<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996
REGISTRATION NO. 333-12547
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
</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. / /
------------------------
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>
Filed Pursuant to Rule 424(a)
Registration No. 333-12547
SUBJECT TO COMPLETION, DATED OCTOBER 15, 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 25, 1996, the last reported sale price of
the Common Stock was $25.50. 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 KNOWN
AS 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 and products 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. Eight 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 $ 51,468
Total assets.......................................................................... 35,520 59,368
Total debt............................................................................ -- --
Common stockholders' equity........................................................... 29,648 53,496
</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
$25.50 per share and the application of the net proceeds to the Company
therefrom. See "Use of Proceeds."
The Company's preliminary results for the third quarter of 1996 are set
forth in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Revenues:
Renewable subscription-based products.................................................... $ 4,068 $ 4,640
Renewable proprietary products........................................................... 2,137 3,273
Proprietary project research............................................................. 647 1,123
--------- ---------
Total revenues......................................................................... 6,852 9,036
Operating income........................................................................... 644 1,302
Net income................................................................................. 348 1,060
Pro forma and actual information:
Net income per share (1)................................................................. $ .06 $ .14
Weighted average number of common and common equivalent shares outstanding (1)........... 5,540 7,228
</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.
5
<PAGE>
* * * *
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.
6
<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 63.7%
and 60.5%, 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
10% or more of the Company's revenues and together accounted for 25.6% 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 continue to 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 when
the final study is usually completed and delivered, usually in the third quarter
of that year. 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
7
<PAGE>
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 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
complete 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,
8
<PAGE>
the Company is expending significant resources to develop Internet-based
information collection tools. 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, it has not been unusual for media companies
with properties that have not performed well in the studies to be dissatisfied
with the results of the studies or the manner in which such results have been
used by their competitors. 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 neither media company dissatisfaction nor
the inaccurate study has resulted in litigation against the Company, 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
9
<PAGE>
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.
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 intends to 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
10
<PAGE>
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 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
11
<PAGE>
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 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 2,676,337 additional shares already outstanding will be freely
tradeable on the date of this Prospectus, unless purchased by affiliates of the
Company. The remaining 2,511,371 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."
12
<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 $23.8 million based on an assumed public offering price of $25.50
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 25, 1996).......... 32 3/4 17 3/4
</TABLE>
On September 25, 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 25, 1996 on the Nasdaq National Market was $25.50.
13
<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 $25.50 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 56,461
Deferred compensation............................................................... (54) (54)
Foreign currency translation........................................................ 1 1
Accumulated deficit................................................................. (2,913) (2,913)
--------- --------------
Total stockholders' equity.................................................... 29,648 53,496
--------- --------------
Total capitalization........................................................ $ 29,648 $ 53,496
--------- --------------
--------- --------------
</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 $25.50 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
(2) Excludes 298,090 shares subject to options outstanding as of June 30, 1996;
also excludes 393,185 shares available for future issuance under the
Company's stock option and stock purchase plans.
14
<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.
15
<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 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
products 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 revenues are recognized on a percentage
of completion basis. Revenues from the customer registration products are
16
<PAGE>
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.
17
<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 leveraging of relatively fixed annual investments in
18
<PAGE>
subscription-based products over increased subscription-based revenues, 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
19
<PAGE>
its fixed labor costs through its investments in new products and proprietary
processes. 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.
20
<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.
21
<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 $ 0.00 $ 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.
22
<PAGE>
The Company's preliminary results for the third quarter of 1996 are set
forth in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Revenues:
Renewable subscription-based products...................................................... $ 4,068 $ 4,640
Renewable proprietary products............................................................. 2,137 3,273
Proprietary project research............................................................... 647 1,123
--------- ---------
Total revenues........................................................................... 6,852 9,036
Operating income............................................................................. 644 1,302
Net income................................................................................... 348 1,060
Pro forma and actual information:
Net income per share (1)................................................................... $ .06 $ .14
Weighted average number of common and common equivalent shares outstanding (1)............. 5,540 7,228
</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.
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 subscription and customer
contracts terminate after one year and are renewable at the discretion of the
customer, 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. In addition,
substantially all revenues and expenses attributable to CIMS for a particular
year are recognized when the final study is usually completed and delivered,
usually in the third quarter of that year. 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
23
<PAGE>
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.
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.
24
<PAGE>
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.
25
<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 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 and
products 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 customer
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
26
<PAGE>
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 and products 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.
27
<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,
Gannett, 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. Eight 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
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 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 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.
28
<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
pursue sales penetration of technology vendors not previously served by the
Company, but whose products were already tracked as part of its
subscription-based products. 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.
29
<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 APPLICATIONS
UTILIZING CUSTOMIZED
VERSIONS OF INTELLIQUEST'S
PROPRIETARY SOFTWARE.
- TYPICALLY FACTORY
PRE-INSTALLED AND SHIPPED
WITH PRODUCT. BUYERS
COMPLETE REGISTRATION
APPLICATIONS 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 U.K., Germany, Italy and Japan.
30
<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, 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.
31
<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 products. 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 product 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.
32
<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 several 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 continue to 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 10.5%, respectively, of 1995 revenues. No other customer accounted for 10%
or more of revenues in 1995.
33
<PAGE>
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 (the "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 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.
34
<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
35
<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.
36
<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 is a director of
Mobile Telecommunications Technologies Corp., a manufacturer of mobile
telecommunications products. 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
37
<PAGE>
receive, at the discretion of the Board of Directors, an annual grant of an
option to purchase shares of 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.
38
<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.
39
<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 $0.34 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, outstanding options to purchase 18,571
shares of Common Stock 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 outstanding 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
40
<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 (the "Code"), and permits eligible employees of the
Company to purchase Common Stock through payroll deductions of up to 15% of
their compensation (up to 30% of their compensation for the first period,
commencing on July 1, 1996 and ending on December 31, 1996) 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,
41
<PAGE>
a nonstatutory option to purchase shares of Common Stock (the "First Option")
upon the date such 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. The exercise price of a
director option granted to a director 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.
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 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.
42
<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 II, 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.
Former 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 issued 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.
43
<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(8) 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(9) * 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 immediately 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) Prior to this offering, 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) Prior to this offering, 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) Prior to this offering, 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 and sell such
shares.
(8) Includes 20,000 shares held by the Matt and Carol Thompson Charitable
Remainder Trust, of which Matt Thompson and his wife Carol are trustees.
(9) Includes 864 shares issuable pursuant to stock options exercisable within 60
days of August 31, 1996.
44
<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
45
<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 that have been converted 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.
46
<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 and Trust, Incorporated.
47
<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 2,676,337
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 2,511,371 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.
48
<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
49
<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.
50
<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 and products 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% 8% 11%
Client 3.............................................. 13% 4% 5%
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 5.............................................. 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.............................................................. 7
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Price Range of Common Stock............................................... 13
Capitalization............................................................ 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 16
Business.................................................................. 26
Management................................................................ 37
Certain Transactions...................................................... 43
Principal and Selling Stockholders........................................ 44
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 48
Underwriting.............................................................. 49
Legal Matters............................................................. 50
Experts................................................................... 50
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 Securities
Act of 1933, as amended (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.
*** Previously filed.
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 18,571 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.
II-2
<PAGE>
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 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
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.
*** Previously filed.
(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 Amendment to 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 15th day of October, 1996.
INTELLIQUEST INFORMATION GROUP, INC.
By: /s/ JAMES SCHELLHASE
-----------------------------------
James Schellhase,
CHIEF OPERATING OFFICER AND
CHIEF FINANCIAL OFFICER AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO 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>
* Chairman of the Board and
---------------------------------------- Chief Executive Officer October 15, 1996
Peter Zandan (Principal Executive Officer)
Chief Operating Officer and
/s/ JAMES SCHELLHASE Chief Financial Officer and
---------------------------------------- Director (Principal Financial October 15, 1996
James Schellhase and Accounting Officer)
*
---------------------------------------- President and Director October 15, 1996
Brian Sharples
*
---------------------------------------- Director October 15, 1996
Lee Walker
*
---------------------------------------- Director October 15, 1996
William Wood
*By: /s/ JAMES SCHELLHASE
ATTORNEY-IN-FACT
</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.
*** Previously filed.
<PAGE>
Exhibit 5.1
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 415-493-9300 FACSIMILE 415-493-6811
JOHN ARNOT WILSON
RETIRED
October 14, 1996
IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway South
Building Two, Plaza One
Austin, TX 78746
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Amendment No. 2 to the Registration Statement on
Form S-1 to be filed by you with the Securities and Exchange Commission on
October 15, 1996 (as such may thereafter be amended or supplemented, the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 3,313,150 shares of your Common Stock,
$0.0001 par value (the "Shares"). The Shares include an over-allotment
option granted to the underwriters to purchase 432,150 Shares. We understand
that the Shares are to be sold to the underwriters for resale to the public
as described in the Registration Statement. As your legal counsel, we have
examined the proceedings taken, and are familiar with the proceedings
proposed to be taken, by you in connection with the sale and issuance of the
Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
Exhibit 10.3
INTELLIQUEST INFORMATION GROUP, INC.
1996 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees and Consultants,
and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means IntelliQuest Information Group, Inc., a Delaware
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
<PAGE>
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1996 Stock Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 below.
(z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
(cc) "SERVICE PROVIDER" means an Employee or Consultant.
-3-
<PAGE>
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); PROVIDED, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
-4-
<PAGE>
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock
-5-
<PAGE>
Purchase Right that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 300,000 Shares.
-6-
<PAGE>
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 300,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to
-7-
<PAGE>
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
-8-
<PAGE>
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of
-9-
<PAGE>
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
-10-
<PAGE>
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to
-11-
<PAGE>
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has
not been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
-12-
<PAGE>
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) STOCKHOLDER APPROVAL. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-13-
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
NAME: ___________________________________________
ADDRESS: ___________________________________________
___________________________________________
___________________________________________
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
<PAGE>
40% of the Shares subject to the Option shall vest two years after the
Vesting Commencement Date, and 20% of the Shares subject to the Option shall
vest each year thereafter on the anniversary of the Vesting Commencement Date,
subject to the Optionee continuing to be a Service Provider on such dates.
TERMINATION PERIOD:
This Option may be exercised for 90 days after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for up to 12 months following the date Optionee ceases to be a
Service Provider due to death or Disability. In no event shall
this Option be exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Secretary of the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
-2-
<PAGE>
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
-3-
<PAGE>
(ii) INCENTIVE STOCK OPTION. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) DISPOSITION OF SHARES.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of Texas.
-4-
<PAGE>
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
-5-
<PAGE>
OPTIONEE: INTELLIQUEST INFORMATION GROUP, INC.
______________________________ _______________________________________
Signature By
______________________________ ______________________________________
Print Name Title
______________________________
Residence Address
______________________________
-6-
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
-7-
<PAGE>
EXHIBIT A
INTELLIQUEST INFORMATION GROUP, INC.
1996 STOCK PLAN
EXERCISE NOTICE
IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway South
Building Two, Plaza One
Austin, TX 78746
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of IntelliQuest Information Group, Inc. (the
"Company") under and pursuant to the 1996 Stock Plan (the "Plan") and the Stock
Option Agreement dated , 19___ (the "Option Agreement"). The
purchase price for the Shares shall be $ , as required by the Option
Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS STOCKHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
<PAGE>
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Texas.
Submitted by: Accepted by:
PURCHASER: INTELLIQUEST INFORMATION GROUP, INC.
_____________________________ _____________________________________
Signature By
_____________________________ _____________________________________
Print Name Its
ADDRESS: ADDRESS:
____________________________ IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway South
____________________________ Building Two, Plaza One
Austin, TX 78746
____________________________
_____________________________________
Date Received
-2-
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
1996 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
NAME: ___________________________________________
ADDRESS: ___________________________________________
___________________________________________
___________________________________________
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1996 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: INTELLIQUEST INFORMATION GROUP, INC.
___________________________ ________________________________
Signature By
___________________________ ________________________________
Print Name Title
<PAGE>
EXHIBIT A-1
INTELLIQUEST INFORMATION GROUP, INC.
1996 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. REPURCHASE OPTION.
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price,
<PAGE>
the Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the number
of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or stockholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares
to be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. RELEASE OF SHARES FROM REPURCHASE OPTION.
(a) Forty percent (40%) of the Shares shall be released from the
Company's Repurchase Option two years after the Date of Grant and twenty percent
(20%) of the Shares at the end of each year thereafter, provided that the
Purchaser does not cease to be a Service Provider prior to the date of any such
release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. RESTRICTION ON TRANSFER. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
-2-
<PAGE>
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a stockholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. LEGENDS. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contem-
-3-
<PAGE>
plated by this Agreement. The Purchaser is relying solely on such advisors and
not on any statements or representations of the Company or any of its agents.
The Purchaser understands that the Purchaser (and not the Company) shall be
responsible for the Purchaser's own tax liability that may arise as a result of
the transactions contemplated by this Agreement. The Purchaser understands that
Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), taxes
as ordinary income the difference between the purchase price for the Shares and
the Fair Market Value of the Shares as of the date any restrictions on the
Shares lapse. In this context, "restriction" includes the right of the Company
to buy back the Shares pursuant to the Repurchase Option. The Purchaser
understands that the Purchaser may elect to be taxed at the time the Shares are
purchased rather than when and as the Repurchase Option expires by filing an
election under Section 83(b) of the Code with the IRS within 30 days from the
date of purchase. The form for making this election is attached as Exhibit A-5
hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON THE PURCHASER'S BEHALF.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of Texas. This Agreement, subject to the
terms and conditions of the Plan and the Notice of Grant, represents the entire
agreement between the parties with respect to the purchase of the Shares by the
Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall prevail. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
-4-
<PAGE>
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: INTELLIQUEST INFORMATION GROUP, INC.
______________________________ __________________________________
Signature By
______________________________ __________________________________
Print Name Title
-5-
<PAGE>
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto _________________________________________________ (__________)
shares of the Common Stock of IntelliQuest Information Group, Inc. standing in
my name of the books of said corporation represented by Certificate No. _____
herewith and do hereby irrevocably constitute and appoint ______________________
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
, 19
Corporate Secretary
IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway South
Building Two, Plaza One
Austin, TX 78746
Dear :
As Escrow Agent for both IntelliQuest Information Group, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway South
Building Two, Plaza One
Austin, TX 78746
PURCHASER: ____________________________________
____________________________________
____________________________________
ESCROW AGENT: Corporate Secretary
IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway South
Building Two, Plaza One
Austin, TX 78746
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of Texas.
Very truly yours,
IntelliQuest Information Group, Inc.
_____________________________________
By
_____________________________________
Title
PURCHASER:
_____________________________________
Signature
_____________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
-4-
<PAGE>
EXHIBIT A-4
CONSENT OF SPOUSE
I, ______________________________, spouse of __________________________,
have read and approve the foregoing Restricted Stock Purchase Agreement (the
"Agreement"). In consideration of the Company's grant to my spouse of the right
to purchase shares of IntelliQuest Information Group, Inc., as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, 19
__________________________________________
Signature of Spouse
<PAGE>
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of
IntelliQuest Information Group, Inc. (the "Company").
3. The date on which the property was transferred is: , 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: ___________________, 19____ ________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ________________________________________
Spouse of Taxpayer
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
1996 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1996 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means IntelliQuest Information Group, Inc., a Delaware
corporation.
(e) "DIRECTOR" means a member of the Board.
(f) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(h) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of
<PAGE>
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "INSIDE DIRECTOR" means a Director who is an Employee.
(j) "OPTION" means a stock option granted pursuant to the Plan.
(k) "OPTIONED STOCK" means the Common Stock subject to an Option.
(l) "OPTIONEE" means a Director who holds an Option.
(m) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(n) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "PLAN" means this 1996 Director Option Plan.
(p) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 100,000 Shares of Common Stock (the "Pool"). The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors
under this Plan shall be made strictly in accordance with the following
provisions:
-2-
<PAGE>
(i) Each Outside Director shall be granted an Option to
purchase that number of Shares which the Board in its sole discretion deems
advisable (the "First Option") on the date on which such person first becomes an
Outside Director, whether through election by the stockholders of the Company or
appointment by the Board to fill a vacancy; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
(ii) Each Outside Director shall be granted an Option to
purchase that number of Shares which the Board in its sole discretion deems
advisable (a "Subsequent Option") on the date of the annual stockholders meeting
provided he or she is then an Outside Director and if as of such date, he or she
shall have served on the Board for at least the preceding six (6) months.
(iii) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option. In the
event that the date of grant of the First Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable at the rate which the Board in its sole discretion
deems advisable.
(iv) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option. In
the event that the date of grant of the Subsequent Option is not a trading day,
the exercise price per Share shall be the Fair Market Value on the next trading
day immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable at the rate which the Board in its sole discretion
deems advisable.
-3-
<PAGE>
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be granted in accordance with the terms set forth in Section 4
hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 11 of the Plan.
7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
-4-
<PAGE>
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of termination, or if he or she does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable
-5-
<PAGE>
pursuant to the automatic grant provisions of Section 4 hereof shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(c) through (e)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of
-6-
<PAGE>
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger or sale of
assets.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-7-
<PAGE>
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
-8-
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
DIRECTOR OPTION AGREEMENT
IntelliQuest Information Group, Inc., a Delaware corporation (the
"Company"), has granted to ______________________________________ (the
"Optionee"), an option to purchase a total of __________________ (_________)
shares of the Company's Common Stock (the "Optioned Stock"), at the price
determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the Company's 1996 Director Option Plan (the
"Plan") adopted by the Company which is incorporated herein by reference. The
terms defined in the Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock.
3. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option shall become exercisable in installments
cumulatively with respect to forty percent (40%) of the Optioned Stock two years
after the date of grant, and thereafter as to an additional twenty percent (20%)
of the Optioned Stock on each anniversary of the date of grant, so that one
hundred percent (100%) of the Optioned Stock shall be exercisable five years
after the date of grant.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. METHOD OF PAYMENT. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
<PAGE>
(ii) check; or
(iii) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. TERM OF OPTION. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the
-10-
<PAGE>
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT: ______________
INTELLIQUEST INFORMATION GROUP, INC.,
a Delaware corporation
By: __________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: _________________
______________________________
Optionee
-11-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway
Building Two, Plaza One
Austin, TX 78746
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of IntelliQuest Information Group, Inc. (the "Company") under and
pursuant to the Company's 1996 Director Option Plan and the Director Option
Agreement dated _______________ (the "Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is
under no obligation to register the Shares and that an exemption may not be
available or may not permit Optionee to transfer Shares in the amounts or at the
times proposed by Optionee.
4. TAX CONSEQUENCES. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. ENTIRE AGREEMENT. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
-1-
<PAGE>
subject matter hereof. This Exercise Notice and the Agreement are governed by
Texas law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: INTELLIQUEST INFORMATION GROUP, INC.
By:
- ---------------------------------- ------------------------------
Its:
------------------------------
Address:
Dated: Dated:
--------------------------- ----------------------------
-2-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to Registration Statement on Form S-1 (No. 333-12547) of our
report dated July 25, 1996 relating to the consolidated 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
October 10, 1996