1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VOICETEK CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 3661 04-2752861
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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19 ALPHA ROAD
CHELMSFORD, MA 01824
(508) 250-9393
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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SHELDON L. DINKES
Chief Executive Officer
VOICETEK CORPORATION
19 Alpha Road
Chelmsford, MA 01824
(508) 250-9393
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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ANTHONY J. MEDAGLIA, JR., ESQUIRE PHILIP P. ROSSETTI, ESQUIRE
HUTCHINS, WHEELER & DITTMAR HALE AND DORR LLP
A Professional Corporation 60 State Street
101 Federal Street Boston, Massachusetts 02109
Boston, Massachusetts 02110 (617) 526-6000
(617) 951-6600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 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 number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
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Common Stock, $.01 par
value
per share................ 2,875,000 shares $12.00 $34,500,000 $10,455
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(1) Includes an aggregate of 375,000 shares which the Underwriters have the
option to purchase from the Selling Stockholders solely to cover
over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
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 SAID SECTION 8(A), MAY DETERMINE.
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VOICETEK CORPORATION
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501 OF REGULATION S-K SHOWING THE LOCATION IN
THE PROSPECTUS OF THE RESPONSES TO THE ITEMS IN PART I OF THE FORM S-1)
ITEM NUMBER AND HEADING ON FORM S-1 LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front Cover and Outside Back Cover
Pages of Prospectus....................... Inside Front Cover and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.................................. Risk Factors; Dilution
7. Selling Security Holders.................. Principal and Selling Stockholders
8. Plan of Distribution...................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered................................ Capitalization; Description of Capital Stock
10. Interests of Named Experts and Counsel.... Not Applicable
11. Information with Respect to the
Registrant................................ Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 1997
2,500,000 SHARES
LOGO
COMMON STOCK
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Of the 2,500,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Voicetek Corporation ("Voicetek" or the "Company") and 500,000
shares are being sold by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $10.00 and $12.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied for quotation of the Common Stock on the Nasdaq National
Market under the symbol "VCTK."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting offering expenses payable by the Company, estimated at
$750,000.
(3) The Selling Stockholders have granted an option to the Underwriters
exercisable within 30 days of the date hereof, to purchase up to 375,000
additional shares of Common Stock solely for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discount and Proceeds to Selling
Stockholders will be $ , $ and $ , respectively. See
"Underwriting."
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The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares of Common Stock will be made against payment on or about ,
1997, at the office of Oppenheimer & Co., Inc., Oppenheimer Tower, World
Financial Center, New York, New York 10281.
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OPPENHEIMER & CO., INC. FIRST ALBANY CORPORATION
The date of this Prospectus is , 1997
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[ARTWORK DEPICTING:
1. Various phrases referencing certain aspects of telecommunications
services;
2. Four photographs depicting people using telecommunications devices;
3. "Interactive communications for Business and its Customers. Voicetek
develops, markets and supports interactive communications systems. The
Company's products enable telecommunications service providers to
rapidly deploy value added services and commercial organizations to
extend the automation of information access, improve service, lower
operating costs and differentiate their service offerings to their
customers."
4. The Voicetek logo
5. Nine photographs depicting people using business solutions and network
services with telecommunications devices, and corporate enterprise
communications systems.
6. Schematic diagram representing the Company's interactive communications
system.
7. "Generations provides the software development tools and deployment
platform which permit rapid deployment, prototyping and development of
interactive communications applications in AIN, corporate enterprise and
call center environments. Interactive communications systems, integrated
with the AIN, have given Telcos the ability to deploy new product and
service offerings which leverage their installed customer and network
infrastructure base. Interactive communications systems are increasingly
being employed by organizations to provide broad, convenient and
efficient access to their enterprise information while helping to
differentiate their products and services and reduce costs."]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Generations(R) and VTK(R) are registered trademarks of the Company, and the
Voicetek logo is a trademark of the Company. This prospectus contains other
product names and trade names and trademarks of the Company and of other
organizations.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. Unless otherwise indicated, or the context otherwise
requires, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option, (ii) reflects the two-for-three stock split
of the Common Stock to be effected on March , 1997 and (iii) assumes the
conversion in full of the Company's outstanding Preferred Stock into shares of
Common Stock immediately prior to the consummation of this offering.
Voicetek Corporation ("Voicetek" or the "Company") develops, markets and
supports interactive communications systems. The Company's products enable
telecommunication service providers ("Telcos") to rapidly deploy value added
services and commercial organizations to extend the automation of information
access, improve service, lower operating costs and differentiate their service
offerings to their customers. The Company's Generations(R) software is a
scalable, client server platform which is open and fault resilient and provides
customers, employees and business partners with access to information, products
and services by using a variety of methods, including telephone, fax, electronic
mail, paging and Web browsers. Generations permits rapid development and
deployment of interactive communications applications for use in wireless and
wireline environments, Advanced Intelligent Networks ("AIN") and corporate
enterprise and call center environments. The Company integrates Generations with
its VTK family of telephony servers, or third-party servers, to support medium
to large-scale system deployments. Voicetek also provides consulting, training
and maintenance services for application development and on-going support of the
Company's products.
Interactive communications systems are increasingly being employed by
organizations to provide broad, convenient and efficient access to their
enterprise information while helping to differentiate their products and
services and reduce costs. At the same time, Telcos are facing a more
competitive and dynamic marketplace. New interactive communications systems
integrated with the AIN have given Telcos the ability to deploy new product and
service offerings which leverage their installed customer and network base. To
effectively provide automated access to an organization's broad information
infrastructure and maximize revenue generating potential, interactive
communications systems must (i) be scalable to support large volumes of
inquiries (both voice and data), (ii) be open to permit integration with a wide
variety of telephony and computing technologies, (iii) employ a wide range of
access methods and (iv) be flexible to adapt to the needs of the enterprise.
Voicetek employs a strategy of leveraged selling primarily through original
equipment manufacturers ("OEMs") (e.g., Open Development Corporation and
Microlog Corporation), telephone switch manufacturers (e.g., Rockwell
International), computer system vendors (e.g., Digital Equipment Corporation),
selected systems integrators and value added resellers ("VARs") (e.g., Andersen
Consulting and Logica) as well as direct selling to large organizations.
Representative applications include automated directory assistance, voice
dialing, personal number service, bank by phone, discount stock trading, stock
quotes, account inquiry order fulfillment, fax-on-demand, product information,
scheduling, labor reporting, service ordering and dispatch.
Voicetek was founded in 1981. The Company's address is 19 Alpha Road,
Chelmsford, Massachusetts 01824 and its telephone number is (508) 250-9393.
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THE OFFERING
Common Stock offered by the Company..................... 2,000,000 shares
Common Stock offered by the Selling Stockholders........ 500,000 shares
Common Stock to be outstanding after the offering....... 7,028,885 shares(1)
Use of proceeds......................................... To repay an aggregate of approxi-
mately $3.1 million of senior
indebtedness and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.................. VCTK
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
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1992 1993 1994 1995 1996
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STATEMENT OF OPERATIONS DATA:
Total revenues................................... $ 3,285 $ 4,769 $10,056 $15,721 $22,101
Income (loss) from operations.................... (1,983) (1,574) 886 1,301 922
Net income (loss)................................ (1,997) (1,588) 854 2,392 4,063
Pro forma net income (loss) per share(2)......... $ 0.72
Pro forma shares used in per share calculation... 5,680
DECEMBER 31, 1996
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ACTUAL AS ADJUSTED(2)(3)
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BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ -- $ 16,618
Working capital.................................................... 4,596 24,070
Total assets....................................................... 16,015 32,633
Redeemable convertible preferred stock............................. 11,297 --
Total stockholders' equity (deficit)............................... (3,126) 27,881
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(1) Excludes (i) 1,091,034 shares of Common Stock reserved for issuance under
the Company's 1992 Equity Incentive Plan (of which options to purchase
721,109 shares of Common Stock were outstanding and options to purchase
459,631 shares of Common Stock were exercisable at December 31, 1996); (ii)
333,333 shares of Common Stock reserved for issuance under the Company's
1996 Stock Option Plan (none of which was been granted at December 31,
1996); (iii) 60,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan for Non-Employee Directors and Clerk (of
which options to purchase 38,666 shares of Common Stock have been granted,
none of which was exercisable at December 31, 1996); and (iv) 166,666 shares
of Common Stock reserved for issuance under the Company's 1997 Employee
Stock Purchase Plan. Includes 1,125 shares which were acquired upon the
exercise of options during January 1997. See "Management--Stock Option
Plans."
(2) Gives effect to the conversion of all outstanding shares of Preferred Stock
into an aggregate of 4,576,844 shares of Common Stock upon the consummation
of this offering.
(3) Adjusted to give effect to the issuance and sale of the 2,000,000 shares of
Common Stock offered hereby by the Company at an assumed initial public
offering price of $11.00 per share, less the underwriting discount and
estimated offering expenses payable by the Company, and the application of
the net proceeds therefrom. See "Use of Proceeds."
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RISK FACTORS
An investment in the Common Stock offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information
contained in this Prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing the
Common Stock offered hereby. This Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act. Discussions containing
such forward-looking statements may be found in the material set forth under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Strategy,"
"Business -- Sales and Marketing," and "Business -- Engineering, Research and
Product Development," as well as the Prospectus generally. Actual events or
results may differ materially from those discussed in the forward-looking
statements as a result of various factors, including, without limitation, the
risk factors set forth below and the matters set forth in the Prospectus
generally.
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results may fluctuate due to a variety of factors, including the
timing of new product announcements and introductions by the Company, its major
customers or its competitors, delays in new product introductions by the
Company, market acceptance of new or enhanced versions of the Company's
products, changes in the product or customer mix of sales, delay, cancellation
or acceleration of customer orders, changes in the level of operating expenses,
competitive pricing pressures, the gain or loss of significant customers,
increased research and development and sales and marketing expenses associated
with new product introductions, the mix of distribution channels through which
the Company's products are sold, purchasing patterns of OEMs, VARs, system
integrators and distributors and the hiring and training of additional staff as
well as general economic conditions. In addition, the Company has often
recognized a substantial portion of its revenues in the last month of a quarter.
As a result, product revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter, and revenues for any future quarter
are not predictable with any degree of certainty. Any significant deferral of
purchases of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations in any
particular quarter and, to the extent significant sales occur earlier than
expected, operating results for subsequent quarters may be adversely affected.
In addition, most of the Company's sales are in the form of large orders with
short delivery times and the Company's ability to determine the timing of
individual customer orders is limited. All of the above factors are difficult
for the Company to forecast and these and other factors can materially adversely
affect the Company's business, financial condition and results of operations for
one quarter or a series of quarters. The Company's expense levels are based in
part on its expectations regarding future sales and are fixed in the short term
to a large extent. Therefore, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in sales. Any
significant decline in demand relative to the Company's expectations or any
material delay of customer orders could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company is typically able to deliver a standard interactive
communications system within 14 days of receipt of the order and, therefore,
does not customarily have a significant long-term backlog. To achieve its sales
objective, the Company is dependent upon obtaining orders in a quarter for
shipment in that quarter. Furthermore, the Company's agreements with its OEMs,
VARs, system integrators and distributors typically provide that they may change
delivery schedules and cancel orders within specified timeframes, typically up
to 30 days prior to the scheduled shipment date, without significant penalty.
The Company's OEMs, VARs, system integrators and distributors have in the past
built, and may in the future build, significant inventory for a number of
reasons. Decisions by such OEMs, VARs, system integrators and distributors to
reduce their inventory levels could lead to reductions in purchases from the
Company. These reductions, in turn, could cause fluctuations in the Company's
operating results and could have a material adverse effect on the Company's
business, financial condition and results of operations in the periods in which
the inventory is reduced.
There can be no assurance that the Company will be able to grow its level
of revenues or sustain its level of profitability, or even maintain
profitability, in the future. Increases in operating expenses are expected to
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continue and, together with pricing pressures, may result in a decrease in
operating income. In addition, it is possible that, in some future quarter, the
Company's operating results will be below the expectations of public market
analysts and investors. In such event the price of the Company's Common Stock
would likely be materially and adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Reliance on Indirect Distribution. The Company markets and sells products
domestically and internationally primarily through resellers, such as OEMs,
VARs, systems integrators and distributors. The number of qualified resellers in
certain countries is limited. Resellers typically are not effective at selling
the Company's products until they have been trained and have successfully
completed several sales. The Company's performance depends in part on
attracting, retaining and motivating such resellers. Certain of the Company's
resellers may also act as resellers for competitors of the Company and could
devote greater effort and resources to marketing competitive products. The
Company's resellers are generally provided discounts and occasionally are
entitled to special pricing or distribution arrangements, the effect of which is
to decrease the Company's gross margins. Although the Company has contractual
relationships with many of its resellers, these agreements do not require the
resellers to purchase the Company's products and can generally be terminated on
short notice by the reseller. There can be no assurance that resellers will
continue to market the Company's products or devote the resources necessary to
provide effective sales and marketing support to the Company. In addition, the
Company is dependent on the continued viability and financial stability of its
resellers, many of which are small organizations with limited capital. The loss
of any key reseller could adversely affect the Company's business.
The Company's sales through OEMs, VARs, systems integrators and
distributors for the year ended December 31, 1996 accounted for approximately
50% of the Company's net sales. In addition, for the year ended December 31,
1996, sales to five customers accounted for approximately 58.9% of the Company's
net sales. Because of the Company's sales and marketing approach, these
percentages may not decrease in the near future. The Company, therefore, depends
on receiving large orders from large customers and there can be no assurance
that such sales will continue. Accordingly, there can be no assurance that these
factors will not materially adversely affect the Company's business, financial
condition and results of operations. See "Business -- Sales and Marketing."
Management of Growth. The Company has recently experienced and may
continue to experience growth in the number of its employees and scope of its
operations. In particular, the Company intends to increase its sales, marketing,
engineering and support staff. These increases will result in increased
responsibilities for management. To manage potential future growth effectively,
the Company must improve its operational, financial and management information
systems and must hire, train, motivate and manage a growing number of employees.
There can be no assurance that the Company will be able to effectively achieve
or manage any such growth, and failure to do so could delay product development
cycles or otherwise have a material adverse effect on the Company's business,
financial condition and results of operations.
Reliance on Key Personnel. The Company's success during the foreseeable
future will depend largely upon the continued services of its executive
officers, each of whom has entered into an employment agreement with the
Company. None of the employment agreements contains non-competition covenants.
The Company does not have key-man life insurance on its executive officers.
Although the Company's executive officers and key personnel have extensive
experience in the industry, the length of employment of certain employees at the
Company is relatively short. The Company's success will also depend in part on
its ability to attract and retain qualified managerial, technical and sales and
marketing personnel, for whom competition is intense. In particular, the current
availability of qualified sales and engineering personnel is limited. The
Company has recently hired a significant number of sales and marketing personnel
and the Company's success will depend in part on the Company's ability to train
and integrate new hires into the Company's business. The Company's business,
financial condition and results of operations could be materially adversely
affected if the Company were unable to attract, hire, assimilate and train these
personnel in a timely manner. See "Management."
Highly Competitive Market Environment. The market for interactive
communications systems is highly competitive. Certain of the Company's
competitors have substantially greater financial, technical, marketing
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and sales resources than the Company. There can be no assurance that the
Company's present or future competitors will not exert increased competitive
pressures on the Company. In particular, the Company may in the future
experience pricing pressures as the markets in which it competes mature, as new
technologies are introduced or for other reasons, and such price competition
could materially and adversely affect the Company's market share, business,
financial condition and results of operations. In addition, many suppliers of
voice mail systems and telecommunications suppliers have added interactive
communications capabilities to some of their product offerings and offer
interactive communications systems as a component or add-on of an overall sale
of a voice mail system or a telecommunications switch. The Company expects that
the average sales prices of its products will decline in the future primarily
due to increased competition and the introduction of new technologies.
Accordingly, the Company's ability to maintain or increase net sales and gross
margins will depend in part upon its ability to reduce its cost of sales, to
increase unit sales volumes of existing products and to introduce and sell new
products. Although the Company believes it has certain marketing, technical and
other advantages over many of its competitors, maintaining such advantages will
require continued investment by the Company in product innovation and
development as well as in sales, marketing and customer support. There can be no
assurance that the Company will be successful in such efforts. If the Company is
unable to maintain such advantages, it may have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Competition."
Technological Change, Changing Markets and New Products. The market in
which the Company operates is characterized by rapid continual technological
change and improvements in hardware and software technology. The Company
believes that its future success will depend, in part, upon its ability to
expand and enhance the features of its existing products and to develop and
introduce new products designed to meet changing customer needs on a
cost-effective and timely basis. Failure by the Company to respond on a timely
basis to technological developments, changes in industry standards or customer
requirement or the introduction or development of superior or alternative
technologies could render the Company's existing products, as well as products
currently under development, obsolete and unmarketable. There can be no
assurance that the Company will respond effectively to technological changes or
new product announcements by others or that the Company will be able to
successfully develop and market new products or product enhancements and that
any new product or product enhancement will gain market acceptance.
The Company's software products, as with software programs generally, may
contain undetected errors or "bugs" when introduced or as new versions are
released. Although the Company's current products have not experienced
post-release software errors that have had a significant financial or
operational impact on the Company, there can be no assurance that such problems
will not occur in the future, particularly as the Company's software systems
continue to become more complex and sophisticated. Such defective software may
result in loss of or delay in market acceptance of the Company's products,
warranty liability or product recalls.
The Company budgets research and development expenditures based on planned
product introductions and enhancements; however, actual expenditures may
significantly differ from budgeted expenditures. Inherent in the product
development process are a number or risks. The development of new,
technologically advanced products and product enhancements is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. There can be no assurance that
the Company will successfully identify, develop or introduce new products or
product enhancements. In addition, modifications by the Company of its products
to comply with unique customer specifications may detract from its ongoing
product development efforts. Future delays in the introduction of new or
enhanced products, the inability of such products to gain market acceptance or
problems associated with new product transitions could adversely affect the
Company's operating results, particularly on a quarterly basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Lengthy Sales Cycle. The sales cycle for the Company's products
(particularly to Telcos) is lengthy and can range from approximately one month
to over one year, averaging six to nine months, and is subject to a number of
significant risks, including customers' budgetary constraints and internal
acceptance reviews, over which the Company has little or no control.
Consequently, if sales forecasted from a specific customer for a particular
quarter are not realized in that quarter, the Company may not be able to
generate revenue from
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alternate sources in time to compensate for the shortfall. As a result, a lost
or delayed sale could have a material adverse effect on the Company's quarterly
operating results. Moreover, to the extent that significant sales occur earlier
than expected, operating results for subsequent quarters may be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
International Sales. Sales to customers outside the United States
accounted for approximately 11% of the Company's total sales for the year ended
December 31, 1996. The Company intends to expand its operations outside of the
United States and to enter additional international markets, which will require
significant management attention and financial resources. The Company expects to
commit additional time and development resources to customizing its products for
selected international markets and to developing international sales and support
channels. There can be no assurance that such efforts will be successful.
International operations are subject to a number or risks, including costs of
customizing products for foreign countries, dependence on independent resellers,
multiple and conflicting regulations regarding telecommunications, longer
payment cycles, unexpected changes in regulatory requirements, import and export
restrictions and tariffs, difficulties in staffing and managing foreign
operations, greater difficulty or delay in accounts receivable collection,
potentially adverse tax consequences, the burdens of complying with a variety of
foreign laws, the impact of possible recessionary environments in economies
outside the United States and political and economic instability. The Company's
export sales are currently denominated predominantly in United States dollars.
An increase in the value of the United States dollar relative to foreign
currencies could make the Company's products more expensive and, therefore,
potentially less competitive in foreign markets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Reliance on Component Availability and Key Suppliers. In certain
instances, despite the availability of multiple supply sources, the Company
elects to procure certain components or parts from a single source to maintain
quality control or to develop a strategic relationship with a supplier. In
particular, Dialogic Corporation ("Dialogic") is the primary supplier of voice
boards for the Company's products. Although the Company has entered into supply
contracts with Dialogic and certain of its other vendors, the Company has no
assurance that components and parts will be available as required, or that
prices of such components and parts will not increase. If the Company were to
experience significant delays, interruptions or reductions in the supply of
certain components and parts purchased from such vendors, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Business -- Manufacturing."
Purchase orders from the Company's customers frequently require delivery
quickly after placement of the order. Because the Company does not maintain
significant component inventories, when purchase orders include hardware
deliverables, delay in shipment by a supplier could lead to lost sales. The
Company uses internal forecasts to determine its general materials and
components requirements. Lead times for materials and components may vary
significantly and depend on factors such as specific supplier performance,
contract terms and general market demand for components. If orders vary from
forecasts, the Company may experience excess or inadequate inventory of certain
materials and components. From time to time, the Company has experienced
shortages and allocations of certain components, resulting in delays in
fulfillment of customer orders. Such shortages and allocations could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Third-Party Claims of Infringement; Limited Protection of Proprietary
Rights. The industry in which the Company competes is characterized by a
significant level of use of proprietary technology and frequent litigation based
on allegations of infringement of such proprietary technologies. From time to
time, third parties may assert exclusive copyright, trademark and other
intellectual property rights to technologies that are important to the Company.
The Company is aware that certain segments of the voice processing industry,
particularly voice mail/voice messaging systems, are affected by active and
costly litigation, and there can be no assurance that as the Company's
interactive communications systems evolve (possibly to include certain voice
mail/voice messaging features), the Company will not be required to enter into
license agreements or become involved in, or otherwise be affected by,
litigation which may or may not be meritorious. In its distribution agreements,
the Company typically agrees to indemnify its customers for any expenses or
liabilities, generally without limitation, resulting from claimed infringements
of patents, trademarks or
8
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copyrights of third parties. In the event of litigation to determine the
validity of any third-party claims, such litigation, whether or not determined
in favor of the Company, could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel from
productive tasks. In the event of an adverse ruling in such litigation, the
Company might be required to discontinue the use and sale of infringing
products, expend significant resources to develop non-infringing technology or
obtain licenses from third parties. There can be no assurance that licenses from
third parties would be available on acceptable terms, if at all. In the event of
a successful claim against the Company and the failure of the Company to develop
or license a substitute technology, the Company's business, financial condition
and results of operations would be materially adversely affected.
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, employee confidentiality and third-party nondisclosure
agreements and license agreements to protect its proprietary software
technology. Nonetheless, there can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior software technology. The laws of
certain foreign countries in which the Company's products are or may be
developed, manufactured or sold may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the United
States and thus make the possibility of misappropriation of the Company's
technology and products more likely. See "Business -- Patents and Other
Proprietary Rights."
Substantial Control By Insiders. After the sale of the shares of Common
Stock offered hereby, the Company's officers, directors and principal
stockholders will retain voting control of approximately 60.2% of the Company's
Common Stock (55.3% if the Underwriters' over-allotment option is exercised in
full) and, therefore, will be able to exercise substantial control over the
Company's affairs. Accordingly, if such persons act together, they will be able
to elect all directors and exercise control over the business policies and
affairs of the Company. See "Management -- Executive Officers and Directors" and
"Principal and Selling Stockholders."
Absence of Prior Trading Market; Potential Volatility of Stock
Price. Prior to this offering, there has been no public market for the
Company's Common Stock and there can be no assurance that following this
offering an active trading market will develop or be maintained. The initial
public offering price of the Common Stock will be determined by negotiations
between the Company and the Representatives of the Underwriters and may not be
indicative of the market price of the Common Stock in the future. For a
description of the factors to be considered in determining the initial public
offering price, see "Underwriting." The market price of the shares of the
Company's Common Stock may be highly volatile. Factors such as fluctuations in
the Company's quarterly operating results, announcements of technological
innovations or new commercial products by the Company or its competitors, and
conditions in the markets in which the Company and its customers compete, may
have a significant effect on the market price and marketability of the Common
Stock. Furthermore, the stock market historically has experienced volatility,
which has particularly affected the market prices of securities of many high
technology companies and which sometimes has been unrelated to the operating
performances of such companies. See "Underwriting."
Shares Eligible for Future Sale. Sales of the Company's Common Stock in
the public market following this offering could adversely affect the prevailing
market price of the Common Stock. Immediately after completion of the offering,
the Company will have 7,028,885 shares of Common Stock outstanding, of which the
2,500,000 shares offered hereby will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless purchased by "affiliates" of the Company as that term
is defined under Rule 144. The Company, its executive officers, directors and
certain current stockholders, who in the aggregate own beneficially 4,468,571 of
the remaining outstanding shares of Common Stock and stock options exercisable
for an additional 431,998 shares of Common Stock have agreed pursuant to lock-up
agreements that they will not sell or otherwise dispose of any shares of Common
Stock beneficially owned by them for a period of 180 days from the date of this
Prospectus. Such agreements provide that Oppenheimer & Co., Inc. may, in its
sole discretion and at any time without notice, release all or a portion of the
shares subject to these lock-up agreements. Upon the expiration of these lock-up
agreements, 4,900,569 of such shares, including shares issuable pursuant to the
exercise of stock options, will become immediately
9
12
eligible for sale in the public market, subject in some cases to the volume and
other restrictions of Rule 144 or Rule 701 under the Securities Act. As soon as
practicable after the date of this Prospectus, the Company intends to register
on one or more registration statements on Form S-8 all shares of Common Stock
subject to outstanding stock options and Common Stock issuable pursuant to the
Company's stock and employee stock purchase plans that do not qualify for an
exemption under Rule 701 from the registration requirements of the Securities
Act. Shares covered by such registration statement will be eligible for sale in
the public market after the effective date of such registration. In addition,
the holders of 4,193,791 shares of Common Stock are entitled to certain
registration rights with respect to such shares. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales may have an adverse effect on the market
price for the Common Stock. In addition, if the Company is required to include
in a Company-initiated registration shares held by such holders pursuant to the
exercise of their "incidental" registration rights, such sales may have an
adverse effect on the Company's ability to raise needed capital. See
"Management," "Principal Stockholders," "Shares Eligible for Future Sale" and
"Underwriting."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the net tangible book value per share of Common Stock.
Investors purchasing shares of Common Stock in this offering will, therefore,
incur immediate substantial dilution in net tangible book value per share. See
"Dilution."
No Expectation of Dividends. The Company currently intends to retain any
future earnings in its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. See "Dividend Policy."
Anti-Takeover Provisions; Possible Issuance of Preferred Stock. The
Company's Restated Articles of Organization ("Articles of Organization") and
Amended and Restated By-laws ("By-laws") contain provisions that might diminish
the likelihood that a potential acquiror would make an offer for the Common
Stock, impede a transaction favorable to the interest of the stockholders or
increase the difficulty of removing members of the Board of Directors or
management. After the consummation of this offering, the Board of Directors will
have the authority, without further stockholder approval, to issue up to
1,000,000 shares of Preferred Stock in one or more series and to determine the
price, rights, preferences and privileges of those shares. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of shares of Preferred Stock, while potentially providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock.
Furthermore, certain provisions of the Articles of Organization, including
provisions that provide for the Board of Directors to be divided into three
classes to serve for staggered three-year terms, may have the effect of delaying
or preventing a change in control of the Company, which could adversely affect
the market price of the Common Stock. In addition, the Company is subject to
Chapters 110D and 110F of the Massachusetts General Laws, which prohibit the
Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. The application of such
provisions also could have the effect of delaying or preventing a change of
control in the Company. See "Description of Capital Stock -- Certain Articles of
Organization, By-law and Statutory Provisions Affecting Stockholders."
Discretion as to Use of Proceeds. The principal purposes of this offering
are to increase the Company's equity capital, to create a public market for the
Company's Common Stock, to increase the visibility of the company in the
marketplace and to facilitate future access to public equity markets. As of the
date of this Prospectus, the Company has no specific plans to use the net
proceeds from this offering other than for working capital and general corporate
purposes, including repayment of bank indebtedness. Accordingly, the Company's
management will retain broad discretion as to the allocation of the net proceeds
from this offering. Pending any such uses, the Company plans to invest the net
proceeds in the investment grade, interest-bearing securities. See "Use of
Proceeds."
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13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby, based upon an assumed initial
offering price of $11.00 per share, after deducting underwriting discount and
estimated offering expenses payable by the Company, are expected to be
$19,710,000. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders. See "Principal and Selling Stockholders."
The Company expects to use the net proceeds from this offering to repay all
of its indebtedness under the Company's Credit Facility with Fleet Bank and for
working capital and other general corporate purposes. Under the term portion of
the Credit Facility, the Company may borrow up to $1 million, which is due and
payable on September 1, 1999, with interest payable quarterly at a fluctuating
rate equal to Fleet Bank's prime rate plus one percent. In addition, the Credit
Facility allows the Company to borrow up to $5 million on a revolving basis. The
revolving portion of the Credit Facility expires, and all outstanding borrowings
thereunder are due and payable on September 1, 1997 with interest payable
quarterly at a fluctuating rate equal to Fleet Bank's prime rate plus
three-quarters of one percent. At December 31, 1996, $377,000 was outstanding
under the term portion, and $2.7 million was outstanding under the revolving
portion, of the Credit Facility. After giving effect to the application of
proceeds of this offering, the Company will have no outstanding long-term
indebtedness. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary businesses, products or technologies. Although the
Company has in the past reviewed potential acquisition opportunities, there are
no current agreements or negotiations with respect to any such transactions.
Pending such uses, the net proceeds of this offering will be invested in
short-term investment grade, interest-bearing instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and currently intends to retain all available funds for use in the
operation and expansion of its business. The Company does not, therefore,
anticipate that any cash dividends will be declared or paid in the foreseeable
future. The Company's current loan agreement prohibits the payment of cash
dividends without the bank's consent.
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CAPITALIZATION
The following table sets forth (i) the Company's actual capitalization as
of December 31, 1996, (ii) the Company's capitalization as adjusted to give
effect to the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby, at an assumed initial public offering price of $11.00 after
deducting the underwriting discount and estimated offering expenses payable by
the Company and the anticipated application of the net proceeds therefrom, and
(iii) after giving effect to the conversion of the Preferred Stock. See "Use of
Proceeds."
DECEMBER 31, 1996
--------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
-------- -----------
Short-term debt..................................................... $ 2,841 $ --
======== =========
Long-term debt...................................................... $ 236 $ --
--------
Redeemable Convertible Preferred Stock, $.01 par value; 10,000,000
shares authorized, 6,865,274 shares issued and outstanding actual;
10,000,000 shares authorized, no shares issued or outstanding as
adjusted.......................................................... 11,297 --
--------
Stockholders' equity (deficit):
Common Stock, $.01 par value; 20,000,000 shares authorized;
450,916 shares issued and outstanding actual; 30,000,000 shares
authorized, 7,027,760 shares issued and outstanding as
adjusted....................................................... 5 70
Additional paid-in capital........................................ 7,087 38,029
Accumulated deficit............................................... (10,218) (10,218)
-------- -----------
Total stockholders' equity (deficit).............................. (3,126) 27,881
-------- -----------
Total capitalization...................................... $ 8,407 $ 27,881
======== =========
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DILUTION
As of December 31, 1996, the Company's pro forma net tangible book value
was approximately $8.1 million or approximately $1.62 per share. Pro forma net
tangible book value per share represents the total amount of tangible assets of
the Company reduced by the amount of total liabilities and divided by the total
number of shares of Common Stock outstanding after giving effect to the
conversion of all Preferred Stock. After giving effect to the sale by the
Company of 2,000,000 shares of Common Stock in this offering at an assumed
initial public offering price of $11.00 per share after deducting the
underwriting discount and estimated offering expenses payable by the Company,
the pro forma net tangible book value of the Company as of December 31, 1996
would have been approximately $27.9 million or $3.96 per share. This represents
an immediate increase in net tangible book value of $2.34 per share to existing
stockholders and an immediate dilution of $7.04 per share to new investors. The
following table illustrates this per share dilution in net tangible book value
to new investors.
Assumed initial public offering price per share................ $11.00
Pro forma net tangible book value per share at December
31, 1996................................................ $ 1.62
Increase per share attributable to new investors.......... 2.34
------
Pro forma net tangible book value per share after this
offering..................................................... 3.96
------
Pro forma net tangible book value dilution per share to new
investors.................................................... $ 7.04
======
The following table sets forth, as of December 31, 1996, the number of
shares purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and new investors
purchasing Common Stock in this offering:
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
Existing stockholders(1)............ 5,027,760 71.5% $14,136,498 39.1% $ 2.81
New investors(1).................... 2,000,000 28.5 22,000,000 60.9 $ 11.00
--------- ----- ----------- ------
Total.......................... 7,027,760 100.0% $36,136,498 100.0%
========= ===== =========== ======
- ---------------
(1) Assumes no exercise of outstanding options after December 31, 1996. As of
December 31, 1996, options to purchase 759,775 shares of Common Stock were
outstanding, and an additional 397,262 shares were reserved for issuance
under the Company's stock option plans. Additionally, the Company has
reserved 166,666 shares for issuance under the Company's 1997 Employee Stock
Purchase Plan. See "Management -- Stock Option Plans" and Note 5 of Notes to
Financial Statements. The issuance of Common Stock under these plans could
result in further dilution to new investors.
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SELECTED FINANCIAL DATA
The selected financial data set forth below as of and for the years ended
December 31, 1994, 1995 and 1996 are derived from the financial statements of
the Company, included elsewhere in this Prospectus which have been audited by
Coopers & Lybrand L.L.P., independent public accountants. The selected financial
data as of and for the years ended December 31, 1992 and 1993 are derived from
audited financial statements of the Company not included in this prospectus. The
historical results are not necessarily indicative of the results of operations
to be expected in the future. The following selected financial data should be
read in conjunction with the Financial Statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Systems............................... $ 2,779 $ 3,626 $ 7,746 $11,477 $16,239
Services.............................. 506 1,143 2,310 4,244 5,862
------- ------- ------- ------- -------
Total revenues................... 3,285 4,769 10,056 15,721 22,101
Cost of revenues:
Systems............................... 911 1,618 2,393 3,704 5,183
Services.............................. 199 604 1,276 2,234 3,161
------- ------- ------- ------- -------
Total cost of revenues........... 1,110 2,222 3,669 5,938 8,344
------- ------- ------- ------- -------
Gross profit............................... 2,175 2,547 6,387 9,783 13,757
Operating expenses:
Research and development.............. 1,922 1,660 2,340 3,361 5,771
Sales and marketing................... 1,622 1,590 2,163 3,806 5,435
General and administrative............ 614 871 998 1,315 1,629
------- ------- ------- ------- -------
Total operating expenses......... 4,158 4,121 5,501 8,482 12,835
------- ------- ------- ------- -------
Income (loss) from operations.............. (1,983) (1,574) 886 1,301 922
Other income (expense), net................ (9) (14) (9) (70) (218)
------- ------- ------- ------- -------
Income (loss) before provision for income
taxes.................................... (1,992) (1,588) 877 1,231 704
Provision for (benefit from) income
taxes.................................... 5 -- 23 (1,161) (3,359)
------- ------- ------- ------- -------
Net income (loss).......................... $(1,997) $(1,588) $ 854 $ 2,392 $ 4,063
======= ======= ======= ======= =======
Pro forma net income per share............. $ 0.72
=======
Pro forma weighted average number of shares
outstanding.............................. 5,680
DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................ $ (819) $(3,420) $ 1,170 $ 3,103 $ 4,596
Total assets............................... 1,742 1,911 3,383 7,271 16,015
Long-term debt, less current portion....... 115 -- -- -- 236
Redeemable convertible preferred stock..... 4,586 5,085 9,205 10,201 11,297
Total stockholders' equity (deficit)....... (4,776) (8,111) (7,663) (6,253) (3,126)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such a difference include, but are not limited to, those discussed
in "Risk Factors." The following discussion of the financial condition and
results of operations of the Company should be read in conjunction with the
Company's Financial Statements and Notes thereto, and the other financial
information included in this Prospectus.
OVERVIEW
The Company recognizes product and license revenues upon execution of a
contract and shipment to customers provided that no significant vendor
obligations remain outstanding and collection of the resulting receivable is
deemed probable by management. If insignificant vendor obligations remain after
shipment of the product, the Company accrues for the estimated costs of such
obligations. Additionally, the Company accrues the warranty costs upon shipment.
Revenue from post-customer support (maintenance) contracts is recognized ratably
over the life of the contract, generally one year. Revenue from training and
consulting is recognized as the services are provided. For certain contracts
eligible under AICPA Statement of Position No. 81-1, revenue is recognized using
the percentage-of-completion accounting method based upon an efforts-expended
method. In all cases, changes to total estimated costs and anticipated losses,
if any, are recognized in the period in which such changes are determined. The
percentage-of-completion method requires estimates of costs to complete which
may differ from actual costs.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, the Company has carefully evaluated the establishment of technological
feasibility of its various products during the development phase. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. The time period during which costs could be
capitalized from the point of reaching technological feasibility until the time
of general product release is very short and, consequently, the amounts that
could be capitalized are not material to the Company's financial position or
results of operations. Therefore, the Company charges all research and
development expenses to operations in the period incurred.
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. A valuation allowance is provided to reduce
the deferred tax asset to a level which, more likely than not, will be realized.
Management of the Company has evaluated the positive and negative evidence
impacting the realizability of its deferred tax assets as required by Statement
of Financial Accounting Standards No. 109. Management has considered its history
of profitable operations and concluded that it is more likely than not that it
will generate sufficient taxable income prior to the expiration of these items.
Management re-evaluates the positive and negative evidence on a quarterly basis
and therefore the amount of the deferred tax asset could be reduced in future
periods.
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RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's statements
of operations data as a percentage of total revenues for the periods indicated.
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
----- ----- -----
Revenues:
Systems.............................................................. 77.0% 73.0% 73.5%
Services............................................................. 23.0 27.0 26.5
----- ----- -----
Total revenues.................................................. 100.0 100.0 100.0
Cost of revenues:
Systems.............................................................. 23.8 23.6 23.5
Services............................................................. 12.7 14.2 14.3
----- ----- -----
Total cost of revenues.......................................... 36.5 37.8 37.8
----- ----- -----
Gross profit............................................................. 63.5 62.2 62.2
Operating expenses:
Research and development............................................. 23.3 21.4 26.1
Sales and marketing.................................................. 21.5 24.2 24.6
General and administrative........................................... 9.9 8.4 7.4
----- ----- -----
Total operating expenses........................................ 54.7 54.0 58.1
----- ----- -----
Income (loss) from operations............................................ 8.8 8.2 4.1
Other income (expense), net.............................................. (0.1) (0.4) (1.0)
----- ----- -----
Income (loss) before provision for income taxes.......................... 8.7 7.8 3.1
Provision for (benefit from) income taxes................................ 0.2 (7.4) (15.2)
----- ----- -----
Net income (loss)........................................................ 8.5% 15.2% 18.3%
===== ===== =====
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total Revenues. Total revenues increased 40.6% to $22.1 million in 1996
from $15.7 million in 1995. The increase in revenue was due to a 39.9% increase
in domestic sales and a 46.9% increase in international sales. Systems revenue
increased 41.5% to $16.2 million in 1996 from $11.5 million in 1995. The
increase in systems revenue was primarily due to the increase in unit sales
volume. Service revenues consist of customization of software, maintenance,
installations, repairs and training. Service revenues increased 38.1% to $5.9
million in 1996 from $4.2 million in 1995, primarily due the addition of more
units to the service base, as well as an increase in the deployment of customer
applications.
Gross Profit. The Company's gross profit increased $4.0 million to $13.8
million in 1996 from $9.8 million in 1995. Gross margin was unchanged at 62.2%
in 1995 and 1996. Gross profit on system sales increased 42.2% to $11.1 million
in 1996 from $7.8 million in 1995. Gross margin on system sales increased to
68.1% in 1996 from 67.7% in 1995. This increase in gross margin percentage on
system sales was attributed to increased software license revenues on third
party platforms. Gross profit on service revenues increased 34.4% to $2.7
million in 1996 from $2.0 million in 1995. Gross margin on service revenues
decreased to 46.1% in 1996 from 47.4% in 1995. This decrease is primarily
attributable to increased costs related to continued investment by the Company
in application engineers to support growth resulting from increased sales of
customer applications.
Research and Development. Research and development expenses increased
71.1% to $5.8 million in 1996 (26.1% of total revenues) from $3.4 million in
1995 (21.4% of total revenues). Research and development expenses consist
primarily of salaries, consultants and other related expenses for research and
development personnel, including the cost of facilities and depreciation of
capital equipment. The increase in the dollar amount of research and development
expenses reflects the continued expansion of the Company's research and
development staff which increased to 57 on December 31, 1996 from 41 on December
31, 1995. The increase in research and development expenses as a percentage of
total revenues was primarily due to incremental investment in the development of
software products for the Telco marketplace. The Company believes that
significant investments in product development are required to remain
competitive. As a
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19
consequence, the Company expects that product development expenses will increase
in absolute dollars in the future.
Sales and Marketing. Sales and marketing expenses increased 42.8% to $5.4
million in 1996 (24.6% of total revenues) from $3.8 million in 1995 (24.2% of
total revenues). Sales and marketing expenses consist primarily of salaries,
commissions earned by sales personnel, travel and promotional expenses. The
increase in the dollar amount of the sales and marketing expenses was due
primarily to the expansion of the sales staff, which increased to 43 on December
31, 1996 from 26 on December 31, 1995. The increase in sales and marketing
expenses as a percentage of total revenues was due primarily to the
establishment of a separate Telco sales force. The Company expects to continue
to expand its field sales and marketing efforts, its third party distribution
channels and its operations outside the United States and, therefore,
anticipates that sales and marketing expenditures will increase in absolute
dollars in the future.
General and Administrative. General and administrative expenses increased
23.9% to $1.6 million in 1996 (7.4% of total revenues) from $1.3 million in 1995
(8.4% of total revenues). General and administrative expenses consist primarily
of salaries and other related expenses of administrative, executive and
financial personnel and outside professional fees. The increase in the dollar
amount of the general and administrative expenses was primarily due to the
addition of staff to support the growth of the Company's business. The reduction
in general and administrative expenses as a percentage of total revenues was due
primarily to the growth in total revenues. The Company expects that its general
and administrative expenses will increase in absolute dollars in the future as
the Company expands its staffing, information systems and other items related to
infrastructure and incurs additional costs associated with being a public
company.
Other Income (Expense), Net. Other expenses increased 211.4% to
approximately $218,000 in 1996 (1.0% of total revenues) from approximately
$70,000 in 1995 (0.4% of total revenues). Interest expense increased 175.9% to
approximately $229,000 in 1996 (1.0% of total revenues) from approximately
$83,000 in 1995 (0.5% of total revenues).
Provision for (Benefit from) Income Taxes. The net benefit from income
taxes increased to $3.4 million in 1996 from $1.2 million in 1995. This was
primarily due to the elimination of the remaining valuation allowance against
deferred tax assets of $3.8 million as compared to the partial reduction in the
valuation allowance against deferred tax assets of $1.2 million in 1995.
Management has considered its history of cumulative income and concluded, in
accordance with the applicable accounting standards, that it is more likely than
not that these deferred tax assets will be realized. The Company re-evaluates
the positive and negative information impacting the realizability of the
deferred tax assets on a quarterly basis and, accordingly, the deferred tax
asset could be reduced in future periods. As of December 31, 1996, the Company
had approximately $9.7 million of net operating loss carryforwards for federal
income tax purposes which expire in the years 2004 through 2009. The Company had
approximately $4.1 million of state operating losses which expire in the years
1997 through 2009. The Company has research and development credits for federal
and state income tax purposes of approximately $600,000 and $500,000,
respectively, which begin to expire in 1999.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total Revenues. Total revenues increased 56.3% to $15.7 million in 1995
from $10.1 million in 1994. Systems revenue increased 48.2% to $11.5 million in
1995 from $7.7 million in 1994. The increase in system revenue was due to
increased unit volume which reflects the expansion of the Company's domestic
customer base and the development of the Company's OEM distribution channel.
Service revenues increased 83.7% to $4.2 million in 1995 from $2.3 million in
1994, primarily due to the addition of units and software licenses to the
service base and the deployment of customer applications. International revenues
increased 123.1% to $1.6 million in 1995 from approximately $719,000 in 1994.
The Company hired its first international salesman in May 1995.
Gross Profit. The Company's gross profit increased $3.4 million to $9.8
million in 1995 from $6.4 million in 1994. Gross margin decreased to 62.2% in
1995 from 63.5% in 1994. Gross profit on system sales increased 45.2% to $7.8
million in 1995 from $5.4 million in 1994. Gross margin on systems sales
decreased to
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20
67.7% in 1995 from 69.1% in 1994. This decrease was attributed to increased
revenues at lower margins from the Company's OEM distribution channel. Gross
profits on service revenues increased 94.4% to approximately $2.0 million in
1995 from approximately $1.0 million in 1994. Gross margin on service revenues
increased to 47.4% in 1995 from 44.8% in 1994. This increase is primarily
attributable to increased efficiencies of scale as a result of the growth in
systems added to the service base.
Research and Development. Research and development expenses increased
43.6% to $3.4 million in 1995 (21.4% of total revenues) from $2.3 million in
1994 (23.3% of total revenues). The increase in the dollar amount of research
and development expenses reflects the continued expansion of the Company's
research and development staff which increased to 41 on December 31, 1995 from
25 on December 31, 1994. The reduction in research and development expenses as a
percentage of total revenues was due primarily to the growth in total revenues.
Sales and Marketing. Sales and marketing expenses increased 76.0% to $3.8
million in 1995 (24.2% of total revenues) from $2.2 million in 1994 (21.5% of
total revenues). The increase in the dollar amount of the sales and marketing
expenses was due primarily to the addition of the international field sales
force, the expansion of the domestic field sales operations and increased
marketing activities. The increase in sales and marketing expenses as a
percentage of total revenues can be attributed to the addition of the
international field sales force.
General and Administrative. General and administrative expenses increased
31.8% to $1.3 million in 1995 (8.4% of total revenues) from $1.0 million in 1994
(9.9% of total revenues). The increase in the dollar amount of the general and
administrative expenses was primarily due to the addition of staff and the
increased costs associated with expansion of information systems to support the
growth of the Company's business. The reduction in general administrative
expenses as a percentage of total revenues was due primarily to the growth in
total revenues.
Other Income (Expense), Net. Other expenses increased to approximately
$70,000 in 1995 (0.4% of total revenues) from approximately $10,000 in 1994
(0.1% of total revenues). Interest expense increased to approximately $83,000 in
1995 (0.5% of total revenues) from approximately $18,000 in 1994 (0.1% of total
revenues). The increase in interest expense was primarily due to increased
borrowings.
Provision for (Benefit from) Income Taxes. The net benefit from income
taxes was approximately $1.2 million in 1995 compared to a provision for income
taxes of approximately $23,000 in 1994. This was primarily due to a $1.2 million
reduction in the Company's valuation allowance for deferred tax assets. The
Company determined that it was more likely than not that $1.2 million of
deferred tax assets would be realized under the applicable accounting standards.
Accordingly, a valuation allowance of $4.3 million was applied against deferred
tax assets at December 31, 1995.
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QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data for each of the past eight quarters as well as the percentages of the
Company's total revenues represented by each item. The following selected
quarterly information includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation. The Company believes that quarter-to-quarter comparisons of its
financial results are not necessarily meaningful and that such comparisons
should not be relied upon as an indication of future performance.
QUARTERS ENDED
------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
Revenues:
Systems................... $ 2,040 $2,404 $ 2,984 $ 4,049 $ 3,153 $3,168 $ 4,646 $5,272
Services.................. 1,117 1,166 1,043 918 1,285 1,077 1,441 2,059
------ ------ ------ ------- ------ ------ ------ ------
Total revenues........ 3,157 3,570 4,027 4,967 4,438 4,245 6,087 7,331
Cost of revenues:
Systems................... 649 878 1,082 1,095 986 918 1,440 1,839
Services.................. 461 472 530 771 695 647 831 988
------ ------ ------ ------- ------ ------ ------ ------
Total cost of
revenues............ 1,110 1,350 1,612 1,866 1,681 1,565 2,271 2,827
------ ------ ------ ------- ------ ------ ------ ------
Gross profit.................. 2,047 2,220 2,415 3,101 2,757 2,680 3,816 4,504
Operating expenses:
Research and
development............. 742 823 765 1,031 1,146 1,382 1,570 1,673
Sales and marketing....... 859 841 921 1,185 1,026 1,144 1,466 1,799
General and
administrative.......... 263 311 328 413 344 416 413 456
------ ------ ------ ------- ------ ------ ------ ------
Total operating
expenses............ 1,864 1,975 2,014 2,629 2,516 2,942 3,449 3,928
------ ------ ------ ------- ------ ------ ------ ------
Income (loss) from
operations.................. 183 245 401 472 241 (262) 367 576
Other income (expense), net... (1) (11) (42) (16) (31) (42) (59) (86)
------ ------ ------ ------- ------ ------ ------ ------
Income (loss) before provision
for income taxes............ 182 234 359 456 210 (304) 308 490
Provision for (benefit from)
income taxes................ 8 18 24 (1,211) 12 12 15 (3,398)
------ ------ ------ ------- ------ ------ ------ ------
Net income (loss)............. $ 174 $ 216 $ 335 $ 1,667 $ 198 $ (316) $ 293 $3,888
====== ====== ====== ======= ====== ====== ====== ======
QUARTERS ENDED
------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- --------
Revenues:
Systems................... 64.6% 67.3% 74.1% 81.5% 71.0% 74.6% 76.3% 71.9%
Services.................. 35.4 32.7 25.9 18.5 29.0 25.4 23.7 28.1
----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Systems................... 20.6 24.6 26.9 22.0 22.2 21.7 23.6 25.0
Services.................. 14.6 13.2 13.1 15.5 15.7 15.2 13.7 13.5
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............ 35.2 37.8 40.0 37.5 37.9 36.9 37.3 38.5
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.................. 64.8 62.2 60.0 62.5 62.1 63.1 62.7 61.5
Operating expenses:
Research and
development............. 23.5 23.0 19.0 20.8 25.8 32.6 25.8 22.9
Sales and marketing....... 27.2 23.6 22.9 23.9 23.1 26.9 24.1 24.5
General and
administrative.......... 8.3 8.7 8.1 8.3 7.8 9.8 6.8 6.2
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............ 59.0 55.3 50.0 53.0 56.7 69.3 56.7 53.6
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations.................. 5.8 6.9 10.0 9.5 5.4 (6.2) 6.0 7.9
Other income (expense), net... 0.0 (0.3) (1.1) (0.3) (0.7) (1.0) (1.0) (1.2)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before provision
for income taxes............ 5.8 6.6 8.9 9.2 4.7 (7.2) 5.0 6.7
Provision for (benefit from)
income taxes................ 0.3 0.5 0.6 (24.4) 0.3 0.3 0.2 (46.4)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)............. 5.5% 6.1% 8.3% 33.6% 4.4% (7.5)% 4.8% 53.1%
===== ===== ===== ===== ===== ===== ===== =====
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The Company's quarterly operating results may fluctuate due to a variety of
factors, including the timing of new product announcements and introductions by
the Company, its major customers or its competitors, delays in new product
introductions by the Company, market acceptance of new or enhanced versions of
the Company's products, changes in the product or customer mix of sales, delay,
cancellation or acceleration of customer orders, changes in the level of
operating expenses, competitive pricing pressures, the gain or loss of
significant customers, increased research and development and sales and
marketing expenses associated with new product introductions, the mix of
distribution channels through which the Company's products are sold, purchasing
patterns of OEMs, VARs, system integrators and distributors and the hiring and
training of additional staff as well as general economic conditions. In
addition, the Company has often recognized a substantial portion of its revenues
in the last month of a quarter. As a result, product revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter, and
revenues for any future quarter are not predictable with any degree of
certainty. Any significant deferral of purchases of the Company's products could
have a material adverse effect on the Company's business, financial condition
and results of operations in any particular quarter and, to the extent
significant sales occur earlier than expected, operating results for subsequent
quarters may be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirement to date has been to fund working
capital and capital expenditures in order to support the growth of revenues. The
Company has financed this requirement primarily through bank borrowings, trade
credit and the private sale of preferred stock. Cash flow from (used in)
operations was approximately $900,000, ($800,000) and ($500,000) in 1994, 1995
and 1996, respectively. At December 31, 1996, the Company had working capital of
$4.6 million. The Company expects its working capital needs to increase along
with future revenue growth.
Current assets and current liabilities at December 31, 1996 increased $8.7
million and $4.3 million, respectively, compared to December 31, 1995. Current
assets increased principally as a result of an increase in accounts receivable
due to higher operating levels and a trend towards transactions being booked
late in the quarter. Current liabilities increased primarily due to increased
short-term borrowings to support the growth in capital purchases.
In August 1996, the Company entered into a revolving credit agreement with
Fleet Bank to increase its revolving line of credit to $5.0 million. Interest on
borrowings under this credit facility is calculated at a fluctuating rate equal
to Fleet Bank's prime rate plus three-quarters of one percent. This credit
facility expires on September 1, 1997 . The Credit agreement requires the
Company to maintain minimum level of earnings and a minimum net worth ratio. As
of December 31, 1996, the Company had borrowed $2.7 million under this line of
credit. In addition, in August 1996, the Company entered into an equipment line
of credit of $1.0 million at a fluctuating interest rate equal to Fleet Bank's
prime rate plus one percent. As of December 31, 1996, the Company had borrowed
$377,000 under this line of credit. The Company intends to pay down its existing
indebtedness with the net proceeds of this offering.
The Company had capital expenditures totaling approximately $300,000,
$700,000 and $1.8 million during 1994, 1995 and 1996, respectively. The
Company's capital budget for 1997 is $2.5 million, which includes additional
computer equipment utilized for the development and testing of the Company's
products and leasehold improvements to support the Company's growth.
The Company believes the net proceeds from this offering, together with
funds generated from operations will be sufficient to fund its operations and
capital expenditures for at least 18 months following the consummation of this
offering.
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BUSINESS
Voicetek develops, markets and supports interactive communications systems.
The Company's products enable Telcos to rapidly deploy value added services and
commercial organizations to extend the automation of information access, improve
service, lower operating costs and differentiate their service offerings to
their customers. The Company's Generations software is a scalable, client server
platform which is open and fault resilient and provides customers, employees and
business partners with access to information, products and services by using a
variety of methods, including telephone, fax, electronic mail, paging and Web
browsers. Generations permits rapid development and deployment of interactive
communications applications for use in wireless and wireline environments, AIN
and corporate enterprise and call center environments. The Company integrates
Generations with its VTK family of telephony servers, or third party servers, to
support medium to large-scale system deployments. Voicetek also provides
consulting, training and maintenance services for application development and
on-going support of the Company's products.
Voicetek employs a strategy of leveraged selling primarily through OEMs
(e.g., Open Development Corporation and Microlog Corporation), telephone switch
manufacturers (e.g., Rockwell International), computer system vendors (e.g.,
Digital Equipment Corporation), selected system integrators and VARs (e.g.,
Andersen Consulting and Logica) as well as direct selling to large
organizations. Representative applications include automated directory
assistance, voice dialing, personal number service, bank by phone, discount
stock trading, stock quotes, account inquiry, order fulfillment, fax-on-demand,
product information, scheduling, labor reporting, service ordering and dispatch.
INDUSTRY BACKGROUND
In today's competitive global marketplace, organizations are investing in
and relying on information technology to maintain and enhance their competitive
position. Interactive communications systems are increasingly being employed to
provide broad, convenient and efficient access to the information technology
infrastructure by customers, employees and business partners. Interactive
communications systems have become mission critical components of an
organization's business, differentiating its products and services from those of
their competition while increasing the quality and types of services provided
and reducing costs.
Commercial enterprises initially sought to improve access to information
and to better control costs by using trained representatives or agents located
in call centers. However, the growth in demand for convenient and continuous
access to information highlighted the inefficiency, expense and lack of
reliability which results from reliance on a labor force to perform many
functions. Traditional automation systems, including many interactive voice
response systems, tend to be proprietary, problem-specific solutions and provide
limited access (such as the keypad of touch tone telephone) and limited
interaction. These proprietary stand-alone systems (i) do not leverage the
price/performance characteristics inherent to open systems, (ii) are difficult
to develop, deploy and maintain in a rapidly evolving operating environment,
(iii) are not easily integrated with products provided by other vendors and (iv)
are not able to be modified and expanded as a company's business grows.
The trend towards the privatization and deregulation of the global
telecommunications sector, since the breakup of AT&T in 1984, has heightened the
competition in the telecommunications marketplace. Long distance companies,
local exchange carriers and competitive access providers now compete with new
entrants such as cable television operators, wireless carriers and Internet
service providers in many segments, dramatically increasing the number of new
networks for voice and data traffic. Decreased telecommunications regulations
have given these companies the opportunity to utilize new technologies to deploy
the next generation network architecture, commonly referred to as the AIN. The
AIN provides the backbone to support and define services, which allow any type
of information (including voice, data and video) to pass through the telephone
network without special circuitry or long installation cycles. New interactive
communications systems integrated with the AIN have given Telcos the ability to
deploy new product and service offerings, such as voice activated dialing and
unified messaging, which leverage their installed customer and network
infrastructure base. To protect their installed base of customers and to
generate new customers,
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Telcos must be able to provide integrated products and services which
differentiate them from their competition while being more responsive to the
needs and requests of their customers.
To leverage automated access to an organization's broad information
infrastructure and maximize revenue generating potential, enterprise
organizations and Telcos require an interactive communications system that (i)
is scalable to support large volumes of inquiries (both voice and data), (ii) is
open to permit integration with a wide variety of telephony and computing
technologies, (iii) permits multiple service applications to be deployed and run
on the same system simultaneously, (iv) employs a wide range of access methods,
including telephones, Web browsers, fax, electronic mail and speech recognition
and (v) is flexible to adapt to the needs of the enterprise while allowing
information to be processed and disseminated efficiently and accurately. The
systems also need to be cost effective to operate and maintain, provide end-user
integration with the information technology infrastructure (including SQL and
legacy databases) and create a robust software development environment for the
rapid development and deployment of mission critical applications.
THE VOICETEK SOLUTION
Voicetek has developed an interactive communications system built on an
open architected software-based platform that is scalable, modular and flexible.
The software platform, Generations, together with the Company's VTK system or
third-party hardware, provide customers with an interactive communications
system designed for sophisticated operating environments. These products
integrate with the systems used by many of the major telephone switch
manufacturers and computer system vendors and provide end-users with a strong
integrated system solution.
Generations, which is available on multiple operating systems and computer
vendor hardware platforms, runs and manages mixed media applications, allowing
customers to choose the computer and operating system that best suits their
requirements. The software platform integrates industry standard technologies
such as network interfaces, host communications and SQL databases, enabling
Generations to provide access to information through mixed media technologies
(such as DTMF, pulse or ADSI (screen phone) telephones, fax, Web Browsers, voice
processing or speech recognition). Generations is extensible, easily
incorporating new technologies such as Web integration, large vocabulary speech
recognition, text-to-speech and simple network management protocols ("SNMP")
technologies. Generations is flexible and allows the user to extend the platform
by creating special processing functions required by an application.
Additionally, the Generations client server architecture is scalable, enabling
systems with as few as 24 ports up to many thousands of ports. This architecture
allows end users to offer multiple applications and services simultaneously and
provides companies with the ability to deploy only the capability they need
while permitting new or additional capabilities to be added at a later time,
instead of requiring an entirely new system.
The client server architecture of Generations enables companies to scale
the size of their interactive communications to meet their specific volume
requirements. Voicetek systems can be deployed either centrally or over a
geographically dispersed area. The Company believes that these features help
end-users to lower their operating costs through more efficient use of MIS
resources, improved application development and more efficient ongoing
maintenance and enhancement of applications.
Voicetek also provides Generations Developer, an integrated set of tools
within Generations to design, create, test and deploy applications. Using
object-oriented technology, Generations Developer allows customers to build
applications based on knowledge of their business workflow and processes without
the need for extensive computer programming skills. Using Generations Developer,
the Company believes that customers can create, test and deploy applications in
less time and at a lower cost than using conventional programming tools and
methods.
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STRATEGY
Voicetek's objective is to become a leading supplier of interactive
communications software platforms and applications solutions. To achieve this
objective, the Company is pursuing the following strategies:
Enhance Technology Leadership. Voicetek believes that it was one of
the first companies to deliver an open architected software platform for
the development and deployment of interactive communications applications.
To accommodate an increasingly complex technology infrastructure, the
Company intends to enhance its current platforms by (i) porting its
software platform to other operating systems such as Windows NT and other
UNIX derivatives, (ii) integrating new industry technologies such as SS7
and Internet protocols, large scale vocabulary speech recognition and
text-to-speech, (iii) continuing to develop strong system management and
fault resilient features in its products such as sophisticated SNMP
capabilities, system management applications and additional redundancy and
fail-safe features and (iv) adopting and implementing industry standards
such as S.100 in its products. Voicetek intends to continue to participate
in the evolution of industry standards by actively participating in
industry standard committees.
Focus on Mid-Range and High-End Systems. Voicetek's primary focus is
to provide interactive communications systems to enterprises for which
sophistication, openness, scalability and fault resilience are of paramount
importance. The Company's products can be configured for mid-size (24 to
300 ports) or large scale installations (in excess of 300 ports), including
networks of multiple systems to handle thousands of telephone ports.
Employ Leveraged Sales Channels. Voicetek currently employs a
strategy of leveraged selling primarily through a limited number of channel
partners, which is complemented by direct selling to large organizations.
Voicetek intends to continue to develop, market and support interactive
communications systems through relationships with original equipment
manufacturers and strategic partnering with telephone switch manufacturers
and computer system vendors, leveraging their installed customer base,
large sales forces and support organizations. The Company integrates its
Generations software with the channel partner's products, creating a long
term cooperative relationship and providing a strong end-to-end system
solution for the end-user. The partnering of Voicetek and its channel
partners requires a significant investment by the channel partners in
product development, training, support and sales functions. Voicetek seeks
to establish relationships with additional channel partners who will
provide access to their customer bases and vertical segment expertise.
Provide Enhanced Service Platforms and Applications to
Telcos. Leveraging off of its existing technology base, the Company
intends to implement new sales, marketing and engineering initiatives to
provide enhanced services to Telcos. Voicetek has developed alliances with
channel partners who deploy Generations and VTK systems to service both
internal operating groups and external customers. Voicetek intends to use
these alliances to develop new capabilities and applications for use by its
Telco customers, such as integrating into a single product offering
voice-activated dialing, personal communications services, Internet
provisioning, single number service and voice-mail.
Leverage Platform Capabilities into Applications Solutions. Voicetek
intends to leverage its large library of Generations application software
modules by packaging certain modules to address business-specific
application needs in a number of markets including banking, finance,
insurance and human resources. Voicetek believes that such customizable
application software packages will result in more rapid implementation of
end-user solutions and allow its channel partners to make multiple sales
with shorter sales cycles.
Increase International Revenue. The Company believes that
international markets offer significant growth opportunities as the
communications infrastructures in many foreign countries continue to
develop. The Company seeks to take advantage of these opportunities and has
established field sales offices in London, Hong Kong and Sao Paulo. In
addition, the Company intends to deploy sales, support, marketing and
development operations in selected areas such as Europe. The Company
intends to
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increase international revenues by leveraging current and new business
partners and by providing a local sales and support presence.
PRODUCTS
The Company's products consist of a sophisticated software platform and a
family of scalable telephony servers which can be configured for mid-size (24 to
300 ports) or large scale installations (in excess of 300 ports), including
networks of multiple systems to handle thousands of telephone ports. The Company
also provides custom application development and tools that provide various
administrative, systems management and application development capabilities.
Voicetek's customers can purchase an integrated system of software and hardware
or can license the Generations software and customize their systems to meet
specific business needs. Depending on system configuration, optional features
and custom programming, prices for the Company's interactive communications
system can range from $200 to $3,000 per port. An overview of the Company's
products is set forth below:
Generations
Generations is an open and extensible graphical platform of functions,
capabilities, integrated databases and shared resources. It is available on
multiple computer platforms to integrate easily into MIS environments.
Generations is designed to be portable and is supported on the most popular UNIX
processor platforms, including SCO UNIX, Sun Solaris, IBM AIX, HP-UX and Digital
UNIX. Generations applications developed on one supported processor platform can
generally be copied to any other supported platform for execution without
change, using the same user interfaces. Generations is also an integrated
platform through which multiple, mixed-media applications can be deployed,
administered and monitored. Using Generations, customers can program new
applications and maintain existing applications by drawing call flows using
graphical icons which represent the building blocks of telephony or computer
functions.
GENERATIONS FAMILY FEATURES AND FUNCTIONS
- --------------------------------------------------------------------------------------------
GENERATIONS DEVELOPER Generations Developer is a set of graphical,
object-oriented tools for application design, prototyping
and deployment. Generations Developer provides a
system-defined palette of cells which the user "drags and
drops" onto the page, laying out the call flow graphically.
Each cell has an associated set of parameter values, which
the developer can modify as necessary. Generations' Cell
Builder is an option used to create reusable customized
cells to represent special processing functions. An
application test facility provides the developer with trace
facilities and tools to analyze, debug and test
applications prior to implementation.
- --------------------------------------------------------------------------------------------
GENERATIONS RSP Generations Runtime Server Platform ("RSP") manages and
supports the developed applications solutions. RSP
communicates with Generations TSP to dynamically allocate
resources and manage application sessions. RSP provides
administration interfaces for application assignment,
performance optimization and SNMP support. RSP provides a
statistical reporting capability, prompt management and
database subsystem.
- --------------------------------------------------------------------------------------------
GENERATIONS TSP The Telephony Server Platform ("TSP") manages all available
channels and controls internal processes and resources. TSP
services the communications interface with the application
clients, dynamically allocates requisite resources (e.g.,
speech recognizers) to application requests and provides
the administration interface for configuring network
interfaces and modifying resource configurations. TSP
includes facilities for system troubleshooting, status
events, usage reports and test utilities.
- --------------------------------------------------------------------------------------------
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LOGO
Generations interfaces with technologies that provide fax, text-to-speech,
a choice of speaker independent small or large scale vocabulary automatic speech
recognition, relational database management systems, high performance LAN/WAN
networks and network management tools through a defined set of application
programming interfaces and Generations processes. Therefore, customers can
select from alternative technology options to best fit their application needs.
Access methods supported by Generations include technologies such as telephone
(pulse detection, DTMF and ADSI), Web browsers, fax, paging and electronic mail.
EXTENDED FAMILIES FUNCTIONALITIES
- --------------------------------------------------------------------------------------------
LINK FAMILY Provides connectivity to legacy host environments (SNA
3270, 5250, LU6.2 and VT100) and principal SQL databases.
- --------------------------------------------------------------------------------------------
SPEECH FAMILY Provides interfaces to automatic speech recognition and
text-to-speech solutions by leading vendors.
- --------------------------------------------------------------------------------------------
MIXED-MEDIA FAMILY Provides media interfaces to fax, ADSI, paging and
Internet.
- --------------------------------------------------------------------------------------------
TELEPHONY FAMILY Provides support for both analog (Loopstart and DID) and
digital (T1, E1, ISDN Pri and ISDN Bri) telephony network
interfaces and supports hardware interface cards and
drivers.
- --------------------------------------------------------------------------------------------
CTI FAMILY Provides integration to SMDI and computer telephony
integration middleware products.
- --------------------------------------------------------------------------------------------
AIN FAMILY Provides the necessary protocols (SS7) allowing Generations
to be deployed on an intelligent peripheral on the AIN.
- --------------------------------------------------------------------------------------------
MANAGEMENT FAMILY Provides for centralized and distributed Generations
systems to be managed from an open, industry standard SNMP
management platform.
- --------------------------------------------------------------------------------------------
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Generations Developer provides an integrated set of tools within
Generations for designing, creating, testing and deploying applications. Using
object-oriented technology, Generations Developer allows customers to build
applications based on knowledge of their business workflow and processes without
the need for extensive computer programming skills. Using Generations Developer,
programming new service applications is accomplished by drawing call flows using
graphical icons. These graphical icons or "cells" are presented on a cell
palette, and represent the functional building blocks or required computer or
telephony services. These cells provide the interface to standard call process
functions such as DTMF detection, prompt playback and message recording.
Additionally, the cells provide computer telephony integration links such as
ANI, DNIS, SS7 and various switch integrations. Existing applications can be
modified by inserting new functions in the appropriate location in the flow or
deleting unneeded cells. The integrity and reliability of a newly created or
modified application can be confirmed with debugging tools.
Generations has a complete set of management features which reduce system
maintenance efforts over widely dispersed networks. Administrative interfaces
provide the flexibility and control to configure and manage the Company's
interactive communications systems for optimal performance. Through this
interface, Generations can be directed to load, run or unload an application.
New versions of applications can be brought on-line or ports reassigned to a
different application without interrupting the system. Generations allows the
scheduling of multiple applications on a single platform. Statistics are
gathered and reported on the number of calls received by day, hour, and trunk,
as well as the events on all or any of the trunks. Prompts can be recorded and
then loaded into the telephony server platform without interrupting service.
VTK Family
The Company's VTK family of telephony servers employs a client server
architecture and is designed to support medium to large-scale system deployments
supporting configurations of many thousands of ports distributed over large
geographical regions or centrally located within a call center or corporate
enterprise environment. These servers are designed for reliability and include
features such as Network Equipment Building System compliance, redundant
components, alarms, AC or DC power, remote diagnostics and ease of maintenance.
The VTK servers provide all the necessary telephone company interfaces for
analog (Loopstart and DID) and digital (T1, E1, ISDN Pri and ISDN Bri)
communication, as well as other application resources such as fax, automatic
speech recognition and text-to-speech functions.
INTEGRATED SYSTEMS FAMILY FEATURES AND FUNCTIONS
- --------------------------------------------------------------------------------------------
VTK ONE An entry-level system for development and test environments,
low port density deployments and moderate traffic runtime
applications. The "Development" version of the product
provides a turn-key system with the Generations software
necessary to begin developing interactive communications
applications. VTK One can support up to 24 ports and can be
networked with additional VTK systems.
- --------------------------------------------------------------------------------------------
VTK 2000 This system is deployed in high traffic corporate
facilities, mid-sized call centers and small distributed
networks. It has a space saving tower, can support up to 48
ports and can be networked to provide additional capacity.
- --------------------------------------------------------------------------------------------
VTK 3000 A high-end fault resilient system that is deployed in
demanding sites such as high volume call centers and Telco
central office environments. Scalable, a single VTK 3000 can
provide 120 ports of network connectivity and multiple units
can be supported by a single application server.
- --------------------------------------------------------------------------------------------
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Custom Application Development
Voicetek provides application development, project management and
consulting services for its large customers that desire turn-key solutions. The
Company's consultants, who have a working knowledge of host connectivity,
database design, client server architectures and the latest mixed media
technologies, provide customers with specialized development assistance.
Consulting offerings include project management, product requirements and call
flow specifications, application design specifications, design reviews, custom
programming, external interface development, prompt creation and test plan
development.
CUSTOMERS AND APPLICATIONS
Customers
Some of the representative market, end-users and applications of Voicetek's
products are set forth below:
- --------------------------------------------------------------------------------
MARKET END-USERS REPRESENTATIVE APPLICATIONS
- ---------------------------------------------------------------------------------------------
Financial Services Coast Federal Bank, Commerce Bank-by-phone, securities quotes and
Bank, First USA, Fleet Bank, trading orders, funds transfer,
Group Health Inc., Interactive current interest rates, loan
Transaction Partners, National application status, retirement plan
Discount Brokers, Oxford Health performance and status, account
Plans, Santa Monica Bank, VISA inquiry, plan eligibility
verification, claims status,
cardholder services
- ---------------------------------------------------------------------------------------------
Government Interstate Commerce Commission, Emergency heating service, tax
New York Housing Authority, U.S. filing
Patent and Trademark Office and refund status, classification
inquiry, labor reporting,
transportation rates and schedules
- ---------------------------------------------------------------------------------------------
Consumer Products Great Woods Institute for the Customer service hotline, event
and Services Performing Arts, Long Island ticket purchasing, billing and
Lighting Company, NEXT service inquiries, prescription
Ticketing, Packard Bell, Perrier refills, outbound telemarketing,
utility outage reporting, order
fulfillment
- ---------------------------------------------------------------------------------------------
Other Business Andersen Consulting, Comcast Employment opportunities, order
Cablevision, Digital Equipment fulfillment, seminar registration,
Corporation, Lockheed, Microlog fax-on- demand, product information,
Corporation, Rail Europe, Remedy scheduling, labor reporting, travel
Corporation, Rockwell route planning, employment services,
International, Sun Microsystems, product information, pay-per-view
Teletech, Softbank, University ordering, trouble reporting,
of Kentucky, Volt Delta installation/repair service
Resources scheduling, paging
- ---------------------------------------------------------------------------------------------
Telecommunications Bell Atlantic, GTE, Hong Kong Personal number service, audiotext,
Telecom, Pacific Bell Info account inquiry, repair scheduling,
Services, Southwestern Bell, service ordering, and disptach
U.S. West directory assistance, collect
calling, trouble reporting, fax back
service
- ---------------------------------------------------------------------------------------------
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Applications
Financial Services:
- A discount brokerage company sought to increase the effectiveness of its
customer service operations and to control service costs. Voicetek's
Generations and VTKs were deployed with applications that offer online
trading services including account history, stock quotes and securities
trading. The Company believes this system improved the range of the
brokerage's customer service while limiting the need to hire additional
operators or stock brokers. The Company believes Generations has helped
the organization maintain its position as a low cost broker.
Other Business:
- A leading supplier of personal computers and accessories needed to
streamline customer service and sales operations, manage a rapidly
growing business and control costs by limiting the number of new hires
required to support growth. This organization deployed Generations
software platform and VTK voice response servers to answer requests for
information about new products, upgrade existing products and
distribution channels and route service calls. The Generations system
responds to customer inquiries by making the appropriate person
accessible to the customer, promptly providing them with information they
need through a fax-back system and providing timely callbacks and
resolution of problems.
- A leading health insurance provider desired to automate a number of its
customer service processes as a means of lowering its operational
expenses and managing its rapid growth. The insurance company deployed
the Company's Generations software and VTK voice response servers with
applications which intelligently route calls to the appropriate customer
service representatives, indicating to the caller the number of calls
already in queue, offering the caller the option of waiting for an
available customer service representative or leaving a message informing
when to expect a return call. These processes are used to provide a range
of services to customers including claims status, patient eligibility and
endorsements. The Company believes that the Generations system has
provided the customer the opportunity to expand business without having
to hire additional staff and enabling some current staff to be redeployed
to focus on more complex business problems.
Telecommunications:
- A large telecommunications company sought to improve its competitive
position by using interactive communications systems to increase the
breadth and quality of services to control the cost of service delivery
and increase customer satisfaction. The Telco deployed a Generations
system with applications such as long-distance pre-subscription, billing
and payment inquiries, user assistance, calling card and directory
orders, service dispatch and custom calling services. The Company
believes that the customer used Generations to integrate existing
applications, provide an extensible platform on which it could create new
services, control operating costs, reduce headcount and increase the
capacity of its existing system.
- A significant part of an international cellular provider's customer
retention strategy is to increase its calling services. The cellular
company used Generations and VTKs to build a unique message storage
architecture and custom application. The Generations system allows end
user customers to realize the convenience and efficiency of a
network-based voice messaging system.
SALES AND MARKETING
Voicetek employs a strategy of leveraged selling primarily through a
limited number of channel partners such as OEMs, VARs, systems integrators and
distributors, as well as through direct selling to large organizations. Voicetek
leverages the installed customer base and large sales force of its channel
partners to sell directly to Telcos. Voicetek actively supports its channel
partners with a dedicated account manager and access to Voicetek's direct sales
and sales engineering resources. Voicetek's account managers work with
representatives of the Company's channel partners to coordinate the sales
process. The Company's sales representatives sell directly to end users and also
assist the channel partners with technical sales assistance.
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The Company has a network of sales and support personnel in North America,
Europe, Asia and South America. The Company's OEMs include Nortel, Rockwell
International, Digital Equipment Corporation, Volt Delta, Group 2000 and
Microlog Corporation and its VARs include Andersen Consulting, Logica, Open
Development Corporation and digiTrade.
The Company supports its sales and distribution efforts with a marketing
organization. This organization is responsible for traditional marketing
functions such as product management, market and competitive research, industry
marketing, sales and marketing programs, advertising and public relations.
Voicetek's marketing efforts focus on further penetrating its target markets and
expanding its presence in vertical markets, such as Telcos. Additionally, the
Company seeks to complement its existing channel partner relationships by
developing new strategic relationships that will allow it to expand its market
presence.
CUSTOMER SERVICE AND SUPPORT
Voicetek relies on its sales channel partners to provide the first level of
customer support to end users. End users rely primarily on the OEM or VAR for
the initial service call. If necessary, Voicetek provides service and support to
its customers and end users on a timely basis through its network of service and
support staff. The Company's technical support engineers, based at its
headquarters in Chelmsford, Massachusetts and its field service engineers are
experienced with all aspects of interactive communications systems, including
telecommunications, data communications and mixed media technologies. The
Company believes that the ease-of-use and comprehensive feature/function
attributes of Generations minimize ongoing system maintenance.
The Company offers customer support and services, including direct support
and remote access diagnostic testing. Voicetek technicians have the ability to
access a customer's system remotely to activate trace and diagnostic functions.
This allows technicians to assess and remedy a system failure for customers in
diverse locations. In addition, technicians provide support with installation
and maintenance when needed.
Voicetek provides education and training for all of its products at its
headquarters, customer sites or specified locations worldwide. Comprehensive
training programs are offered in system installation and support, basic
Generations capabilities, application development, advanced development and
other specific technologies. The cost for training programs is not included in
the purchase price of a system and is a fee option for customers.
ENGINEERING, RESEARCH AND PRODUCT DEVELOPMENT
The Company has made, and intends to continue to make, a substantial
investment in research and product development. For the year ended December 31,
1996, the Company spent $5.7 million on research and product development, which
is equal to 26.1% of total revenues for such period. The Company's growth and
future financial performance will depend in part upon its ability to (i) enhance
the Generations platform and existing applications to further solidify
acceptance in the Telco and commercial markets, (ii) develop and introduce new
applications which add value to the target markets and keep pace with
technological advances, (iii) meet changing customer requirements, (iv) respond
to competitive products and (v) achieve market acceptance. The Company works
with its customers to determine their requirements and to design enhancements
into new products and services to meet their needs.
The Company believes that the strength of its product is derived primarily
from its sophistication, combined with ease-of-use, openness and technology
integration. To maintain this technological advantage, the Company has several
product development efforts underway which it hopes will further its interactive
communications systems. The Company is developing a suite of packaged
applications for enhanced services for Telcos.
Building upon its custom application development expertise, the Company
intends to release pre-packaged applications targeted at the commercial market.
Voicetek hopes that these applications will allow customers to utilize the
expertise and functionality which the Company developed for specific proprietary
customers while avoiding the expenses associated with customer specific full
scale development. Vertically targeted market applications are expected to
address the financial, brokerage and health care industries, and
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horizontal applications may include call routing, mail and messaging and
Internet enabled call centers. See "Risk Factors -- Technological Change,
Changing Markets and New Products."
The Company believes that its future success is dependant in large part on
its ability to continue to develop new products and enhanced services for its
customers and end-users. To develop new products and services, the Company needs
to attract, retain and motivate highly skilled computer programmers and
engineers. There can be no assurance that the Company will be able to attract,
retain and motivate such personnel. See "Risk Factors -- Reliance on Key
Personnel."
MANUFACTURING
The Company's manufacturing activities, which consist primarily of material
requirement planning, purchasing, testing, system assembly and quality
assurance, are conducted at its Chelmsford, Massachusetts facility.
Most of the components and parts used in the Company's products are
available from more than one supplier. Certain components that are purchased
from one source can generally be replaced with parts available from other
sources. The Company currently purchases approximately 41.9% of certain
components of its VTK system from Dialogic, and there can be no assurance that
Dialogic will be able to continue to supply the Company with such components.
Although other manufacturers produce substantially similar components, a
disruption in the supply of such components from Dialogic could have a material
adverse effect on the Company. See "Risk Factors -- Reliance on Component
Availability and Key Suppliers." To date, when components have become
unavailable, the Company has been able to obtain functionally similar
substitutes and to accomplish any necessary redesign without a material
interruption in production, although there can be no assurance that this will
remain the case in the future.
COMPETITION
The market for telecommunications software products is intensely
competitive and subject to rapid technological change. The Company believes that
the principal competitive factors affecting its market are reputation,
reliability, system features, customer service, price and the effectiveness of
marketing and sales efforts. Additionally, the Company believes that to
distinguish itself in this marketplace, it must have the ability to anticipate
unmet customer needs and to introduce new features to address those needs on a
timely basis. Although the interactive communications industry is highly
competitive and certain of the Company's competitors have considerably greater
financial, technical, marketing and sales resources than the Company, the
Company believes that it competes favorably with respect to each of these
factors.
Although the Company's focus is on software based interactive
communications systems, the Company believes it competes in certain instances
with certain manufacturers of high end systems such as Periphonics, Inc.,
InterVoice Inc. and Brite Voice, Inc., which the Company believes have focused
on sales of hardware-based interactive voice response systems. In addition, many
suppliers of voice mail systems and telecommunications equipment have added some
capabilities similar to interactive communications to some of their product
offerings and generally sell these features as a component of or add-on to an
overall sale of a voice mail system or a telecommunications switch. In addition
to existing competitors, as the interactive communications market continues to
grow and mature, the Company expects to encounter additional competition from
companies which offer platforms for voice messaging, enhanced services or other
types of technology. Also, as the Company enters new market segments, it may
face competition from companies which have already established their position
and market share.
BACKLOG
Backlog includes all unshipped orders for which the Company has received a
firm purchase order. Orders for the Company's products are usually placed by
customers on an as-needed basis and the Company has typically been able to ship
a standard interactive communications system within 14 days after the customer
submits a firm purchase order. Because of the possibility of customer changes in
delivery schedules or
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cancellation of orders, the Company's backlog as of any particular date may not
be indicative of sales in any future period. See "Risk Factors -- Fluctuations
in Quarterly Operating Results."
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, as well as employee confidentiality agreement, third-party
non-disclosure agreements and license agreements to protect its proprietary
rights. The Company has three patents relating to the architecture, operating
methodologies and interfaces of the Company's products. Nonetheless, there can
be no assurance that any patent relied upon by the Company will not be
challenged, invalidated or circumvented or that rights granted thereunder will
provide competitive advantages. Moreover, despite the Company's efforts, there
can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of such rights
or that third parties will not independently develop functionally equivalent or
superior software technology. From time to time, third parties may assert
exclusive copyright, trademark and other intellectual property rights to
technologies that are important to the Company. The Company is aware that
certain segments of the voice processing industry, particularly voice mail/voice
messaging systems, are affected by active and costly litigation and there can be
no assurance that as the Company's interactive communications systems evolve
(possibly to include certain voice mail/voice messaging features), the Company
will not be required to enter into license agreements or become involved in, or
otherwise affected by, litigation which may or may not be meritorious. See "Risk
Factors -- Third-Party Claims of Infringement; Limited Protection of Proprietary
Rights."
The Company believes that due to the rapid pace of innovation within the
telecommunications industry, factors such as technological and creative skill of
personnel, knowledge and experience of management, reputation, maintenance and
support and the ability to develop and enhance systems, software products and
services are more important for establishing and maintaining a competitive
position within the industry than are patent, copyright and other legal
protections for its technology.
EMPLOYEES
As of January 31, 1997, the Company had 164 full time employees. As of such
date, there were 81 employees in the engineering department, 50 employees in the
sales and customer service area, 7 employees in the marketing department, 16
employees in the financial and administrative area and 9 employees in the
purchasing and operations area. The Company considers its employee relations to
be good. None of the Company's employees is covered by a collective bargaining
agreement.
The Company's success will also depend in part on its ability to attract
and retain qualified managerial, technical and sales and marketing personnel,
for whom competition is intense. In particular, the current availability of
qualified sales and engineering personnel is limited. The Company has recently
hired a significant number of sales and marketing personnel and the Company's
success will depend in part on the Company's ability to train and integrate new
hires into the Company's business.
PROPERTIES
The Company's headquarters are located in a 56,220 square foot leased
facility in Chelmsford, Massachusetts. This facility houses the Company's
management, marketing and sales personnel. The lease for this facility
terminates on October 31, 2003. In addition, the Company leases a sales office
in Hong Kong. The Company believes that its existing facilities are adequate to
meet its current needs and that suitable additional or alternative space will be
available on commercially reasonable terms as needed.
LEGAL MATTERS
The Company is not a party to any legal proceedings other than various
claims and lawsuits arising in the ordinary course of its business which, in the
opinion of the Company's management, are not individually or in the aggregate
material to its business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
Sheldon L. Dinkes...................... 51 President, Chief Executive Officer and
Director
Paul J. Gagne.......................... 43 Executive Vice President, Engineering
Roger N. Tuttle, Jr. .................. 49 Vice President, Chief Financial Officer
and Treasurer
Scott D. Ganson........................ 39 Vice President, Sales and Customer
Service
Daniel R. Poranski..................... 37 Vice President, Marketing
John A. Blaeser(1)(2).................. 55 Director
Sherman M. Wolf(1)..................... 70 Director
Alan Voulgaris(1)...................... 62 Director
Christopher W. Lynch(2)................ 46 Director
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
The Board of Directors intends to appoint at least one additional director
who is not affiliated with the Company within 90 days of the consummation of
this offering.
SHELDON L. DINKES has served as President and Chief Executive Officer of
the Company since November 1990. Prior to joining the Company, Mr. Dinkes was
employed for over 12 years at Gould, Inc., a computer and electronics
manufacturing company, where he held financial and general management positions,
most recently serving as Vice President of Administration of Electronic Business
Systems. Mr. Dinkes is a Certified Public Accountant in the State of New York, a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants.
PAUL J. GAGNE has served as Executive Vice President, Engineering of the
Company since January 1991. Mr. Gagne joined the Company in November 1989 as
Manager of Software Development. From January 1988 to October 1989, Mr. Gagne
served as Vice President of Software Development of Softpert Systems, Ltd., a
software development company. Mr. Gagne was employed for over five years at Wang
Laboratories, where he most recently served as Department Manager, Software
Research and Development.
ROGER N. TUTTLE, JR. joined the Company in October 1994 as Vice President
and Chief Financial Officer. From January 1993 to September 1994, Mr. Tuttle
served as Chief Financial Officer of Proconics International, Inc., a supplier
of semiconductor fabrication automation equipment. From October 1991 to January
1993, Mr. Tuttle served as Chief Financial Officer of Aerodyne Products
Corporation. In February 1996, SI Automation, Inc., formerly Proconics
International, Inc., filed Chapter 11 bankruptcy proceedings, as did its
wholly-owned subsidiary, Stahl Research Laboratories, Inc., of which Mr. Tuttle
was a director.
SCOTT D. GANSON joined the Company as Vice President, Sales and Customer
Service in May 1993. From January 1992 to April 1993, Mr. Ganson worked as Vice
President of Sales for Remedy Corporation, a software development company. Prior
to 1992, Mr. Ganson was employed for over five years at Informix Software, Inc.,
a developer and distributor of relational database management software, where he
most recently served as Director of OEM Sales and Marketing.
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DANIEL R. PORANSKI joined the Company in April 1996 as Vice President,
Marketing. From November 1994 to March 1996, Mr. Poranski served as Director,
Product Marketing with 3Com Corporation. From April 1993 to November 1994, Mr.
Poranski served as Senior Product Manager with Chipcom Corporation, which was
acquired by 3Com in September 1995. From January 1991 to March 1993, Mr.
Poranski served as a Senior Manager of Marketing with Avatar Technologies, Inc.,
a networking company.
JOHN A. BLAESER has served as a director of the Company since May 1989.
Since April 1995, Mr. Blaeser has been the President and Chief Executive Officer
of Concord Communications, a software development firm. Since January 1996, Mr.
Blaeser has served as managing general partner at EG&G Venture Management, a
venture capital fund focusing on high technology companies. Mr. Blaeser also
serves on the Boards of Datawatch Corporation, Dynaco Corporation and Net2Net
Corporation.
SHERMAN M. WOLF has served as a director of the Company since he founded
Voicetek in 1981. Mr. Wolf has served as Chairman of Phase One Development
Corporation, a privately owned investment company, since he founded the company
in July 1983. Mr. Wolf founded Great Woods Institute for the Performing Arts in
Mansfield, Massachusetts in March 1985, Harborlights entertainment facility in
Boston, Massachusetts in February 1994 and New England Express Ticketing, Inc.
("NEXT") in September 1995.
ALAN VOULGARIS has served as a director of the Company since 1986. Mr.
Voulgaris has served as the managing partner of Kearsarge Capital Fund, L.P.
since August 1986, and serves on the Boards of Dynaco Corporation and True
Basic, Inc.
CHRISTOPHER W. LYNCH has served as a director of the Company since 1989.
Mr. Lynch has served as Vice President and general partner of Pioneer Ventures
Limited Partnership since February 1986. He is also a director of Corax
Technologies Corporation, Medsafe, Inc. and Vibrint Technologies, Inc.
COMPENSATION OF DIRECTORS
During the year ended December 31, 1996, Messrs. Blaeser, Wolf, Lynch and
Voulgaris each received options to purchase 8,000 shares of Common Stock at an
exercise price of $7.50 per share. Other than such options, the Company paid no
compensation to the directors for services rendered as a director during the
year ended December 31, 1996. The Company expects that following the closing of
this offering, its independent directors will be paid in a manner and at a level
consistent with industry practice.
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EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for the year ended December 31, 1996 paid to the Company's Chief Executive
Officer and certain other officers whose total 1996 salary and bonus exceeded
$100,000 during such year (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION(1)
----------------------------------------------- -------- ------- ----------------
Sheldon L. Dinkes.............................. $179,000 $58,500 --
President and Chief Executive Officer
Paul J. Gagne.................................. 151,500 39,545 --
Executive Vice President, Engineering
Roger N. Tuttle, Jr. .......................... 110,000 21,000 --
Chief Financial Officer, Treasurer
Scott D. Ganson................................ 149,500 33,345 --
Vice President, Sales and Customer Service
Daniel R. Poranski(2).......................... 93,750 4,687 --
Vice President, Marketing
- ---------------
(1) The Company did not grant any restricted stock awards or stock appreciation
rights to the Named Executive Officers during the year ended December 31,
1996. Other annual compensation in the form of perquisites and other
personal benefits has been omitted because the aggregate amount of such
perquisites and other personal benefits constituted less than 10% of each
executive's total annual salary.
(2) Mr. Poranski commenced employment with the Company in April 1996. Mr.
Poranski's current Employment Agreement is described elsewhere in this
Prospectus. See "Management -- Employment Agreements."
The following table sets forth certain information regarding the option
grants made during the year ended December 31, 1996 to each of the Named
Executive Officers.
OPTION GRANTS IN LAST YEAR
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------------ STOCK PRICE
NUMBER OF APPRECIATION FOR
SECURITIES PERCENT OF TOTAL EXERCISE OR OPTION TERM (1)
UNDERLYING OPTIONS GRANTED TO BASE PRICE EXPIRATION ---------------------
NAME OPTIONS GRANTED EMPLOYEES IN YEAR PER SHARE DATE 5% 10%
- ------------------ --------------- ------------------ -------------- ---------- -------- --------
Daniel R.
Poranski........ 16,666 12.4% $ 6.00 4/11/96(2) $135,736 $216,137
- ---------------
(1) Calculated according to the difference between the exercise price of the
options and the fair market value of the securities underlying the options
at December 31, 1996.
(2) Options become exercisable ratably over a four-year period.
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The following table sets forth information concerning exercise of stock
options and the number of options and value of unexercised options held at
December 31, 1996 by each of the Named Executive Officers. No options were
exercised during 1996 by such executives.
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END (#) AT YEAR END($)(1)
SHARES ACQUIRED VALUE ----------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ---------------- ------------ ------------ -------------- ----------- -------------
Sheldon L. Dinkes...... -- -- 251,500 21,833 $2,728,012 $ 179,651
Roger N. Tuttle,
Jr. ................. -- -- 28,166 28,167 305,601 305,601
Paul J. Gagne.......... -- -- 39,666 28,167 420,269 268,474
Scott D. Ganson........ -- -- 84,500 28,166 923,162 307,714
Daniel R. Poranski..... -- -- -- 16,666 -- 83,330
- ---------------
(1) Value is based on the difference between the option exercise price and an
assumed initial public offering price of $11.00 per share multiplied by the
number of shares of Common Stock underlying the option. No market existed
for the Common Stock prior to this offering.
EMPLOYMENT AGREEMENTS
Effective January 13, 1997, the Company entered into employment agreements
with each of Messrs. Dinkes, Tuttle, Ganson, Poranski and Gagne. Mr. Dinkes'
employment agreement provides for employment as President and Chief Executive
Officer at a base annual salary of $200,000. Mr. Tuttle's agreement provides for
employment as Vice President of Finance and Chief Financial Officer at a base
annual salary of $120,000. Mr. Ganson's agreement provides for employment as
Vice President, Sales and Customer Service at a base annual salary of $161,500.
Mr. Poranski's agreement provides for employment as Vice President, Marketing at
a base annual salary of $132,000. Mr. Gagne's agreement provides for employment
as Executive Vice President, Engineering at a base annual salary of $170,000. In
addition, Messrs. Dinkes, Tuttle, Poranski, Ganson and Gagne are eligible to
receive bonuses as determined by the Compensation Committee. Each of the
employment agreements extends until January 12, 2000 and provides that in the
event the Company undergoes a change of control, all options of these executive
officers to purchase Common Stock of the Company which otherwise would become
exercisable within one year following the date of the change of control shall
become exercisable upon the change of control, and the balance of such options
shall become exercisable one year earlier than provided for in the applicable
option grant.
STOCK OPTION PLANS
1992 Equity Incentive Plan
The Company's 1992 Equity Incentive Plan (the "1992 Incentive Plan") was
adopted by the Board of Directors of the Company in May 1992. The 1992 Incentive
Plan provides for the grant of stock options, stock appreciation rights,
performance shares and restricted stock awards to all employees of (including
officers who may be members of the Company's Board of Directors) and consultants
to the Company. Under the 1992 Incentive Plan, the Company could grant options
intended to qualify as incentive stock options within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended (the "Code"), and options
not intended to qualify as incentive stock options. A total of 1,091,034 shares
of Common Stock were originally authorized for issuance under the 1992 Incentive
Plan. As of December 31, 1996, options to purchase a total of 721,109 shares of
Common Stock at exercise prices ranging from $0.075 to $7.50 per share were
outstanding under the 1992 Incentive Plan, of which options to purchase 459,631
shares of Common Stock were exercisable. Options outstanding expire at various
dates through January 2007.
The 1992 Incentive Plan is administered by the Compensation Committee of
the Board of Directors of the Company. Payment of the option price may be made
in cash, shares of Common Stock or a combination of cash and stock. Options are
not assignable or transferable except by will, under the laws of descent and
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distribution or pursuant to a qualified domestic relations order. No stock
appreciation rights, performance shares or restricted stock awards have been
granted under the 1992 Incentive Plan.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted
by the Board of Directors of the Company in August 1996. The 1996 Option Plan
provides for the grant of stock options to key employees (including officers who
may be members of the Company's Board of Directors), directors who are not
employees and consultants to Company. Under the 1996 Option Plan, the Company
could grant options intended to qualify as incentive stock options within the
meaning of Section 422A of the Code, and options not intended to qualify as
incentive stock options. A total of 333,333 shares of Common Stock were
originally authorized for issuance under the 1996 Option Plan. Effective January
1, 1997 and each January 1 thereafter through January 1, 2006, the number of
shares of Common Stock authorized for issuance under the 1996 Option Plan shall
be increased cumulatively such that the number of shares of Common Stock subject
to the 1996 Option Plan shall equal 15% of the total number of fully diluted
shares of Common Stock (excluding shares of Common Stock issuable upon the
exercise of options to purchase Common Stock granted under the Company's 1996
Director Option Plan, as defined below) as of the close of business on December
31 of the preceding year. As of December 31, 1996, no options were outstanding
under the 1996 Option Plan.
The 1996 Option Plan is administered by the Compensation Committee of the
Board of Directors of the Company. Payment of the option price may be made in
cash, shares of Common Stock or a combination of cash and stock. Options are not
assignable or transferable except by will, under the laws of descent and
distribution or pursuant to a qualified domestic relations order. Options
granted to employees who subsequently cease to be employees of the Company are
exercisable only to the extent of vesting as of the date such optionee ceases to
be an employee of the Company. Options vest and become exercisable in accordance
with the terms of the option agreement evidencing the grant thereof. The
Compensation Committee has the right to accelerate the exercisability of options
granted under the 1996 Option Plan.
1996 Director Option Plan
The Company's 1996 Stock Option Plan for Non-Employee Directors and Clerk
(the "1996 Director Option Plan") was adopted by the Board of Directors of the
Company in August 1996. The 1996 Director Option Plan provides for the grant of
stock options to the Clerk and directors who are not employees of the Company.
Under the 1996 Director Option Plan, the Company could grant options not
intended to qualify as incentive stock options within the meaning of Section
422A of the Code. A total of 60,000 shares of Common Stock were originally
authorized for issuance under the 1996 Director Option Plan. As of December 31,
1996, options to purchase a total of 38,666 shares of Common Stock at an
exercise price of $7.50 were outstanding under the 1996 Option Plan, none of
which were exercisable. No options have been exercised to date and options
outstanding expire at various dates through August 2006.
The 1996 Director Option Plan is administered by the Compensation Committee
of the Board of Directors of the Company. The four non-employee directors of the
Company at the time of the adoption of the 1996 Director Option Plan and each
new non-employee directors elected prior to August 2001 shall be granted an
option to purchase 8,000 shares of Common Stock. The Clerk of the Company at the
time of the adoption of the 1996 Director Option Plan was granted an option to
purchase 6,666 shares of Common Stock. Effective August 1, 1997 and each August
1 thereafter during the term of the 1996 Plan, the number of shares of Common
Stock available for grants of stock options under this Plan shall be increased
cumulatively such that a sufficient number of shares subject to the 1996
Director Option Plan to accommodate additional annual grants of options to
purchase 7,333 to each non-employee director and 6,666 to the Clerk. Payment of
the option exercise price may be made in cash, shares of Common Stock or a
combination of cash and stock. Options are not assignable or transferable except
by will, under the laws of descent and distribution or pursuant to a qualified
domestic relations order. Options are exercisable only while the optionee
remains the Clerk or a director of the Company or for a short period of time
thereafter (unless the Clerk or director was terminated for cause, in which case
the option terminates immediately) and only to the extent of vesting as of the
date such optionee ceases to be the Clerk or a director.
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1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
is to be adopted by the Board of Directors of the Company in March 1997. The
1997 Purchase Plan will provide for the issuance of a maximum of 166,666 shares
of Common Stock pursuant to the exercise of nontransferable options granted to
participating employees of the Company. Employees who have been employed by the
Company for less than six months and those who own 5% or more of the capital
stock of the Company will not be eligible to participate in the 1997 Purchase
Plan.
The 1997 Purchase Plan will be administered by the Compensation Committee
of the Board of Directors of the Company. To participate in the 1997 Purchase
Plan, an employee must authorize the Company in writing to deduct an amount (not
less than 1% nor more than 10% of a participant's base compensation) from his or
her pay commencing on January 1 and July 1 of each year (each a "Purchase
Period"). The first Purchase Period is expected to commence on July 1, 1997. On
the first day of each Purchase Period, the Company grants to each participating
employee an option to purchase up to 1,333 shares of Common Stock. The exercise
price for the option for each Purchase Period is the lesser of 85% of the fair
market value of the Common Stock on the first or last business day of the
Purchase Period. The fair market value will be the closing selling price of the
Common Stock as quoted on the Nasdaq National Market. If an employee is not a
participant on the last day of the Purchase Period, such employee is not
entitled to exercise his or her option, and the amount of his or her accumulated
payroll deduction will be refunded to the employee. An employee's rights under
the 1997 Purchase Plan will terminate upon his or her voluntary withdrawal from
the Plan at any time or upon termination of employment.
Common Stock for the 1997 Purchase Plan will be made available either from
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company, including shares repurchased in the open market.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was established on August 1, 1996 and currently
consists of John A. Blaeser and Sherman M. Wolf. Mr. Dinkes participated in
deliberations of the Compensation Committee regarding compensation of other
executive officers, but did not participate in deliberations relating to his own
compensation.
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CERTAIN TRANSACTIONS
In 1995, the Company sold an interactive communications system to NEXT for
an aggregate purchase price of approximately $597,000. During 1996, NEXT
purchased additional components for such system for an aggregate of $16,000. As
of January 1, 1997, NEXT has entered into an agreement with the Company pursuant
to which the Company will provide certain on-going maintenance to NEXT for
approximately $57,000. The founder and a stockholder of NEXT is Sherman M. Wolf,
who is a director of the Company.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock prior to and after giving effect to this
offering by (i) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each of the
Company's directors and executive officers, (iii) each Selling Stockholder and
(iv) all directors and executive officers of the Company as a group.
SHARES OWNED PRIOR SHARES OWNED AFTER
TO OFFERING(1) THE OFFERING(1)
-------------------- NUMBER OF --------------------
BENEFICIAL OWNER(1) NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ------------------------------------- --------- -------- --------------- --------- --------
DIRECTORS AND EXECUTIVE OFFICERS:
- -------------------------------------
John A. Blaeser(2)................... 2,785,587 55.4 276,684 2,508,903 35.7
Christopher W. Lynch(3).............. 576,098 11.5 31,500 544,598 7.7
Alan Voulgaris(4).................... 483,113 9.6 45,000 438,113 6.2
Sherman M. Wolf(5)................... 310,592 6.2 -- 310,592 4.4
Sheldon L. Dinkes(6)................. 251,500 4.8 -- 251,500 3.5
Paul J. Gagne(7)..................... 131,166 2.6 -- 131,166 1.9
Scott D. Ganson(8)................... 84,500 1.7 -- 84,500 1.2
Roger N. Tuttle, Jr.(9).............. 28,166 * -- 28,166 *
Daniel R. Poranski................... -- -- -- -- --
SELLING AND 5% STOCKHOLDERS:
- -------------------------------------
EG&G Venture Partners
c/o Concord Communications
33 Boston Post Road West
Marlborough, MA 01752.............. 2,785,587 55.4 276,684 2,508,903 35.7
Kearsarge Capital Fund, L.P.
41 Brook Street
Manchester, NH 03104............... 483,113 9.6 45,000 438,113 7.7
Pioneer Ventures Limited Partnership
60 State Street
Boston, MA 02109................... 291,623 5.8 31,500 260,123 3.7
Massachusetts Technology Development
Corporation
148 State Street
Boston, MA 02109................... 239,042 4.8 60,000 179,042 2.5
Geneva Partners
c/o Pioneer Capital Corporation
60 State Street
Boston, MA 02109................... 127,900 2.5 21,500 106,400 1.5
NYNEX Development Company
c/o NYNEX Treasury
1095 Avenue of the Americas, Rm
3922
New York, NY 10036................. 65,316 1.3 65,316 -- --
All directors and executive officers
as a group (9 persons)............. 4,650,722 85.6 353,184 4,297,538 57.8
- ---------------
* Less than one percent
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(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "Commission") and includes general
voting power or investment power with respect to securities. Shares of
Common Stock subject to options and warrants currently exercisable or
exercisable within 60 days of January 31, 1997 are deemed outstanding for
computing the percentage of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person. Except
as otherwise specified below, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Unless otherwise indicated, the
address of each of the beneficial owners identified is 19 Alpha Road,
Chelmsford, MA 01824.
(2) Mr. Blaeser is the General Partner of EG&G Venture Partners and accordingly
may be deemed to be the beneficial owner of the shares held by EG&G Venture
Partners. Mr. Blaeser disclaims such beneficial ownership. Mr. Blaeser's
address is Concord Communications, 33 Boston Post Road West, Marlborough,
MA 01752.
(3) Mr. Lynch is the Vice President of Pioneer Capital Corporation which has
entered into a management agreement with Pioneer Ventures Limited
Partnership, a partner of LPP Partners and a partner of Corning Partners II
and accordingly may be deemed to be the beneficial owner of the shares held
by each of Pioneer, LPP Partners and Corning Partners II. Mr. Lynch
disclaims such beneficial ownership. Mr. Lynch's address is Pioneer
Capital, 60 State Street, Boston, MA 02109.
(4) Mr. Voulgaris is the General Partner of Kearsarge Capital Fund, L.P. and
accordingly may be deemed to be the beneficial owner of the shares held by
Kearsage. Mr. Voulgaris disclaims such beneficial ownership. Mr. Voulgaris'
address is Kearsarge Capital Fund, 41 Brook Street, Manchester, NH 03104.
(5) Represents shares owned by Mr. Wolf's three children, Scott Wolf, Julie
Wolf and Steven Wolf. Mr. Wolf disclaims beneficial ownership of such
shares. Mr. Wolf's address is Phase One Development, 31 Msgr. O'Brien
Highway, Cambridge, MA 02141.
(6) Includes 251,500 shares subject to stock options exercisable within 60 days
of December 31, 1996.
(7) Includes 39,666 shares subject to stock options exercisable within 60 days
of December 31, 1996.
(8) Includes 84,500 shares subject to stock options exercisable within 60 days
of December 31, 1996.
(9) Includes 28,166 shares subject to stock options exercisable within 60 days
of December 31, 1996.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, $.01 par value per share, and 10,000,000 shares of preferred
stock, $.01 par value per share. As of December 31, 1996, an aggregate of
450,916 shares of Common Stock were held of record by 73 stockholders, and
6,865,274 shares of Preferred Stock were outstanding and held of record by
twelve stockholders. All such shares of Preferred Stock will be converted into
Common Stock upon the completion of this offering. Copies of the proposed
Articles of Organization and the By-laws have been filed as exhibits to the
Registration Statement and are incorporated by reference herein.
COMMON STOCK
All outstanding shares of Common Stock are, and the Common Stock offered
hereby will be, fully paid and nonassessable. The holders of Common Stock are
entitled to one vote for each share held of record on all matters voted upon by
stockholders and may not cumulate votes. Subject to the rights of holders of any
future series of undesignated preferred stock which may be designated, each
share of the outstanding Common Stock is entitled to participate equally in any
distribution of net assets made to the stockholders in the liquidation,
dissolution or winding up of the Company and is entitled to participate equally
in dividends as and when declared by the Board of Directors. There are no
redemption, sinking fund, conversion or preemptive rights with respect to the
shares of Common Stock. All shares of Common Stock have equal rights and
preferences.
PREFERRED STOCK
After the completion of this offering, the Board of Directors will have the
authority, without further stockholder approval, to issue 1,000,000 shares of
preferred stock where defined in one or more series and to fix the relative
rights, preferences, privileges, qualifications, limitations and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series. The
issuance of preferred stock, while potentially providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of, and the
voting and other rights of the holders of the Common Stock. No shares of
preferred stock will be outstanding immediately following the consummation of
this offering. The Company has no present plans to issue any shares of preferred
stock. See "Risk Factors -- Anti-Takeover Provisions; Possible Issuance of
Preferred Stock."
CERTAIN ARTICLES OF ORGANIZATION, BY-LAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
Classified Board and Other Matters. The Board of Directors will be divided
into three classes, each of which, after a transitional period, will serve for
three years, with one class being elected each year. Under the Massachusetts
General Laws, in the case of a corporation having a classified Board,
stockholders may remove a director only for cause. For the purpose of director
nominations, the By-laws require that stockholders provide the Clerk of the
Company with notice 60 days prior to the date of an annual meeting or special
meeting in lieu of an annual meeting and within 10 days following notice of a
special meeting not in lieu of an annual meeting. The Articles of Organization
provide that special meetings of stockholders of the Company may be called only
by the Board of Directors, the Chairman of the Board of Directors, the President
or 30% in interest of the stockholders. The Articles of Organization, as well as
applicable provisions of the Massachusetts General Laws, provide that no action
required or permitted to be taken at any annual or special meeting of the
stockholders of the Company may be taken without a meeting, unless the unanimous
consent of stockholders entitled to vote thereon is obtained. The affirmative
vote of the holders of at least 80% of the combined voting power of then
outstanding voting stock of the Company will be required to alter, amend or
repeal the foregoing provisions that might diminish the likelihood that a
potential acquiror would make an offer for the Common Stock, impede a
transaction favorable to the interest of the stockholders or increase the
difficulty of removing Board of Directors or management. See "Risk
Factors -- Anti-Takeover Provisions; Possible Issuance of Preferred Stock."
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Chapters 110D and 110F of Massachusetts General Laws. The Company is
subject to the provisions of Chapter 110F of the Massachusetts General Laws, an
anti-takeover law. In general, this statute prohibits a publicly held
Massachusetts corporation with sufficient ties to Massachusetts from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) the interested stockholder obtains the
approval of the board of directors prior to becoming an interested stockholder,
(ii) the interested stockholder acquires 90% of the outstanding voting stock of
the corporation (excluding shares held by certain affiliates of the corporation)
at the time he becomes an interested stockholder or (iii) the business
combination is approved by both the board of directors and two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 5% or more of the corporation's voting stock. A "business
combination" includes mergers, stock and asset sales and other transactions
resulting in a financial benefit to the stockholder. The Company may at any time
amend its Articles of Organization or By-laws to elect not to be governed by
Chapter 110F, by vote of the holders of a majority of its voting stock, but such
an amendment would not be effective for twelve months and would not apply to a
business combination with any person who became an interested stockholder prior
to the date of the amendment.
The Company is also subject to the provisions of Chapter 110D of the
Massachusetts General Laws, entitled "Regulation of Control Share Acquisitions."
This statute provides, in general, that any stockholder who acquires 20% or more
of the outstanding voting stock of a corporation subject to this statute may not
vote that stock unless the stockholders of the corporation so authorize. In
addition, Chapter 110D permits a corporation to provide in its articles of
organization or by-laws that the corporation may redeem (for fair value) all the
shares thereafter acquired in a control share acquisition if voting rights for
those shares were not authorized by the stockholders or if no control share
acquisition statement was delivered. The By-laws include a provision which
permits the Company to effect such redemptions. See "Risk Factors."
Directors Liability. The Articles of Organization provide that no director
shall be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for (i) any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions which have been adjudicated not to have been in good faith or to have
involved intentional misconduct, (iii) pursuant to Chapter 156B, Section 61 or
Section 62 of the Massachusetts General Law or (iv) any transaction from which
such director derives improper personal benefit. The effect of this provision is
to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of the fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
The limitations summarized above, however, do not affect the ability of the
Company or its stockholders to seek non-monetary based remedies, such as an
injunction or rescission, against a director for breach of his fiduciary duty
nor would such limitations limit liability under the federal securities laws.
The Articles of Organization provide that the Company shall, to the full extent
permitted by the Massachusetts General Laws as currently in effect, indemnify
and advance expenses to each of its currently acting and former directors,
officers, employees and agents arising in connection with their acting in such
capacities.
LISTING
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol VCTK.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock is Boston EquiServe.
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45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,028,885 shares of
Common Stock outstanding (assuming no exercise of outstanding options). Of these
shares, the 2,500,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares purchased by "affiliates"
of the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below.
The remaining shares of Common Stock outstanding upon completion of this
offering will be "restricted securities" as that term is defined in Rule 144
under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 promulgated under the Securities Act, which
are summarized below. Sales of the Restricted Shares in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the Common Stock.
The officers, directors and certain other holders of Common Stock have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of the shares of Common Stock of the Company or any securities
exercisable for or convertible into the Company's Common Stock owned by them for
a period of 180 days after the effective date of this offering without the prior
written consent of Oppenheimer & Co., Inc. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144 and 701, shares subject to lock-up agreements will
generally not be saleable until such agreements expire. Beginning 180 days after
the date of this Prospectus, approximately 4,528,885 shares will be available
for immediate sale in the public market, subject in some cases to the volume and
other restrictions of Rule 144 or Rule 701 under the Securities Act.
SALES OF RESTRICTED SHARES
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of this offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years
(including the holding period of any prior owner except an affiliate) would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then outstanding (which will equal approximately 70,289 shares immediately after
this offering) or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Approximately 6,262 shares of Common Stock (not subject to lock-up agreements)
will be eligible for sale in the public market immediately upon the effective
date of this offering in reliance of Rule 144(k).
OPTIONS
As of December 31, 1996, options to purchase a total of 759,775 shares of
Common Stock were outstanding, of which options to purchase 459,631 shares of
Common Stock were then exercisable. Of the total shares issuable pursuant to
such options, 431,998 are subject to lock-up agreements. An additional 563,929
shares of Common Stock are available for future grants under the Company's stock
option and employee stock purchase plans. See "Management--Stock Option Plans."
In general, under Rule 701 as currently in effect, beginning 90 days after
the effective date of this offering, certain shares issued upon exercise of
options granted by the Company prior to the date of this Prospectus will also be
available for sale in the public market. Any employee, officer or director of or
consultant to the Company who purchased his or her shares pursuant to a written
compensatory plan or
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46
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus before selling
such shares.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock and employee stock purchase plans that do not qualify for an exemption
under Rule 701 from the registration requirements of the Securities Act. The
Company expects to file these registration statements as soon as practicable
after the date of this Prospectus, and such registration statements are expected
to become effective upon filing. Shares covered by these registration statements
will thereupon be eligible for sale in the public markets, subject to the
lock-up agreements, to the extent applicable.
LOCK-UP AGREEMENTS
The Company, certain holders and all executive officers and directors of
the Company, who in the aggregate hold 4,468,571 shares of Common Stock and
options to purchase 431,998 shares of Common Stock have agreed, pursuant to the
lock-up agreements, not to directly or indirectly, without the prior written
consent of Oppenheimer & Co., Inc., offer, sell, offer to sell, contract to
sell, or otherwise dispose of any shares of Common Stock beneficially owned by
them for a period of 180 days after the date of this Prospectus.
REGISTRATION RIGHTS
The holders of an aggregate of 4,193,741 shares of Common Stock will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. Under the terms of certain registration rights agreements,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of other securityholders
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include such shares of Common Stock in the
registration. The rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering subject to the
registration to limit the number of shares included in such registration.
Holders of Common Stock benefiting from these rights may also require the
Company to file a registration statement under the Securities Act at its expense
with respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect such registration, subject to certain conditions and
limitations. Furthermore, such holders may require the Company to file
additional registration statements on Form S-3 subject to certain conditions and
limitations. In connection with this offering, the rights of such holders to
have shares of Common Stock registered under the Securities Act as part of this
offering were duly waived pursuant to the terms of the agreements providing for
such registration rights.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to obtain capital through an offering of equity
securities.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Selling Stockholders and
Oppenheimer & Co., Inc. and First Albany Corporation, as representatives (the
"Representatives") of the Underwriters of this offering, the Company and the
Selling Stockholders have agreed to sell to the Underwriters, and the
Underwriters have severally agreed to purchase from the Company and the Selling
Stockholders, the number of shares of Common Stock set forth opposite their
names below:
NAME NUMBER OF SHARES
------------------------------------------------------------------ ----------------
Oppenheimer & Co., Inc............................................
First Albany Corporation..........................................
---------
Total........................................................ 2,500,000
=========
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and at such price less a concession of not in excess of $
per share to certain securities dealers of which a concession not in excess of
$ per share may be reallowed to certain other securities dealers. After
the shares are released for sale to the public, the public offering price,
allowances, concessions and other selling terms may be changed by the
Representatives of the Underwriters.
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Common Stock are subject to certain conditions,
including that if any shares of Common Stock are purchased by the Underwriters
pursuant to the Underwriting Agreement, all such shares must be so purchased.
The Selling Stockholders have granted an option to the Underwriters,
exercisable within 30 days after the date of this Prospectus, to purchase from
the Selling Stockholders up to an aggregate of 375,000 additional shares to
cover over-allotments, if any, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. If the
Underwriters exercise their over-allotment option to purchase any of the
additional 375,000 shares of Common Stock, each of the Underwriters has
severally agreed, subject to certain conditions, to purchase approximately the
same percentage as the number of shares to be purchased by each of them bears to
the 2,500,000 shares of Common Stock offered hereby. The Selling Stockholders
will be obligated, pursuant to the over-allotment option, to sell Common Stock
to the Underwriters to the extent such over-allotment option is exercised.
Except for certain shares being sold by the Selling Stockholders in
connection with this offering, the Company's officers, directors and certain
stockholders (including all of the Selling Stockholders) have agreed not to
offer, sell, contract to sell, pledge or grant any option to purchase or
otherwise dispose of any shares of Common Stock, or any securities convertible
into or exercisable or exchangeable for Common Stock or any rights to acquire
Common Stock of the Company, for a period of 180 days after the date of this
Prospectus without the prior written consent of Oppenheimer & Co., Inc. Subject
to certain limited exceptions, the Company has also agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common
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Stock, or any securities convertible into or exercisable or exchangeable for
Common Stock or any rights to acquire Common Stock (other than shares issuable
upon exercise of outstanding options), for a period of 180 days after the date
of this Prospectus, without the prior written consent of Oppenheimer & Co., Inc.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to certain payments the Underwriters may be
required to make in respect thereof.
The Representatives do not intend to confirm sales of the shares of Common
Stock to any account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop for
the Common Stock or as to the price at which the Common Stock may trade in the
public market from time to time subsequent to the offering made hereby. The
initial price to the public for the Common Stock offered hereby will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered in determining the initial price to the public are (i)
the history of and the prospects for the industry in which the Company competes,
(ii) the ability of the Company's management, (iii) the past and present
operations of the Company, (iv) the historical results of operations of the
Company, (v) the prospects for future earnings and business potential of the
Company, (vi) the general condition of the securities markets at the time of
this offering, (vii) the recent market prices of securities of generally
comparable companies, (viii) the market capitalizations and stages of
development of other companies which the Company and the Representatives believe
to be comparable to the Company, and (ix) other factors deemed to be relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hutchins, Wheeler & Dittmar, A Professional Corporation,
Boston, Massachusetts. Anthony J. Medaglia, Jr., a Stockholder of Hutchins,
Wheeler & Dittmar and the Clerk of the Company, holds options to purchase 6,666
shares of Common Stock, none of which is currently exercisable. Certain legal
matters relating to the offering will be passed upon for the Underwriters by
Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The balance sheets as of December 31, 1995 and 1996 and the statements of
operations, stockholders' deficit and cash flows for each of the three years in
the period ended December 31, 1996 included in this Prospectus have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to such Registration Statement, exhibits and
schedules filed as part of the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement or such other document. Each such statement is qualified
in all respects by such reference to such exhibit.
Upon completion of the offering, the Company will be subject to the
informational and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance
47
49
therewith, will be required to file reports, proxy and information statements,
and other information with the Commission. Such reports, proxy statements and
other information, as well as the Registration Statement of which this
Prospectus is a part and the exhibits and schedules thereto, can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the following regional offices: 7 World Trade Center, Suite 1300, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials also can be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Electronic reports, proxy and information
statements, and other information filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system, are publicly available through the
Commission's Web site (http://www.sec.gov).
47
50
VOICETEK CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Accountants..................................................... F-2
Balance Sheets as of December 31, 1995 and 1996....................................... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996......... F-4
Statements of Stockholders' Deficit for the years ended December 31, 1994, 1995 and
1996................................................................................ F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996......... F-6
Notes to Financial Statements......................................................... F-7
F-1
51
This is the form of the report that we expect to issue upon the
effectiveness of the reverse stock split discussed in Note 11 of Notes to
Financial Statements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Voicetek Corporation:
We have audited the accompanying balance sheets of Voicetek Corporation as
of December 31, 1995 and 1996, and the related statements of operations,
stockholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Voicetek Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Boston, Massachusetts
February 3, 1997, except as to
the information presented in Note 11,
for which the date is February 12, 1997
F-2
52
VOICETEK CORPORATION
BALANCE SHEETS
PRO FORMA
DECEMBER 31, DECEMBER
------------------- 31,
1995 1996 1996
-------- -------- -----------
(UNAUDITED)
(IN THOUSANDS) (NOTE 2)
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 162 $ -- $ --
Accounts receivable, less allowances of $45 in 1995 and
$70
in 1996.............................................. 3,518 7,460 7,460
Unbilled accounts receivable........................... 508 440 440
Inventories............................................ 874 1,188 1,188
Other current assets................................... 164 388 388
Deferred taxes......................................... 1,200 2,728 2,728
-------- -------- --------
Total current assets.............................. 6,426 12,204 12,204
Property and equipment, net................................. 845 1,900 1,900
Deferred taxes.............................................. -- 1,886 1,886
Intangible asset............................................ -- 25 25
-------- -------- --------
Total assets...................................... $ 7,271 $ 16,015 $ 16,015
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt........................................ $ 925 $ 2,841 $ 2,841
Notes payable -- related party......................... 104 -- --
Accounts payable....................................... 1,046 1,705 1,705
Accrued expenses....................................... 828 2,300 2,300
Deferred revenue....................................... 420 762 762
-------- -------- --------
Total current liabilities......................... 3,323 7,608 7,608
Long-term debt.............................................. -- 236 236
Redeemable convertible preferred stock, at liquidation
preference................................................ 10,201 11,297 --
Commitments and contingencies (Note 8)
Common stock, $.01 par value; 20,000,000 shares authorized,
380,698, 450,916 and 5,027,760 shares issued and
outstanding at December 31, 1995 and 1996 and on a pro
forma basis,
respectively.............................................. 4 5 50
Additional paid-in capital.................................. 8,024 7,087 18,339
Accumulated deficit......................................... (14,281) (10,218) (10,218)
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $ 7,271 $ 16,015 $ 16,015
======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-3
53
VOICETEK CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Revenues:
Systems.................................................. $ 7,746 $11,477 $16,239
Services................................................. 2,310 4,244 5,862
------- ------- -------
Total revenues...................................... 10,056 15,721 22,101
Cost of revenues:
Systems.................................................. 2,393 3,704 5,183
Services................................................. 1,276 2,234 3,161
------- ------- -------
Total cost of revenues.............................. 3,669 5,938 8,344
------- ------- -------
Gross profit.................................................. 6,387 9,783 13,757
Operating expenses:
Research and development................................. 2,340 3,361 5,771
Sales and marketing...................................... 2,163 3,806 5,435
General and administrative............................... 998 1,315 1,629
------- ------- -------
Total operating expenses............................ 5,501 8,482 12,835
------- ------- -------
Income from operations........................................ 886 1,301 922
Interest expense.............................................. (18) (83) (229)
Interest income............................................... 9 13 11
------- ------- -------
Income before provision for (benefit from) income taxes....... 877 1,231 704
Provision for (benefit from) income taxes..................... 23 (1,161) (3,359)
------- ------- -------
Net income.................................................... 854 2,392 4,063
Accretion of redeemable convertible preferred stock to
redemption value............................................ 410 996 1,096
------- ------- -------
Net income available to common stockholders................... $ 444 $ 1,396 $ 2,967
======= ======= =======
Net income per share -- historical basis (Note 2)
Pro forma net income per share................................ $ 0.72
=======
Pro forma weighted average shares outstanding................. 5,680
=======
The accompanying notes are an integral part of the financial statements.
F-4
54
VOICETEK CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------- ---------- ----------- -------------
(IN THOUSANDS)
Balance at December 31, 1993................. 143 $ 1 $9,415 $ (17,527) $(8,111)
Stock options exercised...................... 54 1 3 4
Accretion of redeemable convertible preferred
stock to redemption value.................. (410) (410)
Net income................................... 854 854
--- --- ------ -------- -------
Balance at December 31, 1994................. 197 2 9,008 (16,673) (7,663)
Stock options exercised...................... 184 2 12 14
Accretion of redeemable convertible preferred
stock to redemption value.................. (996) (996)
Net income................................... 2,392 2,392
--- --- ------ -------- -------
Balance at December 31, 1995................. 381 4 8,024 (14,281) (6,253)
Stock options exercised...................... 50 1 5 6
Conversion of stockholder note payable....... 20 154 154
Accretion of redeemable convertible preferred
stock to redemption value.................. (1,096) (1,096)
Net income................................... 4,063 4,063
--- --- ------ -------- -------
Balance at December 31, 1996................. 451 $ 5 $7,087 $ (10,218) $(3,126)
=== === ====== ======== =======
The accompanying notes are an integral part of the financial statements.
F-5
55
VOICETEK CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------ ------- -------
(IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 854 $ 2,392 $ 4,063
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization of property and
equipment.......................................... 295 386 716
Amortization of capitalized software development
costs.............................................. 50 -- --
Accrued interest converted into common stock......... -- -- 19
Deferred taxes....................................... -- (1,200) (3,414)
Changes in operating assets and liabilities:
Accounts receivable............................. (716) (1,580) (3,942)
Inventories..................................... (94) (602) (314)
Unbilled accounts receivable.................... -- (508) 68
Other current assets............................ (29) (93) (224)
Accounts payable................................ (14) 409 659
Accrued expenses................................ 155 41 1,503
Deferred revenue................................ 382 (83) 342
------ ------- -------
Net cash provided by (used for) operating
activities............................... 883 (838) (524)
------ ------- -------
Cash flows from investing activities:
Additions to property and equipment....................... (289) (712) (1,771)
Acquisition of intangible asset........................... -- -- (25)
------ ------- -------
Net cash used in investing activities...... (289) (712) (1,796)
------ ------- -------
Cash flows from financing activities:
Proceeds from short-term debt............................. -- 925 1,916
Proceeds from long-term debt.............................. -- -- 236
Proceeds from issuance of convertible equity instrument... 75 -- --
Proceeds from exercise of stock options................... 4 14 6
------ ------- -------
Net cash provided by financing
activities............................... 79 939 2,158
------ ------- -------
Net change in cash and cash equivalents........................ 673 (611) (162)
Cash and cash equivalents, beginning of year................... 100 773 162
------ ------- -------
Cash and cash equivalents, end of year......................... $ 773 $ 162 --
====== ======= =======
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 8 $ 64 $ 217
Taxes paid................................................ -- $ 89 $ 50
Supplemental disclosure of noncash financing transactions:
Equipment acquired under capital leases................... $ 16 $ 163 --
Conversion of related party note payable to common
stock................................................... -- -- $ 154
The accompanying notes are an integral part of the financial statements.
F-6
56
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Voicetek Corporation (a Massachusetts corporation) (the "Company") was
incorporated in 1981 and operates in one business segment. The Company develops,
markets and supports interactive communications systems. The Company's principal
market and its operations are located in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables include
receivables from significant customers. The Company's customers are concentrated
in one industry segment, the telecommunications industry, and, historically, a
significant portion of the Company's revenues have been to a limited number of
customers within this industry. The Company does not require collateral or other
security to support customer receivables. The Company maintains reserves for
credit losses and such losses have been within management's expectations. The
Company's allowances amounted to $25,000, $45,000 and $70,000 at December 31,
1994, 1995 and 1996, respectively. The provision charged to the Statement of
Operations was $34,000, $41,000 and $39,000 in 1994, 1995 and 1996,
respectively, and write-offs against the allowances were $34,000, $21,000 and
$14,000 in 1994, 1995 and 1996, respectively.
CASH AND CASH EQUIVALENTS
The Company's policy is to include amounts as cash and cash equivalents
that are short-term, highly liquid investments purchased with a maturity at
issuance of three months or less.
INVENTORIES
Inventories, consisting primarily of purchased components, include
materials, labor and overhead, are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the following estimated useful lives:
Equipment...................... 3 years
Furniture and fixtures......... 3 years
Leasehold improvements......... The shorter of the lease term or the life of the asset
Expenditures for major improvements which substantially increase the useful
lives of assets are capitalized. Repair and maintenance costs are expensed as
incurred. When assets are sold or retired, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
results of operations.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs incurred prior to the establishment of technological feasibility are
charged to research and development expense. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Software development costs incurred subsequent to the
F-7
57
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
establishment of technological feasibility and for significant product
enhancements are capitalized until the product is available for general release
to customers, and amortized to cost of revenues. Amortization of capitalized
software costs is recognized on the greater of the straight-line basis over the
estimated economic lives of the related products, or the ratio of current gross
revenues to total current and expected future gross revenues of the related
products. The Company did not capitalize any software development costs during
1994, 1995 and 1996 because the amounts eligible for capitalization were
immaterial.
REVENUE RECOGNITION
The Company recognizes product and license revenues upon execution of a
contract and shipment to customers provided that no significant vendor
obligations remain outstanding and collection of the resulting receivable is
deemed probable by management. If insignificant vendor obligations remain after
shipment of the product, the Company accrues for the estimated costs of such
obligations. Additionally, the Company accrues for warranty costs upon shipment.
Revenue from post-customer support (maintenance) contracts is recognized ratably
over the life of the contract, generally one year. Revenue from training and
consulting is recognized as the services are provided. For certain contracts
eligible under AICPA Statement of Position No. 81-1, revenue is recognized using
the percentage-of-completion accounting method based upon an efforts-expended
method. In all cases, changes to total estimated costs and anticipated losses,
if any, are recognized in the period in which determined. The
percentage-of-completion method requires estimates of costs to complete which
may differ from actual costs.
UNBILLED ACCOUNTS RECEIVABLE
Unbilled accounts receivable represents revenue recognized for contracts
accounted for under the percentage-of-completion method which had not been
billed at the balance sheet date. All amounts are expected to be collected
within one year. There are no amounts included in accounts receivable or
unbilled accounts receivable which represent retainages.
INCOME TAXES
The Company provides for income taxes using the liability method whereby
recognition of deferred tax liabilities and assets is based on expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement basis of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The Company provides for a valuation
allowance against net deferred tax assets if, based upon the available evidence,
it is more likely than not that some or all of the deferred tax assets will not
be realized.
UNAUDITED PRO FORMA BALANCE SHEET
All outstanding shares of Preferred Stock shall automatically convert to
shares of common stock upon the closing of an underwritten public offering of
common stock on a "firm commitment" basis pursuant to a registration statement
on Form S-1 filed under the Securities Act of 1933, as amended, provided that
specified minimum per share and gross proceeds are received by the Company. The
unaudited pro forma balance sheet as of December 31, 1996 has been prepared
assuming the conversion of all the outstanding shares of Preferred Stock into
4,576,844 shares of common stock.
COMPUTATION OF INCOME PER SHARE
Net income per share is computed based upon the weighted average number of
common shares and common equivalent shares outstanding. Common equivalent shares
are included in per share calculations where the effect of their inclusion would
be dilutive. The preferred stock outstanding is not considered a common stock
equivalent based on its effective yield when issued. In accordance with the
Securities and
F-8
58
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Exchange Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares (including stock options) issued during the twelve-month
period prior to the initial filing date in February 1997 of the Registration
Statement relating to the Company's initial public offering have been included
in the calculation as if they were outstanding for all periods presented, using
the treasury stock method at the midpoint of the range of the assumed initial
public offering price.
Net income per share on a pro forma basis is computed in the same manner as
net income per share on a historical basis except that, in the pro forma
calculation all outstanding shares of preferred stock are included in the
computation as if they had been converted into an equivalent number of shares of
common stock.
Net income per share on a historical basis is as follows:
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net income per share....................... $ 1.26 $ 1.27 $ 2.69
====== ====== ======
Weighted average shares outstanding........ 351 1,096 1,103
====== ====== ======
Fully diluted net income per share was $0.16, $0.40 and $0.71 in 1994, 1995
and 1996, respectively. Supplemental earnings per share reflecting the
elimination of the debt to be paid off with proceeds received from the proposed
initial public offering is $2.29 for the year ended December 31, 1996.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
YEARS ENDED DECEMBER
31,
---------------------
1995 1996
------ ------
(IN THOUSANDS)
Equipment............................................... $3,054 $4,511
Furniture and fixtures.................................. 320 422
Leasehold improvements.................................. 46 258
------- -------
3,420 5,191
Less accumulated depreciation and amortization.......... 2,575 3,291
------- -------
$ 845 $1,900
======= =======
Equipment under capital leases consists of the following:
YEARS ENDED DECEMBER
31,
---------------------
1995 1996
------ ------
(IN THOUSANDS)
Equipment............................................... $ 211 $ 211
Less accumulated amortization........................... 97 184
----- -----
$ 114 $ 27
===== =====
F-9
59
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES:
Inventories consists of the following:
DECEMBER 31,
-----------------
1995 1996
------ ------
(IN THOUSANDS)
Inventories:
Raw materials (purchased components)................... $599 $ 885
Work in process........................................ 131 67
Finished goods......................................... 144 236
---- ------
Total inventories................................. $874 $1,188
==== ======
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT:
During 1996, the Company's Board of Directors voted to increase the number
of authorized shares of Common Stock to 30,000,000 shares, and to create a class
of 1,000,000 shares of "blank check" preferred stock which may be issued in one
or more series with such rights, terms and privileges as the Board of Directors
of the Company shall deem necessary or desirable. These actions are subject to
stockholder approval and have not been reflected in these financial statements.
1994 RECAPITALIZATION
In 1994, the preferred stockholders' ownership in the Company was
reallocated among the preferred stockholders pursuant to a recapitalization. The
Company raised $2,458,000 during 1992 and 1993 principally from certain existing
preferred stockholders. The accretion related to this financing, calculated
using the effective yield, amounted to approximately $1,252,000. This accretion
was charged to additional paid in capital and reduced net income available to
common stockholders principally in 1993. The ownership of common stockholders
was not affected by the recapitalization.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
The outstanding preferred stock of the Company consists of Redeemable
Convertible Preferred Stock (issued and outstanding: 5,455,713 shares of Senior
Preferred ("Senior") and 679,803 shares of Junior Preferred Series 1 ("Junior
Series 1") and 729,758 shares of Junior Preferred Series 2 ("Junior Series 2"),
respectively) (together the "Preferred Stock").
The carrying amounts of the Preferred Stock were the same as the respective
redemption amounts, and were as follows:
DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
Senior Preferred.............................. $5,885 $ 6,525 $ 7,228
Junior Series 1............................... 2,128 2,358 2,611
Junior Series 2............................... 1,192 1,318 1,458
------- ------- -------
Total............................... $9,205 $10,201 $11,297
======= ======= =======
Voting
The Preferred Stock has the same voting rights as common stock on an
as-converted basis.
F-10
60
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Dividends
The holders of Preferred Stock have the right to receive out of funds
legally available cumulative dividends, when and if declared by the Board of
Directors. The dividends for the Junior Series 1, Junior Series 2 and Senior
shares shall be at the annual rate of $0.25, $0.13 and $0.10 per share,
respectively. Holders of Senior, Junior Series 1 and Junior Series 2 Preferred
Stock shall also be entitled to an annual 10% interest on unpaid dividends, as
defined.
Liquidation
Upon any liquidation, dissolution or winding up of the Company the holders
of Preferred Stock are entitled to receive the liquidation preference (as
defined) plus any declared and unpaid dividends before any distribution may be
made to common stockholders.
Conversion
Each share of Senior, Junior Series 1 and Junior Series 2 Preferred Stock
is convertible, on a two-for-three basis, into shares of common stock at the
option of the holders. The conversion rate is adjustable for certain dilutive
events.
All outstanding shares of Preferred Stock shall automatically convert to
shares of common stock upon the closing of an underwritten public offering of
common stock on a "firm commitment" basis pursuant to a registration statement
on Form S-1 filed under the Securities Act of 1933, as amended, provided that
specified minimum per share and gross proceeds are received by the Company.
Redemption
The Preferred Stock is redeemable at the option of the holder at any time
on or after September 30, 1997 for Senior, Junior Series 1 and Junior Series 2
shares at redemption prices per share of $1.005785, $2.501729 and $1.329820,
respectively, plus all accrued but unpaid dividends at per share amounts of
$0.10, $0.25 and $0.13 for Senior, Junior Series 1 and Junior Series 2,
respectively, on a per annum basis plus 10% interest. (See also Note 11 for a
subsequent event).
STOCK OPTION PLANS
1992 Equity Incentive Plan
In 1992, the Company amended its previous qualified stock option plan and
established the 1992 Equity Incentive Plan (the "1992 Plan"). Options granted
under the 1992 Plan vest over a period of four years. The options expire ten
years from the date of grant.
The Company applies APB Opinion No. 25 and related Interpretations on
accounting for its plans, under which no compensation cost has been recognized
for stock option awards. Had compensation cost for the option grants been
determined consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"), the Company's pro forma
net income for 1995 and 1996 would have been approximately $2,359,000 and
$3,893,000, respectively. In calculating these pro forma disclosures, the fair
value of each option grant in 1995 and 1996 has been estimated on the date of
grant using the minimum value method with the following assumptions: risk-free
interest rate of 6.75% in 1995 and 1996, and expected lives of ten years.
F-11
61
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Information related to stock option transactions under the 1992 plan is as
follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
Balance at December 31, 1993....................... 801,409 $.075
Granted....................................... 105,993 .127
Canceled...................................... (58,703) .075
Exercised..................................... (53,791) .075
---------
Balance at December 31, 1994....................... 794,908 .082
Granted....................................... 113,036 2.288
Canceled...................................... (10,146) .075
Exercised..................................... (183,724) .127
---------
Balance at December 31, 1995....................... 714,074 .432
Granted....................................... 117,161 6.489
Canceled...................................... (60,380) .111
Exercised..................................... (49,746) 2.957
---------
Balance at December 31, 1996....................... 721,109 $1.227
=========
Information related to options outstanding and exercisable, including
options granted under the 1996 Option Plan, at December 31, 1996 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------- WEIGHTED AVERAGE --------------------------------
RANGE OF NUMBER REMAINING NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- ---------------- ----------- ---------------- ----------- ----------------
$.075 468,792 6.5 years 402,823 $ .075
.075-.150 71,546 8 years 33,000 .141
.375-4.50 85,627 9 years 23,808 2.509
5.25-7.50 133,810 10 years -- 6.564
----------- -----------
759,775 459,631
=========== ==========
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be indicative of the pro forma future effect on net income because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
The exercise price for each stock option grant was determined by the Board
of Directors of the Company to be equal to the fair value of the common stock on
the date of grant. In reaching this determination at the time of each such
grant, the Board considered a broad range of factors, including the illiquid
nature of an investment in the Company's common stock, the Company's historical
financial performance, the preferences (including liquidation) of the Company's
outstanding Preferred Stock and the Company's future prospects.
At December 31, 1996, there were 459,631 options exercisable under the
plan.
In January 1997, options to purchase 58,873 shares of Common Stock were
granted with exercise prices of $9.00 per share.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted
by the Board of Directors of the Company in August 1996. The 1996 Option Plan
provides for the grant of stock options to key employees (including officers who
may be members of the Company's Board of Directors), directors who are not
employees and consultants to Company. Under the 1996 Option Plan, the Company
could grant options intended to qualify as incentive stock options within the
meaning of Section 422A of the Code, and options not
F-12
62
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
intended to qualify as incentive stock options. A total of 333,333 shares of
Common Stock were originally authorized for issuance under the 1996 Option Plan.
Effective January 1, 1997 and each January 1 thereafter through January 1, 2006,
the number of shares of Common Stock authorized for issuance under the 1996
Option Plan shall be increased cumulatively such that the number of shares of
Common Stock subject to the 1996 Option Plan shall equal 15% of the total number
of fully diluted shares of Common Stock (excluding shares of Common Stock
issuable upon the exercise of options to purchase Common Stock granted under the
Company's 1996 Director Option Plan, as defined below) as of the close of
business on December 31 of the preceding year. As of December 31, 1996, no
options were outstanding under the 1996 Option Plan.
1996 Director Option Plan
The Company's 1996 Stock Option Plan for Non-Employee Directors and Clerk
(the "1996 Director Option Plan") was adopted by the Board of Directors of the
Company in August 1996. The 1996 Director Option Plan provides for the grant of
stock options to the Clerk and directors who are not employees of the Company.
Under the 1996 Director Option Plan, the Company could grant options not
intended to qualify as incentive stock options within the meaning of Section
422A of the Code. A total of 60,000 shares of Common Stock were originally
authorized for issuance under the 1996 Director Option Plan. During 1996,
options to purchase 38,666 shares of Common Stock, at an exercise price of $7.50
per share, were granted. As of December 31, 1996, these options remain
outstanding under the 1996 Option Plan, none of which were exercisable. No
options have been exercised to date and options outstanding expire at various
dates through August 2006.
RESERVED SHARES
The Company has reserved 5,733,851 shares of common stock for issuance upon
the conversion of the Preferred Stock and for issuance upon the exercise of
stock options under the Company's stock option plans.
6. INCOME TAXES:
The provision for (benefit from) income taxes consists of the following:
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
----- ------- -------
(IN THOUSANDS)
Current:
Federal...................................... $ 18 $ 20 $ 22
State........................................ 5 19 33
--- ------- -------
23 39 55
--- ------- -------
Deferred:
Federal...................................... -- (905) (2,825)
State........................................ -- (295) (589)
--- ------- -------
-- (1,200) (3,414)
--- ------- -------
Total provision for (benefit from) income taxes... $ 23 $(1,161) $(3,359)
=== ======= =======
The following is a reconciliation between the U.S. federal statutory tax
rate and the effective tax rate:
F-13
63
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
U.S. federal statutory tax rate................. 34.0% 34.0% 34.0%
State income taxes, net of federal benefit...... 0.5 1.0 5.5
Nondeductible expenses.......................... 0.9 1.3 3.8
Alternative minimum tax......................... 2.1 -- --
Decrease in valuation allowance................. -- (97.4) (520.4)
Net operating losses and carryforward credits... (34.9) (31.0) --
----- ----- -----
Effective tax rate.............................. 2.6% (92.1)% (477.1)%
===== ===== =====
The following represents the significant components of the Company's net
deferred tax assets:
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
Deferred tax assets:
Federal net operating losses................. $ 3,725 $ 3,303
Tax credit carryforwards..................... 511 334
Depreciation and amortization................ 51 46
State tax credits and NOL, net of federal
benefit.................................... 933 473
Other temporary differences.................. 258 458
Valuation allowance for deferred tax
assets..................................... (4,278) --
------ ------
Net tax asset..................................... $ 1,200 $ 4,614
====== ======
The Company eliminated its remaining valuation allowance of $3,773,000 in
the fourth quarter of 1996. Net operating losses expired in 1996 resulting in
the reduction of deferred tax assets of $505,000. Management has evaluated the
positive and negative evidence impacting the realizability of the Company's
deferred tax assets and concluded based upon the weight of available evidence
that it is more likely than not that it will generate taxable income prior to
the expiration of its federal and state net operating losses and tax credit
carryforwards. Accordingly, there is no valuation allowance against deferred tax
assets at December 31, 1996. Management re-evaluates the positive and negative
evidence on a quarterly basis, and accordingly, the deferred tax asset could be
reduced in future periods. The Company reduced its valuation allowance by
$1,228,000 in 1995 based upon Management's estimate of the amount of deferred
tax assets that were more likely than not to be realized.
As of December 31, 1996, the Company had approximately $9,700,000 of net
operating loss carryforwards for federal income tax purposes which expire in the
years 2004 through 2009. The Company had approximately $4,100,000 of state net
operating losses which expire in the years 1997 through 2009. The Company has
research and development credits for federal and state income tax purposes of
approximately $560,000 and $450,000, respectively, which begin to expire in
1999. The federal and state net operating losses and credits are subject to
certain limitations under IRC Section 382 which may affect the Company's ability
to utilize them prior to expiration.
7. DEBT:
In September 1996, the Company amended its revolving credit agreement with
a bank to increase its revolving line of credit to $5,000,000 at the prime rate
plus 0.75% (9.00% at December 31, 1996), expiring on September 1, 1997. The
outstanding balance at December 31, 1996 under the line of credit was
$2,700,000. The line of credit is collateralized by certain receivables of the
Company. The Company also entered into a term loan agreement with the bank.
Borrowings under the term loan are payable over three years. The interest rate
on borrowings under the term loan bear interest at the prime rate plus 1% (9.25%
at December 31, 1996).
F-14
64
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The outstanding balance under the term loan was approximately $377,000 at
December 31, 1996. The term loan is collateralized by certain equipment of the
Company.
The Company is subject to certain financial covenants under the agreements
including specified debt to worth ratios and maintaining a certain capital base
and profitability, as defined.
In November 1988, the Company borrowed $250,000 from a stockholder and
issued a note, payable in 48 monthly installments with an interest rate of 10%
per annum. In April 1992, the original terms of the agreement were amended, and
the payment of interest and principal by the Company, in agreement with the
stockholder, was deferred until a future date. The principal balance of $104,176
and related accrued interest was converted into 20,488 shares of common stock in
December 1996.
At December 31, 1996, the Company had an immaterial cash overdraft balance.
8. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company occupies manufacturing and office space under an operating
lease which expires in October 1999. The Company must pay insurance,
maintenance, utilities and a percentage of real estate taxes on the lease. The
Company also leases certain equipment under noncancelable capital leases that
mature at various dates. The future minimum payments under the capital leases
are immaterial.
Approximate future, minimum, noncancelable, annual payments under the
operating leases are as follows:
YEARS ENDING
DECEMBER 31, (IN THOUSANDS)
-----------------------------------------------------------------
1997........................................................... $ 323
1998........................................................... 329
1999........................................................... 346
2000........................................................... 409
2001........................................................... 425
------
$1,832
======
Rent expense under operating leases was approximately $109,000, $191,000
and $233,000 in 1994, 1995 and 1996, respectively.
9. EMPLOYEE PLAN:
As amended on January 1, 1988, the Company approved the establishment of
the Voicetek Corporation 401(k) Plan (the "Plan"). Employees are eligible to
participate in the Plan by meeting certain requirements, including length of
service and minimum age. The Company can elect to make discretionary matching
contributions. The annual contributions may not exceed the maximum allowed under
the applicable provisions of the Internal Revenue Code. The Company has provided
for contributions of approximately $28,000, $48,000 and $58,000 in 1994, 1995
and 1996, respectively.
F-15
65
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SIGNIFICANT CUSTOMERS AND EXPORT SALES:
The following represents significant customer revenue:
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
------- ------- -------
Customer A.................................... 45% 25% 24%
Customer B.................................... 11 23 12
Customer C.................................... -- -- 12
Export sales were approximately $719,000, $1,604,000 and $2,352,000 in
1994, 1995 and 1996, respectively.
11. SUBSEQUENT EVENTS:
On February 12, 1997, the Board of Directors approved a two-for-three stock
split of the Company's common stock. All share and per share amounts have been
restated in these financial statements to reflect this reverse stock split.
In February 1997, certain holders of Preferred Stock contractually agreed
to extend the redemption date on the Redeemable Convertible Preferred Stock to
July 31, 1998.
F-16
66
[ARTWORK DEPICTING PHOTOGRAPH OF
COMPUTER SCREEN WHILE RUNNING
GENERATIONS APPLICATION DEVELOPER SOFTWARE]
67
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................................... 3
Risk Factors.......................................... 5
Use of Proceeds....................................... 11
Dividend Policy....................................... 11
Capitalization........................................ 12
Dilution.............................................. 13
Selected Financial Data............................... 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 15
Business.............................................. 21
Management............................................ 32
Certain Transactions.................................. 38
Principal and Selling Stockholders.................... 39
Description of Capital Stock.......................... 41
Shares Eligible for Future Sale....................... 43
Underwriting.......................................... 45
Legal Matters......................................... 46
Experts............................................... 46
Additional Information................................ 46
Index to Financial Statements......................... F-1
------------------------
UNTIL , 1997 (25 DAYS FROM THE DATE OF THE PROSPECTUS), ALL DEALERS
EFFECTING TRANSAC-
TIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
OPPENHEIMER & CO., INC.
FIRST ALBANY CORPORATION
, 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
68
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discounts and commissions) payable in
connection with the sale of the Common Stock offered hereby (including the
Common Stock which may be issued pursuant to an over-allotment option) are as
follows:
AMOUNTS
----------
SEC Registration fee................................................... 10,455
NASD filing fee........................................................ 3,950
Nasdaq National Market fee............................................. 30,070
Printing Expenses...................................................... 150,000
Legal fees and expenses................................................ 250,000
Accounting Fees and expenses........................................... 250,000
Blue sky fees and expenses (including legal fees and expenses)......... 10,000
Transfer agent and registrar fees and expenses......................... 10,000
Miscellaneous.......................................................... 35,525
----------
Total............................................................. $ 750,000*
==========
The Company will bear all expenses shown above.
- ---------------
* All amounts are estimated, except SEC Registration, NASD and Nasdaq National
Market Fees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of Chapter 156B of the Massachusetts Business Corporation Law,
which is applicable to the Company, provides as follows:
Indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, or who serve at its request
in any capacity with respect to any employee benefit plan, may be provided by it
to whatever extent shall be specified in or authorized by (i) the articles of
organization or (ii) a by-law adopted by the stockholders or (iii) a vote
adopted by the holders of a majority of the shares of stock entitled to vote on
the election of directors. Except as the articles of organization or by-laws
otherwise require, indemnification of any persons referred to in the preceding
sentence who are not directors of the corporation may be provided by it to the
extent authorized by the directors. Such indemnification may include payment by
the corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification under this
section which undertaking may be accepted without reference to the financial
ability of such person to make repayment. Any such indemnification may be
provided although the person to be indemnified is no longer an officer,
director, employee or agent of the corporation or of such other organization or
no longer serves with respect to any such employee benefit plan.
No indemnification shall be provided for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the corporation or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan.
The absence of any express provision for indemnification shall not limit
any right of indemnification existing independently of this section.
A corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or other agent of another organization or with
respect to any employee benefit plan, against any liability incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
II-1
69
In addition, pursuant to its Articles of Organization and By-laws, the
Company shall indemnify its directors and officers against expenses (including
judgments or amounts paid in settlement) incurred in any action, civil or
criminal, to which any such person is a party by reason of any alleged act or
failure to act in his capacity as such, except as to a matter as to which such
director or officer shall have been finally adjudged not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
corporation.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement filed as Exhibit 1.1 hereto.
The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers and has entered into
indemnification agreements with its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Voicetek has issued the following securities,
none of which have been registered under the Securities Act of 1933, as amended
(the "Act"):
(a) Since January 1, 1994, the Company has granted options to purchase
an aggregate of 374,856 shares of Common Stock, 144,999 of which have been
granted to executive officers and directors of the Company.
(b) Since January 1, 1994, the Company has issued 287,261 shares of
Common Stock upon the exercise of options at an average exercise price of
$0.08, of which 287,261 shares were issued to executive officers and
directors of the Corporation.
(c) In December 1996, the company issued 20,248 shares of Common Stock
to a current stockholder upon the conversion of outstanding principal
balance (and accrued interest) on a promissory note.
(d) In connection with the Company's Credit Facility, on September 30,
1996, the Company issued a promissory note in the original principal amount
of $1.0 million to Fleet Bank of Massachusetts, N.A.
(e) In December 1994, the Company issued 6,286 shares of Senior
Preferred Stock.
ITEM 16. EXHIBITS
A. EXHIBITS:
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Organization
3.2 Amended and Restated By-laws
4.1 Specimen certificate representing the Common Stock*
5.1 Opinion of Hutchins, Wheeler & Dittmar, a Professional Corporation*
10.1 OEM Agreement between Northern Telecom, Inc. and Voicetek dated June 16, 1995**
10.2 Amendment No. 1 to OEM Agreement dated December 3, 1996**
10.3 Volume Purchase Agreement between Dialogic Corporation and Voicetek dated as of
September 20, 1995**
10.4 Distributor Agreement between Rockwell International, SSD and Voicetek as of
September 26, 1996**
10.5 Lease dated as of May 25, 1993 by and between Teachers Realty Corporation and
Voicetek
10.6 First Amendment to Lease dated August 8, 1994
10.7 Second Amendment to Lease dated March 25, 1996
10.8 Third Amendment to Lease dated November 8, 1996
10.9 Letter Agreement dated September 21, 1994 between Fleet Bank of Massachusetts,
N.A. and Voicetek
10.10 Third Loan Modification Agreement dated September 26, 1996 between Voicetek and
Fleet National Bank
10.11 Executive Employment Agreement dated as of January 13, 1997 between Voicetek and
Sheldon Dinkes
10.12 Executive Employment Agreement dated as of January 13, 1997 between Voicetek and
Roger Tuttle
II-2
70
A. EXHIBITS:
10.13 Executive Employment Agreement dated as of January 13, 1997 between Voicetek and
Paul Gagne
10.14 Executive Employment Agreement dated as of January 13, 1997 between Voicetek and
Scott Ganson
10.15 Executive Employment Agreement dated as of January 13, 1997 between Voicetek and
Daniel Poranski
10.16 Voicetek Corporation 1992 Equity Incentive Plan
10.17 Voicetek Corporation 1996 Stock Option Plan
10.18 Voicetek Corporation 1996 Stock Option Plan for Non-Employee Directors and Clerk
10.19 Voicetek Corporation 1997 Employee Stock Purchase Plan
10.20 Registration and First Refusal Rights Agreement dated as of December 22, 1992 by
and among Voicetek and the holders of the Company's Preferred Stock
11.1 Statement re: Computation of Per Share Earnings
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
Exhibit 5.1 above)
27.1 Financial Data Schedule
- ---------------
* to be filed by amendment.
** Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Commission.
B. FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted because the information is not applicable
or because the information required is included in the Financial Statements or
the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of his registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this registration
statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Chelmsford, Massachusetts, on February 14, 1997.
VOICETEK CORPORATION
By: /s/ SHELDON L. DINKES
------------------------------------
SHELDON L. DINKES
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
We, the undersigned officers and directors of Voicetek Corporation, hereby
severally constitute and appoint Sheldon L. Dinkes and John A. Blaeser, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them singly, to sign for us and in our names in the capacities indicated
below, the Registration Statement on Form S-1 filed herewith and any and all
pre-effective and post-effective amendments to said Registration Statement, and,
in connection with any registration of additional securities pursuant to Rule
462(b) under the Securities Act of 1933, to sign any abbreviated registration
statement and any and all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, in each case, with
the Securities and Exchange Commission, and generally to do all such things in
our names and on our behalf in our capacities with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
- ---------------------------------------- --------------------------------- ------------------
/s/ SHELDON L. DINKES President, Chief Executive February 14, 1997
- ---------------------------------------- Officer and Director
SHELDON L. DINKES
/s/ ROGER N. TUTTLE, JR. Vice President and Treasurer February 14, 1997
- ---------------------------------------- (principal accounting officer)
ROGER N. TUTTLE JR.
/s/ CHRISTOPHER W. LYNCH Director February 14, 1997
- ----------------------------------------
CHRISTOPHER W. LYNCH
/s/ SHERMAN M. WOLF Director February 14, 1997
- ----------------------------------------
SHERMAN M. WOLF
/s/ ALAN VOULGARIS Director February 14, 1997
- ----------------------------------------
ALAN VOULGARIS
/s/ JOHN A. BLAESER Director February 14, 1997
- ----------------------------------------
JOHN A. BLAESER
II-4
72
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------- ------------
1.1 Form of Underwriting Agreement........................................
3.1 Restated Articles of Organization.....................................
3.2 Amended and Restated By-laws..........................................
4.1 Specimen certificate representing the Common Stock*...................
5.1 Opinion of Hutchins, Wheeler & Dittmar, a Professional Corporation*...
10.1 OEM Agreement between Northern Telecom, Inc. and Voicetek dated June
16, 1995**..........................................................
10.2 Amendment No. 1 to OEM Agreement dated December 3, 1996**.............
10.3 Volume Purchase Agreement between Dialogic Corporation and Voicetek
dated as of September 20, 1995**....................................
10.4 Distributor Agreement between Rockwell International, SSD and Voicetek
as of September 26, 1996**..........................................
10.5 Lease dated as of May 25, 1993 by and between Teachers Realty
Corporation and Voicetek............................................
10.6 First Amendment to Lease dated August 8, 1994.........................
10.7 Second Amendment to Lease dated March 25, 1996........................
10.8 Third Amendment to Lease dated November 8, 1996.......................
10.9 Letter Agreement dated September 21, 1994 between Fleet Bank of
Massachusetts, N.A. and Voicetek....................................
10.10 Third Loan Modification Agreement dated September 26, 1996............
10.11 Executive Employment Agreement dated as of January 13, 1997 between
Voicetek and Sheldon Dinkes.........................................
10.12 Executive Employment Agreement dated as of January 13, 1997 between
Voicetek and Roger Tuttle...........................................
10.13 Executive Employment Agreement dated as of January 13, 1997 between
Voicetek and Paul Gagne.............................................
10.14 Executive Employment Agreement dated as of January 13, 1997 between
Voicetek and Scott Ganson...........................................
10.15 Executive Employment Agreement dated as of January 13, 1997 between
Voicetek and Daniel Poranski........................................
10.16 Voicetek Corporation 1992 Equity Incentive Plan.......................
10.17 Voicetek Corporation 1996 Stock Option Plan...........................
10.18 Voicetek Corporation 1996 Stock Option Plan for Non-Employee Directors
and Clerk...........................................................
10.19 Voicetek Corporation 1997 Employee Stock Purchase Plan................
10.20 Registration and First Refusal Rights Agreement dated as of December
22, 1992 by and among Voicetek and the holders of the Company's
Preferred Stock.....................................................
11.1 Statement re: Computation of Per Share Earnings.......................
23.1 Consent of Coopers & Lybrand, L.L.P...................................
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation
(included in Exhibit 5.1 above).....................................
27.1 Financial Data Schedule...............................................
- ---------------
* to be filed by amendment.
** Confidential Treatment Requested.