been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C> <C>
As reported $626,919 $3,296,046
Net loss....................................... Pro forma 736,919 4,156,046
As reported $ .10 $ .50
Net loss per common share...................... Pro forma .12 .63
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted average fair values of options granted were as follows:
<TABLE>
<CAPTION>
INCENTIVE NONQUALIFIED
STOCK STOCK
OPTIONS OPTIONS
--------- ------------
<S> <C> <C>
1995 grants........................................ $2.20 $2.67
1996 grants........................................ 3.87 4.46
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Risk-free interest rate................................. 6.39% 6.59%
Expected life of incentive options...................... 5 years 5 years
Expected life of nonqualified options................... 10 years 10 years
Expected volatility..................................... 90% 90%
Expected dividend yield................................. -- --
</TABLE>
401(k) Profit-Sharing Plan
Effective January 1, 1996, the Company adopted a 401(k) profit-sharing plan
(the 401(k) Plan) covering substantially all full-time employees. Eligible
employees may elect to defer up to 15% of their eligible compensation. The
Company may make discretionary matching contributions of up to 6% of each plan
participant's eligible compensation. Through January 5, 1997, the Company had
not made any matching contributions to the 401(k) Plan.
8. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases its headquarters office facilities under an operating
lease which expires June 30, 1999. The Company also leases equipment under
capital leases which expire at various dates through November 2000. Property
and equipment under capital leases at January 5, 1997 totaled $197,300.
F-14
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule of future minimum lease payments as of January
5, 1997:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
1997....................................... $ 71,148 $246,500
1998....................................... 51,390 205,200
1999....................................... 15,090 128,500
2000....................................... 7,750 27,300
2001....................................... -- 1,600
--------
Total minimum capital lease payments....... 145,378
Less--
Amount representing interest............. (21,245)
Current maturities....................... (57,411)
--------
Noncurrent portion of minimum capital lease
payments.................................. $ 66,722
========
</TABLE>
Legal Proceedings
The Company is involved in legal actions in the ordinary course of its
business. Although the outcome of any such legal actions cannot be predicted,
management believes that there is no pending legal proceeding against or
involving the Company for which the outcome is likely to have a material
adverse effect upon the Company's financial position, results of operations or
cash flows.
9. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31 FOR THE YEAR
------------------- ENDED JANUARY 5
1994 1995 1997
--------- --------- ---------------
<S> <C> <C> <C>
Supplemental cash flow disclosure:
Cash paid for interest................... $ 19,822 $ 86,292 $214,601
========= ========= ========
Noncash investing and financing activities:
Notes receivable from sale of common
stock................................... $ 633,102 $ 100,000 $ --
========= ========= ========
Property and equipment acquired under
capital leases.......................... $ 26,650 $ 99,409 $ 68,558
========= ========= ========
Issuance of warrants..................... $ 81,435 $ 33,750 $116,800
========= ========= ========
Net assets acquired/disposed of relating
to Paragon (Note 1)..................... $ -- $ 6,559 $202,182
========= ========= ========
</TABLE>
10. PROPOSED INITIAL PUBLIC OFFERING:
In November 1996, the Company signed a letter of intent to obtain financing
through an initial public offering (IPO) of approximately 2,125,000 shares of
common stock. The proceeds of the offering will be used to repay the bridge
financing arrangements, to fund capital expenditures and for working capital
purposes. In connection with the offering, the underwriter will receive a
warrant to purchase 212,500 shares of common stock at 120% of the IPO price.
Upon completion of the IPO, the Company's articles of incorporation will be
amended to authorize 30 million shares of Common Stock, $.001 par value, and
five million shares of undesignated preferred stock, $.001 par value.
Supplementary net loss per common share, giving effect to the assumed
retirement of debt with proceeds from the IPO at an assumed IPO price of
$6.50, and elimination of related interest expense, was $.40 for the year
ended January 5, 1997.
F-15
<PAGE>
INSIDE BACK COVER
[Company's "fieldworks, inc." logo]
FieldWorks, Incorporated designs, manufactures, markets and supports portable
rugged computing platforms and computer system solutions for use in demanding
field environments.
7000 Series Field WorkStation(TM)
[Photographs of the 7000 Series Field WorkStation its chassis and its
contents.]
5000 Series Field WorkStation(TM)
[Photographs of the 5000 Series Field WorkStation and parts.]
<PAGE>
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER
THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITA-
TION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Recent Events............................................................ 25
Business................................................................. 27
Management............................................................... 37
Principal Shareholders................................................... 42
Certain Transactions..................................................... 43
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 47
Underwriting............................................................. 49
Legal Matters............................................................ 50
Experts.................................................................. 50
Additional Information................................................... 51
Index to Consolidated Financial Statements............................... F-1
</TABLE>
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UNTIL APRIL 14, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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2,125,000 SHARES
LOGO
COMMON STOCK
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PROSPECTUS
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RJSTEICHEN&CO
MARCH 20, 1997
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