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Speechworks International Inc ˇ S-1/A ˇ On 7/31/00

Filed On 7/31/00 11:46am ET   ˇ   SEC File 333-35164   ˇ   Accession Number 927016-0-2637

  in   Show  and 
  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 7/31/00  Speechworks International Inc     S-1/A                  7:311                                    Donnelley R R & S..07/FA

Pre-Effective Amendment to Registration Statement (General Form)   ˇ   Form S-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Amendment No. 5 to Form S-1                          106    447K 
 2: EX-5.1      Opinion of Mintz, Levin, Cohn, Ferris, Glovsky         2      9K 
 3: EX-10.1     License Agreement, M.I.T.                             19     46K 
 4: EX-10.11    Development and License Agreement, At&T Corp.        107    319K 
 5: EX-10.14    Software License and Professional Services Agrmnt.    64    258K 
 6: EX-10.15    Net2phone Letter of Intent                            12     41K 
 7: EX-23.1     Consent of Pricewaterhousecoopers Llp                  1      5K 


S-1/A   ˇ   Amendment No. 5 to Form S-1
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
"Stuart R. Patterson
5Prospectus Summary
"SpeechWorks
7The offering
10Risk Factors
19Forward-Looking Statements
20Use of Proceeds
"Dividend Policy
21Capitalization
23Dilution
25Selected Consolidated Financial Data
27Management's Discussion and Analysis of Financial Condition and Results of Operations
30Total revenue
39Business
48Recent Strategic Alliances
"At&T
57Management
61Change of Control Agreements
64Principal Stockholders
67Certain Transactions
68Registration Rights
69Description of Capital Stock
70Delaware Law and Certain Charter and By-law Provisions
71Shares Eligible for Future Sale
73Underwriting
75Legal Matters
"Experts
"Where You Can Find More Information
76Index to Financial Statements
77Report of Independent Accountants
78Pro forma
83Notes to Consolidated Financial Statements
"Cash and cash equivalents
100Item 13. Other Expenses of Issuance and Distribution
"Item 14. Indemnification of Directors and Officers
101Item 15. Recent Sales of Unregistered Securities
103Item 16. Exhibits and Financial Statement Schedules
104Item 17. Undertakings
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As filed with the Securities and Exchange Commission on July 31, 2000 Registration No. 333-35164 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- Amendment No. 5 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SPEECHWORKS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) ----------------- Delaware 8731 04-3239151 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification Number) Incorporation or Code Number) organization) SPEECHWORKS INTERNATIONAL, INC. 695 Atlantic Avenue Boston, Massachusetts 02111 (617) 428-4444 (Address, Including Zip Code, And Telephone Number, Including Area Code, Of Registrant's Principal Executive Offices) STUART R. PATTERSON Chief Executive Officer SpeechWorks International, Inc. 695 Atlantic Avenue Boston, Massachusetts 02111 (617) 428-4444 (Name, Address, Including Zip Code, And Telephone Number, Including Area Code, Of Agent For Service) Copies to: ----------------- Steven P. Rosenthal, Esq. John A. Burgess, Esq. Michael L. Fantozzi, Esq. William S. Gehrke, Esq. Mintz, Levin, Cohn, Ferris, Hale and Dorr LLP Glovsky and Popeo, P.C. 60 State Street One Financial Center Boston, MA 02109 Boston, MA 02111 (617) 526-6000 (617) 542-6000 Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ----------------- CALCULATION OF REGISTRATION FEE -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- [Enlarge/Download Table] Proposed Proposed Maximum Title of Each Class of Amount to be Maximum Offering Aggregate Amount of Securities to be Registered Registered(1) Price Per Unit Offering Price Registration Fee(2) --------------------------------------------------------------------------------------------------- Common Stock, par value $.001 per share....... 5,462,500 shares $19.00 $103,787,500 $27,400 --------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (1) Includes 712,500 shares that the underwriters have an option to purchase from SpeechWorks to cover over-allotments, if any. (2) In accordance with Rule 457(a) under the Securities Act of 1933 we are only paying an additional fee of $4,630 as $22,770 was previously paid on April 19, 2000. ----------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and we are not soliciting an offer to buy + +these securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED JULY 31, 2000 PROSPECTUS 4,750,000 Shares [SPEECHWORKS LOGO APPEARS HERE] Common Stock This is an initial public offering of common stock by SpeechWorks International, Inc. SpeechWorks is selling 4,750,000 shares of common stock. The estimated initial public offering price will be between $17.00 and $19.00 per share. ------------ Prior to this offering, there has been no public market for our common stock. Our common stock has been approved for quotation on the Nasdaq National Market under the symbol SPWX. ------------ [Download Table] Per Share Total --------- ----- Initial public offering price................................... $ $ Underwriting discounts and commissions.......................... $ $ Proceeds to SpeechWorks, before expenses........................ $ $ SpeechWorks has granted the underwriters an option for a period of 30 days to purchase up to 712,500 additional shares of common stock. ------------ Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 6. ------------ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. Chase H&Q J.P. Morgan & Co. U.S. Bancorp Piper Jaffray , 2000
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There will be a center graphic, which is a montage of images of people speaking on telephones. The tagline below the image states: SpeechWorks brings the web model of self-service to the telephone. The SpeechWorks logo will be below the tagline.
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TABLE OF CONTENTS [Download Table] Page ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 6 Forward-Looking Statements............................................... 15 Use of Proceeds.......................................................... 16 Dividend Policy.......................................................... 16 Capitalization........................................................... 17 Dilution................................................................. 19 Selected Consolidated Financial Data..................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 23 Business................................................................. 35 Management............................................................... 53 Principal Stockholders................................................... 60 Certain Transactions..................................................... 63 Description of Capital Stock............................................. 65 Shares Eligible for Future Sale.......................................... 67 Underwriting............................................................. 69 Legal Matters............................................................ 71 Experts.................................................................. 71 Where You Can Find More Information...................................... 71 Index to Financial Statements............................................ F-1
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PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including "Risk Factors" beginning on page 6 and our consolidated financial statements and related notes beginning on page F-1, before making an investment decision. SpeechWorks SpeechWorks is a leading provider of software products and professional services that enable enterprises and communications carriers to offer automated, speech-activated services over any telephone. With our speech recognition solutions, consumers can direct their own calls, obtain information and conduct transactions automatically, simply by speaking naturally over any telephone, anytime. Our solutions are designed to help businesses build sustainable customer relationships over the telephone, provide improved and cost-effective customer service systems, increase the returns on their internet-related investments and capitalize on a variety of new business opportunities. We currently offer two speech recognition solutions for over-the-telephone applications, the SpeechWorks 6 platform and our recently introduced SpeechSite package. SpeechWorks 6 is a comprehensive set of software tools and core speech recognition technologies that can be used to build state-of-the-art, speech- activated services. With our SpeechWorks 6 platform, companies can quickly design and deploy speech-activated applications, in multiple languages, that enable their customers to buy travel tickets, trade mutual funds, get health care referrals, update account records, send messages and conduct a myriad of other transactions that extend web-based e-business to any telephone. SpeechSite, which is based on the SpeechWorks 6 platform, is a packaged application that brings the web model of self-service to the telephone. SpeechSite answers and directs telephone calls and delivers company information. Like a website, SpeechSite can link to other services and deliver various types of information services to callers. However, SpeechSite uses a spoken interface rather than a visual browser. We complement our products with a professional services organization that offers a range of services including application development and project management. We have designed these services to shorten time-to-market, reduce project implementation risk and improve our clients' competitive position. We believe that our ability to successfully deliver an integrated solution to our clients that includes both software and professional services provides us with a significant competitive advantage. Enterprises are building speech-activated services with our products that will automate and enhance customer service by making it easier for customers to retrieve information and conduct transactions without waiting on hold or speaking to an agent. Examples of phrases that can be understood by applications enabled by our software are: "What is my checking account balance?" and "Buy 100 shares of General Electric at the market price." These services can improve the caller's experience and reduce the need for expensive customer service representatives. Communication carriers and their partners are building speech-activated services with our products that we believe have the potential to change the way people use the telephone for network services. Applications have been built, and enabled by our software, that can understand phrases such as "Call Mike Phillips at home," and "Forward this message to Bill O'Farrell." In addition, a new class of service providers, known as voice or speech portals, is using our software to build applications that can understand phrases such as: "What is the weather in Paris?" and "What was the score of the Red Sox game today?" These services can differentiate one carrier's service offering from another and increase the ability of carriers to attract and retain users. 1
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Since shipping our first products in 1996, we have received numerous awards for our product capabilities and our industry leadership, including Industry Week's Technology of the Year Award and Frost & Sullivan's Market Strategy Leadership Award. To date, we have licensed SpeechWorks software to more than 170 clients worldwide in a variety of industries including retail, financial services, pharmaceuticals, telecommunications, technology, distribution and travel. Our clients include Amtrak, Apple Computer, BellSouth IntelliVentures, CellularOne, Continental Airlines, DLJ Direct, E*TRADE, MapQuest.com, MCI WorldCom, McKessonHBOC, NetByTel.com, Nortel Networks, Quack.com, SingTel Mobile, United Airlines and Universal Electronics. Our goal is to become the leading global provider of speech-activated solutions. The key elements of our strategy are to: . maintain our leadership position in the market for speech-enabled business solutions, . extend our technology lead, . leverage our professional services capabilities to accelerate acceptance of our speech-activated solutions, . expand our international presence, . expand our sales channels to drive market penetration, and . build awareness of our brand. Recent Developments In June 2000, we entered into a development and license agreement with AT&T Corp. to develop and sell products that use AT&T speech technology. The technology includes AT&T's speech software and text-to-speech software, as well as other technology related to computer processing of the human voice. AT&T has agreed to assist us in marketing to AT&T business units the products and services that we develop. In return for these licenses and assistance, we issued 1,045,158 shares of common stock to AT&T. In June 2000, we entered into a software license, professional services and marketing agreement with America Online to enable America Online to develop voice portals to its online services. In connection with this agreement, America Online has agreed to purchase $5.0 million of our common stock in a private placement concurrent with this offering at a purchase price per share equal to the lesser of $12.46 and 89% of the price to the public in this offering. In addition, we have issued America Online warrants to purchase up to 765,422 shares of our common stock at an exercise price per share equal to the lesser of $12.46 and 89% of the price to the public in this offering. In June 2000, we entered into a letter of intent with Net2Phone under which we will grant a software license and provide professional services to Net2Phone and pursue joint marketing and promotional efforts. In connection with this letter of intent, Net2Phone has agreed to purchase $4.0 million of our common stock in a private placement concurrent with this offering at a purchase price per share equal to the lesser of $12.46 and 89% of the price to the public in this offering. ---------------- Our principal executive offices are located at 695 Atlantic Avenue, Boston, Massachusetts 02111. Our telephone number is 617-428-4444. Our primary web site is located at www.speechworks.com. The information contained on this web site is not a part of this prospectus. We were incorporated in Massachusetts in May 1994 and reincorporated in Delaware in August 1995. 2
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The Offering [Enlarge/Download Table] Common stock offered by SpeechWorks........ 4,750,000 shares Common stock to be outstanding after this offering.................................. 28,999,868 shares Use of proceeds............................ Primarily for general corporate purposes, including working capital, sales and marketing, research and development, capital expenditures and potential strategic acquisitions or investments. See "Use of Proceeds." Proposed Nasdaq National Market symbol..... SPWX The share amounts in the above table are based on shares outstanding as of June 20, 2000. The above table excludes: . 9,702,322 shares of common stock reserved for issuance under our stock option plans, of which 5,548,078 shares are issuable upon exercise of stock options outstanding as of June 20, 2000 with a weighted average exercise price of $2.88 per share, . 854,947 shares of common stock reserved for issuance upon the exercise of warrants outstanding as of June 20, 2000 with a weighted average exercise price of $2.35 per share, . 765,422 shares of common stock reserved for issuance upon the exercise of warrants issued to America Online on June 30, 2000 with an exercise price per share equal to the lesser of $12.46 and 89% of the price to the public in this offering, and . 200,000 shares of common stock reserved for issuance under our employee stock purchase plan. ------------------ Unless otherwise indicated, all information in this prospectus: . reflects the automatic conversion of all of our outstanding convertible preferred stock into 16,415,158 shares of common stock upon the closing of this offering, . reflects a three-for-two stock split of shares of our common stock effected on January 5, 2000, . reflects the issuance in private placements concurrent with this offering of 401,284 shares of common stock to America Online and 321,027 shares to Net2Phone based upon an assumed initial public offering price of $18.00 per share, the mid-point of the range set forth on the cover page of this prospectus, . assumes the filing of our restated certificate of incorporation and the adoption of our amended and restated bylaws, each as contemplated to be in effect as of the closing of this offering, and . assumes no exercise of the underwriters' over-allotment option. 3
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Summary Consolidated Financial Data The table below sets forth summary financial data for the periods indicated. It is important that you read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes for the years ended December 31, 1997, 1998 and 1999 and the three-month periods ended March 31, 1999 and 2000 beginning on page F-1. The pro forma basic and diluted net loss per common share reflects the assumed conversion of all outstanding convertible preferred stock into common stock upon completion of this offering as if such conversion occurred on January 1, 1999 or, if later, the date of original issue. [Download Table] Three Months Ended Year Ended December 31, March 31, -------------------------- -------------------- 1997 1998 1999 1999 2000 ------- ------- -------- --------- --------- (in thousands, except per share data) Consolidated Statement of Operations Data: Total revenue............... $ 2,042 $ 5,850 $ 14,011 $ 3,290 $ 5,087 Gross profit (excluding stock compensation of $139, $5 and $93 in 1999 and the three month periods ended March 31, 1999 and 2000, respectively).............. 1,220 2,926 5,880 1,068 3,198 Loss from operations........ (2,880) (5,979) (15,739) (2,475) (6,107) Net loss.................... (2,520) (5,760) (15,463) (2,460) (6,099) Net loss attributable to common stockholders........ (3,053) (6,549) (17,367) (2,703) (6,699) Basic and diluted net loss per common share........... $ (0.83) $ (1.44) $ (3.28) $ (0.57) $ (1.19) Shares used in computing basic and diluted net loss per common share........... 3,696 4,537 5,298 4,784 5,644 Pro forma basic and diluted net loss per common share.. $ (0.87) $ (0.31) Shares used in computing pro forma basic and net loss per common share........... 17,686 19,515 The pro forma balance sheet data give effect to: . the issuance of 2,544,681 shares of series E convertible preferred stock on April 11, 2000 for net proceeds of $19.9 million, . the issuance to AT&T of 1,045,158 shares of common stock on June 5, 2000, and . the automatic conversion upon the completion of this offering of all of our outstanding convertible preferred stock into a total of 16,415,158 shares of common stock. The pro forma as adjusted balance sheet data further adjusts the pro forma data to give effect to: . the sale by us in this offering of 4,750,000 shares of common stock at an assumed initial offering price of $18.00 per share, the mid-point of the range set forth on the cover page of this prospectus which, after deducting the underwriting discounts and commissions and estimated offering expenses, results in net proceeds to us of $77.8 million, . the issuance in private placements concurrent with this offering of 401,284 shares of common stock to America Online and 321,027 shares of common stock to Net2Phone based upon an assumed initial public offering price of $18.00 per share for aggregate proceeds of $9.0 million, and . the issuance to America Online of warrants to purchase 765,422 shares of common stock at an exercise price of $12.46 per share based upon an assumed initial public offering price of $18.00 per share. 4
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[Download Table] March 31, 2000 -------------------------- Pro Pro Forma As Actual Forma Adjusted ------- ------- -------- (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents........................... $ 5,029 $24,959 $111,770 Working capital..................................... 5,639 25,569 112,379 Total assets........................................ 17,346 48,773 135,584 Long-term debt, less current portion................ 667 667 667 Redeemable convertible preferred stock.............. 44,107 -- -- Accumulated deficit................................. (36,026) (41,217) (41,217) Total stockholders' equity (deficit)................ (34,432) 41,101 127,912 5
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RISK FACTORS You should consider carefully the risks described below and all other information contained in this prospectus before making an investment decision. If any of the following risks actually occur, our business could be adversely affected. In that event, the trading price of our common stock could decline, and you may lose part or all of your investment. Risks Related To Our Business We have a history of losses and we expect to continue to incur net losses for the forseeable future that may depress our stock price. We have accumulated losses of $36.0 million since our inception in May 1994 through March 31, 2000, and we expect to incur net losses for the foreseeable future. Net losses were $5.8 million for the year ended December 31, 1998, $15.5 million for the year ended December 31, 1999 and $6.1 million for the three-month period ended March 31, 2000. We anticipate continuing to incur significant sales and marketing, research and development and general and administrative expenses and, as a result, we will need to generate higher revenues to achieve and sustain profitability. We cannot be certain we will realize sufficient revenues to achieve profitability. Moreover, if we were to achieve profitability, we may not be able to sustain or increase our profitability on a quarterly or annual basis. Any additional financing that we may require in the future may not be available at all or, if available, may be on terms unfavorable to us. Failure to achieve or maintain profitability may depress the market price of our common stock, and any additional financing may dilute your ownership interest in SpeechWorks. We expect our quarterly revenues and operating results to fluctuate. If our quarterly operating results fail to meet the expectations of financial analysts and investors, the trading price of our common stock may decline. Our revenues and operating results are likely to vary significantly from quarter to quarter. A number of factors are likely to cause these variations, including: . the timing of sales of our products and services, particularly in light of our dependence on a relatively small number of large orders, . the timing of product implementations, particularly large client design projects, . unexpected delays in introducing new products and services, . increased expenses, whether related to sales and marketing, product development or administration, . deferral of recognition of our revenue in accordance with applicable accounting principles due to the time required to complete projects, . the mix of product license and services revenue, . the mix of domestic and international sales, and . costs related to possible acquisitions of technology or businesses. For example, in 1999 our quarterly revenues and operating results were affected by delays in several large orders and services projects and the timing of orders for resold hardware and facilities management services, which are provided only on an as-requested basis, and accordingly are relatively difficult to predict. 6
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Because of the volatility of our quarterly results and the difficulty in predicting our future performance, our operating results may fall below the expectations of analysts or investors and, as a result, the price of our common stock may decline. Speech-activated systems are relatively new products, and our success will depend on our ability to educate prospective clients on the commercial viability of the products. If speech-activated systems are not accepted by our potential clients and their customers, our business will be harmed. Our business would be harmed if use of speech-activated e-business solutions does not continue to develop, or develops more slowly than we expect. Our market is relatively new and rapidly evolving. Our future success depends on the acceptance by current and future clients and their customers of speech- activated services as an integral part of their businesses. The size of our market will depend in part on consumer acceptance of automated speech systems and the actual and perceived quality of these systems. The adoption of speech- activated services could be hindered by the perceived costs of this new technology, as well as the reluctance of enterprises that have invested substantial resources in existing call centers, touch-tone-based systems or internet-based e-business infrastructures to replace or enhance their current systems with this new technology. Accordingly, in order to achieve commercial acceptance, we will have to educate prospective clients, including large, established telecommunications companies, about the uses and benefits of speech-activated services in general and our products in particular. If these efforts fail, or if speech-activated software platforms do not achieve broad commercial acceptance, our business could be significantly harmed and our revenues could decline. In addition, the continued development of new and evolving wireless technologies using a visual web browser interface could adversely affect the demand for speech-activated services. We currently rely on a limited number of large orders for substantially all of our revenues. As a result, our inability to secure additional significant clients during a given period or the loss of one major client could cause our quarterly results of operation to suffer. Our stock price may also be adversely affected by unexpected quarterly revenue declines caused by delays in revenue recognition. Due to the nature of our business, in any quarter we are dependent upon a limited number of orders that are relatively large in relation to our overall revenues. Our speech-activated products and services require significant expenditures by our clients and typically involve lengthy sales cycles. We may spend significant time and incur substantial expenses educating and providing information to prospective clients. Any failure to complete a sale to a prospective client during a quarter could result in revenues and operating results for the quarter that are lower than expected. In addition, as a result of the significant time required to deliver or perform a client order, we may be unable to recognize revenue related to a client order until well after we receive the order. Our dependence on large client orders and the delay in recognizing revenue relating to these orders make it difficult to forecast quarterly operating results. This could cause our stock price to be volatile or to decline. If we fail to develop new products and services in the face of our industry's rapidly evolving technology, our future operating results may be adversely affected. Our growth and future operating results will depend, in part, on our ability to keep pace with: . rapidly changing speech recognition technology, . evolving industry standards and practices, . frequent new speech-activated service and product introductions and enhancements, and . changing client requirements and preferences for their automated speech systems. 7
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Any delay or failure on our part in responding quickly, cost-effectively and sufficiently to these developments could render our existing speech- activated products and services obsolete and have an adverse effect on our competitive position. We may have to incur substantial expenditures to modify or adapt our speech-activated products and services to respond to technological changes. We must stay abreast of cutting-edge technological developments and evolving service offerings to remain competitive and increase the utility of our speech-activated services. We must be able to incorporate new technologies into the speech-activated e-business solutions we design and develop to address the increasingly complex and varied needs of our client base. If we are unable, for technological or other reasons, to develop and introduce new and enhanced products and to respond to changing client requirements and preferences in a timely manner, we may lose existing customers and fail to attract new customers, which could result in a significant decline in our revenues. Our application software may contain defects, which could result in delayed or lost revenue, expensive corrections, liability to our clients and claims against us. We design, develop and implement complex speech-activated e-business solutions that are crucial to the operation of our clients' businesses. Defects in the solutions we develop could result in delayed or lost revenue, adverse client reaction and negative publicity about us or our products and services or require expensive corrections. Also, due to the developing nature of speech recognition technology, speech-recognition products are not currently and may never be accurate in every instance. In addition, third party technology that is included in our products could contain errors or defects. Clients who are not satisfied with our products or services could bring claims against us for substantial damages, which, even if unsuccessful, would likely be time consuming and could result in costly litigation and payment of damages. Such claims could have an adverse effect on our financial results and competitive position. Our current and potential competitors in the speech-activated e-business solutions market, some of whom have greater resources and experience than we do, may offer products and services that may cause demand for, and the prices of, our products to decline. A number of companies have developed, or are expected to develop, products and services that compete with our speech-activated e-business solutions. Competitors in the speech-activated e-business solutions market include IBM, Lernout and Hauspie Speech Products, Locus Dialogue, Lucent Technologies, Nuance Communications, Philips Electronics and Phonetic Systems. We expect additional competition from other companies such as Microsoft, which recently acquired a voice interface technology company. Furthermore, we expect consolidation in our industry, and other companies may enter our markets by acquiring or entering into strategic relationships with our competitors. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the abilities of their advanced speech and language technology products to address the needs of our prospective customers. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition or larger client bases than we do. Our present or future competitors may be able to develop speech-activated products and services comparable or superior to those we offer, adapt more quickly than we do to new technologies, evolving industry trends and standards or client requirements, or devote greater resources to the development, promotion and sale of their products and services than we do. Accordingly, we may not be able to compete effectively in our markets, competition may intensify and future competition may cause demand for and the prices of our products to decline, which could adversely affect our sales and profitability. 8
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If the standards we have selected to support are not adopted as the standards for speech-activated software, businesses might not use our speech-activated software platform for delivery of applications and services, and our revenue growth could be negatively affected. The market for speech-activated services software is new and emerging and industry software standards have not yet been established. We may not be competitive unless our products support changing industry software standards. The emergence of industry standards other than those we have selected to support, whether through adoption by official standards committees or widespread usage, could require costly and time consuming redesign of our products. If these standards become widespread and our products do not support them, our clients and potential clients may not purchase our products, and our revenue growth could be adversely affected. Multiple standards in the marketplace could also make it difficult for us to design our products to support all applicable standards, which could also result in decreased sales of our products. We have and intend to continue expanding our international operations. Because of the risks involved with operating a business in foreign countries, we may not be successful and our business could be harmed. Our international sales represented 2.6% of our revenue in 1999 and 13.8% in the first quarter of 2000. We have recently expanded our direct and indirect international sales force with the expectation of increasing international revenues. We have limited experience in international operations and international product and service sales, and there can be no assurance we will be successful in growing our international business. We are subject to a variety of risks associated with conducting business internationally, any of which could harm our business. These risks include: . difficulties and costs of staffing and managing foreign operations, . difficulties in establishing and maintaining an effective international reseller network, . the burden of complying with a wide variety of foreign laws, particularly with respect to intellectual property and license requirements, . political and economic instability outside the United States, . import or export licensing and product certification requirements, . tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries, . potential adverse tax consequences, including higher marginal rates, . unfavorable fluctuations in currency exchange rates, and . limited ability to enforce agreements, intellectual property rights and other rights in some foreign countries. In order to increase our international sales, we must develop localized versions of our products. If we are unable to do so, we may be unable to grow our revenue and execute our business strategy. In order to expand our international sales, we intend to invest significant resources to create and refine different speech recognition models for each particular language or dialect. These speech recognition models are required to create versions of our products that understand the local language or dialect. If we fail to develop localized versions of our products, our ability to address international market opportunities and to grow our business will be limited. In addition, we are required to invest resources to develop these versions of our products in advance of the receipt of revenues. We may be unable to recognize revenues sufficient to render these products profitable. 9
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Growth in our operation may strain our resources, management information systems and controls, which may reduce our chances of achieving profitability. We have recently experienced significant growth. From December 31, 1998 to June 20, 2000, our number of employees increased from 86 to 246. We intend to continue to expand our business operations significantly in the future. We will need to expand our management, operational, financial and human resources, as well as management information systems and controls, to support our anticipated future growth. If we are successful, this growth will place a strain on the ability of our management team to execute our business plan. In addition, we will be required to make significant investments in personnel, management systems and resources. The expansion of these systems will place a significant burden on our management team and our information technology staff, and these systems may not be effective once implemented. Our status as a public company will also place significant additional administrative burdens on our management team. If we do not manage this growth, our business will suffer. We rely on our intellectual property rights, and if we are unable to protect these rights, we may face increased competition. Protection of our intellectual property rights is uncertain and may be costly. Intellectual property rights are important in our industry. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality, assignment of rights to inventions, and/or license agreements with our employees, consultants and corporate or strategic partners to protect our intellectual property rights. These legal protections afford only limited protection and may be time-consuming and expensive to obtain and maintain. Further, despite our efforts, we may be unable to prevent third parties from unauthorized use of our intellectual property. Monitoring unauthorized use of our intellectual property is difficult, and we cannot be certain that the steps we have taken will be effective to prevent unauthorized use. Litigation may be necessary to enforce our intellectual property rights and trade secrets. These lawsuits, regardless of their success, would likely be time consuming and expensive to resolve and would divert management's time and attention away from our business. We may expend significant resources to defend against claims of infringement by third parties, and if we are not successful we may lose significant rights or be required to enter into disadvantageous license or royalty arrangements. Currently, in the software industry there are frequent assertions of patent infringement by owners of patents, and assertions of other violations of intellectual property rights such as trademarks, copyrights, and trade secrets. In addition, there are a large number of patents in the speech recognition area. Although we do not believe that we are infringing on any patent rights, the holders of patents may claim that we are doing so. If any claim was made against us, our business could be harmed, particularly if we are unsuccessful in defending such claim. If we are forced to defend any claim, whether it is with or without merit or is determined in our favor, then we may face costly litigation, diversion of technical and management personnel, delays in future product releases or injunctions preventing us from selling our products and services. We may also be required to enter into costly and burdensome royalty and licensing agreements. Any royalty or licensing agreements, if required, may not be available on terms acceptable to us, or at all. Our products incorporate technology we license from others. Our inability to maintain these licenses could have a material adverse effect on our business. Some of the technology included in or operating in conjunction with our products is licensed by us from others. Certain of these license agreements are for limited terms. If for any reason these license agreements terminate, we may be required to seek alternative vendors and may be unable to obtain similar 10
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technology on favorable terms or at all. If we are unable to obtain alternative license agreements, we could be required to modify some features of our products, which could adversely affect sales of our products and services. We rely on resellers and original equipment manufacturers for a portion of our sales. The loss of one or more significant resellers or original equipment manufacturers could limit our ability to sustain and grow our revenues. In 1999, 14.8% of our sales were attributable to our resellers and original equipment manufacturers, or OEMs, especially InterVoice-BRITE which accounted for 10.9% of our sales in 1999. We intend to increase our sales through resellers in the future. As a result, we are in part dependent upon the continued success and viability of our resellers and OEMs, as well as their continued interest in selling our products. The loss of a key reseller or OEM or our failure to develop and sustain new reseller and OEM relationships could limit our ability to sustain and grow our revenues. Our contracts with our resellers and OEMs generally do not require them to purchase our products. Our resellers and OEMs are independent companies over which we have limited control. Our resellers and OEMs could cease to market our products or devote significant resources to the sale of our products. Any failure of our resellers or OEMs to successfully market and sell our products could result in revenues that are lower than anticipated. In addition, our resellers and OEMs possess confidential information concerning our products and operations. Although we have nondisclosure agreements with our resellers and OEMs, a reseller or OEM could use our confidential information in competition with us, which could adversely affect our competitive position and revenues. We rely upon the continued service and performance of a relatively small number of senior management and key technical personnel. Moreover, competition for qualified personnel is intense. We may not be able to retain or recruit necessary personnel, which could impact the management and development of our business. Our future success depends on our retention of a small number of senior management and key technical personnel, such as Stuart R. Patterson, our President and Chief Executive Officer, and Michael S. Phillips, our Chief Technology Officer and co-founder. We do not have key person life insurance policies covering any of our employees. The loss of services of any of our executive officers or key personnel could have a negative effect on our ability to grow. We need to attract and retain managerial and highly-skilled technical personnel for whom there is intense competition. If we are unable to attract and retain managerial and qualified technical personnel, our results of operations could suffer and we may never achieve profitability. Our business will be harmed if we fail to hire or retain qualified sales personnel, or if newly hired salespeople fail to develop the necessary sales skills or develop these skills more slowly than we anticipate. Our financial success depends to a large degree on the ability of our direct sales force to increase sales. Therefore, our ability to increase revenue in the future depends considerably upon our success in recruiting, training and retaining additional direct sales personnel and the success of the direct sales force. Also, it may take a new salesperson a number of months before he or she becomes a productive member of our direct sales force. 11
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Risks Related To This Offering Our share price is likely to be highly volatile because shares of our common stock have not been publicly traded before, and this volatility may depress our stock price and negatively impact your investment. Following this offering, the price for our common stock could be highly volatile and subject to wide fluctuations in response to the following factors: . quarterly variations in our operating results due to prolonged sales cycles, project delays and deviations between actual and expected sales, . announcements of technical innovations, new products or services by us or our competitors, . changes in investor perception of us or the market for our products and services, . changes in financial estimates by securities analysts, and . changes in general economic and market conditions. The stocks of many technology companies have experienced significant fluctuations in trading price and volume. This fluctuation may reduce the price of our common stock, without regard or in a manner that is disproportionate to our operating performance. Investors may have difficulty reselling their shares of our common stock following a period of fluctuation because of the market's adverse reaction to such fluctuation. Declines in the market price of our common stock could also adversely affect employee morale and retention, our access to capital and other aspects of our business. If our share price is volatile, we may become subject to securities litigation, which is expensive and could divert our resources. In the past, following periods of market volatility in the price of a company's securities, security holders have instituted class action litigation. Many companies in the software industry have been subject to this type of litigation. If the market value of our common stock experiences adverse fluctuations and we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs and our management's attention could be diverted. This could cause our business and financial results to suffer. No public market has existed for our common stock and an active trading market may not develop or be sustained. Before this offering, there has been no public market for our common stock. We cannot assure you that an active trading market will develop or be sustained after this offering. You may not be able to resell your common stock at or above the initial public offering price. The initial public offering price will be determined through negotiations between the underwriters and us and may not be indicative of the market price for our common stock after this offering. The sale of a substantial number of shares of our common stock after this offering may cause the price of our common stock to decline. The market price of our common stock could decline as a result of sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, in the public market after the closing of this offering. The market price could also decline as a result of the perception that substantial sales could occur. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. 12
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After this offering and the concurrent issuance in private placements of 401,284 shares of common stock to America Online and 321,027 shares of common stock to Net2Phone based upon as assumed initial public offering price of $18.00 per share, the mid-point of the range set forth on the cover page of this prospectus, we will have 28,999,868 shares of common stock outstanding. The shares of common stock outstanding upon the completion of this offering will be available for sale in the public market as follows: [Enlarge/Download Table] pproximateA Number of Shares Description ----------- ----------- 4,710,492 After the date of this prospectus, freely tradable shares sold in this offering, and shares freely saleable under Rule 144(k) that are not subject to the 180-day lock-up. 43,492 After 90 days from the date of the prospectus, shares saleable under Rule 144 and not subject to the 180-day lock-up. 18,295,118 After 180 days from the date of this prospectus, the 180-day lock-up is released and these shares are saleable under Rule 144, subject in some cases to volume limitations or Rule 144(k). 5,950,766 At various times after 180 days from the date of this prospectus, restricted shares that will become saleable under Rule 144 upon being held for one year. America Online, AT&T, Net2Phone, holders of our convertible preferred stock and some of our warrantholders have registration rights for the shares of common stock currently owned or to be issued to them. These registration rights could result in sales of a significant number of shares, which could adversely affect the trading price of our common stock. The net tangible book value of our common stock will be less than the initial public offering price paid by investors, and we have a large number of outstanding options and warrants to purchase common stock with exercise prices below the initial public offering price. Therefore, you will incur immediate and substantial dilution in the book value of your investment and may incur further dilution. If you purchase shares of common stock in this offering, you will experience immediate and substantial dilution of $13.96 in pro forma net tangible book value per share based on our book value as of March 31, 2000 and an assumed initial public offering price of $18.00 per share. We also have a large number of stock options and warrants to purchase common stock outstanding with exercise prices significantly below the initial public offering price of the common stock. To the extent these options and warrants are exercised, there will be further dilution. We intend to continue to grant stock options to our employees as part of our general compensation practices. Our executive officers, directors and principal stockholders own a significant percentage of our common stock and may make decisions that you do not consider to be in your best interest. Immediately after this offering, our executive officers, directors and principal stockholders will, in the aggregate, hold approximately 34.4% of our outstanding common stock. Accordingly, these stockholders will be able to control us through their ability to determine the outcome of the election of our directors, amend our certificate of incorporation and bylaws and take other actions requiring the vote or consent of stockholders, including mergers, going private transactions and other extraordinary transactions and the terms of any of these transactions. The ownership position of these stockholders may have the effect of delaying, deterring or preventing a change in control or a change in the composition of our board of directors. 13
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Anti-takeover provisions and our right to issue preferred stock could delay or prevent a third party acquisition of us, which could depress our stock price. Provisions of our charter and bylaws may make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of us. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include: . the division of the board of directors into three separate classes, . prohibitions on our stockholders from acting by written consent and calling special meetings, . procedures for advance notification of stockholder nominations and proposals, and . the ability of the board of directors to alter our bylaws without stockholder approval. Also, upon completion of this offering, we will be subject to the antitakeover provisions of the Delaware General Corporation Law, including Section 203, which may deter potential acquisition bids for our company. In addition, our board of directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The issuance of preferred stock, while providing flexibility in connection with possible financings or acquisitions or for other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. We may apply the proceeds from this offering to uses that do not increase our profits or market value. We have significant flexibility in applying the proceeds we receive in this offering. Our management has broad discretion as to how to spend the proceeds from this offering and may spend these proceeds in ways with which our stockholders may not agree. Our management has not determined how the offering proceeds will be allocated among various uses. Accordingly, the net proceeds may be used for corporate purposes that do not increase our profitability or our market value. We do not intend to pay dividends on our common stock. We currently intend to retain any future earnings for funding growth and do not anticipate paying any dividends in the foreseeable future. Therefore, you will need to sell your shares of common stock in order to realize a return on your investment, if any. Our credit facility currently prohibits the payment of cash dividends on our capital stock. 14
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FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and variations of these words and similar expressions, are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ significantly from those expressed, implied or forecasted in the forward-looking statements. These risks and uncertainties include, among others, those described in "Risk Factors" and elsewhere in this prospectus. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus. ------------------ SpeechWorks is a registered trademark, and SpeechSite, SpeechWorks Here, DialogModules, SMARTRecognizer, SpeechCare, SpeechSpot and the SpeechWorks logo are trademarks of SpeechWorks International, Inc. This prospectus also contains other trademarks, tradenames and service marks of other companies, which are the property of their respective owners. 15
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USE OF PROCEEDS We estimate that we will receive net proceeds of $77.8 million from the sale of the shares of common stock in this offering, assuming an initial public offering price of $18.00 per share, which is the mid-point of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be $89.7 million. We currently estimate that we will use the net proceeds of this offering as follows: . 15% for research and development, . 35% for sales and marketing, . 10% for capital expenditures, and . 40% for working capital, and other general corporate purposes. The amounts and timing of our actual expenditures will depend on numerous factors, including market acceptance of our speech-activated e-business solutions and services, the amount of cash generated by our operations and products and services introduced by competitors. We may also use a portion of the net proceeds to acquire or invest in businesses or technologies that are complementary to our business. However, we have not targeted any particular technology or business for acquisition. We have no current agreements or commitments nor are we negotiating with any other party with respect to any acquisitions or investments. Our management will have broad discretion concerning the use of the net proceeds of the offering. Pending these uses, we intend to invest the net proceeds of this offering in investment-grade, interest-bearing securities. We believe that the net proceeds of this offering and the concurrent private placements, together with existing cash and cash equivalents, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. DIVIDEND POLICY We have not paid any cash dividends in the past and do not intend to pay cash dividends on our common stock for the foreseeable future. Instead, we intend to retain all earnings for use in the operation and expansion of our business. Our credit facility currently prohibits the payment of cash dividends on our capital stock. 16
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CAPITALIZATION The following table sets forth our capitalization as of March 31, 2000: . on an actual basis, . on a pro forma basis to give effect to the issuance of 2,544,681 shares of our series E convertible preferred stock on April 11, 2000 for net proceeds of $19.9 million, the issuance to AT&T of 1,045,158 shares of common stock on June 5, 2000, the automatic conversion upon completion of this offering of all of our outstanding convertible preferred stock into a total of 16,415,158 shares of common stock, and the filing of our restated certificate of incorporation in connection with the effectiveness of this offering increasing our authorized shares of common stock to 100,000,000 and preferred stock to 10,000,000, and . on a pro forma as adjusted basis to further adjust the pro forma information to give effect to the sale by us in this offering of 4,750,000 shares of common stock at an assumed initial public offering price of $18.00 per share, the mid-point of the range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses, the issuance in private placements concurrent with this offering of 401,284 shares of common stock to America Online and 321,027 shares of common stock to Net2Phone based upon an assumed initial public offering price of $18.00 per share and the issuance to America Online of warrants to purchase 765,422 shares of common stock at an exercise price of $12.46 per share based upon an assumed initial public offering price of $18.00 per share, and the application of the net proceeds from this offering and the concurrent private placements. The following capitalization table excludes: . 9,881,236 shares of common stock reserved for issuance under our stock option plans, of which 4,696,769 shares were subject to outstanding options at March 31, 2000 with a weighted average exercise price of $1.73 per share, . 1,030,223 shares of common stock, net of cancellations, subject to stock options granted after March 31, 2000 and through June 20, 2000 with a weighted average exercise price of $7.79, . 807,237 shares of common stock reserved for issuance upon the exercise of warrants outstanding as of March 31, 2000 with a weighted average exercise price of $2.02 per share, . 813,132 shares of common stock reserved for issuance upon the exercise of warrants issued after March 31, 2000 and through June 30, 2000 with a weighted average exercise price of $12.19 per share, and . 200,000 shares of common stock reserved for issuance under our employee stock purchase plan. This information should be read in conjunction with our consolidated financial statements and the related notes to those statements included in this prospectus. 17
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[Download Table] March 31, 2000 ----------------------------------------- Pro Forma Actual Pro Forma As Adjusted ----------- ----------- --------------- (in thousands, except share amounts) Cash and cash equivalents............. $ 5,029 $24,959 $ 111,770 =========== =========== ============ Current portion of notes payable and capital lease obligations............ $ 593 $ 593 $ 593 =========== =========== ============ Notes payable, net of current portion.............................. $ 667 $ 667 $ 667 ----------- ----------- ------------ Redeemable convertible preferred stock, $0.001 par value: Series E; no shares authorized, issued and outstanding--actual, pro forma and pro forma as adjusted.... -- -- -- Series D; 2,800,000 shares authorized, 2,671,389 shares issued and outstanding--actual; no shares authorized, issued and outstanding--pro forma and pro forma as adjusted.................. 25,118 -- -- Series C; 1,626,092 shares authorized, issued and outstanding--actual; no shares authorized, issued and outstanding--pro forma and pro forma as adjusted.................. 7,664 -- -- Series B; 2,474,500 shares authorized, issued and outstanding--actual; no shares authorized, issued and outstanding--pro forma and pro forma as adjusted.................. 8,175 -- -- Series A; 2,475,000 shares authorized, issued and outstanding--actual; no shares authorized, issued and outstanding--pro forma and pro forma as adjusted.................. 3,150 -- -- ----------- ----------- ------------ Total redeemable convertible preferred stock................................ 44,107 -- -- ----------- ----------- ------------ Stockholders equity (deficit): Preferred stock, $0.001 par value; no shares authorized, issued or outstanding--actual; 10,000,000 shares authorized, no shares issued and outstanding--pro forma and pro forma as adjusted.................... -- -- -- Common stock, $0.001 par value; 22,000,000, 100,000,000 and 100,000,000 shares authorized-- actual, pro forma and pro forma as adjusted, respectively; 5,888,327, 23,348,643 and 28,820,954 shares issued and outstanding--actual, pro forma and pro forma as adjusted, respectively......................... 6 23 29 Additional paid-in capital............ 7,172 87,879 188,545 Deferred stock compensation........... (5,584) (5,584) (19,445) Accumulated deficit................... (36,026) (41,217) (41,217) ----------- ----------- ------------ Total stockholders' equity (deficit).. (34,432) 41,101 127,912 ----------- ----------- ------------ Total capitalization.................. $ 10,342 $ 41,768 $ 128,579 =========== =========== ============ 18
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DILUTION Our pro forma net tangible book value as of March 31, 2000 was $29.6 million, or $1.27 per share of common stock. Pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of outstanding shares of common stock, after giving effect to: . the sale of our series E convertible preferred stock in April 2000, . the issuance of 1,045,158 shares of common stock to AT&T in June 2000, and . the automatic conversion of all of our convertible preferred stock into common stock upon the completion of this offering. After giving effect to this offering and the receipt of $77.8 million of estimated net proceeds from this offering based upon an assumed offering price of $18.00 per share, the mid-point of the range set forth on the cover page of this prospectus, and the receipt of $9.0 million from the concurrent private placements of common stock to America Online and Net2Phone, our pro forma net tangible book value as of March 31, 2000 would have been $116.4 million, or $4.04 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $2.77 per share to our existing stockholders, and an immediate dilution in pro forma net tangible book value of $13.96 per share to new investors purchasing shares in this offering. The share amounts in the tables below are based on shares outstanding as of March 31, 2000 and exclude: . 9,881,236 shares of common stock reserved for issuance under our stock option plans, of which 4,696,769 shares were subject to outstanding options at March 31, 2000 with a weighted average exercise price of $1.73 per share, . 1,030,223 shares of common stock, net of cancellations, subject to stock options granted after March 31, 2000 and through June 20, 2000 with a weighted average exercise price of $7.79, . 807,237 shares of common stock reserved for issuance upon the exercise of warrants outstanding as of March 31, 2000 with a weighted average exercise price of $2.02 per share, . 813,132 shares of common stock reserved for issuance upon the exercise of warrants issued after March 31, 2000 and through June 30, 2000 with a weighted average exercise price of $12.19 per share, and . 200,000 shares of common stock reserved for issuance under our employee stock purchase plan. The following table illustrates the per share dilution: [Download Table] Assumed initial public offering price per share.............. $18.00 Pro forma net tangible book value per share as of March 31, 2000...................................................... $1.27 Increase attributable to concurrent private placements..... 0.33 Increase attributable to new investors in this offering.... 2.44 ----- Pro forma net tangible book value per share after this offer- ing 4.04 ------ Dilution per share to new investors.......................... $13.96 ====== If the underwriters exercise their option to purchase additional shares in the offering, the pro forma net tangible book value per share would be $4.35 per share, the increase in pro forma net tangible book value per share to existing stockholders would be $3.08 per share and the dilution to new investors purchasing shares in this offering would be $13.65 per share. 19
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The following table summarizes as of March 31, 2000, on the pro forma basis described above, the total number of shares of common stock purchased from us, the total consideration paid to us and the average consideration paid per share by existing stockholders, including for this purpose the investors purchasing shares in the private placements concurrent with this offering, and by new investors purchasing shares in this offering before deducting estimated underwriting discounts and commissions and related offering expenses: [Download Table] Shares Purchased Total Consideration Average ------------------ -------------------- Price Per Number Percent Amount Percent Share ---------- ------- ------------ ------- --------- Existing stockholders... 23,348,643 81% $ 72,210,251 43% $ 3.09 Concurrent private placements to new investors.............. 722,311 3 9,000,000 6 12.46 New investors........... 4,750,000 16 85,500,000 51 18.00 ---------- --- ------------ --- Total................. 28,820,954 100% $166,710,251 100% ========== === ============ === 20
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SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1997, 1998 and 1999 and the consolidated balance sheet data as of December 31, 1998 and 1999 have been derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1995 and 1996 and the consolidated balance sheet data as of December 31, 1995, 1996 and 1997 are derived from our audited consolidated financial statements not included in this prospectus. The consolidated statement of operations data for the three months ended March 31, 1999 and 2000 and the consolidated balance sheet data as of March 31, 2000 are derived from unaudited consolidated financial statements included elsewhere in this prospectus. The results for these interim periods are not necessarily indicative of the results for the entire year. There is no difference between historical basic and diluted net loss per common share since potential shares of common stock from the conversion of preferred stock and the exercise of options and warrants are anti-dilutive for all periods presented. The pro forma basic and diluted net loss into per common share reflects the automatic conversion of all our outstanding convertible preferred stock into common stock upon completion of this offering as if converted on January 1, 1999 or, if later, the date of original issue. 21
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[Enlarge/Download Table] Three Months Years Ended December 31, Ended March 31, ------------------------------------------- ---------------- 1995 1996 1997 1998 1999 1999 2000 ------ ------- ------- ------- -------- ------- ------- (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue: Product license......... $ 325 $ 542 $ 949 $ 1,567 $ 3,680 $ 341 $ 2,607 Professional services... 65 172 982 2,873 5,944 1,099 2,158 Other revenue........... 13 137 111 1,410 4,387 1,850 322