<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1996
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTELLIQUEST INFORMATION GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 8732 74-2671492
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1250 Capital of Texas Highway South
Building Two, Plaza One
Austin, Texas 78746
(512) 329-0808
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
James Schellhase
Chief Operating Officer and Chief Financial Officer
IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway South
Building Two, Plaza One
Austin, Texas 78746
(512) 329-0808
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
Allen L. Morgan, Esq. Larry A. Barden, Esq.
Christopher F. Boyd, Esq. Robert W. Kadlec, Esq.
Jeffrey D. Cattalini, Esq. Thomas S. Finke, Esq.
Wilson Sonsini Goodrich & Rosati Jon A. Ballis, Esq.
Professional Corporation Sidley & Austin
650 Page Mill Road One First National Plaza
Palo Alto, California 94304 Suite 4400
Chicago, Illinois 60603
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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, 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 of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock $.0001 par value....... 3,313,150 shares $27.625 $91,525,768.75 $31,560.61
</TABLE>
(1) Includes 432,150 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee, based on the average of the closing bid and
ask prices for the Common Stock as reported by the Nasdaq National Market on
September 23, 1996.
------------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
------------------------
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ------------------------------------------------------------------- --------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges....................................... Prospectus Summary; Risk Factors
4. Use of Proceeds......................................... Use of Proceeds
5. Determination of Offering Price......................... Outside Front Cover Page; Underwriting
6. Dilution................................................ Not Applicable
7. Selling Security Holders................................ Principal and Selling Stockholders
8. Plan of Distribution.................................... Outside and Inside Front Cover Pages; Underwriting
9. Description of Securities to be Registered.............. Prospectus Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel.................. Not Applicable
11. Information with Respect to the Registrant.............. Outside and Inside Front Cover Pages; Prospectus
Summary; Risk Factors; Use of Proceeds; Dividend
Policy; Capitalization; Selected Consolidated
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; Legal Matters; Experts; Consolidated
Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. Not Applicable
</TABLE>
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1996
PROSPECTUS
2,881,000 SHARES
[INTELLIQUEST LOGO]
COMMON STOCK
Of the 2,881,000 shares of Common Stock offered hereby, 1,000,000 are being
sold by IntelliQuest Information Group, Inc. (the "Company") and 1,881,000 are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
The Common Stock offered hereby is quoted on the Nasdaq National Market
under the symbol "IQST." On September 23, 1996, the last reported sale price of
the Common Stock was $27.50. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $ .
(3) Certain Selling Stockholders have granted the Underwriters a 30-day option
to purchase up to an additional 432,150 shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholders will be $ , $ and $ ,
respectively.
The Common Stock is offered by the several Underwriters when, as and if
delivered to and accepted by them and subject to their right to reject orders in
whole or in part. It is expected that delivery of the certificates for the
Common Stock will be made on or about , 1996.
WILLIAM BLAIR & COMPANY ROBERTSON, STEPHENS & COMPANY
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith. 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 other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement, and the exhibits and schedules
thereto, may be inspected without charge at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports,
proxy statements and other information filed by the Company can be inspected and
copied (at prescribed rates) at the Commission's Public Reference Section, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048,
and the Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601. Quotations relating to the Company's Common Stock appear on the
Nasdaq National Market and such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006. The Commission also
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.
------------------------
IntelliQuest, the IntelliQuest logo and the names of products offered by
IntelliQuest are trademarks or registered trademarks of IntelliQuest. All other
trademarks or service marks appearing in this Prospectus are trademarks or
registered trademarks of the respective companies that utilize them.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS, IF ANY, OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. IN MAY 1996, THE COMPANY ACQUIRED
INTELLIQUEST COMMUNICATIONS, INC. ("INTELLIQUEST COMMUNICATIONS," FORMERLY
PIPELINE COMMUNICATIONS, INC.) IN A TRANSACTION ACCOUNTED FOR AS A POOLING OF
INTERESTS. AS SUCH, THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO HAVE
BEEN RESTATED TO INCLUDE THE OPERATING RESULTS AND FINANCIAL CONDITION OF
INTELLIQUEST COMMUNICATIONS FOR EACH OF THE PERIODS AND AT EACH OF THE DATES
PRESENTED. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO,
THE COMPANY'S EXPECTATIONS REGARDING ITS FUTURE FINANCIAL CONDITION AND
OPERATING RESULTS, PRODUCT DEVELOPMENT, BUSINESS AND GROWTH STRATEGY, MARKET
CONDITIONS AND COMPETITIVE ENVIRONMENT. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS
A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
IntelliQuest Information Group, Inc. ("IntelliQuest" or the "Company") is a
leading provider of quantitative marketing information to technology companies.
IntelliQuest supplies customers with timely, objective, accurate and
cost-effective information about technology markets, customers, products, and
competitors on both a subscription basis and a proprietary project basis. The
Company uses its proprietary databases and software to help technology companies
track product performance and customer satisfaction, measure advertising
effectiveness, assess brand strength and competitive position, determine price
sensitivity, and evaluate new products, markets or other business opportunities.
The Company also licenses custom proprietary software applications and
associated services to technology manufacturers for customer registration.
Since its founding in 1985, IntelliQuest has focused on meeting the
specialized market research needs of technology companies and publishers who
market to technology advertisers. The Company believes that its ability to
cost-effectively provide consistent information regarding both domestic and
international technology markets differentiates it from its competitors and
enhances the Company's ability to capitalize on the trend among multinational
technology vendors to seek worldwide market research. The Company has
established relationships with over 55 technology companies and with numerous
leading publishers who market to technology advertisers.
The Company focuses on providing renewable subscription-based and
proprietary products as well as one-time research services. In 1995, 84.7% of
the Company's total revenues were generated from the sale of renewable products
and services. Due to the strategic value of IntelliQuest's products and
services, its innovative use of proprietary technology to collect and analyze
information and the Company's reputation for excellent customer service, the
Company averaged dollar-weighted renewals for subscription-based products of 84%
over the three year period from 1993 through 1995. Nine of the Company's ten
largest customers in 1994 were also among its ten largest customers in 1995.
The Company has made substantial investments in proprietary technology for
survey administration, data collection and data analysis. IntelliQuest was a
pioneer in the use of disk-based interactive survey techniques, which are used
to gather information from technology purchasers and users. The Company has made
a substantial investment in ReplyDisk, its proprietary survey software, which
allows the Company to easily create customized interactive, graphical and
multi-media survey applications. The Company has also used the ReplyDisk
platform to create off-the-shelf survey software applications. The Company is
currently developing NetQuest, which will allow the Company to administer
interactive surveys on the Internet.
3
<PAGE>
While the Company incurred net losses in each of 1993 and 1994, it recorded
a net profit in 1995 and has improved operating margins over the past three
years by leveraging fixed annual investments in subscription-based products over
an increasing subscriber base. The Company has also invested in data collection
technologies and panel recruitment to further lower cost of revenues as a
percentage of total sales. In 1995, the Company's operating income as a
percentage of revenues increased to 6.0%, based on revenues of $19.1 million and
operating income of $1.1 million, compared to an operating loss as a percentage
of revenues of 5.0% in 1992, based on $3.9 million in revenues and an operating
loss of $196,000.
The Company's growth strategy is to (i) leverage its expertise and
reputation to expand its presence among other business units of existing
customers and to capture a portion of the growth in such customers' market
research budgets; (ii) extend its product and service offering to new customers
within both the Company's current target markets and new target markets such as
data communications, on-line services and interactive new media; (iii) expand
its recently introduced Internet-based research tools and information services
such as Web site surveys and a survey to measure Internet and on-line service
usage among technology purchase influencers; (iv) expand marketing services,
such as database marketing, associated with electronic customer registration;
(v) expand international market research capabilities to meet the demand for
consistent worldwide market research; and (vi) pursue strategic business
acquisitions of companies that provide products or services not offered by the
Company, have strategic customer relationships, are located in attractive
geographic locations or have proprietary technologies.
RECENT DEVELOPMENTS
In May 1996, the Company acquired IntelliQuest Communications, which
resulted in IntelliQuest Communications becoming a wholly-owned subsidiary of
the Company. IntelliQuest Communications is a leading provider of electronic
customer registration and marketing services for a number of leading computer
hardware, software and peripheral companies. IntelliQuest Communications has
developed a proprietary frame relay network that allows electronic customer
registration from over 90 countries and 400 cities worldwide as well as
registration via Internet Web sites. The Company's acquisition of IntelliQuest
Communications enables the Company to expand its offering of electronic customer
registration products.
In connection with the acquisition, the Company issued 562,500 shares of
Common Stock in exchange for all of the outstanding shares of common stock and
outstanding options and warrants of IntelliQuest Communications. The acquisition
was accounted for as a pooling of interests and, accordingly, all financial
information in this Prospectus has been restated to give effect to the
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto.
THE OFFERING
<TABLE>
<S> <C>
Shares Offered by the Company............................... 1,000,000
Shares Offered by the Selling Stockholders.................. 1,881,000
Shares Outstanding Immediately After the Offering........... 8,068,708(1)
Use of Proceeds............................................. For general corporate
purposes, including working
capital and potential
acquisitions of complementary
businesses, products or
technologies.
Nasdaq National Market Symbol............................... IQST
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding as of August 31, 1996. Excludes
331,094 shares of Common Stock issuable upon the exercise of options
outstanding as of August 31, 1996.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Renewable subscription-based products....... $ 555 $ 1,120 $ 2,055 $ 6,157 $ 8,064 $ 2,216 $ 3,234
Renewable proprietary products.............. -- 1,118 2,055 4,185 8,120 3,150 3,915
Proprietary project research................ 1,650 1,684 2,039 3,647 2,930 1,653 1,617
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................ 2,205 3,922 6,149 13,989 19,114 7,019 8,766
Operating income (loss)....................... (149) (196) (916) (274) 1,140 184 279
Net income (loss)............................. (148) (200) (935) (289) 565 46 381
Pro forma information:
Net income per share (1)...................... $ 0.10 $ 0.01 $ 0.06
Weighted average number of common and common
equivalent shares outstanding (1)............ 5,526 5,512 6,482
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED (2)
--------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................................................... $ 27,620 $ 53,358
Total assets.......................................................................... 35,520 61,258
Total debt............................................................................ -- --
Common stockholders' equity........................................................... 29,648 55,386
</TABLE>
- ------------------------------
(1) Pro forma information assumed conversion of the Company's redeemable
convertible preferred stock into 1,853,046 shares of Common Stock and the
exercise of outstanding warrants to purchase 264,480 shares of Common Stock,
which conversion and exercise occurred in connection with the Company's
initial public offering in March 1996. See Note 3 to Consolidated Financial
Statements.
(2) As adjusted to give effect to the sale of the 1,000,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$27.50 per share and the application of the net proceeds to the Company
therefrom. See "Use of Proceeds."
* * * *
The Company was founded in 1985 and reincorporated in Delaware in March
1996. The principal office of the Company is located at 1250 Capital of Texas
Highway South, Building Two, Plaza One, Austin, Texas 78746; its telephone
number is (512) 329-0808 and its World Wide Web address is http://
www.intelliquest.com. Information contained in the Company's Web site shall not
be deemed to be a part of this Prospectus. As used in this Prospectus, the terms
"IntelliQuest" and the "Company" refer to IntelliQuest Information Group, Inc.,
a Delaware corporation, its predecessor, its subsidiaries, IntelliQuest
Communications, Inc., a Georgia corporation (formerly known as Pipeline
Communications, Inc.), and IntelliQuest, Inc., a Texas corporation, and the
latter's sole subsidiary, IntelliQuest, Ltd., a U.K. corporation.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S EXPECTATIONS REGARDING
ITS FUTURE FINANCIAL CONDITION AND OPERATING RESULTS, PRODUCT DEVELOPMENT,
BUSINESS AND GROWTH STRATEGY, MARKET CONDITIONS AND COMPETITIVE ENVIRONMENT. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
RELIANCE ON KEY CUSTOMERS; TECHNOLOGY INDUSTRY CONSOLIDATION. The Company
has relied on a limited number of key customers for the majority of its
revenues. The Company's 10 largest customers in 1994 and 1995 generated 63.2%
and 59.4%, respectively, of the Company's revenues in each of those periods. In
1995, the Company's two largest customers, Microsoft and IBM, each accounted for
approximately 10% or more of the Company's revenues and together accounted for
25.0% of revenues. The Company expects that these two customers will each
account for 10% or more of revenues in 1996 as well. Substantially all of the
Company's subscriptions and customer contracts are renewable annually at the
option of the Company's customers, although no obligation to renew exists and a
customer generally has no minimum purchase commitments thereunder. In addition,
there is significant consolidation of companies in the technology industries
served by the Company, a trend which the Company believes will continue.
Consolidation among the Company's top customers could adversely affect aggregate
customer budgets for the Company's products and services. No assurances can be
given that the Company will maintain its existing customer base or that it will
be able to attract new customers. The loss of one or more of the Company's large
customers or a significant reduction in business from such customers, regardless
of the reason, would have a material adverse effect on the Company. See
"Business -- Customers" and "-- Sales and Marketing."
DEPENDENCE ON SUBSCRIPTION AND CONTRACT RENEWALS. In 1995, 84.7% of the
Company's revenues were derived from subscriptions to the Company's renewable
subscription-based products and contracts for renewable proprietary products.
The Company expects that a material portion of its revenues for the foreseeable
future will be derived from such subscriptions and contracts. Substantially all
such subscriptions and customer contracts are renewable annually at the option
of the Company's customers, although no obligation to renew exists and a
customer generally has no minimum purchase commitments thereunder. To the extent
that customers fail to renew or defer their renewals from the quarter
anticipated by the Company, the Company's quarterly results may be materially
adversely affected. The Company's ability to secure renewals is dependent upon,
among other things, its ability to deliver consistent, high-quality and timely
data. In addition, the marketing and market research activities of the Company's
customers are dependent on the timing of their new product introductions, size
of marketing budgets, operating performance, industry and economic conditions
and changes in management or ownership. As a result of such factors, there can
be no assurance that the Company will be able to maintain its historically high
renewal rates. Any material decline in renewal rates from such levels would have
a material adverse effect on the Company's operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Sales and Marketing."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY. The Company's operating
results in any particular fiscal period have fluctuated in the past and will
likely fluctuate significantly in the future due to various factors.
Substantially all revenues and expenses attributable to the Company's Computer
Industry Media Study ("CIMS") product for a particular year are recognized in
the third quarter of that year, when the final study is usually completed and
delivered. Delay in delivering the final study in any given year could postpone
recognition of such revenues and expenses until the fourth quarter of such year,
which would materially affect operating results for such third and fourth
quarters. Furthermore, all costs related to CIMS are included in cost of
revenues and none are allocated to sales, general and administrative costs,
which tends to reduce the Company's third quarter gross margin below that
6
<PAGE>
of other quarters. Many of the Company's customers operate in industry segments
that are becoming increasingly seasonal as technology vendors have increased
their focus on consumer markets, with sales in the fourth calendar quarter
constituting a growing portion of the annual sales of such customers. This may
translate into seasonal demand for the Company's products, particularly the
customer registration products. In addition, the Company's operating results may
fluctuate as a result of a variety of other factors, including the timing of
orders from customers, the size and timing of orders for customer registration
products, response rates on customer registration products, delays in
development and customer acceptance of custom software applications, product or
panel development expenses, new product or service introductions or
announcements by the Company or its competitors, levels of market acceptance for
new products and services, the hiring and training of additional staff and
customer demand for market research, as well as general economic conditions.
Because a significant portion of the Company's overhead is fixed in the short
term and because spending commitments must be made in advance of revenue
commitments by customers, the Company's results of operations may be materially
adversely affected in any particular quarter if revenues fall below the
Company's expectations. These factors, among others, make it likely that in some
future quarter the Company's operating results may be below the expectations of
securities analysts and investors, which would have a material adverse effect on
the market price of the Company's Common Stock. The Company's operating results
for the third quarter of 1996 are not yet available and there can be no
assurance that these results will meet the expectations of securities analysts.
Any failure to do so could have a material adverse effect on the market price of
the Company's Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION. Overall, the technology-focused market research industry is
highly competitive. The Company has traditionally competed directly with
relatively small, local providers of survey-based technology-focused market
research. The Company also competes directly with third party providers of
customer registration software (such as KAO Infosystems Company) as well as
vendors' own customer registration software. In addition, the Company competes
indirectly with significant providers of (i) analyst-based, technology-focused
market research (such as Gartner Group, Inc., META Group, Inc. and Forrester
Research, Inc.); (ii) survey-based, general market research (such as A. C.
Nielsen Company, NFO Research, Inc., Information Resources Inc. and The NPD
Group, Inc.); and (iii) analyst-based, general business consulting. Although
only a few of these competitors have to date offered survey-based,
technology-focused market research that competes directly with the Company's
products and services, many of these competitors have substantially greater
financial, information gathering and marketing resources than the Company and
could decide to increase their resource commitments to the Company's market.
Moreover, each of these companies currently competes indirectly, if not
directly, for funds available within aggregate industry-wide market research
budgets. There are few barriers to entry into the Company's market, and the
Company expects increased competition in one or more market segments addressed
by the Company, which could adversely affect the Company's operating results
through pricing pressure, required increased marketing expenditures and loss of
market share, among other factors. There can be no assurance that the Company
will continue to compete successfully against existing or new competitors. See
"Business -- Competition."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT INTRODUCTION. The Company's
customers compete in markets characterized by rapid, continual technological
change. The Company's success will depend in part upon its ability to anticipate
and keep pace with rapidly changing technology and to add new products and
services which address the increasingly sophisticated, rapidly changing and
demanding needs of its customers and their evolving market strategies. In
particular, the Company is expending significant resources to develop its
proprietary customer registration products to take advantage of certain market
opportunities. However, such software products may contain defects following
customization or when new versions are released; the Company has in the past
discovered software defects in certain of its products and may experience delays
or lost revenue to correct such defects in the future. In addition, the
significant growth in the use of the World Wide Web (the "Web") portion of the
Internet has created the opportunity to use the Internet as an information
transmission medium. Accordingly, the Company is expending significant resources
to develop Internet-based information collection tools.
7
<PAGE>
There can be no assurance, however, that the Company will be successful in
developing and marketing, on a timely basis, these or other new or improved
products and services that adequately and competitively address the needs of the
marketplace. Any failure to continue to provide insightful and timely data in a
manner that meets rapidly changing market needs could materially and adversely
affect the Company's future operating results. See "Business -- Products and
Services" and "-- Product Development and Technology."
DATA COLLECTION RISKS. The Company currently collects information both
telephonically and electronically. In addition, certain of the Company's new
products and services involve the use of the Internet and commercial online
services to gather information from end users for processing and sale to
customers of the Company. A number of legislative initiatives exist domestically
and abroad that seek to regulate the telephonic or electronic collection of data
about persons. In addition, an increasing number of court cases have been
brought seeking damages and injunctive relief for actions allegedly violating
so-called "rights of privacy." The law in this area, both statutory and case
law, is highly unsettled. No assurance can be given, therefore, that the Company
will be allowed to continue to pursue existing or proposed new products and
services. In addition, the Company's ability to provide timely and accurate
market research to its customers depends on its ability to collect large
quantities of high quality data through interviews, customer registrations,
product satisfaction questionnaires and certain other surveys. If receptivity to
the Company's customer registration, interview and survey methods by respondents
declines, or for some other reason their willingness to complete and return
surveys, registrations, or other information declines, or if the Company for any
reason cannot rely on the integrity of the data it receives, it would reduce the
quantity and/or quality of the data the Company seeks to disseminate and would
have a material adverse effect on the Company's ability to market and sell its
market research products and on its results of operations. See "Business --
Products and Services."
RISKS RELATED TO CIMS. CIMS is one of the leading databases of media
readership and viewership habits of both business and household technology
purchase influencers in the United States. Because many advertisers use CIMS
data as a key component in their media buying decisions and because many media
companies use CIMS data to promote their media properties, such data can have a
significant impact on advertiser demand for, and advertising rates charged by,
such media properties. In the past, media companies dissatisfied with the
results of the surveys or the manner in which such results were used by their
competitors have threatened litigation against the Company. Furthermore, the
Company recently revised data from a study that was inaccurate due to software
defects, which it remedied and disclosed to its customers. Although none of
these potential disputes or inaccuracies in CIMS has resulted in litigation,
there can be no assurance that the Company will not face future litigation as a
result of media company dissatisfaction with CIMS or the results thereof.
MANAGEMENT OF GROWTH; POSSIBLE ACQUISITIONS. Since inception, the Company's
growth has placed significant demands on the Company's management,
administrative, operational and financial resources. In order to manage its
growth, the Company will need to continue to implement and improve its
operational, financial and management information systems and continue to
expand, motivate and effectively manage an evolving and expanding workforce. If
the Company's management is unable to effectively manage under such
circumstances, the quality of the Company's products, its ability to retain key
personnel and its results of operations could be materially adversely affected.
Furthermore, there can be no assurance that the Company's business will continue
to expand. The Company's growth could be adversely affected by reductions in
customers' spending on market research or customer registration products,
increased competition, possible pricing pressures and other general economic
trends. Although market research expenditures by technology companies have
increased in recent years as such companies have adopted certain marketing
strategies traditionally utilized by consumer goods manufacturers, there can be
no assurance that this trend will continue or that technology companies will
continue to rely on externally-generated market research to enhance the
marketing of their products.
8
<PAGE>
The Company hopes to achieve a portion of its future revenue growth, if any,
through acquisitions of complementary businesses, products or technologies,
although the Company currently has no commitments or agreements with respect to
any such acquisition. As part of this strategy, the Company acquired
IntelliQuest Communications, Inc. ("IntelliQuest Communications," formerly known
as Pipeline Communications, Inc.) in May 1996. The Company's management has
limited experience dealing with the issues of product, systems, personnel and
business strategy integration posed by acquisitions, and no assurance can be
given that the integration of the IntelliQuest Communications acquisition or any
possible future acquisitions will be managed without a material adverse effect
on the business of the Company. In addition, there can be no assurance that any
possible future acquisition will not dilute the Company's earnings per share.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Growth Strategy."
DEPENDENCE ON KEY PERSONNEL. The Company's future performance will depend
to a significant extent upon the efforts and abilities of key personnel who have
expertise in developing, interpreting and selling survey-based information for
technology markets. Although customer relationships are managed at many levels
in the Company, the loss of one or more of IntelliQuest's corporate officers or
senior managers could have an adverse effect on the Company's business. The
Company's success may also depend on its ability to hire, train and retain
skilled personnel in all areas of its business. Competition for qualified
personnel in the Company's industry is intense, and many of the companies with
which the Company competes for qualified personnel have substantially greater
financial and other resources than the Company. Furthermore, competition for
qualified personnel can be expected to become more intense as competition in the
Company's industry increases. There can be no assurance that the Company will be
able to recruit, retain and motivate a sufficient number of qualified personnel
to compete successfully.
EXPANSION OF DIRECT SALES FORCE. The Company has historically relied on
customer referrals, supplemented by its own sales and marketing efforts, to
generate the majority of its revenue growth. Although the Company has a small
number of dedicated account representatives, it only recently began to develop a
formal sales management structure. As the Company develops new products and
services targeted at broader-based market segments, it will continue to expand
its sales force. The Company's plans for future growth may depend in part on,
among other things, its unproven ability to hire, train, deploy, manage and
retain an increasingly large direct sales force. There can be no assurance that
the Company will be able to develop or manage such a sales force. See "Business
- -- Sales and Marketing."
HISTORY OF NET LOSSES; UNCERTAIN PROFITABILITY. The Company incurred net
losses in each year from 1991 through 1994 before recording a net profit in
1995. As of December 31, 1995, the Company had an accumulated deficit of
approximately $3.2 million. In view of the Company's prior operating history,
there can be no assurance that the Company will be able to maintain
profitability on a quarterly or annual basis or that it will be able to sustain
or increase its revenue growth in future periods. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LIMITED PROTECTION OF PROPRIETARY SYSTEMS, SOFTWARE AND PROCEDURES. The
Company's success is in part dependent upon its proprietary software technology,
research methods, data analysis techniques, and internal systems and procedures
that it has developed specifically to serve customers in the technology
industry. The Company has no patents; consequently, it relies on a combination
of copyright, trademark and trade secret laws and employee and third party
non-disclosure agreements to protect its proprietary systems, software and
procedures. 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 systems, software or procedures. The Company believes
that its systems, software and procedures and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the
9
<PAGE>
future or that any such claims will not require the Company to enter into
materially adverse license arrangements or result in protracted and costly
litigation, regardless of the merits of such claims. See "Business --
Intellectual Property and Other Proprietary Rights."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. Revenues attributable to
international market research represented 21.0% and 26.0%, respectively, of the
Company's revenues for 1994 and 1995. The Company expects that revenues from
international market research will continue to account for a significant portion
of its revenues and intends to continue to expand its international market
research efforts. However, the Company's international data collection
operations are subject to numerous inherent challenges and risks, including
maintenance of an international data collection network that adheres to the
Company's quality standards, fluctuations in exchange rates, foreign political
and economic conditions, tariffs and other trade barriers, longer accounts
receivable collection cycles and potentially adverse tax consequences. In
addition, demand for the Company's international market research depends on the
international sales and operations of its customers, which may increase or
decrease over time. The addition of market research coverage in new geographic
territories can be expected to require the commitment of considerable management
and financial resources and may negatively impact the Company's near-term
results of operations. Any material decline in the Company's ability to provide
and market timely, high-quality data that is consistent across international
markets would have a material adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONTROL BY MANAGEMENT. Holders of shares of Common Stock do not have
cumulative voting rights, and therefore the holders of a majority of the
outstanding shares of Common Stock are able to elect all of the directors of the
Company. Upon the closing of this offering, the Company's executive officers and
directors, together with entities affiliated with them, will beneficially own
approximately 21.0% (17.2% if the Underwriters' over-allotment option is
exercised in full) of the outstanding Common Stock, including options held by
them that are exercisable within 60 days of August 31, 1996. As a result, these
stockholders will be able to exercise significant influence over matters
requiring stockholder approval, including the election of directors and the
approval of significant corporate matters such as change of control
transactions. The effects of such influence could be to delay or prevent a
change of control of the Company unless the terms are approved by such
stockholders. See "Management" and "Principal and Selling Stockholders."
UNSPECIFIED USE OF PROCEEDS. The principal purpose of the offering of
shares by the Company is to increase the Company's equity capital. The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholders. The Company expects to use the net proceeds from this offering
primarily for working capital and general corporate purposes. In addition, a
portion of the proceeds may be used for the acquisition of complementary
businesses, products or technologies, which the Company evaluates from time to
time. The Company has no current specific plan for any significant portion of
the proceeds of this offering. As a consequence, the Company's management will
have discretion over the use of all of the proceeds for the foreseeable future.
See "Use of Proceeds."
EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Board of Directors has
the authority to issue up to 1,000,000 shares of Preferred Stock and to
determine the price, rights, conversion ratios, preferences and privileges of
those shares without any further vote or action by the Company's stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights, including economic rights, of the holders of
any shares of Preferred Stock. Any such issuance, while providing 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. Furthermore, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law that 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 first becomes an "interested
stockholder," unless the business combination is approved in a prescribed
manner. The application of Section 203 and certain other provisions of the
Certificate of Incorporation could also have the effect of delaying or
10
<PAGE>
preventing a change of control of the Company, which could adversely affect the
market price of the Company's Common Stock. See "Description of Capital Stock --
Anti-Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALES; REGISTRATION RIGHTS. Sales of a
substantial number of shares of Common Stock in the public market following this
offering could adversely affect the market price for the Company's Common Stock.
The number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act") and lock-up agreements entered into by the Company, its
executive officers and directors and all Selling Stockholders under which the
holders of such shares and options to purchase such shares have agreed not to
sell or otherwise dispose of any of their shares or options for a period of 90
days after the date of this Prospectus without the prior written consent of
William Blair & Company, L.L.C. However, William Blair & Company, L.L.C. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to such lock-up agreements. As a result of these
restrictions, only the 2,881,000 shares of Common Stock offered hereby and
approximately 2,716,701 additional shares already outstanding will be freely
tradeable on the date of this Prospectus, unless purchased by affiliates of the
Company. The remaining 2,471,007 shares of Common Stock held by the existing
stockholders are "restricted securities" for purposes of the Securities Act and
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act. Upon expiration of the lock-up agreements referred to above,
holders of approximately 1,000,686 shares of Common Stock will be 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 could have a material
adverse effect on the market price for the Company's Common Stock. See "Shares
Eligible for Future Sale."
VOLATILITY OF STOCK PRICE. The stock market and the market prices for many
technology companies, including the Company, have recently experienced
significant price and volume fluctuations. These fluctuations often have been
unrelated to the operating performance of the specific companies whose stocks
are traded. Broad market fluctuations, as well as economic conditions generally
and in the technology industry specifically, may adversely affect the market
price of the Company's Common Stock. In addition, the market price of the
Company's Common Stock could continue to fluctuate significantly in response to
variations in quarterly operating results and other factors, such as
announcements of new products or services by the Company or its competitors and
changes in financial estimates by securities analysts or other events or
factors. There can be no assurance that the market price of the Common Stock
will not decline below the public offering price. See "Underwriting."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $25.7 million based on an assumed public offering price of $27.50
per share after deducting the underwriting discount and estimated offering
expenses. The principal purpose of the offering of shares by the Company is to
increase the Company's equity capital. The Company expects to add the net
proceeds from this offering to its general funds. Such funds will be available
for general corporate purposes, including working capital. A portion of the
proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies; however,
there are no commitments or agreements with respect to any such transactions at
the present time. Pending use of the net proceeds for the above purposes, the
Company intends to invest such funds in short-term, interest-bearing,
investment-grade obligations.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock or other
securities. The Company currently anticipates that it will retain all of its
future earnings for use in the expansion and operation of its business and does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Furthermore, the Company's existing credit facility prohibits the
Company's payment of dividends on the Common Stock without either the lender's
consent or the Company's compliance with the terms of the credit facility
immediately prior to and following any such payment. The terms of such credit
facility require the Company to maintain minimum assets to liabilities ratios,
net worth amounts, operating profits and net worth to debt ratios. Future
borrowing agreements may contain similar restrictions. Any future determination
to pay dividends will be at the discretion of the Company's Board of Directors
and will be dependent upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "IQST". The following table sets forth, for the fiscal year periods
indicated, the high and low sale prices of the Common Stock as reported by
Nasdaq since the Company's initial public offering of Common Stock at $17.00 per
share on March 22, 1996.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996
First Quarter (from March 22,
1996)........................ 29 24 7/8
Second Quarter................ 41 3/4 26
Third Quarter (through
September 23, 1996).......... 32 3/4 17 3/4
</TABLE>
On September 23, 1996, there were approximately 1,000 holders of record of
the Company's Common Stock. The last reported sale price per share of the Common
Stock on September 23, 1996 on the Nasdaq National Market was $27.50.
12
<PAGE>
CAPITALIZATION
The following table sets forth the total short-term debt and total
capitalization of the Company (i) as of June 30, 1996 and (ii) as adjusted to
reflect the sale of 1,000,000 shares of Common Stock offered by the Company
hereby (at an assumed public offering price of $27.50 per share and after
deducting the underwriting discount and estimated offering expenses).
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
(IN THOUSANDS)
Total short-term debt................................................................. $ -- $ --
--------- --------------
--------- --------------
Total long-term debt.................................................................. $ -- $ --
--------- --------------
Stockholders' equity:
Preferred Stock, par value $.0001 per share; 1,000,000 shares authorized, no shares
issued and outstanding actual and as adjusted...................................... -- --
Common Stock, par value $.0001 per share; 30,000,000 shares authorized; 6,997,719
shares issued and outstanding actual; 7,997,719 shares issued and outstanding as
adjusted (1)(2).................................................................... 1 1
Capital in excess of par value...................................................... 32,613 58,351
Deferred compensation............................................................... (54) (54)
Foreign currency translation........................................................ 1 1
Accumulated deficit................................................................. (2,913) (2,913)
--------- --------------
Total stockholders' equity (deficit).......................................... 29,648 55,386
--------- --------------
Total capitalization........................................................ $ 29,648 $ 55,386
--------- --------------
--------- --------------
</TABLE>
- ------------------------
(1) As adjusted to reflect the sale of 1,000,000 shares of Common Stock by the
Company at an assumed public offering price of $27.50 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
(2) Excludes 349,900 shares subject to options outstanding as of June 30, 1996;
also excludes 322,480 shares available for future issuance under the
Company's stock option and stock purchase plans.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements, the notes
thereto and other financial information included elsewhere in this Prospectus.
The consolidated statement of operations data for the years ended December 31,
1993, 1994 and 1995, and the consolidated balance sheet data at December 31,
1994 and 1995 are derived from, and are qualified by reference to, the audited
consolidated financial statements included elsewhere in this Prospectus. The
following selected consolidated financial data with respect to the Company's
statement of operations for the years ended December 31, 1991 and 1992 and with
respect to the Company's balance sheet at December 31, 1991, 1992 and 1993 are
derived from financial statements not included herein. The consolidated
statement of operations data for the six month periods ended June 30, 1995 and
1996 are derived from the Company's unaudited consolidated financial statements
included herein, which have been prepared on the same basis as the Company's
audited consolidated financial statements and, in the opinion of management,
contain all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Renewable subscription-based products........ $ 555 $ 1,120 $ 2,055 $ 6,157 $ 8,064 $ 2,216 $ 3,234
Renewable proprietary products............... -- 1,118 2,055 4,185 8,120 3,150 3,915
Proprietary project research................. 1,650 1,684 2,039 3,647 2,930 1,653 1,617
--------- --------- --------- --------- --------- --------- ---------
Total revenues................................. 2,205 3,922 6,149 13,989 19,114 7,019 8,766
Operating expenses:
Cost of revenues............................. 1,183 2,036 3,372 8,457 10,103 3,267 3,685
Sales, general and administrative............ 930 1,630 2,661 3,996 5,575 2,589 2,792
Product development.......................... 157 387 880 1,545 1,979 838 1,693
Depreciation and amortization................ 84 65 152 265 317 141 317
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses....................... 2,354 4,118 7,065 14,263 17,974 6,835 8,487
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........................ (149) (196) (916) (274) 1,140 184 279
--------- --------- --------- --------- --------- --------- ---------
Interest income and other...................... 5 6 12 12 49 41 290
Interest expense............................... (4) (10) (32) (25) (31) (38) (36)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.............. (148) (200) (936) (287) 1,158 187 533
Provision (benefit) for income taxes (1)....... -- -- (1) 2 593 141 152
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ (148) $ (200) $ (935) $ (289) $ 565 $ 46 $ 381
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA INFORMATION:
Net income per share (2)....................... $ 0.10 $ 0.01 $ 0.06
--------- --------- ---------
--------- --------- ---------
Weighted average number of common and common
equivalent shares outstanding (2)............. 5,526 5,512 6,482
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $ 210 $ (166) $ 924 $ 1,214 $ 2,018 $ 27,620
Total assets............................................ 817 1,483 5,661 5,907 8,006 35,520
Total debt.............................................. -- 263 -- -- -- --
Common stockholders' equity (deficit)................... 398 198 (2,454) (1,884) (946) 29,648
</TABLE>
- ------------------------------
(1) The Company changed from S Corporation to C Corporation status for tax
purposes effective May 1993. Income taxes for 1993 are calculated on
earnings from the effective date of the change to a C Corporation to the
end of that year. Pro forma income tax expense for the earlier periods
would not be meaningful because of the Company's operating results and is
therefore not presented.
(2) Pro forma information assumed conversion of the Company's redeemable
convertible preferred stock into 1,853,046 shares of Common Stock and the
exercise of outstanding warrants to purchase 264,480 shares of Common
Stock, which conversion and exercise occurred in connection with the
Company's initial public offering in March 1996. See Note 3 to Consolidated
Financial Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS TREND ANALYSIS AND OTHER FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S EXPECTATIONS REGARDING ITS FUTURE
FINANCIAL CONDITION AND OPERATING RESULTS, PRODUCT DEVELOPMENT, BUSINESS AND
GROWTH STRATEGY, MARKET CONDITIONS AND COMPETITIVE ENVIRONMENT. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE CERTAIN FACTORS, INCLUDING THOSE
SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
IntelliQuest is a leading provider of quantitative marketing information to
technology companies. The Company also licenses custom proprietary software
applications and associated services to technology manufacturers for customer
registration. In 1995, approximately 42% of the Company's revenues were derived
from the sale of renewable subscription-based products, 43% from the sale of
renewable proprietary products and 15% from the sale of proprietary project
research. See "Business -- Products and Services."
The Company was founded in 1985 to provide fee-for-service project research
on United States technology markets. Prior to 1991, the Company focused on
conducting proprietary research for a limited number of technology companies. In
order to better leverage its expertise, expand its customer base and capitalize
on the growing need for international market research, the Company in 1991 began
to increase its focus on providing renewable subscription-based and renewable
proprietary products and on expanding its research coverage to include key
international technology markets. In May 1996, the Company acquired IntelliQuest
Communications, Inc. ("IntelliQuest Communications," formerly known as Pipeline
Communications, Inc.), a leading provider of electronic customer registration
services. The transaction was accounted for as a pooling of interests; as such,
the Company's results of operations for all periods and financial condition for
all dates disclosed herein have been restated to include those of IntelliQuest
Communications. Due primarily to the Company's strategic decision to
substantially increase its emphasis on worldwide renewable products and
services, and to a lesser extent to the Company's acquisition of IntelliQuest
Communications, the Company's total revenues increased from $2.2 million in 1991
to $19.1 million in 1995. Revenues from renewable products increased from $0.6
million in 1991, or 25.2% of total revenues, to $16.2 million in 1995, or 84.7%
of total revenues. Revenues from international market research, which the
Company first introduced in 1991, grew to $5.0 million in 1995, or 26.0% of
total revenues. Overall, the number of customers for the Company's products and
services increased from 52 in 1991 to 130 in 1995.
The Company's renewable subscription-based product revenues are derived
substantially from two product lines: IntelliTrack IQ and Computer Industry
Media Study ("CIMS"). Over 80 technology companies and publishers that target
technology purchasers subscribe to IntelliTrack IQ and/or CIMS. IntelliTrack IQ
is a collection of 16 distinct product modules covering a variety of
technologies and geographic markets. Payments for an IntelliTrack IQ contract
are generally made in advance of the subscription period or on a quarterly
basis, and revenues are recognized pro rata over the period of the contract.
CIMS is an annual study that measures the readership and viewership habits of
technology purchase influencers. CIMS subscribers generally pay 50% in advance
and 50% upon delivery of the final study. Substantially all CIMS revenues and
related costs are recognized upon delivery of the final study, which typically
occurs in the third quarter.
The Company's renewable proprietary product revenues typically consist of
revenues from proprietary recurring tracking studies, customer registration
programs and services and the IntelliQuest Brand Tech Forum conference (the
"Forum"). The proprietary recurring tracking studies, which provide the customer
with longitudinal information for tracking designated metrics over a continuous
period of time, are furnished pursuant to contracts that are generally renewable
annually. These products are typically billed 50% in advance and 50% upon
completion of the contract period, and
15
<PAGE>
revenues are recognized on a percentage of completion basis. Revenues from the
customer registration products and services are derived from a variety of
sources, including proprietary customer registration products and proprietary
customer satisfaction products. Customer registration revenues include design
fees, data medium sales, processing fees and reporting fees. Various payment
terms are used by customer registration clients, including 50% in advance and
50% upon delivery, periodic units shipped/processed, percentage of completion
and advance deposits. Revenues are recognized on a percentage of completion and
actual units shipped/processed basis. Sponsorships and conference fees for the
Forum, which is attended by technology industry marketing professionals and
which addresses issues such as managing technology brands in the marketplace,
are paid in advance of the event. Revenues and costs associated with the Forum
are recorded in the month of the conference.
Traditional proprietary project research provides customized information to
customers utilizing a variety of proprietary models, research techniques and
data collection methods and typically lasts three or four months from start to
completion. The Company is increasingly emphasizing proprietary project research
based on the IntelliQuest Technology Panel, which is both more timely and less
costly than traditional proprietary project research and also allows the Company
to leverage a fixed investment in panel recruitment over several projects. Most
proprietary projects are billed 50% in advance and 50% upon delivery. Revenue is
recognized on a percentage of completion basis.
The Company's exposure to foreign currency rate fluctuations has been
relatively low. First, the Company generally requires payment from its customers
in U.S. dollars. Second, the Company controls vendor foreign currency risk both
through contractual clauses requiring vendors to reimburse the Company for any
losses on contracts caused by exchange rate fluctuations and by locking in
forward currency contracts for vendor purchases and data collection costs. These
forward contracts substantially eliminate the Company's exposure to exchange
rate fluctuation risk by giving the Company the right to purchase the required
amount of foreign currency at the exchange rate prevailing at the time the
contract is entered into rather than at the time the payments are due. As of
August 31, 1996, the Company had entered into open forward contracts for U.S.
dollar/British pound sterling transactions with a notional value of
approximately $670,000.
In recent years, the Company has focused on increasing operating margins by
leveraging fixed overhead costs and investments in new products and proprietary
processes. Each subscription-based product has a fixed annual cost associated
with data collection and product development, with only nominal costs associated
with adding incremental subscribers. The customer registration products also
have fixed overhead components, although a significant increase in product
registration revenues could actually decrease the Company's overall gross margin
(due to the high level of direct costs associated with product registration).
The Company's objective is to offset such gross margin pressure by leveraging
product shipment and processing fees and other operating expenses required to
support the customer registration programs.
In March 1996, the Company completed its initial public offering at a price
of $17.00 per share, which resulted in net proceeds to the Company of $25.8
million. Upon the closing of the initial public offering, each outstanding share
of the Company's Series A and Series B Redeemable Convertible Preferred Stock
was automatically converted into one share of Common Stock.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, consolidated
statement of operations data expressed as a percentage of total revenues and the
percentage change in such items versus the prior comparable period:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUE PERCENT INCREASE
------------------------------------------------------------- (DECREASE)
--------------------------
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30, FISCAL 1994 FISCAL 1995
------------------------------------- ---------------------- OVER FISCAL OVER FISCAL
1993 1994 1995 1995 1996 1993 1994
----------- ----------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable subscription-based
products..................... 33.4% 44.0% 42.2% 31.6% 36.9% 199.6% 31.0%
Renewable proprietary
products..................... 33.4 29.9 42.5 44.9 44.7 103.6 94.0
Proprietary project
research..................... 33.2 26.1 15.3 23.5 18.4 78.9 (19.7)
----- ----- ----- ---------- ----------
Total revenues.................. 100.0 100.0 100.0 100.0 100.0 127.5 36.6
Operating expenses:
Cost of revenues.............. 54.8 60.5 52.9 46.6 42.0 150.8 19.5
Sales, general and
administrative............... 43.3 28.6 29.2 36.9 31.9 50.2 39.5
Product development........... 14.3 11.0 10.3 11.9 19.3 75.6 28.1
Depreciation and
amortization................. 2.5 1.9 1.6 2.0 3.6 74.3 19.6
----- ----- ----- ---------- ----------
Total operating expenses........ 114.9 102.0 94.0 97.4 96.8 101.9 26.0
----- ----- ----- ---------- ----------
Operating income (loss)......... (14.9) (2.0) 6.0 2.6 3.2 * *
----- ----- ----- ---------- ----------
Interest income and other..... 0.2 0.1 0.3 0.6 3.3 * *
Interest expense.............. (0.5) (0.2) (0.2) (0.5) (0.4) * *
----- ----- ----- ---------- ----------
Income (loss) before income
taxes.......................... (15.2) (2.1) 6.1 2.7 6.1 * *
----- ----- ----- ---------- ----------
Provision (benefit) for income
taxes.......................... 0.0 0.0 3.1 2.0 1.7 * *
----- ----- ----- ---------- ----------
Net income (loss)............... (15.2)% (2.1)% 3.0% 0.7% 4.4% * *
----- ----- ----- ---------- ----------
----- ----- ----- ---------- ----------
<CAPTION>
SIX MONTHS
1996 OVER
SIX MONTHS
1995
-------------
<S> <C>
Revenues:
Renewable subscription-based
products..................... 45.9%
Renewable proprietary
products..................... 24.3
Proprietary project
research..................... (2.2)
Total revenues.................. 24.9
Operating expenses:
Cost of revenues.............. 12.8
Sales, general and
administrative............... 7.8
Product development........... 102.0
Depreciation and
amortization................. 124.8
Total operating expenses........ 24.2
Operating income (loss)......... 51.6
Interest income and other..... *
Interest expense.............. *
Income (loss) before income
taxes.......................... *
Provision (benefit) for income
taxes.......................... *
Net income (loss)............... *
</TABLE>
- ------------------------------
* Comparison not meaningful.
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
TOTAL REVENUES. Total revenues increased 24.9% in the first six months of
1996 to $8.8 million from $7.0 million in the first six months of 1995. Revenues
from subscription-based products increased 45.9% to $3.2 million in the first
six months of 1996 from $2.2 million in the first six months of 1995 due to
several factors, including more timely contract closure and an increase in
subscriptions. Subscription-based revenues from CIMS are deferred until the
actual release date, which generally occurs in the third quarter. Revenues from
renewable proprietary products increased 24.3% to $3.9 million in the first six
months of 1996 from $3.2 million in the first six months of 1995 due primarily
to increased sales of customer registration products. Revenues from proprietary
project research decreased 2.2% to $1.6 million in the first six months of 1996
from $1.7 million in the first six months of 1995. While the number of projects
has increased, more projects have been performed utilizing the Technology Panel,
which is a more cost efficient method of performing proprietary project
research. Revenues attributable to international market research increased 50.0%
to $3.0 million in the first six months of 1996 from $2.0 million in the first
six months of 1995.
COST OF REVENUES. Cost of revenues are primarily composed of data
collection, labor charges, telecommunication charges and other costs directly
attributable to products or projects. Cost of revenues increased 12.8% to $3.7
million in the first six months of 1996 from $3.3 million in the first six
months of 1995. Cost of revenues decreased as a percentage of total revenues to
42.0% in the first six months of 1996 from 46.6% in the first six months of
1995. The decrease in cost of revenues as a percentage of total revenues was due
primarily to the increase in subscription-based revenues, which
17
<PAGE>
is a leverageable business that allows cost of revenues to remain relatively
constant even as revenues increase, and to decreased costs of international data
collection resulting from the opening of the Company's data collection facility
in the U.K.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of personnel and other costs
associated with sales, marketing, administration, finance, information systems,
human resources and general management. Sales, general and administrative
expenses increased 7.8% to $2.8 million for the first six months of 1996 from
$2.6 million for the first six months of 1995. This aggregate increase was
primarily due to administrative and investor relations expenses following the
Company's initial public offering in March 1996, transaction expenses associated
with the acquisition of IntelliQuest Communications in May 1996 (which was
accounted for as a pooling of interests), expansion of the Company's sales and
marketing departments and the opening of the U.K. data collection facility.
Sales, general and administrative expenses decreased as a percentage of total
revenues to 31.9% for the first six months of 1996 from 36.9% for the first six
months of 1995. This decrease as a percentage of total revenue was primarily due
to the Company's ability to leverage its fixed costs over a higher revenue base.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses are composed of
resources, primarily labor, dedicated to the development of new products and
proprietary processes. Product development expenses increased 102.0% to $1.7
million in the first six months of 1996 from $0.8 million in the first six
months of 1995. Product development expenses increased as a percentage of total
revenues to 19.3% in the first six months of 1996 from 11.9% in the first six
months of 1995. These increases were primarily due to the Company's development
of new Internet-related products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 124.8% to $317,000 in the first six months of 1996 from $141,000 in
the first six months of 1995. This increase was due primarily to a relatively
high level of capital equipment acquisitions during the first six months of 1996
to equip two new data collection facilities and install Company-wide
standardized computer platforms, networks and software to enable more efficient
data communications.
INCOME TAXES. The Company's effective income tax rate was 28.5% for the
first six months of 1996. This rate is below the Company's combined federal and
state income tax rate because most of the net proceeds from the Company's
initial public offering in March 1996 were invested in tax-free investments.
This reduction was partially offset by the fact that the Company did not
recognize any income tax benefit resulting from the net loss of IntelliQuest
Communications. For the first six months of 1995, the Company's effective income
tax rate was 75.4% because the Company did not recognize any income tax benefit
resulting from IntelliQuest Communications' net loss.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
TOTAL REVENUES. Total revenues increased 36.6% in 1995 to $19.1 million
from $14.0 million in 1994. Revenues from renewable subscription-based products
increased 31.0% to $8.1 million in 1995 from $6.2 million in 1994 due primarily
to the increased number of subscribers, the higher number of products sold per
subscriber and revenues related to new international markets covered. The
dollar-weighted renewal rate for renewable subscription-based products was 90.0%
in 1995. Revenues from renewable proprietary products increased 94.0% to $8.1
million in 1995 from $4.2 million in 1994 due primarily to increased sales of
customer registration products and to increased demand for international
proprietary tracking products. Revenues from proprietary project research
decreased 19.7% to $2.9 million in 1995 from $3.6 million in 1994, due primarily
to the Company's continuing emphasis on renewable products. Revenues
attributable to international market research increased 68.9% to $5.0 million in
1995 from $2.9 million in 1994.
COST OF REVENUES. Cost of revenues increased 19.5% to $10.1 million in 1995
from $8.5 million in 1994. Cost of revenues decreased as a percentage of
revenues to 52.9% in 1995 from 60.5% in 1994. The decrease in cost of revenues
as a percentage of revenues reflects the Company's efforts to leverage its fixed
labor costs through its investments in new products and proprietary processes,
offset by a
18
<PAGE>
slight decrease in customer information transaction processing fees. The
Company's development and expansion of subscription-based products allow the
Company to sell substantially similar products to a greater number of clients,
thus increasing revenues without similarly increasing cost of revenues. For
example, the 1995 release of CIMS did not require the same level of investment
per customer as the 1994 release, resulting in improved margins. Similarly,
IntelliTrack's cost of revenues as a percentage of revenues were lower in 1995
than in 1994 (when the Company expanded IntelliTrack to cover a number of
international markets). Furthermore, the Company's improvements in its
proprietary processes (including more consistently applied research
methodologies and faster and more accurate data processing) reduce the costs of
research and data processing.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 39.5% to $5.6 million in 1995 from $4.0
million in 1994 but remained relatively constant as a percentage of revenues at
29.2% and 28.6% in 1995 and 1994, respectively. The aggregate increase was
primarily due to increases in salaries and benefits as well as IntelliQuest
Communications' advertising costs and legal expenses associated with
finalization of certain employee and vendor contracts. In addition, the Company
incurred sales, general and administrative expenses in the fourth quarter of
1995 of $68,000 to open its London and College Station, Texas offices.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased 28.1%
to $2.0 million in 1995 from $1.5 million in 1994 but decreased as a percentage
of revenues to 10.3% in 1995 from 11.0% in 1994, respectively. The aggregate
increase was due to the Company's efforts to expand the Technology Panel,
streamline proprietary software and enabling technologies and provide
technological advancements to customers.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 19.6% to $317,000 in 1995 from $265,000 in 1994. This increase was
principally due to computer equipment purchases to improve communications and
data processing systems required to support business growth and international
expansion.
INCOME TAXES. The Company's effective tax rate was 51.2% for 1995. The rate
was in excess of the combined federal and state statutory rates because the
Company did not recognize any income tax benefit resulting from the net loss of
IntelliQuest Communications. The provision for income taxes of $2,000 for 1994
resulted principally from not recognizing any income tax benefit for the 1994
net loss of IntelliQuest Communications.
YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
TOTAL REVENUES. Total revenues increased 127.5% in 1994 to $14.0 million
from $6.1 million in 1993. Revenues from renewable subscription-based products
increased 199.6% to $6.2 million in 1994 from $2.1 million in 1993 primarily due
to the introduction of CIMS and sales of international IntelliTrack modules
introduced in 1993. Revenues from renewable proprietary products increased
103.6% to $4.2 million in 1994 from $2.1 million in 1993 primarily due to
increased sales of customer registration software, increased demand for
international proprietary tracking products and completion of IntelliQuest
Communications' first full year of business. Revenues from proprietary project
research increased 78.9% to $3.6 million in 1994 from $2.0 million in 1993,
primarily due to increased demand for international market research and revenues
generated by IntelliQuest Communications during its first full year of business.
Revenues based on international research increased 368.7% to $2.9 million in
1994 from $626,000 in 1993.
COST OF REVENUES. Cost of revenues increased 150.8% to $8.5 million in 1994
from $3.4 million in 1993, primarily due to the increase in international market
research, which is generally more expensive and difficult to conduct than
domestic research and to the increased level of expenses incurred by
IntelliQuest Communications during its first full year of business. Total cost
of revenues increased as a percentage of revenues to 60.5% in 1994 from 54.8% in
1993, due, in part, to the Company's 1994 introduction of CIMS, for which the
required initial investment resulted in the product's first-year costs
approximately equalling its revenues.
19
<PAGE>
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 50.2% to $4.0 million in 1994 from $2.7
million in 1993. These expenses declined as a percentage of revenues to 28.6% in
1994 from 43.3% in 1993. This decline was due to improved fixed cost absorption
of sales, general and administrative expenses.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased 75.6%
to $1.5 million in 1994 from $880,000 in 1993 and decreased as a percentage of
revenues to 11.0% in 1994 from 14.3% in 1993. The increase in dollars spent was
primarily due to the expansion of the Company's efforts to begin developing the
Technology Panel, proprietary software and technological advancements for
customers.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 74.3% to $265,000 in 1994 from $152,000 in 1993. This increase was
principally due to purchases of telecommunications, computer and data collection
equipment.
INCOME TAXES. The provision for income taxes of $2,000 for 1994 resulted
principally from not recognizing any income tax benefit for the 1994 net loss of
IntelliQuest Communications. In 1993, the Company realized a net income tax
benefit of $1,000. This benefit was the result of the Company recognizing the
benefits of a net operating loss in the amount of $328,000 and other changes in
the composition of its deferred tax balances, offset by the Company recognizing
a net deferred tax liability of $148,000 in May 1993 upon its change from an S
corporation to a C corporation for tax purposes.
20
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth unaudited consolidated statement of
operations data for each of the eight quarters in the period beginning July 1,
1994 and ending June 30, 1996, as well as the percentage of the Company's total
revenues represented by each item. In management's opinion, this unaudited
information has been prepared on the same basis as the annual consolidated
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. DEC. 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 30, 1995 1995 1996 1996
--------- --------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Renewable subscription-based
products........................ $ 3,067 $ 915 $ 789 $ 1,427 $ 4,068 $ 1,780 $ 1,661 $ 1,573
Renewable proprietary products... 1,494 1,562 1,660 1,490 2,137 2,833 1,993 1,922
Proprietary project research..... 1,019 715 946 707 647 630 445 1,172
--------- --------- --------- -------- -------- -------- --------- --------
Total revenues..................... 5,580 3,192 3,395 3,624 6,852 5,243 4,099 4,667
Operating expenses:
Cost of revenues................. 4,076 1,613 1,594 1,673 4,215 2,621 1,822 1,863
Sales, general and
administrative.................. 1,076 1,060 1,277 1,312 1,455 1,531 1,362 1,430
Product development.............. 462 338 384 454 451 690 608 1,085
Depreciation and amortization.... 75 77 61 80 87 89 147 170
--------- --------- --------- -------- -------- -------- --------- --------
Total operating expenses........... 5,689 3,088 3,316 3,519 6,208 4,931 3,939 4,548
--------- --------- --------- -------- -------- -------- --------- --------
Operating income (loss)............ (109) 104 79 105 644 312 160 119
Interest income (expense), net... (4) (2) (1) 4 17 (2) 20 234
--------- --------- --------- -------- -------- -------- --------- --------
Income (loss) before income
taxes............................. (113) 102 78 109 661 310 180 353
Provision (benefit) for income
taxes............................. (12) 66 52 89 313 139 78 74
--------- --------- --------- -------- -------- -------- --------- --------
Net income (loss).................. $ (101) $ 36 $ 26 $ 20 $ 348 $ 171 $ 102 $ 279
--------- --------- --------- -------- -------- -------- --------- --------
--------- --------- --------- -------- -------- -------- --------- --------
Pro forma and actual information:
Net income per share (1)......... $ 0.00 $ 0.01 $ 0.06 $ 0.03 $ 0.02 $ 0.04
Weighted average number of common
and common equivalent shares
outstanding (1)................. 5,512 5,512 5,540 5,540 5,724 7,240
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES:
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable subscription-based
products........................ 55.0% 28.7% 23.2% 39.4% 59.4% 34.0% 40.5% 33.7%
Renewable proprietary products... 26.7 48.9 48.9 41.1 31.2 54.0 48.6 41.2
Proprietary project research..... 18.3 22.4 27.9 19.5 9.4 12.0 10.9 25.1
--------- --------- --------- -------- -------- -------- --------- --------
Total revenues..................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenues................. 73.0 50.5 47.0 46.2 61.5 50.0 44.5 39.9
Sales, general and
administrative.................. 19.3 33.2 37.6 36.2 21.2 29.2 33.2 30.6
Product development.............. 8.3 10.6 11.3 12.5 6.6 13.1 14.8 23.3
Depreciation and amortization.... 1.3 2.4 1.8 2.2 1.3 1.7 3.6 3.6
--------- --------- --------- -------- -------- -------- --------- --------
Total operating expenses........... 101.9 96.7 97.7 97.1 90.6 94.0 96.1 97.4
--------- --------- --------- -------- -------- -------- --------- --------
Operating income (loss)............ (1.9) 3.3 2.3 2.9 9.4 6.0 3.9 2.6
Interest income (expense), net... (0.1) (0.1) 0.0 0.1 0.2 0.0 0.5 5.0
--------- --------- --------- -------- -------- -------- --------- --------
Income (loss) before income
taxes............................. (2.0) 3.2 2.3 3.0 9.6 6.0 4.4 7.6
Provision (benefit) for income
taxes............................. (0.2) 2.1 1.5 2.4 4.5 2.7 1.9 1.6
--------- --------- --------- -------- -------- -------- --------- --------
Net income (loss).................. (1.8)% 1.1% 0.8% 0.6% 5.1% 3.3% 2.5% 6.0%
--------- --------- --------- -------- -------- -------- --------- --------
--------- --------- --------- -------- -------- -------- --------- --------
</TABLE>
- ----------------------------------
(1) Pro forma information for the quarters ended March 31, 1995 through March
31, 1996 assumed conversion of the Company's redeemable convertible
preferred stock into 1,853,046 shares of Common Stock and the exercise of
outstanding warrants to purchase 264,480 shares of Common Stock, which
conversion and exercise occurred in connection with the Company's initial
public offering in March 1996. Information for the quarter ended June 30,
1996 is based upon the actual historical weighted average number of common
and common equivalent shares outstanding.
21
<PAGE>
The Company's operating results in any particular fiscal period have
fluctuated in the past and will likely fluctuate significantly in the future due
to various factors. Substantially all of the Company's customer contracts
terminate after one year and are renewable at the discretion of the customer,
although no obligation to renew exists. To the extent that customers fail to
renew or defer their renewals from the quarter anticipated by the Company, the
Company's quarterly results may be materially adversely affected. In addition,
substantially all revenues and expenses attributable to CIMS for a particular
year are recognized in the third quarter of that year, when the final study is
usually completed and delivered. Delay in delivering the final study in any
given year could postpone recognition of such revenues and expenses until the
fourth quarter of such year, which would materially affect operating results for
such third and fourth quarters. Furthermore, all costs related to CIMS are
included in cost of revenues and none are allocated to sales, general and
administrative costs, which tends to reduce the Company's third quarter gross
margin below that of other quarters. Many of the Company's customers operate in
industry segments that are becoming increasingly seasonal as technology vendors
transition to consumer brand marketing approaches in certain markets, with sales
in the fourth calendar quarter constituting an increasing portion of the annual
sales of such customers. This may translate into seasonal demand for the
Company's products, particularly the customer registration products. Finally,
the Company's operating results may fluctuate as a result of a variety of other
factors, including the timing of orders from customers, the size and timing of
the implementation of customer registration products, response rates on customer
registration products, delays in development and customer acceptance of custom
software applications, product or panel development expenses, new product or
service introductions or announcements by the Company or its competitors, levels
of market acceptance for new products and services, the hiring and training of
additional staff and customer demand for market research, as well as general
economic conditions. Because a significant portion of the Company's overhead is
fixed in the short term and because spending commitments must be made in advance
of revenue commitments by customers, the Company's results of operations may be
materially adversely affected in any particular quarter if revenues fall below
the Company's expectations. These factors, among others, make it likely that in
some future quarter the Company's operating results will be below the
expectations of securities analysts and investors, which would have a material
adverse effect on the market price of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash and cash equivalents of $26.4
million and working capital of $27.6 million.
During the six months ended June 30, 1996, the Company used $195,000 of cash
in operating activities while it generated $658,000 of cash during the same
period in the prior year. This decrease in cash flow was mainly due to the
timing of payment of income taxes and costs incurred in advance of sales on
certain projects combined with typical activity in accounts receivable, unbilled
revenues and deferred revenues.
The Company generated $625,000 of cash from operations for the year ended
December 31, 1995 as compared to $155,000 of cash from operations for the year
ended December 31, 1994. This increase in cash generated was the result of the
Company's leveraging of its subscription-based products, returns from
investments in customer registration products and a prepayment for services on a
certain contract received by the Company during 1995.
For the six months ended June 30, 1996 and 1995, net cash used in investing
activities was $900,000 and $251,000, respectively. This increase in cash used
was primarily due to the relatively high level of equipment, furniture and
leasehold improvement expenditures during 1996 resulting from the establishment
and expansion of new data collection facilities and installation of corporate-
wide standardized computer platforms, networks and software to accommodate more
efficient data communications.
22
<PAGE>
Net cash used in investing activities increased to $771,000 from $655,000
for the years ended December 31, 1995 and December 31, 1994, respectively,
primarily for the purchases of furniture, equipment, computers and related
software for use by the Company's employees. Equipment and leasehold purchases
in these years were approximately $867,000 and $632,000, respectively. During
the year ended December 31, 1995, approximately $300,000 of this amount was used
in connection with the opening of offices in London and College Station, Texas.
The Company expects to make additional purchases of equipment as necessary to
accommodate future growth, if any.
The Company has budgeted approximately $1.6 million for capital expenditures
in 1996, to be funded primarily through cash generated from operations. As of
June 30, 1996, the Company had expended $789,000 in 1996 capital acquisitions.
The Company expects that future 1996 capital expenditures will consist primarily
of telecommunications equipment, computer hardware and software purchases to
continue to upgrade, replace and improve existing systems and data collection
and processing facilities.
Pursuant to the billing terms between the Company and its customers, the
Company typically bills customers for products or projects before they have been
delivered. Billed amounts are recorded as deferred revenues on the Company's
financial statements and are recognized as income when earned. As of June 30,
1996 and 1995, the Company had $3.0 million and $4.4 million of deferred
revenues, respectively. In addition, when work is performed in advance of
billing, the Company will record this work as unbilled revenue. At each of June
30, 1996 and 1995, the Company had $1.2 million of unbilled revenues.
Substantially all deferred and unbilled revenues will be earned and billed,
respectively, within 12 months of the respective period ends.
The Company maintains a $3 million revolving bank line of credit to fund
cash requirements from time to time. Borrowings under such line of credit bear
interest at a rate per annum equal to the prime rate plus one percent and are
subject to compliance by the Company with certain financial covenants. At June
30, 1996, the Company was in compliance with all such covenants and there were
no amounts outstanding under such line of credit. The line of credit matures on
October 30, 1996 and the Company is in negotiations to renew it.
The Company believes that the net proceeds from the sale of the Common Stock
by the Company in this offering, together with cash flows from operations,
existing cash balances and the line of credit, will be sufficient to meet its
working capital and capital expenditure requirements for at least the next 12
months. Beyond that time, if the net proceeds from this offering, together with
cash flows from operations and available borrowing under the line of credit, are
not sufficient to satisfy its financing needs, the Company may seek additional
funding through the sale of its securities, including equity securities. There
can be no assurance that such funding can be obtained on favorable terms, if at
all.
23
<PAGE>
BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, THE COMPANY'S EXPECTATIONS REGARDING ITS FUTURE FINANCIAL
CONDITION AND OPERATING RESULTS, PRODUCT DEVELOPMENT, BUSINESS AND GROWTH
STRATEGY, MARKET CONDITIONS AND COMPETITIVE ENVIRONMENT. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
IntelliQuest is a leading provider of quantitative marketing information to
technology companies. IntelliQuest supplies customers with timely, objective,
accurate and cost-effective information about technology markets, customers,
products, and competitors on both a subscription basis and a proprietary project
basis. The Company uses its proprietary databases and software to help
technology companies track product performance and customer satisfaction,
measure advertising effectiveness, assess brand strength and competitive
position, determine price sensitivity, and evaluate new products, markets or
other business opportunities. The Company also licenses custom proprietary
software applications and associated services to technology manufacturers for
electronic product registration. IntelliQuest serves over 55 technology vendors,
including 3Com, 3M, Apple Computer, AT&T, Compaq Computer, Dell Computer,
Digital Equipment, Hewlett-Packard, IBM, Intel, MicroHelp, Microsoft, Netscape,
Novell, Symantec, Texas Instruments, Toshiba and US West. IntelliQuest also
serves numerous publishers, including Dow Jones, Gannett, Time Warner and
Ziff-Davis, who market to technology advertisers.
INDUSTRY BACKGROUND
Increased reliance by corporations and consumers on technology products has
led to rapid growth in the technology industry. Technology companies are
operating in a more complex business environment, characterized by increased
competition, globalization of product markets, shortened product life cycles and
increasingly complex distribution, pricing and marketing issues. Simultaneously,
the number of customers for technology products is increasing and such customers
are becoming more diverse and segmented in their demographic characteristics,
technology needs and buying criteria. For example, small and medium-sized
businesses are becoming increasingly significant purchasers of computer and
networking technologies, and consumer demand for computers, software and
Internet services is experiencing substantial growth. Moreover, most leading
technology companies now compete for customers on a global basis, where customer
preferences may be heavily influenced by regional and cultural preferences.
As the technology industry matures and increases its focus on mass market
and consumer applications, companies have begun to shift from a business model
focused primarily on engineering to one that also depends on effectively
differentiating and marketing products worldwide. As a result, technology
companies are beginning to market their products and services more like
traditional packaged goods manufacturers that rely on brand marketing and
advertising programs. Technology companies are demanding higher quality
information about their customers' attitudes, technology needs, purchase
behavior and brand preferences in order to track product performance and
customer satisfaction, measure advertising effectiveness, assess brand strength
and competitive position, determine price sensitivity, and evaluate new
products, markets or other business opportunities. Technology companies have
also become increasingly focused on the potential lifetime value of current
customers. As a result, many technology companies have begun to make substantial
investments in registering their customers in order to directly market products
to them as well as to gather customer feedback and monitor customer satisfaction
levels.
Survey-based research has traditionally been a valuable source of objective,
quantitative market data to which statistical analysis can be applied. As such,
survey-based research provides marketers with a basis from which to measure
current market conditions and project future outcomes. The heightened focus on
customer-based marketing by technology companies has generated significantly
increased demand for higher quality data from the marketplace. However, the
relatively low incidence
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of technology purchase influencers among the general population and complex
technology issues associated with survey-based market research in technology
markets have made such research expensive, difficult, time consuming and
ultimately prohibitive for all but the largest technology vendors to conduct on
their own.
Until recently, only a few market research firms focused on delivering
survey-based market research to the technology industry. As a result, most
companies have depended on market research firms that utilize individual
research analysts to provide advice and opinions about technologies, products
and markets. Such industry analysts typically base their recommendations on
limited customer interviews, industry contacts and direct observation of market
trends. Though opinion-based analyst research can offer valuable insight into
industry conditions and trends, it often lacks the statistical accuracy and
potential scope of more objective survey-based research.
THE INTELLIQUEST SOLUTION
The Company addresses the need for timely, accurate, cost-effective and
comprehensive information on technology markets, customers, products, and
competitors by providing survey-based market research data using extensive
survey respondent databases, proprietary software tools and innovative survey
techniques. The Company provides information based on consistently applied,
statistically rigorous data collection and analysis techniques that measure
customer attitudes and behaviors rather than information based on the opinions
of individual analysts. IntelliQuest's marketing science staff has refined and
developed several statistical research techniques and systems specifically for
the technology marketplace. The Company has also made significant investments in
the development of these techniques and systems to assure that customers obtain
high quality research. In addition, as part of its focus on technology markets,
the Company has developed and acquired proprietary software tools and customer
registration products to more effectively collect information from international
technology respondents. The Company has also developed a proprietary panel of
technology buyers and purchase influencers to provide customers with increased
speed and lower cost for certain types of customized data collection efforts.
The Company is able to supply high quality and cost-effective market
tracking information to its customers through the Company's renewable
subscription-based products. These databases provide significant value to
individual customers because research costs are shared by a number of industry
participants. As a result, the Company has become a leading provider to
technology companies of subscription-based products that monitor the impact of
marketing and advertising efforts on brand strength and product positioning, and
products which assess the effectiveness of various media at reaching technology
buyers. In addition to its subscription-based products, the Company also markets
renewable proprietary products and one-time proprietary research projects to
individual customers. These products utilize specialized techniques and
proprietary tools to deliver sophisticated databases of market and customer
information that address specific longitudinal and point-in-time international
business issues. In addition, the Company's electronic customer registration
products also facilitate technology companies' direct marketing initiatives and
create new electronic commerce opportunities.
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<PAGE>
BUSINESS STRENGTHS
The Company believes the following factors have been of principal importance
in its ability to achieve its present position as a leading provider of
survey-based worldwide market research to technology companies.
FOCUS ON TECHNOLOGY MARKETS. Since its founding in 1985, IntelliQuest has
focused on meeting the specialized market research needs of technology companies
and publishers who market to technology advertisers. The Company believes that
its ability to cost-effectively provide consistent information regarding both
domestic and international technology markets differentiates it from its
competitors and enhances the Company's ability to capitalize on the trend among
multinational technology vendors to seek worldwide market research. The Company
has established relationships with many leading technology companies, including
3Com, 3M, Apple Computer, AT&T, Bay Networks, Compaq Computer, Dell Computer,
Digital Equipment, Epson, Hewlett-Packard, IBM, Intel, MicroHelp, Microsoft,
Netscape, Novell, Symantec, Texas Instruments, Toshiba and US West. The Company
has also established relationships with leading publishers, including Dow Jones,
Gannet, Time Warner and Ziff-Davis, who market to technology advertisers.
EMPHASIS ON RENEWABLE PRODUCTS. In 1995, 84.7% of the Company's total
revenues were generated from the sale of renewable subscription-based or
renewable proprietary products. Due to the strategic value of IntelliQuest's
products and services, its innovative use of proprietary technology to collect
and analyze information and the Company's reputation for excellent customer
service, the Company averaged dollar-weighted renewals for subscription-based
products of 84% over the three year period from 1993 through 1995. Nine of the
Company's ten largest customers in 1994 were also among its ten largest
customers in 1995.
INVESTMENT IN PROPRIETARY TECHNOLOGY. The Company has made substantial
investments in proprietary technology for survey administration, data collection
and data analysis. IntelliQuest was a pioneer in the use of disk-based
interactive survey techniques, which are used to gather information from
technology purchasers and users. The Company has made a substantial investment
in ReplyDisk, its proprietary survey software, which allows the Company to
easily create customized interactive, graphical and multi-media survey
applications. The Company has also used the ReplyDisk platform to create
off-the-shelf survey software applications such as ReplySat, which provides a
turnkey solution for measuring customer satisfaction and reporting results. In
May 1996, the Company further expanded its offering of proprietary survey
software by acquiring IntelliQuest Communications, Inc. ("IntelliQuest
Communications," formerly known as Pipeline Communications, Inc.). IntelliQuest
Communications is a leading provider of electronic customer registration and
marketing services for a number of leading computer hardware, software and
perpheral companies. IntelliQuest Communications has developed a proprietary
frame relay network that allows electronic customer registration from over 90
countries and 400 cities worldwide as well as registration via Internet Web
sites. The Company has also invested in data communication technologies to
increase the efficiency of data collection using the disk-based approach. The
Company is currently developing NetQuest, which will allow the Company to
administer interactive surveys on the Internet. Additionally, the Company
recently completed the development of IntelliTab, a customized version of SPSS
statistical reporting software, to give customers the ability to easily generate
tables and graphs from electronic databases provided by the Company for both
subscription-based and renewable proprietary products.
FOCUS ON LEVERAGING PROPRIETARY TECHNOLOGIES AND PRODUCTS. In recent years,
the Company has been able to better leverage its fixed expense base. The Company
believes that this improvement is attributable, in part, to its substantial
investments in its proprietary survey technologies, data collection and analysis
methodologies, renewable subscription-based products and Technology Panel. In
addition, the Company has also realized improved operating efficiency by (i)
pursuing sales penetration of the technology vendors not previously served by
the Company, but whose products were already tracked as part of its
subscription-based products, (ii) capitalizing on a "consortium" approach for
designing new subscription-based products, and (iii) marketing new modules of
existing products to the Company's current customers. In 1995, the Company's
operating income as a percentage of revenues increased to 6.0%, based on
revenues of $19.1 million and operating income of $1.1 million, compared to an
operating loss as a percentage of revenues of 5.0% in 1992, based on $3.9
million in revenues and an operating loss of $196,000.
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<PAGE>
GROWTH STRATEGY
The Company's growth strategy includes the following key elements.
INCREASE MARKETING TO EXISTING CUSTOMERS. Many of IntelliQuest's customers
are diversified multinational technology companies. The Company typically works
with some, but not all, of the business units within these companies. The
Company believes that opportunities exist to leverage its expertise and
reputation to expand its presence among other business units of existing
customers. In addition, many of IntelliQuest's subscription-based and renewable
proprietary products enable the Company to market to customers more specific,
customized research projects. Many of the technology companies served by the
Company are also experiencing significant growth and increasing their overall
market research budgets. The Company is increasing its marketing efforts with
respect to these customers in order to capture a portion of the increased demand
by such companies for market research.
EXTEND PRODUCTS AND SERVICES TO NEW CUSTOMERS AND RELATED TECHNOLOGY
MARKETS. The Company believes that its experience and reputation in providing
high-quality, cost-effective market research information to leading technology
and publishing companies will enable it to market its existing products and
services to new customers. In particular, the Company has an opportunity to
market its renewable subscription-based products to companies that it tracks
that are not currently customers. In addition, while the Company has
historically derived a significant percentage of its revenues from customers in
the computer industry, primarily manufacturers of personal computers and related
hardware and software, the Company has begun to target related technology
markets such as the data communications, on-line services, Internet and
interactive new media markets.
DEVELOP INTERNET-BASED RESEARCH TOOLS AND OTHER NEW INFORMATION
SERVICES. The use of the Internet for e-mail communications and information
dissemination (through Web sites) has grown rapidly over the past several years.
The Company is seeking to capitalize on this growth by expanding its recently
introduced Internet-based research tools and information services such as Web
site surveys and a survey to measure Internet and on-line service usage among
technology purchase influencers. The Company also intends to develop other
products and services that address specific customer demands and expand the use
of its existing products and services to enable the Company to better leverage
its proprietary technologies and infrastructure.
DEVELOP ANCILLARY SERVICES TO CUSTOMER REGISTRATION. IntelliQuest believes
it can leverage its position in the customer registration business to develop
several ancillary services, such as customer satisfaction tracking, database
management, database enhancement, and electronic marketing services. In
addition, the Company believes the opportunity may exist to license the rights
to customer registration information and consolidate such information into
low-cost marketing data products.
EXPAND INTERNATIONALLY. Demand for technology products in international
markets has increased significantly in recent years. As the Company's customers
expand their marketing activities worldwide, the Company has experienced
increased demand for market research information and customer registration
relating to international markets. Accordingly, the Company is expanding its
overseas market research capabilities. The Company recently opened an office and
data collection facility in London and has established research and distribution
affiliate relationships with companies covering Japan, Europe, Canada, Mexico
and Latin America.
EXPAND THROUGH STRATEGIC BUSINESS COMBINATIONS. IntelliQuest believes that
through continued growth, it will be better positioned to provide a
comprehensive set of survey-based market research to a broader group of
customers. The Company believes that the market research industry is highly
fragmented and that opportunities exist to expand through acquisitions or other
strategic business combinations. The Company plans to consider acquisitions of,
alliances with and investments in companies that provide products or services
not offered by the Company, have strategic customer relationships, are located
in attractive geographic locations or have proprietary technologies. For
example, in May 1996, the Company acquired IntelliQuest Communications, whose
proprietary electronic customer registration products will significantly expand
the Company's offering of electronic registration services.
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<PAGE>
PRODUCTS AND SERVICES
IntelliQuest offers its customers a variety of market research products and
services within each of its three main product and service areas: renewable
subscription-based products, renewable proprietary products and proprietary
project research. The following table summarizes the Company's products and
services:
<TABLE>
<CAPTION>
PRODUCT/SERVICE TYPE PRODUCT OR
SERVICE GEOGRAPHIC
(YEAR INTRODUCED) DESCRIPTION COVERAGE
<S> <C> <C> <C>
RENEWABLE INTELLITRACK IQ INTERNATIONAL*
SUBSCRIPTION-BASED PRODUCTS (1991) - GLOBAL TRACKING OF KEY BRAND
(MULTI-CUSTOMER) METRICS INCLUDING AWARENESS,
IMAGE, CONSIDERATION,
PREFERENCE AND REASONS FOR
WON/LOST BUSINESS.
- USED AS GAUGE OF MARKETING
EFFECTIVENESS AND TOOL FOR
IMPROVING CUSTOMER
CONSIDERATION RATES AND
MARKET SHARE.
- DELIVERED MONTHLY OR
QUARTERLY VIA STATISTICAL
TABLES, GRAPHICAL REPORTS
AND DISKETTE.
CIMS UNITED STATES
(1994) - COMPREHENSIVE DATABASE OF
MEDIA HABITS AMONG
TECHNOLOGY PURCHASE
INFLUENCERS.
- USED FOR MEDIA PLANNING BY
TECHNOLOGY ADVERTISERS AND
FOR MARKETING PURPOSES BY
SUBSCRIBING MEDIA COMPANIES.
- DELIVERED ANNUALLY VIA
STATISTICAL TABLES, CD-ROM
AND ON-LINE REPORTS.
WWITS UNITED STATES AND
(1996) - TRACKING OF INTERNET AND EUROPE
ON-LINE SERVICE ("OLS")
USAGE.
- MONITORS ON-LINE ACTIVITIES
OF INTERNET AND OLS USERS
INCLUDING BRAND PERFORMANCE
AND SATISFACTION LEVELS.
- DELIVERED QUARTERLY VIA
STATISTICAL TABLES,
DISKETTE, CD-ROM AND ON-LINE
REPORTS.
RENEWABLE LONGITUDINAL INTERNATIONAL*
PROPRIETARY PRODUCTS TRACKING STUDIES - ONGOING RENEWABLE TRACKING
(1990) PROGRAMS CONDUCTED ON A
PROPRIETARY BASIS FOR
SPECIFIC CUSTOMERS.
- SYSTEMS DEVELOPED TO ASSURE
CONSISTENCY ON A WORLDWIDE
BASIS USING A COMPREHENSIVE
SYSTEM OF SOFTWARE STANDARDS
AND OPERATIONAL GUIDELINES.
- DELIVERED MONTHLY OR
QUARTERLY VIA STATISTICAL
TABLES, GRAPHICAL REPORTS
AND DISKETTE.
CUSTOMER INTERNATIONAL*
REGISTRATION PRODUCTS - MULTI-LANGUAGE ELECTRONIC
(1993) REGISTRATION APPLICATION
UTILIZING CUSTOMIZED
VERSIONS OF INTELLIQUEST'S
PROPRIETARY SOFTWARE.
- TYPICALLY FACTORY
PRE-INSTALLED AND SHIPPED
WITH PRODUCT. BUYERS
COMPLETE REGISTRATION
APPLICATION ELECTRONICALLY
AND AUTOMATICALLY RETURN VIA
MODEM, DISK, FAX, E-MAIL, OR
PRINT.
- DELIVERED WEEKLY AND
QUARTERLY VIA STATISTICAL
TABLES, GRAPHICAL REPORTS
AND DISKETTE.
REPLYSAT INTERNATIONAL*
(1995) - TURNKEY PROGRAM FOR
COLLECTING SATISFACTION
INFORMATION UTILIZING
INTERACTIVE MULTI-LANGUAGE
SOFTWARE SYSTEM.
- COMPLETE INTEGRATION OF
SURVEY SOFTWARE, CUMULATION,
AND REPORT GENERATION TO
PROVIDE COST EFFICIENCY AND
CONSISTENCY ACROSS GLOBAL
MARKETS.
- DELIVERED QUARTERLY VIA
STATISTICAL TABLES,
GRAPHICAL REPORTS AND
DISKETTE.
PROPRIETARY PROJECT PROPRIETARY INTERNATIONAL*
RESEARCH RESEARCH - FULL SERVICE CAPABILITIES
(1985) FOR LARGE-SCALE GLOBAL
PROPRIETARY PROJECTS.
- PROPRIETARY METHODS
DEVELOPED FOR MARKET
SEGMENTATION, PRICING,
ADVERTISING EFFECTIVENESS,
PRODUCT DEVELOPMENT, BRAND
MEASUREMENT, IMAGE
ASSESSMENT, AND BRAND
RESEARCH.
- DELIVERED AT END OF PROJECT
VIA STATISTICAL TABLES,
GRAPHICAL REPORTS AND
DISKETTE.
TECHNOLOGY PANEL UNITED STATES AND
(1994) - PRE-RECRUITED SAMPLE OF EUROPE
TECHNOLOGY INFLUENCERS FOR
IMMEDIATE CUSTOMER RESEARCH
NEEDS
- UTILIZES FAX/OCR TECHNOLOGY
TO CREATE FAST TURNAROUND
AND EXCELLENT COST
EFFICIENCY.
- BROAD MARKET COVERAGE WITH
APPROXIMATELY 16,000
PARTICIPANTS.
- DELIVERED AT END OF PROJECT
VIA STATISTICAL TABLES,
GRAPHICAL REPORTS AND
DISKETTE.
</TABLE>
- ------------------------------
* Through its offices in Austin and College Station, Texas, Atlanta,
Georgia and London and affiliates abroad, the Company provides market research
data on the following countries: the United States, Canada, Mexico, Brazil,
France, the United Kingdom, Germany, Italy and Japan.
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<PAGE>
While the dynamics of each area are distinct, sales to customers in a given
area often generate sales to customers in the other areas. For example, many of
the Company's subscription-based products grew out of proprietary project
research initially developed for multiple customers. Conversely, many renewable
subscription-based products and/or renewable proprietary products provide the
foundation for more specific proprietary project research.
RENEWABLE SUBSCRIPTION-BASED PRODUCTS
Renewable subscription-based products are designed to help technology
vendors undertake more systematic management of their branding and marketing
efforts. Because research costs are shared by a number of industry participants,
high quality information can be provided at cost-effective prices.
INTELLITRACK IQ. IntelliTrack IQ is a family of subscription-based brand
tracking studies delivered monthly or quarterly via statistical tables,
graphical reports and diskette. Through over 45,000 annual interviews with key
purchase influencers of computer-related equipment, IntelliTrack provides
continuous international brand awareness, consideration and purchase data.
IntelliTrack is sold through annual subscriptions for a customer-specified
number of product and geographic market modules. Since 1991, the Company has
increased the number of modules from two to 16. The product markets tracked
include business-to-business markets for desktop personal computers,
portable/notebook personal computers, workstation computers, printers, color
printers, networking equipment and personal computers and printers used in the
home. The geographic markets tracked include the United States, Canada, Mexico,
Brazil, the U.K., France, Germany, Italy and Japan.
IntelliTrack also offers omnibus and recontact services. The omnibus service
allows customers to add questions to the IntelliTrack survey, providing
additional in-depth data customized to customers' individual needs. Recontact
studies allow customers direct access to original IntelliTrack respondents so
that research projects can be conducted with specific target groups. Both
services provide a cost-effective alternative to small, focused, proprietary
studies.
COMPUTER INDUSTRY MEDIA STUDY (CIMS). The Company maintains and markets
CIMS, one of the leading databases of media readership and viewership habits of
both business and household technology purchase influencers in the United
States. Conducted on an annual basis, the research is designed to provide both
advertisers and media companies with objective, comparable information about how
to efficiently target advertising at key buying groups. Subscribers include most
major technology-focused publishing groups as well as top advertisers in the
categories measured, which include desktop PCs, notebook PCs, workstations,
microprocessors, printers, peripherals, applications software, operating
systems, LAN hardware/software, Internet working, wide-area networking and
communications products. Subscribers may purchase by customer segment (business
or home) or by product category. Databases are delivered via on-line services
which incorporate media models that allow advertisers to develop media schedules
which seek to maximize reach against target buying audiences. In addition to the
advertising information, the scope of the study (10,000 business surveys and
5,000 home surveys) makes CIMS a comprehensive annual benchmark of market trends
in both buying patterns and media behavior.
WORLDWIDE INTERNET TRACKING STUDY (WWITS). The Company recently introduced
WWITS, which is a subscription-based study that tracks Internet and on-line
service (OLS) usage in the United States and Europe. Conducted quarterly in the
United States and annually in France, Germany and the U.K., this study provides
what the Company believes is the most accurate and comprehensive measurement of
the size and growth of the Internet and OLS user population. Additionally, the
study monitors the on-line activities of Internet and OLS users, including their
brand preferences and satisfaction levels. Subscribers to the study include
leading providers of hardware, software and services to the Internet market.
Specific product categories tracked include on-line services, Internet access
providers, browsers, search engines, hardware for accessing the Internet, and
electronic commerce. Databases are delivered via hard copy reports and in
electronic database format. As with IntelliTrack, WWITS also offers omnibus and
recontact services.
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<PAGE>
RENEWABLE PROPRIETARY PRODUCTS
To meet the unique information needs of certain customers, IntelliQuest
designs and manages ongoing market feedback systems to deliver consistent and
regular proprietary information databases.
CUSTOMER REGISTRATION PRODUCTS. IntelliQuest offers innovative customer
registration software products that provide technology vendors with a
cost-effective way of capturing, analyzing and managing customer information.
The Company's customer registration products include both customized and
standard turnkey programs. IntelliQuest offers a complete solution with regard
to response media including customer registration responses via modem, diskette,
e-mail, fax, interactive voice response or print. Through the use of these
technologies, IntelliQuest has been able to achieve customer registration rates
that the Company believes are significantly higher than those achievable through
traditional approaches and collect substantially more information per
questionnaire in comparison to the questionnaires used in those approaches.
Extensive experience in computer-based survey research techniques led to the
Company's development of ReplyDisk, the Company's proprietary software
application for conducting registrations electronically. ReplyDisk provides for
fully interactive questionnaire logic, with complete multimedia capabilities,
including the ability to incorporate voice, video, and high resolution graphics
into registration applications. Hardware manufacturers typically pre-load the
software on their products so that the registration questionnaire automatically
appears when the product is configured. In addition to collecting customer data,
ReplyDisk can also be customized to incorporate electronic "infomercials," thus
allowing customers to view additional support or warranty options or order
products from an electronic catalog.
CUSTOMER SATISFACTION TRACKING. The Company markets ReplySat, a
ReplyDisk-based customer satisfaction application that provides customers with a
cost-effective program for tracking customer attitudes and satisfaction towards
their products. The Company provides a turnkey solution, including a
pre-programmed and fully customizable survey application, as well as fully
automated data collection and reporting systems. Under this program, customers
subscribe to the service on a quarterly or semi-annual basis and receive data
via statistical tables, graphical reports and diskettes. The program evaluates
all aspects of the customer's buying experience including salespeople, features,
support, service, and delivery. IntelliQuest's proprietary software allows
customers to monitor a full range of satisfaction variables by asking
individuals questions relevant to their own buying experience. Regular tracking
of satisfaction allows IntelliQuest's customers to understand factors which
drive satisfaction, monitor changes in product quality and service programs and
appropriately position products. Customized customer satisfaction studies can
also evaluate competitors' customer satisfaction, highlighting areas requiring
relative improvement and identifying opportunities to exploit competitive
advantages.
LONGITUDINAL TRACKING STUDIES. IntelliQuest also provides proprietary
customized brand, advertising, product and customer tracking programs. The
Company creates proprietary tracking systems for certain customers, based on the
IntelliTrack methodology, that monitor unique product or market segments and use
IntelliTrack data for benchmarking and performance evaluation. The Company also
tracks the effectiveness of specific advertising campaigns on an ongoing
proprietary basis for certain customers. Finally, the Company designs and
implements customized product and customer tracking research to follow products
and customers through all phases of the product life cycle.
PROPRIETARY PROJECT RESEARCH
In addition to subscription-based products and renewable proprietary
products, IntelliQuest is a leading provider of the following types of
proprietary market research studies to technology companies.
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<PAGE>
PROPRIETARY RESEARCH
MARKET OPPORTUNITY ASSESSMENT. IntelliQuest's market opportunity assessment
enables companies to explore the potential and pitfalls of new products,
channels or services.
MARKET SEGMENT ANALYSIS. IntelliQuest's market segmentation studies assist
customers in identifying segments with varying needs, quantifying the sizes and
potential economic opportunities of the segments, describing the composition of
each segment, analyzing each segment's sources of product information and
evaluating alternative marketing communications messages.
PRICING/PROFITABILITY RESEARCH. Through close work with top academic and
industry researchers, the Company has refined a methodology to collect
information on price and its relationship to other product attributes. Using
this data, the Company is able to model various pricing strategies for its
customers' products.
PUBLISHER STUDIES. IntelliQuest provides customized marketing studies to
technology magazine publishers to promote and sell advertising.
TECHNOLOGY PANEL
The Company's Technology Panel consists of approximately 16,000 persons
involved in corporate purchases of technology goods and services who have agreed
to participate in the Company's ongoing survey research projects. The Technology
Panel provides the Company with pre-recruited technology respondents from a
variety of corporate functional areas and product categories and rapid data
collection tools to enable cost-effective research among specific technology
respondent groups.
The Technology Panel currently includes respondents from the United States
and major European countries and eventually is expected to cover all major
global markets of interest to IntelliQuest's customers. In addition, the Company
plans to utilize its Internet survey software, which is currently being
developed, to gather electronic surveys from panel participants. This will
benefit customers by improving turnaround time and more closely aligning the
research process with the shortening life-cycles of technology products.
Research panels are valuable sources of technology market research
information. Panel research is well suited for (i) tracking customer behavior
and attitudes, (ii) testing new products, (iii) conducting proprietary studies
with hard to find respondents, (iv) obtaining time sensitive information for
tactical decision making, (v) obtaining time sensitive competitive feedback, and
(vi) testing marketing campaigns or advertising concepts.
CUSTOMERS
During 1995, the Company served approximately 100 customers. IntelliQuest's
technology vendor customers include 3Com, 3M, Apple Computer, AT&T, Compaq
Computer, Dell Computer, Digital Equipment, Hewlett-Packard, IBM, Intel,
MicroHelp, Microsoft, Netscape, Novell, Symantec, Texas Instruments, Toshiba and
US West. IntelliQuest also tracks over 60 publications for numerous publishers,
including Dow Jones, Gannett, Time Warner and Ziff-Davis, who market to
technology advertisers. The Company's customers have increasingly demanded
consistent international market information. Revenues from international market
research, which the Company first introduced in 1991, grew to $5.0 million in
1995, or approximately 26.0% of total revenues.
In 1995, 84.7% of the Company's total revenues were derived from the
Company's subscription-based products and contracts for renewable proprietary
products, and the Company expects that a material portion of its revenues for
the foreseeable future will be derived from such sources. The remainder of the
Company's revenues were derived from custom purchase orders for proprietary
project research. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's two largest customers, Microsoft and IBM, accounted for 15.1%
and 9.9%, respectively, of 1995 revenues. No other customer accounted for
approximately 10% or more of
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<PAGE>
revenues in 1995. Substantially all of the Company's subscriptions and customer
contracts are renewable annually at the option of the Company's customers,
although no obligation to renew exists and a customer generally has no minimum
purchase commitments thereunder. In addition, there is significant consolidation
of companies in the technology industries served by the Company, a trend which
the Company believes will continue. Consolidation among the Company's top
customers could adversely affect customer budgets for the Company's products and
services. No assurances can be given that the Company will maintain its existing
customer base or that it will be able to attract new customers.
IntelliQuest is committed to providing high quality market research in a
cost-effective, consistent and user-friendly manner to its customers. Depending
on their specific preferences, customers receive substantial support from the
Company's customer development representatives, its account team and its
marketing science department. In addition, the Company regularly solicits
extensive feedback from customers regarding their satisfaction with the
Company's products and services. The Company respects the confidentiality of the
products, services and projects provided to each of its clients.
SALES AND MARKETING
IntelliQuest has historically generated most of its new business through
customer referrals supplemented by its own sales and marketing efforts. The
Company believes that its success to date in generating new business has been a
function primarily of its reputation for providing timely, high quality,
cost-effective information to its customers and its investment in customer
service and support. The Company has historically maintained a small, focused
direct sales force to market the Company's products and services to potential
new customers, and has only recently begun to develop a formal sales management
structure. The Company has recently hired a Vice President of Sales and has
increased its sales force to 10 persons as of September 23, 1996. The Company
also trains and encourages all of its employees to monitor the information needs
of existing customers in order to provide additional products and services. In
addition, the Company's senior management actively participates in developing
and maintaining customer relationships.
The Company's sales cycle varies depending on the particular product or
service being marketed. For subscription-based products, renewals are generally
secured on an annual basis, typically in the fourth calendar quarter.
The Company's primary marketing event is the annual IntelliQuest Brand Tech
Forum, attended by over 300 of the technology industry's marketing
professionals. The conference features outside speakers on a variety of topics
related to branding and technology marketing, and provides a public showcase for
the Company's products and services. The 1996 IntelliQuest Brand Tech Forum will
be hosted by the Wall Street Journal and sponsored by CMP, Beyond Computing,
Advertising Age and Alexander Communications. In addition, the Company sponsors
a variety of user conferences for subscribers to its information products. These
conferences provide customer feedback on potential product improvements and
service enhancements.
Publishers frequently contract with IntelliQuest to conduct research that is
published or distributed to technology companies. The Company also provides data
for editorial use, including providing USA Today with monthly survey information
for the USA Today/IntelliQuest Technology Poll.
As the Company develops new products and services targeted at broader-based
market segments, it will need to continue to expand its direct sales force.
There can be no assurance that the Company will be able to successfully develop
or manage such a sales force. See "Risk Factors -- Expansion of Direct Sales
Force."
PRODUCT DEVELOPMENT AND TECHNOLOGY
The Company is actively developing new subscription-based information
products. The Company focuses its product development efforts in areas where
there is a demonstrated customer demand for consistent worldwide market research
but where quality research is cost prohibitive unless shared among several
customers.
32
<PAGE>
The Company is also investing in enabling technologies which increase the
quality and efficiency of the data collection process. This includes continued
enhancements to the Company's proprietary ReplyDisk software to enable it to
operate on the Web. The Company also anticipates using the software for internal
use (to improve data collection cost efficiencies) as well as licensing the
software so that any company with a site on the Web can conduct electronic
survey research. Additionally, the Company expects to use the Internet version
of ReplyDisk to survey the Technology Panel, thereby lowering data collection
costs and further reducing turnaround time on panel studies.
The Company is also developing tools to further automate existing processes
for data collection and analysis. This includes software that integrates the
survey application with reporting packages, an automated
graphical-user-interface-based survey builder to enhance the productivity of
programmers in several aspects of the data collection process, and IntelliTab,
the Company's recently introduced statistical reporting software.
IntelliQuest Communications is also continuing to develop new products and
technologies, such as its frame relay network, which can now process on-line
calls in over 90 countries and 400 cities through the Internet. Intelliquest
Communications also recently announced a new product called IntelliCIS, which
provides real time customer and market research information to manufacturers
based on worldwide customer registrations.
COMPETITION
The technology-focused market research industry is highly competitive. The
principal bases of competition in the Company's business are quality, industry
knowledge, data delivery, geographic coverage, cost-effectiveness and customer
service. The Company has traditionally competed directly with relatively small
local providers of survey-based technology-focused market research. The Company
also competes directly with third party providers of customer registration
software (such as KAO Infosystems Company) as well as vendors' own customer
registration software. In addition, the Company competes indirectly with
significant providers of (i) analyst-based, technology-focused market research
(such as Gartner Group, Inc., META Group, Inc. and Forrester Research, Inc.);
(ii) survey-based, general market research (such as A.C. Nielsen Company, NFO
Research, Inc., Information Resources Inc. and The NPD Group, Inc.); and (iii)
analyst-based, general business consulting. Although only a few of these
competitors have to date offered survey-based, technology-focused market
research that competes directly with the Company's products and services, many
of these competitors have substantially greater financial, information gathering
and marketing resources than the Company and could decide to increase their
resource commitments to the Company's market. Moreover, each of these companies
currently competes indirectly, if not directly, for funds available within
aggregate industry-wide market research budgets. There are few barriers to entry
into the Company's market, and the Company expects increased competition in one
or more market segments addressed by the Company. Such competition could
adversely affect the Company's operating results through pricing pressure,
required increased marketing expenditures and loss of market share, among other
factors. There can be no assurance that the Company will continue to compete
successfully against existing or new competitors. See "Risk Factors --
Competition."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success is in part dependent upon its proprietary software
technology, research methods, data analysis techniques, and internal systems and
procedures that it has developed specifically to serve customers in the
technology industry. The Company has no patents; consequently, it relies on a
combination of copyright, trademark and trade secret laws and employee and
third-party non-disclosure agreements to protect its proprietary systems,
software and procedures. 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 systems, software or procedures. The
Company believes that its systems, software and procedures and other proprietary
rights do not infringe the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
33
<PAGE>
against the Company in the future or that any such claims will not require the
Company to enter into materially adverse license arrangements or result in
protracted and costly litigation, regardless of the merits of such claims.
EMPLOYEES
As of September 23, 1996, IntelliQuest employed a total of 168 persons on a
full-time basis, consisting of 50 in custom and syndicated media tracking, 34 in
syndicated tracking, 39 in other technical services, 19 in client development
and marketing and 26 in administrative functions. Of these employees, 29 are
software programmers or database specialists. The Company also employed
part-time individuals in its field operations, representing approximately 75
full-time equivalent employees. None of the Company's employees are represented
by a collective bargaining agreement. The Company considers its relationship
with its employees to be good.
FACILITIES
The Company's headquarters are located in 22,300 square feet of leased
office space in Austin, Texas. This facility accommodates research, marketing,
sales, customer support and corporate administration. The lease on this facility
expires in January 1998. The Company leases additional office space in Austin
and College Station, Texas, Atlanta, Georgia and London. The Company believes
that its existing facilities are adequate for its current needs and that
additional facilities can be leased to meet future needs.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Peter Zandan............. 43 Chairman and Chief Executive Officer
Brian Sharples........... 35 President and Director
James Schellhase......... 38 Chief Operating Officer, Chief Financial
Officer and Director
Lee Walker(1)(2)......... 55 Director
William Wood(1)(2)....... 40 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
PETER ZANDAN founded the Company and has been Chairman and Chief Executive
Officer since 1985. Prior to founding IntelliQuest, he was an industry
consultant and lectured at the University of Texas at Austin from 1985 to 1986.
Mr. Zandan received a B.A. in history from the University of Massachusetts in
1975, and a Ph.D. in evaluation research and an M.B.A. from the University of
Texas at Austin in 1982 and 1983, respectively.
BRIAN SHARPLES joined IntelliQuest as Senior Vice President in 1990, was
named President in 1991 and became a director in 1992. Prior to joining
IntelliQuest, he was a consultant in the high technology practice of Bain &
Company, Inc. and Chief Executive Officer of Practical Productions, Inc., an
event-based automotive distribution business. Mr. Sharples received a B.A. in
economics and mathematics from Colby College in 1982 and an M.B.A. from the
Stanford Graduate School of Business with a concentration in marketing and
finance in 1986.
JAMES SCHELLHASE joined IntelliQuest in 1994 as its Chief Operating Officer
and Chief Financial Officer and was appointed as a director in May 1995. From
1989 to 1994, prior to joining IntelliQuest, he served as the Chief Financial
Officer at Jones & Neuse, Inc., a full-service environmental consulting firm.
Prior to joining Jones & Neuse, Mr. Schellhase was employed as the interim Chief
Financial Officer at Guaranty Federal Savings Bank, Austin, Texas, and prior to
that he was employed as an audit manager at Touche Ross & Co. (now Deloitte &
Touche). Mr. Schellhase received a B.B.A. in accounting and an M.P.A. in
financial reporting from the University of Texas at Austin in 1980 and 1981,
respectively. Mr. Schellhase is a certified public accountant.
LEE WALKER was elected a director of IntelliQuest in July 1996. Since 1991,
he has been a lecturer at the University of Texas Graduate School of Business.
From 1986 to 1991, he was President and Chief Operating Officer of Dell Computer
Corporation, a manufacturer of personal computers. Mr. Walker received a B.S. in
Physics from Texas A&M University and an M.B.A. from Harvard University.
WILLIAM WOOD has served as a director of the Company since May 1993. Since
1984, Mr. Wood has been a general partner of Austin Ventures, a venture capital
firm. Mr. Wood is a director of Matrix Service, a publicly held industrial
services company. Mr. Wood received an A.B. in history from Brown University in
1978 and an M.B.A. from Harvard University in 1982.
DIRECTOR COMPENSATION
All directors hold office until the next annual meeting of the stockholders
or until their successors have been elected and qualified. Directors currently
receive no compensation for their service on the Board of Directors but may be
reimbursed for reasonable expenses incurred in connection with their services as
directors. In addition, under the 1996 Director Option Plan, directors who are
not employees of the Company receive, at the discretion of the Board of
Directors, options to purchase shares of Common Stock upon joining the Board of
Directors. Thereafter, each non-employee director will receive, at the
discretion of the Board of Directors, an annual grant of an option to purchase
shares of
35
<PAGE>
Common Stock. See "Management -- Employee Benefit Plans -- 1996 Director Option
Plan." The Company also does not provide additional compensation for committee
participation or special assignments of the Board of Directors. Officers serve
at the discretion of the Board of Directors.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations to the Board of Directors
concerning salaries and incentive compensation for the Company's officers and
employees and administers the Company's stock and option plans. The Audit
Committee evaluates the Company's internal audit and control functions.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee and the Audit Committee of the Board of Directors
each consist of William Wood and Lee Walker, neither of whom is an officer or
employee of the Company. No member of the Compensation Committee or executive
officer of the Company has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for liability
attributed to (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) any transaction from which
the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company's Bylaws also
permit the Company to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity.
The Company has entered into agreements to indemnify its directors and
officers, in addition to indemnification provided for in the Company's
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or officer of
the Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company. The Company is not aware of
any threatened litigation or proceeding that might result in a claim for such
indemnification.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the year ended December 31, 1995 to the Company's Chief
Executive Officer and the Company's two other executive officers (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS (1)
-------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- ---------------------------------------------------------- ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Peter Zandan, Chairman and Chief Executive Officer........ $ 205,900 $ 100,000 -- $ 11,163(2)
Brian Sharples, President................................. 212,400 100,000 -- 10,237(3)
James Schellhase, Chief Operating Officer and Chief
Financial Officer........................................ 103,500 96,350 32,991 --
</TABLE>
- ------------------------
(1) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long-term incentive plan payouts during 1995.
(2) Includes an automobile allowance of $7,200, premiums for term life insurance
paid by the Company for the benefit of Mr. Zandan of $2,270 and medical and
group life insurance and other benefits of $1,693.
(3) Includes an automobile allowance of $7,200, premiums for term life insurance
paid by the Company for the benefit of Mr. Sharples of $1,550 and medical
and group life insurance and other benefits of $1,487.
OPTION GRANTS DURING FISCAL 1995
The following table sets forth, as to the Named Executive Officers,
information concerning stock options granted during the fiscal year ended
December 31, 1995. No stock appreciation rights were granted during such year.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
-------------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN MARKET PRICE TERM (4)
OPTIONS FISCAL YEAR EXERCISE ON DATE OF EXPIRATION --------------------------------
NAME GRANTED (1) PRICE (2) GRANT DATE (3) 0% 5% 10%
- ---------------------- ----------- ------------- ----------- -------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Zandan.......... -- -- -- -- -- -- -- --
Brian Sharples........ -- -- -- -- -- -- -- --
James Schellhase...... 32,991(5) 49.7% $ 0.68 $ 1.81(6) 5/13/05 $ 37,280 $ 74,890 $ 132,624
</TABLE>
- --------------------------
(1) The Company granted options to purchase 66,336 shares of Common Stock during
fiscal 1995 that were outstanding as of December 31, 1995.
(2) The exercise price may be paid in cash, check, shares of the Company's
Common Stock (subject to approval of the Board of Directors) or any
combination of such methods.
(3) Options may terminate before their expiration date if the optionee's status
as an employee is terminated or upon the optionee's death or disability.
37
<PAGE>
(4) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future prices of its
Common Stock.
(5) Forty percent (40%) of the shares subject to Mr. Schellhase's options vest
on May 13, 1997 and twenty percent (20%) vest on each of the next three
anniversaries thereof.
(6) The Board of Directors derived the fair market value of the Company's Common
Stock on the date of grant using a comparison to the market value of a
comparable publicly traded company and applying an appropriate discount to
reflect the Company's status as a privately held corporation.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option holdings for
the fiscal year ended December 31, 1995 with respect to each Named Executive
Officer. No options were exercised by the Named Executive Officers during such
fiscal year.
AGGREGATED OPTION HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END AT FY-END (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter Zandan.............................................. -- -- -- --
Brian Sharples............................................ -- -- -- --
James Schellhase.......................................... 10,264 74,046 $ 173,088 $ 1,230,682
</TABLE>
- ------------------------
(1) Based on the initial public offering price of $17.00 per share less the
exercise price payable for such shares.
INCENTIVE PROGRAM
The Board of Directors establishes, on an annual basis, a cash incentive
program for all of the Company's executive officers. The incentive program is
based on performance relative to overall Company performance and executive team
goals and objectives.
EMPLOYEE BENEFIT PLANS
AMENDED 1993 IQI CORP. STOCK OPTION PLAN
Under the Company's Amended 1993 IQI Corp. Stock Option Plan (the "1993
Option Plan"), as of August 31, 1996, 135,500 shares of Common Stock were
subject to outstanding options at a weighted average exercise price of $0.25 per
share. No further options will be granted under the 1993 Option Plan. Options
under the 1993 Option Plan generally become exercisable over a vesting period of
five years and as of August 31, 1996, 18,571 options had vested. Options under
the 1993 Option Plan were issuable to employees of the Company and were intended
as "incentive stock options" intended to qualify for certain favorable tax
treatment. The exercise price of each incentive stock option is at least equal
to the fair market value of the Common Stock on the date of grant.
1996 STOCK PLAN
The Company has reserved an aggregate of 300,000 shares of Common Stock for
issuance under its 1996 Stock Plan (the "1996 Plan"); as of August 31, 1996,
168,094 shares of Common Stock were subject to outstanding options at a weighted
average exercise price of $15.53 per share. No options under the 1996 Plan had
vested as of August 31, 1996. The 1996 Plan was adopted by the Board of
Directors and approved by the stockholders in February 1996. The 1996 Plan will
terminate in February 2006 unless terminated earlier by the Board of Directors.
The 1996 Plan provides for grants of options to employees and consultants
(including officers and directors) of the Company and its subsidiaries. The 1996
Plan may be administered by the Board of Directors or by a committee
38
<PAGE>
appointed by the Board, in a manner that satisfies the legal requirements
relating to the administration of stock plans under all applicable laws (the
"Administrator"). The 1996 Plan is administered by the Compensation Committee.
The exercise price of options granted under the 1996 Plan is determined by
the Administrator. With respect to incentive stock options granted under the
1996 Plan, the exercise price must be at least equal to the fair market value
per share of the Common Stock on the date of grant, and the exercise price of
any incentive stock options granted to a participant who owns more than 10% of
the voting power of all classes of the Company's outstanding capital stock must
be equal to at least 110% of the fair market value of the Common Stock on the
date of grant. The maximum term of an option granted under the 1996 Plan may not
exceed ten years from the date of grant (five years in the case of a participant
who owns more than 10% of the voting power of all classes of the Company's
outstanding capital stock). In the event of the termination of an optionee's
employment or consulting arrangement, options may only be exercised, to the
extent vested as of the date of termination, for a period not to exceed 90 days
(12 months in the case of termination as a result of death or disability)
following the date of termination. Options may not be sold or transferred other
than by will or the laws of descent and distribution, and may be exercised
during the life of the optionee only by the optionee.
Options to be granted under the 1996 Plan generally vest and become
exercisable, assuming continued service as an employee or consultant, at a rate
of 40% of the shares subject to an option vesting on the second anniversary of
the commencement of vesting date and 20% of the shares on each of the next three
anniversaries thereafter, such that all shares under an option vest in full five
years from the commencement of vesting date assuming continued service as an
employee or consultant. Options outstanding under the 1996 Plan generally have a
term of ten years.
In the event of a change of control of the Company, including a liquidation,
merger or sale of substantially all of the Company's assets, all outstanding
options will be assumed or an equivalent option substituted by the successor
corporation or its parent or subsidiary unless the Administrator determines in
its sole discretion that each optionee shall have the right to exercise his or
her option in full, regardless of vesting. In the absence of assumption or
substitution, any options not exercised as of the date of the change of control
shall terminate upon such change of control.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved an aggregate of 100,000 shares of Common Stock for
issuance under its 1996 Employee Stock Purchase Plan (the "ESPP"). The ESPP was
adopted by the Board of Directors and approved by the stockholders in February
1996. The ESPP is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended, and permits eligible employees of the Company to
purchase Common Stock through payroll deductions of up to 15% of their
compensation provided that no employee may purchase more than $25,000 worth of
stock in any calendar year. The ESPP has been implemented as a series of
successive six-month offering periods, the first of which commenced on July 1,
1996 and will end on the last market trading day on or before December 31, 1996.
The price of Common Stock purchased under the ESPP will be 85% of the lower of
the fair market value of the Common Stock on the first and last day of each
offering period. The ESPP will expire in 2006.
As of August 31, 1996, no shares had been issued under the ESPP.
1996 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan (the "Director Plan"). The Director Plan was adopted by the
Board of Directors and approved by the stockholders in February 1996, and
amended by the Board of Directors in August 1996. A total of 100,000 shares of
Common Stock has been reserved for issuance under the Director Plan, options to
purchase 5,000 of which were issued and outstanding as of August 31, 1996. The
Director Plan provides that each non-employee director shall be granted, at the
discretion of the Board of Directors, a nonstatutory option to purchase shares
of Common Stock (the "First Option") upon the date such
39
<PAGE>
non-employee director first becomes a director (other than an employee director
who ceases to be an employee but remains a director). In addition, each
non-employee director who has been a non-employee director for longer than six
months will annually be granted, at the discretion of the Board of Directors, a
nonstatutory option to purchase shares of Common Stock (a "Subsequent Option").
Each non-employee director will be eligible to receive a Subsequent Option,
regardless of whether such non-employee director was eligible to receive a First
Option. Each First Option and Subsequent Option will have a term expiring on the
earlier of the tenth anniversary of the date of grant or twelve months after the
date on which the optionee ends his service as a director. The vesting terms of
both the First Option and the Subsequent Option shall be at the discretion of
the Board of Directors. The exercise price of a director option will be 100% of
the fair market value per share of the Company's Common Stock on the date of the
grant of the option.
401(K) SAVINGS PLAN
The Company maintains the IntelliQuest, Inc. 401(k) Savings and Retirement
Plan, a defined contribution retirement plan with a cash or deferred arrangement
as described in Section 401(k) of the Internal Revenue Code (the "401(k) Plan").
The 401(k) Plan is intended to be qualified under Section 401(a) of the Code.
All employees of the Company are eligible to participate in the 401(k) Plan on
the first day of the month concurrent with or following the first anniversary of
employment. The 401(k) Plan provides that each participant make elective
contributions from 1% to 15% of his or her compensation, subject to statutory
limits. The Company also provides a discretionary 100% matching contribution,
subject to statutory limits. Under the terms of the 401(k) Plan, allocation of
the matching contribution is integrated with Social Security, in accordance with
applicable nondiscrimination rules under the Code.
40
<PAGE>
CERTAIN TRANSACTIONS
In May 1993, the Company (i) sold shares of its redeemable convertible
preferred stock (designated as the "Series A Preferred Stock") convertible into
an aggregate of 1,055,718 shares of Common Stock at an as-converted price of
$1.36 per share, (ii) sold shares of its redeemable convertible preferred stock
(designated as the "Series B Preferred Stock") convertible into an aggregate of
797,328 shares of Common Stock at an as-converted price of $2.96 per share and
(iii) issued warrants exercisable for an aggregate of 264,480 shares of Common
Stock at an exercise price of $2.03 per share. In March 1996, in connection with
the Company's initial public offering, all Preferred Stock was converted into
Common Stock and all warrants were exercised. The purchasers of the Series A
Preferred Stock and Series B Preferred Stock and warrants included the following
5% stockholders, directors and entities associated with directors:
<TABLE>
<CAPTION>
SHARES OF SERIES SHARES OF SERIES
A PREFERRED B PREFERRED WARRANTS TO PURCHASE
NAME STOCK(1) STOCK(2) COMMON STOCK
- ------------------------------------------------------ ----------------- ----------------- --------------------
<S> <C> <C> <C>
Austin Ventures, L.P.................................. 527,859(3) 398,664(4) 132,240(5)
Summit Partners L.P................................... 527,859(6) 398,664(7) 132,240(8)
</TABLE>
- --------------------------
(1) Represents shares of Common Stock issued upon conversion of shares of Series
A Preferred Stock in connection with the Company's initial public offering.
(2) Represents shares of Common Stock issued upon conversion of shares of Series
B Preferred Stock in connection with the Company's initial public offering.
(3) Includes 286,147 shares purchased by Austin Ventures III-A, L.P. and 241,712
shares purchased by Austin Ventures III-B, L.P. William Wood, a director of
the Company, is a general partner of AV Partners III, L.P., the general
partner of each of Austin Ventures III-A, L.P. and Austin Ventures III-B,
L.P.
(4) Includes 216,112 shares purchased by Austin Ventures III-A, L.P. and 182,552
shares purchased by Austin Ventures III-B, L.P.
(5) Includes warrants to purchase 71,686 and 60,554 shares of Common Stock,
issued to Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P.,
respectively.
(6) Includes 517,302 shares purchased by Summit Ventures III, L.P. and 10,557
shares purchased by Summit Investors II, L.P. Summit Partners L.P., a 5%
stockholder, is the general partner of each of Summit Ventures III, L.P. and
Summit Investors III, L.P.
(7) Includes 390,691 shares purchased by Summit Ventures III, L.P. and 7,973
shares purchased by Summit Investors II, L.P.
(8) Includes warrants to purchase 129,595 and 2,645 shares of Common Stock,
issued to Summit Ventures III, L.P. and Summit Investors II, L.P.,
respectively.
Holders of shares of the Series A Preferred Stock and Series B Preferred
Stock and warrants to purchase Common Stock are entitled to certain registration
rights with respect to the Common Stock issuable upon conversion and/or exercise
thereof. See "Description of Capital Stock -- Registration Rights."
In May 1993, the Company purchased all outstanding shares of IntelliQuest,
Inc. Common Stock from Peter Zandan, Chairman and Chief Executive Officer of the
Company, in exchange for $2,050,000 in cash. IntelliQuest, Inc. is a
wholly-owned subsidiary of the Company.
In May 1993, the Company made a cash payment of $250,000 to Brian Sharples,
President and a director of the Company, to cancel an option held by Mr.
Sharples to purchase shares of Common Stock of IntelliQuest, Inc., a
wholly-owned subsidiary of the Company.
In May 1993, the Company issued to each of Mr. Zandan and Mr. Sharples
1,368,516 shares of the Company's Series A Common Stock in connection with the
reorganization of the Company in exchange for cash payments from each of Mr.
Zandan and Mr. Sharples of $37,333.12.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested directors of the Board of
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of August 31, 1996 and as adjusted
to reflect the sale of Common Stock offered hereby for (i) each of the Company's
directors, (ii) each of the Named Executive Officers, (iii) all directors and
executive officers as a group, (iv) each person who is known by the Company to
beneficially own more than 5% of the Common Stock, and (v) each other Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES
NUMBER OF SHARES BENEFICIALLY OWNED
BENEFICIALLY OWNED PRIOR AFTER
TO OFFERING(1) SHARES OFFERING(1)(2)
------------------------- BEING ------------------
NAME NUMBER PERCENT OFFERED(2) NUMBER PERCENT
- -------------------------------------------------------------------- --------------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Peter Zandan........................................................ 990,006 14.0 148,501 841,505 10.4
Brian Sharples (3).................................................. 516,218 7.3 77,433 438,785 5.4
James Schellhase.................................................... 40,264 * -- 40,264 *
Lee Walker.......................................................... -- * -- -- *
William Wood (4).................................................... 926,523 13.1 555,914 370,609 4.6
All directors and executive officers as a group (5 persons)
(3)(4)............................................................. 2,473,011 35.0 781,848 1,691,163 21.0
5% STOCKHOLDERS:
Austin Ventures, L.P. (5)........................................... 926,523 13.1 555,914 370,609 4.6
Summit Partners L.P. (6)............................................ 926,523 13.1 555,914 370,609 4.6
Sydney Sharples (3)................................................. 473,787 6.7 283,756 190,031 2.4
OTHER SELLING STOCKHOLDERS: (7)
A. Matthews Thompson................................................ 184,244 2.6 92,122 92,122 1.1
Noro-Moseley Partners III, L.P...................................... 90,910 1.3 45,455 45,455 *
Ralph W. Bowlin..................................................... 61,289 * 30,645 30,644 *
77 Capital Partners, L.P............................................ 48,413 * 24,207 24,206 *
Mark Novisoff....................................................... 30,152 * 15,076 15,076 *
MicroWarehouse...................................................... 17,272 * 8,636 8,636 *
Patrick M. Cummiskey................................................ 16,383 * 8,192 8,191 *
Michael J. Geihsler................................................. 13,145 * 6,573 6,572 *
Other Selling Stockholders (17 persons)............................. 58,870(8) * 28,576 30,294 *
</TABLE>
- ------------------------------
* Less than 1%.
(1) Based on 7,068,708 shares of Common Stock outstanding as of August 31, 1996
and 8,068,708 shares of Common Stock outstanding after this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are currently exercisable or exercisable within 60 days of August 31,
1996 are deemed outstanding. Except as indicated in the footnotes to this
table and as provided pursuant to applicable community property laws, the
stockholders named in the table have sole voting and investment power with
respect to the shares set forth opposite each stockholder's name.
(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
432,150 shares of Common Stock. If exercised, the additional shares
purchasable pursuant to this option shall be allocated among Austin
Ventures, L.P., Summit Ventures, L.P., Peter Zandan, Brian Sharples and
James Schellhase.
(3) Sydney Sharples is the former spouse of Brian Sharples. Mr. Sharples
disclaims any beneficial ownership of Ms. Sharples' shares. The mailing
address of Ms. Sharples is c/o IntelliQuest Information Group, Inc., 1250
Capital of Texas Highway South, Building Two, Plaza One, Austin, Texas
78746.
(4) Includes 502,259 shares held by Austin Ventures III-A, L.P. and 424,264
shares held by Austin Ventures III-B, L.P. Mr. Wood is a general partner of
AV Partners III, L.P., the general partner of each of Austin Ventures III-A,
L.P. and Austin Ventures III-B, L.P. Mr. Wood disclaims beneficial ownership
of all such shares except as to the pecuniary interest therein arising from
his interest in such funds.
(5) Includes 502,259 shares held by Austin Ventures III-A, L.P. and 424,264
shares held by Austin Ventures III-B, L.P. The mailing address of Austin
Ventures, L.P. is 114 West 7th Street, Suite 1300, Austin, Texas, 78701.
(6) Includes 907,993 shares held by Summit Ventures III, L.P. and 18,530 shares
held by Summit Investors II, L.P. Summit Partners L.P. is the general
partner of each of Summit Ventures III, L.P. and Summit Investors II, L.P.
The mailing address of Summit Partners L.P. is 600 Atlantic Avenue, Suite
2800, Boston, Massachusetts 02210.
(7) "Other Selling Stockholders" consist of former shareholders of IntelliQuest
Communications, each of whom has the right to register up to 50% of the
shares of Company Common Stock he or she received in the acquisition of
IntelliQuest Communications by the Company. The table assumes that each such
stockholder will exercise in full his or her right to register such shares.
(8) Includes 864 shares issuable pursuant to stock options exercisable within 60
days of August 31, 1996.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $.0001 par value, and 1,000,000 shares of Preferred Stock, $.0001
par value.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of Incorporation
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part and by the provisions of applicable law.
COMMON STOCK
There will be 8,068,708 shares of Common Stock outstanding (assuming no
exercise after August 31, 1996 of outstanding options) after giving effect to
the sale of Common Stock offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred Stock,
the holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
for the payment of dividends. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and liquidation preferences of any outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights or rights to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable, and the shares of Common Stock to be
issued upon completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 1,000,000 shares of Preferred Stock in one or more series and to fix
the designations, powers, preferences, privileges, and relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of the Company or make removal of
management more difficult. Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock, and may
adversely affect the voting and other rights of the holders of Common Stock. At
present, there are no shares of Preferred Stock outstanding and the Company has
no plans to issue any of the Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation provides that all stockholder actions must
be effected at a duly called meeting and not by a consent in writing. The Bylaws
provide that the Company's stockholders may call a special meeting of
stockholders only upon a request of stockholders owning at least 50% of the
Company's capital stock. These provisions of the Certificate of Incorporation
and Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal.
The provisions also are intended to discourage certain tactics that may be used
in proxy fights. However, such provisions could have the effect of discouraging
others
43
<PAGE>
from making tender offers for the Company's shares and, as a consequence, they
also may inhibit increases in the market price of the Company's shares that
could result from actual or rumored takeover attempts. Such provisions also may
have the effect of preventing changes in the management of the Company. See
"Risk Factors -- Effect of Anti-Takeover Provisions."
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; and (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of approximately 1,000,686 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares under the Securities Act.
With respect to approximately 741,218 of such shares, these rights are
provided under the terms of an agreement between the Company and the holders of
certain shares of capital stock convertible into Common Stock (the "Registrable
Securities"). Subject to certain limitations in such agreement, the holders of
at least 50% of the Registrable Securities then outstanding may require, on no
more than two occasions, that the Company use its best efforts to register the
Registrable Securities for public resale, provided the estimated aggregate
offering price of such securities exceeds $5,000,000. If the Company registers
any of its Common Stock either for its own account or for the account of other
security holders on Form S-3, the holders of Registrable Securities are entitled
to include their shares of Common Stock in the registration. A holder's right to
include shares in an underwritten registration is subject to the ability of the
underwriters to limit the number of shares included in such offering. The
holders of Registrable Securities may also require the Company, on no more than
two occasions over 12 months, to register all or a portion of their Registrable
Securities on Form S-3 when use of such form becomes available to the Company,
provided, among other limitations, that the proposed aggregate selling price,
net of the underwriting discounts and commissions, is at least $500,000. All
registration and selling expenses attributable to the registration of the
holders' shares must be borne by the holders requesting such registration.
44
<PAGE>
With respect to approximately 259,468 of such shares, these rights are
provided under the terms of a registration rights agreement between the Company,
holders of the shares of Common Stock described in the previous paragraph and
certain former shareholders of IntelliQuest Communications. Subject to certain
limitations in such agreement, the holders of such shares may register up to 50%
of their shares in a registration initiated by the Company either for its own
account or for the account of other security holders. After December 1, 1997,
the holders of at least 40% of such securities then outstanding may require that
the Company use its best efforts to register all shares held by those
stockholders requesting such registration. All registration and selling expenses
attributable to the registration of the holders' shares will be borne by the
Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Securities Transfer, Incorporated.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding an
aggregate of 8,068,708 shares of Common Stock, assuming no exercise of
outstanding options after August 31, 1996. Of these outstanding shares of Common
Stock, the 2,881,000 shares sold in this offering and approximately 2,716,701
additional shares already outstanding will be freely tradeable without
restriction or further registration under the Securities Act, unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 2,471,007 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act ("Restricted Shares") and will be subject to the
lock-up arrangements described below. Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) 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 Company and its directors, executive officers and all Selling
Stockholders 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 owned by them or that could be
purchased by them through the exercise of options to purchase Common Stock of
the Company for a period of 90 days after the date of this Prospectus without
the prior written consent of William Blair & Company, L.L.C. As a result of
these contractual restrictions, notwithstanding possible earlier eligibility for
sale under the provisions of Rules 144, 144(k) and 701, the shares subject to
lock-up agreements will not be saleable until 90 days after the date of this
Prospectus (or earlier with the consent of William Blair & Company, L.L.C.).
In general, under Rule 144 as currently in effect, 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 of the Company) 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 80,687 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 of the
Company), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144;
therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates of the Company 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. The Company has filed a registration statement on
Form S-8 under the Securities Act covering an aggregate of 741,080 shares of
Common Stock reserved for issuance under the Company's 1993 Option Plan, 1996
Plan, the Director Plan and the ESPP. See "Management -- Employee Benefit
Plans." Shares registered under such registration statement will, subject to
Rule 144 volume limitations applicable to affiliates of the Company, be
available for sale in the open market, unless such shares are subject to vesting
restrictions with the Company or the lock-up agreements described above. As of
August 31, 1996 options to purchase 135,500 shares were issued and outstanding
under the 1993 Option Plan, options to purchase 168,094 shares had been granted
under the 1996 Plan, options to purchase 5,000 shares had been granted under the
Director Plan and no shares had been issued under the ESPP.
46
<PAGE>
UNDERWRITING
The several Underwriters named below (the "Underwriters"), for which William
Blair & Company, L.L.C. and Robertson, Stephens & Company LLC are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company, the Selling Stockholders and the Underwriters (the "Underwriting
Agreement"), to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters, the respective number of shares of Common Stock (or warrants
therefor) set forth opposite each Underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
William Blair & Company, L.L.C.......................................................................
Robertson, Stephens & Company LLC....................................................................
-----------
Total............................................................................................ 2,881,000
-----------
-----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Common Stock
being sold pursuant to the Underwriting Agreement if any of the Common Stock
being sold pursuant to the Underwriting Agreement (excluding shares covered by
the over-allotment option granted therein) is purchased. In the event of a
default by any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters shall be
increased or the Underwriting Agreement may be terminated.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus and
to selected dealers at such price less a concession of not more than $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After the public
offering, the public offering price and other selling terms may be changed by
the Representatives.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 432,150 shares of Common Stock at the same price per share to be
paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any such additional shares pursuant to this option, each
of the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby. The additional shares purchased pursuant to this option
shall be allocated among Austin Ventures, L.P., Summit Ventures, L.P, Peter
Zandan, Brian Sharples and James Schellhase.
The Company, its directors, executive officers and all Selling Stockholders
have agreed that they will not sell, contract to sell or otherwise dispose of
any Common Stock or any interest therein for a period of 90 days after the date
of this Prospectus without the prior written consent of William Blair & Company,
L.L.C., except for the Common Stock offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Company's
Common Stock during the "cooling-off" period immediately preceding the
commencement of sales in the offering. The Commission has, however, adopted
exemptions from these rules that permit passive market making under certain
conditions. These rules permit an underwriter or other members of the selling
group, if any, to
47
<PAGE>
continue to make a market subject to the conditions, among others, that its bid
not exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group, if any, may engage in passive market making in the Company's
Common Stock during the cooling-off period.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company and
the Selling Stockholders by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Sidley & Austin, Chicago, Illinois.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given upon the authority of said firm as experts
in auditing and accounting.
48
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheet............................................................ F-3
Consolidated Statement of Operations.................................................. F-4
Consolidated Statement of Common Stockholders' Equity (Deficit)....................... F-5
Consolidated Statement of Cash Flows.................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of IntelliQuest Information
Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of common stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of IntelliQuest Information Group, Inc. and its subsidiaries at
December 31, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Austin, Texas
July 25, 1996
F-2
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................................... $ 1,283 $ 1,688 $ 26,391
Accounts receivable, net of allowances for doubtful accounts
of $43, $341, and $353, respectively........................ 2,396 2,990 3,687
Unbilled revenues............................................ 413 1,599 1,151
Projects in process.......................................... 518 71 1,862
Prepaid expenses and other assets............................ 97 32 263
--------- --------- -----------
Total current assets....................................... 4,707 6,380 33,354
Furniture and equipment, net................................... 1,031 1,537 2,021
Other assets................................................... 169 89 145
--------- --------- -----------
Total assets............................................... $ 5,907 $ 8,006 $ 35,520
--------- --------- -----------
--------- --------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................. $ 965 $ 1,174 $ 1,536
Accrued liabilities.......................................... 243 1,263 1,043
Deferred revenues............................................ 2,173 1,822 2,987
Other current liabilities.................................... 112 103 168
--------- --------- -----------
Total current liabilities.................................. 3,493 4,362 5,734
Capital lease obligations and deferred rent.................... 157 170 138
--------- --------- -----------
Total liabilities.......................................... 3,650 4,532 5,872
--------- --------- -----------
Redeemable convertible preferred stock......................... 4,141 4,420 --
--------- --------- -----------
Preferred stock, $.0001 par value, 1,000,000 shares authorized,
no shares issued or outstanding............................... -- -- --
Common Stockholders' Equity (Deficit):
Common stock, $.0001 par value, 30,000,000 shares authorized,
3,196,846, 3,245,193, and 6,997,719 shares issued and
outstanding, respectively................................... 1 1 1
Capital in excess of par value............................... 2,482 2,345 32,613
Deferred compensation........................................ (850) (61) (54)
Foreign currency translation................................. -- -- 1
Accumulated deficit.......................................... (3,517) (3,231) (2,913)
--------- --------- -----------
Total common stockholders' equity (deficit)................ (1,884) (946) 29,648
--------- --------- -----------
Total liabilities, redeemable convertible preferred stock
and common stockholders' equity (deficit)................. $ 5,907 $ 8,006 $ 35,520
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Renewable subscription-based products........... $ 2,055 $ 6,157 $ 8,064 $ 2,216 $ 3,234
Renewable proprietary products.................. 2,055 4,185 8,120 3,150 3,915
Proprietary project research.................... 2,039 3,647 2,930 1,653 1,617
--------- --------- ----------- ----------- -----------
Total revenues.................................. 6,149 13,989 19,114 7,019 8,766
Operating expenses:
Cost of revenues................................ 3,372 8,457 10,103 3,267 3,685
Sales, general and administrative............... 2,661 3,996 5,575 2,589 2,792
Product development............................. 880 1,545 1,979 838 1,693
Depreciation and amortization................... 152 265 317 141 317
--------- --------- ----------- ----------- -----------
Total operating expenses........................ 7,065 14,263 17,974 6,835 8,487
--------- --------- ----------- ----------- -----------
Operating income (loss)........................... (916) (274) 1,140 184 279
--------- --------- ----------- ----------- -----------
Other income (expense):
Interest income and other....................... 12 12 49 41 290
Interest expense................................ (32) (25) (31) (38) (36)
--------- --------- ----------- ----------- -----------
Income (loss) before income taxes............... (936) (287) 1,158 187 533
Provision (benefit) for income taxes.............. (1) 2 593 141 152
--------- --------- ----------- ----------- -----------
Net income (loss)................................. $ (935) $ (289) $ 565 $ 46 $ 381
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Net income per share.............................. $ .10 $ .01 $ .06
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding.................... 5,526,371 5,512,365 6,481,989
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL TOTAL
---------------- IN EXCESS ACCUMULATED STOCKHOLDERS'
PAR OF PAR EARNINGS EQUITY
SHARES VALUE VALUE OTHER (DEFICIT) (DEFICIT)
--------- ----- --------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992.................................. -- $-- $ 6 $-- $ 192 $ 198
Issuances of common stock................................... 3,045,710 1 494 -- -- 495
Purchase of IntelliQuest, Inc. common stock from
affiliate.................................................. -- -- (6) -- (2,044) (2,050)
Accretion of preferred stock to redemption value............ -- -- -- -- (162) (162)
Net loss.................................................... -- -- -- -- (935) (935)
--------- ----- --------- ----- ----------- -------------
Balance, December 31, 1993.................................. 3,045,710 1 494 -- (2,949) (2,454)
Issuances of common stock................................... 151,136 -- 1,106 -- -- 1,106
Deferred stock option compensation.......................... -- -- 882 (882) -- --
Amortization of deferred compensation....................... -- -- -- 32 -- 32
Accretion of preferred stock to redemption value............ -- -- -- -- (279) (279)
Net loss.................................................... -- -- -- -- (289) (289)
--------- ----- --------- ----- ----------- -------------
Balance, December 31, 1994.................................. 3,196,846 1 2,482 (850) (3,517) (1,884)
Issuances of common stock................................... 48,347 -- 547 -- -- 547
Amortization of deferred compensation....................... -- -- -- 98 -- 98
Cancellation of stock option compensation................... -- -- (752) 752 -- --
Deferred compensation....................................... -- -- 68 (68) -- --
Amortization of deferred compensation....................... -- -- -- 7 -- 7
Accretion of preferred stock to redemption value............ -- -- -- -- (279) (279)
Net income.................................................. -- -- -- -- 565 565
--------- ----- --------- ----- ----------- -------------
Balance, December 31, 1995.................................. 3,245,193 1 2,345 (61) (3,231) (946)
Accretion of preferred stock to redemption value............ -- -- -- -- (63) (63)
Conversion of redeemable convertible preferred stock and
warrants upon initial public offering...................... 2,117,526 -- 5,020 -- -- 5,020
Common stock issued upon initial public offering............ 1,635,000 -- 25,248 -- -- 25,248
Amortization of deferred compensation....................... -- -- -- 7 -- 7
Change in cumulative foreign currency translation........... -- -- -- 1 -- 1
Net income.................................................. -- -- -- -- 381 381
--------- ----- --------- ----- ----------- -------------
Balance, June 30, 1996 (unaudited).......................... 6,997,719 $ 1 $ 32,613 $ (53) $(2,913) $29,648
--------- ----- --------- ----- ----------- -------------
--------- ----- --------- ----- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)....................................... $ (935) $ (289) $ 565 $ 46 $ 381
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 153 268 357 157 352
Bad debt expense...................................... 68 45 311 99 60
Loss on sale of equipment and other................... 2 5 3 -- --
Noncash stock option compensation expense............. -- 33 98 98 7
Net changes in assets and liabilities:
Accounts receivable and unbilled revenue............ (2,300) 310 (2,096) (1,449) (309)
Prepaid expenses and other assets................... (91) (68) 64 (24) (88)
Projects in process................................. (883) 365 447 (1,390) (1,791)
Accounts payable and accrued expenses............... 1,004 36 1,234 773 142
Deferred revenues................................... 2,114 (595) (351) 2,187 1,165
Deferred rent and other............................. 27 45 (7) 161 (114)
--------- --------- --------- ----------- ---------
Net cash provided by (used in) operating
activities....................................... (841) 155 625 658 (195)
--------- --------- --------- ----------- ---------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements....... (297) (632) (867) (338) (789)
Other................................................... (12) (23) 96 87 (111)
--------- --------- --------- ----------- ---------
Net cash used in investing activities............. (309) (655) (771) (251) (900)
--------- --------- --------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock.................. 495 1,106 547 547 25,786
Borrowings under line of credit......................... 732 375 650 64 46
Repayments on line of credit............................ (996) (375) (675) -- --
Proceeds from notes payable............................. -- 50 65 -- --
Repayments of principal on capital lease obligations.... (46) (67) (36) (23) (34)
Purchase of stock of IntelliQuest, Inc. from
affiliate.............................................. (2,050) -- -- -- --
Net proceeds from issuance of preferred stock........... 3,700 -- -- -- --
--------- --------- --------- ----------- ---------
Net cash provided by financing
activities....................................... 1,837 1,089 551 588 25,798
--------- --------- --------- ----------- ---------
Net increase in cash and equivalents...................... 687 589 405 995 24,703
Cash and cash equivalents at the beginning of the
period................................................... 7 694 1,283 1,283 1,688
--------- --------- --------- ----------- ---------
Cash and cash equivalents at the end of the period........ $ 694 $ 1,283 $ 1,688 $ 2,278 $ 26,391
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Supplemental cash flow disclosures:
Interest paid........................................... $ 32 $ 25 $ 42 $ 13 $ 9
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Property and equipment acquired under capital leases.... $ 56 $ -- $ 9 $ -- $ --
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Taxes paid.............................................. $ -- $ 5 $ 305 $ 27 $ 391
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
IntelliQuest Information Group, Inc. ("IntelliQuest" or the "Company") is a
leading provider of quantitative marketing information to technology companies.
IntelliQuest supplies customers with timely, objective, accurate and
cost-effective information about technology markets, customers, products and
competitors on both a subscription basis and a proprietary project basis. The
Company operates in a single industry segment.
IntelliQuest, Inc. ("Old IntelliQuest") was incorporated in Texas in 1985.
In 1993, Old IntelliQuest was acquired by IntelliQuest, a majority of which was
owned by the former principal of Old IntelliQuest. In connection with this, a
cash payment of $2,050,000 was made to the controlling shareholder of Old
IntelliQuest. This acquisition was accounted for as a reorganization of entities
under common control, where the bases of Old IntelliQuest assets and liabilities
carried over to IntelliQuest. IntelliQuest was reincorporated in Delaware on
March 19, 1996. In conjunction with this reincorporation, the Company changed
its name to IntelliQuest Information Group, Inc.
During 1995, the Company formed a wholly-owned subsidiary located in London,
England. At December 31, 1995, the total assets and liabilities of this
subsidiary were approximately $259,000 and $42,000, respectively, net of
intercompany eliminations. Net losses related to this subsidiary for the year
ended December 31, 1995 totaled $34,000. In addition, as more fully described in
Note 2, IntelliQuest acquired IntelliQuest Communications during May 1996.
Unless otherwise specified, references herein to the "Company" or "IntelliQuest"
mean IntelliQuest Information Group, Inc. and all of its wholly-owned
subsidiaries.
THE DELAWARE REINCORPORATION
In connection with the reincorporation, IntelliQuest exchanged 1 share of
its preferred stock and common stock for every 1.364 shares of preferred stock
and common stock, respectively, held by the stockholders of Old IntelliQuest
(the "Share Exchange"). All shares and per share amounts, including warrants and
options for such shares, included in the accompanying financial statements have
been adjusted to give retroactive effect to the Share Exchange. Additionally,
IntelliQuest's Certificate of Incorporation, amended following the consummation
of the initial public offering, authorized 30,000,000 shares of Common Stock
with a $.0001 par value and 1,000,000 shares of preferred stock with a $.0001
par value. The Board of Directors has the authority to issue the preferred stock
and to fix the rights, preferences, privileges and restrictions thereof, without
further vote or action by the stockholders.
2. ACQUISITION
In May 1996, IntelliQuest completed a merger with IntelliQuest
Communications, Inc. ("IntelliQuest Communications," formerly known as Pipeline
Communications, Inc.), which became a wholly-owned subsidiary of IntelliQuest. A
total of 562,500 shares of IntelliQuest common stock and common stock options
were exchanged for all outstanding shares of common stock, stock options, and
warrants of IntelliQuest Communications. The transaction was accounted for as a
pooling of interests and therefore, all prior period financial statements have
been restated as if the acquisition had taken place at the beginning of such
periods.
F-7
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITION (CONTINUED)
Separate results of operations for the periods prior to the acquisition of
IntelliQuest Communications are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
--------------------------------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1995 1996
------------- ----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues
IntelliQuest.................... $ 6,139 $ 12,983 $ 16,974 $ 5,999 $ 7,209
IntelliQuest Communications..... 10 1,006 2,140 1,020 1,557
------------- -------- -------- ------------- -------------
Combined.......................... 6,149 $ 13,989 $ 19,114 $ 7,019 $ 8,766
------------- -------- -------- ------------- -------------
Net Income (loss)
IntelliQuest.................... $ (487) $ (24) $ 911 $ 212 $ 464
IntelliQuest Communications..... (448) (265) (346) (166) (83)
------------- -------- -------- ------------- -------------
Combined.......................... $ (935) $ (289) $ 565 $ 46 $ 381
------------- -------- -------- ------------- -------------
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
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. Since much of the Company's revenues are based upon percentage
of projects completed based on costs input compared to total estimated project
costs, the determination of the resultant revenue requires ongoing estimates by
management of costs to complete these projects. Actual results could differ from
those estimates.
The accompanying consolidated balance sheet as of June 30, 1996 and the
related consolidated statements of operations, of common stockholders' equity
(deficit) and of cash flows for the six months ended June 30, 1995 and 1996 are
unaudited but, in the opinion of management include all adjustments (consisting
of normal, recurring adjustments) necessary for a fair presentation of results
for these interim periods.
REVENUE RECOGNITION
The Company offers renewable subscription-based products which provide
similar information to a number of clients at a shared-cost price. The Company
also offers proprietary tracking products that manage ongoing market feedback
and proprietary research. Revenue from certain annual subscription-based
products (such as Computer Industry Media Study (CIMS)) and the related costs
are deferred until delivery. Revenues from other renewable subscription-based
and proprietary tracking products containing a subscription period are
recognized on a straight-line basis over the subscription period. Revenues from
processing transactions are recognized as the transactions are processed for
customers and are included in renewable proprietary products revenues. Revenues
from proprietary research service contracts are recognized in proportion to
performance required under the contracts (percentage of completion) based on
cost input. Losses on a given contract are recognized when determined probable.
The Company bills its clients for products and services based on terms of
the contracts, which may not coincide with criteria required for revenue
recognition. Deferred revenue represents amounts
F-8
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
invoiced prior to rendering the related services while unbilled revenue
represents the billing value of services rendered prior to being invoiced.
Substantially all the deferred and unbilled revenue will be earned and billed,
respectively, within twelve months of the respective period ends.
PRODUCT DEVELOPMENT COSTS
Product development costs include costs incurred to develop or design new
products, services or processes and significantly enhance existing products,
services and processes and are expensed as incurred. If material, costs to
develop software, which is an integral part of a product or service, that are
incurred subsequent to attaining technological feasibility are capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86. These
costs are then amortized on a straight line basis over the estimated economic
life or on the ratio of current revenues to total projected product revenues,
whichever is greater. To date, costs incurred subsequent to attaining
technological feasibility have been immaterial and therefore the Company has not
capitalized any such costs.
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable convertible preferred stock is presented net of issuance costs
and approximates redemption value. As discussed in Note 9, all holders of
redeemable convertible preferred stock converted their redeemable convertible
preferred stock into common stock concurrent with the closing of IntelliQuest's
initial public offering. The redeemable convertible preferred stockholders also
received warrants to purchase 264,480 shares of Common Stock at $2.03 per share.
These warrants were exercised prior to the initial public offering.
PRO FORMA NET INCOME PER SHARE
The Company's historical capital structure is not indicative of its
prospective structure due to the conversion of all shares of redeemable
convertible preferred stock into common stock and the exercise of warrants to
purchase common stock concurrent with the closing of the Company's initial
public offering. Accordingly, historical net income (loss) per share is not
considered meaningful and has not been presented herein.
Pro forma net income per share is computed based upon the weighted average
number of common shares outstanding and gives effect to certain adjustments
described below. Common equivalent shares are not included in the per share
calculations where the effect of their inclusion would be antidilutive, except
that, for 1995 in conformity with Securties and Exchange Commission
requirements, common and common stock equivalent shares issued by the Company
during the twelve month period prior to the filing of its initial public
offering have been included in the calculation as if they were outstanding for
all periods, using the treasury stock method and the initial public offering
price of $17 per share. Additionally, 1,055,718 shares of redeemable convertible
preferred stock designated as the Series A Convertible Preferred Stock and
797,328 shares of redeemable convertible preferred stock designated as the
Series B Convertible Preferred Stock were assumed to have been converted and
warrants to purchase 264,480 shares of Common Stock were assumed to have been
exercised as of January 1, 1995. The redeemable convertible preferred stock was
converted and the warrants were exercised in connection with the Company's
initial public offering in March 1996.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization is provided on a straight-line
basis over the estimated useful lives of the respective assets which range from
three to seven years. Amortization of assets acquired under capital leases is
included in depreciation and amortization.
F-9
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROJECT COSTS
Costs associated with CIMS are deferred and included in projects in process
until the results of the study are delivered. These costs include personnel and
other direct costs, as well as associated overhead. Upon release of the study,
these costs are included in cost of revenues.
Costs relating to all other projects, including development of databases,
are expensed as incurred.
INCOME TAXES
Deferred income taxes are provided for the tax effects of differences
between the financial reporting bases and the income tax bases of the Company's
assets and liabilities as measured by the enacted tax rates.
CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with original maturities
of less than three months to be cash equivalents.
Included in cash and equivalents are investments consisting primarily of
U.S. government debt securities with readily determinable fair market values. In
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the Company's
investments are classified as available-for-sale and accordingly, are reported
at fair value, with unrealized gains and losses reported net of taxes as a
separate component of common stockholders' equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and
accrued liabilities is a reasonable estimate of their fair value because of the
short-term maturity of all such instruments.
FOREIGN CURRENCIES
The foreign subsidiary operates in a local currency environment. Balance
sheet accounts are translated at exchange rates existing at the balance sheet
date. Revenue and expense accounts are translated at average exchange rates
prevailing during the period. Translation gains and losses are accumulated and
reported as a separate component of stockholders' equity. There have not been
material translation gains or losses as of December 31, 1995.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." The Company adopted the statement
in the first quarter of 1996 and the adoption did not have a material effect.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(FAS No. 123). FAS No. 123 establishes a fair value based method of accounting
for stock-based compensation plans. It also allows for companies to continue to
follow the intrinsic value based approach previously allowed with footnote
disclosure of the pro forma net income and earnings per share of the fair value
based approach. The Company anticipates following this latter approach so the
impact on the Company's financial statements will not be significant.
F-10
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. FURNITURE AND EQUIPMENT
Equipment and leasehold improvements consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Equipment.......................................................................... $ 1,235 $ 1,782
Purchased software................................................................. 157 270
Furniture and fixtures............................................................. 356 508
Leasehold improvements............................................................. 46 96
--------- ---------
1,794 2,656
Less -- Accumulated depreciation and amortization.................................. (763) (1,119)
--------- ---------
$ 1,031 $ 1,537
--------- ---------
--------- ---------
</TABLE>
Included in the December 31, 1994 and 1995 balances of equipment are
$227,000 and $236,000, respectively, in assets acquired under lease. Accumulated
amortization for these assets was $69,000 and $101,000 at December 31, 1994 and
1995, respectively, and amortization expense was $33,000, $36,000 and $32,000,
respectively, for the years ended December 31, 1993, 1994 and 1995.
5. LINE OF CREDIT
At December 31, 1995, the Company had a revolving line of credit available
of $3,000,000 for which there were no amounts outstanding at December 31, 1995.
The line matures on October 30, 1996 and is available for general corporate
purposes. It bears interest at the bank's prime lending rate (8.5% at December
31, 1995) plus 1.0%. Borrowings under it are secured by accounts receivable,
equipment and other assets of the Company including contract rights and other
intangibles. The credit agreement contains certain restrictive covenants,
including certain restrictions on the Company's ability to pay dividends on
Common Stock.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Accrued payroll and benefits.......................................................... $ 177 $ 482
Taxes payable and other accrued expenses.............................................. 66 571
Accrued sales taxes................................................................... -- 210
--------- ---------
$ 243 $ 1,263
--------- ---------
--------- ---------
</TABLE>
7. COMMITMENTS
The Company leases office space, equipment and software under certain
noncancellable operating and capital lease agreements. These leases have
expiration dates ranging from 1997 through 2000. Rent expense under operating
leases totaled $244,000, $337,000 and $473,000 for the years ended December 31,
1993, 1994 and 1995, respectively.
F-11
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS (CONTINUED)
Future minimum lease payments under all leases as of December 31, 1995 are
as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996................................................ $ 72 $ 638
1997................................................ 61 640
1998................................................ 5 195
1999................................................ -- 115
2000................................................ -- 34
------- ---------
Total minimum lease payments...................... 138 $1,622
---------
---------
Less: executory costs............................... 18
amount representing interest................... 12
-------
Present value of net minimum lease payments......... 108
Less -- current portion............................. 50
-------
Long-term portion................................... $ 58
-------
-------
</TABLE>
8. INCOME TAXES
The income tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE
FROM MAY 28, YEAR ENDED
1993 DECEMBER
THROUGH 31,
DECEMBER 31, ----------
1993 1994 1995
-------------- ---- ----
<S> <C> <C> <C>
Cumulative impact of change in tax status... $ 148 $-- $--
Current provision (benefit)................. (127) -- 577
Deferred provision (benefit)................ (22) 2 16
------ ---- ----
Total provision (benefit) for income
tax...................................... $ (1) $ 2 $593
------ ---- ----
------ ---- ----
</TABLE>
The Company's Subchapter S tax status for income tax purposes terminated in
1993 upon the acquisition of Old IntelliQuest by IntelliQuest. A deferred tax
liability of $148,000 representing the cumulative tax effect of net temporary
differences between the financial reporting bases and the income tax bases of
the Company's assets and liabilities existing at that date was recorded in the
Company's financial statements.
F-12
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES (CONTINUED)
The difference between the income tax provisions in the consolidated
financial statements and the tax at the statutory federal rate are as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE
FROM MAY 28, YEAR ENDED
1993 DECEMBER
THROUGH 31,
DECEMBER 31, -----------
1993 1994 1995
-------------- ---- ----
<S> <C> <C> <C>
Income tax (benefit) at statutory rate
(based upon loss before income taxes for
all of 1993)............................... $(313) $(98) $394
S Corporation losses for which no benefit is
realized for portion of 1993 prior to May
28, 1993................................... 27 -- --
IntelliQuest Communications net loss for
which no benefit is recognized............. 152 90 118
Cumulative impact of change in tax status... 148 -- --
State taxes, net of federal benefit......... (14) (1) 68
Other, net.................................. (1) 11 13
------ ---- ----
Total provision (benefit)................... $ (1) $ 2 $593
------ ---- ----
------ ---- ----
</TABLE>
The principal components of the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Cash to accrual adjustments........................................................... $ 307 $ 106
Depreciation and other................................................................ 49 113
--------- ---------
Gross deferred tax liability........................................................ 356 219
--------- ---------
Deferred tax assets:
Product development costs............................................................. 153 141
Allowance for doubtful accounts....................................................... 13 117
Accrued vacation pay and other........................................................ 29 26
Net operating loss carryforward....................................................... 446 318
--------- ---------
Gross deferred tax assets........................................................... 641 602
Less valuation allowance.............................................................. 281 395
--------- ---------
Net deferred tax asset (liability).................................................. $ 4 $ (12)
--------- ---------
--------- ---------
</TABLE>
The valuation allowance relates to the deferred tax assets which carryover
from IntelliQuest Communications, a wholly-owned subsidiary of the Company.
These assets include net operating loss carryforwards, and research and
experimentation credit carryforwards. These carryforwards may only be used to
offset tax liabilities generated by IntelliQuest Communications. Because of the
uncertainties with respect to IntelliQuest Communications' ability to generate
sufficient future taxable income to realize these assets, the Company has
provided a valuation allowance against all of IntelliQuest Communications' net
deferred tax assets.
As of December 31, 1995, IntelliQuest Communications has net operating loss
and research and experimentation credit carryforwards for Federal income tax
purposes of approximately $934,000 and $34,000, respectively. These
carryforwards expire beginning 2008 through 2010.
F-13
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In May 1993, the Company authorized 1,853,046 shares of redeemable
convertible preferred stock, of which 1,055,718 shares were designated as Series
A Redeemable Convertible Preferred Stock (the "Series A Preferred Stock") and
797,328 shares were designated as Series B Redeemable Convertible Preferred
Stock (the "Series B Preferred Stock"). Both Series A Preferred Stock and Series
B Preferred Stock (the "Preferred Stock") have par value of $1.00 and were
recorded net of total issuance costs of $100,000.
The holders of Preferred Stock converted their shares of Preferred Stock
into the Company's Series A Common Stock at a conversion ratio of one share of
Preferred Stock for one share of Common Stock in connection with the Company's
initial public offering in March 1996.
The Preferred Stock was mandatorily redeemable at the option of the holders
in three equal annual lots of shares beginning May 28, 1999. The redemption
price was $1.36 per share ("Stated Value") for Series A Preferred Stock and
$2.96 per share ("Stated Value") for Series B Preferred Stock, plus an annual
premium of 7% of the Stated Value of the stock for both Series A and Series B
Preferred Stock.
The carrying value of the Preferred Stock is as follows (in thousands):
<TABLE>
<CAPTION>
SERIES A PREFERRED SERIES B PREFERRED
STOCK $1.00 PAR VALUE STOCK $1.00 PAR VALUE TOTAL
---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock.............. 1,056 $ 1,440 797 $ 2,360 1,853 $ 3,800
Stock issuance costs........... (38) (62) (100)
Accretion of premium........... 62 100 162
----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1993... 1,056 1,464 797 2,398 1,853 3,862
Accretion of premium........... 106 173 279
----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1994... 1,056 1,570 797 2,571 1,853 4,141
Accretion of premium........... 106 173 279
----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1995... 1,056 $ 1,676 797 $ 2,744 1,853 $ 4,420
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
WARRANTS
The holders of the Preferred Stock were also issued warrants to acquire
264,480 shares of Common Stock for $2.03 per share at any time prior to May 28,
1997. These warrants were exercised for 264,480 shares of Common Stock upon the
closing of the Company's initial public offering.
10. STOCK OPTIONS
1993 STOCK PLAN
A total of 344,256 shares of the Company's Series B Common Stock has been
authorized for issuance. Under the Plan, incentive stock options or
non-qualified stock options may be granted with exercise prices equaling the
fair market value of the stock at the time of grant, as determined by the
Company's Board of Directors unless the optionee owns greater than 10% of the
voting power of all classes of stock, in which case the option price will be
110% of the fair value at the date of grant, as determined by the Board of
Directors. Options granted under the plan generally have a term of ten years
from the date of grant and generally vest over a five-year period. If an option
expires or becomes unexercisable for any reason, options related to the unissued
shares become available for grant.
F-14
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS (CONTINUED)
The following table summarizes stock option activity during 1993, 1994 and
1995 (in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -----------------------
AVAILABLE PRICE PER
FOR GRANT SHARES SHARE
---------- --------- ------------
<S> <C> <C> <C>
Options authorized............................................... 344
Options granted.................................................. (60) 60 $.14
Options canceled................................................. -- --
---------- ---------
Balance at December 31, 1993..................................... 284 60 $.14
Options granted.................................................. (111) 111 $.14-$9.26
Options canceled................................................. 31 (31) $.14
---------- ---------
Balance at December 31, 1994..................................... 204 140 $.14-$9.26
Options granted.................................................. (90) 90 $.40-$9.26
Options canceled................................................. 15 (15) $.14-$9.26
---------- ---------
Balance at December 31, 1995..................................... 129 215 $.14-$9.26
---------- ---------
---------- ---------
</TABLE>
Options canceled represent the unexercised options of former employees,
returned to the option pool in accordance with the terms of the stock option
plan, upon their departure from the Company. In connection with options issued
during 1995, the Company is recognizing compensation expense totaling $68,000
over the vesting period.
OTHER STOCK OPTION GRANTS
IntelliQuest Communications had previously issued stock options and warrants
to non-employees. IntelliQuest Communications' options and warrants outstanding
as of December 31, 1995 were converted into options to purchase 16,408 shares of
IntelliQuest common stock upon the acquisition of IntelliQuest Communications.
REPURCHASE OF OPTIONS
During 1992, prior to formation of IntelliQuest, Old IntelliQuest issued
stock options to an officer to purchase 43,235 shares of Common Stock at a
purchase price based upon the fair value of the Company as of the date of grant
as adjusted for certain dividends paid between the date of grant and the
exercise date. These options were accounted for as variable options. The options
were repurchased by IntelliQuest in conjunction with the formation of the
Company for their estimated fair value of $250,000 and canceled. Compensation
expense was recognized in 1993 for the difference ($200,000) between the
compensation recorded in 1992 ($50,000) and the purchase price of the options.
11. EMPLOYEES' SAVINGS PLAN
The Company's 401(k) Savings and Retirement Plan is a defined contribution
retirement plan with a cash or deferred arrangement as described in Section
401(k) of the Code (the "401(k) Plan"). The 401(k) Plan is intended to be
qualified under Section 401(a) of the Code. All employees of the Company are
eligible to participate in the 401(k) Plan after approximately one year of
employment. The 401(k) Plan provides that each participant make elective
contributions from 1% to 15% of his or her compensation, subject to statutory
limits. Under the terms of the 401(k) Plan, allocation of the matching
contribution is integrated with Social Security, in accordance with applicable
nondiscrimination rules under the Code. The Company made matching contributions
in the amount of $11,000 in 1993, $5,000 in 1994 and $30,000 in 1995.
12. SIGNIFICANT CLIENTS AND CREDIT RISKS
The Company has relied on a limited number of key customers for the majority
of its revenues. In addition, there has been significant consolidation of
companies in the technology industries served by
F-15
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. SIGNIFICANT CLIENTS AND CREDIT RISKS (CONTINUED)
the Company, a trend which the Company believes will continue. The loss of one
or more of the Company's large customers or a significant reduction of business
from such customers, regardless of the reason, would have a material adverse
effect on the Company.
Revenues from certain significant clients are, as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Client 1.............................................. 4% 11% 15%
Client 2.............................................. 8% 7% 10%
Client 3.............................................. 6% 6% 6%
Client 4.............................................. 12% 12% 5%
</TABLE>
Additionally, at December 31, 1994 and 1995, certain clients had accounts
receivable and unbilled revenue balances with the Company which represented the
following amounts of total net accounts receivable and unbilled revenues:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Client 1.............................................. 9% 23%
Client 2.............................................. 7% 20%
Client 3.............................................. 14% 5%
</TABLE>
The Company sells its products to various companies in technology and
publication industries. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses. Neither the
reserves established nor the losses incurred have been material. Additionally,
the Company has no significant off-balance-sheet concentration of credit risk
such as foreign exchange contracts, options contracts or other hedging
agreements.
13. GEOGRAPHIC DATA
Revenue includes export sales to unaffiliated non-U.S. customers and to
unaffiliated U.S. customers commissioning information-gathering services abroad,
generally on behalf of their foreign subsidiaries. The Company defines "Europe
Sales" as revenues attributable to information gathering services provided in
Western Europe and "Other International Sales" as revenues attributable to all
other areas located outside of the United States.
Summarized revenue information by geographic location is as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Europe........................................................... $ 552 $ 2,558 $ 3,817
Other International.............................................. 75 210 1,060
--------- --------- ---------
$ 627 $ 2,768 $ 4,877
--------- --------- ---------
--------- --------- ---------
</TABLE>
* * *
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Price Range of Common Stock............................................... 12
Capitalization............................................................ 13
Selected Consolidated Financial Data...................................... 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 15
Business.................................................................. 24
Management................................................................ 35
Certain Transactions...................................................... 41
Principal and Selling Stockholders........................................ 42
Description of Capital Stock.............................................. 43
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 47
Legal Matters............................................................. 48
Experts................................................................... 48
Index to Consolidated Financial Statements................................ F-1
</TABLE>
2,881,000 SHARES
[INTELLIQUEST LOGO]
COMMON STOCK
---------------------
PROSPECTUS
, 1996
---------------------
WILLIAM BLAIR & COMPANY
ROBERTSON, STEPHENS & COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
-----------
<S> <C>
Registration Fee................................................................. $ 31,561
NASD Filing Fee.................................................................. 10,000
Nasdaq National Market Listing Fee............................................... 17,500
Printing and Engraving........................................................... 75,000
Legal Fees and Expenses.......................................................... 60,000
Accounting Fees and Expenses..................................................... 40,000
Blue Sky Fees and Expenses....................................................... 7,500
Transfer Agent Fees.............................................................. 3,000
Miscellaneous.................................................................... 5,439
-----------
Total...................................................................... $ 250,000
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that limits the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties. In addition, as permitted by Section 145 of
the Delaware General Corporation Law, the Bylaws of the Registrant provide that:
(i) the Registrant is required to indemnify its directors and executive officers
and persons serving in such capacities in other business enterprises (including,
for example, subsidiaries of the Registrant) at the Registrant's request, to the
fullest extent permitted by Delaware law, including in those circumstances in
which indemnification would otherwise be discretionary; (ii) the Registrant may,
in its discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (iii) the Registrant is required to
advance expenses, as incurred, to its directors and executive officers in
connection with defending a proceeding (except that it is not required to
advance expenses to a person against whom the Registrant brings a claim) for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit;
(iv) the rights conferred in the Bylaws are not exclusive, and the Registrant is
authorized to enter into indemnification agreements with its directors,
executive officers and employees; and (v) the Registrant may not retroactively
amend the Bylaw provisions in a way that adversely affects such directors,
executive officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. In addition, the indemnity agreements provide that directors and
executive officers will be indemnified to the fullest possible extent not
prohibited by law against all expenses (including attorney's fees) and
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the Registrant, on account
of their services as directors or executive officers of the Registrant or as
directors or officers of any other company or enterprise when they are serving
in such capacities at the request of the Registrant. The Registrant will not be
obligated pursuant to the indemnity agreements to indemnify or advance expenses
to an indemnified party with respect to proceedings or claims initiated by the
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the Board of Directors or brought to enforce a right
to indemnification under the indemnity agreement, the Registrant's
II-1
<PAGE>
Bylaws or any statute or law. Under the agreements, the Registrant is not
obligated to indemnify the indemnified party (i) for any expenses incurred by
the indemnified party with respect to any proceeding instituted by the
indemnified party to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
indemnified party in such proceeding was not made in good faith or was
frivolous; (ii) for any amounts paid in settlement of a proceeding unless the
Registrant consents to such settlement; (iii) with respect to any proceeding
brought by the Registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith or
was frivolous; (iv) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the Registrant pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and related
laws; (v) on account of the indemnified party's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; (vi) on account
of any conduct from which the indemnified party derived an improper personal
benefit; (vii) on account of conduct the indemnified party believed to be
contrary to the best interests of the Registrant or its stockholders; (vii) on
account of conduct that constituted a breach of the indemnified party's duty of
loyalty to the Registrant or its stockholders; or (ix) if a final decision by a
court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The indemnification provision in the Bylaws and the indemnification
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the 1933 Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
--------------------------------------------------------------- -------
<S> <C>
Form of Underwriting Agreement................................. 1.1
Agreement and Plan of Reorganization, dated May 30, 1996, by
and among IntelliQuest Information Group, Inc., a Delaware
corporation, Pipeline Communications, Inc., a Georgia
corporation and IntelliQuest Delaware, Inc., a Delaware
corporation................................................... 2.1**
Amended and Restated Certificate of Incorporation.............. 3.1*
Amended and Restated Bylaws.................................... 3.2*
Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers...................................................... 10.1*
</TABLE>
- ------------------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-00844), as amended, declared effective March 21, 1996.
** Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated May 31, 1996.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1, 1993, the Registrant has sold and issued the following
securities (as adjusted to reflect the Registrant's 1-for-1.364 reverse stock
split effected in March 1996):
1. The Registrant has issued options to purchase 422,750 shares of its
Common Stock to certain of its employees at a weighted-average exercise price of
$6.88 per share. Of such option shares, approximately 16,255 shares are fully
exercisable as of August 31, 1996.
2. On May 31, 1996, the Registrant issued an aggregate of 562,500 shares of
Common Stock in exchange for all outstanding shares of common stock, and options
and warrants to acquire common stock, of Pipeline Communications, Inc.
("Pipeline"), a Georgia corporation.
The issuances described in item 1 were deemed exempt from registration under
the 1933 Act in reliance upon Rule 701 promulgated under the 1933 Act. In
addition, the recipients of securities in
II-2
<PAGE>
each such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
The issuance described in item 2 was deemed exempt from registration under
the 1933 Act in reliance upon Regulation D promulgated thereunder. All
recipients had adequate access, through a shareholder information statement
distributed to all shareholders of Pipeline prior to the meeting of shareholders
at which the transaction was approved, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement (draft dated September 23,
1996).
2.1** Agreement and Plan of Reorganization, dated May 30, 1996, by
and among IntelliQuest Information Group, Inc., a Delaware
corporation, Pipeline Communications, Inc., a Georgia
corporation, and IntelliQuest Delaware, Inc., a Delaware
corporation.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock Certificate.
5.1*** Opinion of Wilson Sonsini Goodrich & Rosati regarding legality
of the securities being issued.
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers.
10.2* Amended 1993 IQI Corp. Stock Option Plan and related
agreements.
10.3* 1996 Stock Plan and related agreements.
10.4* 1996 Employee Stock Purchase Plan and related agreements.
10.5*** 1996 Director Option Plan and related agreement.
10.6* Stock Purchase Agreement among the Registrant and certain
securityholders of the Company, dated as of May 28, 1993.
10.7* Loan and Security Agreement, between the Company and Silicon
Valley Bank, dated September 24, 1993, as amended and with
exhibits.
10.8* Lease Agreement between the Company and JMB Group Trust III,
dated September 15, 1992, as amended.
10.9 Registration Rights Agreement, dated May 31, 1996, by and among
the Company and the former shareholders of Pipeline
Communications, Inc.
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1*** Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP, independent accountants.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-00844), as amended, declared effective March 21, 1996.
** Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated May 31, 1996.
II-3
<PAGE>
*** To be supplied by amendment.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
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 hereunder, 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
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 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austin,
State of Texas, on this 23rd day of September, 1996.
INTELLIQUEST INFORMATION GROUP, INC.
By: /s/ JAMES SCHELLHASE
-----------------------------------
James Schellhase,
CHIEF OPERATING OFFICER AND
CHIEF FINANCIAL OFFICER AND
DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Peter Zandan, Brian
Sharples and James Schellhase, and each one of them, his true and lawful
attorney-in-fact and agents, each with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them, or
his or their subsitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
/s/ PETER ZANDAN Chairman of the Board and
---------------------------------------- Chief Executive Officer September 23,
Peter Zandan (Principal Executive Officer) 1996
Chief Operating Officer and
/s/ JAMES SCHELLHASE Chief Financial Officer and September 23,
---------------------------------------- Director (Principal Financial 1996
James Schellhase and Accounting Officer)
/s/ BRIAN SHARPLES
---------------------------------------- President and Director September 23,
Brian Sharples 1996
/s/ LEE WALKER
---------------------------------------- Director September 23,
Lee Walker 1996
/s/ WILLIAM WOOD
---------------------------------------- Director September 23,
William Wood 1996
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement (draft dated September 23, 1996).
2.1** Agreement and Plan of Reorganization, dated May 30, 1996, by and among IntelliQuest
Information Group, Inc., a Delaware corporation, Pipeline Communications, Inc., a
Georgia corporation, and IntelliQuest Delaware, Inc., a Delaware corporation.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock Certificate.
5.1*** Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of the securities being
issued.
10.1* Form of Indemnification Agreement entered into by the Registrant with each of its
directors and executive officers.
10.2* Amended 1993 IQI Corp. Stock Option Plan and related agreements.
10.3* 1996 Stock Plan and related agreements.
10.4* 1996 Employee Stock Purchase Plan and related agreements.
10.5*** 1996 Director Option Plan and related agreement.
10.6* Stock Purchase Agreement among the Registrant and certain securityholders of the
Company, dated as of May 28, 1993.
10.7* Loan and Security Agreement, between the Company and Silicon Valley Bank, dated
September 24, 1993, as amended and with exhibits.
10.8* Lease Agreement between the Company and JMB Group Trust III, dated September 15, 1992,
as amended.
10.9 Registration Rights Agreement, dated May 31, 1996, by and among the Company and the
former shareholders of Pipeline Communications, Inc.
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1*** Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP, independent accountants.
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-00844), as amended, declared effective March 21, 1996.
** Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated May 31, 1996.
*** To be supplied by amendment.
<PAGE>
IntelliQuest Information Group, Inc.
Shares Common Stock*
-------------
UNDERWRITING AGREEMENT
, 1996
---------------
William Blair & Company, L.L.C.
Robertson, Stephens & Company LLC
As Representatives of the Several
Underwriters Named in Schedule A
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SECTION 1. INTRODUCTION. IntelliQuest Information Group, Inc. (the
"Company"), a Delaware corporation, has an authorized capital stock of
31,000,000 shares, consisting of 1,000,000 shares, $.0001 par value, of
Preferred Stock, of which no shares will be outstanding upon the closing of the
transaction contemplated by this Agreement, and 30,000,000 shares, $.0001 par
value, of Common Stock ("Common Stock"), of which _______________ shares will be
outstanding upon the closing of the transaction contemplated by this Agreement.
The Company proposes, subject to the terms and conditions stated herein, to
issue and sell _______________ shares of its authorized but unissued Common
Stock, and certain stockholders of the Company named in Schedule B (collectively
referred to as the "Selling Stockholders") propose to sell an aggregate of
_______________ shares of the Company's issued and outstanding Common Stock to
the several underwriters named in Schedule A as it may be amended by the Pricing
Agreement as hereinafter defined ("Underwriters"), who are acting severally and
not jointly. Collectively, such total of _______________ shares of Common Stock
proposed to be sold by the Company and the Selling Stockholders is hereinafter
referred to as the "Firm Shares." In addition, certain of the Selling
Stockholders named in Schedule B propose to grant to the Underwriters an option
to purchase up to an aggregate of _______________ additional shares of Common
Stock ("Option Shares") for the purpose of covering over-allotments in
connection with the sale of the Firm Shares as provided in Section 5 hereof.
The Firm Shares and, to the extent such option is exercised, the Option Shares
are hereinafter collectively referred to as the "Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon as you deem advisable after the registration statement
hereinafter referred to becomes effective, if as of the date hereof it has not
yet become effective, and the Pricing Agreement as hereinafter defined has been
executed and delivered.
- ------------------
* Plus an option to acquire up to ____________ additional shares to cover
overallotments.
<PAGE>
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company, the Selling Stockholders and the Representatives,
acting on behalf of the several Underwriters, shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Company, the Selling Stockholders and the
Representatives and shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the Shares will be governed by this
Agreement, as supplemented by the Pricing Agreement. From and after the date of
the execution and delivery of the Pricing Agreement, this Agreement shall be
deemed to incorporate the Pricing Agreement.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-_____) and a
related preliminary prospectus with respect to the Shares have been prepared and
filed with the Securities and Exchange Commission ("Commission") by the Company
in conformity with the requirements of the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder (collectively, the
"1933 Act;" all references herein to specific rules are to rules promulgated
under the 1933 Act); and the Company has so prepared and has filed such
amendments thereto, if any, and such amended preliminary prospectuses as may
have been required to the date hereof. If the Company and the Underwriters have
elected not to rely upon Rule 430A, the Company has prepared and will promptly
file an amendment to the registration statement and an amended prospectus. If
the Company and the Underwriters have elected to rely upon Rule 430A, the
Company will prepare and file a prospectus pursuant to Rule 424(b) that
discloses the information previously omitted from the prospectus in reliance
upon Rule 430A. There have been or will promptly be delivered to you copies of
such registration statement and all amendments, and copies of each exhibit filed
therewith, and copies of the related preliminary prospectus or prospectuses and
final forms of prospectus for each of the Underwriters.
The registration statement and prospectus, each as amended, on file
with the Commission at the time the registration statement became or becomes
effective, including the information deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A(b), if applicable,
are hereinafter referred to as the "Registration Statement" and the
"Prospectus," respectively, except that if the prospectus filed by the Company
pursuant to Rule 424(b) differs from the prospectus on file at the time the
Registration Statement became or becomes effective, the term "Prospectus" shall
refer to the Rule 424(b) prospectus from and after the time it is filed with the
Commission or transmitted to the Commission for filing. If the Company elects
to rely on Rule 434 of the 1933 Act, all references to "Prospectus" shall be
deemed to include, without limitation, the form of prospectus and the term
sheet, taken together, provided to the Underwriters by the Company in accordance
with Rule 434 of the 1933 Act ("Rule 434 Prospectus"). Any registration
statement (including any amendment or supplement thereto or information which is
deemed part thereof) filed by the Company under Rule 462(b) ("Rule 462(b)
Registration Statement") shall be deemed to be part of the "Registration
Statement" as defined herein, and any prospectus (including any amendment or
supplement thereto or information which is deemed part thereof) included in such
registration statement shall be deemed to be part of the "Prospectus", as
defined herein, as appropriate. The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder are
hereinafter collectively referred to as the "Exchange Act."
(b) The Commission has not issued any order preventing or suspending
the use of any preliminary prospectus, and each preliminary prospectus, at the
time of filing thereof, has conformed in all material respects with the
requirements of the 1933 Act (except to the extent that, in conformity with the
1933 Act, such preliminary prospectus is subject to completion), and, as of its
date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and when the
Registration Statement and any amendment thereto became or becomes effective,
and at all times subsequent thereto, up to the First Closing Date or the Second
Closing Date, each as hereinafter defined, as the case may be, the Registration
Statement, or such amendment, including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if
applicable, and the Prospectus and any amendments or supplements thereto,
contained or will contain all statements that are required to be stated therein
in accordance with the 1933 Act and in all material respects conformed or will
in all material respects conform to the
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requirements of the 1933 Act; neither the Registration Statement, nor any
amendment thereto, included or will include any untrue statement of a
material fact or omitted or will omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and neither the Prospectus, nor any amendment or supplement thereto, included
or will include any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that no representation or
warranty in this Section 2(b) shall be applicable to information contained in
or omitted from any preliminary prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of any Underwriter through the Representatives regarding the Underwriters
specifically for use in the preparation thereof.
(c) The Company and its subsidiaries have been duly incorporated and
are validly existing as corporations in good standing under the laws of their
respective places of incorporation, with corporate power and authority to own or
lease their properties and conduct each of their businesses as described in the
Prospectus; the Company and each of its subsidiaries are duly qualified to do
business as foreign corporations under the corporation law of, and are in good
standing as such in, each jurisdiction in which the ownership or leasing of
properties or the conduct of their business requires such qualification, except
in any such case where the failure to so qualify or be in good standing would
not have a material adverse affect on the Company's ability to perform its
obligations under this Agreement or on the condition (financial or otherwise) or
results of operations of the Company and its subsidiaries, taken as a whole; and
to the Company's knowledge, no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(d) Except as disclosed in the Registration Statement, the Company
owns directly or indirectly 100 percent of the issued and outstanding capital
stock of each of its subsidiaries, free and clear of any claims, liens,
encumbrances or security interests and all of such capital stock has been duly
authorized and validly issued and is fully paid and nonassessable.
(e) The issued and outstanding shares of capital stock of the Company
are as set forth in the Prospectus and such shares have been duly authorized and
validly issued, are fully paid and nonassessable, and conform to the description
thereof contained in the Prospectus and, except as disclosed in the Prospectus,
there are no options, rights or warrants for the purchase from the Company of
Common Stock, or securities convertible into Common Stock and there are no
agreements to which the Company is a party with respect thereto.
(f) The Shares to be sold by the Company have been duly authorized
and when issued, delivered and paid for pursuant to this Agreement will be
validly issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus.
(g) The making and performance by the Company of this Agreement and
the Pricing Agreement have been duly authorized by all necessary corporate
action and (i) will not violate any provision of the Company's charter or bylaws
and (ii) will not result in the material breach, or be in material
contravention, of any provision of any agreement, franchise, license, indenture,
mortgage, deed of trust or other instrument to which the Company or any
subsidiary is a party, or any order, rule or regulation applicable to the
Company or any subsidiary of any court or regulatory body, administrative agency
or other governmental body having jurisdiction over the Company or any
subsidiary or any of their respective properties, or any order of any court or
governmental agency or authority entered in any proceeding to which the Company
or any subsidiary was or is now a party or by which it is bound. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body which has not already been
obtained is required for the execution and delivery of this Agreement or the
Pricing Agreement or the consummation of the transactions contemplated herein or
therein, except for compliance with the 1933 Act, the registration of the
Company's Common Stock under the Exchange Act, compliance with blue sky laws
applicable to the public offering of the Shares by the several Underwriters and
clearance of such offering with the National Association of Securities Dealers,
Inc. ("NASD"). This Agreement has been duly executed and delivered by the
Company.
(h) The accountants who have expressed their opinions with respect to
certain of the financial statements and schedules included in the Registration
Statement are independent accountants as required by the 1933 Act.
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(i) The consolidated financial statements of the Company and its
predecessors, together with the related notes and schedules, included in the
Registration Statement present fairly the consolidated financial position of the
Company and its predecessors as of the respective dates of such financial
statements, and the consolidated results of operations and cash flows of the
Company and its predecessors for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed in the Prospectus, and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. The financial information set forth
in the Prospectus under "Selected Consolidated Financial Data" presents fairly
on the basis stated in the Prospectus the information set forth therein.
The pro forma financial statements and other pro forma information
included in the Prospectus present fairly the information shown therein, have
been prepared in accordance with generally accepted accounting principles and
the Commission's rules and guidelines with respect to pro forma financial
statements and other pro forma information, have been properly compiled on the
pro forma basis described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate under the circumstances.
(j) Neither the Company nor any subsidiary is in violation of its
charter or bylaws or is in default under any consent decree or order of any
court or administrative body or in default with respect to any material
provision of any lease, loan agreement, franchise, license, permit or other
contractual obligation to which it is a party; and there does not exist any
state of facts which constitutes an event of default as defined in such
documents or which, with notice or lapse of time or both, would constitute such
an event of default, in each case, except for defaults which neither singly nor
in the aggregate are material to the Company and its subsidiaries taken as a
whole.
(k) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened against the Company or any subsidiary which
might result in any material adverse change in the business or financial
condition of the Company, or which question the validity of this Agreement or
the Pricing Agreement or any action taken or to be taken pursuant hereto or
thereto.
(l) There are no holders of securities of the Company having rights,
contractual or otherwise, to cause registration thereof or preemptive rights to
purchase Common Stock except as disclosed in the aggregate in the Prospectus.
Holders of registration rights who are not Selling Stockholders have waived such
rights with respect to the offering being made by the Prospectus, and the
Selling Stockholders have waived such rights with respect to the offering of the
Firm Shares.
(m) The Company and each of its subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or reflected elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge, security interest or encumbrance
of any kind except those, if any, reflected in such financial statements (or
elsewhere in the Prospectus) or such as are not material to the Company and its
subsidiaries taken as a whole. The Company and each of its subsidiaries hold
their respective leased properties which are material to the Company and its
subsidiaries taken as a whole under valid and binding leases.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or otherwise,
in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as contemplated
by the Prospectus, the Company and its subsidiaries, taken as a whole, have not
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions not in the ordinary course of business
and there has not been any material adverse change in their condition (financial
or otherwise) or results of operations or any material change in the capital
stock, short-term debt or long-term debt in each case as to the Company and its
subsidiaries, taken as a whole.
(p) The Company has obtained agreements from each of its officers,
directors, stockholders and employees holding options as of the date hereof not
to sell, contract to sell or otherwise dispose of any Common Stock or securities
convertible into Common Stock (except Common Stock issued pursuant to currently
outstanding options,
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warrants or convertible securities and except Common Stock registered and
sold in this offering) for a period of [180] days after the date of the
Prospectus without the prior written consent of William Blair & Company,
L.L.C.
(q) There is no material document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required.
(r) The Company, together with its subsidiaries, owns and possesses
all right, title and interest in and to, or has duly licensed from third parties
a valid and enforceable right to use, all trademarks, copyrights, patents, trade
secrets and other proprietary rights ("Trade Rights") presently employed by the
Company or any subsidiary in connection with its business, whether such Trade
Rights are registered or unregistered. Neither the Company nor its
subsidiaries has received any notice of infringement, misappropriation or
conflict from any third party as to such material Trade Rights which has not
been resolved or disposed of and neither the Company nor its subsidiaries have
infringed, misappropriated or otherwise conflicted with Trade Rights of any
third parties, which infringement, misappropriation or conflict would have a
material adverse effect upon the condition (financial or otherwise) or results
of operations of the Company and its subsidiaries taken as a whole.
(s) The conduct of the business of the Company and each of its
subsidiaries is in compliance in all respects with applicable federal, state,
local and foreign laws and regulations, except where the failure to be in
compliance would not have a material adverse effect upon the condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries taken as a whole.
(t) All offers and sales of the Company's and its predecessor's
capital stock prior to the date hereof were at all relevant times exempt from
the registration requirements of the 1933 Act and were duly registered with or
the subject of an available exemption from the registration requirements of the
applicable state securities or blue sky laws.
(u) The Company and its subsidiaries have filed all necessary federal
and state income and franchise tax returns and have paid all taxes shown as due
thereon, and there is no tax deficiency that has been, or to the knowledge of
the Company might be, asserted against the Company, its subsidiaries, or their
respective properties or assets that would or could be expected to materially
adversely affect the financial condition, assets, operations or prospects of the
Company and its subsidiaries taken as a whole.
(v) The Company has filed an Additional Listing Application with the
Nasdaq National Market ("Nasdaq") to list the Shares which are being offered by
the Company.
(w) Each of the Company and its subsidiaries is not, and does not
intend to conduct its business in a manner in which it would become, an
"investment company" as defined in Section 3(a) of the Investment Company Act of
1940, as amended ("Investment Company Act").
(x) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported in the Prospectus, if any,
concerning the Company's business with Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide the
Department with notice of such business or change, as appropriate, in a form
acceptable to the Department.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING
STOCKHOLDERS.
(a) Each Selling Stockholder, severally and not jointly, represents
and warrants to, and agrees with, the Company and the Underwriters that:
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(i) Such Selling Stockholder will have on the First Closing Date or
the Second Closing Date as hereinafter defined, as the case may be, valid
marketable title to the Shares and full right, power, legal capacity and
authority to enter into this Agreement and the Pricing Agreement and to
sell, assign, transfer and deliver such Shares free and clear of all voting
trust arrangements, liens, encumbrances, equities, claims and community
property rights; and upon delivery of and payment for such Shares, the
Underwriters will acquire valid marketable title thereto, free and clear of
all voting trust arrangements, liens, encumbrances, equities, security
interests, claims and community property rights.
(ii) The making and performance by such Selling Stockholder, if it is
not an individual, of this Agreement and the Pricing Agreement have been
duly authorized by all necessary action (corporate or otherwise) and (A)
will not violate any provision of such Selling Stockholder's charter,
bylaws, partnership agreement, or trust agreement, as the case may be, and
(B) will not result in the breach, or be in contravention, of any provision
of any agreement, franchise, license, indenture, mortgage, deed of trust,
or other instrument to which such Selling Stockholder or any subsidiary
thereof is a party, or any order, rule or regulation applicable to such
Selling Stockholder or any such subsidiary of any court or regulatory body,
administrative agency or other governmental body having jurisdiction over
such Selling Stockholder or any such subsidiary or any of their respective
properties, or any order of any court or governmental agency or authority
entered in any proceeding to which such Selling Stockholder or any such
subsidiary was or is now a party or by which it is bound, and which, in the
case of clause (B) above, would have a material adverse effect on such
Selling Stockholder's ability to perform its obligations under this
Agreement. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other government body is
required for the execution and delivery of this Agreement or the Pricing
Agreement, the consummation of the transactions contemplated therein,
except for compliance with the 1933 Act and blue sky laws applicable to the
public offering of the Shares by the several Underwriters and clearance of
such offering with the NASD. This Agreement has been duly executed and
delivered by such Selling Stockholder.
(iii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might be reasonably
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares.
(iv) Such Selling Stockholder has executed and delivered a Power of
Attorney ("Power of Attorney") among the Selling Stockholder, Brian
Sharples and James Schellhase (the "Agents"), naming the Agents as such
Selling Stockholder's attorneys-in-fact (and, by the execution by any Agent
of this Agreement, such Agent hereby represents and warrants that he has
been duly appointed as attorney-in-fact by the Selling Stockholders
pursuant to the Power of Attorney) for the purpose of entering into and
carrying out this Agreement and the Pricing Agreement, and the Power of
Attorney has been duly executed by such Selling Stockholder and a copy
thereof has been delivered to you.
(v) Such Selling Stockholder further represents, warrants and agrees
that such Selling Stockholder has deposited in custody, under a Letter of
Transmittal and Custody Agreement ("Custody Agreement") with American
Securities Transfer Incorporated, as custodian ("Custodian"), certificates
in negotiable form for the Shares to be sold hereunder by such Selling
Stockholder, for the purpose of further delivery pursuant to this
Agreement. Such Selling Stockholder agrees that the Shares to be sold by
such Selling Stockholder on deposit with the Custodian are subject to the
interests of the Company, the Underwriters and the other Selling
Stockholders, that the arrangements made for such custody, and the
appointment of the Agents pursuant to the Power of Attorney, are to that
extent irrevocable, and that the obligations of such Selling Stockholder
hereunder and under the Power of Attorney and the Custody Agreement shall
not be terminated except as provided in this Agreement, the Power of
Attorney or the Custody Agreement by any act of such Selling Stockholder,
by operation of law, whether, in the case of an individual Selling
Stockholder, by the death or incapacity of such Selling Stockholder or, in
the case of a trust or estate, by the death of the trustee or trustees or
the executor or executors or the termination of such trust or estate, or,
in the case of a partnership or corporation, by the dissolution, winding-up
or other event affecting the legal life of such entity, or by the
occurrence of any other event. If any individual Selling Stockholder,
trustee or executor should die or become incapacitated, or any such trust,
estate, partnership or corporation should be terminated, or if any other
event should occur before the
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delivery of the Shares hereunder, the documents evidencing Shares then on
deposit with the Custodian shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such
death, incapacity, termination or other event had not occurred, regardless
of whether or not the Custodian shall have received notice thereof. Each
Agent has been authorized by such Selling Stockholder to execute and
deliver this Agreement and the Pricing Agreement and the Custodian has been
authorized to receive and acknowledge receipt of the proceeds of sale of
the Shares to be sold by such Selling Stockholder against delivery thereof
and otherwise act on behalf of such Selling Stockholder. The Custody
Agreement has been duly executed by such Selling Stockholder and a copy
thereof has been delivered to you.
(vi) Each preliminary prospectus, insofar as it relates to such
Selling Stockholder and, to the knowledge of such Selling Stockholder, in
all other respects, at the time of filing thereof, conformed in all
material respects with the requirements of the 1933 Act and, as of its
date, did not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
the Registration Statement at the time of effectiveness, and at all times
subsequent thereto, up to the First Closing Date or the Second Closing Date
as hereinafter defined, as the case may be, (1) as to such parts of the
Registration Statement and the Prospectus and any amendments or supplements
thereto as relate to such Selling Stockholder, and the Registration
Statement and the Prospectus and any amendments or supplements thereto, to
the knowledge of such Selling Stockholder, in all other respects, contained
or will contain all statements that are required to be stated therein in
accordance with the 1933 Act and in all material respects conformed or will
in all material respects conform to the requirements of the 1933 Act; and
(2) neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, as it relates to such Selling Stockholder,
and, to the knowledge of such Selling Stockholder, in all other respects,
included or will include any untrue statement of a material fact or omitted
or will omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(vii) Such Selling Stockholder agrees with the Company and the
Underwriters not to sell, contract to sell or otherwise dispose of any
Common Stock (except Common Stock issued pursuant to currently outstanding
options, warrants or convertible securities and except Common Stock
registered and sold in this offering) for a period of [180] days after the
date of the Prospectus without the prior written consent of William Blair &
Company, L.L.C.
(b) Each of the Selling Stockholders, jointly and severally,
represents and warrants to, and agrees with, the Underwriters that such Selling
Stockholder has no reason to believe that the representations and warranties of
the Company as set forth in Section 2 of this Agreement are not true and correct
in all material respects.
(c) In order to document the Underwriter's compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, each of the
Selling Stockholders agrees to deliver to you prior to or on the First Closing
Date, as hereinafter defined, a properly completed and executed United States
Treasury Department Form W-8 or W-9 (or other applicable form of statement
specified by Treasury Department regulations in lieu thereof).
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (a) in the last paragraph on the
cover page of the Prospectus with respect to price, underwriting discount and
the terms of the offering, (b) in the stabilization paragraph on the second page
of the Prospectus and (c) in the third paragraph under the caption
"Underwriting" in the Prospectus was the only information furnished to the
Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and such information is correct and
complete in all material respects.
SECTION 5. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and Selling Stockholders,
severally and not jointly, agree to sell to the Underwriters named in Schedule A
hereto, and the Underwriters agree, severally and not jointly, to purchase from
the Company _______________ Firm Shares and the respective number of Firm Shares
set forth opposite the names of the Selling Stockholders in Schedule B hereto
from such
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Selling Stockholders at the price per share set forth in the Pricing
Agreement. The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of full shares which (as nearly as
practicable, as determined by you) bears to the number of Firm Shares to be
sold by the Company, the same proportion as the number of Shares set forth
opposite the name of such Underwriter in Schedule A hereto bears to the total
number of Firm Shares to be purchased by all Underwriters under this
Agreement. The obligation of each Underwriter to each Selling Stockholder
shall be to purchase from such Selling Stockholder that number of full shares
which (as nearly as practicable, as determined by you) bears to the number of
Firm Shares set forth opposite the name of such Selling Stockholder in
Schedule B hereto, the same proportion as the number of Shares set forth
opposite the name of such Underwriter in Schedule A hereto bears to the total
number of Firm Shares to be purchased by all Underwriters under this
Agreement. The initial public offering price and the purchase price shall be
set forth in the Pricing Agreement.
At 10:00 A.M., Chicago Time, on the fourth business day, if permitted
under Rule 15c6-1 under the Exchange Act (or the third business day if required
under Rule 15c6-1 under the Exchange Act or unless postponed in accordance with
the provisions of Section 12) following the date the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A, the
fourth business day, if permitted under Rule 15c6-1 under the Exchange Act (or
the third business day if required under Rule 15c6-1 under the Exchange Act)
after execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives and
the Company, the Company and the Custodian will deliver to you at the offices
Sidley & Austin, counsel for the Underwriters, or through the facilities of The
Depository Trust Company for the accounts of the several Underwriters,
certificates representing the Firm Shares to be sold by it and the Selling
Stockholders against payment of the purchase price therefor by certified or bank
cashier's checks in Chicago Clearing House funds (next-day funds) payable to
the order of the Company and the Selling Stockholders as their interests
appear. Such time of delivery and payment is herein referred to as the "First
Closing Date." The certificates for the Firm Shares so to be delivered will
be in such denominations and registered in such names as you request by notice
to the Company prior to 10:00 A.M., Chicago Time, on the third full business
day preceding the First Closing Date, and will be made available at the
Company's expense for checking and packaging by the Representatives at
10:00 A.M., Chicago Time, on the first full business day preceding the First
Closing Date. Payment for the Firm Shares so to be delivered shall be made at
the time and in the manner described above at the offices of Sidley & Austin.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Selling Stockholders named in Schedule B as selling Option Shares
hereby grant an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 346,500 Option Shares, at the same purchase
price per share to be paid for the Firm Shares, for use solely in covering any
overallotments made by the Underwriters in the sale and distribution of the Firm
Shares. The option granted hereunder may be exercised in whole or in part at
any time (but not more than once) within 30 days after the date of the
Prospectus upon written notice by you to the Company and the Agents setting
forth the aggregate number of Option Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date, shall not be earlier than three nor later than ten full business
days after delivery of such notice of exercise. The number of Option Shares to
be purchased from such Selling Stockholders is set forth in Schedule B hereto.
If less than all Option Shares are to be purchased, the number of Option Shares
to be purchased from such Selling Stockholders shall be in the same proportion
as the number of Option Shares to be sold by each bears to the total number of
Option Shares. The number of Option Shares to be purchased by each Underwriter
shall be determined by multiplying the number of Option Shares to be sold by
such Selling Stockholders pursuant to such notice of exercise by a fraction, the
numerator of which is the number of Firm Shares to be purchased by such
Underwriter as set forth opposite its name in Schedule A and the denominator of
which is the total number of Firm Shares (subject to such adjustments to
eliminate any fractional share purchases as you in your absolute discretion may
make). Certificates for the Option Shares will be made available at the
Company's expense for checking and packaging at 10:00 A.M., Chicago Time, on the
first full business day preceding the Second Closing Date. The manner of
payment for and delivery of the Option Shares shall be the same as for the Firm
Shares as specified in the preceding paragraph, except that payment shall be
made to the order of such Selling Stockholders, as appropriate.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Shares, to make payment
and to receipt therefor. You, individually and not as the Representatives
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of the Underwriters, may make payment for any Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First
Closing Date or the Second Closing Date, as the case may be, for the account
of such Underwriter, but any such payment shall not relieve such Underwriter
from any obligation hereunder.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and
agrees that:
(a) The Company will advise you and the Selling Stockholders promptly
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceedings
for that purpose, and will also advise you and the Selling Stockholders promptly
of any request of the Commission for amendment or supplement to the Registration
Statement, to any preliminary prospectus or to the Prospectus, or for additional
information.
(b) The Company will give you and the Selling Stockholders notice of
its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any Rule 462(b) Registration
Statement or any amendment or supplement to the Prospectus (including any
revised prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Shares which differs from the prospectus on
file at the Commission at the time the Registration Statement became or becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) and any term sheet as contemplated by Rule 434) and will
furnish you and the Selling Stockholders with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement or use any
such prospectus to which you or counsel for the Underwriters shall reasonably
object.
(c) If the Company elects to rely on Rule 434, the Company will
prepare a term sheet that complies with the requirements of Rule 434. If the
Company elects not to rely on Rule 434, the Company will provide the
Underwriters with copies of the form of prospectus, in such numbers as the
Underwriters may reasonably request, and file with the Commission such
prospectus in accordance with Rule 424(b) of the 1933 Act by the close of
business in New York City on the second business day immediately succeeding the
date of the Pricing Agreement. If the Company elects to rely on Rule 434, the
Company will provide the Underwriters with copies of the form of Rule 434
Prospectus, in such numbers as the Underwriters may reasonably request, by the
close of business in New York on the business day immediately succeeding the
date of the Pricing Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act, any event occurs as a result of
which the Prospectus, including any amendments or supplements thereto, would
include an untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus, including any amendments
or supplements thereto and including any revised prospectus which the Company
proposes for use by the Underwriters in connection with the offering of the
Shares which differs from the prospectus on file with the Commission at the time
of effectiveness of the Registration Statement, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) to comply with the
1933 Act, the Company promptly will advise you thereof and will promptly prepare
and file with the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance; and, in
case any Underwriter is required to deliver a prospectus nine months or more
after the effective date of the Registration Statement, the Company upon
request, but at the expense of such Underwriter, will prepare promptly such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the 1933 Act.
(e) Until the earlier of the Second Closing Date or termination or
expiration of the related option, the Company will notify the Representatives
prior to incurring any liability or obligation, direct or contingent, or
entering into any material transaction, other than in the ordinary course of
business, except as contemplated by the Prospectus.
(f) Neither the Company nor its subsidiaries will acquire any capital
stock of the Company prior to the earlier of the Second Closing Date or
termination or expiration of the related option nor will the Company declare or
pay any dividend or make any other distribution upon the Common Stock payable to
stockholders of record on a date
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prior to the earlier of the Second Closing Date or termination or expiration
of the related option, except in either case as contemplated by the
Prospectus.
(g) As soon as practicable, but in any event not later than 15 months
after the effective date of the Registration Statement, the Company will make
generally available to its security holders an earnings statement (which need
not be audited) covering a period of at least 12 months beginning after the
effective date of the Registration Statement, which will satisfy the provisions
of the last paragraph of Section 11(a) of the 1933 Act.
(h) During such period as a prospectus is required by law to be
delivered in connection with offers and sales of the Shares by an Underwriter or
dealer, the Company will furnish to you at its expense, subject to the
provisions of subsection (d) hereof, copies of the Registration Statement, the
Prospectus, each preliminary prospectus and all amendments and supplements to
any such documents in each case as soon as available and in such quantities as
you may reasonably request, for the purposes contemplated by the 1933 Act.
(i) The Company will cooperate with the Underwriters in qualifying or
registering the Shares for sale under the blue sky laws of such jurisdictions as
you designate and will continue such qualifications in effect so long as
reasonably required for the distribution of the Shares.
(j) During the period of five years hereafter, the Company will
furnish you with a copy (i) as soon as practicable after the filing thereof, of
each report filed by the Company with the Commission, any securities exchange or
the NASD; (ii) as soon as available, of each report of the Company mailed to
stockholders; (iii) every material press release with respect to the Company;
and (iv) any additional information of a public nature concerning the Company or
its business that you may request.
(k) The Company will use the net proceeds received by it from the
sale of the Shares being sold by it in the manner specified in the Prospectus.
(l) If, at the time of effectiveness of the Registration Statement,
any information shall have been omitted therefrom in reliance upon Rule 430A
and/or Rule 434, then immediately following the execution and delivery of the
Pricing Agreement, the Company will prepare, and file or transmit for filing
with the Commission in accordance with such Rule 430A and Rule 424(b) and/or
Rule 434, copies of an amended Prospectus, or, if required by such Rule 430A
and/or Rule 434, a post-effective amendment to the Registration Statement
(including an amended prospectus), containing all information so omitted. If
required, the Company will prepare and file, or transmit for filing, a Rule
462(b) Registration Statement not later than the date of the execution of the
Pricing Agreement. If a Rule 462(b) Registration Statement is filed, the
Company shall make payment of, or arrange for payment of, the additional
registration fee owing to the Commission required by Rule 111.
(m) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and Nasdaq.
(n) The Company will not sell, contract to sell or otherwise dispose
of any Common Stock or securities convertible into Common Stock (except Common
Stock issued pursuant to currently outstanding options, warrants or convertible
securities and except Common Stock registered and sold in this offering) for a
period of [180] days after the date of the Prospectus without the prior written
consent of William Blair & Company, L.L.C.
SECTION 7. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective as to
all of its provisions or is terminated, the Company agrees to pay (i) all costs,
fees and expenses (except legal fees and disbursements of counsel for the
Underwriters and the expenses incurred by the Underwriters other than those
contemplated by clause (ii) below) incurred in connection with the performance
of the Company's and the Selling Stockholders' obligations hereunder, including
without limiting the generality of the foregoing, all fees and expenses of legal
counsel for the Company and of the Company's independent accountants, all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each preliminary
prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, the
Pricing Agreement, the Power
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of Attorney, the Custody Agreement and the Blue Sky Memorandum, (ii) all
costs, fees and expenses (including legal fees and disbursements of counsel
for the Underwriters) incurred by the Underwriters in connection with
qualifying or registering all or any part of the Shares for offer and sale
under blue sky laws, including the preparation of a blue sky memorandum
relating to the Shares and clearance of such offering with the NASD; and
(iii) all fees and expenses of the Company's transfer agent, printing of the
certificates for the Shares and all transfer taxes, if any, with respect to
the sale and delivery of the Shares to the several Underwriters.
Each Selling Stockholder agrees to pay, if not otherwise paid by the
Company, all costs and expenses incident to the performance of such Selling
Stockholder's obligations hereunder, including (i) any fees and expenses of
counsel for such Selling Stockholder, (ii) such Selling Stockholder's pro rata
share of the fees and expenses of the Agents and Custodian and (iii) all
expenses and taxes incident to the sale and delivery of the Shares to be sold by
such Selling Stockholder to the Underwriters hereunder. To the extent, if at
all, that any of the Selling Stockholders engage special legal counsel to
represent them in connection with the public offering, the fees and expenses of
such counsel shall be borne by the Selling Stockholders. The provisions of this
Section shall not affect any agreement which the Company and the Selling
Stockholders may make for the allocation or sharing of such expenses and costs.
SECTION 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
proposed to be sold by the Company and certain Selling Stockholders on the First
Closing Date and the Option Shares on the Second Closing Date shall be subject
to the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholders herein set forth as of the date hereof and as of
the First Closing Date or the Second Closing Date, as the case may be, to the
accuracy of the statements of officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective either
prior to the execution of this Agreement or not later than 1:00 P.M., Chicago
Time, on the first full business day after the date of this Agreement, or such
later time as shall have been consented to by you but in no event later than
1:00 P.M., Chicago Time, on the third full business day following the date
hereof; and prior to the First Closing Date or the Second Closing Date, as the
case may be, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or, to the knowledge of the Company or you,
shall be contemplated by the Commission and there shall not have come to the
attention of the Representatives any facts that would cause them to believe that
the Prospectus, at the time it was required to be delivered to purchasers of the
Shares, contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If the
Company and the Underwriters have elected to rely upon Rule 430A and/or Rule
434, the information concerning the initial public offering price of the Shares
and price-related information shall have been properly transmitted to the
Commission for filing pursuant to Rule 424(b) within the prescribed period and
the Company will provide evidence satisfactory to the Representatives of such
timely filing (or a post-effective amendment providing such information shall
have been filed and declared effective in accordance with the requirements of
Rules 430A and 424(b)). If a Rule 462(b) Registration Statement is required,
such Registration Statement shall have been transmitted to the Commission for
filing and become effective within the prescribed time period and, prior to the
First Closing Date, the Company shall have provided evidence to you of such
filing and effectiveness in accordance with Rule 462(b).
(b) The Shares shall have been qualified for sale under the blue sky
laws of such states as shall have been specified by the Representatives.
(c) The legality and sufficiency of the authorization, issuance and
sale, or transfer and sale, of the Shares hereunder, the validity and form of
the certificates representing the Shares, the execution and delivery of this
Agreement and the Pricing Agreement, and all corporate proceedings and other
legal matters incident thereto, and the form of the Registration Statement and
the Prospectus (except financial statements) shall have been approved by counsel
for the Underwriters exercising reasonable judgment.
(d) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment or supplement thereto contains an
untrue statement of fact, which, in the reasonable opinion of counsel
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for the Underwriters, is material or omits to state a fact which, in the
reasonable opinion of such counsel, is material and is required to be stated
therein or necessary to make the statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any change, or any development involving a prospective
change, in or affecting particularly the business or properties of the Company
or its subsidiaries which, in the reasonable judgment of the Representatives, is
material and adverse and makes it impractical or inadvisable to proceed with the
public offering or purchase of the Warrants and the Shares as contemplated
hereby.
(f) There shall have been furnished to you, as Representatives of the
Underwriters, on the First Closing Date or the Second Closing Date, as the case
may be, except as otherwise expressly provided below:
(i) An opinion of Wilson Sonsini Goodrich & Rosati, P.C., counsel
for the Company and the Selling Stockholders, addressed to the Underwriters
and dated the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with corporate power and authority to own its properties
and conduct its business as described in the Prospectus; and the
Company has been duly qualified to do business as a foreign
corporation under the corporation law of, and is in good standing as
such in, every jurisdiction where the ownership or leasing of
property, or the conduct of its business requires such qualification
except where the failure so to qualify would not have a material
adverse effect upon the condition (financial or otherwise) or results
of operations of the Company and its subsidiaries taken as a whole;
(2) an opinion to the same general effect as clause (1) of this
subparagraph (i) in respect of each direct and indirect subsidiary of
the Company;
(3) all of the issued and outstanding capital stock of the
subsidiaries of the Company has been duly authorized, validly issued
and is fully paid and nonassessable, and, except as disclosed in the
Registration Statement, the Company owns directly or indirectly 100
percent of the outstanding capital stock of each subsidiary and, to
the best knowledge of such counsel, such stock is owned free and clear
of any claims, liens, encumbrances or security interests;
(4) the authorized capital stock of the Company, of which there
is outstanding the amount set forth in the Registration Statement and
Prospectus (except for subsequent issuances, if any, pursuant to stock
options described in the Prospectus), conforms as to legal matters in
all material respects to the description thereof in the Registration
Statement and Prospectus;
(5) the issued and outstanding capital stock of the Company has
been duly authorized and validly issued and is fully paid and
nonassessable and free of preemptive rights;
(6) the certificates for the Shares to be delivered hereunder
are in due and proper form, and when duly countersigned by the
Company's transfer agent and delivered to you or upon your order
against payment of the agreed consideration therefor in accordance
with the provisions of this Agreement and the Pricing Agreement, the
Shares represented thereby will be duly authorized and validly issued,
fully paid and nonassessable and free of preemptive rights and, to the
knowledge of such counsel, will be free of any pledge, lien,
encumbrance, claim or preemptive rights of, or rights of first refusal
in favor of, stockholders with respect to any of the Shares or the
issuance or sale thereof, pursuant to the Restated Certificate of
Incorporation or Bylaws of the Company and, to such counsel's
knowledge, there are no contractual preemptive rights, rights of first
refusal, rights of co-sale or other similar rights which exist with
respect to any of the Shares or the issuance and sale thereof; and the
Shares to be sold hereunder have been duly and validly authorized and
qualified for inclusion on the Nasdaq National Market, subject to
notice of issuance;
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<PAGE>
(7) the Registration Statement has become effective under the
1933 Act, and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act, and the Registration
Statement (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule
430A(b), if applicable), the Prospectus and each amendment or
supplement thereto (except for the financial statements and notes
thereto, the financial statement schedules and other statistical or
financial data included therein as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the 1933 Act; and such counsel does not know of any
legal or governmental proceedings pending or threatened required to be
described in the Prospectus which are not described as required, nor
of any contracts or documents of a character required to be described
in the Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement which are not described or filed, as
required;
(8) the statements under the captions "Management - Employee
Benefit Plans," "Description of Capital Stock" and "Shares Eligible
for Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters of
law, are accurate summaries and fairly and correctly present, in all
material respects, the information called for with respect to such
documents and matters;
(9) this Agreement and the Pricing Agreement and the performance
of the Company's obligations thereunder have been duly authorized by
all necessary corporate action and the Warrants, this Agreement and
the Pricing Agreement have been duly executed and delivered by and on
behalf of the Company, and are legal, valid and binding agreements of
the Company, except as enforceability of the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights and by the exercise of judicial
discretion in accordance with general principles applicable to
equitable and similar remedies and except as to those provisions
relating to indemnities for liabilities arising under the 1933 Act as
to which no opinion need be expressed; and no approval, order,
authorization or consent of any public board, agency or
instrumentality of the United States or of any state or other
jurisdiction is necessary in connection with the issue or sale of the
Shares by the Company pursuant to this Agreement (other than under the
1933 Act, applicable blue sky laws and the rules of the NASD) or the
consummation of the Company of any other transactions contemplated
hereby;
(10) the execution and performance of this Agreement and the
Pricing Agreement, the issue and sale of the Shares and the
consummation of the transactions herein contemplated by the Company,
will not contravene, conflict with any of the provisions of, or result
in a breach or default under, any of the terms or provisions of any
agreement, franchise, license, indenture, mortgage, deed of trust,
note agreement or other agreement or instrument known to such counsel
of the Company or its subsidiaries or by which the property of any of
them is bound and which contravention or default would be material to
the Company and its subsidiaries taken as a whole; nor will such
actions violate any of the provisions of the charter or bylaws of the
Company or its subsidiaries or, so far as is known to such counsel,
violate any statute, order, rule or regulation of any court or
regulatory or governmental body having jurisdiction over the Company
or its subsidiaries;
(11) to such counsel's knowledge, except as disclosed in the
Prospectus, no person has the right, contractual or otherwise, which
has not been waived or complied with, to cause the Company or any of
its subsidiaries to register pursuant to the 1933 Act any shares of
capital stock of the Company or any of its subsidiaries, upon the
issue and sale of the Shares to be sold by the Company to the
Underwriters pursuant to this Agreement;
(12) neither the Company nor any of its subsidiaries is an
"investment company" or a person "controlled by" an "investment
company" within the meaning of the Investment Company Act;
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<PAGE>
(13) to such counsel's knowledge, all offers and sales of the
Company's and each of its subsidiaries' capital stock prior to the
date hereof were at all relevant times exempt from the registration
requirements of the 1933 Act and were duly registered or the subject
of an available exemption from the registration requirements of the
applicable state securities or blue sky laws;
(14) to such counsel's knowledge based solely on written
representations of the Selling Stockholders with respect to each
Selling Stockholder, this Agreement and the Pricing Agreement s have
been duly authorized, executed and delivered by or on behalf of each
such Selling Stockholder; the Agents and the Custodian for each such
Selling Stockholder have been duly and validly authorized to carry out
all transactions contemplated herein on behalf of each such Selling
Stockholder; and to such counsel's knowledge based solely on written
representations of the Selling Stockholders, the execution and
performance of this Agreement and the Pricing Agreement, the sale and
transfer of the Shares by such Selling Stockholder, and the
consummation of the transactions herein contemplated by such Selling
Stockholders will not contravene, conflict with any of the provisions
of, or result in a breach or default under, any agreement, franchise,
license, indenture, mortgage, deed of trust, note agreement or other
agreement or instrument known to such counsel to which any of such
Selling Stockholders is a party or by which any are bound or to which
any of the property of such Selling Stockholders is subject, nor will
such actions violate any order, rule or regulation known to such
counsel of any court or regulatory or governmental body having
jurisdiction over any of such Selling Stockholders or any of their
properties; and to such counsel's knowledge based solely on written
representations of the Selling Stockholders, no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated by this
Agreement and the Pricing Agreement or the sale and transfer of Shares
to be sold by such Selling Stockholders hereunder, except such as have
been obtained under the 1933 Act and such as may be required under
applicable blue sky laws in connection with the purchase and
distribution of such Shares by the Underwriters and the clearance of
such offering with the NASD;
(15) to such counsel's knowledge based solely on written
representations of the Selling Stockholders, each Selling Stockholder
has full right, power and authority to enter into this Agreement, the
Pricing Agreement and to sell, transfer and deliver the Shares to be
sold on the First Closing Date or the Second Closing Date, as the case
may be, by such Selling Stockholder hereunder; upon registration in
the name of the Underwriters of such Shares to be sold by such Selling
Stockholder hereunder, the Underwriters (who counsel may assume to be
bona fide purchasers) will acquire valid title to such Shares so sold,
free and clear of all voting trust arrangements, liens, encumbrances,
adverse claims, security interests and community property rights or
any other restriction on transfer imposed on such Shares by such
Selling Stockholder or the Company; and
(16) to such counsel's knowledge, based solely on written
representations of the Selling Stockholders, the Power of Attorney and
Custody Agreement have been duly executed and delivered by each
Selling Stockholder and constitute valid and binding agreements of
each such Selling Stockholder in accordance with their terms.
In rendering such opinion, such counsel may state that they are
relying upon the certificate of the Selling Stockholders and of officers of
the Company, the transfer agent for the Common Stock, as to the number of
shares of Common Stock at any time or times outstanding. Such counsel may
also rely upon the opinions of other competent counsel and, as to factual
matters, on certificates of officers of the Company and of state officials,
in which case their opinion is to state that they are so doing and copies
of such opinions or certificates are to be attached to the opinion unless
such opinions or certificates (or, in the case of certificates, the
information therein) have been furnished to the Representatives otherwise.
Such counsel shall also state that they have participated in the
preparation of the Registration Statement and the Prospectus and nothing has
come to the attention of such counsel which leads them to believe that the
Registration Statement (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if
applicable) as amended or supplemented (except for the financial statements and
notes thereto, the
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financial statement schedules and other statistical or financial data
included therein as to which such counsel need express no opinion), as of its
effective date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that, as of its date, the Prospectus
or any amendment or supplement thereto (except for the financial statements
and notes thereto, the financial statement schedules and other statistical or
financial data included therein as to which such counsel need express no
opinion) contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made or
that, as of the First Closing Date or the Second Closing Date, as the case
may be, either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to the First
Closing Date or the Second Closing Date, as the case may be (except for the
financial statements and notes thereto, the financial statement schedules and
other statistical or financial data included therein to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein
not misleading in light of the circumstances under which they were made. In
rendering the statements set forth in this paragraph, such counsel may state
that insofar as their statements relate to the accuracy and completeness of
the Prospectus and Registration Statement, such statements are based upon a
general review with the Company's representatives and independent accountants
of the information contained therein, without independent verification by
such counsel of the accuracy or completeness of such information.
(ii) Such opinion or opinions of Sidley & Austin, counsel for the
Underwriters, dated the First Closing Date or the Second Closing Date,
as the case may be, with respect to the incorporation of the Company,
the validity of the Shares to be sold by the Company, the form of the
Registration Statement and the Prospectus and other related matters as
you may reasonably require, and the Company shall have furnished to
such counsel such documents and shall have exhibited to them such
papers and records as they request for the purpose of enabling them to
pass upon such matters.
(iii) A certificate of the chief executive officer and the
principal financial officer of the Company, dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect
that:
(1) the representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such
Closing Date; and
(2) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary
prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and, to the best
knowledge of the respective signers, no proceedings for that
purpose have been instituted or are pending or contemplated under
the 1933 Act.
The delivery of the certificate provided for in this subparagraph
shall be and constitute a representation and warranty of the Company as to
the facts required in the immediately foregoing clauses (1) and (2) of this
subparagraph to be set forth in said certificate.
(iv) A certificate of each Selling Stockholder dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect that the
representations and warranties of such Selling Stockholder set forth in
Section 3 of this Agreement are true and correct as of such date and the
Selling Stockholder has complied with all the agreements and satisfied all
the conditions on the part of such Selling Stockholder to be performed or
satisfied at or prior to such date.
(v) Such further certificates and documents as you may reasonably
request.
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(g) At the time the Pricing Agreement is executed and also on the
First Closing Date or the Second Closing Date, as the case may be, there shall
be delivered to you a letter addressed to you, as Representatives of the
Underwriters, from Price Waterhouse L.L.P., independent accountants, the first
one to be dated the date of the Pricing Agreement, the second one to be dated
the First Closing Date and the third one (in the event of a second closing) to
be dated the Second Closing Date, to the effect set forth in Schedule C. There
shall not have been any change or decrease specified in the letters referred to
in this subparagraph which is material and adverse and makes it impractical or
inadvisable in the reasonable judgment of the Representatives to proceed with
the public offering or purchase of the Shares as contemplated hereby.
(h) At the time the Pricing Agreement is executed, there shall be
delivered to you a letter from each of the Company's officers, directors,
stockholders and employees holding options as of the date hereof, in which each
such person agrees not to (1) sell, contract to sell or otherwise dispose of any
Common Stock (except Common Stock issued pursuant to currently outstanding
options, warrants or convertible securities and except Common Stock registered
and sold in this offering) for a period of [180] days after the date of the
Prospectus without the prior written consent of William Blair & Company, L.L.C.
or (2) or exercise any registration rights with respect to shares of the
Company's Common Stock for a period of 180 days after the date of the Prospectus
without the prior written consent of William Blair & Company, L.L.C.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Sidley & Austin, counsel for the Underwriters. The Company shall
furnish you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification to the Company and
the Selling Stockholders without liability on the part of any Underwriter or the
Company or any Selling Stockholder, except for the expenses to be paid or
reimbursed by the Company pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof.
SECTION 9. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale to
the Underwriters of the Shares on the First Closing Date is not consummated
because any condition of the Underwriters' obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company or the Selling Stockholders to perform any agreement herein or to comply
with any provision hereof (unless such failure to satisfy such condition or to
comply with any provision hereof is due to the default or omission of any
Underwriter) the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses (including reasonable fees and expenses of
Sidley & Austin) that shall have been reasonably incurred by you and them in
connection with the proposed purchase and the sale of the Shares. Any such
termination shall be without liability of any party to any other party except
that the provisions of this Section, Section 7 and Section 11 shall at all times
be effective and shall continue to apply.
SECTION 10. EFFECTIVENESS OF REGISTRATION STATEMENT. You, the
Company and the Selling Stockholders will use your and their best efforts to
cause the Registration Statement to become effective, if it has not yet become
effective, and to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 11. INDEMNIFICATION.
(a) The Company and each Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the 1933 Act or the Exchange
Act against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter or such controlling person may become subject under the
1933 Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company and/or such Selling Stockholders, as the case may be), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, including the information
deemed to be part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A and/or Rule 434, if applicable, any preliminary
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prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that neither the Company nor any Selling Stockholder will be liable in any such
case to the extent that (i) any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of any Underwriter through the Representatives regarding the
Underwriters and specifically for use therein or (ii) if such statement or
omission was contained or made in any preliminary prospectus and corrected in
the Prospectus and (1) any such loss, claim, damage or liability suffered or
incurred by any Underwriter (or any person who controls any Underwriter)
resulted from an action, claim or suit by any person who purchased Shares which
are the subject thereof from such Underwriter in the offering and (2) such
Underwriter failed to deliver or provide a copy of the Prospectus to such person
at or prior to the confirmation of the sale of such Shares in any case where
such delivery is required by the 1933 Act. In addition to their other
obligations under this Section 11(a), the Company and each Selling Stockholder
agree that, as an interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in this
Section 11(a), they will reimburse the Underwriters on a monthly basis for all
reasonable legal and other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's and the Selling Stockholders' obligation to
reimburse the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. This indemnity agreement will be in addition to any liability
which the Company and the Selling Stockholders may otherwise have.
Without limiting the full extent of the Company's agreement to
indemnify each Underwriter, as herein provided, each Selling Stockholder shall
be liable under the indemnity agreements contained in paragraph (a) of this
Section only for an amount not exceeding the proceeds received by such Selling
Stockholder from the sale of Shares hereunder.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each Selling Stockholder and each person, if any, who controls
the Company or a Selling Stockholder within the meaning of the 1933 Act or the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company, or any such director, officer, Selling Stockholder or controlling
person may become subject under the 1933 Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus, or any amendment or
supplement thereto in reliance upon and in conformity with Section 4 of this
Agreement or any other written information furnished to the Company by such
Underwriter through the Representatives regarding the Underwriters and
specifically for use in the preparation thereof; and will reimburse any legal or
other expenses reasonably incurred by the Company, or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
In addition to their other obligations under this Section 11(b), the
Underwriters agree that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 11(b), they will reimburse the Company and the Selling
Stockholders on a monthly basis for all reasonable legal and other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and the Selling Stockholders
for such expenses and the possibility that such payments might later be held to
have been
-17-
<PAGE>
improper by a court of competent jurisdiction. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent that
the indemnifying party was prejudiced by such failure to notify. In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; PROVIDED, HOWEVER,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, or the indemnified and indemnifying parties may have
conflicting interests which would make it inappropriate for the same counsel to
represent both of them, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defense and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defense in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved in writing by the Representatives in the case of
paragraph (a) and by the Company and the Selling Stockholders in the case of
paragraph (b), representing all indemnified parties not having different or
additional defenses or potential conflicting interest among themselves who are
parties to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability arising out
of such proceeding.
(d) If the indemnification provided for in this Section is
unavailable to or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 11 in respect of any losses, claims,
damages or liabilities referred to therein, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company, the Selling Stockholders
and the Underwriters from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, the Selling
Stockholders and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The respective relative benefits
received by the Company, the Selling Stockholders and the Underwriters shall be
deemed to be in the same proportion in the case of the Company and the Selling
Stockholders, as the total price paid to the Company and the Selling
Stockholders for the Shares by the Underwriters (net of underwriting discount
but before deducting expenses), and in the case of the Underwriters as the
underwriting discount received by them bears to the total of such amounts paid
to the Company and the Selling Stockholders and received by the Underwriters as
underwriting discount in each case as contemplated by the Prospectus. The
relative fault of the Company and the Selling Stockholders and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
-18-
<PAGE>
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation, even if the Underwriters were considered as
one person, or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section, no Underwriter shall be required
to contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section are several in proportion to their respective underwriting commitments
and not joint.
(e) The provisions of this Section shall survive any termination of
this Agreement.
SECTION 12. DEFAULT OF UNDERWRITERS. It shall be a condition to the
agreement and obligation of the Company and the Selling Stockholders to sell and
deliver the Shares hereunder, and of each Underwriter to purchase the Shares
hereunder, that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all Shares agreed to be purchased by
such Underwriter hereunder upon tender to the Representatives of all such Shares
in accordance with the terms hereof. If any Underwriter or Underwriters default
in their obligations to purchase Shares hereunder on the First Closing Date and
the aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10 percent of the total number of
Shares which the Underwriters are obligated to purchase on the First Closing
Date, the Representatives may make arrangements satisfactory to the Company for
the purchase of such Shares by other persons, including any of the Underwriters,
but if no such arrangements are made by such date the nondefaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Shares which such defaulting Underwriters agreed but
failed to purchase on such date. If any Underwriter or Underwriters so default
and the aggregate number of Shares with respect to which such default or
defaults occur is more than the above percentage and arrangements satisfactory
to the Representatives and the Company for the purchase of such Shares by other
persons are not made within 36 hours after such default, the Company, the
Selling Stockholders or you, as the Representatives of the Underwriters, will
have the right upon written notice given within the next 24-hour period to the
parties to this Agreement, to terminate this Agreement without liability on the
part of any nondefaulting Underwriter or the Company or the Selling
Stockholders, except for the expenses to be paid by the Company pursuant to
Section 7 hereof and except to the extent provided in Section 11 hereof.
In the event that Shares to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used in this Agreement, the
term "Underwriters" includes any person substituted for an Underwriter under
this Section. Nothing herein will relieve a defaulting Underwriter from
liability for its default.
SECTION 13. EFFECTIVE DATE. This Agreement shall become effective
immediately as to Sections 7, 9, 11 and 14, and as to all other provisions at
the time at which the Pricing Agreement is executed and delivered, unless such a
day is a Saturday, Sunday or holiday (and in that event this Agreement shall
become effective at such hour on the business day next succeeding such Saturday,
Sunday or holiday); but this Agreement shall nevertheless become effective at
such earlier time after the Pricing Agreement is executed and delivered as you
may determine on and by notice to the Company and the Selling Stockholders or by
release of any Shares for sale to the public. For the purposes of this Section,
the Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by you of telegrams (i) advising Underwriters that the Shares are
released for public offering, or (ii) offering the Shares for sale to securities
dealers, whichever may occur first.
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<PAGE>
SECTION 14. TERMINATION. Without limiting the right to terminate
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Stockholders or by you by notice to the Company and the Selling
Stockholders at any time prior to the time this Agreement shall become effective
as to all its provisions, and any such termination shall be without liability on
the part of the Company or the Selling Stockholders to any Underwriter (except
for the expenses to be paid or reimbursed pursuant to Section 7 hereof and
except to the extent provided in Section 11 hereof) or of any Underwriter to the
Company or the Selling Stockholders.
(b) This Agreement may also be terminated by you prior to the First
Closing Date, and the option referred to in Section 5, if exercised, may be
cancelled at any time prior to the Second Closing Date, if (i) trading in
securities on the New York Stock Exchange shall have been suspended or minimum
prices shall have been established on such exchange, or (ii) a banking
moratorium shall have been declared by Illinois, New York, or United States
authorities, (iii) there shall have been any change in financial markets or in
political, economic or financial conditions which, in the opinion of the
Representatives, either renders it impracticable or inadvisable to proceed with
the offering and sale of the Shares on the terms set forth in the Prospectus or
materially and adversely affects the market for the Shares, or (iv) there shall
have been an outbreak of major armed hostilities between the United States and
any foreign power which in the opinion of the Representatives makes it
impractical or inadvisable to offer or sell the Shares. Any termination
pursuant to this paragraph (b) shall be without liability on the part of any
Underwriter to the Company or the Selling Stockholders or on the part of the
Company to any Underwriter or the Selling Stockholders (except for expenses to
be paid or reimbursed pursuant to Section 7 hereof and except to the extent
provided in Section 11 hereof).
SECTION 15. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders as
the case may be, and will survive delivery of and payment for the Shares sold
hereunder.
SECTION 16. NOTICES. All communications hereunder will be in writing
and, if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o William Blair & Company, L.L.C., 222 West Adams Street,
Chicago, Illinois 60606, with a copy to Larry A. Barden, Sidley & Austin, One
First National Plaza, Chicago, Illinois 60603; if sent to the Company will be
mailed, delivered or telegraphed and confirmed to the Company at its corporate
headquarters with a copy to Allen L. Morgan, Wilson Sonsini Goodrich & Rosati,
650 Page Mill Road, Palo Alto, California 94304; and if sent to the Selling
Stockholders will be mailed, delivered or telegraphed and confirmed to the
Agents and the Custodian at such address as they have previously furnished to
the Company and the Representatives, with a copy to Allen L. Morgan, Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304;
SECTION 17. SUCCESSORS. This Agreement and the Pricing Agreement
will inure to the benefit of and be binding upon the parties hereto and their
respective successors, personal representatives and assigns, and to the benefit
of the officers and directors and controlling persons referred to in Section 11,
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Shares as such from any of
the Underwriters merely by reason of such purchase.
SECTION 18. REPRESENTATION OF UNDERWRITERS. You will act as
Representatives for the several Underwriters in connection with this financing,
and any action under or in respect of this Agreement taken by you will be
binding upon all the Underwriters.
SECTION 19. PARTIAL UNENFORCEABILITY. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
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<PAGE>
SECTION 20. APPLICABLE LAW. THIS AGREEMENT AND THE PRICING AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS.
* * * * * *
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters including you, all in accordance with
its terms.
Very truly yours,
INTELLIQUEST INFORMATION GROUP, INC.
By:
---------------------------------------
Chief Executive Officer
The Selling Stockholders named in Schedule I
hereto, in their individual capacities
By:
--------------------------------------
Agent and Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
ROBERTSON, STEPHENS & COMPANY LLC
Acting as Representatives of the
several Underwriters named in
Schedule A.
By William Blair & Company, L.L.C.
By:
------------------------------
Authorized Signatory
[Underwriting Agreement Signature Page]
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<PAGE>
SCHEDULE I
Peter Zandan
Brian Sharples
Sydney Sharples
Austin Ventures III-A, L.P., a limited partnership
Austin Ventures III-B, L.P., a Delaware limited partnership
Summit Ventures III, L.P., a Delaware limited partnership
Summit Investors II, L.P., a Delaware limited partnership
-23-
<PAGE>
EXHIBIT A
INTELLIQUEST INFORMATION GROUP, INC.
SHARES COMMON STOCK**
PRICING AGREEMENT
, 1996
--------------
William Blair & Company, L.L.C.
Robertson Stephens & Company LLC
As Representatives of the Several
Underwriters
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated _______________,
1996 (the "Underwriting Agreement") relating to the sale by the Company and,
pursuant to an overallotment option, the Selling Stockholders and the purchase
by the several Underwriters for whom William Blair & Company, L.L.C. and
Robertson Stephens & Company LLC are acting as representatives (the
"Representatives"), of the above Shares. All terms herein shall have the
definitions contained in the Underwriting Agreement except as otherwise defined
herein.
Pursuant to Section 5 of the Underwriting Agreement, the Company and
each of the Selling Stockholders agree with the Representatives as follows:
1. The initial public offering price per share for the Shares shall
be $______.
2. The purchase price per share for the Shares to be paid by the
several Underwriters shall be $______, being an amount equal to the initial
public offering price set forth above less $_____ per share.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters, including you, all in accordance with
its terms.
- --------------------------
** Plus an option to acquire up to additional shares to cover
overallotments.
-24-
<PAGE>
Very truly yours,
INTELLIQUEST INFORMATION GROUP, INC.
By:
----------------------------------
Chief Executive Officer
The Selling Stockholders named in Schedule I
hereto, in their individual capacities
By:
----------------------------------
Agent and Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
ROBERTSON, STEPHENS & COMPANY LLC
Acting as Representatives of the
several Underwriters
By William Blair & Company, L.L.C.
By:
----------------------------
Authorized Signatory
[Pricing Agreement Signature Page]
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<PAGE>
SCHEDULE A
Number of
Firm Shares
to be
Purchased
----------
DOMESTIC UNDERWRITER
Total Underwriters
----------
----------
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<PAGE>
SCHEDULE B
Number of Number of
Firm Option
Shares Shares
to be Sold to be Sold
---------- -----------
Company. . . . . . . . . . . . . . . .
-----------
SELLING STOCKHOLDERS:
Total . . . . . . . . . . . . . .
----------- ------------
----------- ------------
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<PAGE>
SCHEDULE C
Comfort Letter of Price Waterhouse L.L.P.
(1) They are independent public accountants with respect to the
Company and its subsidiary within the meaning of the 1933 Act.
(2) In their opinion the consolidated financial statements and
schedules of the Company, and the Company's subsidiary included in the
Registration Statement and the consolidated financial statements of the Company
from which the information presented under the caption "Selected Consolidated
Financial Data" has been derived which are stated therein to have been examined
by them comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act.
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiary responsible for financial and
accounting matters as to transactions and events subsequent to December 31,
1995, a reading of minutes of meetings of the stockholders and directors of the
Company and its subsidiary since December 31, 1995, a reading of the latest
available interim unaudited consolidated financial statements of the Company and
its subsidiaries (with an indication of the date thereof) and other procedures
as specified in such letter, nothing came to their attention which caused them
to believe that (i) the unaudited consolidated financial statements of the
Company and its subsidiaries included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act or that such unaudited financial statements are not
fairly presented in accordance with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement, (ii) the amounts in "Selected
Consolidated Financial Data" and "Summary Financial Data" included in the
Registration Statement and Prospectus as of, and for the periods ended December
31, 1993, December 31, 1994, and December 31, 1995 do not agree with or are not
derivable from the corresponding amounts in the audited financial statements
from which such amounts were derived; (iii) the unaudited pro forma combined
statement of income included in the Registration Statement and Prospectus does
not comply in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X and the pro forma adjustments have
not been properly applied to the historical amounts in the compilation of that
statement; (iv) the unaudited condensed financial statements of the Company from
which the amounts in "Selected Consolidated Financial Data" and "Summary
Financial Data" included in the Registration Statement and Prospectus for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 were derived do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and such unaudited condensed financial statements
of the Company are not in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the Company's audited
consolidated financial statements included in the Registration Statement and
Prospectus and; (v) the financial information contained under the caption
"Summary Financial Data," under the caption "Capitalization," under the caption
"Dilution," under the caption "Selected Consolidated Financial Data," under the
caption "Pro Forma Consolidated Statements of Operations," under the caption
"Management Discussion and Analysis" and under the caption "Management" included
in the Registration Statement and the Prospectus comply as to form in all
material respects with the applicable requirements of the 1933 Act; and (vi) at
a specified date not more than five days prior to the date thereof in the case
of the first letter and not more than two business days prior to the date
thereof in the case of the second and third letters, there was any change in the
capital stock or long-term debt or short-term debt (other than normal payments)
of the Company and its subsidiary on a consolidated basis or any decrease in
consolidated net current assets or consolidated stockholders' equity as compared
with amounts shown on the latest unaudited balance sheet of the Company included
in the Registration Statement or for the period from the date of such balance
sheet to a date not more than five days prior to the date thereof in the case of
the first letter and not more than two business days prior to the date thereof
in the case of the second and third letters, there were any decreases, as
compared with the corresponding period of the prior year, in consolidated net
sales, consolidated income before income taxes or in the total or per share
amounts of consolidated net income except, in all instances, for changes or
decreases which the Prospectus disclosed have occurred or may occur or which are
set forth in such letter.
(4) They have carried out specified procedures, which have been
agreed to by the Representatives, with respect to certain information in the
Prospectus specified by the Representatives, and on the basis
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<PAGE>
of such procedures, they have found such information to be in agreement with
the general accounting records of the Company and its subsidiary.
-29-
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
MAY 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 Restrictions on Transferability; Registration Rights . . . . . . . . 1
1.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . 3
1.5 Company Registration . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Requested Registration . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Limitations on Subsequent Registration Rights. . . . . . . . . . . . 7
1.8 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . . 7
1.9 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . 8
1.10 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.11 Information by Holder. . . . . . . . . . . . . . . . . . . . . . . .11
1.12 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . . . .11
1.13 Transfer of Registration Rights. . . . . . . . . . . . . . . . . . .11
1.14 Market Standoff Agreement. . . . . . . . . . . . . . . . . . . . . .11
SECTION 2 Waiver of Existing Rights. . . . . . . . . . . . . . . . . . . . . .12
2.1 Waiver of Existing Rights. . . . . . . . . . . . . . . . . . . . . .12
2.2 Limitation of Waiver . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 3 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.2 Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.7 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . .13
3.8 Effect of Amendment or Waiver. . . . . . . . . . . . . . . . . . . .13
3.9 Rights of Holders. . . . . . . . . . . . . . . . . . . . . . . . . .13
3.10 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . .13
3.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
EXHIBIT A Company Shareholders
EXHIBIT B Parent Stockholders
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of
the 31st day of May, 1996, by and among IntelliQuest Information Group, Inc., a
Delaware corporation (the "PARENT"), the former shareholders of record of
Pipeline Communications, Inc. ("PIPELINE" or the "COMPANY") set forth on EXHIBIT
A attached hereto who have executed and delivered this Agreement currently or
who may execute and deliver this Agreement from time to time pursuant to
Section 3.11 hereof (the "PIPELINE SHAREHOLDERS" or "COMPANY SHAREHOLDER") and
certain stockholders of Parent set forth on EXHIBIT B attached hereto (the
"PARENT STOCKHOLDERS").
RECITALS
WHEREAS, Parent, IntelliQuest Delaware, Inc., a wholly owned subsidiary of
Parent, and the Company are entering into an Agreement and Plan of
Reorganization (the "REORGANIZATION AGREEMENT") of even date herewith, pursuant
to which, among other things, and subject to the terms and conditions of this
Agreement, all of the issued and outstanding shares of capital stock of the
Company ("COMPANY CAPITAL STOCK"), and all outstanding options, warrants and
other rights to acquire or receive shares of Company Capital Stock, shall be
converted into the right to receive shares of Common Stock of Parent ("PARENT
COMMON STOCK"). Such shares of Parent Common Stock are referred to collectively
herein as the "Shares;" and
WHEREAS, in consideration for the exchange by Company Shareholders of their
shares of Company Capital Stock for the Shares, Parent seeks to grant the
Company Shareholders certain registration rights, and the Parent Stockholders
have agreed to waive certain provisions of the Preferred Stock Purchase
Agreement, dated as of May 28, 1993, by and among Parent and the Parent
Stockholders (the "PREFERRED STOCK PURCHASE AGREEMENT"), prohibiting Parent from
granting registration rights superior and in preference to those held by the
Parent Stockholders.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY;
REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings. All other capitalized terms used,
but not defined, herein shall have the meanings assigned to them in the
Reorganization Agreement:
<PAGE>
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" shall mean any Company Shareholder holding Registrable
Securities at the time notice is given under Section 1.5(a) or 1.6(a) hereof,
and any person holding Registrable Securities at such time to whom the rights
under this Agreement have been transferred in accordance with Section 1.13
hereof.
"INITIATING HOLDERS" shall mean any Company Shareholders or
transferees of Company Shareholders under Section 1.13 hereof who in the
aggregate are Holders of not less than forty percent (40%) of the Registrable
Securities that have not yet been registered on a registration statement under
the Securities Act.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by Parent in
complying with Sections 1.5 and 1.6 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for Parent, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of Parent
which shall be paid in any event by Parent).
"REGISTRABLE SECURITIES" means any of the Shares or other securities
issued or issuable with respect to the Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event; PROVIDED,
HOWEVER, that shares of Parent Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale, or
(c) covered by a Form S-8 registration statement that is still effective.
"RESTRICTED SECURITIES" shall mean the securities of Parent required
to bear the legend set forth in Section 1.3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
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"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders (as limited by Section 1.8).
"TRANSFER" shall mean any transfer, sale or assignment.
1.2 RESTRICTIONS. The Shares shall not be Transferred except upon the
conditions specified in Section 1.4 hereof or elsewhere in this Agreement and,
if a Holder has been listed as an "affiliate" of the Company on Schedule 5.11 to
the Reorganization Agreement, the Pipeline Affiliate Agreement between Parent
and such Holder (each an "Affiliate Agreement"). The Company Shareholders will
cause any proposed purchaser, assignee, transferee or pledgee of the Shares to
agree to take and hold such securities subject to the provisions and upon the
conditions specified in this Agreement.
1.3 RESTRICTIVE LEGEND. Each certificate representing the Shares and any
other securities issued in respect of the Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.4 below) be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED OR
PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS ISSUER
RECEIVES EITHER (A) AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL
FOR ISSUER) REASONABLY ACCEPTABLE TO IT STATING, OR (B) OTHER
EVIDENCE REASONABLY SATISFACTORY TO ISSUER, THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN ISSUER
AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF ISSUER."
Each Holder consents to Parent making a notation on its records and
giving instructions to any transfer agent of the Restricted Securities in order
to implement the restrictions on transfer established in this Section 1.3.
1.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1.4. Prior to any proposed
Transfer of any Restricted Securities, unless there is in effect a registration
statement under the Securities Act covering the proposed Transfer, the holder
thereof shall give written notice to Parent of such holder's intention to effect
such Transfer. Each such notice
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<PAGE>
shall describe the manner and circumstances of the proposed Transfer in
sufficient detail, and shall be accompanied at such holder's expense by either
(i) a written opinion of legal counsel who shall, and whose legal opinion shall
be, reasonably satisfactory to Parent, addressed to Parent, to the effect that
the proposed Transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the Transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) any other evidence
reasonably satisfactory to Parent, whereupon the holder of such Restricted
Securities shall be entitled to Transfer such Restricted Securities in
accordance with the terms of the notice delivered by the holder to Parent.
Parent will not require such a legal opinion or "no action" letter (a) in any
transaction in compliance with Rule 144, (b) in any transaction in which a
Company Shareholder which is a corporation distributes Restricted Securities
after six (6) months after the purchase thereof solely to its majority owned
subsidiaries or affiliates for no consideration, (c) in any transaction in which
a Company Shareholder which is a partnership distributes Restricted Securities
after six (6) months after the purchase thereof solely to partners thereof for
no consideration, (d) in any transaction in which a Company Shareholder makes a
bona fide gift of Restricted Securities, or (e) in any transaction in which a
Company Shareholder transfers Restricted Securities to a corporation,
partnership, limited liability company or trust controlled by such Company
Shareholder; PROVIDED that each transferee agrees in writing to be subject to
the terms of this Section 1.4. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 1.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and Parent, such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
1.5 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time, Parent shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders other than (i) a registration relating solely to
employee benefit plans, or (ii) a registration relating solely to a Commission
Rule 145 transaction, Parent will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, up to fifty percent (50%) of the Registrable Securities held by any
Holder specified in a written request or requests made within thirty (30) days
after receipt of such written notice from Parent by any Holder. Holder's right
to register Shares under this Section 1.5 shall have preference and priority
over the registration rights granted to any existing Company stockholder,
including the Parent Stockholders.
(b) UNDERWRITING. If the registration of which Parent gives notice
is for a registered public offering involving an underwriting, Parent shall so
advise the Holders as a part of the written notice given pursuant to
Section 1.5(a)(i). All Holders proposing to distribute their securities through
such underwriting shall (together with Parent and any other Parent stockholders
distributing
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<PAGE>
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by Parent (or by the holders who have demanded such registration). If the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter must first
exclude from the registration and underwriting all shares of Parent Common Stock
held by stockholders other than the Holders; and, subject to the requirement in
the preceding clause in this sentence, the managing underwriter may limit the
number of Registrable Securities to be included in the registration and
underwriting; PROVIDED, HOWEVER, that if the Holders are not able to register
50% of their Registrable Securities pursuant to this Seciton 1.5(b) any
deficiency (up to such 50% maximum) may be registered pursuant to the terms of
the Section 1.6 below. If any Holder or other holder disapproves of the terms
of any such underwriting, he or she may elect to withdraw therefrom by written
notice to Parent and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to ninety (90) days
after the effective date of the registration statement relating thereto and
Parent shall allow other participating Holders to increase the number of
securities to be included in the registration, on a pro rata basis up to the
aggregate amount of securities so excluded or withdrawn.
(c) RIGHT TO TERMINATE REGISTRATION. Parent shall have the right to
terminate or withdraw any registration initiated by it under this Section 1.5
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
1.6 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If a registration pursuant to
Section 1.5 is not effective within five (5) months after the Closing Date (as
defined in the Reorganization Agreement) and after such date Parent receives
from Initiating Holders a written request that Parent effect any registration,
qualification or compliance with respect to the Registrable Securities, Parent
will:
(i) promptly (and in any case within 10 days after such request)
give written notice of the proposed registration, qualification or compliance to
all other Holders; and
(ii) if the registration pursuant to Section 1.5 is not effective
within six (6) months of such Closing Date, as soon as practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution, in the manner requested by the Initiating Holders, of up to fifty
percent (50%) of Registrable Securities held by the Initiating Holders specified
in such request, together with such portion (up to 50%) of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by Parent within thirty (30) days after receipt of
such written notice from Parent; PROVIDED, HOWEVER, that Parent shall not be
obligated to
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<PAGE>
take any action to effect any such registration, qualification or compliance
pursuant to this Section 1.6:
(1) In any particular jurisdiction in which Parent would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless Parent is already subject to
service in such jurisdiction and except as may be required by the Securities
Act;
(2) As to any particular Holder, prior to eighteen (18)
months after such Closing Date if the Holder had a right of registration
pursuant to Section 1.5, and if Holder elected not have such Registrable
Securities registered on such registration statement; PROVIDED, HOWEVER, that if
the Holders are not able to register 50% of their holdings pursuant to Section
1.5, any deficiency (up to such 50%) may be registered pursuant to this Section
1.6.
(3) If Parent shall furnish to such Holders a certificate,
signed by the President or Chief Executive Officer of Parent, stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to Parent or its stockholders for a registration statement to be
filed in the near future, in which case Parent's obligation to use its best
efforts to register, qualify or comply under this Section 1.6 shall be deferred
for a period not to exceed ninety (90) days from the date of receipt of written
request from the Initiating Holders; provided, however, that Parent may not
utilize this right more than once in any twelve (12) month period, and for each
period of 30 days that Parent's obligations under this Section 1.6 are deferred,
the percentage of Registrable Securities held by Initiating Holders and other
Holders that may be included in the registration shall increase by 5%, up to
total percentage of their Registrable Securities of 65% of their Registrable
Securities if such obligations are deferred for 90 days.
Subject to the foregoing clauses (1) through (4), Parent shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders (and in any case not more than 45 days after such
receipt). The Holders' rights to register Shares under this Section 1.6 shall
have preference and priority over the registration rights granted to any
existing Company stockholder.
(b) ADDITIONAL REQUEST FOR REGISTRATION. If, at any time after the
date eighteen (18) months after the Closing Date (as defined in the
Reorganization Agreement), Parent receives from Initiating Holders a written
request that the Company effect any registration, qualification or compliance
with respect to the Registrable Securities, the Company will follow the
procedures set forth in Sections 1.6(a) and 1.6(c) with regard to such request,
EXCEPT THAT Parent shall use its best efforts to register ALL of the Registrable
Securities held by the Holders specified in such request or by Holders who elect
to participate in response to Parent's notice of the proposed registration.
(c) UNDERWRITING. In the event that a registration pursuant to
Section 1.6 is for a registered public offering involving an underwriting.
(i) Parent shall so advise each Holder as part of the notice
given pursuant to Section 1.6(a)(i), and the right of any Holder to registration
shall be conditioned upon such
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<PAGE>
Holder's participation in the underwriting arrangements and the inclusion of
such Holder's Registrable Securities in the underwriting, to the extent
requested, to the extent provided herein.
(ii) Parent shall enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders (which managing underwriter shall
be reasonably acceptable to Parent). Notwithstanding any other provision of
this Section 1.6(c), if the managing underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then Parent shall so advise all Holders of Registrable
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement; PROVIDED, HOWEVER, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other Parent securities are first entirely excluded from the
underwriting. No Registrable Securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, Parent or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares.
(iii) If any Holder of Registrable Securities disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to Parent, the managing underwriter and the Initiating Holders.
The Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of such registration and Parent shall allow other participating
Holders to increase the number of securities to be included in the registration,
on a pro rata basis up to the aggregate amount of securities so excluded or
withdrawn.
1.7 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date hereof, Parent shall not enter into any agreement granting any holder or
prospective holder of any securities of Parent registration rights with respect
to such securities unless such new registration rights are subordinate to the
registration rights granted Holders hereunder, including, without limitation,
provision for a market standoff obligation no shorter than that provided for in
this Agreement.
1.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration pursuant to Sections 1.5 and 1.6 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by Parent. If a registration
proceeding is begun upon the request of Initiating Holders pursuant to
Section 1.6, but such request is subsequently withdrawn by the Initiating
Holders, then the Holders of Registrable Securities to have been registered may
either: (i) bear all Registration Expenses of such proceeding, pro rata on the
basis of the number of shares to have been registered, in which case Parent
shall be deemed not to have effected a registration pursuant to Section 1.6; or
(ii) require Parent to bear all Registration Expenses of such proceeding, in
which case Parent shall be deemed to have effected a registration pursuant to
Section 1.6. Notwithstanding the foregoing, however, if at the time of the
withdrawal,
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the Holders have learned of a material adverse change in the condition, business
or prospects of Parent from that known to the Holders at the time of their
request, then the Holders shall not be required to pay any of said Registration
Expenses, and in such case, Parent shall be deemed not to have effected a
registration pursuant to Section 1.6. Unless otherwise stated, all other
Selling Expenses relating to securities registered on behalf of the Holders
shall be borne by the Holders of the registered securities included in such
registration pro rata on the basis of the number of shares so registered.
1.9 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by Parent pursuant to this Section 1,
Parent will keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense Parent will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective (i) for a registration
effected pursuant to Section 1.6(a), until the registration requested under
Section 1.6(b) has been effected, and (ii) for a registration effected pursuant
to Section 1.6(b), for at least one hundred eighty (180) days or until the
distribution described in the registration statement has been completed,
whichever comes first; and
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such Holders and underwriters may reasonably request
in order to facilitate the public offering of such securities.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that Parent shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless Parent is already
subject to service in such jurisdiction and except as may be required by the
Securities Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the
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Securities Act of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or market on which similar
securities issued by Parent are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing Parent for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated such
date, from the independent certified public accountants of Parent, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.10 INDEMNIFICATION.
(a) Parent will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, preliminary
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation or any alleged violation by Parent of any rule or regulation
promulgated under the Securities Act or the Exchange Act or any state securities
law applicable to Parent in connection with any such registration, qualification
or compliance, and Parent will reimburse each such Holder, each of its officers
and directors, and each person controlling such Holder, each such underwriter
and each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with
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investigating, preparing or defending any such claim, loss, damage, liability or
action, as such expenses are incurred, provided that Parent will not be liable
in any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to Parent by an instrument duly executed by such
Holder, controlling person or underwriter and stated to be specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify Parent, each of its directors and
officers, each underwriter, if any, of Parent's securities covered by such a
registration statement, each person who controls Parent or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse Parent, such Holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, as such expenses
are incurred, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to Parent by an instrument duly executed by such Holder and stated to be
specifically for use therein.
(c) Each party entitled to indemnification under this Section 1.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 1.10 unless the failure to give such notice is materially prejudicial to
an Indemnifying Party's ability to defend such action. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant
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or plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
1.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to Parent such information
regarding such Holder or Holders, the Registrable Securities held by them and
the distribution proposed by such Holder or Holders as Parent may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.12 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of Parent, Parent agrees to
use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times;
(b) File with the Commission in a timely manner all reports and other
documents required of Parent under the Securities Act and the Exchange Act; and
(c) So long as a Company Shareholder owns any Restricted Securities,
to furnish to the Company Shareholder forthwith upon request a written statement
by Parent as to its compliance with the reporting requirements of said Rule 144,
and of the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of Parent, and such other reports and documents of Parent
and other information in the possession of or reasonably obtainable by Parent as
a Company Shareholder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Company Shareholder to sell any such
securities without registration.
1.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause Parent to
register securities granted Company Shareholders under Sections 1.5 and 1.6 may
be assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Company Shareholder (together with any
affiliate); PROVIDED that (a) such transfer may otherwise be effected in
accordance with applicable securities laws, and (b) notice of such assignment is
given to Parent.
1.14 MARKET STANDOFF AGREEMENT. Each Holder agrees in connection with any
registered underwritten sale of Parent's securities, upon request of Parent or
the underwriters managing such underwritten offering of Parent's securities, not
to sell, make any short sale of, loan, pledge (or otherwise encumber or
hypothecate), grant any option for the purchase of, or otherwise directly or
indirectly dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of Parent and such managing
underwriters for such period of time (not to exceed to 180 days) as the Board of
Directors establishes pursuant to its good faith negotiations with such managing
underwriters; PROVIDED, HOWEVER, that the Company Shareholders shall not be
subject to such lockup unless the officers and directors of Parent who own stock
of Parent shall also be bound by the same or greater restrictions.
-11-
<PAGE>
SECTION 2
WAIVER OF EXISTING RIGHTS
2.1 WAIVER OF EXISTING RIGHTS. Each Parent Stockholder waives all its
rights under the Preferred Stock Purchase Agreement with respect to the
execution and delivery of the Reorganization Agreement and the consummation of
the transactions contemplated thereby. More specifically, but without limiting
the generality of the foregoing, each Parent Stockholder acknowledges and agrees
that:
(a) it waives compliance with Section 5.2 of the Preferred Stock
Purchase Agreement; and
(b) it waives compliance with Sections 5.3 and 6.11 of the Preferred
Stock Purchase Agreement.
2.2 LIMITATION OF WAIVER. The parties agree that the waivers set forth in
Section 2.1 above apply only to the execution and delivery of this Agreement and
the Reorganization Agreement and the consummation of the transactions
contemplated hereby and thereby, and is in no way intended to comprise a
permanent waiver of the provisions set forth in the aforementioned sections of
the Preferred Stock Purchase Agreement.
SECTION 3
MISCELLANEOUS
3.1 ASSIGNMENT. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.
3.2 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
3.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Texas.
-12-
<PAGE>
3.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts from time to time in accordance with Section 3.11 below, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3.5 NOTICES. All notices shall be in writing and shall be deemed given if
delivered personally or when received if delivered by commercial delivery
service or mailed by registered or certified mail (return receipt requested) or
sent via facsimile (with acknowledgment of complete transmission) to the parties
at the addresses of the parties hereto in the stockholder and shareholder
records of the Parent and Company, respectively (or at such other address for a
party as shall be specified by like notice).
3.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
3.7 AMENDMENT AND WAIVER. Except as provided in Section 3.11 hereof, any
provision of this Agreement may be amended with the written consent of Parent
and the Holders of at least fifty percent (50%) of the outstanding shares of the
Registrable Securities. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each Holder and Parent. In addition,
Parent may waive performance of any obligation owing to it, as to some or all of
the Holders, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder. In the event that an underwriting
agreement is entered into between Parent and any Holder, and such underwriting
agreement contains terms differing from this Agreement, as to any such Holder
the terms of such underwriting agreement shall govern.
3.8 EFFECT OF AMENDMENT OR WAIVER. The Company Shareholders and their
successors and assigns acknowledge that by the operation of Section 3.7 hereof
the holders of fifty percent (50%) of the outstanding Registrable Securities,
acting in conjunction with Parent, will have the right and power to diminish or
eliminate any or all rights or increase any or all obligations pursuant to this
Agreement.
3.9 RIGHTS OF HOLDERS. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of Parent as a result of exercising or refraining from
exercising any such right or rights.
3.10 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver
-13-
<PAGE>
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any party of any breach or default under
this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
3.11 After the date hereof, Parent shall make available to all former
Pipeline shareholders, and all persons who receive or shall be entitled to
receive shares of Parent Common Stock upon the exercise of Company Options
assumed by Parent (other than shares covered by a Form S-8), the opportunity to
sign this Agreement and thereby to become bound hereby and receive the benefits
hereof as Holders hereunder.
[This space intentionally left blank.]
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"PARENT" "PARENT STOCKHOLDERS"
INTELLIQUEST INFORMATION AUSTIN VENTURES III - A, L.P.
GROUP, INC. By: A.V. Partners, L.P.
its General Partner
By: /s/ James A. Schellhase By: /s/ William P. Wood
------------------------- -------------------------
Name: James A. Schellhase Name: William P. Wood
----------------------- -----------------------
Title: CFO/COO Title: General Partner
---------------------- ----------------------
AUSTIN VENTURES III - B, L.P.
By: A.V. Partners, L.P.
its General Partner
By: /s/ William P. Wood
-------------------------
Name: William P. Wood
-----------------------
Title: General Partner
----------------------
SUMMIT VENTURES III, L.P.
By: /s/ Gregory M. Avis
-------------------------
Name: Gregory M. Avis
-----------------------
Title: General Partner
----------------------
SUMMIT INVESTORS II, L.P.
By: /s/ Gregory M. Avis
-------------------------
Name: Gregory M. Avis
-----------------------
Title: General Partner
----------------------
<PAGE>
COMPANY SHAREHOLDERS
By: /s/ Ralph W. Bowlin
-------------------------
Name: Ralph W. Bowlin
-----------------------
Title:
----------------------
COMPANY SHAREHOLDERS
By: 77 Capital Partners, L.P.
by /s/ Barton L. Faber
-------------------------
Name: Barton L. Faber
-----------------------
Title: President/CEO
----------------------
COMPANY SHAREHOLDERS
By: Noro-Moseley Partners III, L.P.
by /s/ Charles A. Johnson
-------------------------
Name: Charles A. Johnson
-----------------------
Title: Member, Moseley & Co. III, LLC
General Partner of NMP III, L.P.
----------------------
COMPANY SHAREHOLDERS
By: /s/ A. Matthews Thompson
-------------------------
Name: A. Matthews Thompson
-----------------------
Title: CEO and President
----------------------
<PAGE>
EXHIBIT A
COMPANY SHAREHOLDERS
A Matthews Thompson
Ralph W. Bowlin
Mark E. Novisoff
Micro Warehouse
Patrick M. Cummiskey
Michael J. Geihsler
Said Mohammadioun
Eugene Hill
Jeffrey Kerker
Julian H. Danielly
William & June Warren
Bernard Simkin
3031204 Manitoba Ltd.
Murray Simkin
Brad Biddy
Delaware Charter Guarantee & Trust Company
Peter A. Orr
Chuck Leamon
Michael Fagen
Martha J. Day
Sloan Hill
Kristin Colier
James C. Kloss
Noro-Moseley Partners III, L.P
77 Capital Partners, L.P.
<PAGE>
EXHIBIT B
PARENT STOCKHOLDERS
AUSTIN VENTURES III - A, L.P.
AUSTIN VENTURES III - B, L.P.
SUMMIT VENTURES III, L.P.
SUMMIT INVESTORS II, L.P.
<PAGE>
EXHIBIT 11.1
INTELLIQUEST INFORMATION GROUP, INC.
STATEMENT REGARDING COMPUTATION OF PRO FORMA NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
This exhibit should be read in conjunction with Note 3 of Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS ENDED
ENDED JUNE 30,
DECEMBER 31, --------------------
1995 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
Net income..................................................................... $ 565 $ 46 $ 381
------------- --------- ---------
------------- --------- ---------
Weighted average shares outstanding:
Common stock................................................................. 3,231 3,217 5,329
Common stock issuable upon exercise of options granted (1)................... 209 209 225
Common stock issuable upon conversion of preferred stock..................... 1,853 1,853 824
Common stock issuable upon exercise of warrants (1).......................... 233 233 104
------------- --------- ---------
Weighted average common shares and equivalents................................. 5,526 5,512 6,482
------------- --------- ---------
------------- --------- ---------
Net income per share........................................................... $ .10 $ .01 $ .06
------------- --------- ---------
------------- --------- ---------
</TABLE>
- ------------------------
(1) Stock options granted and warrants exercised (using the treasury stock
method) have been included in the calculation of the common stock equivalent
shares as if they were outstanding for the initial period presented.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION
NAME OF INCORPORATION
- ------------------------------------------------------- ----------------
<S> <C>
IntelliQuest, Inc. Texas
IntelliQuest, Ltd. (subsidiary of Intelliquest, Inc.) United Kingdom
IntelliQuest Communications, Inc. Georgia
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 25, 1996 relating to
the financial statements of IntelliQuest Information Group, Inc. which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Austin, Texas
September 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 26,391
<SECURITIES> 0
<RECEIVABLES> 4,040
<ALLOWANCES> 353
<INVENTORY> 1,862
<CURRENT-ASSETS> 33,354
<PP&E> 2,021
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,520
<CURRENT-LIABILITIES> 5,734
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 29,647
<TOTAL-LIABILITY-AND-EQUITY> 35,520
<SALES> 0
<TOTAL-REVENUES> 8,766
<CGS> 0
<TOTAL-COSTS> 3,685
<OTHER-EXPENSES> 4,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 533
<INCOME-TAX> 152
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0
</TABLE>