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
As filed with the Securities and Exchange Commission on July 31, 2000
Registration No. 333-35164
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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)
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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:
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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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)
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Common Stock, par value
$.001 per share....... 5,462,500 shares $19.00 $103,787,500 $27,400
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(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.
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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.
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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.
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Per Share Total
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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.
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Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 6.
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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
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.
TABLE OF CONTENTS
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Page
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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
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
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.
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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
The Offering
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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.
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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
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.
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Three Months Ended
Year Ended December 31, March 31,
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1997 1998 1999 1999 2000
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(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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March 31, 2000
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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
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
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
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
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
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
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
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
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
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
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
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
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
[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
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
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
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
[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
