<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 NO. 51-0374596
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
KUNGSGATAN 12-14 MARVIN S. ROBINSON, ESQ.
BOX 7733 TANNENBAUM DUBIN & ROBINSON, LLP
103 95 STOCKHOLM 1140 AVENUE OF THE AMERICAS
SWEDEN NEW YORK, NEW YORK 10036
(011) (468) 676-5000 (212) 302-2900
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AREA CODE, AND
OF REGISTRANT'S PRINCIPAL TELEPHONE NUMBER, INCLUDING AREA CODE,
EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
DONALD J. GUINEY, ESQ. BARRY E. TAYLOR, ESQ.
CHRISTOPHER A. GREW, ESQ. MICHAEL J. DANAHER, ESQ.
ERIC R. DOERING, ESQ. ROBERT G. O'CONNOR, ESQ.
BROBECK HALE AND DORR INTERNATIONAL WILSON SONSINI GOODRICH & ROSATI
VERITAS HOUSE PROFESSIONAL CORPORATION
125 FINSBURY PAVEMENT 650 PAGE MILL ROAD
LONDON EC2A 1NQ, ENGLAND PALO ALTO, CA 94304-1050
(011) (44) (171) 638-6688 (415) 493-9300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering pur-
suant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier ef-
fective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) un-
der the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH AMOUNT OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value...................... 4,600,000 $13.00 $59,800,000 $20,621
- -------------------------------------------------------------------------------
</TABLE>
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(1) Includes 600,000 shares which the Underwriters have the option to purchase
from one of the Selling Stockholders to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
----------------
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of Prospec- Inside Front Cover Page; Risk Factors;
tus....................... . Outside Back Cover Page
3. Summary Information, Risk
Factors and Ratio of Earn-
ings to Fixed Charges....... Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds............. Prospectus Summary; Risk Factors; Use of
Proceeds
5. Determination of Offering Outside Front Cover Page; Risk Factors;
Price....................... Underwriting
6. Dilution.................... Risk Factors; Dilution
7. Selling Security Holders.... Outside Front Cover Page; Principal and
Selling Stockholders
8. Plan of Distribution........ Outside Front Cover Page; Underwriting
9. Description of Securities to Outside Front Cover Page; Description of
be Registered............... Capital Stock
10. Interests of Named Experts
and Counsel................. Legal Matters; Experts
11. Information with Respect to Outside Front and Inside Front Cover Pages;
the Registrant.............. Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
Capitalization; Exchange Rates; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Stockholders;
Description of Capital Stock; Shares Eligible
for Future Sale; Underwriting; Legal Matters;
Experts; Additional Information; Consolidated
Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JUNE , 1996
4,000,000 Shares
[LOGO OF INDUSTRI-MATEMATIK APPEARS HERE]
Common Stock
--------
Of the 4,000,000 shares of Common Stock offered hereby, 3,200,000 shares are
being sold by Industri-Matematik International Corp. ("IMI" or the "Company")
and 800,000 shares are being sold by one of the stockholders of the Company
(the "Selling Stockholder"). See "Principal and Selling Stockholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholder. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $11.00 and $13.00 per share. See "Underwriting"
for the factors to be considered in determining the initial public offering
price. The Company has applied to have its Common Stock approved for quotation
on the Nasdaq National Market under the symbol "IMIC."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
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Total(3)........................ $ $ $ $
</TABLE>
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses of the offering payable by the Company, estimated
to be $1,350,000.
(3) A certain stockholder (together with the Selling Stockholder, the "Selling
Stockholders") has granted to the Underwriters a 30-day option to purchase
up to 600,000 additional shares of Common Stock solely to cover over-
allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Selling
Stockholders will be $ , $ , and $ respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part and
certain other conditions. It is expected that delivery of the shares of Common
Stock will be made at the offices of Alex. Brown & Sons Incorporated,
Baltimore, Maryland, on or about 1996.
Alex. Brown & Sons
INCORPORATED
UBS Securities
SoundView Financial Group, Inc.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
IMI develops, markets, and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the demand chain
[HONEYCOMB TO BE UPDATED]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
In this Prospectus, references to "krona", "kronor" and "SEK" are to Swedish
kronor, the lawful currency of the Kingdom of Sweden, and references to
"dollars" and "$" are to United States dollars.
Industri-Matematik and System ESS are trademarks of the Company. All other
trademarks or service marks appearing in this Prospectus are trademarks or
registered trademarks of the respective companies that utilize them.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information under "Risk Factors," and Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
IMI develops, markets, and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the "demand chain." Demand chain management encompasses the execution of
multiple customer-centric order fulfillment processes, including order
management, distribution logistics, inventory replenishment and demand
planning. The Company believes that its principal product, System ESS, is the
only software solution designed specifically to meet the complex or high-volume
demand chain management requirements of manufacturers, distributors and
wholesalers. System ESS allows customers to leverage the value of their
existing systems by integrating with legacy and new client/server
manufacturing, planning and financial information systems.
The Company's target customers are multinational manufacturers, distributors
and wholesalers in the consumer packaged goods, health care, electronics,
automotive parts, and industrial products sectors, as well as other high-volume
wholesalers. The Company sells and supports its products through direct sales
and support organizations in the United States, Sweden and the United Kingdom,
as well as through third party systems integrators. Current customers of IMI
include large manufacturers such as Bristol-Myers Squibb Company, Campbell Soup
Company, Canon U.S.A., Inc., Dannon Company, Inc., Eastman Kodak Company,
Kellogg Company, Matsushita Electrical Corporation of America and Unisys
Corporation, as well as several retail and wholesale distributors.
In recent years, there has been a fundamental shift in market power from
manufacturers and distributors to retailers and consumers. Historically,
manufacturers dictated the terms of trade with retailers and consumers and,
consequently, organized their businesses and utilized their information systems
primarily to increase manufacturing efficiency and output. Today, customers
increasingly are choosing suppliers based on their ability to match product
flow to actual customer demand. As a result, manufacturers and distributors are
reengineering their businesses and redirecting their information systems to
focus on satisfying customer demand through effective order fulfillment. System
ESS has been designed specifically for the sophisticated order fulfillment
requirements of manufacturers, distributors and wholesalers, enabling them to
better match product flow to actual customer demand, thereby enhancing revenue
opportunities and reducing administrative and logistics/distribution costs.
System ESS serves as an infrastructure to enable companies to implement the
"virtual enterprise" by synchronizing internal systems with external
participants in the demand chain.
System ESS is an open systems, client/server demand chain management solution
that provides full capabilities for managing and executing the entire order
fulfillment process. In addition, it provides interfaces to other complementary
applications to provide customers with an integrated solution. The Company
supports System ESS with a range of software tools developed by the Company or
by third parties and provides its customers with a full range of software
maintenance and support, training, and consulting services.
The Company's objective is to be the leading global supplier of demand chain
management software solutions to manufacturers, distributors and wholesalers.
The key elements of the Company's strategy to achieve this leading position
are: (i) to target specific vertical markets for System ESS; (ii) to expand its
worldwide sales and support organization; (iii) to expand usage of System ESS
within its existing customer base; (iv) to enhance the core functionality of
System ESS; (v) to continue to integrate System ESS with complementary
products; and (vi) to establish partnerships to assist in developing customer
relationships and implementing System ESS.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............. 3,200,000 shares
Common Stock offered by the Selling Stockholder. 800,000 shares
Common Stock to be outstanding after the offer-
ing............................................ 27,694,253 shares(1)
Use of proceeds................................. For general corporate
purposes and working capital,
including the expansion of
its sales, service, support
and marketing operations, and
reduction of certain
indebtedness. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... IMIC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Total revenues................... $25,909 $23,796 $18,780 $27,744 $40,009
Gross profit..................... 4,207 8,389 7,198 10,896 19,532
Income (loss) from operations.... (5,782) (2,328) (5,063) (6,025) 1,385
Net income (loss)................ (6,730) (1,809) (5,670) (6,388) 1,750
Pro forma net income per
share(2)........................ $ 0.07
Pro forma shares used in per
share calculation(2)............ 25,278
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 558 $26,621
Working capital........................................ 5,962 32,374
Total assets........................................... 21,324 47,387
Long-term debt, less current portion................... 7,950 --
Total stockholders' equity............................. 502 34,864
</TABLE>
- --------
(1) Based on the number of shares outstanding as of April 30, 1996. Excludes
options outstanding as of April 30, 1996 to purchase 939,975 shares of
Common Stock at a weighted average exercise price per share of $2.00.
(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in calculating pro forma net income per
share.
(3) Adjusted to reflect the sale of 3,200,000 shares of Common Stock offered by
the Company hereby (assuming an estimated initial offering price of $12.00
per share and after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company) and the expected
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
----------------
Except as otherwise indicated, all information in the Prospectus (i) reflects
the conversion of all of the Company's currently outstanding shares of
Preferred Stock into Common Stock and Class B Common Stock upon the closing of
this offering, (ii) reflects a three-for-one stock split to be effected prior
to the closing of this offering, (iii) reflects the filing of an Amended and
Restated Certificate of Incorporation upon the closing of this offering, (iv)
assumes that the Underwriters' over-allotment option is not exercised, and (v)
includes as Common Stock 12,088,200 shares of non-voting Class B Common Stock.
See "Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus. The discussion in this
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
No Assurance of Profitability. The Company has incurred significant net
losses at various times since its inception, including losses of approximately
$5.7 million and $6.4 million for fiscal 1994 and 1995, respectively. At April
30, 1996, the Company had an accumulated deficit of approximately $10.9
million. Although the Company achieved net income of $1.8 million for the
quarter and $1.8 million for the year ended April 30, 1996, there can be no
assurance that the Company will continue to be profitable in any future period
and recent operating results should not be considered indicative of future
financial performance. The Company plans to increase expenditures in order to
fund the continued expansion of its worldwide operations, greater levels of
product development, a larger and more geographically dispersed direct sales
force, and broader customer support capabilities. Although the Company
believes such expenditures ultimately will improve the Company's operating
results, to the extent such expenditures are incurred and revenues do not
correspondingly increase, the Company's operating results would be materially
and adversely affected. Future operating results will depend on many factors,
including the growth of the demand chain management software market, market
acceptance of System ESS or enhanced versions thereof, competition, the
success of the Company's expansion of its direct sales, support and marketing
organizations, general economic conditions and other factors. No assurance can
be given that the Company will be profitable in future periods. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Significant Fluctuations in Quarterly Operating Results and Seasonality;
Potential Quarterly Losses. The Company has experienced, and expects to
continue to experience, significant fluctuations in quarterly operating
results that may be caused by many factors, including, among others: the size
and timing of orders for the Company's products; the lengthy sales and
implementation cycle for the Company's products, and delays in the
implementation process; introduction or enhancement of products by the Company
or its competitors; changes in pricing policy of the Company or its
competitors; increased competition; technological changes in computer systems
and environments; the ability of the Company to timely develop, introduce and
market new products and new versions of existing products; quality control of
products sold; market readiness to deploy demand chain management products for
distributed computing environments; market acceptance of new products and
product enhancements; seasonality of revenue; customer order deferrals in
anticipation of new products and product enhancements; the Company's success
in expanding its sales and marketing programs; personnel changes; fluctuations
in foreign currency exchange rates; mix of licence and service and maintenance
revenues and general economic conditions. Because a significant portion of the
Company's revenues has been, and the Company believes will continue to be,
derived from large orders, the timing of orders and their fulfillment has
caused, and is expected to continue to cause, material fluctuations in the
Company's operating results, particularly on a quarterly basis. In addition,
the Company intends to continue to expand its direct sales force. The timing
of such expansion and the rate at which new sales people become productive
could also cause material fluctuations in the Company's quarterly operating
results. As a result of these and other factors, the Company believes that
period-to-period quarterly comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
The Company's future quarterly revenue is difficult to forecast in part
because the demand chain management software market is an emerging market that
is subject to rapid change. Further, because the Company generally ships
software products within a short period after receipt of an order, it
typically does
5
<PAGE>
not have a material backlog of unfulfilled orders. License revenue in any
quarter is substantially dependent on orders booked and shipped in that
quarter and cannot be predicted with any degree of certainty. In addition, the
Company typically recognizes a significant portion of license revenue in the
last two weeks of a quarter. Any significant shortfall of revenue in relation
to the Company's expectations or any material delay of customer orders would
have an immediate adverse effect on its business, operating results and
financial condition. Due to the foregoing factors, it is possible that in
future periods the Company's revenue and thus its operating results may be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would likely be materially and
adversely affected.
The Company's quarterly operating results are also subject to certain
seasonal fluctuations. The Company's revenues, particularly its license
revenues, are typically strongest in its third and fourth fiscal quarters
ended January 31 and April 30, respectively, and weakest in its first and
second fiscal quarters ended July 31 and October 31, respectively. The
Company's revenues and operating results in its third fiscal quarter typically
benefit from purchase decisions made by the large concentration of customers
with calendar year-end budgeting rules, while revenues and operating results
in its fourth fiscal quarter typically benefit from the efforts of the
Company's sales force to meet fiscal year-end sales quotas. Like many
enterprise application software vendors with large average order sizes, the
Company's revenues and operating results are typically weakest in its first
and second fiscal quarters, as the Company's sales force initiates sales
activity directed to achieving fiscal year-end goals. In addition, the
Company's first and second fiscal quarters include the months of July and
August, when both sales and billable customer services activity, as well as
customer purchase decisions, are reduced, particularly in Europe, due to
summer vacation schedules. As a result of these seasonal factors, the Company
historically has experienced operating losses in its first and/or second
fiscal quarters and may continue to experience losses in such quarters in the
future, including the quarter ending July 31, 1996, and October 31, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Financial Results."
Lengthy Sales and Implementation Cycle; Increasing Size of Orders. The sale
and implementation of the Company's products generally involves a significant
commitment of resources by prospective customers. During fiscal 1996, license
fees for System ESS typically ranged from $0.5 million to $3.0 million, and
averaged approximately $1.5 million, and the Company expects that license fees
will continue to increase in size and the implementation of the Company's
products will become more complex as System ESS is used to manage larger and
more geographically dispersed installations. As a result, the Company's sales
process often is subject to delays associated with lengthy approval processes
attendant to significant capital expenditure. For these and other reasons, the
sales cycle associated with the license of the Company's products varies
substantially from customer to customer and typically lasts between six and 12
months, during which time the Company may devote significant time and
resources to a prospective customer, including costs associated with multiple
site visits, product demonstrations and feasibility studies, and experience a
number of significant delays over which the Company has no control. Any
significant or ongoing failure by the Company to ultimately achieve such sales
would have a material adverse effect on the Company's business, operating
results and financial condition. In addition, following license sales, the
implementation of System ESS typically involves six to 12 months for customer
training and integration of System ESS with the customer's other existing
systems. A successful implementation requires a close working relationship
between the Company, the customer and, generally, third party consultants and
system integrators who assist in the process. The Company's business,
operating results and financial condition could be materially adversely
affected if the implementation process is delayed or otherwise not successful.
There can be no assurance that delays in the implementation process of System
ESS will not have a material adverse effect on the Company's business,
operating results and financial condition. See "Managements Discussion and
Analysis of Financial Condition and Results of Operations," "Business--
Products and Services" and "--Sales and Marketing."
6
<PAGE>
Dependence upon Successful Expansion of Sales, Service, Support and
Marketing Operations. The Company's success depends upon the successful
expansion of its direct sales, service, support and marketing organizations
and its ability to establish indirect distribution channels, including
resellers, systems solution vendors, application software vendors and systems
integrators. The Company currently plans to increase significantly its
expenditure, both to expand its direct sales force in the United States,
Europe and Asia Pacific and internationally and to develop additional indirect
distribution channels. In addition, the Company intends to expand
significantly its customer service and support organization which is required
to support increased license sales. Although the Company believes that such
expenditures ultimately will benefit the Company's business in the long term,
the Company expects that they may materially and adversely affect the
Company's operating results in the short term. Further, if the Company is
unable to expand its direct sales, service, support and marketing
organizations and develop additional distribution channels on a timely basis,
the Company's business, operating results and financial condition could be
materially and adversely affected. See "Business--Sales and Marketing."
Risks Associated with Expanding United States Operations; Implementation
Risks. In fiscal 1995 the Company commenced a major investment program in the
United States and put in place a management team in the United States. In
addition, the Company has a limited number of operational installations of its
System ESS products at customer sites in the United States, and therefore only
a limited number of reference customers in the United States. The Company
recently has entered into major license agreements with several United States
customers, including Kellogg Company, Canon U.S.A., Inc. and Hormel Foods
Corporation. However, many of these customers are continuing to implement the
Company's products, and some of these customers are only in the early stage of
implementation. If the Company were to experience significant implementation
problems at these or other customer sites, it could significantly and
adversely impact future sales and operating results. In addition, in order to
support the anticipated growth of the Company's business in the United States
market, the Company is incurring significant costs to build corporate
infrastructure ahead of anticipated revenues. This includes developing
experienced resources, through both internal hiring and establishing
relationships with third party implementation providers, that are necessary to
support customer installations of System ESS and provide other customer
services. The number of the Company's employees in the United States has grown
from 37 at April 30, 1995 to 64 at April 30, 1996 and is expected to grow
substantially in fiscal 1997. Most of the Company's senior management and
customer service and support, product development and finance and
administration personnel and related activities are located in Sweden. As a
result of this expansion in the United States, the Company, particularly its
Swedish-based management team, must continue to implement and improve its
operational and financial control systems and expand, train and manage its
employee base and relationships with third party implementation services.
These factors have placed, and are expected to continue to place, a
significant strain on the Company's management and operations. There can be no
assurance that the Company's United States operations will be successful or
that the Company will be able to manage effectively an increased level of
operations in the United States. Any lack of success in U.S. markets or
inability to manage these activities effectively could have a material adverse
effect on the business, operating results and financial condition. See
"Business--Sales and Marketing."
Risks Associated with Multinational Operations. The Company's products
currently are marketed in the United States, Sweden, the United Kingdom and
approximately 15 other countries world-wide. During fiscal 1996, approximately
66% of the Company's total revenue was derived from sales outside of Sweden,
and the Company expects that sales in the United States, other European
countries, Asia Pacific, and elsewhere outside of Sweden will continue to be
significant in the future as the Company expands the implementation of its
products across multinational companies. Such international expansion may
require that the Company establish additional offices and hire additional
personnel outside Sweden and recruit additional international resellers. This
may require significant management attention and financial resources and could
adversely affect the Company's operating margins and ability to achieve and
sustain profitability. To the extent the Company is unable to effect these
additions efficiently and in a timely manner, its growth, if any, in
international sales will be limited, and the Company's business, operating
results and financial condition could be materially and adversely affected.
Further, the Company intends to expand its
7
<PAGE>
international operations by increasing the number of direct customer support
personnel in existing markets and additional international markets.
Accordingly, the Company's business, and its ability to expand its operations
internationally, is subject to risks inherent in international business
activities, including, in particular, general economic conditions in each
country, foreign currency exchange rate fluctuations, overlap of different tax
structures, management of an organization spread over various countries,
unexpected changes in regulatory requirements, compliance with a variety of
foreign laws and regulations, and longer accounts receivables payment cycles
in certain countries. Other risks associated with international operations
include import and export licensing requirements, trade restrictions and
changes in tariff rates. There can be no assurance that any of the foregoing
factors will not have a material adverse effect on the Company's ability to
expand its international operations and, in general, its business, operating
results and financial condition. See "Business--Sales and Marketing."
Management of Growth. The Company currently is experiencing a period of
rapid growth that has placed and is expected to continue to place a strain on
the Company's administrative, financial and operational resources. During
fiscal 1996, the Company increased the size of its direct sales force from 18
to 27 and the number of customer service and support personnel from 131 to
151. The Company plans to continue to expand internationally and to continue
to increase the number of its sales and marketing and customer support
personnel significantly in fiscal 1997, which planned expansion, if achieved,
would place a further strain on the Company's resources and increase operating
costs. The Company's ability to manage its staff and growth effectively will
require it to continue to improve its operations, financial and management
controls, reporting systems and procedures, to train, motivate and manage its
employees and, as required, install new management information and control
systems. There can be no assurance that the Company will implement
improvements to such management information and control systems in an
efficient and timely manner or that, if implemented, such improved systems
will be adequate to support the Company's operations. Any inability of the
Company to successfully manage future expansion, if any, could have a material
adverse effect on the Company's business, financial condition or operating
results.
Dependence on and Need to Hire Additional Personnel in All Areas. The
Company's future performance depends in part upon the continued service of its
key members of management, as well as marketing, sales, customer service and
support and product development personnel. The Company does not have, and does
not intend to obtain, key man life insurance on any of its executive
management personnel. The loss of one or more of the Company's key personnel
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company believes its future success will
depend in part upon its ability to attract and retain highly skilled
management, marketing, sales, customer service and support and product
development personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be able to retain its key employees
or that it will be successful in attracting, assimilating and retaining such
personnel in the future. Failure to attract, assimilate and retain key
personnel could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Employees" and
"Management--Directors and Executive Officers."
Reliance on and Need to Develop Additional Relationships with Third
Parties. The Company relies on informal arrangements with a number of
consulting and systems integration firms to enhance its marketing, sales and
customer service and support efforts, particularly with respect to
implementation and support of its products as well as lead generation and
assistance in the sale process. The Company expects to continue to rely
significantly upon such third parties for marketing and sales, lead
generation, product implementation, customer support services and end user
training. The Company will need to expand its relationships with these parties
and enter into relationships with additional third parties in order to support
revenue growth. Many such firms have similar, and often more established,
relationships with the Company's principal competitors. There can be no
assurance that these and other third parties will provide the level and
quality of service required to meet the needs of the Company's customers, that
the Company will be able to maintain an effective, long term relationship with
such third parties, or that such
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third parties will continue to meet the needs of the Company's customers. If
the Company is unable to develop and maintain effective relationships with
these and other third parties, or if such parties fail to meet the needs of
the Company's customers, the Company's business, operating results and
financial condition could be adversely affected. Further, there can be no
assurance that these third party implementation providers, many of which have
significantly greater financial, technical, personnel and marketing resources
than the Company, will not market software products in competition with the
Company in the future or will not otherwise reduce or discontinue their
relationships with or support of the Company and its products. See "Business--
Sales and Marketing."
Relationship with Oracle. The Company has an informal joint marketing and
sales arrangement with Oracle Corporation ("Oracle") pursuant to which the two
companies jointly market to potential customers in the consumer packaged goods
market. Pursuant to this arrangement, the Company pays to Oracle a percentage
of the Company's license revenue from customers in the consumer packaged goods
market to whom licenses are jointly marketed by Oracle and the Company. This
fee is not payable with respect to certain specified customers or potential
customers with whom the Company has had previous contact. For the fiscal year
ended April 30, 1996, 58% of the Company's license revenues and 24% of the
Company's total revenues was derived from six customers introduced to the
Company by Oracle pursuant to this arrangement. Because the Company does not
have a formal written agreement with Oracle, neither party is legally bound to
maintain the arrangement on its current terms, or at all. As such, the
Company's operating results depend to a large extent upon the effectiveness of
Oracle's efforts under such arrangement, which the Company cannot control.
Accordingly, there can be no assurance that Oracle will not market software
products (including software applications developed by Oracle) in competition
with the Company either currently or in the future or that Oracle will not
otherwise curtail or discontinue its relationship with the Company or cease
recommending the Company and its products to potential customers, any of which
could have a material adverse effect on the business, operating results and
financial condition of the Company. The Company believes that its relationship
with Oracle is beneficial to the Company, and the parties have commenced
discussions concerning the formalization of their relationship in a written
contract. The Company anticipates that, if concluded, such written contract
may provide for Oracle to receive, in certain geographic markets, a higher
proportion of license revenue from System ESS if Oracle's responsibility for
sales and marketing activities in such geographic markets increases. The
Company intends to limit such arrangement, if formalized, to the consumer
packaged goods market. There can be no assurance that the Company will
successfully conclude a formal agreement with Oracle or that such formal
agreement, if concluded, will be on terms favorable to the Company. See
"Business--Sales and Marketing."
Competition. The Company's products are targeted at the emerging market for
demand chain management software products, which is intensely competitive and
characterized by rapid technological change. The Company's competitors are
diverse and offer a variety of solutions directed at various segments of the
supply and demand chain as well as the enterprise as a whole. These
competitors include (i) enterprise application software vendors such as SAP AG
("SAP"), which currently offer sophisticated client/server enterprise resource
planning ("ERP") solutions, (ii) companies offering standardized or customized
products on mainframe and/or mid-range computer systems, (iii) internal
development efforts by corporate information technology departments, (iv)
smaller independent companies which have developed or are attempting to
develop advanced logistics and execution software which complement or compete
with the Company's software solutions, and (v) other business application
software vendors who may broaden their product offerings by internally
developing, or by acquiring or partnering with independent developers of,
advanced logistics and execution software. In connection with specific
customer evaluations, certain ERP and other application software vendors have
from time to time jointly marketed the Company's products as a complement to
their own systems. To the extent such vendors develop or acquire systems with
functionality comparable or superior to System ESS, their significant
installed customer base, long-standing customer relationships and ability to
offer a broader solution could provide a significant competitive advantage
over the Company. In addition, many of the Company's
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competitors have longer operating histories, significantly greater financial,
technical, marketing and other resources, greater name recognition and a
larger installed base of customers than the Company. In order to be successful
in the future, the Company must continue to respond promptly and effectively
to the challenges of technological change and competitors' innovations. The
Company's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources
to the development, promotion and sale of their products than the Company. The
Company also expects to face additional competition as other established and
emerging companies enter the market for order fulfillment software and new
products and technologies are introduced. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Increased competition could result in price reductions, fewer customer
orders, reduced gross margins and loss of market share, any one of which could
materially adversely affect the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able
to compete successfully with existing or new competitors or that competition
will not have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Competition."
Dependence on Principal Product. The Company derived approximately 68%, 74%
and 84% of its total revenues in fiscal 1994, 1995 and 1996, respectively,
from the licensing of the Company's System ESS software and providing
complementary services. Licenses and services related to System ESS are
expected to continue to represent a significant percentage of the Company's
revenues in the future. The Company's success depends on continued market
acceptance of System ESS software and services as well as the Company's
ability to introduce new versions of System ESS or other products to meet the
evolving needs of its customers. There can be no assurance that System ESS
will continue to achieve market acceptance or that the Company will introduce
enhanced versions of System ESS on a timely basis, or at all, to meet the
evolving needs of its customers. Any reduction in demand for System ESS,
increased competition in the market for demand chain management software,
technological change or other factors could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Products and Services."
Dependence on Emerging Market for Demand Chain Management Software. The
Company currently derives, and is expected to continue to derive,
substantially all of its revenues from licenses and services related to System
ESS, a client/server demand chain management software product. Although demand
for System ESS has grown in recent periods, the market for enterprise-wide
management software in general, and for demand chain management software in
particular, is still emerging and there can be no assurance that it will
continue to grow or that, even if the market does grow, businesses will
continue to adopt System ESS. The Company has spent, and intends to continue
to spend, considerable resources educating potential customers generally about
demand chain management, about the need for order fulfillment software
solutions and specifically about System ESS. However, there can be no
assurance that such expenditures will enable System ESS to achieve any
additional degree of market acceptance. If the demand chain management
software market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Products and Services."
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is characterized by rapid
technological developments, evolving industry standards and rapid changes in
customer requirements. The introduction of products embodying new
technologies, the emergence of new industry standards or changes in customer
requirements could render the
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Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements and develop and introduce
in a timely manner new or enhanced products that keep pace with technological
developments and emerging industry standards. Customer requirements include,
but are not limited to, operability across distributed and changing
heterogeneous hardware platforms, operating systems, relational databases and
networks. For example, as certain of the Company's customers start to utilize
Windows NT or other operating platforms, it will be necessary for the Company
to enhance its System ESS products to operate on such platforms in order to
meet these customers' requirements. The Company is currently developing a new
version of System ESS that operates on a Windows NT server platform, supports
Internet-based electronic commerce and supports five additional languages.
However, there can be no assurances that the Company will be successful in
developing this enhanced version of System ESS or new products on a timely
basis, or that such enhancements or new products, when introduced, will
achieve market acceptance or will adequately address the changing needs of the
marketplace. If the Company is unable to develop and introduce new products,
or enhancements to existing products, in a timely manner in response to
changing market conditions or customer requirements, the Company's business,
operating results and financial condition will be materially and adversely
affected. See "Business--Product Development."
Risk of Software Defects. Software products as complex as those offered by
the Company frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. Despite product
testing, the Company has in the past released products with defects,
discovered software errors in certain of its new versions after introduction
and experienced delays or lost revenue during the period required to correct
these errors. The Company regularly introduces new releases and periodically
introduces new versions of System ESS. There can be no assurance that, despite
testing by the Company and by its customers, defects and errors will not be
found in existing products or in new products, releases, versions or
enhancements after commencement of commercial shipments. Any such defects and
errors could result in adverse customer reactions, negative publicity
regarding the Company and its products, harm to the Company's reputation, loss
of or delay in market acceptance or require product changes, any of which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business--Products and Services."
Product Liability. The Company's license agreements with customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims. The limitation of liability provisions contained in
such license agreement may not be effective. The Company's products are
generally used to manage data critical to large organizations, and, as a
result, the sale and support of products by the Company may entail the risk of
product liability claims. A successful liability claim brought against the
Company could have a material adverse effect upon the Company's business,
operating results and financial condition. See "Business--Products and
Services."
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success depends, in part, upon the protection of its proprietary technology.
The Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures, and license arrangements to establish and
protect its proprietary rights. As part of its confidentiality procedures, the
Company licenses its software pursuant to signed license agreements that
impose restrictions on the licensee's ability to utilize the software and
generally enters into non-disclosure agreements with its employees,
distributors and corporate partners, and limits access to and distribution of
its software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy the Company's
products or otherwise obtain and use the Company's proprietary technology
without authorization. There can be no assurance that the Company's protection
of its proprietary rights will be adequate or that the Company's competitors
will not independently develop similar technology or duplicate illegally the
Company's products.
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The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third
parties will not claim such infringement by the Company with respect to
current or future products. The Company expects that software product
developers increasingly will be subject to such claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in the industry segment overlaps. Any such claims,
with or without merit, could result in costly litigation that could absorb
significant management time, which could have a material adverse effect on the
Company's business, operating results and financial condition. Such claims
might require the Company to enter into royalty or license agreements. Such
royalty or license agreements, if required, may not be available on terms
acceptable to the Company or at all, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business--Proprietary Rights."
Exposure to Currency Fluctuations. A significant portion of the Company's
business is conducted in currencies other than the U.S. dollar (the currency
in which its financial statements are stated), primarily the Swedish krona.
The Company incurs a significant portion of its expenses in Swedish kronor,
including all of its product development expenses and a substantial portion of
its general and administrative expenses. As a result, appreciation of the
value of the Swedish krona relative to the other currencies in which the
Company generates revenues, particularly the U.S. dollar, could adversely
affect operating results. The financial statements of the Company are
translated from the functional currency of the operating subsidiaries into
U.S. dollars, the reporting currency, utilizing the current rate method.
Accordingly, assets and liabilities are translated at exchange rates in effect
at the end of the reporting period, and revenues and expenses are translated
at the average exchange rate during the period. All translation gains or
losses from the translation into the Company's reporting currency are included
as a separate component of stockholders' equity. Fluctuations in the Swedish
krona and other currencies relative to the U.S. dollar will effect period to
period comparison of the Company's reported results of operations. Due to the
constantly changing currency exposures and the volatility of currency exchange
rates, there can be no assurance that the Company will not experience currency
losses in the future, nor can the Company predict the effect of exchange rate
fluctuations upon future operating results. For additional information
regarding the effects of currency fluctuations on the Company's results, see
"Exchange Rates" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Uncertainty of Realizability of Deferred Tax Asset. At April 30, 1996, the
Company has approximately $5.3 million of gross deferred tax assets comprised
primarily of net operating loss carryforwards in Sweden. Such net operating
loss carryforwards are available for an indefinite period of time. The Company
believes that, based upon a number of factors, the available objective
evidence creates sufficient uncertainty regarding the realizability of the
deferred tax asset such that a valuation allowance has been recorded. These
factors include the Company's history of net losses, the Company's limited
profitability in recent periods, the fact that the market in which the Company
competes is intensely competitive and characterized by rapidly changing
technology, and the uncertainty regarding market acceptance of new versions of
the Company's System ESS. Accordingly, the Company has recorded a valuation
allowance with respect to a portion of such deferred tax asset. The Company
will continue to assess the realizability of the deferred tax assets based
upon actual and forecasted operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Holding Company Structure. All of the operations of the Company are and will
be conducted through direct and indirect subsidiaries. The Company's cash flow
will depend upon the operating results and cash flow of its subsidiaries and
the payment of funds by those subsidiaries to the Company in the form of
loans, dividends or otherwise. The subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to make funds
available to the Company, whether in the form of loans, dividends or
otherwise. Applicable law in certain countries may limit the ability of a
subsidiary to pay dividends in the absence of sufficient distributable
reserves or for other reasons. The Company's
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Swedish, United Kingdom and United States subsidiaries are not subject to any
current exchange controls. However, future exchange controls in these
counties, or the existence of such controls in other countries in which the
Company establishes subsidiaries could limit or restrict the ability of the
Company to obtain loans, dividends or otherwise access financial resources in
such subsidiary. In addition, the Company's subsidiaries may from time to time
in the future become parties to financing arrangements, which may contain
limitations on the ability of such subsidiaries to pay dividends or to make
loans or advances to the Company. In the event of any insolvency, bankruptcy
or similar proceedings, creditors of the subsidiaries would generally be
entitled to priority over the stockholders of the Company with respect to
assets of the affected subsidiary. See "Dividend Policy."
No Prior Public Market; Determination of Public Offering Price; Possible
Volatility of Stock Price. Prior to this offering, there has been no public
market for shares of the Common Stock, and there can be no assurance that an
active public trading market will develop following completion of this
offering or, if developed, that such market will be sustained. The initial
public offering price of the shares of Common Stock will be determined by
negotiation between the Company, the Selling Stockholders and the
Representatives of the Underwriters and will not necessarily reflect the
market price of the Common Stock following this offering. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price.
The market price for the Common Stock following this offering will be
affected by a number of factors, including the announcement of new products or
product enhancements by the Company or its competitors, quarterly variations
in the Company's results of operations or results of operations of its
competitors or companies in related industries, changes in earnings or revenue
estimates or recommendations by securities analysts, developments in the
Company's industry, general market conditions and other factors, including
factors unrelated to the operating performance of the Company or its
competitors. In addition, stock prices for many companies in the technology
and emerging growth sectors have experienced wide fluctuations that have often
been unrelated to the operating performance of such companies. Such factors
and fluctuations, as well as general economic, political and market
conditions, such as recessions, may materially and adversely affect the market
price of the Company's Common Stock.
Control by Management and Current Stockholders; Indemnification of Officers
and Directors. Following completion of this offering, the Company's officers
and directors, and their affiliates, in the aggregate, will own beneficially
74.4% of the Company's Common Stock outstanding with full voting rights and
will own beneficially 85.6% of the Company's outstanding Common Stock. In
particular, Warburg, Pincus Investors, L.P. ("Warburg") will own beneficially
44.1% of the Company's Common Stock outstanding with full voting rights and
will own beneficially 68.5% of the Company's outstanding Common Stock. As a
result, Warburg will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. The voting power of
Warburg and the Company's officers and directors under certain circumstances
could have the effect of delaying, deferring or preventing a change in control
of the Company, and making certain transactions more difficult or impossible
absent the support of such stockholders, including proxy contests, mergers
involving the Company, tender offers, open-market purchase programs or other
purchases of Common Stock that could give stockholders of the Company the
opportunity to realize a premium over the then prevailing market price for
shares of Common Stock. The Company has entered into agreements with its
officers and directors indemnifying them against losses they may incur in
legal proceedings arising from their service to the Company. See "Principal
and Selling Stockholders" and "Description of Capital Stock."
Effect of Certain Charter Provisions; Antitakeover Effects of the Company's
Charter, Bylaws and Delaware Law. The Company's Board of Directors has the
authority to issue up to 15,000,000 shares of Preferred Stock and to determine
the price, preferences, privileges and restrictions, including voting rights,
of those shares without any further vote or action by the stockholders. The
rights of the holders of
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Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company is subject to the antitakeover provisions of
Section 203 of the Delaware General Corporation Law (the "GCL"), which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying, deferring or preventing a
change of control of the Company. Further, certain provisions of the Company's
Certificate of Incorporation and Bylaws may have the effect of discouraging,
delaying or preventing a merger, tender offer or proxy contest involving the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Description of Capital Stock--Preferred Stock" and "--Antitakeover
Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware
Law."
Shares Eligible for Future Sale; Registration Rights. Sales of a substantial
number of shares of Common Stock in the public market following this offering
could adversely affect the market price for the Company's Common Stock. The
holders of shares of the Common Stock are subject to restrictions upon resale
in the public market under the Securities Act of 1933, as amended (the
"Securities Act"), and restrictions in lock-up agreements under which each
director, executive officer and stockholder has agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
effective date of this offering without the prior written consent of Alex.
Brown & Sons Incorporated. Following completion of the offering, the 4,000,000
shares offered hereby will be eligible for sale without restriction. Of the
23,694,253 remaining shares held by existing stockholders, 22,437,268 are held
by "affiliates" of the Company (within the meaning of Rule 144 under the
Securities Act) and will be eligible for sale pursuant to Rule 144 upon the
expiration of their respective two-year holding periods, subject to the
volume, manner of sale and other limitations of Rule 144, and 1,256,985 were
issued under the Company's Restricted Stock Program and will be eligible for
future sale without restriction 90 days following this Offering under Rule 701
under the Securities Act (unless held by "affiliates" of the Company), subject
to restrictions in the lock-up agreements. In addition, the Company intends to
register pursuant to a registration statement on Form S-8/S-3 939,975 shares
of Common Stock subject to outstanding options and 2,060,025 shares reserved
for future issuance under the Company's Stock Option Plan and 1,256,985 shares
issued under the Restricted Stock Program. Such shares of Common Stock (to the
extent issued) will be eligible for sale upon expiration of the lock-up
agreements, subject to vesting and exercisability restrictions. The lock-up
agreements may be waived by Alex. Brown and Sons Incorporated in its sole
discretion at any time without notice. Furthermore, all 22,437,268 shares of
Common Stock held in the aggregate by Warburg and Martin Leimdorfer will be
entitled to certain registration rights. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, the sale of such shares could have a material adverse
effect on the market price for the Company's Common Stock and could materially
adversely affect the Company's ability to raise additional capital when or if
required. See "Shares Eligible for Future Sale."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the book value per share of Common Stock. Investors
purchasing shares of Common Stock in this offering will experience immediate
and substantial dilution in net tangible book value of $10.81 per share. The
Company has issued options at prices significantly below the public offering
price. To the extent outstanding options to purchase share of Common Stock are
exercised, there will be further dilution in net tangible book value. See
"Dilution."
Enforceability of U.S. Judgments against Non-U.S. Officers and Directors. A
substantial portion of the Company's assets are located outside the United
States. In addition, members of the Board of Directors of the Company and
certain experts named herein are residents of countries other than the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against such
persons judgments of courts of the United States predicated upon
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civil liabilities under the United States federal securities laws. There can
be no assurance that United States investors will be able to enforce against
the members of the Board of Directors or certain experts named herein who are
residents of Sweden or countries other than the United States, any judgments
in civil and commercial matters, including judgments under the federal
securities laws. In addition, there is doubt as to whether a Swedish court
would impose civil liability on the members of the Board of Directors of the
Company in an original action predicated solely upon the federal securities
laws of the United States brought in a court of competent jurisdiction in
Sweden against the Company or such members.
Significant Unallocated Net Proceeds. The Company has not yet identified
specific uses for the substantial majority of the net proceeds to be received
by it from this offering, and pending such uses, the Company expects to invest
such net proceeds in investment grade, short-term, interest-bearing debt
securities. The Company will have discretion over the use and investment of
such proceeds. See "Use of Proceeds."
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THE COMPANY
The Company was incorporated in the State of Delaware in 1995 and conducts
its business through its domestic and international subsidiaries. The
Company's business was founded in 1967 and incorporated in Sweden as Industri-
Matematik AB ("IMAB"). In May, 1995, the then shareholders of IMAB exchanged
all of their IMAB shares for shares of the Company's capital stock (the
"Exchange"). Following the Exchange, IMAB became a wholly-owned subsidiary of
the Company. See "Certain Transactions". Unless the context otherwise
requires, references in this Prospectus to the "Company" refer to IMI, its
predecessors and its subsidiaries. The Company's principal executive offices
are located at Kungsgatan 12-14, Box 7733, 103 95 Stockholm, Sweden, telephone
number (011) (468) 676-5000 and its principal U.S. office is located at Five
Greentree Center, Suite 201, Marlton, New Jersey 08053, telephone number (609)
988 3922.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,200,000 shares of
Common Stock being offered by the Company are estimated to be $34.4 million,
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company. The principal purposes of this offering are
to obtain additional working capital, establish a public market for the
Company's Common Stock and facilitate future access by the Company to the
public capital markets. The Company may apply a portion of the net proceeds to
the repayment of some or all of the outstanding principal indebtedness, plus
accrued interest thereon, under the Company's bank lines of credit. The net
proceeds will be used for working capital and general corporate purposes,
including the expansion of its sales, service, support and marketing
operations. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary technologies, products or businesses, although
there are no current agreements or negotiations with respect to any
transaction. Pending such uses, the Company currently plans to invest the net
proceeds in short-term, investment-grade, interest-bearing debt securities.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholder. See "Certain Transactions."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock and
does not intend to do so in the foreseeable future. It is the present
intention of the Company to retain any future earnings to provide funds for
the operation and expansion of its business. In addition, the payment of
dividends is restricted under the terms of the Company's existing credit
facilities. The Swedish Company Act imposes certain limitations on the ability
of IMAB to pay dividends to the Company. See "Risk Factors--Holding Company
Structure."
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CAPITALIZATION
The following table sets forth as of April 30, 1996 (i) the actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis giving effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and Class B Common Stock, and (iii) the
capitalization of the Company as adjusted to reflect the sale of the 3,200,000
shares of Common Stock offered by the Company hereby (assuming an estimated
initial offering price of $12.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company and the expected application of the estimated net proceeds therefrom).
See "Use of Proceeds."
<TABLE>
<CAPTION>
APRIL 30, 1996
------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt (1)........... $ 349 $ 349 $ --
======= ======= ========
Long-term debt, less current portion (1)........ $ 7,950 $ 7,950 $ --
Stockholders' equity:
Convertible Preferred stock, $.01 par value;
15,000,000 shares authorized; 14,630,250
shares issued and outstanding (pro forma: no
shares outstanding).......................... 146 -- --
Common stock; voting, $.01 par value;
35,000,000 shares authorized; 9,480,003
shares issued and outstanding
(pro forma and as adjusted: 12,406,053 and
15,606,053 shares issued and outstanding)
(2).......................................... 94 124 156
Class B Common stock; non-voting, $.01 par
value; 12,500,000 shares authorized; 384,000
shares issued and outstanding (pro forma and
as adjusted: 12,088,200 shares issued and
outstanding)................................. 4 120 120
Additional paid-in capital...................... 15,323 15,323 49,653
Accumulated deficit............................. (10,870) (10,870) (10,870)
Cumulative translation adjustment............... (1,569) (1,569) (1,569)
Notes receivable from stockholders.............. (2,626) (2,626) (2,626)
------- ------- --------
Total stockholders' equity ................. 502 502 34,864
------- ------- --------
Total capitalization ..................... $ 8,452 $ 8,452 $ 34,864
======= ======= ========
</TABLE>
- --------
(1) See Note 10 of Notes to Consolidated Financial Statements.
(2) Excludes 939,975 shares of Common Stock issuable upon the exercise of
stock options outstanding as of April 30, 1996, at a weighted average
exercise price of $2.00 per share. See "Management--Stock Option Plan."
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at April 30, 1996 was
$(1,486,000), or $(0.06) per share. Pro forma net tangible book value per
share represents the amount of total tangible assets (which excludes deferred
tax assets) less total liabilities, divided by the number of shares of Common
Stock outstanding after giving effect to the conversion of all outstanding
shares of Preferred Stock into Common Stock and Class B Common Stock upon the
closing of the offering.
After giving effect to the sale of the 3,200,000 shares of Common Stock
offered by the Company hereby (assuming an estimated initial offering price of
$12.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company) and the expected
application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company at April 30, 1996, would have been
$32,876,000, or $1.19 per share. This represents an immediate increase in net
tangible book value of $1.25 per share to existing stockholders and an
immediate dilution in net tangible book value of $10.81 per share to
purchasers of Common Stock in this offering. The following table illustrates
the dilution in net tangible book value per share to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share......................... $12.00
Pro forma net tangible book value per share at April 30, 1996. $(0.06)
Increase per share attributable to new investors.............. 1.25
------
Pro forma net tangible book value per share after offering...... 1.19
------
Pro forma net tangible book value dilution per share to new in-
vestors........................................................ $10.81
======
</TABLE>
The following summarizes, on a pro forma basis, as of April 30, 1996, the
number of shares of Common Stock purchased from the Company, the total cash
paid to the Company and the average price paid per share by existing
stockholders and by new investors purchasing shares at an assumed initial
public offering price of $12.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED
(1) TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 24,494,253 88.4% $15,567,000 28.9% $ 0.64
New investors.............. 3,200,000 11.6 38,400,000 71.1 12.00
---------- ----- ----------- -----
Total.................... 27,694,253 100.0% $53,967,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholder in this offering will reduce the number
of shares held by existing stockholders to 23,694,253 shares, or 85.6% of
the total number of shares of Common Stock to be outstanding after the
offering, and will increase the number of shares held by the new investors
to 4,000,000 shares, or 14.4% of the total number of shares of Common
Stock to be outstanding after the offering. See "Principal and Selling
Stockholders."
The above tables exclude 939,975 shares issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $2.00 per
share. To the extent outstanding options are exercised, new investors will
experience further dilution. See "Management--Stock Option Plan."
18
<PAGE>
EXCHANGE RATES
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Swedish krona. The Company incurs a significant portion
of its expenses in Swedish kronor, including all of its product development
expenses and a substantial portion of its general and administrative expenses.
As a result, appreciation of the value of the Swedish krona relative to the
other currencies in which the Company generates revenues, particularly the
U.S. dollar, could adversely affect operating results. The financial
statements of the Company are translated from the functional currency of the
operating subsidiaries into U.S. dollars, the reporting currency, utilizing
the current rate method. Accordingly, assets and liabilities are translated at
exchange rates in effect at the end of the reporting period, and revenues and
expenses are translated at the average exchange rate during the period. All
translation gains or losses from the translation into the Company's reporting
currency are included as a separate component of stockholders' equity.
Fluctuations in the Swedish krona and other currencies relative to the U.S.
dollar will effect period to period comparison of the Company's reported
results of operations. Due to the constantly changing currency exposures and
the volatility of currency exchange rates, there can be no assurance that the
Company will not experience currency losses in the future, nor can the Company
predict the effect of exchange rate fluctuations upon future operating
results.
The table below sets forth, for the periods and dates indicated, the
exchange rate for the dollar against the krona based on the noon buying rate
in New York City for cable transfers in Swedish kronor as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate"). On June 6, 1996, the Noon Buying Rate was $1.00 = SEK 6.7480.
KRONA/DOLLAR EXCHANGE RATES
(KRONOR PER DOLLAR)
<TABLE>
<CAPTION>
AT END
OF AVERAGE
PERIOD RATE (1) HIGH LOW
------ -------- ---- ----
<S> <C> <C> <C> <C>
May 1, 1993, to April 30, 1994........................ 7.66 7.95 8.48 7.17
May 1, 1994, to April 30, 1995........................ 7.27 7.52 7.96 7.06
May 1, 1995, to April 30, 1996........................ 6.79 6.94 7.44 6.50
</TABLE>
- --------
(1) The average of the Noon Buying Rates on the last day of each month during
the relevant period.
Prior to May 17, 1991, the position of the krona was measured by an index in
which the currencies of each of Sweden's 15 most important trading partners
had a specific weight related to each country's average portion of Swedish
foreign trade during the preceding five years. On May 17, 1991, the Bank of
Sweden unilaterally pegged the Swedish krona to the European Currency Unit
("ECU"). However, as a result of instability in the currency system during the
fall of 1992, a number of countries withdrew from the European Monetary
System. During this time, there was speculation against the krona, forcing the
Bank of Sweden to intervene heavily in the foreign exchange market to support
the krona. As this intervention proved insufficient to stabilize the krona,
the Bank of Sweden let the krona exchange rate float against other currencies
from November 19, 1992, leading to depreciation of the krona against several
other currencies during 1992 and 1993, before stabilizing in 1994. During the
first six months of 1995, the Swedish krona depreciated approximately 6%
against the ECU, while it appreciated approximately 11% against the ECU in the
last six months of 1995, with the effect that the average Swedish krona
exchange rate in relation to the ECU in 1995 was 2% lower than the
corresponding rate in 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Exposure to Currency
Fluctuations."
There are currently no Swedish foreign exchange control restrictions on the
conduct of the Company's operations.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto and the other financial information
included elsewhere in this Prospectus. The statement of operations for the
years ended April 30, 1994, 1995, and 1996, and the balance sheet data at
April 30, 1995, and 1996, are derived from and should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes
thereto included elsewhere in this Prospectus which have been audited by
Ohrlings Coopers & Lybrand AB, independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Revenues:
Licenses........................ $ 3,433 $ 5,698 $ 5,254 $10,661 $15,474
Services and maintenance........ 17,107 15,648 11,950 14,543 23,103
Other........................... 5,369 2,450 1,576 2,540 1,432
------- ------- ------- ------- -------
Total revenues................ 25,909 23,796 18,780 27,744 40,009
Cost of revenues:
Licenses........................ 220 1,136 721 2,172 2,717
Services and maintenance........ 15,829 11,854 10,030 12,424 16,813
Other........................... 5,653 2,417 831 2,252 947
------- ------- ------- ------- -------
Total cost of revenues........ 21,702 15,407 11,582 16,848 20,477
------- ------- ------- ------- -------
Gross profit.................. 4,207 8,389 7,198 10,896 19,532
Operating expenses:
Product development............. 3,976 3,593 5,517 7,009 6,822
Sales and marketing............. 3,503 2,693 3,056 5,720 7,746
General and administrative...... 2,510 4,431 3,688 4,192 3,579
------- ------- ------- ------- -------
Total operating expenses...... 9,989 10,717 12,261 16,921 18,147
------- ------- ------- ------- -------
Income (loss) from operations.... (5,782) (2,328) (5,063) (6,025) 1,385
Other income (expense):
Gain on sale of subsidiary(1)... -- 1,291 -- -- --
Interest income................. 46 8 40 15 13
Interest expense................ (371) (584) (229) (689) (744)
Miscellaneous income (expense).. 11 82 (227) (384) (12)
------- ------- ------- ------- -------
Income (loss) from continuing
operations before income taxes.. (6,096) (1,531) (5,479) (7,083) 642
Provision (benefit) for income
taxes........................... 202 122 40 (941) (781)
------- ------- ------- ------- -------
Income (loss) from continuing
operations...................... (6,298) (1,653) (5,519) (6,142) 1,423
Income (loss) from discontinued
operations...................... (432) (156) (151) (246) 327
------- ------- ------- ------- -------
Net income (loss)................ $(6,730) $(1,809) $(5,670) $(6,388) $ 1,750
======= ======= ======= ======= =======
Pro forma net income per share
data(2):
Income from continuing
operations...................... $ 0.06
Income from discontinued
operations...................... 0.01
-------
Pro forma net income per share... $ 0.07
=======
Pro forma shares used in per
share calculation............... 25,278
=======
<CAPTION>
APRIL 30,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........ $ 286 $ 99 $ 75 $ 160 $ 558
Working capital.................. 8,102 7,988 3,789 2,980 5,962
Total assets..................... 18,550 15,630 13,364 15,508 21,324
Long-term debt, less current por-
tion............................ 3,977 4,284 3,634 6,725 7,950
Total stockholders' equity....... 6,349 5,513 1,779 (2,097) 502
</TABLE>
- --------
(1) During the fiscal year ended April 30, 1993, the Company sold all of its
interest in Systecon AB, a wholly-owned subsidiary. The gain recognized on
the sale represents the excess of the sales price over the Company's book
basis. During fiscal 1993, Systecon AB generated revenues of $3.1 million.
(2) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in calculating pro forma
net income per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Risk Factors" and "Business."
OVERVIEW
IMI develops, markets and supports client/server application software which
enables manufacturers, distributors and wholesalers to more effectively manage
the demand chain. The Company was founded in 1967 as a custom software
development and consulting services organization. The Company developed and
delivered its first distribution logistics software in 1974, its first UNIX-
based version in 1984 and its first Oracle-based client/server version in
1991. In 1993, the Company introduced its current generation product, System
ESS, which was designed to meet the needs of multinational manufacturers,
distributors and wholesalers. Since that time, the Company's operating
expenses have increased substantially, as the Company has made significant
investments outside Sweden in sales and marketing, customer support and
product development related to System ESS. As a result of these investments,
greater market acceptance of System ESS and expansion of its business outside
Sweden, the Company's revenues have grown in recent years, increasing from
$18.8 million in fiscal 1994 to $40.0 million in fiscal 1996, with revenues
from sales outside Sweden increasing from $5.0 million to $26.2 million over
the same period. The Company reached profitability in the third and fourth
quarters of fiscal 1996 and for the most recent fiscal year ended April 30,
1996. There can be no assurance that the Company will sustain profitablity on
a quarterly or annual basis in the future. See "Quarterly Financial Results"
and "Risk Factors--No Assurance of Profitability" and "--Significant
Fluctuations in Quarterly Operating Results and Seasonality; Potential
Quarterly Losses."
A substantial majority of the Company's revenues in the last three years
have been attributable to license fees and related services, including
software maintenance and support, implementation, consulting and training.
Recently, the Company has experienced an increase in license revenues as a
percentage of total revenues due to an increase in individual licenses of
System ESS to multinational manufacturers, distributors and wholesalers. The
Company expects that license and services revenues related to System ESS will
continue to constitute predominantly all of the Company's total revenues in
the foreseeable future. License revenues are recognized upon the signing of
the license agreement and shipment of the product if no significant vendor
obligations remain and collection of the resulting receivable is probable.
Annual maintenance and support revenues consist of ongoing support and product
updates and are recognized ratably over the term of the maintenance agreement.
Revenues from implementation, training and consulting services are recognized
when the relevant services are performed. The Company recognized revenues, in
all periods presented, in accordance with Statement of Position 91-1,
"Software Revenue Recognition."
The Company plans to increase expenditures in order to fund the continued
expansion of its worldwide operations, greater levels of product development,
a larger and more geographically dispersed direct sales force, and broader
customer support capabilities. Although the Company believes such expenditures
will ultimately improve the Company's operating results, to the extent such
expenditures are incurred and revenues do not correspondingly increase, the
Company's operating results would be materially adversely affected. Future
operating results will depend on many factors, including the growth of the
demand chain management software market, market acceptance of the Company's
products, competition, the success of the Company's expansion of its direct
sales force, general economic conditions and other factors. See "Risk
Factors--No Assurance of Profitability," "--Significant Fluctuations in
Quarterly Operating Results and Seasonality; Potential Quarterly Losses."
21
<PAGE>
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Swedish krona. The Company incurs a significant portion
of its expenses in Swedish kronor, including all of its product development
expenses and a substantial portion of its general and administrative expenses.
As a result, appreciation of the value of the Swedish krona relative to the
other currencies in which the Company generates revenues, particularly the
U.S. dollar, could adversely affect operating results. The financial
statements of the Company are translated from the functional currency of the
operating subsidiaries into U.S. dollars, the reporting currency, utilizing
the current rate method. Accordingly, assets and liabilities are translated at
exchange rates in effect at the end of the reporting period, and revenues and
expenses are translated at the average exchange rate during the period. All
translation gains or losses from the translation into the Company's reporting
currency are included as a separate component of stockholders' equity.
Fluctuations in the Swedish krona and other currencies relative to the U.S.
dollar will affect period to period comparison of the Company's reported
results of operations. Due to the constantly changing currency exposures and
the volatility of currency exchange rates, there can be no assurance that the
Company will not experience currency losses in the future, nor can the Company
predict the effect of exchange rate fluctuations upon future operating
results. The Company does not currently undertake hedging transactions and has
limited lines of credit to cover its currency exposure. The Company may choose
to hedge a portion of its currency exposure in the future as it deems
appropriate. See "Risk Factors--Exposure to Currency Fluctuations" and
"Exchange Rates".
22
<PAGE>
RESULTS OF OPERATIONS
For the fiscal periods indicated, the following table sets forth the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Licenses............................. 13.3 % 23.9 % 28.0 % 38.4 % 38.7 %
Services and maintenance............. 66.0 65.8 63.6 52.4 57.7
Other................................ 20.7 10.3 8.4 9.2 3.6
----- ----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Licenses............................. 0.8 4.8 3.8 7.8 6.8
Services and maintenance............. 61.1 49.8 53.4 44.8 42.0
Other................................ 21.8 10.2 4.4 8.1 2.4
----- ----- ----- ----- -----
Total cost of revenues............. 83.7 64.8 61.6 60.7 51.2
----- ----- ----- ----- -----
Gross profit....................... 16.3 35.2 38.4 39.3 48.8
Operating expenses:
Product development.................. 15.3 15.1 29.4 25.3 17.1
Sales and marketing.................. 13.5 11.3 16.3 20.6 19.4
General and administrative........... 9.7 18.6 19.6 15.1 8.9
----- ----- ----- ----- -----
Total operating expenses........... 38.5 45.0 65.3 61.0 45.4
----- ----- ----- ----- -----
Income (loss) from operations.......... (22.2) (9.8) (26.9) (21.7) 3.4
Other income (expense):
Gain on sale of subsidiary(1)........ -- 5.4 -- -- --
Interest income...................... 0.2 0.0 0.2 0.1 0.0
Interest expense..................... (1.4) (2.5) (1.2) (2.5) (1.9)
Miscellaneous income (expense)....... 0.0 0.3 (1.2) (1.4) 0.0
----- ----- ----- ----- -----
Income (loss) from continuing
operations before income taxes...... (23.4) (6.6) (29.1) (25.5) 1.5
Provision (benefit) for income taxes... 0.8 0.5 0.2 (3.4) (2.0)
----- ----- ----- ----- -----
Income (loss) from continuing opera-
tions................................. (24.2) (7.1) (29.3) (22.1) 3.5
Income (loss) from discontinued opera-
tions................................. (1.7) (0.7) (0.8) (0.9) 0.8
----- ----- ----- ----- -----
Net income (loss)...................... (25.9)% (7.8)% (30.1)% (23.0)% 4.3 %
===== ===== ===== ===== =====
</TABLE>
- --------
(1) During the fiscal year ended April 30, 1993, the Company sold all of its
interest in Systecon AB, a wholly-owned subsidiary. The gain recognized on
the sale represents the excess of the sales price over the Company's book
basis.
COMPARISON OF FISCAL YEARS 1996, 1995 AND 1994
Revenues
Total revenues consist of revenues derived from sales of software licenses
and related services, including software maintenance and support,
implementation, consulting and training. Total revenues increased 44.2% to
$40.0 million in fiscal 1996 from $27.7 million in fiscal 1995, and increased
47.7% in fiscal 1995 from $18.8 million in fiscal 1994. The increase in
revenues during these periods was primarily due to increased license fees from
the Company's System ESS product and related service and maintenance fees.
Licenses. Software license revenues increased 45.1% to $15.5 million in
fiscal 1996 from $10.7 million in fiscal 1995, and increased 102.9% in fiscal
1995 from $5.3 million in fiscal 1994. Software license revenues constituted
38.7%, 38.4% and 28.0% of total revenues in fiscal 1996, 1995 and 1994,
respectively. The significant increases in software license revenues were
primarily due to growing market acceptance
23
<PAGE>
of the Company's software products and continued expansion of the Company's
sales and marketing organization, particularly into new geographies and new
vertical markets. This is evidenced by the increase in the percentage of
license revenues from the market outside Sweden to 96.3% of license revenues
in fiscal 1996 from 64.8% in fiscal 1995 and 82.5% in fiscal 1994. The
majority of such license revenues outside Sweden were from the United States
and the United Kingdom. The Company expects to continue to expand into new
geographies and vertical markets, however there can be no assurance that
market acceptance of the Company's products will continue to grow or that the
Company will be able to expand its direct sales, service, support and
marketing organizations successfully. See "Business--Sales and Marketing."
Service and Maintenance. Service and maintenance revenues increased 58.9% to
$23.1 million in fiscal 1996 from $14.5 million in fiscal 1995, and increased
21.7% from $12.0 million in fiscal 1994. Service and maintenance revenues
constituted 57.7%, 52.4% and 63.6% of total revenues in fiscal 1996, 1995 and
1994, respectively. The significant increases in the dollar amount of service
and maintenance revenues were primarily due to the increase in services
related to a greater number of System ESS licenses sold, as well as the high
percentage of maintenance agreement renewals for licenses sold in prior years.
The Company expects service and maintenance revenues as a percentage of total
revenues to continue to fluctuate on a period to period basis. The Company's
sales and marketing strategy is to increase its utilization of third-party
implementation services to enable it to more rapidly penetrate its target
markets. To the extent that such efforts are successful, the Company believes
that service and maintenance revenues could decline as a percentage of total
revenues. See "Risk Factors--Reliance on and Need to Develop Additional
Relationships with Third Parties."
Other. Other revenues are primarily third-party hardware sales to help
certain customers implement System ESS. Other revenues decreased 43.6% to $1.4
million in fiscal 1996 from $2.5 million in fiscal 1995 and increased 61.2% in
fiscal 1995 from $1.6 million in fiscal 1994. Other revenues constituted 3.6%,
9.2% and 8.4% of revenues in fiscal 1996, 1995 and 1994 respectively.
Commencing in fiscal 1993 the Company deliberately reduced its emphasis on
providing third-party hardware and support, and its strategy is to minimize
its efforts in this area except on an as needed basis. The Company expects
other revenues to fluctuate on a period to period basis, to generally decrease
in absolute dollars and to decline significantly as a percentage of total
revenues.
Cost of Revenues
Cost of revenues was $20.5 million, $16.8 million and $11.6 million in
fiscal 1996, 1995 and 1994, representing 51.2%, 60.7% and 61.6% of total
revenues, respectively. As a percentage of total revenues, cost of revenues
remained relatively flat from fiscal 1994 to fiscal 1995, but declined from
fiscal 1995 to fiscal 1996. This decrease was primarily due to an increase in
the gross margin of service and maintenance revenues and a decrease in other
revenues as a percentage of total revenues. The Company anticipates that if
revenues from licenses of System ESS continue to increase as a percentage of
total revenues, then costs of revenues may continue to decline as a percentage
of total revenues, because the gross margin on license revenues is higher than
the gross margin on all other revenues.
The following table sets forth, for the periods indicated, cost of revenues
for each revenue category and the cost of revenues represented as a percentage
of each revenue category:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
COST % OF COST % OF COST % OF
OF REVENUE OF REVENUE OF REVENUE
REVENUES CATEGORY REVENUES CATEGORY REVENUES CATEGORY
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Licenses................ $ 721 13.7% $ 2,172 20.4% $ 2,717 17.6%
Services and
maintenance............ 10,030 83.9 12,424 85.4 16,813 72.8
Other................... 831 52.7 2,252 88.7 947 66.1
------- ------- -------
Total cost of revenues. $11,582 61.6% $16,848 60.7% $20,477 51.2%
======= ======= =======
</TABLE>
24
<PAGE>
Cost of License Revenues. Cost of license revenues consists primarily of
commissions and license fees paid to third parties in fiscal years 1995 and
1996, particularly fees paid to Oracle pursuant to an informal joint marketing
and sales arrangement. Cost of license revenues was $2.7 million, $2.2 million
and $0.7 million in fiscal 1996, 1995 and 1994, and 17.6%, 20.4% and 13.7% of
license revenues, respectively. The increase in the absolute dollar amount of
the cost of license revenues was principally related to the higher level of
software licenses sold. In fiscal 1996, 58% of the Company's license revenues
and 24% of the Company's total revenues was derived from six customers
introduced to the Company by Oracle pursuant to an informal joint marketing
and sales arrangement. The parties have commenced discussions concerning the
formalization of their relationship in a written contract. The Company
anticipates that, if concluded, such written contract may provide for Oracle
to receive, in certain geographic markets, a higher proportion of license
revenues from System ESS if Oracle's responsibility for sales and marketing
activities in such geographic markets increases. There can be no assurance
that the Company will successfully conclude a formal agreement with Oracle or
that such formal agreement, if concluded, will be on terms favorable to the
Company. See "Risk Factors--Relationship with Oracle."
Cost of Service and Maintenance Revenues. Cost of service and maintenance
revenues consists primarily of costs associated with consulting,
implementation, training and ongoing support. Cost of service and maintenance
revenues was $16.8 million, $12.4 million and $10.0 million in fiscal 1996,
1995 and 1994, representing 72.8%, 85.4% and 83.9% of service and maintenance
revenues, respectively. The increase in cost of service and maintenance
revenues in absolute dollars was primarily due to the increase in the number
of personnel providing consulting and training services to customers. Although
the Company intends to continue to enter into informal joint marketing
arrangements with third parties, including systems integrators, who might
provide services to the Company's customers, the Company expects to continue
to increase the number of its service personnel in the future as the number of
licensees of System ESS increases.
Cost of Other Revenues. Cost of other revenues consists primarily of the
cost of third party hardware supplied to certain customers. Cost of other
revenues was $0.9 million, $2.3 million and $0.8 million in fiscal 1996, 1995
and 1994, representing 66.1%, 88.7% and 52.7% of other revenues, respectively.
Commencing in fiscal 1993, the Company deliberately reduced its emphasis on
providing third-party hardware and support, and its strategy is to minimize
its efforts in this area except on an as needed basis. The Company expects
cost of other revenues to fluctuate on a period to period basis, to generally
decrease in absolute dollars and to decline significantly as a percentage of
total cost of revenues.
Product Development. Product development expenses consist primarily of
salaries and other related costs for the Company's engineering staff. Product
development expenses were $6.8 million, $7.0 million and $5.5 million in
fiscal 1996, 1995 and 1994, representing 17.1%, 25.3% and 29.4% of total
revenues, respectively. The increase in fiscal 1995 in product development
expenses in absolute dollars was primarily due to the increased headcount of,
and associated support for, product engineers to assist with the completion of
Release 4.1 of System ESS, and the hiring of third party consultants. The
decrease in fiscal 1996 in product development expenses in absolute dollars
was due primarily to a decline in the Company's use of third party consultant
engineers. As a percentage of total revenues, product development expenses
declined in fiscal 1995 and 1996, primarily due to an increase in revenues
related to System ESS. The Company believes that a significant level of
investment for product development is required to remain competitive and,
accordingly, the Company anticipates that product development expenses will
increase in fiscal 1997, both in absolute dollars and as a percentage of total
revenues.
In accordance with Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers.
To date, costs incurred after establishment of technological feasibility have
been immaterial and, as a result, all product development costs have been
expensed as incurred.
25
<PAGE>
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses, and other related costs for sales and
marketing personnel. Sales and marketing expenses were $7.7 million, $5.7
million and $3.1 million in fiscal 1996, 1995 and 1994, representing 19.4%,
20.6% and 16.3% of total revenues, respectively. The increase in sales and
marketing expenses in absolute dollars from fiscal 1994 to fiscal 1996 was
primarily due to increased headcount as the Company established and expanded
new sales offices in the United States and the United Kingdom. The Company
intends to continue the expansion of its sales and marketing efforts and
anticipates that sales and marketing expenses will increase in absolute
dollars and as a percentage of total revenues in fiscal 1997.
General and Administrative. General and administrative expenses consist
primarily of salary expenses and related expenses for administrative and
executive staff. General and administrative expenses were $3.6 million, $4.2
million and $3.7 million in fiscal 1996, 1995 and 1994, representing 8.9%,
15.1% and 19.6% of total revenues, respectively. General and administrative
expenses increased from fiscal 1994 to fiscal 1995 due primarily to severance
benefits incurred relating to changes in management and costs incurred
relating to obsolete computer equipment. The Company believes that general and
administrative expenses will generally increase in absolute dollars but should
decrease as a percentage of total revenues.
Discontinued Operations. In fiscal 1996, the Company adopted a plan to
divest its 55% owned subsidiary, Pargon AB ("Pargon"), whose business was
focused on microprocessor compiler software and systems consulting services,
and therefore did not fit the Company's strategy of focusing on System ESS. In
connection with the discontinued Pargon operations, the Company recorded
income of $0.3 million, losses of $0.2 million and losses of $0.2 million in
fiscal 1996, 1995 and 1994, respectively. It is not yet possible to estimate
the prospective gain or loss on the disposition of the discontinued
operations; however, the Company does not expect that such disposition will
have a material effect on the Company's financial condition and results of
operations.
Provision for Income Taxes. In fiscal 1996 and 1995, respectively, the
Company recorded a benefit for income taxes of $0.8 million and $0.9 million,
respectively. The benefits related primarily to the reduction of the Company's
valuation allowance on deferred tax assets. At April 30, 1996, the Company had
approximately $5.3 million of gross deferred tax assets comprised primarily of
net operating loss carry- forwards in Sweden. Such net operating loss
carryforwards are available for an indefinite period of time. The Company has
recorded a valuation allowance with respect to a portion of such deferred tax
asset. The Company will continue to assess the realizability of the deferred
tax assets based upon actual and forecasted operating results. See "Risk
Factors--Uncertainty of Realizability of Deferred Tax Asset."
26
<PAGE>
QUARTERLY FINANCIAL RESULTS
The following tables set forth unaudited consolidated statement of
operations data for each of the eight quarters in the period ended April 30,
1996. This information has been derived from unaudited interim consolidated
financial statements that, in the opinion of the Company, have been prepared
on a basis consistent with the Consolidated Financial Statements contained
elsewhere herein, and include all adjustments necessary for a fair
presentation of such information when read in conjunction with the
Consolidated Financial Statements and the Notes thereto. The operating results
for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses................................. $ 63 $3,862 $ 3,438 $ 3,298 $ 197 $ 1,536 $ 6,258 $ 7,483
Services and maintenance................. 3,218 3,271 3,910 4,144 4,272 5,770 6,149 6,912
Other.................................... 456 783 658 643 256 506 396 274
-------- ------ ------- -------- -------- ------- ------- -------
Total revenues.......................... 3,737 7,916 8,006 8,085 4,725 7,812 12,803 14,669
Cost of revenues:
Licenses................................. 8 685 890 589 3 152 1,016 1,546
Services and maintenance................. 2,654 2,926 3,386 3,458 3,579 3,908 4,029 5,297
Other.................................... 378 627 506 741 204 369 220 154
-------- ------ ------- -------- -------- ------- ------- -------
Total cost of revenues.................. 3,040 4,238 4,782 4,788 3,786 4,429 5,265 6,997
-------- ------ ------- -------- -------- ------- ------- -------
Gross profit............................ 697 3,678 3,224 3,297 939 3,383 7,538 7,672
Operating expenses:
Product development...................... 1,178 1,556 2,163 2,112 1,368 1,557 1,716 2,181
Sales and marketing...................... 812 1,201 1,232 2,475 1,385 1,629 2,121 2,611
General and administration............... 563 585 444 2,600 828 907 886 958
-------- ------ ------- -------- -------- ------- ------- -------
Total operating expenses................ 2,553 3,342 3,839 7,187 3,581 4,093 4,723 5,750
-------- ------ ------- -------- -------- ------- ------- -------
Income (loss) from operations............. (1,856) 336 (615) (3,890) (2,642) (710) 2,815 1,922
Other income (expense):
Interest income.......................... 0 0 7 8 4 0 5 4
Interest expense......................... (132) (169) (193) (195) (189) (196) (188) (171)
Miscellaneous income (expense)........... (20) (23) 45 (386) (16) 258 (259) 5
-------- ------ ------- -------- -------- ------- ------- -------
Income (loss) from continuing operations
before income taxes...................... (2,008) 144 (756) (4,463) (2,843) (648) 2,373 1,760
Provision (benefit) for income taxes...... (249) (120) (175) (397) (564) (301) 62 22
-------- ------ ------- -------- -------- ------- ------- -------
Income (loss) from continuing operations.. (1,759) 264 (581) (4,066) (2,279) (347) 2,311 1,738
Income (loss) from discontinued
operations............................... (117) (148) 24 (5) (78) 134 189 82
-------- ------ ------- -------- -------- ------- ------- -------
Net income (loss)......................... $ (1,876) $ 116 $ (557) $ (4,071) $ (2,357) $ (213) $ 2,500 $ 1,820
======== ====== ======= ======== ======== ======= ======= =======
</TABLE>
27
<PAGE>
The following table sets forth as a percentage of total revenues, certain
line items in the Company's consolidated statement of operations for the
periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses............... 1.7% 48.8% 43.0% 40.7% 4.2% 19.7% 48.9% 51.0%
Services and
maintenance........... 86.1 41.3 48.8 51.3 90.4 73.8 48.0 47.1
Other ................. 12.2 9.9 8.2 8.0 5.4 6.5 3.1 1.9
----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Licenses............... 0.2 8.6 11.1 7.2 0.1 1.9 7.9 10.5
Services and
maintenance........... 71.0 37.0 42.3 42.8 75.7 50.0 31.5 36.2
Other.................. 10.1 7.9 6.3 9.2 4.3 4.8 1.7 1.0
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 81.3 53.5 59.7 59.2 80.1 56.7 41.1 47.7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......... 18.7 46.5 40.3 40.8 19.9 43.3 58.9 52.3
Operating expenses:
Product development.... 31.5 19.6 27.0 26.1 28.9 19.9 13.4 14.9
Sales and marketing.... 21.7 15.2 15.4 30.6 29.4 20.9 16.6 17.8
General and
administrative 15.1 7.4 5.6 32.2 17.5 11.6 6.9 6.5
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 68.3 42.2 48.0 88.9 75.8 52.4 36.9 39.2
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. (49.6) 4.3 (7.7) (48.1) (55.9) (9.1) 22.0 13.1
Other income (expense):
Interest income........ 0.0 0.0 0.1 0.1 0.1 0.0 0.0 0.0
Interest expense....... (3.6) (2.2) (2.4) (2.4) (4.0) (2.5) (1.5) (1.1)
Miscellaneous income
(expense)............. (0.5) (0.3) 0.6 (4.8) (0.4) 3.3 (2.0) 0.0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations
before income taxes.... (53.7) 1.8 (9.4) (55.2) (60.2) (8.3) 18.5 12.0
Provision (benefit) for
income taxes........... (6.6) (1.5) (2.1) (4.9) (12.0) (3.9) 0.4 0.1
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continued operations... (47.1) 3.3 (7.3) (50.3) (48.2) (4.4) 18.1 11.9
Income (loss) from
discontinued
operations............. (3.1) (1.8) 0.3 (0.1) (1.7) 1.7 1.4 0.5
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (50.2)% 1.5% (7.0)% (50.4)% (49.9)% (2.7)% 19.5% 12.4%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
In fiscal 1996, total revenues increased throughout the year from $4.7
million in the quarter ended July 31, 1995 to $14.7 million in the quarter
ended April 30, 1996. This growth reflects continued geographic expansion of
the Company's operations, growth of large customer account license sales and
greater market acceptance of the Company's products and related services.
License revenues continued to grow to 51.0% of total revenues in the fourth
quarter of fiscal 1996 from 40.7% in the same quarter of the previous year.
The decrease in other revenues is generally attributable to lower sales of
hardware products by the Company.
Gross profit increased significantly from the first half to the second half
of fiscal 1996, primarily due to increased license revenues. Gross profit
declined dramatically in the first quarter of fiscal 1996 as license revenues,
which bear higher gross margins than maintenance and service revenues,
comprised 4.2% of total revenues. Gross margin declined from the third quarter
of fiscal 1996 to the fourth quarter of fiscal 1996 due primarily to lower
gross margins on services and maintenance revenues resulting from an increased
level of implementation outsourcing and from year-end bonus payments.
The Company's quarterly operating results are subject to certain seasonal
fluctuations. The Company's revenues, particularly its license revenues, are
typically strongest in its third and fourth fiscal quarters ended January 31
and April 30, respectively, and weakest in its first and second fiscal
quarters ended July 31 and October 31, respectively. The Company's revenues
and operating results in its third fiscal quarter typically benefit from
purchase decisions made by the large concentration of customers with
28
<PAGE>
calendar year-end budgeting rules, while revenues and operating results in its
fourth fiscal quarter typically benefit from the efforts of the Company's
sales force to meet fiscal year-end sales quotas. The Company's revenues and
operating results are typically weakest in its first and second fiscal
quarters, as the Company's sales force initiates sales activity directed to
achieving fiscal year-end goals. In addition, the Company's first and second
fiscal quarters include the months of July and August, when both sales and
billable customer services activity, as well as customer purchase decisions,
are reduced, particularly in Europe, due to summer vacation schedules. As a
result of these seasonal factors, the Company has historically experienced
operating losses in its first and/or second fiscal quarters and may continue
to experience losses in such quarters in the future.
The Company has experienced, and expects to continue to experience,
significant fluctuations in quarterly operating results that may be caused by
many factors, including, among others: the size and timing of orders for the
Company's products; the lengthy sales and implementation cycle for the
Company's products, which typically range from six to 12 months; introduction
or enhancement of products by the Company or its competitors; changes in
pricing policy of the Company or its competitors; increased competition;
technological changes in computer systems and environments; the ability of the
Company to timely develop, introduce and market new products and new versions
of existing products; quality control of products sold; market readiness to
deploy demand chain management products for distributed computing
environments; market acceptance of new products and product enhancements;
seasonality of revenues; customer order deferrals in anticipation of new
products and product enhancements; the Company's success in expanding its
sales and marketing programs; personnel changes; fluctuations in foreign
currency exchange rates; mix of license and service and maintenance revenues
sold and general economic conditions. As a result of these and other factors,
the Company believes that period-to-period quarterly comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.
The Company's future quarterly revenues are difficult to forecast in part
because the demand chain management software market is an emerging market that
is subject to rapid change. Further, because the Company generally ships
software products within a short period after receipt of an order, the Company
typically does not have a material backlog of unfulfilled orders. License
revenues in any quarter are substantially dependent on orders booked and
shipped in that quarter and cannot be predicted with any degree of certainty.
In addition, the Company typically recognizes a significant portion of license
revenues in the last two weeks of a quarter. Any significant shortfall of
revenues in relation to the Company's expectations or any material delay of
customer orders would have an immediate adverse effect on its business,
operating results and financial condition. Due to the foregoing factors, it is
possible that in future periods the Company's revenues, and thus its operating
results, may be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would be
materially and adversely affected. See "Risk Factors--Significant Fluctuations
in Quarterly Operating Results and Seasonality; Potential Quarterly Losses."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed and met its capital
expenditure requirements through cash flows from operations and long-term
borrowings. Since 1993, the Company has also financed its operations through
the issuance of capital stock to the principal stockholders for aggregate
proceeds of $8.4 million. In fiscal 1996, net cash provided by operating
activities of $1.0 million in addition to cash proceeds from the issuance of
common stock of $1.2 million was partly utilized in reducing the Company's
long-term debt by $0.5 million. In fiscal 1995 and 1994, the Company's cash
used in operating activities was financed primarily through the issuance of
preferred stock and long-term debt. See "Certain Transactions."
The increase in accounts receivable, net of allowance for doubtful accounts,
increased to $13.1 million at April 30, 1996, from $7.6 million at April 30,
1995, primarily due to significant license agreements signed near the end of
fiscal 1996.
29
<PAGE>
The additions to property and equipment in fiscal 1994 related primarily to
furnishing new office space in Sweden and the United States while the
corresponding additions in fiscal 1996 relating to furnishing new office space
in the United Kingdom.
The Company finances working capital in part through a bank credit
agreement. Under the terms of such agreement, the Company's current line of
credit allows for borrowings of up to the equivalent of $9.9 million,
available in Swedish kronor, U.S. dollars and British pounds sterling. As of
April 30, 1996, the Company had cash and cash equivalents of $0.6 million,
working capital of $5.9 million and $7.3 million outstanding under its lines
of credit. The Company currently has no significant capital spending or
purchase commitments other than normal commitments under facilities and
capital leases.
The Company believes that the net proceeds from this offering, together with
its current cash balances, its lines of credit and the cash flows generated
from operations, if any, will be sufficient to meet its anticipated cash needs
for working capital and capital expenditures for at least the next 12 months.
The Company intends to invest the Company's cash in excess of current
operating requirements in interest bearing marketable securities. See "Use of
Proceeds."
EFFECT OF RECENT PRONOUNCEMENTS
Accounting for Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indications of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt SFAS 121 in the first quarter of the financial year ending
April 30, 1997 and, based on current circumstances, does not believe the
effect of adoption will be material.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation. "SFAS No. 123 is effective for fiscal years beginning on or
after December 15, 1995. SFAS No. 123 requires that the compensation cost of
issuing stock options be measured at fair value using an option-pricing model.
The Company can either recognize the compensation cost in its consolidated
financial statements or, if the recognition option is not chosen, disclose the
pro forma effects in the notes to the consolidated financial statements. The
Company plans to adopt the disclosure option, commencing in the fiscal year
ending April 30, 1997. Therefore, SFAS No. 123 will have no effect on the
Company's net earnings, stockholders' equity or cash flows.
30
<PAGE>
BUSINESS
IMI develops, markets and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the "demand chain." Demand chain management encompasses the execution of
multiple customer-centric order fulfillment processes, including order
management, distribution logistics, inventory replenishment and demand
planning. The Company believes that its principal product, System ESS, is the
only software solution designed specifically to meet the complex or high-
volume demand chain management requirements of large manufacturers,
distributors and wholesalers. System ESS allows customers to leverage the
value of their existing systems by integrating with legacy and new
client/server manufacturing, planning, and financial information systems.
Current customers of IMI include large manufacturers, such as Bristol-Myers
Squibb Company, Campbell Soup Company, Canon U.S.A., Inc., Dannon Company,
Inc., Eastman Kodak Company, Kellogg Company, Matsushita Electrical
Corporation of America, and Unisys Corporation, as well as several retail and
wholesale distributors.
INDUSTRY BACKGROUND
In recent years, there has been a fundamental shift in market power from
manufacturers and distributors to retailers and consumers. This shift has
resulted from the convergence of a number of trends, including the rapid
proliferation in the number and variety of product offerings, shorter product
life cycles, the emergence of more informed and demanding consumers, and the
evolution of the retailing industry from local stores to large national and
regional chains of department stores, "superstores" and specialty category
stores. These trends have continued to change the way manufacturers,
distributors and wholesalers must conduct their businesses to compete
effectively. Historically, manufacturers dictated the terms of trade with
retailers and consumers and, consequently, organized their businesses
primarily to increase manufacturing efficiency and output. Today, customers
increasingly are choosing suppliers based on their ability to match product
flow to actual customer demand. As a result, manufacturers and distributors
are reorganizing their businesses to focus on satisfying customer demand
through effective order fulfillment.
Effective order fulfillment is a complex logistics challenge, requiring
manufacturers and distributors to manage broadening product portfolios,
multinational distribution, reduced delivery response times, frequent and
customer-specific product promotions, lower inventory levels, rapidly changing
consumer behavior, and more complex manufacturing strategies, involving global
sourcing and assembly from a network of internal and outsourced manufacturers
and suppliers. To compete more effectively, manufacturers, distributors and
wholesalers must synchronize their internal planning and execution functions
with external participants in the demand chain, including consumers,
retailers, distributors, manufacturing subcontractors and suppliers. The
efficient management and operation of this "virtual enterprise" (see example
below) requires capturing information from customer orders--most effectively
by using electronic commerce to facilitate communication to and from
customers--and delivering it to support manufacturing resource planning
("MRP"), financial reporting and decision support systems. Managing the flow
of this complex order information is critical to monitoring such variables as
product profitability across customers and geographies, planning the timing
and impact of promotional activities, and meeting demand on a customer-by-
customer and product-by-product basis.
31
<PAGE>
[CHART APPEARS HERE]
In order to cope with the logistics challenges of delivering the right
product to the right location at the right time and at the right price,
manufacturers, distributors and wholesalers, as well as industry consultants
and enterprise application software vendors, have in recent years emphasized
the need to integrate and more effectively manage what is commonly known as
the "supply chain." The supply chain refers to the movement of products from
raw material suppliers to manufacturers, to distributors, to wholesalers, to
retailers, and ultimately to consumers. In an attempt to achieve the effective
integration and management of their supply chains, many companies began to
replace their legacy manufacturing and distribution systems with client/server
ERP systems which support MRP, financial reporting, and some degree of
logistics management functionality. These software solutions traditionally
focus on manufacturing efficiency and financial reporting.
Existing ERP systems tend to focus on supply chain management from a
manufacturer-centric, or supply-driven, point of view and, in attempting to
meet the changing requirements of today's customer-centric or demand-driven
environment, fail to achieve many of the following fundamental strategic
objectives for manufacturers, distributors and wholesalers:
. Automating the Order Fulfillment Process. A high level of system
functionality is required for effective fulfillment of orders placed by
hundreds or thousands of customers regarding specialized products under
differing promotional and packaging schemes. Typically, integrated ERP
systems are not optimized to meet these complex needs, leading to
delayed shipments or added administrative costs. In particular, existing
ERP systems typically cannot disaggregate large orders into their
individual components, or "order lines."
. Management of a Heterogeneous Customer Base. As market power has shifted
to retailers and consumers, manufacturers, distributors and wholesalers
now are forced to accommodate highly specific customer order fulfillment
procedures and other requirements that are dictated by the retailer or
consumer. Integrated ERP systems have been designed to maximize the
output efficiency of the manufacturer and supplier and typically lack
the capabilities necessary to track customer demand and respond
efficiently to highly variable order requirements.
. Scalability. The volume and complexity of customer orders necessitates a
highly scalable order fulfillment solution. The Company believes that
the leading integrated ERP systems do not meet the transaction volume
requirements of many manufacturers, distributors and wholesalers, which
can require a solution capable of efficiently processing in excess of 10
million complex order lines per year.
32
<PAGE>
. Globalized Logistics. Worldwide enterprises must manage their businesses
across multiple legal entities, in multiple currencies and multiple
languages, with product sourcing from a variety of physical locations,
including company-owned manufacturing facilities and warehouses, public
warehouses and third-party suppliers. In order to support logistics
across this type of global network, ERP systems typically require
redundant systems in multiple locations.
. Adaptability for Electronic Commerce. The virtual enterprise concept can
only be implemented successfully if there is compatibility between
internal and external information systems. Increasingly, electronic data
interchange ("EDI") and other modes of electronic communication, such as
the Internet, may provide links between an enterprise and its customers
and suppliers. ERP systems often lack the ease of connectivity required
for electronic commerce.
. Timely Implementation. The order fulfillment process is a complex and
mission-critical application. Companies require high-performance
functionality 24 hours per day, seven days per week. Many buyers of ERP
systems have spent one or more years, and considerable resources,
attempting to implement a client/server solution without significant
success.
THE IMI SOLUTION
IMI develops, markets and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the demand chain. The Company believes demand chain management is the next
stage in the evolution of logistics management, linking the various elements
of the supply chain from a customer-centric, or demand-driven, perspective.
System ESS has been designed specifically for the sophisticated order
fulfillment requirements of manufacturers, distributors and wholesalers,
enabling them to match product flow to actual customer demand, thereby
enhancing revenue opportunities and reducing administrative and
logistics/distribution costs. The key strengths of System ESS include the
following:
. Order Line Independence. System ESS was designed to allow the automation
and tracking of complex orders by treating each line of an order
independently. This "order line independence" allows a customer order to
be serviced automatically by any number of sales organizations, from any
number of dispersed inventory locations, for any number of customer
destinations. Moreover, order line independence allows the individual
order lines in a customer order to be fulfilled simultaneously or
sequentially. With System ESS, a customer can place a single order that
mixes supply modes, shipping dates and destinations, pricing structures,
discount schedules, special promotions, and terms of payment. In
addition, System ESS enables companies to automate the order fulfillment
process, reducing order cycle time and administrative costs, and
presents information in a form which is optimized for detailed
measurement and planning.
. Customer-driven Software Architecture. Each business process function
within System ESS is highly flexible, accommodating a heterogeneous mix
of customer attributes, including pricing structures, delivery methods,
order placement and billing procedures, and promotional activities.
Robust customer definition processes in System ESS enable companies to
manage diverse customer accounts efficiently and deliver tailored
services for maximum customer satisfaction.
. Scalability. System ESS is based on a three-tier distributed
architecture that provides for enterprise-wide scalability. Currently,
System ESS is scaled in some implementations to 800 or more simultaneous
users. Its efficient use of distributed computing also has enabled users
of System ESS to execute and manage over 10 million complex order lines
annually. The Company believes that the current version of System ESS is
capable of executing substantially higher volumes without significant
loss of efficiency.
33
<PAGE>
. Globalized Logistics. System ESS enables companies to manage more
efficiently the complexities of global sales and distribution from a
single enterprise database. System ESS allows a company to implement a
system for customer order fulfillment on a global basis, while
maintaining business structure flexibility with respect to order
execution procedures, such as warehousing and distribution. Moreover,
the functionality of System ESS supports the complexities of cross-
border transactions, such as multiple currencies, import/export laws and
documentation requirements.
. Integration with Complementary Products and Technologies. System ESS has
been designed specifically to maximize the value of existing and new
complementary systems performing manufacturing, finance or decision
support functions as well as to integrate with EDI systems to facilitate
electronic commerce with customers and suppliers. System ESS currently
uses the Oracle relational database management system ("RDBMS") as its
database server and supports the leading UNIX-based servers and Windows
clients. The Company currently is developing support for Windows NT
servers. System ESS has been designed to allow customers the freedom to
choose the most functional and advanced component applications for
creating complete, robust enterprise business systems.
. Timely Implementation. The Company has designed its product and service
offerings to enable customers to configure and implement the Company's
software solution on a timely basis, usually within six to 12 months,
depending on the required amount of integration with legacy systems,
thereby reducing costs and increasing the customer's return on
investment. System ESS implementation assistance is provided for
customers through the Company's existing service organization and from
leading systems integrators.
STRATEGY
The Company's objective is to be the leading global supplier of demand chain
management software solutions to manufacturers, distributors and wholesalers.
The key elements of IMI's strategy to achieve this leading position are as
follows:
Target Vertical Markets. The Company has to date focused its marketing,
sales and product development efforts towards establishing quality reference
customers in specific vertical markets, particularly the consumer packaged
goods market and the high-volume wholesale industry. The Company is
increasingly targeting other vertical markets which are characterized by a
need for highly flexible solutions that can support large and complex
transaction volumes, including the health care, automotive parts, electronics
and industrial products sectors.
Expand Sales and Support Organization. IMI currently sells and supports
System ESS through direct sales and support organizations in North America and
Europe. IMI plans to continue to invest significantly in expanding its sales
and support organizations in North America, Europe and Asia Pacific. As IMI
increasingly targets large, multinational customers and as existing customers
migrate their System ESS installations to other divisions internationally, the
Company intends to provide sales and support services on a worldwide basis.
Expand Usage Within Existing Customer Base. A substantial majority of the
Company's customers are large multinational enterprises that initially have
licensed System ESS for use within one or more specific divisions. IMI
believes that a significant opportunity exists within its established customer
base to expand usage of its software by licensing new sites and additional
users.
Enhance Core Product Functionality. The Company intends to continue to focus
its product development resources on the development and enhancement of demand
chain management software solutions. IMI has over 20 years of experience in
developing logistics management software. The Company
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intends to continue to increase product functionality. IMI currently is
funding development efforts to increase order volume throughput, support
Windows NT server, support Internet and Intranet applications, and introduce
object-oriented technology.
Integrate with Complementary Products. The Company believes that the ability
to offer a software product that can integrate seamlessly with selected third
party components to provide a comprehensive solution tailored for a particular
vertical market is a key competitive advantage. The Company intends to
continue to integrate System ESS with complementary planning, manufacturing,
finance and decision support systems developed by others, including Oracle,
Manugistics, Inc., Business Objects S.A., and Datalogix, Inc.
Establish Partnerships to Leverage Third Party Strengths. In addition to its
direct sales and support organizations, the Company has and will continue to
establish partnerships with third parties to assist the Company in developing
customer relationships and in successfully customizing and implementing System
ESS.
PRODUCTS AND SERVICES
IMI provides a solution for developing demand chain management systems:
System ESS, a client/server integrated order fulfillment system and a set of
robust development tools. In addition, the Company and its third party system
integrator partners provide a complete range of customer services, including
training, consulting and maintenance.
[honeycomb to be updated]
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SYSTEM ESS
System ESS is an open systems, client/server demand chain management
solution that provides full capabilities for managing and executing the entire
order fulfillment process, including order management, logistics management,
demand replenishment, price and promotion management, customer and product
management, global organization management, electronic commerce and decision
support. System ESS can operate on major UNIX server platforms and the Company
is currently developing a new version of System ESS that operates on the
Windows NT server platform. The System ESS client operates on the Windows
3.11, Windows 95 and Windows NT platforms. System ESS provides support for six
languages, and the Company currently is developing support for five additional
languages. System ESS makes full use of relational database technology,
storing each field in its own column, using descriptive column names and
identifying Primary Key/Foreign Key relations. Because System ESS makes
optimal use of relational database technology, additional third party tools
and complementary applications are easily integrated with System ESS.
System ESS solution components include:
Order Management. System ESS performs the core customer interaction
functions, including customer order receipt, validation, pricing and
invoicing. The order management process initiates and concludes the entire
integrated order fulfillment process and enables users to monitor,
troubleshoot and proactively expedite order exceptions throughout the order
cycle. System ESS flexibly manages a diverse set of order types, including
standard orders, samples, templates, export, assemble to order, stock
transfers and quotes.
Logistics Management. System ESS manages the transactional processes
involving inbound and outbound product movement. The logistics management
process defines the configuration and interaction of all components in the
distribution network, such as warehouses and finished goods. Through tight
integration with order management and sophisticated product
reservation/allocation methods, System ESS logistics management enables
companies to efficiently manage the logistics of fulfilling a customer order.
In addition to a comprehensive outbound (pick-pack-ship) and inbound (finished
goods receipt and putaway) logistics solution, System ESS provides a solution
for customer returns, cross-docking, cycle count/physical inventory, and
transportation scheduling.
Demand Replenishment. System ESS performs detailed inventory management
functions involving the sourcing and replenishment of goods in the
distribution network. System ESS establishes a "pull-driven" environment which
optimizes inventory levels and shipment of goods precisely when a customer
needs them. Its inventory and replenishment features are tightly integrated
with the order management process, synchronizing inventory replenishment with
customer demand. System ESS demand replenishment process integrates with the
logistics management process to automatically trigger and execute stock
transfers throughout the distribution network and replenishment orders and
drop shipments from outside suppliers. Demand replenishment also supports
vendor managed inventory and continuous replenishment programs.
Price and Promotion Management. System ESS administers and executes all
product pricing and promotion strategies. Specifically, the System ESS price
management process manages the product price list according to geography,
customer classification or other user-defined parameters, as well as executing
and tracking a wide variety of product discounts, surcharges, accruals and
rebates. System ESS automates business-critical promotion transactions among
manufacturers, field sales organizations and customers to maximize invoice
accuracy and minimize administrative costs due to invoice inaccuracies.
Customer and Product Management. System ESS defines the attributes of all
customers and products to support the order fulfillment process. A customer
profile consists of all relevant information needed for fulfilling orders for
a highly variable customer base, ranging from nation-wide chains such as
WalMart and Kmart to independent, single store operations. Typical System ESS
customer profiles include information such as order placement, handling and
invoice procedures, packaging and delivery
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<PAGE>
requirements, credit and terms and conditions. Product profiles include
information necessary for automating fulfillment of orders relating to a wide
variety of goods. Typical product profiles include information such as product
variation and packaging, replacement/substitution of goods, lot control, kit
and assembly information and product restrictions.
Global Organization Management. System ESS allows a company to define its
enterprise sales and distribution structures, and manage multiple legal
entities, regardless of where they are physically located. It enables
companies to maintain flexible business structures that support product flow
to global customers, while efficiently handling business transactions
worldwide.
Electronic Commerce. System ESS provides a complete electronic messaging
architecture that is integrated with all requisite business processes between
customers and suppliers, including orders, order changes and acknowledgments,
as well as shipping confirmations and invoices. In addition, through its
recently introduced Internet Workbench, System ESS provides order status and
tracking for participants in the demand chain, such as buyers, field
representatives and customers. System ESS also supports ISO/Edifact,
ANSI/X.12, and UCS EDI standards. The Company currently is developing
capabilities for Internet-based order placement.
Decision Support. System ESS continuously captures highly detailed data
regarding every customer purchase and related events and stores such data in
an information repository suitable for decision support processes. System ESS
provides decision support capabilities through a set of Microsoft Windows-
based client/server tools called the Customer Service Workbench, which
provides tight integration between the System ESS information repository and
electronic mail, spreadsheets, and event-trigger facilities. Other functions
include integration with Business Objects and the Company's proprietary
Economic Value Analyzer, a decision support tool that continuously monitors
the return on working capital and contains functions for volume, price and
capital simulations.
SYSTEM ESS PRICING
The license price for System ESS is determined based upon the number of
servers and defined users in the customer's system. License fees for the
Company's products typically range from $0.5 million to $3.0 million, and
average approximately $1.5 million, and the Company expects that license fees
will continue to increase in size as the Company's products become more
sophisticated and manage larger and more geographically dispersed locations.
See "Risk Factors--Lengthy Sales and Implementation Cycle; Increasing Size of
Orders."
The Company derived approximately 68%, 74% and 84% of its total revenue in
fiscal 1994, 1995 and 1996, respectively, from the licensing of System ESS and
providing complementary services, and the Company expects to derive a
substantial percentage of its total revenues from licenses of System ESS in
future periods. See "Risk Factors--Dependence on Principal Product."
SYSTEM ESS TOOLS
The Company supports System ESS with a range of software tools developed by
the Company or by third parties. These tools are used by the Company to
develop, deliver and maintain System ESS and by the Company's customers to
implement, develop extensions to and support System ESS.
TRIM. TRIM is a 4GL application development tool which is optimized for
applications involving large transaction volumes and large numbers of
concurrent users. TRIM is licensed by the Company from Trifox, Inc. and was
used by the Company to develop System ESS. TRIM is also sold as an
applications development tool to customers requiring the ability to develop
custom applications. See "Proprietary Rights."
SDCM. The Software Development and Configuration Manager ("SDCM") tool
allows the Company to develop, deliver and maintain System ESS, a mission-
critical software product. SDCM also allows customers to develop customized
System ESS functionality in a multi-user environment, control the modification
of programs, documentation and databases, as well as manage data security and
system integrity in the implementation of System ESS upgrades.
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Event Manager and Event Express. Event Manager and Event Express allow
customers to easily integrate System ESS with other management information
systems, such as financial reporting and manufacturing resource planning
systems.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing a high level of customer service and
technical support is essential to customer satisfaction and timely
implementation of System ESS. As of April 30, 1996, IMI had 151 employees in
its customer service and support organization providing software maintenance
and support, training, and consulting services.
IMI provides the following services and support to its customers:
Implementation and Technical Services. IMI provides implementation services
ranging from business process reengineering to integration and customer-
specific functionality, as well as technical services. In addition, the
Company has established its Demand Chain Alliance ("DCA") Program, which
trains and certifies third party providers. DCA participants include: Computer
Sciences Corporation, Computer Task Group Limited, and SHL Systemhouse, Inc.
in the United States; and Hoskyns Group plc, Unisys Norge A/S, and ECsoft plc
in Europe. These companies provide systems integration and expertise to IMI
customers and aid in the implementation and ongoing technical consulting of
System ESS software solutions. See "Risk Factors--Lengthy Sales and
Implementation Cycles; Increasing Size of Orders" and "--Reliance on and Need
to Develop Additional Relationships with Third Parties."
Training Services. IMI customers can receive, for a fee, training either at
the customer's premises or at one of IMI's offices. Course offerings are
divided into four primary blocks: System ESS, Oracle Financials, System
Administration, and System Development.
Customer Support. The Company has fully-staffed support centers in the
United States, the United Kingdom, and Sweden. IMI provides 24 hour support
through telephone and electronic mail, and uses logging/tracking systems for
quality assurance.
CUSTOMERS
The Company's target customers are multinational manufacturers, distributors
and wholesalers in the consumer packaged goods, health care, electronics,
automotive parts, and industrial products sectors, as well as other high-
volume wholesalers. As of May 31, 1996, the Company licensed the current
version of System ESS to 28 customers, representing over 8,300 licensed users
worldwide. The following table sets forth the license date and territory with
respect to each of the Company's customers as of April 30, 1996:
<TABLE>
<CAPTION>
1993 AND PRIOR FISCAL YEARS FISCAL 1994 FISCAL 1995 FISCAL 1996
- --------------------------- ----------------------------- ---------------------- ------------------------------------
<S> <C> <C> <C>
Ahlsell (Sweden) Bristol-Myers Squibb (USA) Alpina (Columbia) Alko (Finland)
Eastman Kodak (Nordic) Matsushita (USA) Campbell Soup (USA) Canon (USA)
EMMA Healthcare (Sweden) Norsk Medisinaldepot (Norway) Coats & Clark (USA) Carlton United Breweries (Australia)
Granges Metall (Sweden) United Tiles (Nordic) Dannon (USA) First Brands (USA)
Tour & Andersson SLL Healthcare (Sweden) Hartz Mountain (USA)
(Sweden)
SLO (Finland) Hormel Foods (USA)
Kellogg (worldwide)
Kiiltoo (Finland)
MoDo Merchants (UK)
Posten Logistik (Sweden)
Unisys (worldwide)
</TABLE>
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New license sales are often for large dollar amounts, typically ranging from
$0.5 million to $3.0 million, and averaging approximately $1.5 million and,
therefore, individual customers have often accounted for more than 10% of
total revenues in particular quarterly periods. For the year ended April 30,
1994, the Company recorded revenues from two customers which comprised 27% and
11% of total revenues, respectively. For the year ended April 30, 1995, the
Company recorded revenues from two customers which comprised 13% and 12% of
total revenues, respectively. For the year ended April 30, 1996, the Company
had no single customer representing more than 10% of total revenues. The
Company believes that the loss of any of these customers would not have a
material adverse effect upon the Company's business, operating results or
financial condition. Although the Company does not expect any of its current
customers to account for 10% or more of its total revenues in 1997, the
Company expects that individual customers (the identity of which will likely
change on a quarterly basis) will continue to account for 10% or more of the
Company's total quarterly revenues in future periods.
The following case studies describe how certain customers have adopted and
are implementing System ESS. Each of these customers is seeking to implement
customer-centric order fulfillment systems to enhance revenues through more
responsive customer service and reduce costs through improved operational
efficiency. In each case, the customer selected System ESS after a competitive
evaluation. There can be no assurance that new or existing customers will
achieve any of the potential benefits described below.
Eastman Kodak Company. Eastman Kodak Company ("Kodak") is engaged primarily
in developing, manufacturing, and marketing consumer and commercial imaging
products. In Europe, Kodak maintained separate distribution systems for each
of its business units in Sweden, Norway, Finland and Denmark. It operated four
warehouses and sourced products for distribution from five manufacturing
facilities throughout Europe. Kodak wanted to improve its level of customer
service while at the same time rationalizing its distribution network and
lowering total distribution and administrative costs. It decided to migrate to
client/server technology, while maintaining interfaces to legacy systems
providing financial and manufacturing information. To achieve its objectives
Kodak had to coordinate these activities across separate legal entities in
each country, utilizing multiple currencies and different languages. After a
competitive evaluation, Kodak licensed System ESS from IMI in 1991. The system
was operational in 12 months and has enabled Kodak to improve its customer
service levels while reducing distribution-based headcount by approximately
30% and lowering inventory carrying and warehousing costs (three of an
original total of four warehouses have been closed). Using System ESS, Kodak
can now source products for individual order lines on the same customer
purchase order from central or local warehouses, different manufacturing
facilities in different countries or from external suppliers. The system
handles over 450,000 complex order lines per year and serves 200 users in
eight different entities in four different countries using four different
languages.
Campbell Soup Company. The Campbell Soup Company ("Campbell") is a leading
manufacturer of high quality, branded convenience food products, including
Campbell's Soup, Pace (Mexican foods) and Pepperidge Farm (baked goods and
convenience foods). In its North American business units, Campbell recognized
that its customer service and product replenishment systems were not
effectively coping with the growing demands of retailers. Existing
administrative and control systems could not handle the increasing complexity
of the order fulfillment process, including order control, pricing, promotion,
invoicing, settlement and product returns, resulting in higher administrative
and operational costs. After a competitive evaluation Campbell selected System
ESS as the core of their new customer service solution. The Company believes
that System ESS, when implemented, will allow Campbell to (i) improve and
streamline its order fulfillment process; (ii) reduce average order cycle
time; (iii) increase the percentage of error free invoices; and (iv) reduce
the annual number of transactions with customer deductions.
Ahlsell AB. Ahlsell AB ("Ahlsell"), a member of the Trelleborg Group, is a
leading Swedish wholesaler serving the building industry with products for
plumbing/heating, electrical and refrigeration. The company serves 35,000
small business customers, operates 70 retail stores, and has annual
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revenues of approximately $500 million. In the late 1980's, Ahlsell wanted to
improve customer service levels while reducing distribution and administrative
costs. However, the company operated on a decentralized basis, both
geographically throughout Sweden and internally, without integration of its
logistics and financial information systems. Its challenge was compounded by
extremely large order processing demands, requiring it to process an average
of approximately 9 million order lines per year. System ESS was fully
operational in fiscal 1992, and currently handles over 800 concurrent users
operating on one of the world's largest commercial UNIX Oracle application
databases. Following the implementation of System ESS, Ahlsell has reduced its
warehouses from 10 to 1, which stocks 50,000 different items. In addition, it
offers its customers 50,000 items which are not held in inventory, but can be
purchased from third party suppliers, mixed with stock orders and drop-
shipped. Ahlsell has improved product availability and achieved 24-hour in-
country delivery while reducing administrative costs by approximately 75% and
lowering inventory levels.
SALES AND MARKETING
The Company sells and supports its products through direct sales and support
organizations in Sweden, the United States and the United Kingdom. The Company
maintains corporate headquarters in Stockholm, Sweden and has sales and
support services offices in Tarrytown, New York; Boston, Massachusetts,
Marlton, New Jersey; Chicago, Illinois; Los Angeles, California; London,
United Kingdom; and Gothenburg and Linkoping, Sweden. At April 30, 1996, the
Company employed 38 sales and marketing personnel. The Company intends to
increase expenditures to expand its direct sales and marketing organizations
in the United States, Europe and Asia Pacific. To support its direct sales
force, the Company conducts marketing programs that include public relations,
direct mail, trade shows, product seminars, user group conferences and ongoing
customer communication programs. See "Risk Factors--Dependence upon Successful
Expansion of Sales, Service, Support and Marketing Operations."
The Company also relies on informal arrangements with a number of consulting
and systems integration firms to enhance its marketing, sales and customer
support efforts, particularly with respect to implementation and support of
its products as well as lead generation and assistance in the sale process.
The Company expects to continue to rely significantly upon such third parties
for marketing and sales, lead generation, product implementation, customer
support services and end user training. See "Risk Factors--Reliance on and
Need to Develop Additional Relationships with Third Parties."
In addition, the Company has an informal joint marketing and sales
arrangement with Oracle pursuant to which the two companies jointly market to
potential customers in the consumer packaged goods market. The Company
believes that its relationship with Oracle increases the Company's opportunity
in this market because of Oracle's extensive penetration with consumer
packaged goods companies and its large sales, marketing, service and support
organizations. Under this arrangement, the Company pays to Oracle a percentage
of the Company's license revenue from customers in the consumer packaged goods
market to whom licenses are jointly marketed by Oracle and the Company. This
fee is not payable with respect to certain specified customers or potential
customers with whom the Company has had previous contact. The Company believes
that its relationship with Oracle is beneficial to the Company and the parties
have commenced discussions concerning the formalization of their relationship.
See "Risk Factors-- Relationship with Oracle."
Because the licensing of the Company's products generally involves a
significant capital expenditure by the customer, the Company's sales process
is subject to the delays and lengthy approval processes that are typically
involved in such expenditures. For these and other reasons, the sales cycle
associated with the licensing of the Company's products varies substantially
from customer to customer and typically lasts between six and 12 months,
during which time the Company may devote significant time and resources to a
prospective customer, including costs associated with multiple site visits,
product demonstrations and feasibility studies, and experience a number of
significant delays, over which the Company has no control. See "Risk Factors--
Lengthy Sales and Implementation Cycle; Increasing Size of Orders."
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PRODUCT DEVELOPMENT
The Company has devoted significant resources to product development since
its inception and has increased such investments in recent years. The
Company's product development expenses for the year ended April 30, 1994, 1995
and 1996 were $5.5 million, $7.0 million and $6.8 million, respectively. As of
April 30, 1996, the Company employed 80 people in product development. The
Company intends to increase its investments in product development in future
periods.
The Company believes that its success depends upon its ability to continue
to enhance existing products, respond to changing customer requirements and
develop and introduce new or enhanced products that keep pace with
technological developments and emerging industry standards. Customer
requirements include, but are not limited to, operability across distributed
and changing heterogeneous hardware platforms, operating systems, relational
databases and networks. The Company's current principal development projects
include a new version of System ESS that operates on the Windows NT server
platform, supports Internet-based electronic commerce and supports five
additional languages. There can be no assurances that the Company will be
successful in developing enhanced versions of System ESS or new products on a
timely basis, or that such enhancements or new products, when introduced, will
achieve market acceptance or will adequately address the changing needs of the
marketplace. See "Risk Factors-- Rapid Technological Change and Requirement
for Frequent Product Transitions."
COMPETITION
The Company's products are targeted at the emerging market for demand chain
management software, which is intensely competitive and characterized by rapid
technological change. The Company's competitors are diverse and offer a
variety of solutions directed at various segments of the supply and demand
chain as well as the enterprise as a whole. These competitors include (i)
enterprise application software vendors, such as SAP, which currently offer
sophisticated client/server ERP solutions, (ii) companies offering
standardized or customized products on mainframe and/or mid-range computer
systems, (iii) internal development efforts by corporate information
technology departments, (iv) smaller independent companies which have
developed or are attempting to develop advanced logistics and execution
software which complement or compete with the Company's software solutions,
and (v) other business application software vendors who may broaden their
product offerings by internally developing, or by acquiring or partnering with
independent developers of, advanced logistics and execution software. In
connection with specific customer evaluations, certain ERP and other
application software vendors have from time to time jointly marketed the
Company's products as a complement to their own systems. To the extent such
vendors develop or acquire systems with functionality comparable or superior
to System ESS, their significant installed customer base, long-standing
customer relationships and ability to offer a broad solution could provide a
significant competitive advantage over the Company. In addition, many of the
Company's competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than the Company. In order to be
successful in the future, the Company must continue to respond promptly and
effectively to the challenges of technological change and competitors'
innovations. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the Company. The Company also expects to face additional competition as
other established and emerging companies enter the market for demand chain
management software and new products and technologies are introduced. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Increased
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<PAGE>
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any one of which could materially
adversely affect the Company's business, operating results and financial
condition.
The principal competitive factors affecting the market for the Company's
products include vendor and product reputation, architecture, functionality and
features, speed, costs and ease of implementation, quality of support and
product quality, price and performance. Based on these factors, the Company
believes that it has competed effectively to date. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Risk Factors--Competition."
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures, and license arrangements to establish and
protect its proprietary rights. As part of its confidentiality procedures, the
Company licenses its software pursuant to signed license agreements that impose
restrictions on the licensee's ability to utilize the software. The Company
generally enters into non-disclosure agreements with its employees,
distributors and corporate partners, and limits access to and distribution of
its software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy the Company's
products or otherwise obtain and use the Company's proprietary technology
without authorization. Policing unauthorized use of the Company's products is
difficult, and, while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of certain countries do not protect
the Company's proprietary rights to the same extent as do the laws of the
United States or Sweden. Accordingly, there can be no assurance that the
Company's protection of its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology or
duplicate the Company's products.
The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers
increasingly will be subject to such claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in the industry segment overlaps. Any such claims, with or without
merit, could result in costly litigation that could absorb significant
management time, which could have a material adverse effect on the Company's
business, operating results and financial condition. Such claims might require
the Company to enter into royalty or license agreements. Such royalty or
license agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the
Company's business, financial condition or results of operations. See "Risk
Factors--Dependence on Proprietary Technology; Risks of Infringement."
EMPLOYEES
As of April 30, 1996, the Company employed a total of 287 full-time
employees, including 201 in Sweden, 64 in the United States and 22 in the
United Kingdom. The Company believes its future success will depend in part
upon its ability to attract and retain highly skilled management, marketing,
sales, consulting and product development personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to retain its key employees or that it will be successful in attracting,
assimilating and retaining such personnel in the future. Of the Company's 287
full-time employees, 38 are in sales and marketing, 151 in technical support
and maintenance, 80 are in product development and 18 are in general
administrative functions. IMAB voluntarily complies with the Swedish Act of
Board Representation for Employees, which provides employees of certain
companies the right to elect representatives to the board of directors of such
companies. Two employees (and two deputy
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employee representatives) are elected as representatives to IMAB's board of
directors. The Company does not have any collective bargaining agreements with
its employees and believes that its employee relations are good. See "Risk
Factors--Dependence on and Need to Hire Additional Personnel in All Areas."
FACILITIES
The Company's principal administrative, sales, marketing, product
development and support facilities are located in Stockholm, Sweden, where the
Company leases approximately 50,000 square feet under a lease agreement that
expires in September 1997. The Company also leases office space for its five
sales and service offices in the United States, two in Sweden and one in the
United Kingdom. The Company believes that its facilities are adequate for its
current needs and that suitable additional space will be available as
required. See Note 11 of Notes to Consolidated Financial Statements for
information regarding the Company's obligations under its facilities leases.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding that would have a
material adverse effect on the Company's business, operating results or
financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the date of this
Prospectus with respect to each person who is an executive officer or director
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stig G. Durlow (1)...... 45 Chairman of the Board, President and Chief Executive Officer
Carl Joelsson........... 52 Vice President, World Wide Services
Mats Lillienberg........ 35 Vice President, Product Development
Lars-Goran Peterson..... 51 Vice President, Finance, Chief Financial Officer and Secretary
Jeffrey A. Harris
(1)(2)................. 40 Director
William H. Janeway...... 53 Director
Dr. Martin Leimdorfer
(1)(2)................. 60 Director
Geoffrey W. Squire (2).. 49 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Stig G. Durlow joined the Company as Vice President, Nordic Operations in
1994 and in February 1995 was promoted to President and Chief Executive
Officer of the Company. Mr. Durlow has served as a director of the Company and
as Chairman of the Board since May 1996. Mr. Durlow started his professional
career at IBM Sweden in 1974 as a Systems Engineer. He held various sales and
marketing positions in Sweden and in 1991 became the Director of Systems
Strategies for IBM Europe in Paris. Most recently he was responsible for the
Industrial Sector for IBM in the Nordic countries as well as the Public Sector
in Sweden. Mr. Durlow holds a M.Sc. degree in Electrical Engineering from
Chalmers University of Technology, Gothenburg, Sweden.
Carl Joelsson joined the Company in 1988 as President of Industri-Matematik
Projektledning AB, a subsidiary of the Company which provides implementation
services and support for the Company's customers. Mr. Joelsson was also the
project leader for developing System ESS and installing the system at Ahlsell
AB. Mr. Joelsson is currently Vice President, World Wide Services. From 1980
to 1988, Mr. Joelsson was President of Joeldata AB, a software consulting
company.
Mats Lillienberg joined the Company in 1984 as a System Analyst responsible
for development enhancements to System ESS products and currently is Vice
President, Product Development. Before joining the Company, Mr. Lillienberg
worked for Kommun Data AB as a Programmer Analyst for two years. Mr.
Lillienberg holds a U.C. degree in Automatic Data Processing and Economics
from Stockholm University.
Lars-Goran Peterson joined the Company in February 1992 and has served as
its Chief Financial Officer since January 1994. Mr. Peterson served in various
other capacities with the Company between February 1992 and January 1994.
Before joining the Company, Mr. Peterson was Chief Financial Officer of AB
Calvert & Co., a wholesale distributor of tube and steel, from December 1982
to January 1992. Prior to joining AB Calvert & Co., Mr. Peterson served as
Chief Financial Officer of Nordiska Industri AB, a manufacturer and wholesale
distributor of textiles, from January 1972 to November 1982.
Jeffrey A. Harris has served as a director of IMAB since 1991 and as a
director of the Company since 1995. Mr. Harris has been a Managing Director of
E.M. Warburg since 1988, where he has been employed
44
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since 1983. Mr. Harris is a director of Newfield Exploration Company, Comcast
UK Cable Partners Limited, Knoll, Inc. and several privately held companies.
William H. Janeway has served as a director of IMAB since 1991 and of the
Company since May 1995. Mr. Janeway has been a Managing Director of E.M.
Warburg, Pincus & Co., Inc. ("E.M. Warburg") since 1988. Prior to joining E.M.
Warburg, Mr. Janeway was the Vice President and Director of Corporate Finance
from 1979 to 1988 at F. Eberstadt & Co., Inc. Mr. Janeway is a director of
Vanstar Corporation, Maxis, Inc., OpenVision Technologies, Inc., Zilog, Inc.
and several privately-held companies.
Dr. Martin Leimdorfer founded IMAB, in 1967. Dr. Leimdorfer was President
and Chief Executive Officer of IMAB from 1967 to 1995. He has been a director
of IMAB since its formation and a director of the Company since its formation
in 1995. Dr. Leimdorfer is a member of the Royal Swedish Academy of
Engineering Sciences and serves on the boards of the Swedish Trade Council and
the Swedish Institute for Industrial and Economics Research. He holds a M.Sc.
degree from the Royal Institute of Technology, Stockholm, Sweden, and a Ph.D.
from Chalmers University of Technology, Gothenburg, Sweden.
Geoffrey W. Squire has served as a director of IMAB since 1994 and as a
director of the Company since May 1996. Mr. Squire is a director and Chief
Executive Officer of OpenVision Technologies, Inc. From 1984 to 1987, Mr.
Squire was Managing Director and Senior Vice President of Oracle and from 1987
to 1990, Chief Executive Officer of Oracle Europe. In 1990, he was promoted to
Executive Vice President of Oracle and President of Worldwide Operations. In
July 1992, he was appointed to Oracle's five-person Executive Committee with
responsibility as Chief Executive, International Operations. Mr. Squire has
sat on the Council of the United Kingdom Computing Services and Software
Association since 1990. In 1995, Mr. Squire was elected as the founding
President of the European Information Services Association.
COMPENSATION OF DIRECTORS
Directors are paid $10,000 per year plus $1,000 for each board meeting they
attend. The Company does not pay additional amounts for committee
participation. Directors are also reimbursed for their reasonable out-of-
pocket expenses incurred in attending the meetings of the Board of Directors
and committees thereof. Outside directors are eligible to receive non-
statutory options under the Company's Stock Option Plan (as hereinafter
defined). See "Management--Stock Option Plan."
AUDIT AND COMPENSATION COMMITTEES
The Company's Board of Directors appointed its Audit and Compensation
Committees in May 1996. The Audit Committee consists of Messrs. Harris and
Squire and Dr. Leimdorfer. The Audit Committee makes recommendations to the
Board of Directors regarding the selection of independent auditors, reviews
the result and scope of the audit and other services provided by the Company's
independent accountants and reviews and evaluates the Company's audit and
control functions. The Compensation Committee consists of Messrs. Durlow and
Harris and Dr. Leimdorfer. The Compensation Committee makes recommendations
regarding the Company's Option Plan and Restricted Stock Plan (as hereinafter
defined) and makes decisions concerning salaries and incentive compensation
for employees of the Company. Prior to May 1996, the Company's Board of
Directors undertook the responsibilities of the Audit and Compensation
Committees.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consists of
Messrs. Durlow and Harris and Dr. Leimdorfer. No executive officer of the
Company serves as a member of the Board of Directors or Compensation Committee
of any entity which has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee. During fiscal
1996, Mr. Durlow served as the Company's President and Chief Executive
Officers and Mr. Harris served as the secretary of the Company. Dr. Leimdorfer
has a consulting arrangement with the Company under which he was paid
approximately $306,000 in fiscal 1996 for services rendered. See "Certain
Transactions."
45
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth summary information regarding compensation
paid by the Company for services during the fiscal year ended April 30, 1996,
to the Company's Chief Executive Officer and Chief Financial Officer (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION (1) COMPENSATION AWARDS
---------------------------------------- -------------------
OTHER ANNUAL RESTRICTED
NAME SALARY ($) BONUS ($) COMPENSATION (2)(3) STOCK (4)
---- ---------- --------- ------------------- -------------------
<S> <C> <C> <C> <C>
Stig G. Durlow, Chairman
of the Board, President
and Chief Executive
Officer................ $187,579 $86,214 -- 600,000
Lars-Goran Peterson,
Vice President,
Finance, Chief
Financial Officer...... $101,353 -- -- 192,000
</TABLE>
- --------
(1) Amounts reflect Swedish kronor converted into U.S. dollars at an exchange
rate of $1.00 = SEK 6.94. See "Exchange Rates."
(2) Represents amounts contributed by the Company to a pension for the benefit
of Mr. Durlow.
(3) Excludes certain perquisites and other benefits, the amount of which did
not exceed 10% of the Named Executive Officer's total annual salary and
bonus.
(4) Represents shares of Common Stock purchased under the Company's Restricted
Stock Program. See "Management--Restricted Stock Program."
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with Stig G. Durlow and Lars-
Goran Peterson that provide for an annual salary and other provisions that are
customary in the Swedish labor market. In addition, Mr. Durlow's employment
agreement provides for a bonus based upon the Company's fiscal year
profitability. Each of Messrs. Durlow and Peterson receive a car allowance and
Mr. Durlow is entitled to contributions to a pension plan.
STOCK OPTION PLAN
In May 1995, the Company adopted the Industri-Matematik International Corp.
Stock Option Plan (the "Option Plan"), under which 3,000,000 shares of Common
Stock were reserved for issuance upon exercise of options granted to key
employees, members of the Company's Board of Directors, consultants and other
advisors of the Company. The Option Plan provides for grants of incentive
stock options to key employees (including officers and employee directors) and
nonstatutory stock options for members of the Board of Directors, consultants
and other advisors of the Company who are not employees of the Company. The
Option Plan is administered by a Committee appointed by the Board of Directors
of the Company which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award, vesting
and other conditions.
The terms of stock options granted under the Option Plan may not exceed 10
years. The exercise price of options granted under the Option Plan is
determined by the Committee; provided, however, that the exercise price of an
incentive stock option cannot be less than equal to the fair market value of
the Common Stock on the date the option is granted. The exercise price of any
incentive stock option granted to a recipient who owns more than 10% of the
voting power of all classes of the Company's stock cannot be less than equal
to 110% of the fair market value of the Common Stock on the date the option is
granted.
Options outstanding under the Option Plan generally vest and become
exercisable assuming continued services as an employee, director or consultant
at the rate of 20% of the shares subject to an option on the first anniversary
of the Option Agreement and 20% every year thereafter for five years.
46
<PAGE>
Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Option Plan. Furthermore, the Committee
may amend an option to accelerate the dates after which an option may be
exercised in whole on in part. Upon any change of control in the Company,
including (a) the merger or consolidation of the Company with any other
corporation, the sale of substantially all of the assets of the Company, the
sale by the shareholders of the Company of a majority of the voting stock of
the Company, or the liquidation or dissolution of the Company, or (b) any
action taken by the Company's shareholders or by the Company's Board which the
Board determines to constitute a change of control, each option or portion
thereof which is not yet exercisable vests and becomes exercisable in full and
the termination date for each option which has a termination date falling
within 90 days after a change of control is extended until the earlier of the
90th day after the change of control or the day before the tenth anniversary
of the date such option was granted.
The Committee, in its discretion, may in connection with the grant of any
option under the Option Plan, grant to the optionee a stock appreciation right
(an "SAR"). Such SAR allows the optionee to receive, in the sole discretion of
the Committee, shares and/or cash equal to the excess of the fair market value
of an option on the date of exercise over the exercise price on the date of
the exercise of the option. Neither options nor SARs may be transferred by the
optionee other than by will or the laws of descent and distribution.
As of April 30, 1996, options to purchase an aggregate of 939,975 shares of
Common Stock were granted by the Company to nine people, and 2,060,025 shares
of Common Stock remained available for future grant. The Option Plan will
terminate April 30, 2005, unless terminated sooner by the Board of Directors.
RESTRICTED STOCK PROGRAM
In May 1995, the Company instituted a restricted stock program (the
"Restricted Stock Program") whereby shares of the Company's Common Stock were
purchased by certain key employees of the Company's operating subsidiary in
Sweden in exchange for nonrecourse promissory notes. The shares were issued
through a wholly owned subsidiary of the Company, Software Finance Corporation
("SFC"). Principal on the promissory notes is due either nine or ten years
after issuance with interest being due and payable annually, generally at the
beginning of each fiscal year.
Under the terms of the restricted stock program, SFC has an option to
repurchase the shares issued to each employee provided it pays the annual
option price. The exercise price to be paid by SFC upon exercise of a purchase
option shall be the fair market value, provided that if the option to purchase
is exercised prior to the end of a stated period, then the exercise price
shall be the initial purchase price for a percentage of the shares after the
first anniversary of the option agreement, decreasing by 20% each subsequent
year, such that the exercise price is the fair market value. SFC pays an
annual option premium to the restricted stock shareholders at a rate
substantially equal to the interest due on the non-recourse promissory note.
SFC has the right and obligation to apply against the payment of any
principal due on the promissory note any amounts payable by SFC to the
recipient of the Shares as the exercise price under the Option Agreement. The
Company has the ability and intent to prevent the recipients from selling the
purchased securities. Accordingly, the Company has not recognized any
compensation expense in respect of the restricted stock in the statements of
operations. The restricted stock shares issued under this program and
dividends paid are subject to a pledge and security interest held by SFC.
Under the Restricted Stock Program a total of 1,256,985 shares were
purchased by eight people at a weighted average price of $2.09 per share for
total proceeds of $2,626,000.
47
<PAGE>
EMPLOYEE BENEFIT PLANS
The Company provides retirement benefits for substantially all employees in
the United States and in other locations outside of Sweden. In the U.S. and the
U.K., the Company sponsors defined contribution plans. The Company's Swedish
subsidiary, IMAB, has a supplemental defined contribution plan for certain key
management. IMAB also participates in several pension plans (non-contributory
for employees), which cover substantially all employees of its Swedish
operations. The plans are administered by a national organization,
Pensionsregistreringsinstitutet, in which most companies in Sweden participate.
The level of benefits and actuarial assumptions are established by the national
organization and, accordingly, IMAB may not change benefit levels or actuarial
assumptions.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation contains certain provisions
permitted under the Delaware GCL which eliminate the personal liability of
directors for monetary damages for a breach of director's fiduciary duty,
except for: (i) breach of a director's duty of loyalty, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) the unlawful payment of dividends, stock purchase or
stock redemption, or (iv) any transaction from which the director derives any
improper personal benefit. The Certificate of Incorporation provides that a
director's liability shall be eliminated or limited to the fullest extent
permitted by the Delaware GCL, as amended from time to time. The Certificate of
Incorporation and the Company's By-Laws also contain provisions indemnifying
the Company's directors, officers and employees to the fullest extent permitted
by the Delaware GCL. The Company has also entered into agreements to indemnify
its directors and executive officers. The Company believes that these
provisions and agreements will assist the Company in attracting and retaining
qualified individuals to serve as directors, officers and employees.
48
<PAGE>
CERTAIN TRANSACTIONS
Warburg became an IMAB stockholder in 1991, in connection with a transaction
in which IMAB, then a public company in Sweden, became privately owned and
delisted its shares from the Stockholm Stock Exchange.
In June, 1992, the Company issued a term promissory note to Warburg in the
principal amount of $2.5 million (the "1992 Note"). In April, 1993 the
principal amount of the 1992 Note was converted into 1,355,250 additional
shares of IMAB capital stock.
In June, 1993, the Company issued a second term promissory note to Warburg
in the principal amount of $2 million (the "1993 Note"). In December, 1993,
the principal amount of the 1993 Note was converted into 1,471,875 shares of
IMAB capital stock.
In July, 1994, the Company issued a third term promissory note to Warburg in
the principal amount of $2.5 million (the "1994 Note"). In April, 1995, the
principal amount of the 1994 Note, together with accrued interest thereon, was
converted into 1,319,265 shares of IMAB capital stock.
On May 1, 1995, the then shareholders of IMAB exchanged all of their IMAB
shares for shares of the Company's capital stock ("the Exchange"). No cash
consideration was paid to or by the Company in connection with the Exchange.
Following the Exchange, IMAB became a wholly-owned subsidiary of the Company.
In October, 1995, the same shareholders acquired a total of 612,468 shares of
the Company's Common Stock for an aggregate purchase price of $1,224,936.
At various times during 1995 and 1996 certain employees of the Company
(including certain of its executive officers) purchased an aggregate of
1,256,985 shares of the Company's Common Stock under the Company's Restricted
Stock Program for an aggregate consideration of $2,625,630, or an average
purchase price of $2.09 per share. See "Management--Stock Option Plan and
Restricted Stock Program; and --Executive Compensation."
In June 1996, Dr. Martin Leimdorfer and Warburg entered into a registration
and expenses agreement with the Company under which the Company agreed to
include certain of their shares of Common Stock in this Registration
Statement. In addition, Dr. Leimdorfer and Warburg are entitled to certain
registration rights in the future. See "Description of Capital Stock--
Registration Rights."
The Company has a consulting arrangement with Dr. Leimdorfer which expires
on October 31, 1996. Pursuant to this arrangement, Dr. Leimdorfer earns base
compensation plus contingent compensation based on the Company achieving
certain financial performance targets. Dr. Leimdorfer received $306,000 in
fiscal 1996 pursuant to this arrangement.
The Company has entered into indemnification agreements with its directors
and officers. See "Management--Limitation on Liability and Indemnification
Matters."
All future transactions between the Company and its officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the voting Common Stock of the Company as of the date of this
Prospectus and as adjusted to reflect the sale of the shares of Common Stock
offered hereby, by (i) each person known by the Company to own beneficially 5%
or more of the outstanding shares of Common Stock, (ii) the Selling
Stockholders, (iii) each director of the Company who beneficially owns shares
of Common Stock, (iv) each Named Executive Officer and (v) all directors and
executive officers as a group and as adjusted to reflect the sale of the
Common Stock offered hereby. Except as otherwise indicated, the persons or
entities listed below have sole voting and investment power with respect to
all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED NUMBER BENEFICIALLY OWNED
PRIOR TO OF AFTER
OFFERING (1)(2) SHARES OFFERING (1)(2)(5)
------------------ BEING ------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Investors,
L.P.(1)(3)(5)................... 6,882,051 55.5% 6,882,051 44.1%
Dr. Martin Leimdorfer............ 4,267,017 34.4% 800,000 3,467,017 22.2%
William H. Janeway(1)(4)(5)...... 6,882,051 55.5% 6,882,051 44.1%
Jeffrey A. Harris(1)(4)(5)....... 6,882,051 55.5% 6,882,051 44.1%
Stig G. Durlow(6)................ 600,000 4.8% 600,000 3.8%
Lars-Goran Peterson(6)........... 192,000 1.5% 192,000 1.2%
All executive officers and
directors as a group
(6 persons)..................... 11,941,068 96.2% 11,141,068 71.5%
</TABLE>
- --------
(1) Based on 12,406,053 shares of voting Common Stock outstanding prior to
this offering, assuming conversion of outstanding Preferred Stock into
Common Stock. Does not include 12,088,200 shares of nonvoting Class B
Common Stock owned by Warburg, which represents all outstanding Class B
Common Stock. Including such shares, Warburg will hold 68.5% of the
Company's outstanding stock, and Stig G. Durlow, Lars-Goran Peterson, Dr.
Martin Leimdorfer and all executive officers and directors as a group will
hold 2.2%, 0.7%, 12.5% and 83.9%, respectively, of the Company's
outstanding stock after this offering. See "Description of Capital Stock."
(2) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person are currently exercisable or exercisable within 60 days of the date
of this Prospectus are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of each other person.
(3) The sole general partner of Warburg is Warburg, Pincus & Co. ("WP"), a New
York general partnership. Lionel I. Pincus is the managing partner of WP
and may be deemed to control WP. E.M. Warburg, Pincus, & Company ("E.M.
Warburg"), a New York general partnership that has the same general
partners as WP, manages Warburg. WP has a 20% interest in the profits of
Warburg and, through its wholly-owned subsidiary, E.M. Warburg, Pincus &
Co., Inc., owns 1.13% of the limited partnership interests in Warburg. Mr.
Janeway and Mr. Harris, directors of the Company, are Managing Directors
of E.M. Warburg, Pincus & Co., Inc. and general partners of WP and E.M.
Warburg. As such, Mr. Janeway and Mr. Harris may be deemed to have an
indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Exchange Act) in an indeterminate portion of the shares beneficially owned
by Warburg, E.M. Warburg, Pincus & Co., Inc., and WP. See footnote (2)
above. The named person's address is 466 Lexington Avenue, 10th Floor, New
York, New York, 10017.
(4) All of the shares indicated are owned of record by Warburg and are
included because of Mr. Janeway's and Mr. Harris' affiliation with
Warburg. See footnote (2) above. Messrs. Janeway and Harris disclaim
beneficial ownership of these shares, except to the extent of their
respective pecuniary interests therein. Messrs. Janeway and Harris's
address is 466 Lexington Avenue, 10th Floor, New York, New York 10017.
(5) Assumes that the Underwriters' over-allotment option is not exercised. If
the over-allotment option were exercised in full, Warburg would own
6,282,051 shares, or 40.3% of the Company's outstanding voting Common
Stock after this offering.
(6) Represents shares of Common Stock purchased under the Restricted Stock
Plan, "See Management--Restricted Stock Plan."
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After giving effect to the filing of a Amended and Restated Certificate of
Incorporation upon the closing of this offering, the authorized capital stock
of the Company consists of 75,000,000 shares of Common Stock, $.01 par value,
12,500,000 of which are designated Class B Common Stock, $.01 par value, and
15,000,000 shares of Preferred Stock, $.01 par value.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation, which is included as an exhibit to the Registration Statement
of which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of May 31, 1996, there were 12,406,053 shares of Common Stock outstanding
held of record by approximately ten stockholders. There will be 27,694,253
shares of Common Stock outstanding, including 12,088,200 shares of Class B
Common Stock, after giving effect to the sale of Common Stock offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable, and the shares of Common Stock
to be issued upon completion of this offering will be fully paid and non-
assessable. See "Dividend Policy."
CLASS B COMMON STOCK
12,088,200 shares of Class B Common Stock will be outstanding following the
completion of the offering and will be held by Warburg. The Class B Common
Stock has the same rights, preferences, privileges and restrictions as the
Common Stock, except that the Class B Common Stock has no voting rights. The
shares of Class B Common Stock will, upon any transfer of such shares by
Warburg, be automatically converted into a like number of shares of Common
Stock, subject to adjustment upon certain events with respect to the Common
Stock.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 15,000,000 shares of Preferred Stock in one or more series and to
determine or alter the designation, powers, preferences, privileges and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the Common Stock. The Board of
Directors, without stockholder approval, can issue Preferred Stock with
voting, conversion or other rights that could adversely affect the voting
power and other rights of the holders of Common Stock. Preferred Stock could
thus be issued quickly with terms calculated to delay or prevent a change in
control of the Company or make removal of management more difficult.
Additionally, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock and may adversely affect the
voting rights of
51
<PAGE>
the holders of Common Stock. At present, there are no shares of Preferred Stock
outstanding, and the Company has no plans to issue any of the Preferred Stock.
REGISTRATION RIGHTS
After this offering, the holders of 22,437,268 shares of Common Stock will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of the agreement between the Company
and the holders of such registrable securities, if the Company proposes to
register any of its securities under the Securities Act, such holders are
entitled to notice of such registration and are entitled to include shares of
such Common Stock therein. Such stockholders benefitting from these rights may
also require the Company to file registration statements under the Securities
Act at the Company's expense with respect to their shares of Common Stock, and
the Company is required to use its reasonable efforts to effect such
registration. Further, holders may require the Company to file additional
registration statements on Form S-3 at the Company's expense. These rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration in certain circumstances.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW
The Company's Certificate of Incorporation and Bylaws, as applicable, among
other things, (i) permit vacancies on the Board of Directors that may occur
between annual meetings and any newly created seats to be filled only by the
Board of Directors and not by the stockholders, subject to any rights of
holders of the Preferred Stock that may be granted by the Board of Directors in
the future, (ii) limit the rights of stockholders to call special meetings of
stockholders and (iii) provide that the Board of Directors, without action by
the stockholders, may issue and fix the rights and preferences of shares of
Preferred Stock. These provisions may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
stockholders, may discourage bids for the Common Stock at a premium over the
market price of the Common Stock, may adversely affect the market price of, and
the voting and other rights of, the holders of the Common Stock and could have
the effect of discouraging certain attempts to acquire the Company or remove
incumbent management, including incumbent members of the Company's Board of
Directors, even if some or a majority of the Company's stockholders deemed such
an attempt to be in their best interests.
The Company is subject to Section 203 of the Delaware General Corporation Law
("Section 203" and "GCL"). Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to such
date, the board of directors of the corporation approves either the business
combination of the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, excluding
certain shares held by employee directors and employee stock plans, or (ii) on
or after the consummation date the business combination is approved by the
board of directors and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder. For
purposes of Section 203, a "business combination" includes, among other things,
a merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and an "interested stockholder" is generally a
person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
Equiserve Limited Partnership.
LISTING
The Company has applied to have its Common Stock approved for quotation and
trading on the Nasdaq National Market under the symbol "IMIC."
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
RESTRICTED SHARES
Upon completion of this offering, the Company will have 27,694,253 shares of
Common Stock outstanding. Of these shares, the 4,000,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below. The remaining 23,694,253 shares of outstanding
Common Stock held by existing stockholders are deemed "Restricted Shares" under
Rule 144 of the Securities Act. Of these 23,694,253 Restricted Shares,
22,437,268 are held by Affiliates of the Company and will be eligible for sale
without restriction or further registration pursuant to Rule 144 under the
Securities Act upon the expiration of their respective two-year holding
periods, subject to the volume, manner of sale and other limitations of Rule
144 under the Securities Act.
The remaining 1,256,985 Restricted Shares were issued under the Company's
Restricted Stock Program and will be eligible for public sale 90 days following
this offering pursuant to Rule 701 under the Securities Act, unless held by an
Affiliate. The Company intends to register pursuant to a registration statement
on Form S-8/S-3 939,975 shares of Common Stock subject to outstanding options
and 2,060,025 shares reserved for future issuance under the Company's Stock
Option Plan and 1,256,985 shares issued pursuant to the Company's Restricted
Stock Program. Such shares of Common Stock (to the extent issued) will be
eligible for sale upon expiration of the lock-up agreements described below,
subject to vesting and exercisability restrictions. The Company expects to file
this registration statement as soon as practicable after the closing of this
offering, and such registration statement is expected to become effective upon
filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the lock-up Agreements, if
applicable.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least two years is entitled to sell, within any three-
month period, a number of such shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock, or the average weekly trading
volume in the Common Stock in the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of such sale is filed under
Rule 144. In addition, under Rule 144(k), a person who is not an Affiliate and
has not been an Affiliate for at least three months prior to the sale, and who
has beneficially owned Restricted Shares for at least three years may resell
such shares without compliance with the foregoing requirements. In calculating
the two and three year holding periods described above, a holder of Restricted
Shares can include the holding periods of a prior owner who was not an
Affiliate. Rule 701 under the Securities Act provides that shares of Common
Stock acquired on the exercise of outstanding options or under employee stock
plans may be resold by persons other than Affiliates, beginning 90 days after
the date of this Prospectus, subject only to the manner of sale provisions of
Rule 144, and by Affiliates under Rule 144 without compliance with its two-year
minimum holding period, subject to certain limitations.
LOCK-UP AGREEMENTS
The Company and each of the directors, executive officers and stockholders of
the Company have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of Alex. Brown & Sons Incorporated, except
that the Company may issue, and may grant options to purchase shares of Common
Stock under its Stock Option Plans and sell shares pursuant to the Restricted
Stock Program and may issue shares of stock upon the exercise of currently
outstanding stock options. Alex. Brown & Sons Incorporated may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, UBS Securities LLC and SoundView Financial
Group, Inc., have severally agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of shares of Common Stock at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated...................................
UBS Securities LLC................................................
SoundView Financial Group, Inc....................................
---------
Total........................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share to certain other dealers. After the initial public offering, the public
offering price and other selling terms may be changed by the Representatives of
the Underwriters.
One of the Selling Stockholders has granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 600,000 additional shares of Common Stock at the same price per
share as the Company and the Selling Stockholder will receive for the 4,000,000
shares of Common Stock that the several Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 4,000,000, and such Selling Stockholder
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Common Stock offered hereby.
If purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 4,000,000 shares are being offered. See "Principal
and Selling Stockholders."
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
54
<PAGE>
The Company and each of its directors, executive officers and stockholders
have agreed not to offer, sell or otherwise dispose of any such shares of
Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of Alex. Brown & Sons Incorporated except
that the Company may issue, and may grant options to purchase shares of Common
Stock under its current stock option plans and sell shares pursuant to the
Restricted Stock Program and may issue shares of stock pursuant to currently
outstanding employee stock options. See "Shares Eligible For Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company, the Selling
Stockholders and the Representatives of the Underwriters. Among the factors to
be considered in such negotiations will be prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations, market prices of securities, stages of development of other
companies which the Company and the Representatives of the Underwriters believe
to be comparable to the Company, estimates of the business potential of the
Company and its industry in general and the present state of the Company's
development.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company and the Selling Stockholders by Brobeck Hale and Dorr
International, London, England. The Company is being represented as to matters
of Swedish law by Advokatfirman Vinge KB. Certain legal matters will be passed
upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of April 30, 1996 and 1995, and the
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended April 30, 1996, included
in this Prospectus, have been included herein in reliance on the report by
Ohrlings Coopers & Lybrand AB, independent accountants, given upon the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information contained in the Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement, including the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to herein are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement and the exhibits and schedules thereto may be inspected
without charge at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any
part thereof may be obtained from the Commission at prescribed rates.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.
55
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of April 30, 1995 and 1996................. F-3
Consolidated Statements of Operations for the years ended April 30, 1994,
1995 and 1996............................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended April 30, 1994, 1995 and 1996...................................... F-5
Consolidated Statements of Cash Flows for the years ended April 30, 1994,
1995 and 1996............................................................ F-6
Notes to the Consolidated Financial Statements............................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Industri-Matematik International Corp.
We have audited the accompanying consolidated balance sheets of Industri-
Matematik International Corp. and subsidiaries as of April 30, 1995 and 1996,
and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended April 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Industri-
Matematik International Corp. and subsidiaries as of April 30, 1995 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 30, 1996 in conformity with
generally accepted accounting principles in the United States.
Ohrlings Coopers & Lybrand AB
Stockholm, Sweden
June 6, 1996
F-2
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
APRIL 30, EQUITY AT
------------------ APRIL 30,
1995 1996 1996
-------- -------- -------------
(UNAUDITED)
(NOTE 19)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 160 $ 558
Accounts receivable, less allowance for
doubtful accounts
of $205 and $321 at April 30, 1995 and
1996, respectively......................... 7,646 13,067
Accrued receivables......................... 2,836 1,190
Prepaid expenses............................ 973 1,160
Net assets of discontinued operations (Note
17)........................................ 725 1,111
Income taxes receivable..................... 249 48
Other current assets........................ 106 169
-------- --------
Total current assets...................... 12,695 17,303
Non current assets:
Property and equipment, net................. 1,663 1,873
Deferred income taxes....................... 978 1,988
Other non current assets.................... 172 160
-------- --------
Total non current assets.................. 2,813 4,021
-------- --------
Total assets.............................. $ 15,508 $ 21,324
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........... $ 1,412 $ 349
Accounts payable............................ 1,229 1,464
Accrued expenses and other current
liabilities................................ 3,207 3,777
Accrued payroll and employee benefits....... 2,611 3,365
Deferred revenue............................ 1,256 2,386
-------- --------
Total current liabilities................. 9,715 11,341
Long-term liabilities:
Long-term debt.............................. 6,725 7,950
Accrued pension liability................... 1,165 1,482
Deferred income taxes....................... -- 49
-------- --------
Total long-term liabilities............... 7,890 9,481
-------- --------
Total liabilities......................... 17,605 20,822
-------- --------
Commitments and contingencies (Note 13)
Stockholders' equity:
Convertible Preferred stock, $.01 par value;
15,000,000 shares authorized; 14,630,250
shares issued and outstanding (pro forma:
No shares outstanding)..................... 146 146 $ --
Common stock; voting, $.01 par value;
35,000,000 shares authorized; 7,610,550 and
9,480,003 issued and outstanding (pro
forma: 12,406,053 shares issued and
outstanding)............................... 76 94 124
Class B Common stock; non-voting, $.01 par
value; 12,500,000 shares authorized;
384,000 shares issued and outstanding (pro
forma: 12,088,200 shares issued and
outstanding)............................... 4 4 120
Additional paid-in capital.................. 11,490 15,323 15,323
Accumulated deficit......................... (12,620) (10,870) (10,870)
Cumulative translation adjustment........... (1,193) (1,569) (1,569)
Notes receivable from stockholders (Note
12)........................................ -- (2,626) (2,626)
-------- -------- -------
Total stockholders' equity................ (2,097) 502 502
-------- -------- -------
Total liabilities and stockholders'
equity................................... $ 15,508 $ 21,324 $21,324
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
Licenses........................................... $ 5,254 $10,661 $15,474
Services and maintenance........................... 11,950 14,543 23,103
Other.............................................. 1,576 2,540 1,432
------- ------- -------
Total revenues................................... 18,780 27,744 40,009
Cost of revenues:
Licenses........................................... 721 2,172 2,717
Services and maintenance........................... 10,030 12,424 16,813
Other.............................................. 831 2,252 947
------- ------- -------
Total cost of revenues........................... 11,582 16,848 20,477
------- ------- -------
Gross profit..................................... 7,198 10,896 19,532
Operating expenses:
Product development................................ 5,517 7,009 6,822
Sales and marketing................................ 3,056 5,720 7,746
General and administrative......................... 3,688 4,192 3,579
------- ------- -------
Total operating expenses......................... 12,261 16,921 18,147
------- ------- -------
Income (loss) from operations....................... (5,063) (6,025) 1,385
Other income (expense):
Interest income.................................... 40 15 13
Interest expense................................... (229) (689) (744)
Miscellaneous income (expense)..................... (227) (384) (12)
------- ------- -------
Income (loss) from continuing operations before
income taxes....................................... (5,479) (7,083) 642
Provision (benefit) for income taxes................ 40 (941) (781)
------- ------- -------
Income (loss) from continuing operations............ (5,519) (6,142) 1,423
Income (loss) from discontinued operations (Note
17)................................................ (151) (246) 327
------- ------- -------
Net income (loss)................................... $(5,670) $(6,388) $ 1,750
======= ======= =======
Pro forma net income per share data: (Note 2)
Income (loss) from continuing operations............ $ 0.06
Income (loss) from discontinued operations.......... 0.01
-------
Pro forma net income per share...................... $ 0.07
=======
Pro forma shares used in per share calculation...... 25,278
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
CONVERTIBLE CLASS B ADDITIONAL CUMULATIVE RECEIVABLE TOTAL
PREFERRED COMMON COMMON PAID-IN ACCUMULATED TRANSLATION FROM STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT ADJUSTMENT STOCKHOLDERS EQUITY
----------- ------ ------- ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 11,839,110
shares of Convertible
Preferred Stock,
7,610,550 shares of
Common Stock and
384,000 shares of Class
B Common Stock in
exchange for common
stock of IMAB, as if
exchange occurred on
May 1, 1993............ $119 $76 $ 4 $ 6,879 $ (562) $(1,003) $ 5,513
Issuance of 1,471,875
shares of Convertible
Preferred Stock........ 14 1,986 2,000
Currency translation
adjustment............. (64) (64)
Net loss............... (5,670) (5,670)
---- --- --- ------- -------- ------- ------- -------
Balance as of April
30, 1994............. 133 76 4 8,865 (6,232) (1,067) -- 1,779
Issuance of 1,319,265
shares of Convertible
Preferred Stock........ 13 2,625 2,638
Currency translation
adjustment............. (126) (126)
Net loss............... (6,388) (6,388)
---- --- --- ------- -------- ------- ------- -------
Balance as of April
30, 1995............. 146 76 4 11,490 (12,620) (1,193) -- (2,097)
Issuance of 1,256,985
shares of Common Stock
under Restricted Stock
Program................ 12 2,614 (2,626) 0
Issuance of 612,468
shares of Common Stock. 6 1,219 1,225
Currency translation
adjustment............. (376) (376)
Net income............. 1,750 1,750
---- --- --- ------- -------- ------- ------- -------
Balance as of April
30, 1996............. $146 $94 $ 4 $15,323 $(10,870) $(1,569) $(2,626) $ 502
==== === === ======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)................................... $(5,670) $(6,388) $ 1,750
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 691 814 1,063
Provision for doubtful accounts..................... (2) 175 99
Deferred income taxes............................... -- (977) (876)
Gain (loss) on disposal of property and equipment... (4) 3 (3)
Write-down of property and equipment................ -- 655 --
Changes in operating assets and liabilities:
Accounts receivable................................ 674 (4,209) (5,070)
Accrued receivables and prepaid expenses........... (920) 2,361 1,789
Income taxes....................................... (259) (717) 224
Other assets....................................... 1,466 632 (36)
Accounts payable................................... (248) 310 135
Accrued expenses and other current liabilities..... 1,932 (977) 361
Accrued payroll and employee benefits and deferred
revenue........................................... 304 2,755 1,626
Accrued pension liability.......................... 172 192 214
------- ------- -------
Net cash provided by (used in) continuing
operations........................................ (1,864) (5,371) 1,276
Net cash provided by (used in) discontinued
operations........................................ 103 248 (322)
------- ------- -------
Net cash flows provided by (used in) operating
activities....................................... (1,761) (5,123) 954
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment................. (997) (787) (1,269)
Proceeds from sale of property and equipment........ 45 11 17
------- ------- -------
Net cash flows provided by (used in) investing
activities....................................... (952) (776) (1,252)
------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) under lines of credit..... (2,141) 627 5,281
Proceeds from issuance of long-term debt............ 2,637 3,331 528
Principal payments on long-term debt................ (167) (368) (6,299)
Proceeds from related party debt.................... 2,000 2,638 --
Issuance of Common Stock............................ -- -- 1,229
Other............................................... 365 (246) (48)
------- ------- -------
Net cash flows provided by financing activities... 2,694 5,982 691
------- ------- -------
Translation differences on cash and cash equivalents. (6) 2 5
------- ------- -------
Net increase (decrease) in cash and cash equivalents. (25) 85 398
Cash and cash equivalents at beginning of year....... 100 75 160
------- ------- -------
Cash and cash equivalents at end of year............. $ 75 $ 160 $ 558
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest............................................ $ 211 $ 432 $ 621
======= ======= =======
Income taxes........................................ $ 341 $ 572 $ (40)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND ORGANIZATION
Industri-Matematik International Corp., a Delaware corporation, (the
"Company") and its subsidiaries (collectively, the "Companies"), develop,
market, implement and support client/server demand chain management software.
The Companies' primary software product, System ESS, has been designed to
provide for the complex and high throughput order fulfillment requirements of
manufacturers, distributors and wholesalers. The Company's three operating
subsidiaries are located and primarily conduct business in the United States,
Sweden and the United Kingdom.
The Company was formed on May 1, 1995 as the parent of Industri-Matematik AB
("IMAB"), a company domiciled in Sweden, pursuant to a corporate
reorganization. The reorganization was effected by issuing all the shares of
the Company's stock to the stockholders of IMAB based upon the number and
class of shares of IMAB owned by each in exchange for all of the outstanding
stock of IMAB. The reorganization was accounted for in a manner similar to a
pooling-of-interests. The consolidated accounts comprise the accounts of the
Companies as if they had been owned by the Company throughout the entire
reporting period.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
In fiscal 1996, the Company adopted plans for the sale of its business
segments operated by its 55% owned subsidiary, Pargon AB ("Pargon"), a company
domiciled in Sweden. In accordance with Accounting Principles Board Opinion
("APB") No. 30, the segments of Pargon have been presented as discontinued
operations in the accompanying consolidated financial statements. (See Note 17
for further discussion and disclosure).
Revenue Recognition
License revenues represent sales of the Companies' System ESS software.
Service revenues represent sales from consulting implementation and training
services. Annual maintenance and support revenues consist of ongoing support
and product updates. Other revenues primarily represent hardware sales.
The Companies recognize revenue in accordance with American Institute of
Certified Public Accountants Statement of Position ("SOP") 91-1, Software
Revenue Recognition. Software license fees are recognized upon the signing of
the license agreement and shipment to the customer of the product provided
that no significant vendor obligations remain and collection of the resulting
receivables is probable. Revenues relating to services are recognized as
services are performed. Annual payments for maintenance agreements are
generally received in advance and are non-refundable. Maintenance revenues are
recognized ratably over the term of the contract. Other revenues are
recognized when shipped or made available to the customer. Unrecognized
revenue relating to maintenance contracts are reflected as deferred revenue in
the accompanying consolidated balance sheets.
Product Development Costs
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed."
F-7
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs incurred in the product development of new software products are
expensed as incurred until technological feasibility has been established. To
date, the establishment of technological feasibility of the Company's products
and general release substantially coincide. As a result, the Companies have
not capitalized any software development costs since such costs have been
immaterial.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method based upon estimated useful lives of the assets ranging
from 3 to 5 years. Equipment purchased under capital leases is amortized on a
straight-line basis over the lesser of the estimated useful life of the asset
or the lease term.
Upon retirement or sale of property and equipment, cost and accumulated
depreciation on such assets are removed from the accounts and any gains or
losses are reflected in the statement of operations. Maintenance and repairs
are charged to expense as incurred.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries in Sweden and
the United Kingdom is the applicable local currency. The translation from the
respective foreign currencies to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for income statement accounts using a weighted average exchange rate during
the period. Gains or losses resulting from such translation are included as a
separate component of stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in miscellaneous income (expense).
For the fiscal years ended April 30, 1994, 1995 and 1996 foreign exchange
gains (losses) of $162,000, ($105,000) and $65,000, respectively, were
recorded by the Companies.
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to
concentrations of credit risk consist principally of accounts receivable with
customers. This risk, however, is limited due to the number of customers
comprising the Companies' customer base and their dispersion across the United
States, Scandinavia and the United Kingdom. The Companies' customers are
generally multi-national companies in the food and beverage, pharmaceutical,
consumer electronics, automotive parts and industrial sector industries. The
Companies perform ongoing credit evaluations of their customers and do not
require collateral. The Companies maintain allowances for potential credit
losses and such losses have been within management's expectations.
Cash and Cash Equivalents
The Companies consider all highly liquid, low risk debt instruments with
purchased maturity dates of three months or less from date of purchase to be
cash equivalents.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting years. Actual results could
differ from those estimates.
F-8
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Net Income Per Share
For the year ended April 30, 1996, pro forma net income per share was based
on the weighted average number of common and common stock equivalents
outstanding during the period, computed in accordance with the treasury stock
method. The pro forma weighted average number of common shares assumes the
conversion of all Convertible Preferred stock into Common Stock and the three-
for-one stock split upon the closing of the Company's initial public offering
using the if-converted method as of the beginning of the year. Historical net
income (loss) per share data has not been presented as such information is not
considered to be relevant or meaningful.
Cash Flow Information
Cash flows in foreign currencies have been converted to U.S. dollars at an
approximate weighted average exchange rate or the exchange rates in effect at
the time of the cash flows, where determinable.
Fair Value of Financial Instruments
During 1994, the Financial Accounting Standards Board issued SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments". This statement
requires the disclosure of estimated fair values for all financial instruments
for which it is practicable to estimate fair value. Financial instruments
including cash and cash equivalents, receivables and payables, deferred
revenue, and current portions of long-term debt are deemed to approximate fair
value due to their short maturity. The carrying amount of long-term debt with
banks and capitalized lease obligations are also deemed to approximate their
fair values.
Income taxes
Effective May 1, 1991, the Companies adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under
SFAS 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by applying enacted
statutory tax rates that are applicable to the future years in which deferred
tax assets or liabilities are expected to be settled or realized, to the
differences between the financial statement carrying amount and the tax bases
of existing assets and liabilities. Under SFAS 109, the effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net income
in the period in which the tax rate change is enacted. The statement also
requires a valuation allowance against net deferred tax assets if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax assets may not be realized.
Effect of Recent Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Companies will
adopt SFAS 121 in the first quarter of the fiscal year ending April 30, 1997,
and based on current circumstances, do not believe the effect of adoption will
be material.
In October 1995, the Financial Accounting Standard Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 is effective for
fiscal years beginning on or after December 15,
F-9
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1995. SFAS No. 123 requires that the compensation cost of issuing stock
options be measured at fair value using an option-pricing model. The Companies
can either recognize the compensation cost in the consolidated financial
statements or, if the recognition option is not chosen, disclose the proforma
effects in the notes to the consolidated financial statements. The Companies
plan to adopt the disclosure option in the fiscal year ending April 30, 1997.
Therefore, SFAS No. 123 will have no effect on the Companies' net earnings,
stockholders' equity or cash flows.
3. ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table provides a summary of the activity in the accounts
receivable allowance for doubtful accounts for the years ended April 30, 1995
and 1996:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period.................... $ 29 $ 205
Charged to expense................................ 210 265
Deductions........................................ (34) (149)
---------- ----------
Balance at end of period.......................... $ 205 $ 321
========== ==========
</TABLE>
4. PREPAID EXPENSES
<TABLE>
<CAPTION>
APRIL 30,
---------------
1995 1996
---------------
(IN THOUSANDS)
<S> <C> <C>
Prepaid rent............................................. $ 260 $ 251
Prepaid leasing costs.................................... 206 205
Prepaid insurance costs.................................. 133 108
Other.................................................... 374 596
------ --------
$ 973 $ 1,160
====== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost, less accumulated depreciation.
Property and equipment consists of:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment...................................... $ 2,285 $ 2,877
Furniture and fixtures.................................. 768 1,272
Automobiles............................................. 334 571
------- -------
3,387 4,720
Less: accumulated depreciation and amortization......... (1,724) (2,847)
------- -------
$ 1,663 $ 1,873
======= =======
</TABLE>
F-10
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in property and equipment are assets leased under capital lease
obligations as follows:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment...................................... $ -- $ 250
Furniture and fixtures.................................. 111 312
Automobiles............................................. 249 510
------ --------
360 1,072
Less accumulated amortization........................... (42) (255)
------ --------
$ 318 $ 817
====== ========
</TABLE>
The amortization expense on capital leases amounted to $42,000 and $214,000
for the years ended April 30, 1995 and 1996, respectively.
6. INCOME TAXES
Income (loss) from continuing operations before income taxes was distributed
geographically as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------
1994 1995 1996
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.......................................... $ 72 $(1,583) $ 87
Foreign........................................... (5,551) (5,500) 555
------- ------- -----
Total........................................... $(5,479) $(7,083) $ 642
======= ======= =====
Components of the provision (benefit) for income taxes are as follows:
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------
1994 1995 1996
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal........................................... $ -- $ -- $ --
State............................................. 15 5 5
Foreign........................................... 25 33 100
------- ------- -----
Total current provision......................... 40 38 105
------- ------- -----
DEFERRED:
Federal........................................... $ -- $ (10) $ 58
State............................................. -- -- 2
Foreign........................................... -- (969) (946)
------- ------- -----
Total deferred provision (benefit).............. -- (979) (886)
------- ------- -----
Total provision (benefit) for income taxes..... $ 40 $ (941) $(781)
======= ======= =====
</TABLE>
F-11
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The approximate tax effects of temporary differences which give rise to net
deferred taxes are:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred income taxes, noncurrent asset
Net operating loss carryforwards........................ $ 3,207 $ 5,260
Capitalization of product development costs............. 2,292 --
Alternative Minimum Tax Credits......................... 153 --
Depreciation............................................ (27) --
Deferred revenue........................................ (724) --
Other................................................... (12) (290)
------- -------
Total deferred income taxes, noncurrent asset........... 4,889 4,970
Valuation allowance..................................... (3,911) (2,982)
------- -------
Total net deferred income taxes, noncurrent asset....... 978 1,988
------- -------
Deferred income taxes, long-term liability
Net operating loss carryforwards........................ -- 43
Alternative Minimum Tax Credits......................... -- 153
Depreciation............................................ -- (32)
Deferred revenue........................................ -- (213)
------- -------
Total deferred income taxes, long-term liability........ -- (49)
------- -------
Total net deferred tax asset............................ $ 978 $ 1,939
======= =======
</TABLE>
A reconciliation of the provision (benefit) for income taxes to the amount
computed by applying the statutory rates is as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------
1994 1995 1996
------------ ------------ ------------
$ % $ % $ %
------- --- ------- --- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Statutory rate................. $(1,918) 35% $(2,479) 35% $ 224 35%
Benefit of utilization of net
operating loss and tax credit
carryforwards................. -- -- -- -- (542) (85)
Valuation of temporary
differences................... 1,544 (28) 1,104 (16) (1,176) (183)
Deferred revenues.............. (62) 1 (267) 4 620 96
Foreign taxes.................. 389 (7) 376 (5) (33) (5)
Other.......................... 87 (1) 325 (5) 126 20
------- --- ------- --- ------ ----
Effective tax rate............. $ 40 0 % $ (941) 13% $ (781) (122)%
======= === ======= === ====== ====
</TABLE>
As of April 30, 1996, the Companies had net operating loss carryforwards of
approximately $18,912,000 available to offset future taxable income of which
$18,786,000 is related to net operating loss carryforwards in IMAB. Net
operating loss carryforwards available to offset alternative minimum taxable
income do not differ significantly from those available to offset regular
taxable income. The majority of these carryforwards are available for an
indefinite period.
F-12
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred tax asset was reduced by a valuation allowance of $2,585,000 as
of April 30, 1994. The valuation allowance increased to $3,911,000 as of April
30, 1995. During the fiscal year ended April 30, 1996, the Companies, based on
their operating results and the strong market acceptance of the System ESS
product, reduced its valuation allowance by $1,001,000 to $2,910,000. This
change in judgment regarding the realizability of certain net operating losses
has been reflected in the benefit for income taxes for the year ended April 30,
1996. Realization of the residual tax asset of $1,939,000 as of April 30, 1996
is dependent on generating sufficient taxable income and corresponding taxes in
the future to offset the net operating loss carryforwards. Although realization
is not assured, management believes that it is more likely than not that all of
the deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
The Companies have not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
APRIL 30,
---------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued purchases........................................ $ 1,418 $ 1,731
Accrued royalty.......................................... -- 1,372
Accrual for loss contract................................ 556 237
Accruals for contract expenses........................... 916 153
Value-added tax.......................................... 303 131
Other.................................................... 14 153
------- -------
$ 3,207 $ 3,777
======= =======
</TABLE>
8. ACCRUED PAYROLL AND EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
APRIL 30,
---------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued commissions...................................... $ 275 $ 776
Accrued payroll taxes.................................... 913 960
Accrued vacation pay..................................... 685 750
Accrued salaries and bonus............................... 738 879
------- -------
$ 2,611 $ 3,365
======= =======
</TABLE>
9. EMPLOYEE BENEFIT PLANS
The Companies provide retirement benefits for substantially all employees in
the United States and in foreign locations. In the U.S. and the U.K., the
Companies sponsor defined contribution plans. In addition, IMAB has a
supplemental defined contribution plan for certain key management.
F-13
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Companies' Swedish subsidiary, IMAB, participates in several pension
plans (non-contributory for employees), which cover substantially all
employees of its Swedish operations. The plans are administered by a national
organization, Pensionsregistreringsinstitutet ("PRI"), in which most companies
in Sweden participate. The level of benefits and actuarial assumptions are
established by the national organization and, accordingly, IMAB may not change
benefit levels or actuarial assumptions. The Company accounts for pensions in
accordance with SFAS No. 87, "Employers' Accounting for Pensions" using the
projected unit credit cost method.
The net pension periodic cost related to continuing operations is comprised
of the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 97 $ 106 $ 164
Interest cost..................................... 54 72 85
Amortization of actuarial net loss or gain........ (7) (3) (9)
Amortization of transition obligation............. 3 3 3
------ ------ ------
Net periodic pension cost......................... $ 147 $ 178 $ 243
====== ====== ======
</TABLE>
The following table shows the plans funded status and amounts recognized in
the consolidated balance sheet:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation............................... $ 824 $ 1,316
Additional benefits due to salary increases............. 142 673
------- -------
Projected benefit obligation ("PBO").................... 966 1,989
Fair value of plan assets............................... -- --
------- -------
Unfunded PBO............................................ 966 1,989
Unrecognized actuarial (gain) or loss................... 227 (481)
Unrecognized transition obligation...................... (28) (26)
------- -------
Accrued pension liability............................... $ 1,165 $ 1,482
======= =======
</TABLE>
The actuarial assumptions used in computing the pension amounts above were:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Discount rate................................. 9.0% 8.5% 8.0%
Salary increase............................... 5.5% 5.0% 5.0%
Inflation..................................... 5.0% 4.0% 4.0%
</TABLE>
Defined Contribution Plans
Contributions by the Companies relating to their defined contribution plans
for the years ended April 30, 1994, 1995 and 1996 were $139,000, $149,000 and
$208,000 respectively.
F-14
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DEBT AND SHORT-TERM BORROWINGS
A summary of the Companies' debt facilities is as follows:
<TABLE>
<CAPTION>
APRIL 30,
---------------
1995 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Revolving Lines of Credit (see below)......................... $ 1,928 $7,327
Bank loan due November 30,1995, Swedish Prime Rate plus 1%
(9.5% at April 30, 1995)..................................... 5,536 --
Obligations under capital leases, imputed interest rates of
11%-14% and 13.2%-20.8% in 1995 and 1996, respectively, terms
vary from 36 to 60 months, collateralized by the underlying
assets....................................................... 347 875
Finance company loan due September 1996, Swedish Market "K1"
plus 2.5% (11.61% and 8.81% at April 30, 1995 and 1996,
respectively), unsecured..................................... 277 97
Other financing, at various rates with varying scheduled
maturities in 1996........................................... 49 --
------- ------
Total Debt and Short-Term Borrowings.......................... 8,137 8,299
Less Current Portion of Debt and Short-Term Borrowings........ (1,412) (349)
------- ------
Long-Term Debt................................................ $ 6,725 $7,950
======= ======
</TABLE>
The Companies have various Revolving Credit Agreements in effect with one
bank in both the United States and Sweden with available borrowings
aggregating $3,976,000 and $9,900,000 as of April 30, 1995 and 1996,
respectively. During the fiscal year ended April 30, 1996, the Company
converted its bank loan due November 30, 1995 into two additional lines of
credit facilities bearing U.S. and British currencies. Although the
outstanding balances on such facilities are renewable annually and are payable
on demand, the Companies have the ability and intent to refinance the debt
from the proceeds of the issuance of the Company's common stock or other long-
term financing. Therefore, such amounts have been reclassified as long-term
debt in the consolidated balance sheets as of April 30, 1995 and 1996. The
unused lines totalled $2,048,000 and $2,562,000 at April 30, 1995 and 1996,
respectively.
Approximately $5,893,000 of the Company's assets in Sweden have been pledged
as collateral. The Companies pay a floating charge of .5% on the SEK Line of
Credit Facilities. The Swedish credit agreements contain a financial covenant
requiring that the debt to equity ratio of IMAB shall not exceed 25%.
The following provides a summary of the terms and balances outstanding
relating to the Companies' revolving lines of credit:
<TABLE>
<CAPTION>
APRIL 30,
---------------
DESCRIPTION 1995 1996
----------- ------- -------
(IN THOUSANDS)
<S> <C> <C>
SEK 15,000,000 Facility renewable November 28, 1996 and
SEK 6,500,000 Facility due September 8, 1996, Swedish Prime
Rate plus 1% (weighted average interest rate of 7.69% and
7.88% at April 30, 1995 and 1996, respectively)............... $ 1,328 $ 3,003
US $2,700,000 Facility renewable June 27, 1996, U.S. Prime Rate
plus 1.75% (weighted average interest rate of 7.30% at April
30, 1996)..................................................... -- 319
GB(Pounds) 2,000,000 Facility renewable December 8, 1996,
British Prime Rate plus 1.75% (weighted average interest rate
of 7.88% at April 30, 1996)................................... -- 3,005
US $1,000,000 Facility renewable May 31, 1997, U.S. Prime Rate
plus .25% (weighted average interest rate of 8.87% and 8.27%
at April 30, 1995 and 1996, respectively)..................... 600 1,000
------- -------
Total Revolving Lines of Credit.............................. $ 1,928 $ 7,327
======= =======
</TABLE>
F-15
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCKHOLDERS' EQUITY
The Company's Restated Certificate of Incorporation as currently in effect
authorize 30,000,000 shares at par value of $0.01 of which 15,000,000 shares
are designated Convertible Preferred Stock ("Preferred Stock"), 35,000,000
shares are designated Common Stock and 12,500,000 shares are designated Class
B Common Stock. Holders of Common Stock and Convertible Preferred Stock are
entitled to one vote for each share held. Holders of Class B Common Stock have
no voting rights. All classes of stock are entitled to receive dividends in
the same amount per share.
Holders of Convertible Preferred Stock have the right, at any time upon
written notice to the Company, to elect to convert each share of Convertible
Preferred Stock held by them into one share of Class A Common Stock. Such
conversion will take place automatically on the date of a completed public
offering of the Class A or Class B Common Stock. Upon any (a) liquidation,
dissolution or winding up of the Company or (b) transaction in which any party
acquires a controlling portion of the voting stock of the Company or
substantially all of the assets of the Company, the holders of Convertible
Preferred Stock are entitled, prior to any distribution to holders of Common
Stock, to a payment per share of Convertible Preferred Stock equal to its pro
rata portion of such distribution, but not less than $4.50 plus a 7% accrual
compounding annually, up to October 1, 1996. (See Notes 18 and 19)
Total stockholders' equity includes an amount of SEK 40,800,000
(approximately U.S. $6,000,000) in IMAB which is restricted as to usage
according to Swedish Company Law. The amount can only be used to cover a net
deficit, for an increase in share capital, or for other uses as agreed by the
courts.
12. STOCK OPTION PLAN AND RESTRICTED STOCK PROGRAM
Stock Option Plan
In May 1995, the Company adopted the Industri-Matematik International Corp.
Stock Option plan (the "U.S. plan"). The U.S. plan provides for grants of
incentive stock options to key employees (including officers and employee
directors) of the Companies and non-incentive stock options to members of the
Company's Board of Directors, consultants and other advisors of the Company
who are not employees. The maximum term for either form of option is ten
years.
Total options of 939,975 were granted under this plan in the fiscal year
ended April 30, 1996 each with an exercise price of $2 which was equal to the
fair value on the date of grant. Accordingly, no compensation expense was
recorded. None of these options were exercised or forfeited in the fiscal year
ended April 30, 1996. As of April 30, 1996, a total of 2,060,025 shares of
Common Stock were reserved for future issuance under the stock option plan.
Restricted Stock Program
In May 1995, the Company instituted a restricted stock program whereby
shares of the Company's Common Stock were purchased by certain key employees
of the Company's operating subsidiary in Sweden in exchange for nonrecourse
promissory notes. The shares were issued through a wholly owned subsidiary of
the Company, Software Finance Corporation ("SFC"). Principal on the promissory
notes is due either nine or ten years after issuance with interest being due
and payable annually, generally at the beginning of each fiscal year.
Under the Restricted Stock Program the total number of shares issued were
1,256,985 at a weighted average price of $2.09 per share for total proceeds of
$2,626,000.
Under the terms of the restricted stock program, SFC has an option to
repurchase the shares issued to each employee provided it pays the annual
option price. The exercise price to be paid by SFC upon
F-16
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exercise of a purchase option shall be the fair market value, provided that if
the option to purchase is exercised prior to the end of a stated period, then
the exercise price shall be the initial purchase price for a percentage of the
shares after the first anniversary of the option agreement, generally
decreasing by 20% each subsequent year, such that the exercise price is the
fair market value.
SFC pays an annual option premium to the restricted stock shareholders at a
rate substantially equal to the interest due on the non-recourse promissory
note. Accordingly, no amounts have been reflected in the consolidated statement
of operations relating to the interest on the promissory note and the
offsetting option premium. The restricted stock shares are included within
Common Stock and additional paid-in capital in Stockholders' equity while the
non-recourse promissory notes are classified as a contra-account as notes
receivable from Stockholders, also in Stockholders' equity.
SFC has the right and obligation to apply against the payment of any
principal due on the promissory note any amounts payable by SFC to the
recipient of the Shares as the exercise price under the Option Agreement. The
Company has the ability and intent to prevent the recipients from selling the
purchased securities. Accordingly, the Company has not recognized any
compensation expense in respect of the restricted stock in the statements of
operations. The restricted stock shares issued under this program and dividends
paid are subject to a pledge and security interest held by SFC.
13. COMMITMENTS AND CONTINGENCIES
Operating leases
The Companies lease office facilities and certain office equipment under
various noncancelable operating lease agreements.
Aggregate future minimum lease payments under noncancelable operating leases
are as follows as of April 30, 1996:
<TABLE>
<CAPTION>
FUTURE MINIMUM PAYMENTS
FISCAL YEAR ENDING APRIL 30, ON OPERATING LEASES
---------------------------- -----------------------
(IN THOUSANDS)
<S> <C>
1997................................................ $1,762
1998................................................ 1,341
1999................................................ 909
2000................................................ 574
2001................................................ 440
Thereafter.......................................... 0
------
Total future minimum lease payments................. $5,026
======
</TABLE>
Total rent expense under the leases was $303,000, $1,455,000 and $973,000 for
the years ended April 30, 1994, 1995, and 1996, respectively.
Litigation
From time to time disputes have arisen with certain of the Company's
customers regarding the implementation of the Company's software products.
There is currently one dispute that is unresolved and for which a formal
complaint has been filed. The Company believes that the allegations of this
customer have no merit and plans to vigorously defend the action. While the
outcome of this matter cannot be
F-17
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
determined with certainty, the Company does not believe that the resolution of
this claim will have a material adverse effect on the Company's business,
operating results, liquidity or financial condition. The Company is not a
party to any other litigation that would have a material adverse effect on the
Company's business, operating results, liquidity or financial condition.
14. RELATIONSHIP WITH ORACLE
The Companies have an informal joint marketing and sales arrangement with
Oracle Corporation ("Oracle") pursuant to which the two companies jointly
market to potential customers in the consumer packaged goods market. Pursuant
to this arrangement, the Companies pay to Oracle a percentage of the Company's
license revenue from customers in the consumer packaged goods market to whom
licenses are jointly marketed by Oracle and the Companies. For the fiscal year
ended April 30, 1996, 58% of the Companies' license revenue and 24% of the
Companies' total revenue were derived from six customers introduced to the
Companies by Oracle pursuant to this arrangement. The Companies paid Oracle
approximately $1,500,000 in royalties for the fiscal year ended April 30,1996.
15. RELATED PARTY TRANSACTIONS
During the fiscal years ended April 30, 1994 and 1995, the Company issued
two promissory notes to the Companys' majority stockholder of $2.0 and $2.5
million, respectively. Such notes, together with accrued interest thereon were
converted into shares of the Company's Convertible Preferred Stock within the
same fiscal years as originally issued.
16. GEOGRAPHIC INFORMATION
The Companies' operations are located primarily in the United States,
Scandinavia and the United Kingdom. The following table sets forth the
geographic information relating to revenues by customer location and income
(loss) from operations and identifiable assets by operating subsidiary
location. For purposes of this presentation, Scandinavia is considered to
include Sweden, Norway, Denmark and Finland.
<TABLE>
<CAPTION>
INTER-
YEAR ENDED APRIL UNITED UNITED DISCONTINUED COMPANY TOTAL
30, STATES SCANDINAVIA KINGDOM OPERATIONS AND OTHER CONSOLIDATED
------------------- ------- ----------- ------- ------------ --------- ------------
REVENUES (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996 $18,035 $16,765 $5,209 -- $ -- $40,009
======= ======= ====== ======= =======
1995 $ 8,550 $19,194 $ -- -- $ -- $27,744
======= ======= ====== ======= =======
1994 $ 4,122 $14,439 $ 226 -- $ (7) $18,780
======= ======= ====== ======= =======
YEAR ENDED APRIL
30,
-------------------
INCOME (LOSS) FROM
OPERATIONS
1996 $ 214 $ 2,033 $ (862) -- $ -- $ 1,385
======= ======= ====== ======= =======
1995 $(1,348) $(4,545) $ (132) -- $ -- $(6,025)
======= ======= ====== ======= =======
1994 $ 135 $(5,198) $ -- -- $ -- $(5,063)
======= ======= ====== ======= =======
APRIL 30,
- ---------------------
IDENTIFIABLE ASSETS
1996 $11,420 $13,209 $2,725 $1,111 $(7,141) $21,324
======= ======= ====== ====== ======= =======
1995 $ 5,901 $12,280 $2,206 $ 725 $(5,604) $15,508
======= ======= ====== ====== ======= =======
</TABLE>
F-18
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Major customers
For the year ended April 30, 1994, the Companies recorded revenues from two
customers which comprised 27% and 11% of total revenues, respectively. For the
year ended April 30, 1995, the Companies recorded revenues from two customers
which comprised 13% and 12% of total revenues, respectively. For the year
ended April 30, 1996, the Companies had no single customers with sales
comprising more than 10% of total revenues.
17. DISCONTINUED OPERATIONS
As discussed in Note 2, during fiscal 1996 the Company adopted plans for the
sale of its 55% owned subsidiary, Pargon AB, which operates in two segments
constituting the production and sale of microprocessor compilers and
consultancy services for relational data base management systems ("RDBMS").
The Microprocessor compiler segment include the development and supply through
direct sale of compilers for microprocessors used by manufacturers of domestic
appliances and cellular communications equipment. The RDBMS consultancy
segment relates to the supply of RDBMS consultancy services to public sector
institutions in Sweden.
These business segments are accounted for as discontinued operations in
accordance with APB No. 30 and therefore, their operations have been
separately presented in the consolidated financial statements. Revenues, cost
of revenues, operating expenses, other income and expense and provisions for
income taxes for the fiscal year 1994, 1995 and 1996 have been reclassified
for amounts associated with the discontinued operations.
Summary operating results associated with the discontinued operations of
Pargon AB for the years ended April 30, 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues............................................ $4,855 $6,080 $8,149
====== ====== ======
Gross profit........................................ $2,192 $2,578 $3,826
====== ====== ======
Operating expenses.................................. $2,133 $2,693 $2,928
====== ====== ======
Minority interest................................... $ 136 $ 63 $ 275
====== ====== ======
Income (loss) from discontinued operations before
income taxes....................................... $ (42) $ (168) $ 590
Provision for income taxes.......................... 109 78 263
------ ------ ------
Income (loss) from discontinued operations after
provision for income taxes......................... $ (151) $ (246) $ 327
====== ====== ======
</TABLE>
F-19
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net assets of the discontinued operations excluding intercompany
balances as of April 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30,
-------------
1995 1996
------ ------
<S> <C> <C>
Current assets............................................... $2,065 $2,899
Property and equipment....................................... 382 460
Other assets................................................. 18 14
------ ------
Total assets............................................... 2,465 3,373
------ ------
Current liabilities.......................................... 1,001 1,212
Other noncurrent liabilities................................. 84 152
Minority interest............................................ 655 898
------ ------
Total liabilities and minority interest.................... 1,740 2,262
------ ------
Net assets................................................. $ 725 $1,111
====== ======
</TABLE>
It is not yet possible to estimate the prospective gain or loss on the
disposition of the discontinued operations, however the Company does not
expect that such disposition will have a material effect on the Company's
financial condition and results of operations. Income from discontinued
operations for the period between the measurement date and April 30, 1996 was
approximately $379,000.
18. SUBSEQUENT EVENT
In May 1996, the Company's Board of Directors approved a three-for-one stock
split of its issued and outstanding Common Stock, Class B Common Stock and
Convertible Preferred Stock. The par value of the Company's Common Stock,
Class B Common Stock and Convertible Preferred Stock remains unchanged. All
per share, weighted average shares outstanding and option data presented in
the consolidated financial statements have been retroactively adjusted to
reflect the effects of the split unless otherwise indicated.
19. PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Upon the effective date of the Company's initial public offering, all of the
Company's Convertible Preferred Stock will be converted to Common Stock and
Class B Common Stock at a rate of 20% and 80%, respectively. The pro forma
stockholders' equity reflects such conversion of the convertible preferred
stock.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 16
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Exchange Rates............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 31
Management................................................................ 44
Certain Transactions...................................................... 48
Principal and Selling Stockholders........................................ 49
Description of Capital Stock.............................................. 50
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 53
Legal Matters............................................................. 54
Experts................................................................... 54
Additional Information.................................................... 54
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN ITS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 Shares
[LOGO OF INDUSTRI-MATEMATIK APPEARS HERE]
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
UBS Securities
SoundView Financial Group, Inc.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses of this offering
(other than the underwriting discounts and commissions);
<TABLE>
<S> <C>
SEC Registration Fee................................................ $ 20,621
NASD Filing Fee..................................................... 6,480
Blue Sky Fees and Expenses.......................................... 15,000
Accounting Fees and Expenses........................................ 400,000
Legal Fees and Expenses............................................. 450,000
Printing and Engraving Expenses..................................... 150,000
Premium for Directors and Officers Insurance........................ 250,000
Transfer Agent and Registrar Fees and Expenses...................... 5,000
Fee for Custodian for Selling Stockholders.......................... 5,000
Miscellaneous....................................................... 47,899
----------
Total........................................................... $1,350,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 145 of the Delaware General Corporation Law, as amended, (the
"DGCL") gives Delaware corporations the power to indemnify each of their
present and former officers or directors under the certain circumstances, if
such person acted in good faith and in a manner which he reasonably believed
to be in, or not opposed to, the best interest of the corporation.
(b) The Amended and Restated Certificate of Incorporation of the Registrant
contains provisions that eliminate the personal liability of each director to
the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for breaches of such director's duty
of loyalty to the Registrant or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (ii) under Section 174 of the DGCL or (iv) for any
transaction from which such director derived an improper personal benefit.
(c) The Amended and Restated Certificate of Incorporation of Registrant
contains provisions to the general effect that each director and officer shall
be indemnified by the Registrant against liabilities and expenses in
connection with any threatened, pending or contemplated legal proceeding to
which he may be made a party or with which he may become involved by reason of
being or having been an officer or director of the Registrant or of any other
organization at the request of the Registrant. Indemnification is available
only if it is determined to be proper by the majority of disinterested
directors constituting a quorum, by the stockholders, or by independent legal
counsel in a written opinion. In order to be entitled to indemnification, the
indemnified person must have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Registrant, and,
with respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. In the case of an action by or in the right
of the Registrant, indemnification is precluded if such person has been
adjudged to be liable, unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which the action was brought
shall determine that indemnification is proper. The Registrant also has the
power to obtain insurance indemnifying officers and directors of the
Registrant against any liability which it may deem proper, whether or not the
Registrant would otherwise have the power to indemnify such officer or
director pursuant to its Amended and Restated Certificate of Incorporation.
II-1
<PAGE>
The proposed Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement contains representations and warranties by the Registrant as to the
accuracy of the Registration Statement and the Prospectus and provides for
indemnification of the Registrant and its directors and officers and the
Selling Stockholders by the Underwriters and indemnification of the
Underwriters and their controlling persons by the Registrant and the Selling
Stockholders.
The Registrant maintains, on behalf of its directors and officers, insurance
protection against certain liabilities arising out of the discharge of their
duties and also insurance covering the Registrant against indemnification
payments to its directors and officers for certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock issued and the number of options granted, by the
Registrant since its formation in May 1995. Further included is the
consideration, if any, received by the Registrant for such shares and options,
and information relating to the section of the Securities Act of 1933, as
amended (the "Securities Act"), or rule of the Securities and Exchange
Commission under which exemption from registration was claimed. All awards of
option did not involve any sale under the Securities Act and none of these
securities was registered under the Securities Act.
In connection with the incorporation of the Registrant, on May 1, 1995, all
of the then outstanding shares in IMAB were exchanged for shares of the
Company's capital stock (the "Exchange"). No cash consideration was paid to or
by the Company in connection with the Exchange.
In October 1995, an aggregate of 612,468 shares of the Company's capital
stock were purchased by two shareholders at a price of $2 per share.
At various times during 1995 and 1996, certain employees of the Company
(including certain of its executive officers) purchased the following shares
of the Company's Common Stock under the Company's Restricted Stock Program:
(i) during 1995 certain employees purchased an aggregate of 1,116,990 shares
of Common Stock at a purchase price of $2 per share, (ii) on January 2, 1996
Stig G. Durlow purchased 90,000 shares of Common Stock for $2.50 per share,
and (iii) on April 1, 1996, Per-Olof Ekholtz purchased 49,995 shares of Common
Stock for $3.33 per share.
No underwriters were engaged in connection with any of the foregoing sales
of securities. The shares of capital stock and securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D,
Regulation S or Rule 701 promulgated under the Securities Act, relative to
sales by an issuer not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Registrant, as
currently in effect
*3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant, to be filed upon closing of the offering
3.3 By-Laws of the Registrant, as currently in effect
*3.4 Form of Restated By-Laws of the Registrant, to be effective
upon closing of the offering
*4.1 Specimen certificate representing the Common Stock
*5.1 Opinion of Brobeck Hale and Dorr International
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
*10.1 Form of Registration and Expense Agreement
*10.2 Form of Registration Rights Agreement
*10.3 Industri-Matematik International Corp. Stock Option Plan
*10.4 Form of Agreements of Restricted Stock Program
*10.5 Employment Agreement between Stig G. Durlow and IMAB
(Certified with English transaction)
*10.6 Employment Agreement between Lars-Goran Peterson and IMAB
(Certified with English translation)
*10.7 Lease dated April 28, 1993 between Lansforsakringsbolagens
AB and Industri-Matematik AB and Amendment dated December 9,
1994 (Certified with English translation)
*10.8 Lease dated August 24, 1992 between Diosfastigheter AB and
Industri-Matematik AB (Certified with English translation)
11 Statement re Computation of Per Share Earnings
22.1 List of Registrant's subsidiaries
24.1 Consent of Coopers and Lybrand
*24.2 Consent of Brobeck Hale and Dorr International (included in
Exhibit 5.1)
25.1 Power of Attorney (See page II-4)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
Inapplicable
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes that:
(1) For the purposes of determining any liabilities under the Securities
Act of 1933 (the "Act"), the information omitted from the form of
prospectus filed as a part of this Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 14, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defence of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THE 6TH DAY OF JUNE, 1996.
Industri-Matematik International
Corp.
By: /s/ Stig G. Durlow
---------------------------------
STIG G. DURLOW
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS MARTIN
LEIMDORFER, STIG G. DURLOW AND JEFFREY A. HARRIS HIS TRUE AND LAWFUL ATTORNEY-
IN-FACT AND AGENT, EACH ACTING ALONE, WITH FULL POWER OF SUBSTITUTION AND RE-
SUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD IN ANY AND ALL CAPACI-
TIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO
THE REGISTRATION STATEMENT ON FORM S-1, AND TO ANY REGISTRATION STATEMENT
FILED UNDER SECURITY AND EXCHANGE COMMISSION RULE 462, AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO, AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND
AGENT, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE OR SHE MIGHT OR COULD DO IN PERSON, HEREBY RATIFY-
ING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT AND AGENT, OR HIS SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRA-
TION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACI-
TIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Stig G. Durlow Chairman of the
- ------------------------------------- Board of Directors,
STIG G. DURLOW President and Chief
Executive Officer
(Principal
Executive Officer)
/s/ Lars-Goran Peterson Vice President,
- ------------------------------------- Chief Financial
LARS-GORAN PETERSON Officer and
Secretary
(Principal
Financial and
Accounting Officer)
/s/ Martin Leimdorfer Director June 6, 1996
- -------------------------------------
MARTIN LEIMDORFER
/s/ Geoffrey W. Squire Director
- -------------------------------------
GEOFFREY W. SQUIRE
/s/ William H. Janeway Director
- -------------------------------------
WILLIAM H. JANEWAY
/s/ Jeffrey A. Harris Director
- -------------------------------------
JEFFREY A. HARRIS
II-4
<PAGE>
GRAPHICS ON PAGES TX]2 & 34
Description of Graphic: Graphic entitled "System ESS" with a sub-heading of
- ----------------------
"Demand Chain Management" depicts a cluster of seven hexagons in a "honeycomb"
configuration. Six of the hexagons are situated around a center hexagon
which contains an eighth, centered and internal hexagon. The internal hexagon
contains the word "CUSTOMER". The word "ELECTRONIC" appears above the internal
hexagon and the word "COMMERCE" appears below the internal hexagon. Within each
of the six outside hexagons are the words, in clock-wise order, "Order
Management," "Customer & Product Management," "Logistics Management," "Demand
Replenishment," "Global Organization Management," and "Price & Promotion
Management." Encircling and orbiting the cluster are six spheres, two of each
are labeled "Execution," "Planning" and "Decision Support," respectively,
linking the hexagons.
<PAGE>
GRAPHICS ON PAGE TX]31
Description of Graphic: Graphic entitled "Managing The Virtual Enterprise." The
- ----------------------
graphic depicts the following six images in a horizontal line: a supplier
(depicted as an industrial factory); a manufacturer (depicted as a small
factory); a distributor (depicted as a man driving a forklift); a wholesaler
----------------------
(depicted as a warehouse); a retailer (depicted as a store-front window); and a
consumer (depicted as a shopping cart). Circling this line of images are two
arrows: the first arrow commences from the top of the images and, in a counter-
clockwise direction, points from the language above the images that states
"Timely/Accurate Information Flow" and "Planning/Execution Processes" to
language below the images that states "Smooth Continual Product Flow" and
"Matched to Consumption." The second arrow commences from the bottom of the
images and, in a counter-clockwise direction, points from the language below the
images to the language above the images.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIONAL
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the
Registrant, as currently in effect
*3.2 Form of Amended and Restated Certificate of
Incorporation of the Registrant, to be filed upon
closing of the offering
3.3 By-Laws of the Registrant, as currently in effect
*3.4 Form of Restated By-Laws of the Registrant, to be
effective upon closing of the offering
*4.1 Specimen certificate representing the Common Stock
*5.1 Opinion of Brobeck Hale and Dorr International
*10.1 Form of Registration and Expense Agreement
*10.2 Form of Registration Rights Agreement
*10.3 Industri-Matematik International Corp. Stock Option
Plan
*10.4 Form of Agreements of Restricted Stock Program
*10.5 Employment Agreement between Stig G. Durlow and
IMAB (Certified with English translation)
*10.6 Employment Agreement between Lars-Goran Peterson
and IMAB (Certified with English translation)
*10.7 Lease dated April 28, 1993 between
Lansforsakringsbolagens AB and Industri-Matematik
AB and Amendment dated December 9, 1994 (Certified
with English translation)
*10.8 Lease dated August 24, 1992 between Diosfastigheter
AB and Industri-Matematik AB (Certified with
English translation)
11 Statement re Computation of Per Share Earnings
22.1 List of Registrant's subsidiaries
24.1 Consent of Coopers and Lybrand
*24.2 Consent of Brobeck Hale and Dorr International
(included in Exhibit 5.1)
25.1 Power of Attorney (See page II-4)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
INDUSTRI-MATEMATIK INTERNATIONAL CORP., a Delaware corporation, hereby
certifies as follows:
The Certificate of Incorporation for INDUSTRI-MATEMATIK INTERNATIONAL
CORP. ("Corporation") was filed by the office of the Secretary of State of the
State of Delaware on April 17, 1995. The Certificate of Incorporation is hereby
amended pursuant to the provisions of Sections 242 and 245 of the General
Corporation Law of Delaware. All amendments to the Certificate of Incorporation
reflected herein have been duly authorized and adopted by the Corporation's
Board of Directors and stockholders in accordance with the provisions of
Sections 242 and 245.
This Amended and Restated Certificate of Incorporation restates and
amends the Certificate of Incorporation of the Corporation by:
A. Redesignating the existing Class A Common Stock of the Corporation
as Common Stock and authorizing additional capital stock, as set forth in
Paragraph 4 of the attached Restated Certificate of Incorporation of the
Corporation.
B. Adding a provision that powers, preferences, and privileges
relating to unissued series of Preferred Stock may be determined by the Board of
Directors of the Corporation, as set
<PAGE>
forth in Paragraph 5 of the attached Restated Certificate of Incorporation of
the Corporation.
C. Adding to the privileges of the shares of Class B Common Stock a
limited right to convert such shares to shares of Common Stock, as set forth in
Paragraph 6.G of the attached Restated Certificate of Incorporation of the
Corporation;
D. Changing the privileges of the shares of Convertible Preferred
Stock by changing its right to convert such shares into shares of Common Stock
into a right to convert such shares into shares of Common Stock and Class B
Common Stock, as set forth in Paragraph 6.F of the attached Restated Certificate
of Incorporation of the Corporation; and
E. Amending and adding to the right of the Corporation to indemnify
its directors, officers, employees, or agents under certain conditions, as set
forth in Paragraphs 7 and 8 of the attached Restated Certificate of
Incorporation of the Corporation.
The text of the Certificate of Incorporation is amended hereby to read
as herein set forth in full:
2
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
1. The name of the Corporation is INDUSTRI-MATEMATIK
INTERNATIONAL CORP.
2. The name and address of the Corporation's registered agent
and registered office in the State of Delaware is: Industri-Matematik
International Corp., Suite 748, One Commerce Center, Wilmington, New Castle
County, Delaware 19801.
3. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
4. The Corporation is authorized to issue two classes of capital
stock to be designated, respectively, Common Stock and Preferred Stock. The
total number of shares of Common Stock which the Corporation shall be authorized
to issue is 47,500,000, $.01 par value, of which 12,500,000 shares are hereby
designated Class B Common Stock. The total number of shares of Preferred Stock
which the Corporation shall be authorized to issue is 30,000,000 shares, $.01
par value, which may be issued from time to time in one or more series, of which
15,000,000 shares are hereby designated Convertible Preferred Stock.
3
<PAGE>
5. The Board of Directors of the Corporation is authorized to
determine that the Preferred Stock shall be issued in one or more series and to
determine or alter the powers, preferences, privileges, and relative
participating, optional, or special rights granted to, and the qualifications,
limitations, or restrictions imposed upon, any wholly unissued series of
Preferred Stock and, within the limitations or restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase of decrease (but not below the
number of shares of any series then outstanding) the number of shares of any
such series subsequent to the issuance of shares of that series, to determine
the designation of any series, and to fix the number of shares of any series,
provided that if the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status that they had prior to
the adoption of the resolution originally fixing the number of shares of such
series.
6. Unless otherwise determined by the Board of Directors of the
Corporation pursuant to the provisions of Paragraph 5 with regard to the
Preferred Stock, the designations, preferences, privileges, and voting powers of
the shares of each class of stock which the Corporation is authorized to issue,
and the restrictions or qualifications thereof, are as follows:
4
<PAGE>
6.A.1. The capital of the Corporation shall be equal to such amounts
which may be transferred thereto, from time to time, by resolution of the Board
of Directors.
6.A.2. The authorized shares of stock may be issued by the
Corporation from time to time for such consideration as may be fixed from time
to time by the Board of Directors, and any and all shares of stock so issued,
the consideration for which so fixed has been paid or delivered, shall be fully
paid stock and shall not be liable to any further call or assessment thereon,
and the holders of such shares shall not be liable for any further payments in
respect of such shares.
6.B. Each issued and outstanding share of stock shall be entitled to
share equally in any dividends declared by the Board of Directors.
6.C. Each issued and outstanding share of stock shall share equally
in the net profits or net losses of the Corporation.
6.D. The entire voting power for the election of directors and for
all other purposes shall be vested in the holders of the issued and outstanding
shares of Convertible Preferred Stock and Common Stock, who shall be entitled to
one vote for each share of Convertible Preferred Stock or Common Stock held by
them of record. The holders of the issued and outstanding shares of Class B
Common Stock shall have no voting
5
<PAGE>
outstanding shares of Class B Common Stock shall have no voting rights with
respect to such shares.
6.E. In the event of (a) any liquidation, dissolution, or winding up
of the affairs of the Corporation, whether voluntary or involuntary, or (b) any
transaction or series of transactions in which any person or entity or group of
affiliated persons or entities acquires after the filing date of this Restated
Certificate of Incorporation (i) a controlling portion of the voting stock of
the Corporation or (ii) all or substantially all of the assets of the
Corporation, the holders of the Convertible Preferred Stock shall be entitled
upon the occurrence of any such event, before any assets of the Corporation or
any payment for shares shall be distributed among or paid over to the holders of
the Common Stock and the Class B Common Stock, to a payment per share of
Convertible Preferred Stock equal to its pro-rata portion of such distribution,
but not less than $4.50 (subject to adjustment in the event the Corporation
declares a dividend payable in, or shall subdivide or combine, its Convertible
Preferred Stock after the filing date of this Restated Certificate of
Incorporation) plus a 7% accrual compounding annually, provided that as from
October 1, 1996, such accrual shall cease to compound further.
6.F. The holders of shares of Convertible Preferred Stock shall have
the right at any time upon written notice to the Corporation to elect to convert
each share of Convertible Preferred Stock held by them into two-tenths of a
6
<PAGE>
share of Common Stock and eight-tenths of a share of Class B Common Stock,
provided that each issued and outstanding share of Convertible Preferred Stock
shall convert automatically into two-tenths of a share of Common Stock and
eight-tenths of a share of Class B Common Stock on the date of a completed
public offering of shares of Common Stock. Upon conversion, fractional shares
shall be rounded to the next highest whole number.
6.G. Shares of Class B Common Stock shall convert automatically into
shares of Common Stock upon the transfer of any such shares by the original
holder thereof, or any any person or entity which directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such holder ("Affiliate"), to any person or entity other
than an Affiliate of the original holder thereof. In the event the Corporation
declares a dividend payable in, or shall subdivide or combine, its Common Stock,
the Board of Directors shall take such action by way of adjusting the conversion
ratio between the Common Stock and the Class B Common Stock as in its judgment
shall be necessary to preserve the rights of the Class B Common Stock
substantially proportionate to the rights existing prior to such event.
6.H. Except for the conversion rights of the holders of Convertible
Preferred Stock described in Paragraph 6.F and the conversion rights of the
holders of Class B Common Stock described in Paragraph 6.G, no shareholder of
the Corporation
7
<PAGE>
shall by reason of his holding shares of stock have any preemptive or
preferential right to purchase or subscribe to any share of stock of the
Corporation, now or hereafter to be authorized, or to any notes, debentures,
bonds, or other securities convertible into or carrying options or warrants to
purchase shares of stock now or hereafter to be authorized, other than such
rights, if any, as the Board of Directors in its discretion from time to time
may grant, at such price as the Board of Directors in its discretion may fix.
7. The personal liability of the directors of the Corporation to
the Corporation or its shareholders is hereby eliminated for monetary damages
for breach of fiduciary duty as a director, except (a) for breaches of such
director's duty of loyalty to the Corporation or its shareholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (c) under Section 174 of the General Corporation
Law of Delaware, or (d) for any transaction for which such director derived an
improper personal benefit.
8. The Corporation may indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to any action or
proceeding, whether criminal, civil, administrative, or investigative, by reason
of the fact that he or she is or was a director, officer, employee, or agent of
the
8
<PAGE>
Corporation or any direct of indirect subsidiary of the Corporation at any time
or serves or served at any other enterprise as a director, officer, employee, or
agent at the request of the Corporation or any direct or indirect subsidiary of
the Corporation at any time.
9
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by Stig Durlow, the President
of the Corporation, and attested by Lars-Goran Peterson, the Secretary of the
Corporation, each of whom affirms the truth of the statements herein set forth
under penalty of perjury, this 5th day of June, 1996.
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
By: /s/ Stig Durlow
-----------------------------------
Stig Durlow, President
ATTEST:
/s/ Lars-Goran Peterson
- -------------------------------
Lars-Goran Peterson, Secretary
10
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
OFFICES
-------
1. The principal office of the Corporation shall be within or without the
State of Delaware, as the Board of Directors from time to time may determine.
2. The Corporation shall have a registered office in the State of
Delaware.
3. The Corporation may have such other offices as the Board of Directors
from time to time may determine.
MEETINGS OF SHAREHOLDERS
------------------------
4. All meetings of the shareholders of the Corporation shall be held at
such place within or without the State of Delaware as the Board of Directors
shall select.
5. The annual meeting of the shareholders of the Corporation shall be held
at a date and time fixed by the Board of Directors, at which time the
shareholders shall elect Directors of the Corporation and transact such other
business as may properly come before the meeting.
6. Special meetings of the shareholders for any purpose or purposes,
unless otherwise prescribed by statute or by
<PAGE>
the Certificate of Incorporation, may be called by resolution of the Board of
Directors or by the Chairman of the Board or by the President. Business
transacted at all special meetings shall be confined to the purposes stated in
the notice of meeting and to any other subject which is not by law required to
be stated in the notice of meeting.
7. Written notice of every meeting of shareholders, stating the purpose or
purposes for which the meeting is called, and the time when and the place where
it is to be held, shall be served, either personally or by mail, upon each
shareholder of record entitled to vote at such meeting or who, by reason of any
action proposed at such meeting, would be entitled to have his, her, or its
stock appraised if such action were taken, not more than 60 nor less than 10
days before the meeting unless a different time period is prescribed by law. If
mailed, such notice shall be directed to a shareholder at the shareholder's
address as it shall appear on the books of the Corporation at the record date
determined in accordance with Paragraph 58 unless the shareholder shall have
filed with the Secretary of the Corporation a written request that notices
intended for such shareholder be mailed to some other address, in which case it
shall be mailed to the address designated in such request. Notice of all
meetings may be waived by any shareholder by written waiver or by personal
attendance at the meeting.
2
<PAGE>
8. The holders of a majority of the stock issued and outstanding and
entitled to vote at the meeting, present in person or represented by proxy,
shall be required for and shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation or by these By-laws.
9. If a quorum is not present at a meeting, the shareholders entitled to
vote at the meeting, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting any business may be transacted which might have been
transacted at the meeting originally called.
10. Where there is a quorum at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy and voting on the matter shall decide any question brought before such
meeting, unless the question is one upon which by express provision of any
applicable statute or of the Certificate of Incorporation or of these By-laws a
different vote is required, in which case such express provision shall govern
and control the decision on such question.
11. Each shareholder of record having the right to vote shall be entitled
at a meeting of the shareholders of the
3
<PAGE>
Corporation to one vote for each share of stock standing in the name of such
shareholder on the books of the Corporation, and such votes may be cast either
in person or by proxy.
12. Every proxy must be executed in writing by the shareholder or by the
shareholder's duly authorized attorney. No proxy shall be valid after the
expiration of 11 months from the date of its execution unless it shall have
specified therein a different duration.
DIRECTORS
---------
13. The business of the Corporation shall be managed under the direction
of its Board of Directors which may exercise all powers of the Corporation and
do all lawful acts and things as are not by statute, or by the Certificate of
Incorporation, or by these By-laws required to be exercised or done by the
shareholders.
14. The Board of Directors shall consist of three or more Directors of
full age, who need not be shareholders of the Corporation. The initial Board of
Directors shall consist of three directors, and the number of Directors may be
changed from time to time by action of the shareholders of the Corporation. At
each annual meeting of shareholders, Directors shall be elected for a term
expiring at the next annual meeting of shareholders or until their successors
are elected and qualify.
4
<PAGE>
15. If the office of any Director becomes vacant for any reason
including a vacancy resulting from an increase in the size of the Board, the
Directors in office may elect a Director to fill such vacancy until the next
annual meeting of shareholders. At each annual meeting of shareholders, the
shareholders shall elect Directors to fill any vacancy on the Board.
16. Any Director may be removed with or without cause, at any time,
by vote of the shareholders at any meeting called for that purpose except as
otherwise provided by the Certificate of Incorporation.
MEETINGS OF THE BOARD
---------------------
17. The Directors may hold their meetings at the principal office of
the Corporation, or at such other places, either within or without the State of
Delaware, as they from time to time may determine.
18. Regular meetings of the Board may be held without notice at such
time and place as shall from time to time be determined by resolution of the
Board.
19. Special meetings of the Board may be called by the Chairman of
the Board or by the President on notice of not less than five business days to
each Director either orally or in writing and shall be called by the Chairman of
the Board, President, or Secretary in a like manner on the written request
5
<PAGE>
of two Directors. Notice of a meeting may be waived by any Director by written
waiver, by personal attendance at the meeting, or by participation in the
meeting as provided in Paragraph 21.
20. At any meeting at which every member of the Board of Directors
shall be present, though held without notice, any business may be transacted
which might have been transacted if the meeting had been called with notice.
21. Meetings may be held by conference telephone call, or the like,
provided a written record is made of the action taken at such meeting.
22. At all meetings of the Board, including meetings held in
accordance with Paragraph 21, a majority of the entire number of Directors then
in office shall be required for and constitute a quorum for the transaction of
business.
23. Any act of a majority of the Directors present at a meeting at
which there is a quorum, including meetings held in accordance with Paragraph
21, shall be the act of the Board of Directors except as may be otherwise
specifically provided by the applicable statute, or by the Certificate of
Incorporation, or by these By-laws.
24. If a quorum is not present at any meeting of Directors,
including meetings held in accordance with Paragraph
6
<PAGE>
21, the Directors present may adjourn such meeting from time to time without
notice other than an announcement at the meeting, until a quorum shall be
present. At such adjourned meeting any business may be transacted which might
have been transacted at the meeting originally called.
COMMITTEES OF THE BOARD OF DIRECTORS
------------------------------------
25. The Board of Directors shall have the power to designate by
resolution one or more Committees of the Board of Directors. Subject to the
power of the Board of Directors to override, modify, nullify, or change the
action of any Committee, the actions of such Committee shall be the act of the
Board with respect to the authority granted such Committee. Each such Committee
shall consist of such number of Directors, not less than two, as the Board from
time to time may designate, and such Committee members shall serve at the
pleasure of the Board. One member of each Committee shall be designated by the
Board as Chairman of such Committee.
26. Regular meetings of any Committee may be held at such places and
at such times, and in such manner, including holding meetings by conference
telephone call, or the like, without notice, as such Committee or Board may
determine by resolution.
27. The Chairman of any Committee and any officer
7
<PAGE>
authorized to call a meeting of the Board of Directors may call a Special
Meeting of any Committee on three days notice.
28. At all meetings of any Committee, a majority of the Committee
members then in office shall be required for and constitute a quorum for the
transaction of business.
28. The acts of a majority of any Committee present at a meeting at
which there is a quorum shall be the act of such Committee except as may be
otherwise specifically provided by statute, by the Certificate of Incorporation,
or by these By-laws.
29. If a quorum is not present at any meeting of a Committee, the
members present may adjourn such meeting from time to time without notice other
than an announcement at the meeting, until a quorum shall be present. At such
adjourned meeting any business may be transacted which might have been
transacted at the meeting originally called.
WAIVER OF NOTICE
----------------
30. Whenever by statute, the provisions of the Certificate of
Incorporation, or these By-laws, the shareholders, the Board of Directors, or
any Committee of the Board of Directors are authorized to take any action after
notice, such notice may be waived in writing, before or after the holding of
the meeting, by the person or persons entitled to such notice,
8
<PAGE>
or, in the case of a shareholder, by such shareholder's attorney or proxy
thereunto authorized.
OFFICERS
--------
31. The officers of the Corporation shall be Chairman of the Board,
President, one or more Vice Presidents, Treasurer, and Secretary. An officer
shall be designated as the Chief Executive Officer and/or the Chief Operating
Officer of the Corporation. Any officer may hold more than one office.
32. The Board of Directors, immediately after each annual meeting of
shareholders, shall elect from their number the Chairman of the Board, and also
shall elect the President, Vice Presidents, Treasurer, Secretary, and such other
officers as they shall deem necessary, none of whom need be members of the
Board, and designate the Chief Executive Officer and the Chief Operating
Officer.
33. The salaries of all officers of the Corporation shall be fixed
by the Board of Directors.
34. The officers of the Corporation shall hold office for one year
and until their successors are elected and qualify.
35. Any corporate officer elected by the Board of Directors may be
removed at any time by the vote of a majority of
9
<PAGE>
the Directors in office with or without cause. If the office of any corporate
officer becomes vacant for any reason, the vacancy shall be filled by the Board
of Directors, but the Board may determine that such vacancy need not be filled.
36. The Board of Directors may appoint other persons who shall hold
titles as divisional or administrative "officers" for such terms as designated
by the Board or at the will of the Board but such officers as such shall not be
deemed to be officers of the Corporation or as such shall not be deemed to be
authorized to enter into contracts binding on the Corporation. Any divisional
or administrative "officer" so appointed may be removed at any time by the
Board.
THE CHAIRMAN OF THE BOARD AND THE PRESIDENT
-------------------------------------------
37. The Chairman of the Board shall preside at all meetings of the
Board of Directors and at all meetings of the shareholders. In the absence or
disability of the Chairman of the Board, the President shall perform the duties
and exercise the powers of the Chairman of the Board.
38. The Chairman of the Board shall perform such other duties as the
Board of Directors from time to time may prescribe.
39. The President shall perform such other duties as the Board of
Directors from time to time may prescribe.
10
<PAGE>
THE CHIEF EXECUTIVE OFFICER
---------------------------
40. The Chief Executive Officer shall have the chief responsibility
for planning for the operations, the long term goals, and the business of the
Corporation and shall see that all orders and resolutions of the Board are
carried into effect. He or she shall have the power to direct all employees of
the Corporation, including all corporate officers, in the performance of their
duties. In the absence or disability of the Chief Operating Officer, he or she
shall perform the duties and exercise the powers of the Chief Operating Officer.
41. The Chief Executive Officer shall have the power to appoint,
remove, employ, discharge, assign the duties of, and fix the compensation of all
divisional and administrative "officers", servants, agents, employees, and
clerks of the Corporation other than the duly appointed corporate officers.
THE CHIEF OPERATING OFFICER
---------------------------
42. The Chief Operating Officer shall have the general authority for
day to day operations of the Corporation, provided that he or she shall report
to the Chief Executive Officer.
43. Subject to the approval of the Chief Executive Officer, the
Chief Operating Officer shall have the power to appoint, remove, employ,
discharge, assign the duties of, and fix
11
<PAGE>
the compensation of all divisional and administrative "officers", servants,
agents, employees, and clerks of the Corporation, other than the duly appointed
corporate officers.
VICE PRESIDENTS
---------------
44. The Board of Directors may designate one or more Vice Presidents
as Executive Vice Presidents or as Vice Presidents with specific areas of
responsibility such as research and development, sales, finance, general
counsel, or the like.
45. Any Executive Vice President, in the absence or disability of
both the Chairman of the Board and the President, shall perform the duties and
exercise the powers of the Chairman of the Board and the President, provided,
however, that subject to the approval of the Board of Directors, the Chief
Executive Officer, or the Chief Operating Officer from time to time may
designate which Executive Vice President shall perform such functions. Each
Vice President shall perform such other duties as the Board of Directors from
time to time may prescribe.
46. Any Vice President, in the absence or disability of the Chairman
of the Board, the President, and any Executive Vice President, shall perform any
or all of their respective duties; provided, however, that subject to the
approval of the Board of Directors, the Chief Executive Officer or the Chief
Operating Officer from time to time may designate which Vice
12
<PAGE>
President shall perform such functions.
CHIEF FINANCIAL OFFICER
-----------------------
47. The Board of Directors shall have the power to designate any
corporate officer as Chief Financial Officer of the Corporation, subject to any
statutory duties of the Treasurer.
48. Any officer so designated as Chief Financial Officer shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He or she shall render to the Chairman of the Board, President,
and Directors at the regular meetings of the Board, or whenever they may require
it, an account of all of his or her transactions and of the financial condition
of the Corporation.
49. The Chief Financial Officer, if required by the Board, shall
give, at the expense of the Corporation, to the Corporation a bond in such sum
or sums and with such surety or sureties as shall be satisfactory to the Board
conditioned upon the faithful performance of his or her duties and for the
restoration to the Corporation in case of his or her death, resignation,
retirement, or removal from office, of all books,
13
<PAGE>
papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
THE TREASURER
-------------
50. The Treasurer shall perform all duties required by law, and, if
he or she is not the Chief Financial Officer, shall assist the Chief Financial
Officer and perform his or her duties in the event of his or her absence or
disability.
51. The Treasurer shall perform such other duties as the Board of
Directors from time to time may prescribe.
THE SECRETARY
-------------
52. The Secretary shall attend all sessions of the Board of
Directors and all meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose. He or she
shall give or cause to be given notice of all meetings of shareholders and
special meetings of the Board of Directors and shall perform such other duties
as may be prescribed by the Board of Directors. He or she shall keep in safe
custody the seal of the Corporation and affix or cause it to be affixed to any
instrument when authorized by the
14
<PAGE>
Board of Directors. The Board may appoint one or more Assistant Secretaries to
assist the Secretary, and in his or her absence or disability, to perform his or
her duties.
53. The Secretary shall perform such other duties as the Board of
Directors from time to time may prescribe.
DIVISIONAL AND ADMINISTRATIVE OFFICERS
--------------------------------------
54. Divisional and administrative, or non corporate, "officers"
shall have such duties as the Chief Executive Officer or the Chief Operating
Officer with the concurrence of the Chief Executive Officer, from time to time
may prescribe.
CERTIFICATES OF STOCK
---------------------
55. The certificates of stock of the Corporation shall be numbered
and entered in the stock books of the Corporation (which shall be maintained by
the Corporation or by such Registrar or Transfer Agent as the Board of Directors
may appoint) as they are issued. They shall exhibit the holder's name, the
number of shares, and shall be signed by the President or any Vice President,
and the Secretary or Assistant Secretary, or bear a facsimile of their
signatures, and shall bear the corporate seal or a facsimile thereof.
LOST CERTIFICATES
-----------------
15
<PAGE>
56. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors in its discretion and as
a condition precedent to the issuance thereof, may require the owner of such
lost or destroyed certificate or certificates, or his, her, or its legal
representative, to advertise the same in such manner as the Board shall require
and/or give the Corporation a bond in such sum and with such surety or sureties
as the Board may direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost or
destroyed.
TRANSFERS OF STOCK
------------------
57. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate of stock duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer of stock shall be
entered on the stock books of the Corporation.
58. The Corporation shall be entitled to treat the
16
<PAGE>
holder of record of any share or shares of stock as the holder in fact thereof
and, accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person whether
or not it shall have express or other notice thereof, except as expressly
provided by applicable statute.
17
<PAGE>
RECORD DATE
-----------
59. The Board of Directors may fix in advance a date not more than
60 days nor less than 10 days preceding the date of any meeting of shareholders,
the date for the payment of any dividend, the date for the allotment of rights,
or the date when any change or conversion or exchange of capital stock shall go
into effect, as a record date for the determination of the shareholders entitled
to notice of and to vote at any such meeting or entitled to receive payment of
any such dividend, or any such allotment of rights, or to exercise the rights in
respect to any such change, conversion, or exchange of capital stock, and in
such case only shareholders of record on the date so fixed shall be entitled to
such notice of and to vote at such meetings, or to receive payment of such
dividend, or allotment of rights, or exercise such rights, as the case may be,
notwithstanding any transfer of any shares of stock on the books of the
Corporation after such record date so fixed.
DIVIDENDS
---------
60. Dividends upon the capital stock of the Corporation, subject to
any applicable statutory provisions or provisions of the Certificate of
Incorporation may be declared by the Board of Directors at any regular or
special meeting.
61. Before payment of any dividend, there may be set
18
<PAGE>
aside out of the earned surplus or capital surplus of the Corporation available
for dividends such sum or sums as the Directors from time to time in their
absolute discretion think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purposes as the Directors shall think conducive
to the interests of the Corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
SEAL
----
62. The seal of the Corporation shall be in such form as the Board
of Directors may from time to time prescribe. The seal may be used by causing
it or a facsimile thereof to be reproduced upon or impressed directly on the
instrument or writing to be sealed, or upon an adhesive substance to be affixed
thereto. The seal on any corporate obligation for the payment of money may be a
facsimile, engraved or printed.
AMENDMENTS
----------
63. Subject to the provisions of the Certificate of Incorporation
and applicable statutes, these By-laws may be amended, altered, added to, or
repealed by the vote of the Board of Directors at any regular or special meeting
of the Board, or by the shareholders at any annual or special meeting of the
19
<PAGE>
shareholders.
20
<PAGE>
EXHIBIT 10.1
Registration and Expenses Agreement
This Registration and Expenses Agreement (the "Agreement") is made as of
____________, 1996 among Industri-Matematik International Corp. (the "Company")
and each of Martin Leimdorfer ("ML") and Warburg, Pincus Investors, L.P.
("Warburg" and, together with ML, the "Selling Stockholders" or, individually, a
"Selling Stockholder").
WHEREAS, the Company proposes to make an underwritten initial public
offering (the "Offering") of its Common Stock pursuant to a Registration
Statement on Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "SEC").
WHEREAS, ML owns shares of the Company's Common Stock and desires to sell a
portion of such shares under the Registration Statement in connection with the
Offering and Warburg owns shares of the Company's Common Stock and is willing to
sell a portion of its shares to the extent the Underwriters exercise their over-
allotment option. The shares of the Company's Common Stock included by the
Selling Stockholders in such Registration Statement are sometimes referred to
herein as "Registrable Securities."
WHEREAS, the Company believes it is in the best interests of the Company
and its stockholders to include the Selling Stockholders' shares in the
Registration Statement because the sale of the shares held by the Selling
Stockholders pursuant to the Registration Statement will accomplish an orderly
distribution of such shares, will significantly increase the public float and
liquidity of the Company's shares of Common Stock on the markets where the
Company's Common Stock will be traded and will satisfy the Underwriters' over-
allotment option.
WHEREAS, the Company is prepared to enter into an underwriting agreement
(the "Underwriting Agreement") with the Selling Stockholders and Alex. Brown &
Sons Incorporated, UBS Securities LLC and SoundView Financial Group, Inc., as
representatives of the several underwriters (the "Underwriters") with respect to
the Offering, pursuant to which the Company and the Selling Stockholders will
agree to indemnify and provide contribution to the Underwriters under certain
circumstances.
WHEREAS, the Company is prepared to enter into such Underwriting Agreement
and this Agreement, to pay certain expenses of registering the Selling
Stockholders' shares and to indemnify and provide contribution to the Selling
Stockholders in the event that the Selling Stockholders are required to
indemnify or provide contribution to the Underwriters under the Underwriting
Agreement in consideration of the Selling Stockholders indemnifying the Company
as provided herein and entering into a 180-day lockup agreement with respect to
the balance of the shares not sold by the Selling Stockholders under the
Registration Statement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties agree as follows:
1. Expenses. The Company shall be responsible for and pay all
Registration Expenses incurred in connection with the registration to be
effected pursuant to the Registration
<PAGE>
Statement. Each of the Selling Stockholders shall be responsible for and pay all
Selling Expenses relating to the sale of the shares of Common Stock of such
Selling Stockholder. For purposes of this Section 1, (i) "Registration Expenses"
shall mean all expenses that are not Selling Expenses incurred in filing the
Registration Statement and complying herewith, including, without limitation,
all registration, listing, qualification and filing fees, printing expenses,
fees and disbursements of counsel for the Company, accounting fees and related
expenses, blue sky fees and all other expenses incident to or required by the
registration contemplated hereby and the consummation of the sales of Common
Stock referred to in the Registration Statement; and (ii) "Selling Expenses"
shall mean all underwriting discounts, selling commissions and stock transfer
taxes applicable to the shares sold by the Selling Stockholders, all internal
administrative and expenses of either Selling Stockholder and all fees and
disbursements of counsel for either Selling Stockholder, if separately
represented.
2. Indemnification and Contribution. The Company and the Selling
Stockholders agree to provide each other with indemnification and contribution
as follows:
a. By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Selling Stockholder, the partners,
officers, directors, employees or agents of each Selling Stockholder, any
underwriter (as defined in the Securities Act of 1933, as amended the
"Securities Act") for such Selling Stockholder and each person, if any, who
controls such Selling Stockholder or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") against any losses, claims, damages, liabilities or actions (joint or
several) to which he, it or they may become subject under the Securities Act,
the Exchange Act or other federal, state, or foreign law (including payments
made to any underwriter by any Selling Stockholder, partner, officer, employee,
agent, director or controlling person of a Selling Stockholder pursuant to the
indemnification or contribution provisions of the Underwriting Agreement),
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (each, a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto;
(ii) the omission or alleged omission to state in the
Registration Statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any federal, state, or foreign securities law
or any rule or regulation promulgated under the Securities Act, the Exchange Act
or any federal, state, or foreign securities law in connection with the offering
covered by the Registration Statement;
-2-
<PAGE>
and the Company will reimburse each Selling Stockholder or the partners,
officers, directors, employees, agents, underwriters or controlling persons of
each Selling Stockholder, for any legal or other expenses reasonably incurred by
them, as incurred, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Selling Stockholder, or the partners, officers,
directors, employees, agents, underwriters or controlling persons of such
Selling Stockholder.
b. By Selling Stockholders. To the extent permitted by law, each
Selling Stockholder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, each underwriter, the other Selling Stockholder selling securities under
the Registration Statement or any of such other Selling Stockholder's partners,
directors, officers, employees, agents, or any person who controls such
underwriter or other Selling Stockholder within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer, employee,
agent, controlling person, underwriter or other Selling Stockholder, partner,
director, officer, employee, agent, or controlling person of such underwriter or
other Selling Stockholder may become subject under the Securities Act, the
Exchange Act or other federal, state, or foreign law (including payments made to
any underwriter by the Company or any other Selling Stockholder, or any
director, partner, officer, employee, agent, or controlling person of the
Company or any other Selling Stockholder pursuant to the indemnification or
contribution provisions of the Underwriting Agreement), insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by the indemnifying Selling Stockholder expressly
for use in connection with the Registration Statement; and each indemnifying
Selling Stockholder will reimburse any legal or other expenses reasonably
incurred by the Company, any such director, officer, employee, agent,
controlling person, underwriter or other Selling Stockholder, partner, officer,
director, employee, agent, or controlling person of such other Selling
Stockholder or underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 2(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the indemnifying Selling
Stockholder (which consent shall not be unreasonably withheld); and provided
further, that the total amounts payable in indemnity by a Selling Stockholder
under this Section 2(b) or for contribution under Section 2(e) below in respect
of any Violation shall not exceed the net proceeds received by such Selling
Stockholder in the registered offering out of which such Violation arises. To
the extent a Selling Stockholder shall make payments pursuant to Section 8 of
the Underwriting Agreement, such amounts shall serve as a credit against the
aggregate maximum amount payable by such Selling Stockholder pursuant to this
Section
-3-
<PAGE>
2(b). The obligations of the Selling Stockholders under this Section 2(b) shall
be several and not joint.
c. Notice. Promptly after receipt by an indemnified party under this
Section 2 of notice of the commencement of any action (including any government
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own 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 conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding and the indemnifying party
has not replaced counsel within a period of 10 business days after receipt of
written notice from the indemnified party as to such conflict of interests. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.
d. Defect Eliminated in Final Prospectus. The foregoing indemnity
agreements of the Company and any Selling Stockholder are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the Registration Statement becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
indemnified party if a copy of the Final Prospectus was furnished to the
indemnified party and the indemnified party was required to, but did not,
furnish the Final Prospectus to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
e. Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Selling Stockholder or any partner, officer, director, employee,
agent, or controlling person of any such Selling Stockholder, makes a claim for
indemnification pursuant to this Section 2 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 2 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
Selling Stockholder or any such partner, officer, director, employee, agent, or
controlling person in circumstances for which indemnification is provided under
this Section 2; then, and in each such case, the Company and such Selling
Stockholder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) (x) in
proportion to the amount of
-4-
<PAGE>
information provided by each party for use in the Registration Statement and the
access of each party to, and ability of each party to correct, the information
resulting in the Violation or (y) if the allocation provided for in clause (x)
above is not permitted by applicable law, such Selling Stockholder shall be
responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
Registration Statement bears to the public offering price of all securities
offered by and sold under such Registration Statement, and the Company and other
Selling Stockholder shall be responsible for the remaining portion; provided,
however, that, in any such case, (A) no such Selling Stockholder will be
required to contribute an amount in excess of the net proceeds received by such
Selling Stockholder from all such securities offered and sold by such Selling
Stockholder pursuant to the Registration Statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
f. Survival. The obligations of the Company and Selling Stockholders
under this Section 2 shall survive the completion of the Offering and be
applicable only with respect to Violations arising in connection with the
Offering.
3. Underwriting Agreement. If the Underwriters, the Company and the
attorneys-in-fact for the Selling Stockholders decide to consummate the Offering
by entering into the Underwriting Agreement, the Company and the Selling
Stockholders agree to be bound by such Underwriting Agreement, including the
indemnification provisions of Section 8, and the lockup provisions of Section
4(a)(viii) and the provisions of Section 4(b)(i).
4. Miscellaneous.
a. Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware
without reference to principles of conflict of laws or choice of laws.
b. Third Party Beneficiaries. Notwithstanding anything to the
contrary contained herein, no provision of this Agreement is intended to benefit
any party other than ML, Warburg, and the Company and their respective heirs,
distributees, executors, administrators, personal representatives, successors,
and assigns, and no provision shall be enforceable by any other party.
c. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
d. Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of
-5-
<PAGE>
which are incorporated herein by this reference.
e. Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms to the maximum extent possible.
f. Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all prior
negotiations, correspondence, agreements, understandings, duties or obligations
among the parties with respect to the subject matter hereof. Without limitation
of the foregoing, this Agreement shall apply with respect to the Offering to the
exclusion of that certain Principles of Agreement, as amended and restated on
April 12, 1995, which agreement shall otherwise remain in full force and effect
in accordance with its terms.
g. Further Assurances. From and after the date of this Agreement,
upon the request of a party, the other parties shall execute and deliver such
instruments, documents or other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
-----------------------------------
Signature of Authorized Signatory
-----------------------------------
Print Name and Title
WARBURG, PINCUS INVESTORS, L.P.
By: its General Partner, Warburg, Pincus & Co., Inc.
By:
----------------------------
Managing Director
MARTIN LEIMDORFER
-----------------------------------
Martin Leimdorfer
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<PAGE>
EXHIBIT 11
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
---------------------
PRO FORMA
---------
1996
---------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations................ $ 1,423
Income (loss) from discontinued operations.............. 327
-------
Net income.............................................. $ 1,750
=======
PRIMARY
Average shares outstanding.............................. 9,865
Net effect of dilutive stock options based on the
treasury method using estimated IPO price.............. 783
Net effect of dilutive convertible preferred stock based
on the "as if converted" method*....................... 14,630
-------
Total................................................... 25,278
=======
Pro forma per share amounts:............................
Income (loss) from continuing operations................ $ 0.06
Income (loss) from discontinued operations.............. 0.01
-------
Pro forma net income.................................... $ 0.07
=======
</TABLE>
*Pro forma amount assumes the conversion of Convertible Preferred Stock to
Common Stock including the effect of a 3-for-1 stock split.
<PAGE>
EXHIBIT 22.1
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
LIST OF SUBSIDIARIES AT APRIL 30, 1996
SWEDEN
- ------
Datecon AB
Industri - Matematik AB
Industri - Matematik Data Goteberg AB
Industri - Matematik Data Stockholm AB
Industri - Matematik Datasystem AB
Industri - Matematik Intressenter AB
Industri - Matematik Projektledning AB
Industri - Matematik Samarbetspartner AB
Industri - Matematik System Goteberg AB
Industri - Matematik System Stockholm AB
Joeldata AB
Mikroplan AB
Pargon AB
Trisondata AB
UNITED KINGDOM (1)
- ------------------
Enterprise Management System Limited (England and Wales)
Industri - Matematik Limited (England and Wales)
United States (1)
- -----------------
Industri - Matematik Corp. (Delaware)
Industri - Matematik Licensing Corp. (Delaware)
Industri - Matematik North American Operations, Inc. (Delaware)
International Technology Group, Inc. (New Jersey) dba IMI Services
Software Finance Corp. (Delaware)
Software Research Corp. (Florida)
- ----------------------
(1) Country or state of incorporation is indicated in parentheses.
<PAGE>
EXHIBIT 24.1
CONSENT OF OHRLINGS COOPERS & LYBRAND AB, INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333- ) of our report dated June 6, 1996, on our audits of the consolidated
financial statements of Industri-Matematik International Corp. and
subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
Ohrlings Coopers & Lybrand AB
Stockholm, Sweden
June 6, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> APR-30-1995 APR-30-1996
<PERIOD-START> MAY-01-1994 MAY-01-1995
<PERIOD-END> APR-30-1995 APR-30-1996
<CASH> 160 558
<SECURITIES> 0 0
<RECEIVABLES> 10,482 14,257
<ALLOWANCES> 205 321
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,695 17,303
<PP&E> 1,663 1,873
<DEPRECIATION> 1,724 2,847
<TOTAL-ASSETS> 15,508 21,324
<CURRENT-LIABILITIES> 9,715 11,341
<BONDS> 0 0
0 0
146 146
<COMMON> 80 98
<OTHER-SE> (2,323)<F1> 258<F2>
<TOTAL-LIABILITY-AND-EQUITY> 15,508 21,324
<SALES> 27,744 40,009
<TOTAL-REVENUES> 27,744 40,009
<CGS> 16,848 20,477
<TOTAL-COSTS> 33,769 38,624
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 689 744
<INCOME-PRETAX> (7,083) 642
<INCOME-TAX> 941<F3> 781
<INCOME-CONTINUING> (6,142) 1,423
<DISCONTINUED> (246) 327
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,388) 1,750
<EPS-PRIMARY> (0.80)<F4> .07
<EPS-DILUTED> (0.80) .07
<FN>
<F1>ADDITIONAL PAID-IN CAPITAL 11,490
ACCUMULATED DEFICIT (12,620)
CUMULATIVE TRANSLATION ADJUSTMENT (1,193)
<F2>ADDITIONAL PAID_IN CAPITAL 15,323
ACCUMULATED DEFICIT (10,870)
CUMULATIVE TRANSLATION ADJUSTMENT (1,569)
NOTES RECEIVABLE FROM STOCKHOLDERS (2,626)
<F3>BENEFIT
<F4>PROFORMA
</FN>
</TABLE>
