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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
---------------
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the Fiscal Year Ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission file number: 0-27680
INTELLIQUEST INFORMATION GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 74-2775377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION
NUMBER)
1250 Capital of Texas Highway 78746
Austin, Texas (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code:
(512) 329-0808
Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the
Act:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE
- ---------------------------------- ON WHICH REGISTERED
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Common Stock, $.0001 Par Value NASDAQ
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of the close of business on February 28, 1997 was approximately
$79.9 million. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may under certain circumstances be
deemed to be affiliates. This determination of executive officer or affiliate
status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the Registrant's Common Stock as of
February 28, 1997 was 8,089,962.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for the Annual Meeting of Stockholders of Registrant to be
held on May 15, 1997. Certain information therein is incorporated by
reference into Part III hereof.
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INTELLIQUEST INFORMATION GROUP, INC.
FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business....................................................................................... 3
Item 2. Properties..................................................................................... 14
Item 3. Legal Proceedings.............................................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............................................ 14
Executive Officers of the Registrant........................................................... 14
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters...................... 15
Item 6. Selected Financial Data........................................................................ 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 17
Item 8. Financial Statements and Supplementary Data.................................................... 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 50
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 50
Item 11. Executive Compensation......................................................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 50
Item 13. Certain Relationships and Related Transactions................................................. 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 51
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PART I
ITEM 1. 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 IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" INCLUDING "RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K.
IntelliQuest Information Group, Inc. ("IntelliQuest" or the "Company") is a
leading provider of information, technologies, and analysis services that are
designed to improve the marketing performance of 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, software and subscription-based strategic consulting
services 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 160
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
and publishers, including Dow Jones, Gannett, Time Warner and Ziff-Davis, who
market to technology advertisers.
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 and analysis 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 focuses on providing continuous services as well as proprietary
research services and conferences. In 1996, 84% of the Company's total revenues
were generated from the sale of continuous 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 maintained dollar-weighted renewals for
subscription-based products in excess of 85% during 1996. Seven of the Company's
ten largest customers in 1996 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.
In May 1996, the Company acquired IntelliQuest Communications, Inc.
("IntelliQuest Communications"), formerly known as Pipeline Communications,
Inc., 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
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Internet Web sites. The Company's acquisition of IntelliQuest Communications
enabled the Company to expand its offering of electronic customer information
products.
In February 1997, the Company acquired Zona Research, Inc. ("Zona
Research"), a leading provider of subscription-based advisory services, reports
and conferences that monitor the Internet and Intranet markets. Zona Research
uses quantitative research to develop forward-looking projections and analysis
designed to help Internet-related vendor companies successfully develop
marketing strategies. At the time of the acquisition, Zona Research had over 75
clients. The acquisition of Zona Research will enable the Company to expand its
offering of subscription-based services in the Internet market.
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 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.
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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 and analysis 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 solely 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 information 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 information
products also facilitate technology companies' direct marketing initiatives and
create new electronic commerce opportunities.
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 U S West. The Company
has also established relationships with leading publishers, including Dow Jones,
Gannett, Time Warner and Ziff-Davis, who market to technology advertisers. In
February 1997, the Company continued to strengthen its position in the
technology sector by acquiring Zona Research, a leading provider of
subscription-based services for the Internet and Intranet markets.
EMPHASIS ON CONTINUOUS SERVICES. In 1996, 84% of the Company's total
revenues were generated from the sale of continuous 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
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products in excess of 85% during 1996. Seven of the Company's ten largest
customers in 1996 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. In May 1996, the Company further expanded its offering of
proprietary survey software by acquiring IntelliQuest Communications, 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 1996, the Company's operating
income as a percentage of revenues increased to 10.2%, based on revenues of
$26.5 million and operating income of $2.7 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.
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
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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. For example, through its
recent acquisition of Zona Research, the Company enhanced its offering of
subscription-based services to the Internet and Intranet industry.
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 subscription-based service 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.
EXPAND SERVICE OFFERINGS TO INCLUDE SUBSCRIPTION-BASED ANALYST
SERVICES. The Company believes it can offer customers a higher level of service
by providing subscription-based analyst services to aid customers in
interpreting IntelliQuest information and understanding market trends that are
not easily tracked through survey research. The Company's acquisition of Zona
Research in February 1997 added such services to complement the Company's
existing information products in the Internet and Intranet markets. The Company
believes it can develop or acquire additional services to complement other areas
of its business and provide additional subscription-based revenue.
DEVELOP ANCILLARY SERVICES TO CUSTOMER REGISTRATION. IntelliQuest believes
it can leverage its position in the customer information 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 information
relating to international markets. Accordingly, the Company is expanding its
overseas market research capabilities. The Company operates an office and data
collection facility in London and has established research affiliate
relationships with companies covering the Pacific Rim, 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 significantly expanded the
Company's offering of electronic registration services. In February 1997, the
Company acquired Zona Research, whose analyst services that focus on the
Internet and Intranet markets will complement the Company's existing
survey-based information products for these areas.
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PRODUCTS AND SERVICES
IntelliQuest offers its customers a variety of market research products and
services within each of its two main product and service areas: continuous
services and other services. The following table summarizes the Company's
products and services:
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PRODUCT OR
PRODUCT/SERVICE SERVICE (YEAR GEOGRAPHIC
TYPE INTRODUCED) DESCRIPTION COVERAGE
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Continuous Longitudinal - Ongoing renewable tracking programs conducted on a proprietary basis for International*
Services Tracking specific customers.
Studies - Systems developed to assure consistency on a worldwide basis using a
(1990) comprehensive system of software standards and operational guidelines.
- Delivered monthly or quarterly via statistical tables, graphical reports and
diskette.
IntelliTrack - Global tracking of key brand metrics including awareness, image, International*
IQ (1991) 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.
Customer - Multi-language electronic registration applications utilizing customized International*
Information versions of IntelliQuest's proprietary software.
Products - Typically factory pre-installed and shipped with product. Buyers complete
(1993) registration applications electronically and automatically return via Internet,
modem, disk, fax, e-mail, or print.
- Delivered real time and periodically via statistical tables, graphical
reports and diskette.
CIMS (1994) - Comprehensive database of media habits among technology purchase influencers. United States
- 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 (1996) - Tracking of Internet and on-line service ("OLS") usage. United States
- Monitors on-line activities of Internet and OLS users including brand and Europe
performance and satisfaction levels.
- Delivered quarterly via statistical tables, diskette, CD-ROM and on-line
reports.
Zona Advisory - Provides in-depth analysis and assessment of the Internet and Intranet International*
Services markets that are based on factual data and observation.
(1997) - Provides subscription-based advisory services with combinations of value-add
consulting, reports, conferences, and other information products.
Other Services Proprietary - Full service capabilities for large-scale global proprietary projects. International*
Research - Proprietary methods developed for market segmentation, pricing, advertising
(1985) effectiveness, product development, brand measurement, image assessment, and
brand research.
- Delivered at end of project via statistical tables, graphical reports and
diskette.
Conferences - Periodic conferences devoted to specific topics, such as managing and United States
(1993) measuring technology brands; evolving research methods for technology
marketers; and emerging Internet and Intranet technologies.
Technology - Pre-recruited sample of technology influencers for immediate customer United States
Panel (1994) research needs and Europe
- Utilizes fax/OCR technology to create fast turnaround and excellent cost
efficiency.
- Broad market coverage with approximately 18,000 participants.
- Delivered at end of project via statistical tables, graphical reports and
diskette.
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* Through its offices in Austin and College Station, Texas, Atlanta, Georgia,
Redwood City, California 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.
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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.
CONTINUOUS SERVICES
Continuous services 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. To meet the unique information needs
of certain customers, IntelliQuest also designs and manages ongoing market
feedback systems to deliver consistent and regular proprietary information
databases.
LONGITUDINAL TRACKING STUDIES. IntelliQuest provides proprietary customized
brand, advertising, product and customer tracking programs. The Company creates
proprietary tracking systems for certain customers, based on the IntelliTrack
methodology described below, 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.
INTELLITRACK IQ. IntelliTrack IQ is a family of subscription-based market
and brand tracking studies delivered monthly or quarterly via statistical
tables, graphical reports and diskette. Through over 80,000 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. The Company currently offers a
total of fourteen modules. 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.
CUSTOMER INFORMATION 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 information products include both customized and standard
turnkey programs. IntelliQuest offers a complete solution with regard to
response media including customer registration responses via Internet, 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.
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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.
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, Internetworking, Internet and Intranet products
and services, and 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). In 1996, the Company 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.
ZONA ADVISORY SERVICES. The company is committed to providing its customers
with the most comprehensive information on the rapidly evolving Internet and
Intranet markets. Zona Research, a wholly-owned subsidiary of IntelliQuest as of
February 1997, provides in-depth analysis and assessment of the Internet and
Intranet markets based on factual market data and observations. Combining these
value-added services with IntelliQuest's innovative and quantitative research
capabilities provides customers with an extensive line of market assessment
products.
OTHER SERVICES
PROPRIETARY RESEARCH
In addition to the continuous services described above, IntelliQuest is a
leading provider of the following types of proprietary market research studies
to technology companies.
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.
10
<PAGE>
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.
CONFERENCES
The Company hosts two annual conferences: IntelliQuest Brand Tech Forum
(co-hosted with THE WALL STREET JOURNAL), devoted to presentations on creating,
managing and measuring technology brands and IntelliQuest Marketing Research
Tech Forum, focusing on state-of-the-art research methods for technology
markets. IntelliQuest also conducts conferences on specific topics for
technology marketers such as pricing technology products, aftermarketing and
product registration, and evaluating emerging technologies.
Zona Research hosts several conferences a year on Internet and Intranet
technologies. The conferences are geared toward executives from technology
companies and explore such topics as commerce on the Internet, security issues,
collaborative computing and how organizations implement Internet/Intranet
technologies to meet enterprise needs.
TECHNOLOGY PANEL
The Company's Technology Panel consists of approximately 18,000 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 began in 1996 to utilize the Internet for transmitting and gathering
information from sub-segments of the Technology Panel. The Company plans to
utilize its own Internet survey software, which is currently being developed, to
enhance these electronic data gathering capabilities further. 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 1996, the Company served approximately 160 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 $7.9 million in
1996, or approximately 29.8% of total revenues.
In 1996, 84% of the Company's total revenues were generated from the sale of
continuous services, and the Company expects that a material portion of its
revenues for the foreseeable future will continue to
11
<PAGE>
be derived from such sources. The remainder of the Company's revenues were
derived from custom purchase orders for proprietary research and conferences.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's two largest customers, Microsoft and IBM, accounted for 18.6%
and 11.2%, respectively, of 1996 revenues. No other customer accounted for 10%
or more of revenues in 1996. 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 customers.
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 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 400 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 was co-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 Website Evaluations (Webscore).
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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Risk Factors--Expansion of Direct
Sales Force."
12
<PAGE>
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.
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, most
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 "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Risk
Factors--Competition."
13
<PAGE>
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
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 December 31, 1996, IntelliQuest employed a total of 184 persons on a
full-time basis, consisting of 144 research and other technical, 11 sales and
marketing and 29 operations staff. The Company also employed part-time
individuals in its field operations, representing approximately 133 full-time
equivalent employees. None of the Company's employees is represented by a
collective bargaining agreement. The Company considers its relationship with its
employees to be good.
ITEM 2. PROPERTIES
The Company's headquarters are located in approximately 30,350 square feet
of office space in Austin, Texas. These facilities accommodate corporate
administration, research and analysis, marketing, sales and customer support.
The lease on this facility expires in 2002. The Company also leases office space
in Austin and College Station, Texas, Atlanta, Georgia, Redwood City, California
and London, England to support its research and analysis. The Company believes
that its existing facilities are adequate for its current needs and that
additional facilities can be leased to meet future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
upon the Company's business, operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant did not submit any matters to a vote of its security holders
during the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Peter Zandan............................... 44 Chairman and Chief Executive Officer
Brian Sharples............................. 36 President and Director
James Schellhase........................... 38 Chief Operating Officer, Chief Financial
Officer, Secretary Treasurer and Director
</TABLE>
14
<PAGE>
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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades 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 the
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........................................................ $32 3/4 $17 3/4
Fourth Quarter....................................................... $28 1/2 $20 1/2
</TABLE>
On February 28, 1997, there were approximately 50 holders of record of the
Company's Common Stock. The approximate number of beneficial shareholders was
1,800.
The Company has not paid any cash dividends on its Common Stock and
currently intends to retain any future earnings for use in its business.
Accordingly, the Company does not anticipate that any cash dividends will be
declared or paid on the Common Stock in the foreseeable future.
15
<PAGE>
ITEM 6. SELECTED 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 Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Continuous services.......................................... $ 2,238 $ 4,003 $ 9,817 $ 15,663 $ 22,275
Other services............................................... 1,684 2,146 4,172 3,451 4,177
--------- --------- --------- --------- ---------
Total revenues................................................. 3,922 6,149 13,989 19,114 26,452
Operating expenses:
Cost of revenues............................................. 2,036 3,372 8,457 10,103 13,168
Sales, general and administrative............................ 1,630 2,661 3,996 5,575 6,247
Product development.......................................... 387 880 1,545 1,979 3,644
Depreciation and amortization................................ 65 152 265 317 685
--------- --------- --------- --------- ---------
Total operating expenses....................................... 4,118 7,065 14,263 17,974 23,744
--------- --------- --------- --------- ---------
Operating income (loss)........................................ (196) (916) (274) 1,140 2,708
--------- --------- --------- --------- ---------
Interest income and other...................................... 6 12 12 49 870
Interest expense............................................... (10) (32) (25) (31) (16)
--------- --------- --------- --------- ---------
Income (loss) before income taxes.............................. (200) (936) (287) 1,158 3,562
Provision (benefit) for income taxes(1)........................ -- (1) 2 593 983
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ (200) $ (935) $ (289) $ 565 $ 2,579
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PRO FORMA INFORMATION:
Net income per share(2)........................................ $ 0.10 $ 0.36
Weighted average number of common and common equivalent shares
outstanding(2)............................................... 5,526 7,067
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................ $ (166) $ 924 $ 1,214 $ 2,018 $ 55,065
Total assets................................................... 1,483 5,661 5,907 8,006 63,489
Total debt..................................................... 263 -- -- -- --
Common stockholders' equity (deficit).......................... 198 (2,454) (1,884) (946) 57,600
</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.
16
<PAGE>
ITEM 7. 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 FORM 10-K.
OVERVIEW
IntelliQuest is a leading provider of information, technologies, and
analysis services that are designed to improve the marketing performance of
technology companies. The Company also licenses custom proprietary software
applications and associated services to technology manufacturers for customer
registration. In 1996, approximately 84% of the Company's revenues were derived
from continuous services and 16% from the sale of proprietary project research
and conferences. 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, 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 $26.5 million in 1996. Revenues from continuous services increased from $0.6
million in 1991, or 25.2% of total revenues, to $22.3 million in 1996, or 84.2%
of total revenues. Revenues from international market research, which the
Company first introduced in 1991, grew to $7.9 million in 1996, or 29.8% of
total revenues. Overall, the number of customers for the Company's products and
services increased from 52 in 1991 to 160 in 1996.
The Company's continuous services are composed of renewable
subscription-based products as well as renewable proprietary products. The
Company's renewable subscription-based product revenues are derived
substantially from three product families: IntelliTrack IQ, World Wide Internet
Tracking Study ("WWITS"), and the Computer Industry Media Study ("CIMS").
IntelliTrack IQ is a collection of fourteen distinct product modules covering a
variety of technologies and geographic markets. WWITS is a quarterly study that
measures size and growth information on Internet and on-line markets. This study
targets all relevant customer segments including non-users as well as users.
Payments for IntelliTrack IQ and WWITS contracts 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 and customer information products.
The proprietary recurring tracking studies provide the customer with
longitudinal information for tracking designated metrics over a continuous
17
<PAGE>
period of time. Revenues from the customer information products are derived from
a variety of sources, including proprietary customer registration products and
proprietary customer satisfaction products. Renewable customer information
revenues include data medium sales, processing fees and reporting fees. These
renewable proprietary products are furnished pursuant to contracts that are
generally renewable annually and provide various payment terms including 50% in
advance and 50% upon delivery, periodic units shipped/processed, percentage of
completion and advance deposits. Revenues for renewable proprietary products are
recognized on a percentage of completion and actual units shipped/processed
basis.
The Company's other services are composed of proprietary research and
conferences. 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 to twelve
months from start to completion. The Company is increasingly emphasizing
proprietary 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 hosts various conferences which provide a forum for presentation and
discussion of technology related issues. Revenue for conferences is recognized
in the period which the conference takes place. Attendee and sponsorship fees
are typically paid in advance.
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 related foreign currency
risk both through contractual clauses requiring clients to reimburse the Company
for any material losses on contracts caused by exchange rate fluctuations and by
locking in forward currency contracts for vendor purchases. 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 December 31,
1996, the Company had entered into open forward contracts for U.S.
dollar/British pound sterling transactions with a notional value of
approximately $1.2 million.
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 information 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),
while increasing the Company's operating margin.
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. In October 1996, the
Company completed a follow-on public offering at a price of $27.50 per share,
which resulted in net proceeds to the Company of $26.1 million.
18
<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 INCREASE
PERCENT OF TOTAL REVENUE (DECREASE)
FISCAL YEAR ENDED --------------------------
DECEMBER 31, FISCAL 1995 FISCAL 1996
------------------------------------- OVER FISCAL OVER FISCAL
1994 1995 1996 1994 1995
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous services................................... 70.2% 81.9% 84.2% 59.6% 42.2%
Other services........................................ 29.8 18.1 15.8 (17.3) 21.0
----- ----- -----
Total revenues.......................................... 100.0 100.0 100.0 36.6 38.4
Operating expenses:
Cost of revenues...................................... 60.5 52.9 49.8 19.5 30.3
Sales, general and administrative..................... 28.6 29.2 23.6 39.5 12.0
Product development................................... 11.0 10.3 13.7 28.1 84.1
Depreciation and amortization......................... 1.9 1.6 2.6 19.6 116.1
----- ----- -----
Total operating expenses................................ 102.0 94.0 89.7 26.0 32.1
----- ----- -----
Operating income (loss)................................. (2.0) 6.0 10.3 * 137.5
----- ----- -----
Interest income and other............................. 0.1 0.3 3.2 * 1,675.5
Interest expense...................................... (0.2) (0.2) 0.0 * *
----- ----- -----
Income (loss) before income taxes....................... (2.1) 6.1 13.5 * 207.6
----- ----- -----
Provision (benefit) for income taxes.................... 0.0 3.1 3.7 * 65.8
----- ----- -----
Net income (loss)....................................... (2.1)% 3.0% 9.8% * 356.5
----- ----- -----
----- ----- -----
</TABLE>
- ------------------------
* Comparison not meaningful.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
TOTAL REVENUES. Total revenues increased 38.4% in 1996 to $26.5 million
from $19.1 million in 1995. Revenues from continuous services increased 42.2% to
$22.3 million in 1996 from $15.7 million in 1995 due primarily to the execution
and new sales of customer information products as well as increased demand for
proprietary tracking products and the increased number of subscribers for the
three subscription-based product families. Other revenues increased 21.0% to
$4.2 million in 1996 from $3.5 million in 1995, due primarily to growth of the
Company's Technology Panel research. Revenues attributable to international
market research increased 59.2% to $7.9 million in 1996 from $5.0 million in
1995.
COST OF REVENUES. Cost of revenues increased 30.3% to $13.2 million in 1996
from $10.1 million in 1995. Cost of revenues decreased as a percentage of
revenues to 49.8% in 1996 from 52.9% in 1995. The decrease in cost of revenues
as a percentage of revenues reflects the Company's efforts to leverage its fixed
labor costs through its investments in new products and proprietary processes.
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.
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.
19
<PAGE>
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 12.0% to $6.2 million (23.6% of total revenues) during 1996
from $5.6 million (29.2% of total revenues) during 1995. The increase was a
result of several items including additional expenses associated with becoming a
public company and the acquisition of IntelliQuest Communications as well as
expansion of the Company's sales and marketing departments and its United
Kingdom facilities. Acquisition costs expensed during 1996 were $231,000. The
decrease as a percentage of total sales was primarily due to the Company's
ability to leverage its fixed costs over a higher revenue base. The Company
anticipates that sales, general and administrative expenses as a percent of
revenue will increase in future periods due to its expansion of sales and
marketing efforts.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses are composed of
resources, primarily labor and data collection charges, dedicated to the
development of new products and proprietary processes. Product development
expenses increased to $3.6 million during 1996 from $2.0 million during 1995, an
84.1% increase. The increase was due to the Company's increased development
efforts on Internet related products. Due to the fact that the Company competes
in a market characterized by rapid and continual technological change, it
anticipates adding new products and services which address the increasingly
sophisticated, rapidly changing and demanding needs of its customers and their
evolving market strategies. As a result of the uncertainty of these market
demands, future product development expenses may fluctuate.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
116.1% from $317,000 during 1995 to $685,000 during 1996. This increase was due
to a high level of capital equipment acquisitions including establishing two new
data collection facilities and installation of corporate-wide standardized
computer platforms, networks and software to accommodate more efficient data
communications.
INCOME TAXES. The Company's provision for income taxes represents 51.2% and
27.6% of income before income taxes for 1995 and 1996, respectively. The 1996
rate is below the Company's combined federal and state income tax rates due to a
combination of two factors. The net proceeds from the Company's initial and
follow-on public offerings in 1996 have typically been invested in tax-free
instruments and the Company had not recorded any income tax benefit prior to
1996 resulting from operating losses generated by IntelliQuest Communications.
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 continuous services increased 59.6% in
1995 to $15.7 million from $9.8 million in 1994 due primarily to increased sales
of customer information products and to increased demand for international
proprietary tracking products as well as the increased number of new
subscribers, the higher number of products sold per subscriber and revenues
related to new international markets covered. Other revenues decreased 17.3% to
$3.5 million in 1995 from $4.2 million in 1994 due primarily to the Company's
continuing emphasis on continuous services. Revenues attributable to
international market research increased 68.9% to $5.0 million in 1995 from $2.9
million in 1994.
COST OF REVENUES. Cost of revenues increased 19.5% to $10.1 million in 1995
from $8.5 million in 1994. Cost of revenues decreased as a percentage of
revenues to 52.9% in 1995 from 60.5% in 1994. The decrease in cost of revenues
as a percentage of revenues reflects the Company's efforts to leverage its fixed
labor costs through its investments in new products and proprietary processes.
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
20
<PAGE>
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.
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 March 31,
1995 and ending December 31, 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 Form 10-K. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Continuous services.................... 2,413 2,917 6,205 4,128 3,654 3,495 7,910
Other services......................... 982 707 647 1,115 445 1,172 1,126
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................... 3,395 3,624 6,852 5,243 4,099 4,667 9,036
Operating expenses:
Cost of revenues....................... 1,594 1,673 4,215 2,621 1,822 1,863 4,980
Sales, general and administrative...... 1,277 1,312 1,455 1,531 1,362 1,430 1,784
Product development.................... 384 454 451 690 608 1,085 798
Depreciation and amortization.......... 61 80 87 89 147 170 172
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses................. 3,316 3,519 6,208 4,931 3,939 4,548 7,734
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss).................. 79 105 644 312 160 119 1,302
Interest income (expense), net......... (1) 4 17 (2) 20 234 207
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes........ 78 109 661 310 180 353 1,509
Provision (benefit) for income taxes..... 52 89 313 139 78 74 449
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........................ $ 26 $ 20 $ 348 $ 171 $ 102 $ 279 $ 1,060
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma and actual information:
Net income per share(1)................ $ 0.00 $ 0.00 $ 0.06 $ 0.03 $ 0.02 $ 0.04 $ 0.15
Weighted average number of common and
common equivalent shares
outstanding(1)....................... 5,512 5,512 5,540 5,540 5,724 7,240 7,228
AS A PERCENTAGE OF TOTAL REVENUES
Revenues:
Continuous services...................... 71.1% 80.5% 90.6% 78.7% 89.1% 74.9% 87.5%
Other services........................... 28.9 19.5 9.4 21.3 10.9 25.1 12.5
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenues....................... 47.0 46.2 61.5 50.0 44.5 39.9 55.1
Sales, general and administrative...... 37.6 36.2 21.2 29.2 33.2 30.6 19.7
Product development.................... 11.3 12.5 6.6 13.1 14.8 23.3 8.8
Depreciation and amortization.......... 1.8 2.2 1.3 1.7 3.6 3.6 1.9
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses................. 97.7 97.1 90.6 94.0 96.1 97.4 85.5
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss).................. 2.3 2.9 9.4 6.0 3.9 2.6 14.5
Interest income (expense), net......... 0.0 0.1 0.2 0.0 0.5 5.0 2.3
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes........ 2.3 3.0 9.6 6.0 4.4 7.6 16.8
Provision (benefit) for income taxes..... 1.5 2.4 4.5 2.7 1.9 1.6 4.9
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........................ 0.8% 0.6% 5.1% 3.3% 2.5% 6.0% 11.9%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31,
1996
-----------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Continuous services.................... 7,216
Other services......................... 1,434
-----------
Total revenues........................... 8,650
Operating expenses:
Cost of revenues....................... 4,503
Sales, general and administrative...... 1,671
Product development.................... 1,153
Depreciation and amortization.......... 196
-----------
Total operating expenses................. 7,523
-----------
Operating income (loss).................. 1,127
Interest income (expense), net......... 393
-----------
Income (loss) before income taxes........ 1,520
Provision (benefit) for income taxes..... 382
-----------
Net income (loss)........................ $ 1,138
-----------
-----------
Pro forma and actual information:
Net income per share(1)................ $ 0.14
Weighted average number of common and
common equivalent shares
outstanding(1)....................... 8,074
Revenues:
Continuous services...................... 83.4%
Other services........................... 16.6
-----------
Total revenues........................... 100.0
Operating expenses:
Cost of revenues....................... 52.1
Sales, general and administrative...... 19.3
Product development.................... 13.3
Depreciation and amortization.......... 2.3
-----------
Total operating expenses................. 87.0
-----------
Operating income (loss).................. 13.0
Interest income (expense), net......... 4.5
-----------
Income (loss) before income taxes........ 17.5
Provision (benefit) for income taxes..... 4.4
-----------
Net income (loss)........................ 13.1%
-----------
-----------
</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>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had cash of $662,000 and short term
investments of $51.1 million and working capital of $55.1 million.
During the twelve months ended December 31, 1996, the Company generated
$273,000 of cash from operations as compared to $625,000 during the prior year.
The decrease in cash flow from operations is due to a combination of offsetting
factors. Although the Company's increased earnings provided an increase in cash
flow, an increase in its accounts receivable, which resulted from typical
billing activity as discussed below, caused an offsetting decrease in cash flow.
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 prior
year. This increase in cash flow from operations was the result of the Company's
leveraging of its subscription-based products, returns from investments in
customer information products and a prepayment for services on a certain
contract received by the Company during 1995.
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 December
31, 1996 and 1995, the Company had $2.3 million and $1.8 million of deferred
revenues, respectively. In addition, when work is performed in advance of
billing, the Company will record this work as unbilled revenue. As of December
31, 1996 and 1995, the Company had $2.7 million and $1.6 million of unbilled
revenues, respectively. Substantially all deferred and unbilled revenues will be
earned and billed, respectively, within 12 months of the respective period ends.
For the years ended December 31, 1996 and 1995, net cash used in investing
activities was $52.8 million and $771,000, respectively. This increase in cash
used was primarily due to the Company's investment of the net proceeds from its
initial and follow-on public offerings that closed in March and October 1996,
respectively, in short term investments. The increase also results from 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. The Company anticipates emphasizing investments in internally
developed software and data analysis products in 1997.
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 periodically considers 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. The Company may undertake such acquisitions during
1997. At present, however, it has no commitments or agreements with respect to
any such acquisition other than its acquisition of Zona Research during February
1997.
Financing activities provided cash of $551,000 during fiscal 1995 and $51.5
million during fiscal 1996. The increased cash flow was generated by net
proceeds from the Company's initial and follow-on public offerings that closed
in March and October 1996, respectively.
23
<PAGE>
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 and are subject to
compliance by the Company with certain financial covenants. At December 31,
1996, the Company was in compliance with all such covenants and there was
$186,000 outstanding under such line of credit. The line of credit matures on
November 21, 1997.
The Company believes that the cash flows from operations, together with
existing cash balances, short term investments 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 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.
RISK FACTORS
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, 1995 and 1996 generated
63.7%, 60.5% and 61.2%, respectively, of the Company's revenues in each of those
periods. In 1996, the Company's two largest customers, IBM and Microsoft, each
accounted for over 10% of the Company's revenues and together accounted for
29.8% of revenues. The Company expects that these two customers will each
account for over 10% of revenues in 1997 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 1996, 84.0% 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 "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 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
24
<PAGE>
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 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
information 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 information products,
response rates on customer information 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.
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 information software (such as KAO Infosystems Company) as well as
vendors' own customer information 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, most 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 information 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 has created the opportunity
to use the Internet as an information transmission medium. Accordingly, the
Company is expending significant resources to develop Internet-based information
collection tools. There can be no assurance, however, that the Company will be
25
<PAGE>
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 in 1996 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, and if
initiated, that such litigation will not have a material adverse effect on the
Company's business, financial condition or results of operations.
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 information products,
increased competition, possible pricing pressures and other general economic
trends. Although market research expenditures by technology companies have
increased in recent years as such companies have adopted certain marketing
strategies traditionally utilized by consumer goods manufacturers, there can be
no assurance that this trend will continue or that technology companies will
continue to rely on externally-generated market research to enhance the
marketing of their products.
26
<PAGE>
The Company hopes to achieve a portion of its future revenue growth, if any,
through acquisitions of complementary businesses, products or technologies,
although the Company currently has no commitments or agreements with respect to
any such acquisition. As part of this strategy, the Company acquired
IntelliQuest Communications in May 1996 and Zona Research in February 1997. 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, the Zona Research 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 "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 each
of 1995 and 1996. As of December 31, 1996, the Company had an accumulated
deficit of approximately $715,000. 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.
LIMITED PROTECTION OF PROPRIETARY SYSTEMS, SOFTWARE AND PROCEDURES. The
Company's success is in part dependent upon its proprietary software technology,
research methods, data analysis techniques, and internal systems and procedures
that it has developed specifically to serve customers in the technology
industry. The Company has no patents; consequently, it relies on a combination
of copyright, trademark and trade secret laws and employee and third party
non-disclosure agreements to protect its proprietary systems, software and
procedures. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
such rights or that third parties will not independently develop functionally
equivalent or superior systems, software or procedures. The Company believes
that its systems, software and procedures and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the 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."
27
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. Revenues attributable to
international market research represented 21.0%, 29.2% and 29.8%, respectively,
of the Company's revenues for 1994, 1995 and 1996. 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.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTELLIQUEST INFORMATION GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants...................................................... 30
Consolidated Balance Sheet............................................................. 31
Consolidated Statement of Operations................................................... 32
Consolidated Statement of Common Stockholders' Equity.................................. 33
Consolidated Statement of Cash Flows................................................... 34
Notes to Consolidated Financial Statements............................................. 35
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of IntelliQuest Information
Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of common stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
IntelliQuest Information Group, Inc. and its subsidiaries at December 31, 1996
and 1995 and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, 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
January 31, 1997
30
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................. $ 1,688 $ 662
Short term investments..................................................................... -- 51,152
Accounts receivable, net of allowances for doubtful accounts of $341 and $341,
respectively............................................................................. 2,990 6,046
Unbilled revenues.......................................................................... 1,599 2,651
Projects in process........................................................................ 71 98
Prepaid expenses and other assets.......................................................... 32 288
--------- ---------
Total current assets..................................................................... 6,380 60,897
Furniture and equipment, net............................................................... 1,537 2,322
Other assets............................................................................... 89 270
--------- ---------
Total assets............................................................................. $ 8,006 $ 63,489
--------- ---------
--------- ---------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................... $ 1,174 $ 1,816
Accrued liabilities........................................................................ 1,263 1,505
Deferred revenues.......................................................................... 1,822 2,258
Other current liabilities.................................................................. 103 253
--------- ---------
Total current liabilities................................................................ 4,362 5,832
Capital lease obligations and deferred rent.................................................. 170 57
--------- ---------
Total liabilities........................................................................ 4,532 5,889
Commitments and contingencies (Note 7)
--------- ---------
Redeemable convertible preferred stock....................................................... 4,420 --
--------- ---------
Preferred stock, $.0001 par value, 1,000,000 shares authorized, no shares issued or
outstanding................................................................................ -- --
Common stockholders' equity:
Common stock, $.0001 par value, 30,000,000 shares authorized, 3,245,000 and 8,082,000
shares issued and outstanding, respectively.............................................. 1 1
Capital in excess of par value............................................................. 2,345 58,336
Deferred compensation...................................................................... (61) (47)
Foreign currency translation............................................................... -- 25
Accumulated deficit........................................................................ (3,231) (715)
--------- ---------
Total common stockholders' equity........................................................ (946) 57,600
--------- ---------
Total liabilities, redeemable convertible preferred stock and common stockholders'
equity................................................................................. $ 8,006 $ 63,489
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
--------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Continuous services...................................................... $ 9,817 $ 15,664 $ 22,275
Other services........................................................... 4,172 3,450 4,177
--------- ------------ ------------
Total revenues......................................................... 13,989 19,114 26,452
Operating expenses:
Cost of revenues......................................................... 8,457 10,103 13,168
Sales, general and administrative........................................ 3,996 5,575 6,247
Product development...................................................... 1,545 1,979 3,644
Depreciation and amortization............................................ 265 317 685
--------- ------------ ------------
Total operating expenses............................................... 14,263 17,974 23,744
--------- ------------ ------------
Operating income (loss).................................................... (274) 1,140 2,708
--------- ------------ ------------
Other income (expense):
Interest income and other................................................ 12 49 870
Interest expense......................................................... (25) (31) (16)
--------- ------------ ------------
Income (loss) before income taxes........................................ (287) 1,158 3,562
Provision for income taxes................................................. 2 593 983
--------- ------------ ------------
Net income (loss).......................................................... $ (289) $ 565 $ 2,579
--------- ------------ ------------
--------- ------------ ------------
Pro forma net income per share............................................. $ .10 $ .36
------------ ------------
------------ ------------
Weighted average number of common and common equivalent shares
outstanding.............................................................. 5,526,000 7,067,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN ACCUMULATED TOTAL
--------------------- EXCESS OF EARNINGS STOCKHOLDERS'
SHARES PAR VALUE PAR VALUE OTHER (DEFICIT) EQUITY
---------- --------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................. 3,046,000 $ 1 $ 494 $ -- $ (2,949) $ (2,454)
Issuances of common stock................... 151,000 -- 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.................. 3,197,000 1 2,482 (850) (3,517) (1,884)
Issuances of common stock................... 48,000 -- 547 -- -- 547
Deferred stock option 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.................. 3,245,000 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........................... 2,118,000 -- 5,020 -- -- 5,020
Common stock issued upon initial public
offering, net............................. 1,635,000 -- 25,248 -- -- 25,248
Common stock issued upon secondary offering,
net....................................... 1,000,000 -- 25,572 -- -- 25,572
Exercise of stock options................... 84,000 -- 151 -- -- 151
Amortization of deferred
compensation.............................. -- -- -- 14 -- 14
Change in cumulative foreign currency
translation............................... -- -- -- 25 -- 25
Net income.................................. -- -- -- -- 2,579 2,579
---------- --------- ----------- --------- ------------ ------------
Balance, December 31, 1996.................. 8,082,000 $ 1 $ 58,336 $ (22) $ (715) $ 57,600
---------- --------- ----------- --------- ------------ ------------
---------- --------- ----------- --------- ------------ ------------
</TABLE>
The accompany notes are an integral part of these consolidated financial
statements.
33
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ (289) $ 565 $ 2,579
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................... 268 357 795
Bad debt expense............................................................ 45 311 141
Loss on sale of equipment and other......................................... 5 3 20
Noncash stock option compensation expense................................... 33 98 14
Net changes in assets and liabilities:
Accounts receivable and unbilled revenue.................................... 310 (2,096) (4,249)
Prepaid expenses and other assets........................................... (68) 64 (195)
Projects in process......................................................... 365 447 (27)
Accounts payable and accrued expenses....................................... 36 1,234 884
Deferred revenue............................................................ (595) (351) 436
Deferred rent and other..................................................... 45 (7) (125)
--------- --------- -----------
Net cash provided by operating activities................................. 155 625 273
--------- --------- -----------
Cash flows from investing activities:
Purchases of short-term investments........................................... -- -- (167,438)
Sales and maturities of short-term investments................................ -- -- 116,286
Purchases of furniture and equipment.......................................... (632) (867) (1,553)
Other......................................................................... (23) 96 (130)
--------- --------- -----------
Net cash used in investing activities..................................... (655) (771) (52,835)
--------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock........................................ 1,106 547 51,508
Borrowings under line of credit............................................... 375 650 761
Repayments on line of credit.................................................. (375) (675) (575)
Proceeds from (repayments on) notes payable................................... 50 65 (91)
Repayments of principal on capital lease obligations (67) (36) (67)
--------- --------- -----------
Net cash provided by financing activities................................. 1,089 551 51,536
--------- --------- -----------
Net increase in cash and equivalents............................................ 589 405 (1,026)
Cash and cash equivalents at the beginning of the period........................ 694 1,283 1,688
--------- --------- -----------
Cash and cash equivalents at the end of the period.............................. $ 1,283 $ 1,688 $ 662
--------- --------- -----------
--------- --------- -----------
Supplemental cash flow disclosures:
Interest paid................................................................. $ 25 $ 42 $ --
--------- --------- -----------
--------- --------- -----------
Property and equipment acquired under capital leases.......................... $ -- $ 9 $ 47
--------- --------- -----------
--------- --------- -----------
Taxes paid.................................................................... $ 5 $ 305 $ 278
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED 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 was reincorporated in Delaware on March 19, 1996. In
conjunction with this reincorporation, the Company changed its name to
IntelliQuest Information Group, Inc. and 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 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.
During 1995, the Company formed a wholly-owned subsidiary located in London,
England. At December 31, 1996, the total assets and liabilities of this
subsidiary were approximately $768,000 and $249,000, respectively, net of
intercompany eliminations. Net income related to this subsidiary for the year
ended December 31, 1996 totaled $161,000. 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.
2. ACQUISITION--INTELLIQUEST COMMUNICATIONS
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.
35
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION--INTELLIQUEST COMMUNICATIONS (CONTINUED)
Combined and separate results of operations for the periods prior to the
acquisition of IntelliQuest Communications were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE SIX
-------------------- MONTHS ENDED
1994 1995 JUNE 30, 1996
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues:
IntelliQuest.................................. $ 12,983 $ 16,974 $ 7,209
IntelliQuest Communications................... 1,006 2,140 1,557
--------- --------- ------
Combined........................................ $ 13,989 $ 19,114 $ 8,766
--------- --------- ------
--------- --------- ------
Net income (loss):
IntelliQuest.................................. $ (24) $ 911 $ 464
IntelliQuest Communications................... (265) (346) (83)
--------- --------- ------
Combined........................................ $ (289) $ 565 $ 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.
REVENUE RECOGNITION
CONTINUOUS SERVICES
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. Revenue from
processing transactions is recognized as the transactions are processed for
customers. Losses on a given contract are recognized when determined probable.
OTHER SERVICES
Revenues from proprietary research service contracts are recognized in
proportion to performance required under the contracts (percentage of
completion) based on cost input. Revenue from conferences is recognized upon
completion of each conference. As mentioned above, losses on a given contract
are recognized when determined probable.
36
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 prior to the initial public
offering in March 1996 was 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 Securities 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 through the date of the initial public offering and
market value subsequent to that date. 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 through the initial public
offering. The
37
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 using the liability method 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 at 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.
SHORT-TERM INVESTMENTS
Short-term investments are carried at market value, which approximates cost,
at the balance sheet date. Short-term investments consist of funds primarily
invested in government securities. Investment securities generally have
maturities of less than one year.
The Company accounts for investment securities under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115
requires investment securities to be classified as held-to-maturity, trading or
available-for-sale based on the characteristics of the securities and the
activity in the investment portfolio. At December 31, 1996, all investment
securities are classified as available-for-sale. No unrealized gains or losses
have been recorded as a separate component of equity for the current period as
market value approximates cost due to the short-term nature of the investments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including cash,
short-term investments, and trade receivables and payables, approximates fair
value. The carrying amount of short-term investments approximates fair value
because of the short maturity and nature of these instruments. The Company
places its cash investments in quality financial instruments and limits the
amount invested in any
38
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
one institution or in any type of instrument. The Company has not experienced
any significant losses on its investments.
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 adjustments are accumulated and
reported as a separate component of stockholders' equity. There have not been
material transaction losses through December 31, 1996.
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
effective January 1, 1996. The adoption did not have a material effect on the
Company's financial statements.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting and
Disclosure of Stock-Based Compensation." SFAS No. 123 introduces a fair-value
based method of accounting for stock-based compensation. It encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on their
estimated fair market value on the date of grant. The Company has opted to
continue to apply the existing accounting rules contained in APB Opinion No. 25,
"Accounting for Stock Issued to Employees." As such, SFAS No. 123 did not have
any effect on the Company's financial position or results of operations.
RECLASSIFICATIONS
Certain amounts related to prior years have been reclassified to conform to
the current year presentation.
4. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Equipment................................................................ $ 1,782 $ 2,920
Purchased software....................................................... 270 454
Furniture and fixtures................................................... 508 728
Leasehold improvements................................................... 96 114
--------- ---------
2,656 4,216
Less--Accumulated depreciation and amortization.......................... (1,119) (1,894)
--------- ---------
$ 1,537 $ 2,322
--------- ---------
--------- ---------
</TABLE>
39
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
4. FURNITURE AND EQUIPMENT (CONTINUED)
Included in the December 31, 1995 and 1996 balances of equipment are
$236,000 and $283,000, respectively, of assets acquired under lease. Accumulated
amortization for these assets was $101,000 and $142,000 at December 31, 1995 and
1996, respectively, and amortization expense was $36,000, $32,000, and $40,000
for the years ended December 31, 1994, 1995 and 1996, respectively.
5. LINE OF CREDIT
Included in other current liabilities at December 31, 1996, the Company had
a revolving line of credit available of $3,000,000 for which $186,000 was
outstanding at December 31, 1996. The line matures in November 1997 and is
available for general corporate purposes with a sublimit for foreign currency
transactions and letters of credit. It bears interest at either the bank's prime
lending rate or LIBOR plus 250 basis points (8.25% at December 31, 1996).
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.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accrued payroll and benefits............................................... $ 482 $ 549
Taxes payable.............................................................. 261 649
Accrued sales taxes........................................................ 210 0
Other accrued liabilities.................................................. 310 307
--------- ---------
$ 1,263 $ 1,505
--------- ---------
--------- ---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
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 2002. Rent expense under operating
leases totaled $337,000, $473,000 and $482,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
40
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under all leases as of December 31, 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1997..................................................................... $ 80 $ 797
1998..................................................................... 23 754
1999..................................................................... -- 737
2000..................................................................... -- 736
2001..................................................................... -- 704
Thereafter............................................................... 117
----- -----------
Total minimum lease payments........................................... 103 $ 3,845
-----------
-----------
Less: executory costs.................................................... 9
amount representing interest........................................ 6
-----
Present value of net minimum lease payments.............................. 88
Less--current portion.................................................... 67
-----
Long-term portion........................................................ $ 21
-----
-----
</TABLE>
8. INCOME TAXES
The income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current provision........................................... $ -- $ 577 $ 1,090
Deferred provision.......................................... 2 16 (107)
--------- --------- ---------
Total provision for income tax............................ $ 2 $ 593 $ 983
--------- --------- ---------
--------- --------- ---------
</TABLE>
41
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED 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 YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) provision at statutory rate............ $ (98) $ 394 $ 1,211
IntelliQuest Communications' net loss for which no benefit
is recognized............................................. 90 118 --
Utilization of net operating loss of IntelliQuest
Communications............................................ -- -- (75)
State taxes, net of federal benefit......................... (1) 68 118
Tax free income............................................. -- -- (285)
Other, net.................................................. 11 13 14
--------- --------- ---------
Total provision............................................. $ 2 $ 593 $ 983
--------- --------- ---------
--------- --------- ---------
</TABLE>
The principal components of the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax liabilities:
Cash to accrual adjustments......................................... $ 307 $ 106 $ 81
Depreciation and other.............................................. 49 113 54
--------- --------- ---------
Gross deferred tax liability...................................... 356 219 135
--------- --------- ---------
Deferred tax assets:
Product development costs........................................... 153 141 86
Allowance for doubtful accounts..................................... 13 117 101
Acquisition costs................................................... -- -- 53
Accrued vacation pay and other...................................... 29 26 35
Net operating loss carryforward..................................... 446 318 279
--------- --------- ---------
Gross deferred tax assets......................................... 641 602 554
--------- --------- ---------
Less valuation allowance............................................ 281 395 295
--------- --------- ---------
Net deferred tax asset (liability)................................ $ 4 $ (12) $ 124
--------- --------- ---------
--------- --------- ---------
</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.
42
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
As of December 31, 1996, IntelliQuest Communications has net operating loss
and research and experimentation credit carryforwards for Federal income tax
purposes of approximately $820,000 and $34,000, respectively. These
carryforwards expire beginning 2008 through 2010.
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") had 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 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>
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
Under the 1993 Stock Plan (the "1993 Plan"), a total of 344,256 shares of
the Company's Common Stock have been authorized for issuance. Under the 1993
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
43
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
the voting power of all classes of stock, in which case the option price will be
110% of the fair market 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. As of
December 31, 1996, the Company does not intend to grant any further options
under the 1993 Plan.
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"). The 1996 Plan provides for
grants of options to employees and consultants (including officers and
directors) of the Company and its subsidiaries. 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 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 due to death
or disability) following the date of termination. Options granted under the 1996
Plan generally vest and become exercisable at a rate of 40% vesting on the
second anniversary of the commencement of vesting and 20% on each of the next
three anniversaries thereafter, such that all shares under an option are fully
vested in five years. Options outstanding under the 1996 Plan generally have a
term of ten years.
1996 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan (the "Director Plan"). A total of 100,000 shares of Common
Stock have been reserved for issuance under the Director Plan. The Director Plan
provides that each non-employee director shall be granted, at the discretion of
the Board of Directors, a nonstatutory option to purchase shares of Common Stock
(the "First Option") upon the date such non-employee director first becomes 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 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 or her service as a
director. The vesting terms to both the First Option and the Subsequent Option
shall be at the discretion of the Board of Directors. The exercise price for
director options are comparable to options granted under the 1996 Plan described
above.
44
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
PIPELINE COMMUNICATIONS 1994 INCENTIVE STOCK OPTION PLAN
The Company has reserved an aggregate of 50,000 shares of Common Stock for
issuance under the Pipeline Communications 1994 Incentive Stock Options Plan
(the "Pipeline Plan"). The Pipeline Plan provides for grants of options to the
former employees of Pipeline Communications, Inc. (Note 2). The provisions of
the Pipeline Plan are comparable to the provisions of the 1996 Plan as described
above except that the vesting schedule is determined by the Board of Directors.
The Company applies APB No. 25 and related Interpretations in accounting for
its stock option plans, which are described below. Accordingly, no compensation
cost has been recognized for its stock option plans. Had compensation cost for
the Company's stock option plans and employee stock purchase plan been
determined based on the fair market value at the grant dates for awards under
those plans consistent with the method provided by SFAS No. 123, the Company's
net income and net income per share would have been reflected by the following
pro forma amounts for the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1995 1996
---------- ------------
<S> <C> <C> <C>
Net income As reported........................... $ 565,000 $ 2,579,000
Pro forma............................. $ 560,000 $ 2,150,000
Primary net income per share As reported........................... $ .10 $ .36
Pro forma............................. $ .10 $ .31
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996
-------------- ---------------
<S> <C> <C>
Dividend yield............................................... -- --
Expected volatility.......................................... -- 59.84%
Risk-free rate of return..................................... 6.21% 6.25%
Expected life................................................ 3.96 years 4.67 years
</TABLE>
45
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
The following table summarizes activity under all Plans for each of the
three years ended December 31, 1996 (share amounts in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE SHARES PRICE SHARES PRICE SHARES
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning of the year............. $ .17 60 $ .83 140 $ 1.02 215
Granted............................................ 1.04 111 1.30 90 20.14 300
Exercised.......................................... -- -- -- -- .71 (71)
Canceled........................................... .14 (31) .93 (15) .51 (9)
----- --- ----- ----- ----------- ---------
Outstanding at the end of the year................... $ .83 140 $ 1.02 215 $ 14.29 435
----- --- ----- ----- ----------- ---------
----- --- ----- ----- ----------- ---------
Options exercisable at year end...................... $ .21 23 $ .65 49 $ 2.06 82
----- --- ----- ----- ----------- ---------
----- --- ----- ----- ----------- ---------
Weighted average fair value of options granted during
the year........................................... $ .32 $ 11.12
----- ---------
----- ---------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
NUMBER WEIGHTED-AVERAGE ----------------------------------------
RANGE OF EXERCISE OUTSTANDING AT REMAINING WEIGHTED-AVERAGE NUMBER EXERCISABLE AT WEIGHTED-AVERAGE
PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1996 EXERCISE PRICE
- ----------------------- --------------------- ---------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
$.14-$.23.............. 51 7.1 years $ .14 34 $ .14
$.40-$1.38............. 73 7.9 .78 37 .65
$2.32-$9.26............ 12 7.8 9.14 2 8.59
$13.89-$17.00.......... 74 7.3 16.10 9 13.89
$20.00-$25.63.......... 225 9.1 21.54 -- --
--- -------- ------ --- ------
$.14-$25.63............ 435 8.3 years $ 14.29 82 $ 2.06
--- -------- ------ --- ------
--- -------- ------ --- ------
</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 20,641 shares of
IntelliQuest common stock upon the acquisition of IntelliQuest Communications.
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
permits eligible employees of the Company to purchase Common Stock through
payroll deductions of up to 15% of their compensation provided that
46
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
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. The price of Common Stock
purchased under the ESPP will be 85% of the lower of the fair market of the
Common Stock on the first and last day of each offering period. Shares of common
stock granted under the ESPP totaled 2,247 for the year ended December 31, 1996.
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for the year ended December
31, 1996:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1996
------------
<S> <C>
Dividend yield........................................................ --
Expected volatility................................................... 59.84%
Risk-free rate of return.............................................. 5.52%
Expected life......................................................... .5years
Weighted-average fair value of purchase rights granted................ $ 5.73
</TABLE>
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 $5,000, $30,000 and $10,000 in 1994, 1995 and 1996,
respectively.
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 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>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Client 1............................................................... 11% 15% 11%
Client 2............................................................... 8% 11% 19%
Client 3............................................................... 12% 5% 4%
</TABLE>
47
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SIGNIFICANT CLIENTS AND CREDIT RISKS (CONTINUED)
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>
1995 1996
----- -----
<S> <C> <C>
Client 1....................................................................... 23% 17%
Client 2....................................................................... 20% 14%
</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.
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>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Europe........................................................... $ 2,558 $ 3,817 $ 6,530
Other International.............................................. 210 1,060 1,354
--------- --------- ---------
$ 2,768 $ 4,877 $ 7,884
--------- --------- ---------
--------- --------- ---------
</TABLE>
14. SUBSEQUENT EVENT-ACQUISITION-ZONA (UNAUDITED)
In February 1997, IntelliQuest completed a merger with Zona Research, Inc.
("Zona"), which became a wholly-owned subsidiary of IntelliQuest. A total of
250,000 shares of IntelliQuest common stock were exchanged for all the
outstanding shares of common stock of Zona. The merger will be accounted for
under the pooling of interests method and, accordingly, historical financial
statement data in future reports will be restated to include Zona data. The
following unaudited pro forma data summarizes the combined
48
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENT-ACQUISITION-ZONA (UNAUDITED) (CONTINUED)
results of operations of IntelliQuest and Zona as though the merger had occurred
at the beginning of fiscal 1994.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Revenues
IntelliQuest........................................... $ 13,989 $ 19,114 $ 26,452
Zona (unaudited)....................................... 579 623 1,936
--------- ---------- ----------
Pro forma combined..................................... $ 14,568 $ 19,737 $ 28,388
--------- ---------- ----------
--------- ---------- ----------
Net income (loss)
IntelliQuest........................................... $ (289) $ 565 $ 2,579
Zona (unaudited)....................................... (17) (21) (145)
--------- ---------- ----------
Pro forma combined....................................... $ (306) $ 544 $ 2,434
--------- ---------- ----------
--------- ---------- ----------
Pro forma earnings per share............................. $ .09 $ .33
---------- ----------
---------- ----------
Pro forma weighted average shares outstanding............ 5,776,000 7,317,000
---------- ----------
---------- ----------
</TABLE>
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information regarding the Company's executive officers, the
information called for by this Item is incorporated in this Form 10-K by
reference to the definitive Proxy Statement for the Company's Annual Meeting of
Stockholders, currently scheduled for May 15, 1997, under the heading "Proposal
One--Election of Directors--Nominees".
For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" under Part I of this Form 10-K.
None of the Company's directors or officers has any family relationship with
any other director or officer. "Family relationship" for this purpose means any
relationship by blood, marriage or adoption, not more remote than first cousin.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation and related matters set forth
in the Company's definitive Proxy Statement for the Company's Annual meeting of
Stockholders, currently scheduled for May 15, 1997, under the section entitled
"Executive Compensation and Other Matters," and is incorporated herein by
reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning shares of Common Stock of the Company beneficially
owned by management and others is set forth in the Company's definitive Proxy
Statement for the Company's Annual Meeting of Stockholders, currently scheduled
for May 15, 1997, under the section entitled "Record Date and Principal Share
Ownership" and is incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated in this report by
reference to the Company's definitive Proxy Statement for the Company's Annual
Meeting of Stockholders, currently scheduled for May 15, 1997, under the section
entitled "Executive Compensation and Other Matters."
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
INTELLIQUEST INFORMATION GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants............................................. 30
Consolidated Balance Sheet.................................................... 31
Consolidated Statement of Operations.......................................... 32
Consolidated Statement of Common Stockholders' Equity (Deficit)............... 33
Consolidated Statement of Cash Flows.......................................... 34
Notes to Consolidated Financial Statements.................................... 35
</TABLE>
3. EXHIBITS
<TABLE>
<S> <C>
3.1 (1) Amended and Restated Certificate of Incorporation of the Registrant.
3.2 (1) Amended and Restated Bylaws of the Registrant.
4.1 (1) Form of Registrant's Common Stock Certificate.
10.1 (1) Form of Idemnification Agreement entered into by the Registrant with each of
its directors and executive officers.
10.2 (1) Amended 1993 IQI Corp. Stock Option Plan and related agreements.
10.3 (2) 1996 Stock Plan and related agreements.
10.4 (1) 1996 Employee Stock Purchase Plan and related agreements.
10.5 (2) 1996 Director Option Plan and related agreement.
10.6 (1) Stock Purchase Agreement among the Registrant and certain securityholders of
the Company, dated as of May 28, 1993.
10.7 (1) Loan and Security Agreement, between the Company and Silicon Valley Bank,
dated September 24, 1993, as amended and with exhibits.
10.8 (1) Lease Agreement between the Company and JMB Group Trust III, dated September
15, 1992, as amended.
10.9 Registration Rights Agreement, dated February 25, 1997, by and among the
Company and the former shareholders of Pipeline Communications, Inc. and
Zona Research, Inc.
10.10 1997 Supplemental Option Plan and related agreement
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.2 Consent of Price Waterhouse LLP, independent accountants.
24.1 Power of Attorney (see page 53).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-00844), as amended, declared effective March 21, 1996.
51
<PAGE>
(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-12547), as amended, declared effective October 17, 1997.
(b) Reports on Form 8-K for the quarter ended December 31, 1996.
The Company filed no current reports on Form 8-K during the fourth quarter
ended December 31, 1996.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTELLIQUEST INFORMATION GROUP, INC.
By: /s/ PETER ZANDAN
-----------------------------------------
(Peter Zandan)
Dated: March 28, 1997 CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Peter Zandan, Brian
Sharples, and James Schellhase, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connections therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ PETER ZANDAN
- ------------------------------ Chairman and Chief March 28, 1997
(Peter Zandan) Executive Officer
/s/ JAMES SCHELLHASE Chief Operating Officer,
- ------------------------------ Chief Financial Officer, March 28, 1997
(James Schellhase) Secretary and Director
/s/ BRIAN SHARPLES
- ------------------------------ President, Director March 28, 1997
(Brian Sharples)
/s/ WILLIAM WOOD
- ------------------------------ Director March 28, 1997
(William Wood)
/s/ LEE WALKER
- ------------------------------ Director March 28, 1997
(Lee Walker)
53
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<S> <C>
3.1 (1) Amended and Restated Certificate of Incorporation of the Registrant.
3.2 (1) Amended and Restated Bylaws of the Registrant.
4.1 (1) Form of Registrant's Common Stock Certificate.
10.1 (1) Form of Idemnification Agreement entered into by the Registrant with each of its directors and
executive officers.
10.2 (1) Amended 1993 IQI Corp. Stock Option Plan and related agreements.
10.3 (2) 1996 Stock Plan and related agreements.
10.4 (1) 1996 Employee Stock Purchase Plan and related agreements.
10.5 (2) 1996 Director Option Plan and related agreement.
10.6 (1) Stock Purchase Agreement among the Registrant and certain securityholders of the Company, dated
as of May 28, 1993.
10.7 (1) Loan and Security Agreement, between the Company and Silicon Valley Bank, dated September 24,
1993, as amended and with exhibits.
10.8 (1) Lease Agreement between the Company and JMB Group Trust III, dated September 15, 1992, as
amended.
10.9 Registration Rights Agreement, dated February 25, 1997, by and among the Company and the former
shareholders of Pipeline Communications, Inc. and Zona Research, Inc.
10.10 1997 Supplemental Option Plan and related agreement
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.2 Consent of Price Waterhouse LLP, independent accountants.
24.1 Power of Attorney (see page 53).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-00844), as amended, declared effective March 21, 1996.
(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-12547), as amended, declared effective October 17, 1997.
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
FEBRUARY 25, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
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SECTION 1 - Termination of Prior Rights. . . . . . . . . . . . . . . . . . . 1
1.1 Termination of Prior Registration Rights Agreement . . . . . . . 1
SECTION 2 - Restrictions on Transferability; Registration Rights . . . . . . 2
2.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . 4
2.5 Registration on Form S-3 . . . . . . . . . . . . . . . . . . . . 5
2.6 Parent Registration. . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Requested Registration . . . . . . . . . . . . . . . . . . . . . 7
2.8 Limitations on Subsequent Registration Rights. . . . . . . . . . 9
2.9 Expenses of Registration . . . . . . . . . . . . . . . . . . . . 9
2.10 Registration Procedures. . . . . . . . . . . . . . . . . . . . . 10
2.11 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12 Information by Holder. . . . . . . . . . . . . . . . . . . . . . 13
2.13 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Transfer of Registration Rights. . . . . . . . . . . . . . . . . 13
2.15 Market Standoff Agreement. . . . . . . . . . . . . . . . . . . . 13
SECTION 3 - Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . 15
3.8 Rights of Holders. . . . . . . . . . . . . . . . . . . . . . . . 15
3.9 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Future Signatories . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT A Company Shareholders
EXHIBIT B Pipeline Stockholders
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as
of the 25th day of February, 1997, by and among IntelliQuest Information
Group, Inc., a Delaware corporation ("PARENT"), the former shareholders of
record of Zona Research, Inc. ("COMPANY") set forth on EXHIBIT A attached
hereto (the "COMPANY SHAREHOLDERS"), and the stockholders of Parent set forth
on EXHIBIT B attached hereto (the "PIPELINE STOCKHOLDERS"). The Company
Shareholders and the Pipeline Stockholders are sometimes referred to herein
collectively as the "RIGHTS HOLDERS."
RECITALS
WHEREAS, Parent, IntelliQuest Merger Subsidiary, Inc., a wholly owned
subsidiary of Parent, and Company are entering into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") of even date herewith, pursuant to
which, among other things, and subject to the terms and conditions of this
Agreement, all of the issued and outstanding shares of capital stock of
Company ("COMPANY CAPITAL STOCK") shall be converted into the right to
receive shares of Common Stock of Parent ("PARENT COMMON STOCK"). The shares
of Parent Common Stock issued to the Company Shareholders in exchange for the
Company Common Stock are referred to collectively herein as the "Parent
Shares;" and
WHEREAS, in partial consideration for the exchange by Company
Shareholders of their shares of Company Capital Stock for the Parent Shares,
Parent seeks to grant the Company Shareholders certain registration rights,
and Pipeline Stockholders holding more than 50% of the outstanding shares of
Registrable Securities (as defined in the Registration Rights Agreement,
dated as of May 31, 1996, by and among Parent and the Pipeline Stockholders
(the "PRIOR REGISTRATION RIGHTS AGREEMENT")) (the "AMENDING PIPELINE
STOCKHOLDERS") have agreed to terminate the Prior Registration Rights
Agreement, and become parties to this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
TERMINATION OF PRIOR RIGHTS
1.1 TERMINATION OF PRIOR REGISTRATION RIGHTS AGREEMENT. Upon the
execution of this Agreement by Parent, the Company Shareholders and the
Amending Pipeline Stockholders, the Prior Registration Rights Agreement shall
terminate, be of no further force and effect and shall, in all respects, be
superseded by the provisions of this Agreement.
<PAGE>
SECTION 2
RESTRICTIONS ON TRANSFERABILITY;
REGISTRATION RIGHTS
2.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings. All other capitalized
terms used, but not defined, herein shall have the meanings assigned to them
in the Merger Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" shall mean any Rights Holder holding Registrable
Securities at the time notice is given under Section 2.5(a), 2.6(a)(i) or
2.7(a)(i) hereof, and any person holding Registrable Securities at such time
to whom the rights under this Agreement have been transferred in accordance
with Section 2.14 hereof
"INITIATING COMPANY HOLDERS" shall mean any Company Shareholders or
transferees of Company Shareholders under Section 2.14 hereof who in the
aggregate are Holders of not less than forty percent (40%) of the Registrable
Company Securities that have not yet been registered on a registration
statement under the Securities Act.
"INITIATING PIPELINE HOLDERS" shall mean any Pipeline Stockholders
or transferees of Pipeline Stockholders under Section 2.14 hereof or Section
1.13 of the Prior Registration Rights Agreement who in the aggregate are
Holders of not less than forty percent (40%) of the Registrable Pipeline
Securities that have not yet been registered on a registration statement
under the Securities Act.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by Parent
in complying with Section 2.5, 2.6 or 2.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for Parent, blue sky
fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of Parent which shall be paid in any event by Parent).
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"REGISTRABLE PORTION" shall mean, for each Company Shareholder
other than Stephen Auditore, 100% of the Parent Shares originally issued to
such Company Shareholder by Parent; and for Stephen Auditore, 50% (or
119,048) of the Parent Shares originally issued to Stephen Auditore by Parent.
"REGISTRABLE COMPANY SECURITIES" means any of the Parent Shares or
other securities issued or issuable with respect to the Parent Shares upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event; "REGISTRABLE PIPELINE SECURITIES" means any of the Parent
Common Stock (the "PIPELINE SHARES") issued in connection with that certain
Agreement and Plan of Reorganization (the "PIPELINE MERGER AGREEMENT") dated
as of May 30, 1996, by and among Parent, IntelliQuest Delaware, Inc. and
Pipeline Communications, Inc. ("PIPELINE"), or other securities issued or
issuable with respect to the Pipeline Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event; the
Registrable Company Securities and Registrable Pipeline Securities are
sometimes referred to collectively herein as "REGISTRABLE SECURITIES";
provided, however, that shares of Parent Common Stock or other securities
shall only be treated as Registrable Securities if and so long as they have
not been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the
consummation of such sale, or (C) covered by a Form S-8 registration
statement that is still effective.
"RESTRICTED SECURITIES" shall mean the securities of Parent
required to bear the legend set forth in Section 2.3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered
by the Holders (as limited by Section 2.9).
"SHARES" means the Parent Shares and the Pipeline Shares.
"TRANSFER" shall mean any transfer, sale or assignment.
2.2 RESTRICTIONS. The Shares shall not be Transferred except upon the
conditions specified in Section 2.4 hereof or elsewhere in this Agreement
and, (i) if a Holder has been listed as an "affiliate" of Company on Schedule
5.12 to the Merger Agreement, the Company Affiliate Agreement between Parent
and such Holder (each an "Affiliate Agreement"), or (ii) if a Holder has been
listed as an Affiliate of Pipeline on Schedule 5.11 to the Pipeline Merger
Agreement, the Pipeline Affiliate Agreement between Parent and such Holder
(each an "Affiliate Agreement"). The Rights Holders will cause any proposed
purchaser, assignee, transferee or pledgee of the Shares to agree to take and
hold such securities subject to the provisions and upon the conditions
specified in this Agreement.
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2.3 RESTRICTIVE LEGEND. Each certificate representing the Shares and
any other securities issued in respect of the Shares upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 2.4 below) be
stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required under applicable state securities
laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED OR
PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS ISSUER
RECEIVES EITHER (A) AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL
FOR ISSUER) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT, OR (B) OTHER EVIDENCE REASONABLY
SATISFACTORY TO ISSUER, THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN ISSUER
AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF ISSUER."
Each Holder consents to Parent making a notation on its records and
giving instructions to any transfer agent of the Restricted Securities in
order to implement the restrictions on transfer established in this Section
2.3.
2.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 2.4. Prior to any
proposed Transfer of any Restricted Securities, unless there is in effect a
registration statement under the Securities Act covering the proposed
Transfer, the holder thereof shall give written notice to Parent of such
holder's intention to effect such Transfer. Each such notice shall describe
the manner and circumstances of the proposed Transfer in sufficient detail,
and shall be accompanied at such holder's expense by either (i) a written
opinion of legal counsel who shall, and whose legal opinion shall be,
reasonably satisfactory to Parent, addressed to Parent, to the effect that
the proposed Transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the Transfer of such securities without
registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, or (iii) any other
evidence reasonably satisfactory to Parent, whereupon the holder of such
Restricted Securities shall be entitled to Transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder
to Parent. Parent will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with
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Rule 144, (b) in any transaction in which a Rights Holder which is a
corporation distributes Restricted Securities after six (6) months after the
purchase thereof solely to its majority owned subsidiaries or affiliates for
no consideration, (c) in any transaction in which a Rights Holder which is a
partnership distributes Restricted Securities after six (6) months after the
purchase thereof solely to partners thereof for no consideration, (d) in any
transaction in which a Rights Holder makes a bona fide gift of Restricted
Securities, or (e) in any transaction in which a Rights Holder transfers
Restricted Securities to a corporation, partnership, limited liability
company or trust controlled by such Rights Holder; PROVIDED that each
transferee (other than a transferee that obtains Restricted Securities
pursuant to subsection (a)) agrees in writing to be subject to the terms of
this Section 2.4. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
2.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and Parent, such legend
is not required in order to establish compliance with any provisions of the
Securities Act.
2.5 REGISTRATION ON FORM S-3.
(a) If Parent receives from Initiating Company Holders a written
request that Parent file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the
Registrable Company Securities, the reasonably anticipated aggregate price to
the public of which, net of underwriting discounts and commissions, would
exceed $500,000, and Parent is a registrant entitled to use Form S-3 to
register the Registrable Company Securities for such an offering, Parent
shall use its best efforts to file such Form S-3 within three (3) weeks of
the date Parent receives such written request. Parent will use its best
efforts to effect such registration as soon as practical thereafter
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of such portion (not to exceed the
Registrable Portion) of such Registrable Company Securities as are specified
in such request, together with such portion (not to exceed the Registrable
Portion) of the Registrable Company Securities of any Company Shareholder
joining in such request as are specified in a written request received by
Parent within fifteen (15) days after receipt of such written notice from
Parent.
(b) Notwithstanding the foregoing, Parent shall not be obligated
to take any action pursuant to this Section 2.5: (i) before June 1, 1997;
(ii) in any particular jurisdiction in which Parent would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless Parent is already subject to
service in such jurisdiction and except as may be required by the Securities
Act; (iii) if the Company Shareholders requesting registration are able to
sell to the public all of their Registrable Company Securities without
registration under the Act within any 90-day period; or (iv) if Parent shall
furnish to such Company Shareholders a certificate signed by the President of
Parent stating that, in the good faith judgment of the Board of Directors, it
would be seriously detrimental to Parent or its shareholders for registration
statements to be filed in the near future, then Parent's obligation to use
its best efforts to file a registration statement shall be
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deferred for a period not to exceed ninety (90) days from the receipt of the
request to file such registration by such Company Shareholder or Company
Shareholders; provided, however, that Parent may not utilize this right more
than once in any twelve (12) month period.
(c) In the event the Initiating Company Holders decide that a
registration pursuant to Section 2.5 shall be a registered public offering
involving an underwriting, they shall so advise Parent and Parent shall
(together with all Company Shareholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Company Holders (which managing
underwriter shall be reasonably acceptable to Parent). Notwithstanding any
other provision of this Section 2.5, if the managing underwriter advises the
Initiating Company Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then Parent shall so
advise all Company Shareholders of Registrable Company Securities and the
number of shares of Registrable Company Securities that may be included in
the registration and underwriting shall be allocated among all Company
Shareholders thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable Company Securities held by such Company
Shareholders at the time of filing the registration statement; PROVIDED,
HOWEVER, that the number of shares of Registrable Company Securities to be
included in such underwriting shall not be reduced unless all other
securities are first entirely excluded from the underwriting. No Registrable
Company Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above
provisions, Parent or the underwriters may round the number of shares
allocated to any Company Shareholder to the nearest 100 shares.
If any holder of Registrable Company Securities disapproves of the terms
of the underwriting, such person may elect to withdraw therefrom by written
notice to Parent, the managing underwriter and the Initiating Company
Holders. The Registrable Company Securities and/or other securities so
withdrawn shall also be withdrawn from registration, and such Registrable
Company Securities shall not be transferred in a public distribution prior to
ninety (90) days after the effective date of such registration.
2.6 PARENT REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time, Parent shall
determine to register any of its securities, either for its own account or
the account of a security holder or holders other than (i) a registration
relating solely to employee benefit plans, or (ii) a registration relating
solely to a Commission Rule 145 transaction, Parent will:
(i) promptly give written notice thereof (A) to each Pipeline
Stockholder and (B) to the attorneys listed on EXHIBIT B hereto, and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, such number of the Registrable
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Pipeline Securities as is specified in a written request or requests made
within fifteen (15) days after receipt of such written notice from Parent by
any Pipeline Stockholder.
(b) UNDERWRITING. If the registration of which Parent gives
notice is for a registered public offering involving an underwriting, Parent
shall so advise the Pipeline Stockholders as a part of the written notice
given pursuant to Section 2.6(a)(i). All Pipeline Stockholders proposing to
distribute their securities through such underwriting shall (together with
Parent and any other Parent stockholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by Parent
(or by the holders who have demanded such registration). If the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter must first
exclude from the registration and underwriting all shares of Parent Common
Stock held by stockholders other than the Pipeline Stockholders.
NOTWITHSTANDING THE PRECEDING SENTENCE, if the registration and underwriting
were initiated pursuant to Section 2.5 hereof, then the managing underwriter
must exclude from such registration and underwriting: (i) first, up to all
shares of Parent Common Stock held by stockholders other than the Company
Shareholders and the Pipeline Stockholders; and (ii) next, and only if all
shares excludable pursuant to subsection (i) above have been excluded, up to
all shares of Parent Common Stock held by the Pipeline Stockholders. Subject
to the requirements in the preceding two sentences, the managing underwriter
may limit the number of Registrable Pipeline Securities to be included in the
registration and underwriting. If any Pipeline Stockholder or other holder
disapproves of the terms of any such underwriting, he or she may elect to
withdraw therefrom by written notice to Parent and the managing underwriter.
Any securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration, and shall not be transferred in a public
distribution prior to ninety (90) days after the effective date of the
registration statement relating thereto and Parent shall allow other
participating Pipeline Stockholders to increase the number of securities to
be included in the registration, on a pro rata basis up to the aggregate
amount of securities so excluded or withdrawn.
(c) RIGHT TO TERMINATE REGISTRATION. Parent shall have the right
to terminate or withdraw any registration initiated by it under this Section
2.6 prior to the effectiveness of such registration, whether or not any
Pipeline Stockholder has elected to include securities in such registration.
(d) COMPANY REGISTRATION OTHER THAN ON FORM S-3. If Parent, at
the request or demand of the Company Shareholders, prepares and files a
registration statement that includes Parent Shares owned by Company
Shareholders other than a registration statement prepared and filed under
Section 2.5, the Pipeline Stockholders will have the same rights with respect
to such registration as if such registration statement were prepared under
Section 2.5.
2.7 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If, at any time after November 30,
1997, Parent receives from Initiating Pipeline Holders a written request that
Parent effect any registration, qualification or compliance with respect to
the Registrable Pipeline Securities, Parent will:
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(i) promptly (and in any case within 10 days after such
request) give written notice of the proposed registration, qualification or
compliance to all other Pipeline Stockholders; and
(ii) use its best efforts to effect such registration,
qualification or compliance (including, without limitation, the execution of
an undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act and
any other governmental requirements or regulations) as may be so requested
and as would permit or facilitate the sale and distribution, in the manner
requested by the Initiating Pipeline Holders, of such portion of the
Registrable Pipeline Securities held by the Initiating Pipeline Holders
specified in such request, together with such portion of the Registrable
Pipeline Securities of any Pipeline Stockholder or Pipeline Stockholders
joining in such request as are specified in a written request received by
Parent within thirty (30) days after receipt of such written notice from
Parent; PROVIDED, HOWEVER, that Parent shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant
to this Section 2.7:
(1) In any particular jurisdiction in which Parent would
be required to execute a general consent to service of process in effecting
such registration, qualification or compliance unless Parent is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(2) If Parent shall furnish to such Pipeline
Stockholders a certificate, signed by the President or Chief Executive
Officer of Parent, stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to Parent or its stockholders for
a registration statement to be filed in the near future, in which case
Parent's obligation to use its best efforts to register, qualify or comply
under this Section 2.7 shall be deferred for a period not to exceed ninety
(90) days from the date of receipt of written request from the Initiating
Pipeline Holders; provided, however, that Parent may not utilize this right
more than once in any twelve (12) month period, and for each period of 30
days that Parent's obligations under this Section 2.7 are deferred, the
percentage of Registrable Pipeline Securities held by Initiating Pipeline
Holders and other Holders that may be included in the registration shall
increase by 5%, up to total percentage of 65% of their Registrable Pipeline
Securities if such obligations are deferred for 90 days.
Subject to the foregoing clauses (1) and (2), Parent shall file a
registration statement covering the Registrable Pipeline Securities so
requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Pipeline Holders (and in any case not
more than 45 days after such receipt). Subject to the rights of the Company
Shareholders set forth in Section 2.5, the Pipeline Stockholders' rights to
register Pipeline Shares under this Section 2.7 shall have preference and
priority over the registration rights granted to any existing Parent
stockholder.
(b) UNDERWRITING. In the event that a registration pursuant to
Section 2.7 is for a registered public offering involving an underwriting.
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(i) Parent shall so advise each Pipeline Stockholder as part
of the notice given pursuant to Section 2.7(a)(i), and the right of any
Pipeline Stockholder to registration shall be conditioned upon such Pipeline
Stockholder's participation in the underwriting arrangements and the
inclusion of such Pipeline Stockholder's Registrable Pipeline Securities in
the underwriting, to the extent requested, to the extent provided herein.
(ii) Parent shall enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Pipeline Holders (which managing
underwriter shall be reasonably acceptable to Parent). Notwithstanding any
other provision of this Section 2.7(b), if the managing underwriter advises
the Initiating Pipeline Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then Parent shall so
advise all Holders of Registrable Pipeline Securities and the number of
shares of Registrable Pipeline Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of
Registrable Pipeline Securities held by such Holders at the time of filing
the registration statement; PROVIDED, HOWEVER, that the number of shares of
Registrable Pipeline Securities to be included in such underwriting shall not
be reduced unless all other Parent securities are first entirely excluded
from the underwriting. No Registrable Pipeline Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, Parent or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
(iii) If any Holder of Registrable Pipeline Securities
disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to Parent, the managing underwriter and
the Initiating Pipeline Holders. The Registrable Pipeline Securities and/or
other securities so withdrawn shall also be withdrawn from registration, and
such Registrable Pipeline Securities shall not be transferred in a public
distribution prior to ninety (90) days after the effective date of such
registration and Parent shall allow other participating Holders to increase
the number of securities to be included in the registration, on a pro rata
basis up to the aggregate amount of securities so excluded or withdrawn.
2.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date hereof, Parent shall not enter into any agreement granting any holder or
prospective holder of any securities of Parent registration rights with
respect to such securities which:
(a) prevent or limit the Company Shareholders' ability to exercise
their rights under Section 2.5;
(b) grant piggyback rights superior to the rights afforded to the
Pipeline Stockholders under Section 2.6, or pari passu with or superior to
the cutback priority position afforded to the Pipeline Stockholders under
Section 2.6(b)(i) and (ii) as applicable to a registration and underwriting
initiated pursuant to Section 2.5; or
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(c) prevent or limit the Pipeline Stockholders' ability to
exercise their rights under Section 2.7.
2.9 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration pursuant to Section 2.5, 2.6 or 2.7 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by Parent. If a
registration proceeding is begun upon the request of Initiating Company
Holders or Initiating Pipeline Holders pursuant to Section 2.5, 2.6 or 2.7,
but such request is subsequently withdrawn by the Initiating Company Holders
or Initiating Pipeline Holders, then the Holders of Registrable Securities to
have been registered shall bear all Registration Expenses of such proceeding,
pro rata on the basis of the number of shares to have been registered.
Notwithstanding the foregoing, however, if at the time of the withdrawal, the
Holders have learned of a material adverse change in the condition, business
or prospects of Parent (including, but not limited to, a decrease of at least
33 1/3% in the closing price of the Parent Common Stock from the date of the
Holders' request, as reported by the Nasdaq National Market) from that known
to the Holders at the time of their request, then the Holders shall not be
required to pay any of said Registration Expenses, and in such case, Parent
shall be deemed not to have effected a registration pursuant to Section 2.5,
2.6 or 2.7. Unless otherwise stated, all other Selling Expenses relating to
securities registered on behalf of the Holders shall be borne by the Holders
of the registered securities included in such registration pro rata on the
basis of the number of shares so registered.
2.10 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by Parent pursuant to this Section 2,
Parent will keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof.
At its expense Parent will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one (1)
year or until the distribution described in the registration statement has
been completed, whichever comes first; and
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
(c) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number
of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such Holders and underwriters may
reasonably request in order to facilitate the public offering of such
securities.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that Parent shall not be required in connection
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<PAGE>
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless Parent is already subject to service in such jurisdiction and except
as may be required by the Securities Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or market on which similar
securities issued by Parent are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 2,
on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Section 2, if such securities are being sold through underwriters, or, if
such securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i)
an opinion, dated such date, of the counsel representing Parent for the
purposes of such registration, in form and substance as is customarily given
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the
independent certified public accountants of Parent, in form and substance as
is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
2.11 INDEMNIFICATION.
(a) Parent will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 2, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation,
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<PAGE>
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, preliminary prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation or
any alleged violation by Parent of any rule or regulation promulgated under
the Securities Act or the Exchange Act or any state securities law applicable
to Parent in connection with any such registration, qualification or
compliance, and Parent will reimburse each such Holder, each of its officers
and directors, and each person controlling such Holder, each such underwriter
and each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, as
such expenses are incurred, provided that Parent will not be liable in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to Parent by an instrument duly executed
by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify Parent, each of its
directors and officers, each underwriter, if any, of Parent's securities
covered by such a registration statement, each person who controls Parent or
such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities
Act, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse Parent, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, as such expenses are incurred, in
each case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in
such registration statement, prospectus, offering circular or other document
in reliance upon and in conformity with written information furnished to
Parent by an instrument duly executed by such Holder and stated to be
specifically for use therein.
(c) Each party entitled to indemnification under this Section 2.11
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
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<PAGE>
such defense at such party's expense; provided, however, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.11 unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
2.12 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to Parent such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as Parent may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 2.
2.13 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time
permit the sale of the Restricted Securities to the public without
registration, Parent agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times;
(b) File with the Commission in a timely manner all reports and
other documents required of Parent under the Securities Act and the Exchange
Act; and
(c) So long as a Rights Holder owns any Restricted Securities, to
furnish to the Rights Holder forthwith upon request a written statement by
Parent as to its compliance with the reporting requirements of said Rule 144,
and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of Parent, and such other reports and documents of
Parent and other information in the possession of or reasonably obtainable by
Parent as a Rights Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Rights Holder to sell any
such securities without registration.
2.14 TRANSFER OF REGISTRATION RIGHTS. The rights to cause Parent to
register securities granted Rights Holders under Section 2.5, 2.6 or 2.7 may
be assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Rights Holder (together with any
affiliate); PROVIDED that (a) such transfer may otherwise be effected in
accordance with applicable securities laws, (b) notice of such assignment is
given to Parent, and (c) such transferee or assignee is a wholly-owned
subsidiary or constituent partner (including limited partners, retired
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<PAGE>
partners, spouses and ancestors, lineal descendants and siblings of such
partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) of, or trust controlled by, such Rights Holder.
2.15 MARKET STANDOFF AGREEMENT. Each Holder agrees in connection with
any registered underwritten sale of Parent's securities, upon request of
Parent or the underwriters managing such underwritten offering of Parent's
securities, not to sell, make any short sale of, loan, pledge (or otherwise
encumber or hypothecate), grant any option for the purchase of, or otherwise
directly or indirectly dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of
Parent and such managing underwriters for such period of time (not to exceed
to 90 days) as the Board of Directors establishes pursuant to its good faith
negotiations with such managing underwriters; PROVIDED, HOWEVER, that the
Rights Holders shall not be subject to such lockup unless the officers and
directors of Parent who own stock of Parent shall also be bound by the same
or greater restrictions.
SECTION 3
MISCELLANEOUS
3.1 ASSIGNMENT. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties hereto.
3.2 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly
provided herein.
3.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California.
3.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts from time to time in accordance with Section 3.10 below, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3.5 NOTICES. All notices shall be in writing and shall be deemed given
if delivered personally or when received if delivered by commercial delivery
service or mailed by registered or certified mail (return receipt requested)
or sent via facsimile (with acknowledgment of complete transmission) to the
parties at the addresses of the parties hereto in the stockholder and
shareholder records of Parent and Company, respectively (or at such other
address for a party as shall be specified by like notice).
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<PAGE>
3.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
3.7 AMENDMENT AND WAIVER. Except as provided in Section 3.10 hereof,
any provision of this Agreement may be amended or waived with the written
consent of Parent and the Holders of at least fifty percent (50%) of the
outstanding shares of the Registrable Securities; PROVIDED, HOWEVER, that
Sections 2.5 and 2.8(a) may be amended or waived only with the written
consent of Parent and the Holders of at least fifty percent (50%) of the
outstanding shares of Registrable Company Securities, and that Sections 2.6,
2.7, 2.8(b) and 2.8(c) may be amended or waived only with the written consent
of Parent and the Holders of at least fifty percent (50%) of the outstanding
shares of Registrable Pipeline Securities. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each Holder and
Parent. In addition, Parent may waive performance of any obligation owing to
it, as to some or all of the Holders, or agree to accept alternatives to such
performance, without obtaining the consent of any Holder. In the event that
an underwriting agreement is entered into between Parent and any Holder, and
such underwriting agreement contains terms differing from this Agreement, as
to any such Holder the terms of such underwriting agreement shall govern.
3.8 RIGHTS OF HOLDERS. Each holder of Registrable Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement, including,
without limitation, the right to consent to the waiver or modification of any
obligation under this Agreement, and such holder shall not incur any
liability to any other holder of any securities of Parent as a result of
exercising or refraining from exercising any such right or rights.
3.9 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of
such non-breaching party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement, or by law or otherwise afforded to any holder,
shall be cumulative and not alternative.
3.10 FUTURE SIGNATORIES. After the date hereof, Parent shall make
available to all former Company shareholders and to all former Pipeline
shareholders the opportunity to sign this Agreement and thereby to become
bound hereby and receive the benefits hereof as Holders hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature:
------------------------ ------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: /s/ James A. Schellhase Signature:
------------------------ ------------------------
Name: James A. Schellhase Name:
------------------------ ------------------------
Title: CFO, Secretary Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ Stephen Auditore
------------------------ ------------------------
Name: Name: Stephen Auditore
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ Peter J. Auditore
------------------------ ------------------------
Name: Name: Peter J. Auditore
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ Charles A. Johnson
------------------------ ------------------------
Name: Name: Charles A. Johnson
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ A. Matthews Thompson
------------------------ ------------------------
Name: Name: A. Matthews Thompson
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: /s/ James A. Schellhase Signature:
------------------------ ------------------------
Name: James A. Schellhase Name:
------------------------ ------------------------
Title: CFO, Secretary Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ Stephen Auditore
------------------------ ------------------------
Name: Name: Stephen Auditore
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ Peter J. Auditore
------------------------ ------------------------
Name: Name: Peter J. Auditore
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ Charles A. Johnson
------------------------ ------------------------
Name: Name: Charles A. Johnson
------------------------ ------------------------
Title: Title: Member, Moseley Holtt
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELLIQUEST INFORMATION
GROUP, INC. RIGHTS HOLDERS
Signature: Signature: /s/ A. Matthews Thompson
------------------------ ------------------------
Name: Name: A. Matthews Thompson
------------------------ ------------------------
Title: Title: CEO
------------------------ ------------------------
**REGISTRATION RIGHTS AGREEMENT**
<PAGE>
EXHIBIT A
COMPANY SHAREHOLDERS
Stephen Auditore
Peter Auditore
<PAGE>
EXHIBIT B
PIPELINE STOCKHOLDERS
A Matthews Thompson
Ralph W. Bowlin
Mark E. Novisoff
Micro Warehouse
Patrick M. Cummiskey
Michael J. Geihsler
Said Mohammadioun
Eugene Hill
Jeffrey Kerker
Julian H. Danielly
William & June Warren
Bernard Simkin
3031204 Manitoba Ltd.
Murray Simkin
Brad Biddy
Delaware Charter Guarantee & Trust Company
Peter A. Orr
Chuck Leamon
Michael Fagen
Martha J. Day
Sloan Hill
Kristin Colier
James C. Kloss
Noro-Moseley Partners III, L.P.
77 Capital Partners, L.P.
ATTORNEY:
Philip H. Moise, Esq.
Randy Faigin, Esq.
Nelson Mullins Riley & Scarborough
999 Peachtree Street, N.E.
Suite 1400
Atlanta, GA 30309
Telephone: (404) 817-6141
Fax: (404) 817-6522
<PAGE>
EXHIBIT 10.10
INTELLIQUEST INFORMATION GROUP, INC.
1997 SUPPLEMENTAL OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1997 Supplemental Option
Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan will be Nonstatutory Stock Options.
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 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.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
<PAGE>
(k) "EMPLOYEE" means any person, including Officers, 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. 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) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(o) "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.
(p) "OPTION" means a nonstatutory stock option, granted pursuant to
the Plan, that is not intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code and the regulations promulgated
thereunder.
(q) "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.
(r) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
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<PAGE>
(s) "OPTIONED STOCK" means the Common Stock subject to an Option.
(t) "OPTIONEE" means the holder of an outstanding Option granted
under the Plan.
(u) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(v) "PLAN" means this 1997 Supplemental Option Plan.
(w) "SERVICE PROVIDER" means an Employee, a Consultant or a Director.
(x) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(y) "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 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 375,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option 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).
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable Laws.
(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 of the Common Stock;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
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<PAGE>
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options 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 the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(x) 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;
(xi) to modify or amend each Option (subject to Section 14(b) 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;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or previously
granted by the Administrator;
(xiii) to determine the terms and restrictions applicable to
Options;
(xiv) 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 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; and
(xv) 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.
5. ELIGIBILITY. Options may be granted to Service Providers.
-4-
<PAGE>
6. LIMITATION. Neither the Plan nor any Option 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.
7. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for ten (10) years, unless sooner
terminated under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated 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.
(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. 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) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
-5-
<PAGE>
(viii) any combination of the foregoing methods of payment.
10. EXERCISE OF OPTION.
(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.
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 12 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, but only within such
period of time as is specified in the Option Agreement, and only 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
-6-
<PAGE>
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 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. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the
Administrator, an 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. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. 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 the number of shares of Common Stock 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 of Common Stock covered
by each such outstanding Option, 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
-7-
<PAGE>
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.
(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 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 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 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 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, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option 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 shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option 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, 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, for each Share
of Optioned Stock, 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.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, 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.
14. AMENDMENT AND TERMINATION OF THE PLAN.
-8-
<PAGE>
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) 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.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. 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 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 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.
16. 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.
17. 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.
-9-
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
1997 SUPPLEMENTAL OPTION 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
Optionee:
--------------------------------------
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: Nonstatutory Stock Option ("NSO")
Term/Expiration Date:
-----------------------------
VESTING SCHEDULE:
Subject to the Optionee continuing to be a Service Provider on such dates,
this Option shall vest and become exercisable in accordance with the following
schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48th of the Shares subject to the Option shall
vest upon the last day of each calendar month thereafter.
<PAGE>
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 such longer period as provided in the Plan. 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 14(b) 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.
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.
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.
-2-
<PAGE>
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. The Optionee may incur regular federal
income tax liability upon exercise of an 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.
(b) DISPOSITION OF SHARES. 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.
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.
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
-3-
<PAGE>
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.
OPTIONEE: INTELLIQUEST INFORMATION GROUP, INC.
- ----------------------------------- -----------------------------------
Signature By
- ----------------------------------- -----------------------------------
Print Name Title
- -----------------------------------
Residence Address
- -----------------------------------
-4-
<PAGE>
EXHIBIT A
INTELLIQUEST INFORMATION GROUP, INC.
1997 SUPPLEMENTAL OPTION 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 1997 Supplemental Option 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 12 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
<PAGE>
prior undertakings and agreements of the Company and Purchaser with respect
to the subject matter 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 Title
----------------------------------
Date Received
ADDRESS: ADDRESS:
IntelliQuest Information Group, Inc.
- ---------------------------- 1250 Capital of Texas Highway South
- ---------------------------- Building Two, Plaza One
- ---------------------------- Austin, TX 78746
-2-
<PAGE>
EXHIBIT 11.1
INTELLIQUEST INFORMATION GROUP, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Year
Ended
December 31, 1996
-----------------
Net income available to common stockholders................. $2,579
------
Weighted average shares outstanding:
Common stock............................................. 6,868
Common stock issued upon exercise of options and
warrants (2)............................................ 199
Weighted average common shares and equivalents.............. 7,067
Net income per share........................................ $ .36
------
_____________
(1) This exhibit should be read in conjunction with Note 3 of Notes to
Consolidated Financial Statements.
(2) Stock options granted and warrants exercised, using the treasury stock
method, have been included in the calculation of the common stock
equivalent shares.
1
<PAGE>
EXHIBIT 21.1
INTELLIQUEST INFORMATION GROUP, INC.
LIST OF SUBSIDIARIES
JURISDICTION
NAME OF INCORPORATION
---- ----------------
IntelliQuest Delaware, Inc. Delaware
IntelliQuest, Ltd. (subsidiary of IntelliQuest
Delaware, Inc.) United Kingdom
IntelliQuest Communications, Inc. Delaware
Zona Research, Inc. California
1
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-04616 and 333-09085) of IntelliQuest
Information Group, Inc. of our report dated January 31, 1997 appearing on
page 30 of this Form 10-K.
PRICE WATERHOUSE LLP
Austin, Texas
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996
10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 662
<SECURITIES> 51,152
<RECEIVABLES> 6,387
<ALLOWANCES> 341
<INVENTORY> 0
<CURRENT-ASSETS> 60,897
<PP&E> 2,322
<DEPRECIATION> 0
<TOTAL-ASSETS> 63,489
<CURRENT-LIABILITIES> 5,832
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 57,599
<TOTAL-LIABILITY-AND-EQUITY> 63,489
<SALES> 26,452
<TOTAL-REVENUES> 26,452
<CGS> 13,168
<TOTAL-COSTS> 13,168
<OTHER-EXPENSES> 10,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 3,562
<INCOME-TAX> 983
<INCOME-CONTINUING> 2,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,579
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
