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3,000,000 Shares
Socket Communications, Inc.
Common Stock
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This Prospectus covers 3,000,000 shares of Common Stock, par value $0.001
per share (the "Common Stock"), of Socket Communications, Inc., a Delaware
corporation (the "Company"), which may be offered from time to time by one or
all of the selling stockholders named herein (the "Selling Stockholders").
All of the Common Stock offered hereby consists of shares of Common Stock
to be issued by the Company to the Selling Stockholders upon the conversion of
shares of Series A Convertible Preferred Stock (the "Preferred Stock") issued by
the Company in a private transaction exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
Section 4(2) thereof (the "Private Offering"). Such Preferred Stock may be
converted into Common Stock at the option of the holder, in whole or in part,
into that number of shares of Common Stock of the Company equal to $100 divided
by the Common Stock Price, which shall equal the lower of: (a) $2 5/8; and (b)
65% of the average bid price of the Company's Common Stock, on the OTC Bulletin
Board, for the five business days prior to the business day on which notice of
conversion is transmitted by the holder of such Preferred Stock. The Common
Stock Price shall be subject to adjustment in certain events. For purposes of
this Registration Statement, the Company has assumed a Common Stock Price of
$0.65. The shares eligible for sale hereunder represent approximately 42% of
the Company's issued and outstanding shares of Common Stock, assuming conversion
of the Preferred Stock. See "Selling Stockholders" and "Plan of Distribution."
The Company will receive no part of the proceeds from the sale of the
Common Stock by the Selling Stockholders. See "Selling Stockholders" and "Use
of Proceeds." All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Selling Stockholders will be borne by such Selling Stockholders.
The Company and the Selling Stockholders have each agreed to indemnify each
other against certain liabilities, including certain liabilities under the
Securities Act.
The Company's Common Stock is currently traded on the OTC Bulletin Board
under the symbol SCKT, and listed on the Pacific Stock Exchange under the
symbol SOK. From the date of the Company's initial public offering (June 6,
1995) through November 26, 1996, the Company's Common Stock was listed on the
Nasdaq SmallCap Market under the symbol SCKT. On April 4, 1997, the last sale
price of the Company's Common Stock as reported on the OTC Bulletin Board was
$1.00 per share. See "Price Range of Common Stock."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SHOULD
BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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Each Selling Stockholder and any broker executing selling orders on behalf
of the Selling Stockholders may be deemed to be an underwriter within the
meaning of the Securities Act. Commissions received by any such broker may be
deemed to be underwriting commissions under the Securities Act.
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THE DATE OF THIS PROSPECTUS IS APRIL 21, 1997
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, New York, New York 10007
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits and schedules thereto) on Form S-3
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedules thereto.
The Registration Statement, including exhibits thereto, may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 75 Park Place, Room 1400, New York, New
York 10007 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies may be obtained at the prescribed rates from
the Public Reference Section of the Commission at its principal office in
Washington, D.C. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated by reference in this Prospectus the following
documents and information heretofore filed with the Commission:
(1) the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 (the "Form 10-KSB"); and
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(2) the description of the Company's Common Stock offered hereby
contained in the Company's Registration Statement on Form 8-A
filed by the Company with the Commission on April 11, 1995 and
the Company's Registration Statement on Form 8-A/A filed by the
Company with the Commission on June 15, 1995.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of any
such person, a copy of any and all of the information that has been or may be
incorporated by reference in this Prospectus, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such document. Requests for such copies should be directed to the Company at
Socket Communications, Inc., 37400 Central Court, Newark, California 94560,
Attention: Chief Financial Officer. The Company's telephone number at that
location is (510) 744-2700.
THE COMPANY
Socket Communications, Inc. develops and sells data communications
solutions for the mobile computer market. Socket's Wireless Messaging System
consists of the PageCard-Registered Trademark- receiver, PageSoft-Registered
Trademark- software and Socket Wireless Messaging Services. Other Socket
products include serial PC Cards and wired Ethernet PC Cards.
The Company was incorporated in California in March 1992 and reincorporated
in Delaware in June 1995. Its headquarters are located at 37400 Central Court,
Newark, California 94560 and its telephone number is (510) 744-2700.
NOTICE TO CALIFORNIA INVESTORS
Each purchaser of Common Stock in California must meet one of the following
suitability standards: (i) a liquid net worth (excluding home, furnishings and
automobiles) of $250,000 or more and gross annual income during 1996, and
estimated during 1997, of $65,000 or more from all sources; or (ii) a liquid net
worth (excluding home, furnishings and automobiles) of $500,000 or more. Each
California resident purchasing Common Stock offered hereby will be required to
execute a representation that it comes within one of the aforementioned
categories.
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RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS (IDENTIFIED WITH AN
ASTERISK "*") THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN, OR INCORPORATED BY
REFERENCE INTO, THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.
FUTURE CAPITAL NEEDS; AUDITORS' REPORT CONTAINED EXPLANATORY PARAGRAPH REGARDING
GOING CONCERN
The Company will require additional capital to fund its operations. *
The Company believes its existing capital resources and revenue
from operations will be inadequate to satisfy its working capital requirements
through the end of 1997.* The Company will need to raise additional capital to
fund operations in 1997, which the Company intends to seek through the public
and private sale of equity securities.* On January 29, 1997, the Company issued
a $0.5 million subordinated secured convertible promissory note to Cetronic AB,
and on February 14, 1997, the Company issued $0.5 million of subordinated
unsecured convertible promissory notes to certain shareholders of Cetronic AB.
Furthermore, on February 24, 1997, the Company filed with the Securities and
Exchange Commission a registration statement on Form SB-2 for a public offering
of Common Stock with estimated net proceeds to the Company of approximately $4
million (the "Proposed Public Offering"). If the Company consummates this
public offering, the Company anticipates that its existing capital resources,
its bank line and revenue from operations, together with the estimated net
proceeds of the public offering, will be adequate to satisfy its working capital
requirements through the first quarter of 1998.* The Company's actual working
capital needs will depend on numerous factors, however, including the extent and
timing of the acceptance of the Company's products in the market, the Company's
operating results, the progress of the Company's research and development
activities, the cost of increasing the Company's sales and marketing activities
and the status of competitive products, none of which can be predicted with
certainty. As a result, there can be no assurance that the Company will not
require additional funding prior to such date.* If required, there can be no
assurances that such capital will be available on acceptable terms, if at all,
and such terms may be dilutive to existing stockholders. The inability to
obtain such financing would have a material adverse effect on the Company's
results of operations. The Company could be required to significantly reduce or
suspend its operations, seek a merger partner or sell additional securities on
terms that are highly dilutive to current investors in the Company. The
Company's independent auditors included an explanatory paragraph in their audit
opinion with respect to the Company's 1996 financial statements which indicated
substantial doubt about the Company's ability to continue as a going concern due
to recurring operating losses and the need for additional financing. The
factors leading to, and the existence of, the explanatory paragraph may
materially adversely affect the Company's relationship with customers and
suppliers, its ability to obtain revenue and manufacture products and its
ability to obtain financing.
HISTORY OF OPERATING LOSSES; NO ASSURANCE OF PROFITABILITY
The Company was incorporated in March 1992 and has incurred significant
operating losses in every fiscal period since inception. The Company expects to
incur substantial quarterly operating losses at least through the first half of
1997 and possibly longer.* In order to become profitable, the Company must
obtain market acceptance of
__________________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Risk Factors," and elsewhere in, or incorporated by reference
into, this prospectus.
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the PageCard receiver and enhanced PageSoft software products, develop
page-enabled applications for selected vertical markets, obtain continued
increases in the market acceptance of the Company's serial and Ethernet cards,
develop successful new products for new and existing markets, increase gross
margins through higher sales volumes and contract manufacturing efficiencies,
expand its distribution capability and manage its operating expenses. There can
be no assurance that the Company will meet any of these objectives or ever
achieve profitability.
EMERGING MARKET FOR WIRELESS DATA COMMUNICATIONS PRODUCTS
The market for wireless data communications products has been slow to
emerge, and there can be no assurance that it will develop sufficiently to
enable the Company to achieve broad commercial acceptance of its products.
Because this market is relatively new and has developed slowly, and because
current and future competitors are likely to introduce a variety of competing
wireless data communications solutions, it is difficult to predict the rate
at which this market will grow, if at all. If the wireless data
communications market fails to grow, or grows more slowly than anticipated,
the Company's business, operating results and financial condition will be
materially adversely affected. Although the Company intends to conform its
products to meet emerging standards in the wireless data communications
market, there can be no assurance that industry standards will emerge or, if
they become established, that the Company will be able to conform to these
new standards in a timely fashion. Even if the market for wireless data
communications products does develop, there can be no assurance that the
Company's products will achieve commercial success within such market.
Furthermore, the Company is currently focusing on developing and delivering
wireless data solutions for the specific needs of business in a number of
vertical market segments such as field sales, field service, finance, real
estate, health care, and transportation.* The Company believes that the
preferred strategy for addressing such needs is to page-enable existing
applications to allow the transfer of data from an application through the
paging network to the PageCard receiver where it can be downloaded into a
mobile computer. The Company's software developer's kit ("SDK") is designed
to provide program interfaces for software developers to page-enable their
applications and to work with major Microsoft operating systems. Although a
limited number of page-enabled applications are now available, there can be
no assurance that any additional such applications will be developed or, if
developed, will gain widespread commercial acceptance or that adoption of
such applications will drive increased purchases of PageCard receivers.
Finally, due to the unique nature of the PageCard receiver and PageCard WMS,
which combine certain technologies and features of paging and mobile
computing, the Company believes it will be required to incur significant
expenses for sales and marketing, including advertising, to educate potential
customers.* Broad commercialization of the Company's products will require
the Company to overcome significant technological and market development
hurdles, many of which may not be currently foreseen.*
The mobile computer market represents only a small percentage of the
installed base of personal computers, and there can be no assurance that the
mobile computer market will continue to grow. Because all of the Company's
products are used in mobile computing applications, the Company's future
operating results would be materially adversely affected by any reduction in the
rate of growth of the mobile computer market.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT; PRODUCT DEFECTS
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and short product life cycles.
Accordingly, the Company's success will be substantially dependent on a number
of factors, including its ability to identify emerging standards in the wireless
data communications field, enhance its products by adding features to provide a
more complete solution and differentiate its products from those
___________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Risk Factors," and elsewhere in, or incorporated by reference
into, this prospectus.
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of its competitors, maintain superior or competitive performance in its
products and bring products to market quickly. Given the emerging nature of
the wireless data communications market, there can be no assurance that the
Company's products or technology will not be rendered obsolete by alternative
technologies. Further, short product life cycles expose the Company's
products to the risk of obsolescence and require frequent new product
introductions. If the Company is unable to develop or obtain access to
advanced one-way and emerging two-way wireless data communications
technologies as they become available, or is unable to design, develop,
contract for the manufacturing of and introduce competitive new products on a
timely basis, its future operating results will be materially adversely
affected. Any significant delays in the design, development, manufacture or
shipment of new or enhanced products would also materially adversely affect
the Company's results of operations.
The markets for mobile computers and their peripherals and for wireless
data communications are extremely competitive and characterized by rapidly
advancing technology, frequent changes in user preferences and frequent
product introductions. The future success of the Company will depend in
large part on its ability, and that of its strategic partners, to keep pace
with advances in software and hardware technologies for mobile computing and
wireless data communications. There can be no assurance that the Company
will be able to respond effectively to these technological changes or to new
product introductions by others. For example, the Company's PageCard
receiver is designed to operate on the worldwide POCSAG protocol, and
operates on the FCC-approved frequencies for paging and messaging
technologies in the United States and Canada in the 930 MHz frequency range.
For the European market, the PageCard receiver operates on the Euromessage
frequency of 466 MHz. New competitive wireless technologies, such as FLEX in
the United States and ERMES in Europe, being developed by various market
participants are not compatible with the POCSAG protocol and may be at
different frequencies. If these new technologies succeed, paging carriers
may cease to support POCSAG, and there is no assurance that the Company will
be able to develop future products based upon these new technologies. In
addition, the Company's inability to develop products within any new FCC
allocated frequencies for these new technologies could have a material
adverse effect on the Company's business and results of operations.
Although the Company performs testing prior to new product
introductions, the Company's hardware and software products may contain
undetected flaws, which may not be discovered until the products have been
used by customers. From time to time, the Company may temporarily suspend or
delay shipments or divert development resources from other projects to
correct a particular product deficiency. Such efforts to identify and
correct errors and make design changes may be expensive and time consuming.
Failure to discover product deficiencies in the future could delay product
introductions or shipments, require the Company to recall previously shipped
products to make design modifications or cause unfavorable publicity, any of
which could have a material adverse effect on the Company's operating results.
COMPETITION
The Company anticipates intense competition from a number of companies.
The overall market for communications products is increasingly competitive, and
the Company expects competition in each of its market areas to intensify.*
Currently, the Company does not have a direct competitor for
its PageCard; however, Kokusai produces a PC Card data pager that does not have
a display. The Company faces indirect competition for short messaging
applications from alphanumeric pagers, which are produced by many companies
(including Motorola, NEC, Uniden, and others), and from alternative methods of
downloading information into a mobile computer, primarily over telephone lines.
In addition to competition from companies that offer wireless data
communications
__________________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Risk Factors," and elsewhere in, or incorporated by reference
into, this prospectus.
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devices, the Company could face competition for its PageCard receiver and
PageCard WMS from companies that offer alternative wired or wireless
communications solutions, or from large computer and network equipment
companies.*
The Company competes with IBM and Smart Modular Technologies, among others,
in the serial card market. The market for the Company's Ethernet card is highly
competitive. Market leaders for Ethernet cards include 3Com and Xircom. The
Company also faces competition from combination cards which combine Ethernet and
other functions such as fax/modem. Companies offering combination cards include
3Com, Xircom and U.S. Robotics.
Many of the Company's present and potential competitors have
substantially greater financial, marketing, technical and other resources
than the Company and may succeed in establishing technology standards or
strategic alliances in the data communications or mobile computer market,
obtain more rapid market acceptance for their products, or otherwise gain a
competitive advantage. There can be no assurance that the Company will
succeed in developing products or technologies that are more effective or
better accepted in the market than those developed by its competitors.
Furthermore, the Company will also be competing with companies that have high
volume manufacturing and extensive marketing and distribution capabilities,
areas in which the Company has limited or no experience. Increased
competition, direct and indirect, could materially adversely affect the
Company's revenues and profitability through pricing pressure and loss of
market share. There can be no assurance that the Company will be able to
compete successfully against existing and new competitors as the market
evolves and the level of competition increases.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company believes that its operating results will be subject to
substantial quarterly fluctuations due to several factors, some of which are
outside the control of the Company, including fluctuating market demand for,
and declines in the average selling price of, the Company's products, the
timing of significant orders from distributors and OEM customers, delays in
the introduction of enhancements to existing and new products, market
acceptance of existing and new products, competitive product introductions,
the mix of products sold, changes in the Company's distribution network, the
failure to anticipate changing customer product requirements, changes in the
regulatory environment, the cost and availability of components, the level of
royalties from and to third parties and general economic conditions.* The
Company generally does not operate with a significant order backlog, and a
substantial portion of the Company's revenue in any quarter is derived from
orders booked in that quarter. Accordingly, the Company's sales expectations
are based almost entirely on its internal estimates of future demand and not
on firm customer orders. The Company is making significant investments in
sales and marketing and in research and development, and if orders and sales
do not meet expectations, the Company's operating results will be materially
adversely affected. The Company expects to incur substantial quarterly
operating losses at least through the first half of 1997 and possibly longer.*
RELIANCE ON THIRD PARTY COMPONENT SUPPLIERS AND CONTRACT MANUFACTURERS
The Company subcontracts the manufacturing of substantially all of its
products on a sole source basis to independent suppliers. Sole source
components include the Company's proprietary high integration serial ("HIS")
chip manufactured by Lucent Technologies that controls the signal transmission
between the Company's PageCard receiver and Serial I/O products and the PC Card
slot on the mobile computer, the PageCard receiver board and RF
_______________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Risk Factors," and elsewhere in, or incorporated by reference
into, this prospectus.
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display, which are purchased from Mitsubishi Corporation in Japan, the Ethernet
card purchased from Mitsubishi International Corporation in the United States,
and certain other cable and connector components. Although to date the Company
has generally been able to obtain adequate supplies of these components, certain
of these components are purchased on a purchase order basis, and the Company
does not have long-term supply contracts for these components. In particular,
the Company purchases HIS chips from Lucent Technologies, Tamarack chips from
Tamarack, Ethernet cards from Mitsubishi International and Serial I/O cards from
Hi-Tech Manufacturing by purchase order. There can be no assurance that the
Company will not be affected by component shortages. Although the Company's
suppliers are generally large, well financed organizations, a supplier's
experiencing financial or operational difficulties that resulted in a reduction
or interruption in supply to the Company would materially adversely affect the
Company's results of operations until the Company established sufficient
manufacturing supply through an alternative source. The Company believes that
there are alternative contract manufacturers that could produce the Company's
products, but is not pursuing agreements or understandings with alternative
sources. In the event of a reduction or interruption of supply it could take a
significant period of time for the Company to qualify an alternative
subcontractor, redesign the product as necessary and commence manufacturing.
The Company's inability in the future to obtain sufficient sole or limited
source components, or to develop alternative sources, could result in delays in
product introductions or shipments, which could have a material adverse effect
on the Company's results of operations.
DEPENDENCE ON THIRD PARTY STRATEGIC ALLIANCES AND BUSINESS RELATIONSHIPS
The Company's strategy is to establish strategic alliances and business
relationships with leading participants in various segments of the
communications and mobile computer markets.* The Company believes these
alliances enable it to take advantage of the superior financial resources,
technological capabilities, proprietary positions and market presences of these
companies in establishing and maintaining Socket's own position in the wireless
data communications industry. In accordance with this strategy, the Company has
entered into alliances or relationships with GTE, Casio, Apple, Cetronic, Bell
Mobility, PageNet, The National Dispatch Center ("NDC"), Lucent Technologies and
Mitsubishi.
The Company's success will depend not only on the Company's continued
relationships with these parties, but also on its ability to enter into
additional strategic arrangements with new partners on commercially reasonable
terms.* The Company believes that, in particular, relationships with application
software developers are extremely important in creating commercial uses for the
Company's products necessary to achieve growth.* Any future relationships may
require the Company to share control over its development, manufacturing and
marketing programs or to relinquish rights to certain versions of its
technology.
In particular, Mitsubishi's relationship with the Company includes
technology licensing, manufacturing and distribution rights. The Company has
co-licensed certain technologies applying to the PageCard receiver, has
contracted with Mitsubishi to supply the PageCard receiver and has granted
Mitsubishi certain distribution rights to the PageCard receiver on a worldwide
basis excluding North America. The Company's ability to manage the business
relationship with Mitsubishi effectively is important to the success and
operating results of the Company. The Company's operating results would be
materially adversely affected if it were required to replace Mitsubishi as a
supplier.
The Company's relationship with NDC for SWiMS includes certain customer
service activities. NDC has agreements to page messages through PageNet and
other paging carriers. Should NDC go out of business, discontinue its
relationship with the Company or with PageNet or not be able to adequately
provide services for SWiMS, the market for the PageCard WMS would be materially
adversely affected until such time as a suitable replacement could be found.
Should PageNet go out of business, be incapable of providing low cost airtime
services
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or discontinue its relationship with NDC, the market for the PageCard receiver
and PageCard WMS would be materially adversely affected until such time as a
suitable replacement could be found.
The Company recently introduced its PageCard receiver and PageCard WMS in
France and the U.K. In France, paging services are provided by France Telecom
Mobiles Radiomessagerie, a nationwide paging network, and advanced messaging
services are provided by Stratus RTM. In the U.K., paging services are provided
by Hutchison Telecom, a nationwide paging network, and advanced messaging
services are provided by London Pager. The Company does not have any commitment
from any of these companies as to the level of sales and marketing effort it
will conduct or as to any minimum number of customers. Should the sales and
marketing effort of any of these companies fall short of expectations, or should
any of them go out of business or be incapable of adequately providing wireless
messaging services, the European market for the PageCard receiver and PageCard
WMS would be materially adversely affected until such time as suitable
replacements could be found.
MANAGEMENT OF GROWTH
Depending on the extent of its future growth, if any, the Company may
experience a significant strain on its management, operational and financial
resources. The Company's ability to manage its growth effectively may
require it to continue to implement and improve its operational and financial
systems and may require the addition of new management personnel.* In
addition, three of the Company's officers have joined the Company since March
1996. Martin Levetin joined the Company in March 1996 as President and Chief
Executive Officer, Howard Case joined the Company in July 1996 as Vice
President of Marketing and John O'Leary joined the Company in August 1996 as
Vice President of Sales. The failure of the Company's management team to
effectively manage growth, should it occur, could have a material adverse
impact on the Company's results of operations.
DEPENDENCE ON KEY EMPLOYEES
The Company's future success will depend in significant part upon the
continued service of certain key technical and senior management personnel, and
the Company's continuing ability to attract, assimilate and retain highly
qualified technical, managerial and sales and marketing personnel.* Competition
for such personnel is intense, and there can be no assurance that the Company
can retain its existing key managerial, technical or sales and marketing
personnel or that it can attract, assimilate and retain such employees in the
future. The loss of key personnel or the inability to hire, assimilate or
retain qualified personnel in the future could have a material adverse effect
upon the Company's results of operations. The Company does not have key man
life insurance for any of its employees.
FOREIGN CURRENCY FLUCTUATIONS AFFECTING COSTS
The PageCard receiver is supplied by Mitsubishi in Japan under an agreement
that provides for adjustment in the Company's purchase costs when the average
exchange rate of the Japanese yen is less than threshold levels of 95 yen to the
U.S. dollar (price increase) or more than 105 yen to the U.S. dollar (price
decrease). Purchase costs are adjusted by the ratio of the yen exchange rate to
the applicable threshold level. The Company experienced adjustments in 1996 as
a result of exchange fluctuations. To date, such adjustments have not
materially affected the Company's costs but could do so in the future if the
Company cannot offset price increases through higher selling prices, other
operating efficiencies or a subsequent increase in the value of the dollar.
______________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Risk Factors," and elsewhere in, or incorporated by reference
into, this prospectus.
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DISTRIBUTION RISKS, PRODUCT RETURNS AND WARRANTIES
The Company sells its products primarily through distributors, resellers
and OEMs. To date the Company has not achieved significant OEM sales and
there can be no assurance that the Company will achieve significant sales
through this channel. The Company's largest distributors, Ingram Micro and
Tech Data, accounted for approximately 17% and 12%, respectively, of the
Company's revenue in 1996. The Company's agreements with OEMs, distributors
and resellers, in large part, are nonexclusive and may be terminated on short
notice by either party without cause. The Company's OEMs, distributors and
resellers are not within the control of the Company, are not obligated to
purchase products from the Company and may represent other lines of products.
A reduction in sales effort or discontinuance of sales of the Company's
products by its OEMs, distributors and resellers could lead to reduced sales
and could materially adversely affect the Company's operating results. Use
of distributors also entails the risk that distributors will build up
inventories in anticipation of a growth in sales. If such growth does not
occur as anticipated, these distributors may substantially decrease the
amount of product ordered in subsequent quarters. Such fluctuations could
contribute to significant variations in the Company's future operating
results. The distribution industry has been characterized by rapid change,
including consolidations and financial difficulties of distributors and the
emergence of alternative distribution channels. In addition, there are an
increasing number of companies competing for access to these channels. The
loss or ineffectiveness of any of the Company's major distributors could have
a material adverse effect on the Company's operating results. Moreover, the
Company is seeking to broaden its channels of distribution and intends to
sell its products through new distribution channels such as mass
merchandisers.* There can be no assurance that the Company will be able to
successfully sell its products through these new channels.
The Company allows its distributors to return a portion of their inventory
to the Company for full credit against other purchases. In addition, in the
event the Company reduces its prices, the Company credits its distributors for
the difference between the purchase price of products remaining in their
inventory and the Company's reduced price for such products. There can be no
assurance that actual returns and price protection will not have a material
adverse effect on future operating results, particularly since the Company seeks
to continually introduce new and enhanced products and is likely to face
increasing price competition. In addition, the Company's comprehensive two year
warranty for its wired products and one year warranty for its wireless products
permit customers to return any product if the product does not perform as
warranted. To date, the Company has not experienced any warranty claims,
returns, stock rotation exchanges or price protection adjustments materially
above those anticipated. However, future warranty claims, returns, stock
rotation exchanges, or price protection adjustments could be materially higher
then anticipated. The Company intends to continue to introduce new and enhanced
products, which could result in higher warranty or return claims due to the
risks inherent in the introduction of such products.* There can be no assurance
that warranty claims or returns will not have a material adverse effect on
future operating results.
EXPORT SALES
Export sales (sales to customers outside the United States) accounted for
approximately 40% of the Company's revenue in 1996, and the Company anticipates
that export sales will continue to account for a significant portion of
revenue.* Accordingly, the Company's operating results are subject to the risks
inherent in export sales, including unexpected changes in regulatory
requirements, exchange rates, tariffs or other barriers and difficulties in
managing foreign sales operations.
_________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Risk Factors," and elsewhere in, or incorporated by reference
into, this prospectus.
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UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patents, trademarks and
non-disclosure agreements in order to establish and protect its proprietary
rights. The Company has filed, and intends to continue to file, applications
as appropriate for patents covering its products.* There can be no assurance
that patents will issue from any of its pending applications or, if patents
do issue, that the claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any
patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection to the Company. Since U.S. patent applications are maintained in
secrecy until patents issue, and since the publication of inventions in
technical or patent literature tend to lag behind such inventions by several
months, the Company cannot be certain that it was the first creator of
inventions covered by its pending patent applications, that it was the first
to file patent applications for such inventions or that the Company is not
infringing on the patents of others. The Company has also trademarked some
of its proprietary product names and logos and claims copyright protection
for its proprietary software. Litigation may be necessary to enforce the
Company's patents, trademarks, copyrights or other intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the
Company's business and results of operations regardless of the final outcome
of such litigation. Despite the Company's efforts to safeguard and maintain
its proprietary rights, there can be no assurance that the Company will be
successful in doing so or that the Company's competitors will not
independently develop or patent technologies that are substantially
equivalent or superior to the Company's technologies.
In addition, the laws of certain foreign countries do not protect the
Company's intellectual property rights to the same extent as do the laws of the
United States. Although the Company continues to implement protective measures
and intends to defend its proprietary rights vigorously, there can be no
assurance that these efforts will be successful. There can also be no assurance
that third parties will not assert intellectual property infringement claims
against the Company. Although no written claims or litigation related to any
such matter are currently pending against the Company, there can be no assurance
that none will be initiated, or that the Company would prevail in any such
litigation seeking either damages or an injunction against the sale of the
Company's products. Moreover, there can be no assurance that, if such an
injunction were to issue, the Company would be able to obtain any necessary
licenses on reasonable terms or at all.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales by existing stockholders and warrantholders
could materially adversely affect the market price of the Company's Common
Stock. As of April 4, 1997 the Company had outstanding 4,238,065 shares of
Common Stock. Upon completion of the Proposed Public Offering, the Company will
have outstanding 6,738,065 shares of Common Stock, assuming no exercise of the
underwriter's over-allotment option, and no exercise of outstanding options or
warrants. Of these shares, 5,401,280 will be freely tradeable without
restriction under the Securities Act, unless held by "affiliates" of the Company
as that term is defined in Rule 144 under the Securities Act. This number of
shares includes (i)) the 2,500,000 shares of Common Stock offered in the
Proposed Public Offering, (ii) the 1,100,550 shares of Common Stock included in
the Units sold in the Company's initial public offering, (iii) the 597,291
shares of Common Stock held by certain stockholders registered by the Company on
a Registration Statement on Form SB-2
___________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Risk Factors," and elsewhere in, or incorporated by reference
into, this prospectus.
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<PAGE>
dated August 24, 1995 for resale by such stockholders and (iv) the 1,203,439
shares of Common Stock held by investors pursuant to conversions of shares of
the Company's Series A Convertible Preferred Stock.
The remaining 1,336,785 shares of Common Stock outstanding upon completion
of the Proposed Public Offering will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares").
In addition, 1,322,503 shares of the Company's Common Stock may be acquired
immediately upon conversion of the 8,650 shares of the Company's Series A
Convertible Preferred Stock acquired in the Series A private placement and
outstanding as of April 4, 1997 (assuming that notices of conversion of all
such shares were transmitted on April 4, 1997).
Further, immediately exercisable rights to acquire 1,000,000 shares of the
Company's Common Stock are currently held by Cetronic AB and certain
shareholders thereof (the "Cetronic Shares"). Though upon exercise of this
right the Cetronic Shares constitute Restricted Securities, the Company is
obligated to register the Cetronic Shares within 90 days of a request for
registration by the holders of the promissory notes, rendering the Cetronic
Shares immediately salable thereafter.
The Company has also filed a registration statement on Form S-8 under the
Securities Act covering 501,859 shares of Common Stock reserved for issuance
under the Company's 1993 Stock Option/Stock Issuance Plan and 1995 Stock Plan.
Shares registered under such registration statement are, subject to Rule 144
volume limitations applicable to affiliates of the Company, available for sale
in the open market, subject to vesting restrictions.
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results, changes in analysts' estimates, announcements of technological
innovations by the Company or its competitors, general conditions in the mobile
computer or wireless data communications industries and other factors. In
addition, the stock market is subject to price and volume fluctuations that
affect the market prices for companies in general, and small capitalization,
high technology companies in particular, and are often unrelated to their
operating performance. No assurance can be given that the market price of the
Company's Common Stock will not experience significant fluctuations in the
future, including fluctuations which are unrelated to the Company's performance.
ILLIQUIDITY OF TRADING MARKET
From the effective date of the Company's initial public offering (June 6,
1995) through November 26, 1996, the Company's Common Stock was listed on the
Nasdaq SmallCap Market. However, the Common Stock was de-listed from such market
effective November 27, 1996 and since then has traded on the OTC Bulletin Board.
In connection with the Proposed Public Offering, the Company intends to apply to
have its Common Stock re-listed on the Nasdaq SmallCap Market; however, there
can be no assurance that such application will be accepted or, if accepted, that
the Company will be able to maintain the standards for continued quotation on
Nasdaq. The Company's Common Stock is also quoted on the Pacific Stock
Exchange; however, because the Company's stockholders' equity as of December 31,
1996 was below the exchange's minimum capital requirements, the appropriateness
of the Company's continued listing thereon is currently being reviewed by the
Pacific Stock Exchange's equity listing committee. There can be no assurance
that such committee will not decide to initiate delisting procedures against the
Company. If the Company's Common Stock is not accepted for quotation on the
Nasdaq SmallCap Market and/or is delisted from the Pacific Stock Exchange, an
investor will find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities. In addition, the
Company's
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<PAGE>
securities are now subject to so-called "penny stock" rules that impose
additional sales practice and market making requirements on broker-dealers who
sell and/or make a market in such securities. Consequently, the Company's
inability to obtain listing on the Nasdaq SmallCap Market, subsequent removal
from the Nasdaq SmallCap Market if listed thereon, or delisting from the Pacific
Stock Exchange could affect the ability or willingness of broker-dealers to sell
and/or make a market in the Company's securities and the ability of purchasers
of the Company's securities to sell their securities in the secondary market.
NO ANTICIPATED DIVIDENDS
The Company has not previously paid any dividends on its Common Stock and
for the foreseeable future intends to continue its policy of retaining any
earnings to finance the development and expansion of its business. The
Company's bank line of credit prohibits the payment of cash dividends without
the written consent of the lender.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by Delaware General Corporation Law, the Company has included
in its Certificate of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In
addition, the Bylaws of the Company provide that the Company is required to
indemnify its officers and directors under certain circumstances, including
those circumstances in which indemnification would otherwise be discretionary,
and the Company is required to advance expenses to its officers and directors as
incurred in connection with proceeding against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law.
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<PAGE>
USE OF PROCEEDS
All 3,000,000 shares of Common Stock covered by this Prospectus may be
offered from time to time by one or all of the Selling Stockholders. The
Company will receive no part of the proceeds from such sales.
PRICE RANGE OF COMMON STOCK
From the effective date of the Company's initial public offering (June 6,
1995) through November 26, 1996, the Company's Common Stock was listed on the
Nasdaq SmallCap Market. However, the Common Stock was de-listed from such market
effective November 27, 1996 and since then has traded on the OTC Bulletin Board
under the symbol SCKT. See "Risk Factors--Illiquidity of Trading Market." The
Company's Common Stock is quoted on the Pacific Stock Exchange under the symbol
SOK; however, because the Company's stockholders' equity as of December 31, 1996
was below the exchange's minimum capital requirements, the appropriateness of
the Company's continued listing thereon is currently being reviewed by the
Pacific Stock Exchange's equity listing committee. There can be no assurance
that such committee will not decide to initiate delisting proceedings against
the Company. The Company has not paid cash dividends on its Common Stock.
The quarterly high and low sales prices since June 6, 1995, when the
Company's Common Stock began trading publicly, are as follows:
Quarter Ended High Low
- ------------------------------- -------- --------
June 30, 1995 . . . . . . . . $ 6.75 $ 5.25
September 30, 1995. . . . . . 6.50 5.25
December 31, 1995 . . . . . . 6.06 2.63
March 31, 1996. . . . . . . . 4.38 3.00
June 30, 1996 . . . . . . . . 7.38 2.88
September 30, 1996. . . . . . 4.38 2.88
December 31, 1996 . . . . . . 3.62 0.75
March 31, 1997. . . . . . . . 1.12 0.62
On April 4, 1997, the last sale price of the Common Stock as reported on
the OTC Bulletin Board was $1.00 per share. As of April 4, 1997, there were
approximately 1,000 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future
earnings for the expansion and operation of its business and does not anticipate
paying cash dividends in the foreseeable future. The Company's bank line of
credit prohibits the payment of cash dividends without the written consent of
the lender.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders and
the number of shares of Common Stock being offered by each of them hereby. Upon
completion of the offering, assuming all shares of Common Stock being offered
are sold, none of the Selling Stockholders will own any shares of Common Stock.
The shares of Common Stock are being registered to permit secondary trading of
the shares of Common Stock, and the Selling Stockholders may offer shares of
Common Stock for resale from time to time. See "Plan of Distribution."
The Selling Stockholders acquired shares of Series A Convertible Preferred
Stock pursuant to Subscription Agreements (the "Agreements") dated as of
November 1, 1996, between the Company and each Selling Stockholder. The Selling
Stockholders purchased a total of 15,500 shares of Series A Convertible
Preferred Stock at a price of $100 per share. Each share of Series A
Convertible Preferred Stock is convertible at the option of the holder, in whole
or in part, into that number of shares of Common Stock of the Company equal to
$100 divided by the Common Stock Price, which shall equal the lower of (a)
$2 5/8 and (b) 65% of the average bid price of the Company's Common Stock on the
OTC Bulletin Board for the five business days prior to the business day on which
notice of conversion is transmitted by the holder of such share. The Common
Stock Price shall be subject to adjustment in certain events. For purposes of
this Registration Statement, the Company has assumed a Common Stock Price of
$0.65.
The Selling Stockholders represented in the Subscription Agreements that
they were accredited investors and were purchasing the Series A Convertible
Preferred Stock and the Common Stock issuable upon exercise of the Series A
Convertible Preferred Stock for investment and not with a view to, or for a sale
in connection with, any distribution within the meaning of the Securities Act.
The Subscription Agreements require the Company to file a registration statement
under the Securities Act, to which this Prospectus relates, with respect to the
resale of the applicable shares.
H.J. Meyers & Co., Inc. ("H.J. Meyers") acted as sales agent for the
Company in connection with the private placement. For the performance of such
services H.J. Meyers was paid a fee by the Company, including a warrant to
purchase 43,539 shares of Common Stock.
Because the Selling Stockholders may sell all or some portion of the shares
covered by this Prospectus, no estimate can be given as to the number of shares
and the percentage of outstanding Common Stock that will be held by any of them
after any particular sale.
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<PAGE>
The following table and accompanying footnotes identify each Selling
Stockholder and based upon information provided to the Company, set forth
information as of April 4, 1997 with respect to the shares held by or acquirable
by, as the case may be, each Selling Stockholder. Except as otherwise noted,
the named beneficial owner has sole voting and investment power with respect to
the shares shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED SHARES OWNED
BEFORE OFFERING (2) OFFERED AFTER OFFERING (2)
------------------------ -------------------------
SELLING STOCKHOLDER (1) NUMBER PERCENT HEREBY NUMBER PERCENT
- ---------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Arnold Wong 41,580 * 41,580 - *
Berckeley Investment Group 769,230 15.4% 769,230 - *
Coutts & Co. AG 242,127 5.4 242,127 - *
Harry & Deborah Salzman 164,103 3.7 164,103 - *
Jerry Houston 122,913 2.8 122,913 52,583 *
Julius Baer Securities 367,502 8.0 367,502 - *
Peter G. Colmer 76,923 1.8 76,923 - *
Roderick Deleersnijder 76,923 1.8 76,923 - *
Ronald & Nancy Thomas Family Trust 35,165 * 35,165 - *
Swedbank (Luxembourg) S.A. 442,469 9.5 442,469 - *
Van Moer Santerre & Cie 170,931 3.9 170,931 - *
Weinberg Family Trust 87,289 2.0 87,289 - *
</TABLE>
- --------------------
* Less than 1%
(1) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
(2) The number of shares of Common Stock represents (i) for Series A
Convertible Preferred Stock converted into Common Stock as of April 4, 1997,
the number of shares of Common Stock actually received upon conversion, and
(ii) for unconverted Series A Convertible Preferred Stock, the number of
shares of such stock originally purchased by the Selling Stockholder on
November 1, 1996 multiplied by $100 and divided by the assumed Common Stock
Price of $0.65. Percentage ownership is based on: (i) 4,238,065 shares of
Common Stock outstanding as of April 4, 1997, and any shares issuable
pursuant to conversions of Series A Convertible Preferred Stock held by the
person or group in question at an assumed Common Stock Price of $0.65; and
(ii) after the offering, assumes sale of all shares offered hereby.
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<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders will act independently of the Company in making
decisions with respect to the timing, manner and size of each sale of the Common
Stock covered hereby. The Selling Stockholders may sell the Shares being
offered hereby: (i) on the OTC Bulletin Board, on the Pacific Stock Exchange, or
otherwise at prices and at terms then prevailing or at prices related to the
then current market price; or (ii) in private sales at negotiated prices
directly or through a broker or brokers, who may act as agent or as principal or
by a combination of such methods of sale. The Selling Stockholders and any
underwriter, dealer or agent who participate in the distribution of such shares
may be deemed to be "underwriters" under the Securities Act, and any discount,
commission or concession received by such persons might be deemed to be an
underwriting discount or commission under the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholders (and, if acting as agent for the
purchaser of such shares, from such purchaser). Usual and customary brokerage
fees will be paid by the Selling Stockholders. Broker-dealers may agree with
the Selling Stockholders to sell a specified number of shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the Selling Stockholders, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or by a
combination of such methods of sale or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such shares commissions computed as
described above.
The Company has advised the Selling Stockholders that the anti-manipulation
Rules 10b-6 and 10b-7 under the Exchange Act may apply to sales of shares in the
market and to the activities of the Selling Stockholders and their affiliates.
In addition, the Company will make copies of this Prospectus available to the
Selling Stockholders and has informed them of the need for delivery of copies of
this Prospectus to purchasers on or prior to sales of the shares offered hereby.
The Selling Stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any such broker-dealers, and any profits
received on the resale of such shares, may be deemed to be underwriting
discounts and commissions under the Securities Act if any such broker-dealers
purchase shares as principal.
The Selling Stockholders have advised the Company that no sale or
distribution, other than as disclosed herein, will be effected until after this
Prospectus shall have been appropriately amended or supplemented, if required,
to set forth the terms thereof. The Selling Stockholders have also agreed that
if any holder of such securities shall propose to sell any securities pursuant
to the Registration Statement, it shall notify the Company of its intent to do
so at least three full business days prior to such sale. At any time within
such period, the Company may refuse to permit the holder of such securities to
resell any securities pursuant to the Registration Statement. In order to
exercise this right, the Company must deliver a certificate in writing to the
holder of such securities to the effect that a delay in such sale is necessary
because a sale pursuant to such Registration Statement in its then-current form
could constitute a violation of the federal securities laws. In no event shall
such delay exceed ten trading days, provided that if, prior to the expiration of
such ten trading day period, the Company delivers a certificate in writing to
the holder of such securities to the effect that a further delay in such sale
beyond such ten trading day period is necessary because a sale pursuant to such
registration statement in its then-current form could constitute a violation of
the federal securities laws, the Company may refuse to permit the holder of such
securities to resell any Registrable Securities pursuant to the registration
statement for an additional period not to exceed ten trading days.
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<PAGE>
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
Common Stock may not be sold unless such shares have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
At the time a particular offer of the shares of Common Stock registered
hereunder is made, if required, a Prospectus Supplement will be distributed that
will set forth the number of shares being offered and the terms of the offering
including the name of any underwriter, dealer or agent, the purchase price paid
by any underwriter for securities purchased from any discount, commission and
other item constituting compensation and any discount, commission or concession
allowed or reallowed or paid to any dealer, and the proposed selling price to
the public.
There can be no assurance that the Selling Stockholders will sell all or
any of the shares of Common Stock offered hereunder.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The financial statements of Socket Communications, Inc. appearing in
Socket Communications, Inc.'s Annual Report (Form 10-KSB) for the year ended
December 31, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII of the Company's Certificate of
Incorporation and Article VI of the Company's Bylaws provide for indemnification
of the Company's directors, officers, employees and other agents to the maximum
extent permitted by Delaware Law. In addition, the Company has entered into
Indemnification Agreements with its officers and directors and certain
stockholders.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions referenced above or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling
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<PAGE>
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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