<PAGE>
rule no. 424(b)(1)
registration no. 333-37355
7,075,000 SHARES
[LOGO OF INDUSTRI-MATEMATIK INTERNATIONAL APPEARS HERE]
COMMON STOCK
------------
Of the 7,075,000 shares of Common Stock offered hereby, 3,500,000 shares are
being sold by Industri-Matematik International Corp. ("IMI" or the "Company")
and 3,575,000 shares are being sold by certain stockholders of the Company
(the "Selling Stockholders"). See "Principal and Selling Stockholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholders. The Company's Common Stock is quoted on the Nasdaq National
Market under the symbol "IMIC." On October 30, 1997, the last reported sale
price of the Common Stock was $22.88 per share. See "Price Range of Common
Stock."
------------
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................. $20.00 $0.925 $19.075 $19.075
- --------------------------------------------------------------------------------
Total(3).................. $141,500,000 $6,544,375 $66,762,500 $68,193,125
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(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 $425,000.
(3) The Company and one of the Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 1,061,250 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,
Proceeds to the Company and Proceeds to the Selling Stockholders will be
$162,725,000, $7,526,031, $76,884,172 and $78,314,797, 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. It
is expected that delivery of the shares of Common Stock will be made at the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
November 5, 1997.
BT ALEX. BROWN
DEUTSCHE MORGAN GRENFELL
SOUNDVIEW FINANCIAL GROUP, INC.
UBS SECURITIES
THE DATE OF THIS PROSPECTUS IS OCTOBER 31, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information may be inspected and
copies made at the public reference facilities maintained by the Commission at
450 Fifth Street N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: New York Regional Office, Seven World Trade Center,
New York, New York 10048, and Chicago Regional Office, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such materials can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock of the Company is
quoted on the Nasdaq National Market ("Nasdaq"). Reports, proxy statements and
other information concerning the Company may be inspected at the offices of
the National Association of Securities Dealers, Inc., at Reports Section, 1735
K Street, N.W., Washington, DC 20006. The Commission also maintains a Web site
at http://www.sec.gov which contains reports, proxy statements and other
information regarding registrants that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
are hereby incorporated by reference in this Prospectus: (i) the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 1997; (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997;
and (iii) the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission on September
16, 1996.
All reports and other documents subsequently filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Prospectus and prior to the termination of this
offering shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such reports and documents. Any
statement contained or incorporated or deemed to be incorporated herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all
of the foregoing documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
herein by reference into such documents). Requests for such documents should
be submitted in writing to the Company's Corporate Secretary, Marvin S.
Robinson, Esq. at Tannenbaum Dubin & Robinson, LLP, 1140 Avenue of the
Americas, New York, NY, 10036, telephone (212) 302-2900.
----------------
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, or incorporated
by reference into, this Prospectus. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed under "Risk Factors."
THE COMPANY
IMI develops, markets and supports software that enables manufacturers,
distributors, wholesalers and retailers to more effectively fulfill their
customers' orders. The Company's demand chain management solution, System ESS,
provides the execution of multiple order fulfillment processes, including order
management, distribution management, inventory replenishment and demand
planning. System ESS has been designed specifically to meet the complex and
high-volume demand chain management requirements of manufacturers,
distributors, wholesalers and retailers, enabling them to better match product
flow to actual customer demand, thereby enhancing revenue opportunities and
reducing administrative and logistics/distribution costs. 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,
wholesalers and retailers in the consumer packaged goods, consumer durables,
business equipment, medical, automotive and industrial products sectors, as
well as other high-volume wholesalers and retailers. The Company sells and
supports its products through direct sales and support organizations in the
United States, Europe and Asia/Pacific, as well as through third party systems
integrators. Current customers of IMI include Black & Decker Corp., British
Airways PLC, Campbell Soup Company, Canon U.S.A., Inc., Estee Lauder Co., GE
Plastics, Hartz Mountain, Kellogg Company, NIKE Inc., Pioneer Standard
Electronics, Inc., ProSource Distribution Services, Inc., Skyway Freight
Systems, Inc., Starbucks Corporation and Unisys Corporation.
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 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. 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. 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, wholesalers and
retailers. 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, support, service and marketing organizations; (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............. 3,500,000 shares
Common Stock offered by the Selling Stockhold-
ers............................................ 3,575,000 shares
Common Stock to be outstanding after the offer-
ing............................................ 31,759,514 shares(1)
Use of proceeds................................. For general corporate
purposes and working capital,
including the expansion of
the Company's sales, support,
service and marketing
organizations. See "Use of
Proceeds."
Nasdaq National Market symbol................... IMIC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED APRIL 30, ENDED JULY 31,
------------------------ ----------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues..................... $27,744 $40,009 $59,612 $ 9,217 $15,706
Gross profit....................... 10,896 19,532 34,200 3,943 8,038
Income (loss) from operations...... (6,025) 1,385 4,869 (1,592) 412
Net income (loss).................. (6,388) 1,750 6,902 (1,062) 630
Pro forma net income (loss) per
share(2).......................... $ 0.07 $ 0.25 $ (0.04) $ 0.02
Shares used in pro forma per share
calculation(2).................... 25,223 28,063 24,502 28,446
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $16,661 $ 82,999
Working capital........................................ 31,826 98,164
Total assets........................................... 50,481 116,819
Capital lease obligations, less current portion........ 420 420
Total stockholders' equity............................. 35,998 102,336
</TABLE>
- --------
(1) Based on 16,171,314 shares of Common Stock and 12,088,200 shares of Class B
Common Stock, which will be converted into Common Stock upon the closing of
this offering, outstanding as of September 30, 1997. Excludes options
outstanding as of September 30, 1997 to purchase 985,828 shares of Common
Stock at a weighted average exercise price per share of $5.93.
(2) For the years ended April 30, 1996 and 1997 and the three months ended July
31, 1996 and 1997, pro forma net income per share was based upon the
weighted average number of common and common stock equivalents outstanding
during the period, computed in accordance with the treasury stock method.
Historical net income (loss) per share data for the year ended April 30,
1995 has not been presented as such information is not considered to be
relevant or meaningful.
(3) Adjusted to reflect the sale of 3,500,000 shares of Common Stock offered by
the Company hereby at a public offering price of $20.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
----------------
Except as otherwise indicated, all information in this Prospectus (i) assumes
that the Underwriters' over-allotment option is not exercised and (ii) reflects
the conversion of all of the Company's currently outstanding shares of Class B
Common Stock into Common Stock upon the closing of this offering. See
"Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following Risk Factors,
in addition to the other information contained in this Prospectus and
incorporated herein by reference concerning the Company and its business,
before purchasing the shares of Common Stock offered hereby. This Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Exchange Act that involve certain risks and uncertainties. Discussions
containing such forward-looking statements may be found in the material set
forth below and under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as in this
Prospectus generally, including documents incorporated by reference herein.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors,
including those set forth in the following Risk Factors. The forward-looking
statements contained herein are made as of the date of this Prospectus and the
Company assumes no obligation to update such forward-looking statements or to
update the reasons why actual results could differ materially from those
anticipated in such forward-looking statements.
Significant Fluctuations in Quarterly Operating Results and Seasonality. 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; the Company's
success in expanding its sales, support, service and marketing organizations;
the ability of the Company to establish and maintain relationships with third
party implementation providers; 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; personnel changes; the
structure and timing of future acquisitions, if any; fluctuations in foreign
currency exchange rates; mix of license 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 and
consulting services organization, and the timing of such expansion and the
rate at which new sales and consulting personnel 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 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 lower in its first and
second fiscal quarters, as the Company's sales force
5
<PAGE>
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 could experience operating losses in such quarters
in the future.
Because the Company generally ships software products within a short period
after receipt of an order, it 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. The Company has historically recognized a
significant portion of license revenues in the last two weeks of a quarter.
Any significant shortfall of license 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Financial Results."
No Assurance of Profitability. Although the Company achieved net income of
$1.8 million and $6.9 million for fiscal 1996 and 1997, respectively, and net
income of $630,000 for the three months ended July 31, 1997, 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 continue to increase expenditures
in order to fund the continued expansion of its worldwide operations,
including greater levels of product development and larger and more
geographically dispersed sales, support, service and marketing organizations.
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 will
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 sales, support,
service 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."
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. In fiscal 1997 and the first
fiscal quarter of 1998, license fees for System ESS have averaged
approximately $1.3 million and there have been several licenses significantly
in excess of that amount. The Company expects that individual 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 expenditures. 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 three 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
could 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 customer training, integration
of System ESS with the customer's other existing systems and the development
of product extensions to add customer-specific functionality. The
6
<PAGE>
Company and/or a third party consultant provide such post delivery
implementation services pursuant to a separate service agreement. A successful
implementation requires a close working relationship between the Company, the
customer and, generally, third party consultants who assist in the
implementation process. Any inability of the Company to achieve such close
working relationships, or any inability of the Company's consulting services
organization or third party consultants to perform implementation services on a
timely basis, may result in delays in the customer implementation process.
There can be no assurance that any such delays in the implementation process of
System ESS will not result in adverse customer reactions, harm the Company's
reputation, or otherwise have a material adverse effect on the Company's
business, operating results and financial condition. See "--Risks Associated
With Expanding Multinational Operations," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business--Products and
Services" and "--Sales and Marketing."
Dependence upon Relationship with Oracle Corporation. An important part of
the Company's operating results depend upon its marketing and sales
relationship with Oracle Corporation ("Oracle"). For the fiscal year ended
April 30, 1997, the Company generated 63% of its license revenues and 35% of
its total revenues through various joint marketing efforts with Oracle. Prior
to 1997, the Company engaged in an informal joint marketing and sales
arrangement with Oracle pursuant to which the two companies jointly marketed to
customers in the consumer packaged goods industry. In January 1997, the Company
entered into a joint marketing agreement with Oracle for the consumer packaged
goods industry (the "Oracle Agreement") pursuant to which the parties agreed
for a term of three years to jointly market and license the Oracle Solution
Suite, which incorporates the Company's System ESS software and Oracle software
together with other complementary software owned by third parties. The Oracle
Agreement provides for additional development of component software,
integration of the software components and marketing and support of the Oracle
Solution Suite. In addition, Oracle has agreed not to develop or use in the
consumer packaged goods industry any other software with similar functionality
to System ESS. Pursuant to the Oracle Agreement, Oracle has agreed to pay the
Company the total license fees that Oracle receives from the customer for
System ESS less specified percentages. In the United States, Oracle and its
distributors have the exclusive right to sub-license System ESS software as
part of the Oracle Solution Suite in the consumer packaged goods industry.
Outside of the United States, Oracle and its distributors have a non-exclusive
right to sub-license System ESS in the consumer packaged goods industry. In
addition, the Company has retained the worldwide right to market System ESS to
customers in the consumer packaged goods industry as a "point" solution and in
any other manner which does not provide combined software substantially similar
to the Oracle Solution Suite. The Company and Oracle have periodically entered
into separate agent agreements authorizing Oracle to sub-license the Company's
System ESS software to customers in the consumer packaged goods industry and
other industries. Pursuant to such agent agreements, Oracle pays to the Company
a specified percentage of the license fee for System ESS. In industries other
than consumer packaged goods, the Company also from time to time directly
competes with Oracle's order management software product. See "--Competition"
and "Business--Competition."
In the consumer packaged goods industry, the Company actively markets and
sells System ESS as a "point" solution and as part of the Oracle Solution
Suite. The Company's sales of System ESS in the consumer packaged goods
industry are dependent in part upon the effectiveness of Oracle's efforts under
the Oracle Agreement, which the Company cannot control. There can be no
assurance that Oracle will not otherwise curtail or discontinue the Oracle
Agreement at the end of the initial three year term or that the Oracle
Agreement will be beneficial to the Company, which could have a material
adverse effect on the business, operating results and financial condition of
the Company. In industries other than consumer packaged goods, there can be no
assurance that Oracle will continue to recommend the Company and its products
to potential customers or enter into separate agent agreements with the
Company, either of which could have a material adverse effect on the business,
operating results and financial condition of 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
7
<PAGE>
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 which offer client/server enterprise resource planning
("ERP") solutions, such as SAP AG ("SAP"), Baan Company N.V. ("Baan"), J.D.
Edwards & Company ("J.D. Edwards"), System Software Associates, Inc. ("SSA")
and, in vertical markets other than consumer packaged goods, Oracle, (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 execution
software which complements or competes 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 execution software. 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 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, resulting in price reductions, fewer
customer orders and reduced gross margins, 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."
Need to Hire Additional Personnel in All Areas and Dependence on Key
Employees. The Company believes its future success and ability to achieve
revenue growth will depend in significant part upon its ability to attract and
retain highly skilled management, sales, support, service, marketing and
product development personnel. Competition for such personnel is intense, and
recruiting such personnel is becoming increasingly difficult because of the
strong world-wide economy. In addition, 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 does not
have, and does not intend to obtain, key man life insurance on any of its
executive management personnel. 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 "Management--Executive Officers and Directors."
Reliance on and Need to Develop Additional Relationships with Third
Parties. The Company relies on informal relationships with a number of
consulting and systems integration firms to enhance its sales, support,
service and marketing efforts, particularly with respect to implementation and
support of its products as well as lead generation and assistance in the sale
process. Such firms have included Andersen Worldwide S.C. ("Andersen
Consulting"), Computer Sciences Corporation, International Business Machines
Corporation ("IBM") and MCI Systemhouse, Inc. in the United States and Cap
Gemini S.A. and ECsoft Group plc in Europe. The Company expects to continue to
rely significantly upon such third parties for product implementation,
customer support services, end user training and lead generation. The Company
will need to expand its relationships with these parties and
8
<PAGE>
enter into relationships with additional third parties in order to support
license 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 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--Products and Services" and "--Sales and
Marketing."
Risks Associated with Expanding Multinational Operations. The Company's
future success and ability to achieve revenue growth depends upon the
successful continued international expansion of its sales, support, service
and marketing organizations and its ability to establish indirect distribution
channels, including resellers, systems solution vendors, application software
vendors and systems integrators. The Company's products currently are marketed
in the United States, Europe and Asia/Pacific. Such international expansion
has required that the Company establish additional offices and hire additional
personnel. This has required and is expected to continue to 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 continue 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 continue to expand its 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 continue 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. The Company
increased the size of its direct sales force from 31 people at July 31, 1996
to 52 people at July 31, 1997 and the number of customer service and support
personnel from 177 people at July 31, 1996 to 278 people at July 31, 1997. The
Company plans to continue to expand internationally and to continue to
increase the number of its sales, support, service, marketing and product
development personnel significantly in the remainder of fiscal 1998, 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
9
<PAGE>
future expansion, if any, could have a material adverse effect on the
Company's business, financial condition or operating results.
Dependence on Principal Product. License and service and maintenance
revenues related to System ESS have represented a substantial majority of the
Company's revenues in recent years and are expected to represent substantially
all 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 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. The System ESS client operates on
UNIX, Windows 3.1, Windows 95 and Windows NT platforms. System ESS can
currently operate on server platforms from Hewlett-Packard Corporation, IBM,
Digital Equipment Corporation, Sun Microsystems, Inc. and Sequent Corporation
running either UNIX or Windows NT operating systems. The Company continues to
enhance System ESS to operate on such platforms in order to meet these
customers' requirements. In April 1997, the Company introduced a new version
of System ESS that operates on a Windows NT server platform, supports
Internet-based electronic commerce through World Wide Web browsers and Java-
based clients and supports seven languages in total. However, there can be no
assurances that the Company will be successful in continuing to develop
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.
If the Company is unable to develop and introduce new products, or
enhancements to existing products, in a timely manner in
10
<PAGE>
response to changing market conditions or customer requirements, the Company's
business, operating results and financial condition could 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 agreements 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. 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 illegally 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, operating results and financial condition.
See "Business--Proprietary Rights."
11
<PAGE>
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
and, to a lesser extent, the U.K. pound sterling and the Dutch guilder. The
Company incurs a majority of its expenses in Swedish kronor, including nearly
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
Company's 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 Company does not currently
undertake hedging transactions to cover its currency exposure, but the Company
may choose to hedge a portion of its currency exposure in the future as it
deems appropriate. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Possible Volatility of Stock Price. The market price for the Common Stock
has in the past been and in the future could be subject to significant
fluctuations in response to 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, could materially and adversely affect
the market price of the Company's Common Stock. See "Price Range of Common
Stock."
Control by Management and Current Stockholders; Indemnification of Officers
and Directors. Following completion of this offering and the conversion of all
of the outstanding shares of Class B Common Stock into Common Stock upon the
completion of this offering, the Company's executive officers and directors,
and their affiliates, in the aggregate, will own beneficially 60.4% of the
Company's outstanding Common Stock. In particular, Warburg, Pincus Investors,
L.P. ("Warburg") will own beneficially 46.6% 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."
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
12
<PAGE>
rights, of such shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The issuance of 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.
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of the Company's Common Stock in the public market following this
offering could have an adverse effect on the trading price of the Company's
Common Stock. Upon completion of this offering, the Company will have
outstanding 31,759,514 shares of Common Stock, assuming no exercise of
outstanding options or other issuances under employee stock plans following
September 30, 1997. The Company, each of its directors and its executive
officers and Warburg, who will beneficially own approximately 60.4% shares of
Common Stock following the offering (assuming no exercise of the Underwriters'
over-allotment option), have each agreed that, for a period ending on the 90th
day after the date of this Prospectus, subject to certain exceptions, they
will not, without the prior written consent of BT Alex. Brown Incorporated,
sell, offer to sell, distribute, or otherwise dispose of any shares of Common
Stock or any options, rights, or warrants with respect to any Common Stock.
Following the expirations of such lock-up agreements, all of such shares will
be eligible for immediate sale in the public market, subject in some cases to
compliance with Rule 144 of the Securities Act. Furthermore, 17,877,268 shares
of Common Stock held by certain stockholders will be entitled to certain
registration rights. If such stockholders, 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
effect the Company's ability to raise additional capital when or if required.
See "Underwriting."
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 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.
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. None of the
13
<PAGE>
Company's subsidiaries in Sweden, the United Kingdom, France, Germany, the
Netherlands, Australia or the United States are 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 "The Company" and "Dividend Policy."
Significant Unallocated Net Proceeds. The Company has not yet identified
specific uses for 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."
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 and IMAB
became a wholly-owned subsidiary of the Company.
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 (46) (8) 676-5000 and its principal U.S.
office is located at Five Greentree Center, Suite 201, Marlton, New Jersey
08053, telephone number (1) (609) 988-3922.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock being offered by the Company will be approximately $66.3 million,
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. The principal purpose of this offering is to
obtain additional working capital. The Company expects to use the net proceeds
for working capital and general corporate purposes, including the expansion of
its sales, support, service and marketing organizations. 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 such transaction. Pending such uses, the
Company currently plans to invest the net proceeds in investment grade, short-
term, interest-bearing debt securities. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.
The Company believes that the net proceeds from this offering, together with
its current cash balances, short-term investment balances, and cash flows
generated from operations, if any, will be sufficient to satisfy the Company's
working capital and capital expenditure requirements for at least the next 12
months. Any material acquisitions of complementary businesses, products or
technologies could require the Company to obtain additional equity or debt
financing.
PRICE RANGE OF COMMON STOCK
The Common Stock trades on Nasdaq under the symbol "IMIC." The following
table sets forth for the periods indicated the high and low sale prices per
share for the Company's Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1997
Second Quarter (from September 25, 1996)......................... 13 1/8 9 1/4
Third Quarter.................................................... 13 1/4 7 1/8
Fourth Quarter................................................... 9 3/4 5 7/8
FISCAL YEAR ENDED APRIL 30, 1998
First Quarter.................................................... 17 3/8 8 7/8
Second Quarter (through October 30, 1997)........................ 29 5/8 11 3/8
</TABLE>
On October 30, 1997, the closing sale price for the Common Stock as reported
by Nasdaq was $22.88 per share.
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. The Swedish Company Act imposes
certain limitations on the ability of IMAB to pay dividends to the Company.
See "Risk Factors--Holding Company Structure."
15
<PAGE>
CAPITALIZATION
The following table sets forth as of July 31, 1997 (i) the actual
capitalization of the Company, and (ii) the capitalization of the Company as
adjusted to reflect the sale of the 3,500,000 shares of Common Stock offered
by the Company hereby at a public offering price of $20.00 per share after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company and the conversion of all of the outstanding
shares of Class B Common Stock into Common Stock upon the closing of this
offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
JULY 31, 1997
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of capital lease obligations.......... $ 461 $ 461
======= ========
Capital lease obligations, less current portion....... $ 420 $ 420
Stockholders' equity:
Preferred Stock; $.01 par value; 15,000,000 shares
authorized; none issued and outstanding (actual and
as adjusted) ...................................... -- --
Common Stock; voting, $.01 par value; 62,500,000
shares authorized; 15,803,317 shares issued and
outstanding (actual); 31,391,517 shares issued and
outstanding (as adjusted) (1)...................... 158 314
Class B Common Stock; non-voting, $.01 par value;
12,500,000 shares authorized; 12,088,200 shares
issued and outstanding (actual); none issued and
outstanding (as adjusted).......................... 121 --
Additional paid-in-capital............................ 43,923 110,226
Accumulated deficit................................... (3,476) (3,476)
Cumulative translation adjustment..................... (2,414) (2,414)
Notes receivable from stockholders.................... (2,314) (2,314)
------- --------
Total stockholders' equity ....................... 35,998 102,336
------- --------
Total capitalization ........................... $36,418 $102,756
======= ========
</TABLE>
- --------
(1) Excludes 985,828 shares of Common Stock issuable upon the exercise of
stock options outstanding as of September 30, 1997, at a weighted average
exercise price of $5.93 per share.
16
<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, incorporated by reference herein, and
the other financial information included elsewhere in this Prospectus. The
statement of operations for the years ended April 30, 1995, 1996, and 1997 and
the balance sheet data at April 30, 1995, 1996, and 1997 are derived from and
should be read in conjunction with the Consolidated Financial Statements of
the Company and the Notes thereto, incorporated by reference herein, which
have been audited by Ohrlings Coopers & Lybrand AB, independent auditors. The
consolidated statement of operations data for the three-month periods ended
July 31, 1996 and 1997 and the consolidated balance sheet data at July 31,
1997 are derived from unaudited condensed consolidated financial statements
that include, in the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED APRIL 30, ENDED JULY 31,
------------------------- ----------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OP-
ERATIONS DATA:
Revenues: (UNAUDITED)
Licenses.................... $10,661 $15,474 $26,147 $ 2,296 $ 5,791
Services and maintenance.... 14,543 23,103 31,747 6,779 9,784
Other....................... 2,540 1,432 1,718 142 131
------- ------- ------- ------- -------
Total revenues............ 27,744 40,009 59,612 9,217 15,706
Cost of revenues:
Licenses.................... 2,172 2,717 1,540 100 88
Services and maintenance.... 12,424 16,813 22,871 5,078 7,495
Other....................... 2,252 947 1,001 96 85
------- ------- ------- ------- -------
Total cost of revenues.... 16,848 20,477 25,412 5,274 7,668
------- ------- ------- ------- -------
Gross profit.............. 10,896 19,532 34,200 3,943 8,038
Operating expenses:
Product development......... 7,009 6,822 9,935 1,956 2,516
Sales and marketing......... 5,720 7,746 14,997 2,593 3,720
General and administrative.. 4,192 3,579 4,399 986 1,390
------- ------- ------- ------- -------
Total operating expenses.. 16,921 18,147 29,331 5,535 7,626
------- ------- ------- ------- -------
Income (loss) from
operations.................. (6,025) 1,385 4,869 (1,592) 412
Other income (expense):
Interest income............. 15 13 643 13 240
Interest expense............ (689) (744) (253) (127) (15)
Miscellaneous income
(expense).................. (384) (12) (21) (63) (65)
------- ------- ------- ------- -------
Income (loss) from continuing
operations before income
taxes....................... (7,083) 642 5,238 (1,769) 572
Provision (benefit) for
income taxes................ (941) (781) (190) (705) (58)
------- ------- ------- ------- -------
Income (loss) from continuing
operations.................. (6,142) 1,423 5,428 (1,064) 630
Income (loss) from
discontinued operations..... (246) 327 374 2 --
Gain on sale of discontinued
operations (net of income
tax of $372,000)(1)......... -- -- 1,100 -- --
------- ------- ------- ------- -------
Net income (loss)............ $(6,388) $ 1,750 $ 6,902 $(1,062) $ 630
======= ======= ======= ======= =======
Pro forma net income (loss)
per share data(2):
Income (loss) from continuing
operations.................. $ 0.06 $ 0.20 $ (0.04) $ 0.02
Income from discontinued
operations.................. 0.01 0.01 -- --
Gain on sale of discontinued
operations.................. -- 0.04 -- --
------- ------- ------- -------
Pro forma net income (loss)
per share................... $ 0.07 $ 0.25 $ (0.04) $ 0.02
======= ======= ======= =======
Pro forma shares used in per
share calculation........... 25,223 28,063 24,502 28,446
======= ======= ======= =======
<CAPTION>
APRIL 30,
-------------------------
1995 1996 1997 JULY 31, 1997
------- ------- ------- ----------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DA-
TA:
Cash and cash equivalents.... $ 160 $ 558 $ 9,023 $16,661
Short-term investments....... -- -- 9,952 9,888
Working capital.............. (3,478) (1,364) 30,831 31,826
Total assets................. 15,508 21,324 50,963 50,481
Capital lease obligations,
less current portion........ 267 624 554 420
Total stockholders' equity... (2,097) 502 34,754 35,998
</TABLE>
- --------
(1) During the fiscal year ended April 30, 1997, the Company sold all of its
interest in Pargon AB. The gain recognized on the sale represents the
excess of the sales price over the Company's book basis.
(2) For the years ended April 30, 1996 and 1997 and the three months ended
July 31, 1996 and 1997, pro forma net income per share was based upon the
weighted average number of common and common stock equivalents outstanding
during the period, computed in accordance with the treasury stock method.
Historical net income (loss) per share data for the year ended April 30,
1995 has not been presented as such information is not considered to be
relevant or meaningful.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve certain risks and uncertainties. Discussions containing such forward-
looking statements may be found in the material set forth below and under
"Risk Factors" and "Business," as well as in the Prospectus generally,
including the documents incorporated by reference herein. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. The
Company's actual results could differ materially from those anticipated in
such forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" appearing elsewhere in this Prospectus
and in the documents incorporated by reference herein. These forward-looking
statements are made as of the date of this Prospectus and the Company assumes
no obligation to update such forward-looking statements or to update the
reasons why actual results could differ materially from those anticipated in
such forward-looking statements.
OVERVIEW
IMI develops, markets and supports software that enables manufacturers,
distributors, wholesalers and retailers to more effectively fulfill their
customers' orders. 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, wholesalers and retailers. Since that time, the Company's
operating expenses have increased substantially as the Company has made
significant investments 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 internationally,
the Company's revenues have grown in recent years, increasing from $27.7
million in fiscal 1995 to $59.6 million in fiscal 1997. Although the Company
has been profitable in its two most recent fiscal years and the three months
ended July 31, 1997, there can be no assurance that the Company will sustain
profitability on a quarterly or annual basis in the future.
Substantially all of the Company's revenues in the last three years has 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, wholesalers and retailers. The
Company expects that license and services revenues related to System ESS will
continue to constitute predominantly all of the Company's 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, which are
typically billed on a time and materials basis, are recognized when the
relevant services are performed. The Company recognized revenues, in all
periods presented, in accordance with the American Institute of Certified
Public Accountants Statement of Position 91-1, "Software Revenue Recognition."
18
<PAGE>
The Company has expanded its operations in all major geographic markets,
with a significant portion of its revenue growth occurring in the United
States. The following table illustrates the Company's revenues for the last
three fiscal years by customer location:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................... $ 8,550 $18,212 $29,767
Europe.................................................. 19,194 19,846 23,853
Asia/Pacific............................................ -- 1,951 5,992
------- ------- -------
Total................................................. $27,744 $40,009 $59,612
======= ======= =======
</TABLE>
The Company plans to increase expenditures in order to fund the continued
expansion of its worldwide operations, including greater levels of product
development and larger and more geographically dispersed sales, support,
service, and marketing organizations. 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 will 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
System ESS or enhanced versions thereof, competition, the success of the
Company's expansion of its sales, support, service, and marketing
organizations, general economic conditions, and other factors.
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 and, to a lesser extent, the U.K. pound
sterling and the Dutch guilder. The Company incurs a majority of its expenses
in Swedish kronor, including nearly 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 Company's 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 to
cover its currency exposure, but the Company may choose to hedge a portion of
its currency exposure in the future as it deems appropriate.
19
<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>
THREE MONTHS
ENDED JULY
YEAR ENDED APRIL 30, 31,
----------------------- -------------
1995 1996 1997 1996 1997
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses............................. 38.4% 38.7% 43.9% 24.9% 36.9%
Services and maintenance............. 52.4 57.7 53.2 73.6 62.3
Other................................ 9.2 3.6 2.9 1.5 0.8
------ ------ ------ ------ -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ -----
Cost of revenues:
Licenses............................. 7.8 6.8 2.6 1.1 0.6
Services and maintenance............. 44.8 42.0 38.3 55.1 47.7
Other................................ 8.1 2.4 1.7 1.0 0.5
------ ------ ------ ------ -----
Total cost of revenues............. 60.7 51.2 42.6 57.2 48.8
------ ------ ------ ------ -----
Gross profit....................... 39.3 48.8 57.4 42.8 51.2
------ ------ ------ ------ -----
Operating expenses:
Product development.................. 25.3 17.1 16.7 21.2 16.0
Sales and marketing.................. 20.6 19.4 25.1 28.1 23.7
General and administrative........... 15.1 8.9 7.4 10.7 8.9
------ ------ ------ ------ -----
Total operating expenses........... 61.0 45.4 49.2 60.0 48.6
Income (loss) from operations.......... (21.7) 3.4 8.2 (17.2) 2.6
Other income (expense):
Interest income...................... 0.1 -- 1.1 0.1 1.5
Interest expense..................... (2.5) (1.9) (0.4) (1.4) (0.1)
Miscellaneous income (expense)....... (1.4) -- -- (0.7) (0.4)
------ ------ ------ ------ -----
Income (loss) from continuing opera-
tions before income taxes............. (25.5) 1.5 8.9 (19.2) 3.6
Provision (benefit) for income taxes... (3.4) (2.0) (0.3) (7.7) (0.4)
------ ------ ------ ------ -----
Income (loss) from continuing opera-
tions................................. (22.1) 3.5 9.2 (11.5) 4.0
Income (loss) from discontinued opera-
tions................................. (0.9) 0.8 0.6 0.0 --
Gain on sale of discontinued opera-
tions................................. -- -- 1.8 -- --
------ ------ ------ ------ -----
Net income (loss)...................... (23.0)% 4.3% 11.6% (11.5)% 4.0%
====== ====== ====== ====== =====
</TABLE>
20
<PAGE>
QUARTERLY FINANCIAL RESULTS
The following table sets forth unaudited consolidated statement of
operations data for each of the quarters in the fiscal years ended April 30,
1996 and 1997 and the quarter ended July 31, 1997. 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 incorporated by reference herein, and
includes all adjustments necessary for a fair presentation of such information
when read in conjunction with the Consolidated Financial Statements and the
Notes thereto, incorporated by reference herein. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses.......................... $ 197 $ 1,536 $ 6,258 $ 7,483 $ 2,296 $4,836 $7,501 $11,514 $5,791
Services and maintenance.......... 4,272 5,770 6,149 6,912 6,779 7,875 7,781 9,312 9,784
Other............................. 256 506 396 274 142 793 329 454 131
-------- ------- ------- ------- ------- ------ ------ ------- ------
Total revenues................... 4,725 7,812 12,803 14,669 9,217 13,504 15,611 21,280 15,706
Cost of revenues:
Licenses.......................... 3 152 1,016 1,546 100 653 294 493 88
Services and maintenance.......... 3,579 3,908 4,029 5,297 5,078 5,741 5,691 6,361 7,495
Other............................. 204 369 220 154 96 404 245 256 85
-------- ------- ------- ------- ------- ------ ------ ------- ------
Total cost of revenues........... 3,786 4,429 5,265 6,997 5,274 6,798 6,230 7,110 7,668
-------- ------- ------- ------- ------- ------ ------ ------- ------
Gross profit..................... 939 3,383 7,538 7,672 3,943 6,706 9,381 14,170 8,038
Operating expenses:
Product development............... 1,368 1,557 1,716 2,181 1,956 2,624 2,420 2,935 2,516
Sales and marketing............... 1,385 1,629 2,121 2,611 2,593 2,782 4,162 5,460 3,720
General and administrative........ 828 907 886 958 986 1,084 1,108 1,221 1,390
-------- ------- ------- ------- ------- ------ ------ ------- ------
Total operating expenses......... 3,581 4,093 4,723 5,750 5,535 6,490 7,690 9,616 7,626
-------- ------- ------- ------- ------- ------ ------ ------- ------
Income (loss) from operations...... (2,642) (710) 2,815 1,922 (1,592) 216 1,691 4,554 412
Other income (expense):
Interest income................... 4 -- 5 4 13 88 223 319 240
Interest expense.................. (189) (196) (188) (171) (127) (103) -- (23) (15)
Miscellaneous income (expense).... (16) 258 (259) 5 (63) (104) 167 (21) (65)
-------- ------- ------- ------- ------- ------ ------ ------- ------
Income (loss) from continuing
operations before income taxes.... (2,843) (648) 2,373 1,760 (1,769) 97 2,081 4,829 572
Provision (benefit) for income
taxes............................. (564) (301) 62 22 (705) (87) (120) 722 (58)
-------- ------- ------- ------- ------- ------ ------ ------- ------
Income (loss) from continuing
operations........................ (2,279) (347) 2,311 1,738 (1,064) 184 2,201 4,107 630
Income (loss) from discontinued
operations........................ (78) 134 189 82 2 365 7 -- --
Gain on sale of discontinued
operations........................ -- -- -- -- -- -- 1,100 -- --
-------- ------- ------- ------- ------- ------ ------ ------- ------
Net income (loss).................. $ (2,357) $ (213) $ 2,500 $ 1,820 $(1,062) $549 $3,308 $ 4,107 $ 630
======== ======= ======= ======= ======= ====== ====== ======= ======
</TABLE>
21
<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>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses............... 4.2% 19.7% 48.9% 51.0% 24.9% 35.8% 48.1% 54.1% 36.9%
Services and
maintenance........... 90.4 73.8 48.0 47.1 73.6 58.3 49.8 43.8 62.3
Other ................. 5.4 6.5 3.1 1.9 1.5 5.9 2.1 2.1 0.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Licenses............... 0.1 1.9 7.9 10.5 1.1 4.8 1.9 2.3 0.6
Services and
maintenance........... 75.7 50.0 31.5 36.2 55.1 42.5 36.4 29.9 47.7
Other.................. 4.3 4.8 1.7 1.0 1.0 3.0 1.6 1.2 0.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 80.1 56.7 41.1 47.7 57.2 50.3 39.9 33.4 48.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......... 19.9 43.3 58.9 52.3 42.8 49.7 60.1 66.6 51.2
Operating expenses:
Product development.... 28.9 19.9 13.4 14.9 21.2 19.4 15.5 13.8 16.0
Sales and marketing.... 29.4 20.9 16.6 17.8 28.1 20.6 26.7 25.7 23.7
General and
administrative........ 17.5 11.6 6.9 6.5 10.7 8.0 7.1 5.7 8.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 75.8 52.4 36.9 39.2 60.0 48.0 49.3 45.2 48.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. (55.9) (9.1) 22.0 13.1 (17.2) 1.7 10.8 21.4 2.6
Other income (expense):
Interest income........ 0.1 -- -- -- 0.1 0.7 1.4 1.5 1.5
Interest expense....... (4.0) (2.5) (1.5) (1.1) (1.4) (0.8) -- (0.1) (0.1)
Miscellaneous income
(expense)............. (0.4) 3.3 (2.0) -- (0.7) (0.8) 1.1 (0.1) (0.4)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations
before income taxes.... (60.2) (8.3) 18.5 12.0 (19.2) 0.8 13.3 22.7 3.6
Provision (benefit) for
income taxes........... (12.0) (3.9) 0.4 0.1 (7.7) (0.6) (0.8) 3.4 (0.4)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations.. (48.2) (4.4) 18.1 11.9 (11.5) 1.4 14.1 19.3 4.0
Income (loss) from
discontinued
operations............. (1.7) 1.7 1.4 0.5 -- 2.7 -- -- --
Gain on sale of
discontinued
operations............. -- -- -- -- -- -- 7.1 -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (49.9)% (2.7)% 19.5% 12.4% (11.5)% 4.1% 21.2% 19.3% 4.0%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
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 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 application software vendors
with large average order sizes, the Company's revenues and operating results
are typically lower in its first and second fiscal quarters, as the Company's
sales force initiates sales activity
22
<PAGE>
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
could experience operating 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 and delays in the implementation process; the Company's
success in expanding its sales, support, service and marketing organizations;
the ability of the Company to establish and maintain relationships with third
party implementation providers; 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; personnel changes; the
structure and timing of future acquisitions, if any; fluctuations in foreign
currency exchange rates; mix of license and service and maintenance revenues
sold 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 and
consulting services organization, and the timing of such expansion and the
rate at which new sales and consulting personnel 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.
Because the Company generally ships software products within a short period
after receipt of an order, it 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. The Company has historically recognized a
significant portion of license revenues in the last two weeks of a quarter.
Any significant shortfall of license 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."
23
<PAGE>
BUSINESS
IMI develops, markets and supports software that enables manufacturers,
distributors, wholesalers and retailers to more effectively fulfill their
customers' orders. The Company's demand chain management solution, System ESS,
provides the execution of multiple order fulfillment processes, including
order management, distribution management, inventory replenishment and demand
planning. System ESS has been designed specifically to meet the complex and
high-volume demand chain management requirements of large manufacturers,
distributors, wholesalers and retailers in the consumer packaged goods
industry, enabling them to better match product flow to actual customer
demand, thereby enhancing revenue opportunities and reducing administrative
and logistics/distribution costs. 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 Black & Decker, British Airways, Campbell
Soup, Canon U.S.A., Estee Lauder, GE Plastics, Hartz Mountain, Kellogg, NIKE,
Pioneer Standard Electronics, ProSource Distribution Services, Skyway Freight
Systems, Starbucks and Unisys.
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,
wholesalers and retailers 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"
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.
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, wholesalers and retailers, 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
24
<PAGE>
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, wholesalers and retailers:
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.
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.
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
years, and considerable resources, attempting to implement a client/server
solution without significant success.
25
<PAGE>
THE IMI SOLUTION
IMI develops, markets and supports software that enables manufacturers,
distributors, wholesalers and retailers to more effectively fulfill their
customers' orders. 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, wholesalers and
retailers, 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. System ESS has been scaled in
some implementations to manage 700 or more simultaneous users. Its efficient
use of distributed computing also has enabled System ESS to execute and manage
over 15 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.
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 as its database server and supports the
leading UNIX-based and Windows NT servers as well as Windows clients. 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, 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.
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STRATEGY
The Company's objective is to be the leading global supplier of demand chain
management software solutions to manufacturers, distributors, wholesalers and
retailers. 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 distribution 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 consumer durables, business equipment,
medical, automotive and industrial products sectors.
Expand Sales, Support, Service and Marketing Organizations. IMI currently
sells and supports System ESS through direct sales and support organizations
in North America, Europe and Asia/Pacific. IMI plans to continue to invest
significantly in expanding its sales, support, service and marketing
organizations in such geographic regions. As IMI increasingly targets large,
multinational customers and as existing customers migrate their System ESS
installations to other divisions internationally, the Company intends to
continue to expand its sales and support organizations to provide such
services on a worldwide basis. The Company opened sales and support offices in
Australia, Germany and the Netherlands in fiscal 1997 and in France in October
1997. The Company now provides 24 hour, seven days per week support through
telephone and electronic mail.
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 or
geographic regions. 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 intends to continue to
increase product functionality through both in-house development and selected
acquisitions.
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. Partnership
agreements have been signed with Oracle, Business Objects S.A., Frontec AMT AB
and i2 Technologies 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. In connection with specific implementations, the Company has partnered
with Andersen Consulting, Computer Sciences Corporation, IBM and MCI
Systemhouse in the United States, and Cap Gemini and ECsoft Group in Europe.
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 systems
integrator partners provide a complete range of customer services, including
implementation, training, consulting and maintenance.
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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, distribution
management, inventory replenishment, price and promotion, demand chain
monitoring, global organization management, electronic commerce and decision
support. System ESS can currently operate on server platforms from Hewlett-
Packard Corporation, IBM, Digital Equipment Corporation, Sun Microsystems,
Inc. and Sequent Corporation which run under either UNIX or Windows NT
operating systems. In April 1997, the Company introduced a new version of
System ESS that operates on a Windows NT server platform, supports Internet-
based electronic commerce through World Wide Web browsers and Java based
clients and supports seven languages in total. 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.
At the time System ESS is delivered to a client and installed on a
customer's system, System ESS is fully capable, without additional
modification, of providing the functionality described below. In general,
relatively little modification to, or customization of, the standard System
ESS software is required in order for the software to meet the basic
functionality requirements of individual customers. Customers requiring
additional functionality may enter into a services agreement with the Company
or a third party, which is typically performed on a time and materials basis.
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.
Distribution Management. System ESS manages the transactional processes
involving inbound and outbound product movement. The distribution 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 distribution 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.
Inventory 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 to match customer needs on a
timely basis. Its inventory and replenishment features are tightly integrated
with the order management process, synchronizing inventory replenishment with
customer demand. The System ESS inventory replenishment process integrates
with the physical logistics process to automatically trigger and execute stock
transfers throughout the distribution network, and replenishment orders and
drop shipments from outside suppliers. Inventory replenishment also supports
vendor managed inventory and continuous replenishment programs.
Price and Promotion. System ESS administers and executes a significant
number of 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
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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.
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 has developed capabilities for
Internet-based order placement through World Wide Web browsers and Java based
clients.
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.
In April 1997, the Company introduced a separate System ESS application
module for the management of product installation and service operations.
System ESS Service Management is currently being integrated with other
components of System ESS to enable users to manage after-sales activities such
as service orders, warranty tracking, call handling and field service.
In fiscal 1997, the Company acquired Ceratina International AB, a Swedish
warehouse management software company, together with its product "Open
Warehouse," a warehouse management package that is currently being sold as a
stand-alone product and is being integrated with System ESS. Open Warehouse is
an object-oriented software application that plans, manages and monitors the
day-to-day work in a warehouse optimizing personnel, space, and equipment
resources.
SYSTEM ESS PRICING
The license price for System ESS is determined based upon the number of
servers, the number of defined users and the projected number of order lines
to be processed per year in the customer's system. In fiscal 1997 and the
first fiscal quarter of 1998, license fees for System ESS have averaged
approximately $1.3 million and there have been several licenses significantly
in excess of that amount. The Company expects that individual license fees
will continue to increase in size as the Company's products become more
sophisticated and manage larger and more geographically dispersed locations.
License and service and maintenance revenues related to System ESS have
represented a substantial majority of the Company's revenues in recent years
and are expected to represent substantially all of the Company's revenues in
the future. See "Risk Factors--Lengthy Sales and Implementation Cycle;
Increasing Size of Orders" and "--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.
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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. ("Trifox")
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. 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.
Event Express. Event Express is a toolkit which allows customers to easily
integrate System ESS with other management information systems, such as
financial reporting and MRP systems.
Business Engineering Workbench. In April 1997, the Company introduced a
Microsoft Windows client-based tool to enhance the System ESS implementation
process. The Business Engineering Workbench includes Navigation Express, which
provides a comprehensive review of the key System ESS business concepts,
routine flows, and implementation codes and parameters, and Implementation
Express, which utilizes an upper case facility to graphically document all
System ESS business processes, routines, and functions.
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 July 31, 1997, IMI had 278 employees in
its customer service and support organization providing software maintenance
and support, training, and consulting services. The Company typically charges
its customers on a time and materials basis for implementation and training
services and a percentage of the license fee as an annual maintenance fee.
IMI provides the following services and support to its customers:
Implementation and Technical Services. The Company and/or third party
consultants provide post delivery services to the Company's customers pursuant
to a separate service agreement. These implementation services typically
involve assistance with the integration of System ESS with other existing
software applications and databases currently used by the customer and the
development of product extensions to add customer-specific functionality.
Existing software applications and databases will vary from customer to
customer, but may often include legacy management support, logistics or ERP
applications. The integration of System ESS with a customer's existing
applications allows the customer to more efficiently utilize System ESS by
linking data flows between System ESS and various existing applications. Such
integration is not, however, a prerequisite to the basic functionality of
System ESS. Product extensions are developed using the same software tools
used in System ESS and SDCM documents all of the additions made to System ESS
for each customer for future upgrades of System ESS.
The Company has established its Demand Chain Alliance Program ("DCAP"),
which trains and certifies third party providers. DCAP participants include
Andersen Consulting, Computer Sciences Corporation, IBM and MCI Systemhouse in
the United States, and Cap Gemini and ECsoft Group 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. The Company expects a greater proportion of its implementation
services to be carried out by third parties under the supervision of IMI. The
implementation of System ESS, depending on the customer, may include the
integration of
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System ESS with existing customer software, the development of product
extensions to add customer specific functionality and customer training. There
can be no assurance that delays in the implementation process of System ESS
for any given customer will not have a material adverse effect on the
Company's business, operating results and financial condition. 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. Customers often purchase training
services for System ESS as a means of efficiently introducing those staff
members who will be users of the software to the basic operation of System
ESS, as well as to some of the software's more advanced features. Such
training services are not, however, necessary to allow System ESS to function.
Customer Support. The Company has fully-staffed support centers in the
United States, the United Kingdom, Sweden and Australia. IMI provides 24 hour,
seven days per week support through telephone and electronic mail, and uses
logging/tracking systems for quality assurance.
CUSTOMERS
The Company's target customers are multinational manufacturers, distributors
wholesalers and retailers in the consumer packaged goods, consumer durables,
business equipment, medical, automotive, and industrial products sectors, as
well as other high-volume wholesalers and retailers. As of July 31, 1997, the
Company licensed System ESS to over 50 customers. The following table sets
forth a list of the Company's customers as of July 31, 1997 organized by
industry segment with the geographic location of each customer's operations
(or deployment of System ESS, where relevant) indicated in parentheses:
CONSUMER PACKAGED GOODS BUSINESS EQUIPMENT THIRD PARTY LOGISTICS
Alpina (Columbia) Canon (U.S.) Posten Logistik (Sweden)
Campbell Soup (U.S.) Eastman Kodak (Nordic) Skyway Freight Systems
Carlton United Breweries Matsushita (U.S.) (U.S.)
(Australia) Unisys (Worldwide)
Dannon (U.S.) WHOLESALERS/RETAILERS
Estee Lauder (U.S.) INDUSTRIAL PRODUCTS Ahlsell (Sweden)
First Brands (U.S.) Agway (U.S.) Alko (Finland)
Hartz Mountain (U.S.) Black & Decker (U.S.) MoDo Merchants (U.K.)
Hormel (U.S.) Coats & Clark (U.S.) Pioneer Standard
Kellogg (Worldwide) GE Plastics (Worldwide) Electronics (U.S.)
Kiiltoo (Finland) Granges Metall (Sweden) ProSource (U.S.)
Land O'Lakes (U.S.) Tour & Andersson (Sweden) SLO (Finland)
NIKE (Japan) Zurn Industries (U.S.) Spicers (U.K., France)
Paragon (U.S.) United Tiles (Nordic)
Pepsico (France) MEDICAL
Ralcorp (U.S.) EMMA Healthcare (Sweden) OTHER
Smuckers (U.S.) Interpharm (Netherlands) British Airways (U.K.)
Starbucks (U.S.) Norsk Medisinaldepot ColorLine (Norway)
Tri Valley Growers (Norway) Fel-Pro (U.S.)
(U.S.) SLL Healthcare (Sweden) Forlagscentralen (Norway)
Satair (Denmark)
In fiscal 1997 and the first fiscal quarter of 1998, new license fees
averaged approximately $1.3 million, although there have been several license
fees significantly in excess of that amount. Individual customers have often
accounted for more than 10% of total revenues in particular quarterly periods.
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
years ended April 30, 1996 and April 30, 1997 the
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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 fiscal 1998, the
Company expects that individual customers (the identity of which will likely
change on a quarterly basis) may continue to account for 10% or more of the
Company's total quarterly revenues in future periods.
SALES AND MARKETING
The Company sells and supports its products through direct sales and support
organizations in Sweden, the United States, the United Kingdom, France,
Germany, the Netherlands and Australia. The Company maintains corporate
headquarters in Stockholm, Sweden and has sales and/or support services
offices in Tarrytown, New York; Boston, Massachusetts; Marlton, New Jersey;
Atlanta, Georgia; Chicago, Illinois; Los Angeles, California; London, United
Kingdom; Paris, France; Stuttgart, Germany; Utrecht, The Netherlands;
Gothenburg, Hassleholm and Linkoping, Sweden; and Melbourne, Australia. As of
July 31, 1997, the Company employed 52 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, Support, Service and
Marketing Organizations."
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 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."
Prior to 1997, the Company engaged in an informal joint marketing and sales
arrangement with Oracle pursuant to which the two companies jointly marketed
to customers in the consumer packaged goods industry. In January 1997, the
Company entered into the Oracle Agreement pursuant to which the parties agreed
for a term of three years to jointly market and license the Oracle Solution
Suite, which incorporates the Company's System ESS software and Oracle
software together with other complementary software owned by third parties.
The Oracle Agreement provides for additional development of component
software, integration of the software components and marketing and support of
the Oracle Solution Suite. In addition, Oracle has agreed not to develop or
use in the consumer packaged goods industry any other software with similar
functionality to System ESS. Pursuant to the Oracle Agreement, Oracle has
agreed to pay the Company the total license fees that Oracle receives from the
customer for System ESS less specified percentages. In the United States,
Oracle and its distributors have the exclusive right to sub-license System ESS
software as part of the Oracle Solution Suite in the consumer packaged goods
industry. Outside of the United States, Oracle and its distributors have a
non-exclusive right to sub-license System ESS in the consumer packaged goods
industry. In addition, the Company has retained the worldwide right to market
System ESS to customers in the consumer packaged goods industry as a "point"
solution and in any other manner which does not provide combined software
substantially similar to the Oracle Solution Suite. The Oracle Agreement may
be renewed by the parties for successive three-year terms, unless sooner
terminated. The Oracle Agreement may be terminated by either party for cause
or by Oracle if the Company fails to perform certain technical support and
product development obligations. In the event the Oracle Agreement is
terminated, the customer licenses shall continue and, under certain
circumstances, the Company's technical support obligations, and Oracle's
related payment obligations, will continue for up to three years.
The Company and Oracle have periodically entered into separate agent
agreements authorizing Oracle to sub-license the Company's System ESS software
to customers in the consumer packaged goods
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industry and other industries. Pursuant to such agent agreements, Oracle pays
to the Company a specified percentage of the license fee for System ESS. In
industries other than consumer packaged goods, the Company also from time to
time directly competes with Oracle's order management software product. See
"Risk Factors--Competition."
In the consumer packaged goods industry, the Company actively markets and
sells System ESS as a "point" solution and as part of the Oracle Solution
Suite. The Company's sales of System ESS in the consumer packaged goods
industry are dependent upon the effectiveness of Oracle's efforts under the
Oracle Agreement, which the Company cannot control. There can be no assurance
that Oracle will not otherwise curtail or discontinue the Oracle Agreement at
the end of the initial three year term or that the Oracle Agreement will be
beneficial to the Company, which could have a material adverse effect on the
business, operating results and financial condition of the Company. In
industries other than consumer packaged goods, there can be no assurance that
Oracle will continue to recommend the Company and its products to potential
customers or enter into separate agent agreements with the Company, either of
which could have a material adverse effect on the business, operating results
and financial condition of the Company. See "Risk Factors--Dependence upon
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 three 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." In
addition the Company's quarterly operating results are subject to certain
seasonal fluctuations. See "Risk Factors--Significant Fluctuations in
Quarterly Operating Results and Seasonality" and "Management's Discussion and
Analysis of Financial Conditions--Quarterly Financial Results."
PRODUCT DEVELOPMENT
The Company has devoted significant resources to product development since
its inception and has increased such investments in recent years. As of July
31, 1997, the Company employed 96 people in product development. The Company
intends to increase its investments in product development in future periods.
The Company believes that its future 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. For example, as certain of the Company's customers
started to consider Windows NT or other operating platforms, it was necessary
for the Company to enhance its System ESS products to operate on such
platforms in order to anticipate such customers' requirements. In April 1997,
the Company introduced a new version of System ESS that operates on a Windows
NT server platform, supports Internet-based electronic commerce through World
Wide Web browsers and Java-based clients and supports seven languages in
total. However, there can be no assurance that the Company will be successful
in continuing to develop this 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."
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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 which currently offer client/server
ERP solutions, such as SAP, Baan, J.D. Edwards, SSA and, in vertical markets
other than consumer packaged goods, Oracle, (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 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 execution software. 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 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.
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 could 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 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. 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.
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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, financial condition or results of
operations. See "Risk Factors--Dependence on Proprietary Technology; Risks of
Infringement."
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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)...... 47 Chairman of the Board, President and Chief Executive Officer
Carl Joelsson........... 53 Senior Vice President-Worldwide Service and Support
Mats Lillienberg........ 37 Senior Vice President-Product Development
Lars-Goran Peterson..... 52 Senior Vice President-Finance and Chief Financial Officer
David Simbari .......... 42 Senior Vice President-Worldwide Sales and Marketing
Per-Olof Ekholtz........ 50 Vice President-Product Marketing
Jeffrey A. Harris
(1)(2)................. 41 Director
William H. Janeway...... 54 Director
Martin Leimdorfer
(1)(2)................. 61 Director
Geoffrey W. Squire (2).. 50 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.
Carl Joelsson joined the Company in 1988 as President of Industri-Matematik
Projektledning AB, a subsidiary of IMAB and an indirect 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 Senior Vice
President-Worldwide Service and Support. 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 of enhancements to System ESS products and is currently Senior
Vice President-Product Development. Before joining the Company, Mr.
Lillienberg worked for Kommun Data AB as a Programmer Analyst for two years.
Lars-Goran Peterson joined the Company in 1992 as a Business Unit Manager
and became its Chief Financial Officer in January 1994. Mr. Peterson is
currently Senior Vice President-Finance and Chief Financial Officer of the
Company. From 1982 to 1992, Mr. Peterson was Chief Financial Officer of AB
Calvert & Co., a wholesale distributor of tube and steel. From 1972 to 1982,
Mr. Peterson served as Chief Financial Officer of Nordiska Industri AB, a
manufacturer and wholesale distributor of textiles.
David Simbari joined the Company in 1993 as Sales Director, United States
and became Senior Vice President-Worldwide Sales and Marketing of the Company
in June 1997. Before joining the Company, Mr. Simbari worked at Ross Systems,
Inc., a software company, from 1986 to 1993, where he served most recently as
Vice President of North American Sales.
36
<PAGE>
Per-Olof Ekholtz joined the Company's marketing department in 1988, became
Vice President Sales/Marketing in 1992 and is currently Vice President-Product
Marketing. Before joining the Company, Mr. Ekholtz owned his own software
consulting company.
Jeffrey A. Harris has served as a director of the Company since 1991. Mr.
Harris has been a Managing Director of E.M. Warburg, Pincus & Co. LLC ("EMWP &
Co.") since 1988, where he has been employed since 1983. Mr. Harris is a
director of Newfield Exploration Company, Comcast UK Cable Partners Limited,
Knoll, Inc., ECsoft Group plc and several privately held companies.
William H. Janeway has served as a director of the Company since 1991. Mr.
Janeway has been a Managing Director of EMWP & Co. since 1988 and is Head of
the High Technology Group. Mr. Janeway is a director of BEA Systems, Inc.,
Indus International, Inc., Vanstar Corporation, VERITAS Software Corporation,
Zilog, Inc. and several privately-held companies.
Martin Leimdorfer founded IMAB in 1967. Dr. Leimdorfer was President and
Chief Executive Officer of the Company from 1967 to 1995. He has been a
director of the Company since its formation. 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.
Geoffrey W. Squire has served as a director of the Company since 1994. Mr.
Squire is Co-Chairman of the Board and the Executive Vice President for
Worldwide Sales and Services Operations of VERITAS Software Corporation, a
storage management software company. Mr. Squire served at various positions at
Oracle Corporation from 1984, eventually being appointed in 1992 to Oracle's
five-person Executive Committee with responsibility as Chief Executive,
International Operations. Mr. Squire joined OpenVision Technologies Inc. in
1994 and was its Chief Executive Officer from July 1995 through April 1997,
when it merged with VERITAS Software Corporation.
37
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the 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) the Selling Stockholders, (ii) each director and executive
officer of the Company and (iii) all directors and executive officers as a
group. 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 BENEFICIALLY
OWNED PRIOR TO NUMBER OWNED AFTER
OFFERING (1)(2) OF 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)................. 18,310,251 64.8% 3,500,000 14,810,251 46.6%
Jeffrey A. Harris(1)(4)(5)..... 18,310,251 64.8% 3,500,000 14,810,251 46.6%
William H. Janeway(1)(4)(5).... 18,310,251 64.8% 3,500,000 14,810,251 46.6%
Martin Leimdorfer.............. 3,067,017 10.9% -- 3,067,017 9.7%
Stig G. Durlow................. 640,000 2.3% 35,000 605,000 1.9%
Lars-Goran Peterson............ 267,000 * 15,000 252,000 *
David Simbari(6)............... 255,500 * 15,000 240,500 *
Mats Lillienberg............... 210,000 * 10,000 200,000 *
Carl Joelsson.................. 86,000 * -- 86,000 *
Per-Olof Ekholtz............... 64,996 * -- 64,996 *
Geoffrey Squire(7)............. 10,000 * -- 10,000 *
All executive officers and
directors as a group
(10 persons).................. 22,910,764 80.3% 3,575,000 19,335,764 60.4%
</TABLE>
- --------
* Less than 1%
(1) Based on 16,171,314 shares of Common Stock and 12,088,200 shares of Class
B Common Stock outstanding prior to this offering. All of the 12,088,200
shares of Class B Common Stock owned by Warburg will be converted into
Common Stock upon the closing of this offering. See "Description of
Capital Stock."
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person which 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. EMWP & Co., a New York limited liability
company, manages Warburg. The members of EMWP & Co. are substantially the
same as the partners of WP. Lionel I. Pincus is the managing partner of WP
and the managing member of EMWP & Co. and may be deemed to control both WP
and EMWP & Co. WP has a 20% interest in the profits of Warburg. Mr.
Janeway and Mr. Harris, directors of the Company, are Managing Directors
of EMWP & Co. and General Partners of WP. 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 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. Messrs. Janeway and Harris disclaim beneficial ownership of these
shares, except to the extent of their respective pecuniary interests
therein. Messrs. Janeway's and Harris' address is 466 Lexington Avenue,
10th Floor, New York, New York 10017. See footnotes (2) and (3) above.
(5) Assumes that the Underwriters' over-allotment option is not exercised. If
the over-allotment option were exercised in full, Warburg would own
14,279,626 shares, or 44.2% of the Company's outstanding Common Stock
after this offering.
(6) Includes 255,000 shares subject to options currently exercisable or
exercisable within 60 days of the date of this Prospectus.
(7) Includes 10,000 shares subject to options currently exercisable or
exercisable within 60 days of the date of this Prospectus.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, $.01 par value, 12,500,000 shares of which are designated Class
B Common Stock, $.01 par value, and 15,000,000 shares of Preferred Stock, $.01
par value.
COMMON STOCK
As of September 30, 1997, there were 16,171,314 shares of Common Stock
outstanding held of record by 27 stockholders. There will be 31,759,514 shares
of Common Stock outstanding after the sale of Common Stock offered hereby and
the conversion of all of the outstanding Class B Common Stock upon the closing
of this offering.
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. See "Dividend Policy."
CLASS B COMMON STOCK
As of September 30, 1997, there were 12,088,200 shares of Class B Common
Stock outstanding and owned by Warburg. Following the completion of this
offering, no shares of Class B Common Stock will be outstanding.
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. In addition the holder of Class B Common Stock has the
right to convert such shares to Common Stock at any time, provided that after
conversion, such holder may not control more than 49% of the Common Stock.
Warburg has elected to convert all of its shares of Class B Common Stock into
Common Stock, without any adjustments, upon the closing of this offering.
PREFERRED STOCK
As of September 30, 1997, there were no shares of Preferred Stock issued or
outstanding.
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 the holders of Common Stock. Following completion of this
offering, there will be no shares of Preferred Stock outstanding, and the
Company has no plans to issue any of the Preferred Stock.
39
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, BT Alex.
Brown Incorporated, Deutsche Morgan Grenfell Inc., SoundView Financial Group,
Inc. and UBS Securities LLC (the "Underwriters") have severally agreed to
purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the 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>
BT Alex. Brown Incorporated....................................... 3,042,250
Deutsche Morgan Grenfell Inc. ................................... 1,344,250
SoundView Financial Group, Inc. .................................. 1,344,250
UBS Securities LLC ............................................... 1,344,250
---------
Total........................................................... 7,075,000
=========
</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
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the 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 $0.54 per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $0.10 per share to certain other
dealers. After the public offering, the public offering price and other
selling terms may be changed by the Underwriters.
The Company and one of the Selling Stockholders, Warburg, have granted to
the Underwriters an option, exercisable not later than 30 days after the date
of this Prospectus, to purchase up to 1,061,250 additional shares of Common
Stock at the public offering price less the underwriting discounts and
commissions as set forth on the cover page of this Prospectus. The Company and
Warburg have each agreed to sell 530,625 shares. 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 7,075,000, and the Company 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 7,075,000 shares are being offered hereby.
The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters, the Company and the Selling Stockholders regarding
certain liabilities, including liabilities under the Securities Act.
The Company, each of its directors and executive officers and Warburg have
each agreed, subject to certain limitations, not to offer, sell or otherwise
dispose of any shares of Common Stock for a period of 90 days after the date
of this Prospectus, without the prior written consent of BT Alex. Brown
Incorporated, except that the Company may grant options to purchase shares of
Common Stock under its current Stock Option Plan, sell shares pursuant to its
Restricted Stock Program and Employee Stock Purchase Plan and issue shares of
stock upon the exercise of stock options. See "Risk Factors--Shares Eligible
For Future Sale."
40
<PAGE>
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on Nasdaq immediately prior to
the commencement of sales in this offering in accordance with Rule 103 of
Regulation M under the Exchange Act. Passive market making consists of
displaying bids on Nasdaq limited by the bid prices of independent market
makers and making purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each day are limited to
a specified percentage of the passive market maker's average daily trading
volume in the Common Stock during a specified period and must be discontinued
when such limit is reached. Passive market making may stabilize the market
price of the Common Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
Subject to applicable limitations, the Underwriters, in connection with this
offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the Underwriters may also place
bids or make purchases on behalf of the underwriting syndicate to reduce a
short position created in connection with this offering. The Underwriters are
not required to engage in these activities and may end these activities at any
time.
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 certain
matters of Swedish law by Advokatfirman Vinge KB, Stockholm, Sweden. 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, 1997 and 1996, 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, 1997
incorporated by reference in this Prospectus, are incorporated by reference
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 Commission a Registration Statement on Form
S-3 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 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.
41
<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>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 14
Use of Proceeds........................................................... 15
Price Range of Common Stock............................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Selected Consolidated Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 24
Management................................................................ 36
Principal and Selling Stockholders........................................ 38
Description of Capital Stock.............................................. 39
Underwriting.............................................................. 40
Legal Matters............................................................. 41
Experts................................................................... 41
Additional Information.................................................... 41
</TABLE>
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7,075,000 SHARES
[LOGO OF INDUSTRI-MATEMATIK INTERNATIONAL APPEARS HERE]
COMMON STOCK
------------
PROSPECTUS
------------
BT ALEX. BROWN
DEUTSCHE MORGAN GRENFELL
SOUNDVIEW FINANCIAL GROUP, INC.
UBS SECURITIES
October 31, 1997
- --------------------------------------------------------------------------------
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