<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1999
REGISTRATION NO. 333-62703
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NEWGEN RESULTS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 33-0604378
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
12680 HIGH BLUFF DRIVE, SUITE 300
SAN DIEGO, CALIFORNIA 92130
(619) 481-7545
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
GERALD L. BENOWITZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEWGEN RESULTS CORPORATION
12680 HIGH BLUFF DRIVE, SUITE 300
SAN DIEGO, CALIFORNIA 92130
(619) 481-7545
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES TO:
M. WAINWRIGHT FISHBURN, ESQ. FRANCIS S. CURRIE, ESQ.
LANCE W. BRIDGES, ESQ. NEIL WOLFF, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
4365 EXECUTIVE DRIVE, SUITE 1100 PROFESSIONAL CORPORATION
SAN DIEGO, CA 92121 650 PAGE MILL ROAD
(619) 550-6000 PALO ALTO, CA 94304
(650) 493-9300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / ________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 20, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
PROSPECTUS
3,725,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Newgen Results
Corporation. Of the 3,725,000 shares of common stock being sold in this
offering, 2,724,370 are being sold by Newgen and 1,000,630 are being sold by the
selling stockholders. Newgen will not receive any of the proceeds from the sale
of shares by the selling stockholders. The estimated initial public offering
price will be between $12.00 and $14.00 per share.
--------------
There is currently no public market for the common stock. The shares of
common stock have been approved for quotation on the Nasdaq National Market
under the symbol NWGN.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------------- ----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Newgen, before expenses......................... $ $
Proceeds to the selling stockholders, before expenses....... $ $
</TABLE>
Newgen has granted the underwriters an option for a period of 30 days to
purchase up to 558,750 additional shares of common stock to cover any
over-allotments.
--------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS A DIVISION OF DAIN
RAUSCHER INCORPORATED
, 1999
<PAGE>
[INSIDE FRONT COVER]
THE NEWGEN SOLUTION
CUSTOMER RELATIONSHIP MANAGEMENT
A diagram depicting the outsourced database management, direct marketing
and related services Newgen provides, or is currently developing, for automobile
dealerships and automobile manufacturers. The diagram is presented in a circular
flow-chart format with outside graphic arrows pointing to Newgen's database
marketing and customer retention services. Newgen's logo is in the center of the
flow-chart representing Newgen.
The diagram begins with an outside arrow representing the purchase of a
car. An internal arrow points to Newgen representing transaction data downloaded
into Newgen's database. The other outside graphic arrows summarize services
provided by Newgen as follows: "Thank You Letter," "Follow-up Survey,"
"Closed-Loop Reminder Process," "Service Appointment," "After Service
Follow-up," "Specialty Notification," "Sales Solicitation."
The flow chart's inner circle depicts the following services provided,
or currently being developed, by Newgen: CSI, Results Program, Reservations,
Around the Wheel, ROAD and Customized Mailing. Internal arrows flow from these
services to the related service description--contained in the outside arrows.
Underneath the flow chart are the following two bullet points: - over
2,000 Dealerships; and - over 4.8 million Active Vehicles.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................................... 4
Risk Factors................................................. 7
Use of Proceeds.............................................. 21
Dividend Policy.............................................. 21
Capitalization............................................... 22
Dilution..................................................... 23
Selected Consolidated Financial Data......................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 25
Business..................................................... 35
Management................................................... 50
Certain Transactions......................................... 61
Principal and Selling Stockholders........................... 63
Description of Capital Stock................................. 65
Shares Eligible for Future Sale.............................. 68
Underwriting................................................. 70
Legal Matters................................................ 72
Experts...................................................... 72
Additional Information....................................... 72
Index to Consolidated Financial Statements................... F-1
</TABLE>
Information contained on our Web site is not a part of this prospectus.
Newgen Results Corporation and Newgen Results Program are our
trademarks. This prospectus also includes trademarks and trade names of other
companies.
We were incorporated in California in February 1994 and we
reincorporated in Delaware in December 1998. Our executive offices are located
at 12680 High Bluff Drive, Suite 300, San Diego, California 92130 and our
telephone number is (619) 481-7545.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION.
NEWGEN
Newgen believes that it is a leading provider of customized, outsourced
database management, direct marketing and related services for automobile
dealerships' service departments and automobile manufacturers. We combine our
expertise in database marketing and customer retention services, our focus on
customer service and our in-depth knowledge of service department operations to
provide highly targeted and customized solutions. We have grown our customer
base from 177 dealerships at December 31, 1995 to 2,092 dealerships at March 31,
1999 and we currently solicit over four million dealership customers. Our
services are designed to:
- attract more service customers to dealerships from the dealerships'
customer base;
- increase dealership revenues per customer;
- promote customer loyalty and increase customer satisfaction;
- differentiate the dealership from its competition through improved
operations; and
- provide the benefits of a safer vehicle with an increased resale
value.
Historically, automobile dealerships have focused on sales of
automobiles, viewing the benefits of retaining customers for service-related
revenue as being secondary. According to the National Automobile Dealer
Association (NADA), despite declining market share of service-related spending
at dealerships, the percentage of dealership profits generated from the service
and parts department has increased from 16% in 1985 to 59% in 1997. Dealerships
and manufacturers increasingly are realizing that the service department
represents an important component of dealership profitability.
Our RESULTS Program utilizes direct mail and outbound teleservice
follow-up to promote service business from within a dealership's customer base.
We estimate that approximately 25% to 30% of dealership customers solicited by
us return to the dealership for vehicle service. This contrasts with typical
response rates for direct mail marketing campaigns of between 1% and 3%. Our
database marketing services are implemented using data provided by dealerships.
We eliminate irrelevant, inaccurate and outdated data and combine this purified
data with maintenance schedule databases and our own proprietary databases and
algorithms to develop customized solicitations targeting service visits. Our
internal studies indicate that dealership customers we solicit will visit a
dealership more than three times as often and spend more than two and one-half
times as much over the course of the year as customers with similar demographic
characteristics that we do not solicit.
We also leverage our expertise in the service department operations of
dealerships by providing consulting services to dealerships and manufacturers.
Our Consulting Division develops and implements new techniques and programs that
enable dealerships to grow their businesses and streamline inefficient
processes. We are also investing significant resources to develop and introduce
new and innovative services. We have recently introduced our Reservations
Program that provides dealerships with outsourced service appointment and shop
loading services. In addition, we recently introduced Welcome Home, a service
designed to recapture dealership service customers who have previously defected.
We maintain a close relationship with Ford Motor Company, the key
elements of which include joint marketing programs for deployment to Ford
dealerships, private labeling by Ford of our database marketing services and a
consulting engagement involving Ford dealerships.
We intend to grow our business by providing services to more automobile
dealerships, increasing the number of active names per automobile dealership,
offering a broad range of customized direct marketing services, leveraging our
data management capabilities to provide data extraction and warehousing services
and utilizing the Internet as a delivery platform for our services.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Newgen............... 2,724,370 shares
Common Stock offered by the selling
stockholders................................. 1,000,630 shares
Common Stock to be outstanding after this
offering..................................... 9,970,682 shares
Use of proceeds.............................. For repayment of short-term debt, the
purchase of certain infrastructure equipment,
and working capital and other general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market symbol................ NWGN
</TABLE>
--------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES
(I) THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO COMMON
STOCK UPON THE COMPLETION OF THIS OFFERING, (II) THE FILING OF OUR RESTATED
CERTIFICATE OF INCORPORATION AUTHORIZING A CLASS OF UNDESIGNATED PREFERRED
STOCK, TO BE EFFECTIVE UPON THE COMPLETION OF THIS OFFERING, (III) THE EXERCISE
OF A WARRANT TO PURCHASE 7,576 SHARES BY A SELLING STOCKHOLDER CONCURRENTLY WITH
THIS OFFERING AND (IV) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE PRO FORMA WEIGHTED AVERAGE COMMON SHARES INCLUDE PREFERRED STOCK (ON AN AS
CONVERTED BASIS) AS WELL AS COMMON STOCK. PLEASE SEE "DESCRIPTION OF CAPITAL
STOCK" FOR A MORE COMPLETE DISCUSSION REGARDING NEWGEN'S CAPITAL STOCK, OPTIONS,
WARRANTS AND RELATED MATTERS.
5
<PAGE>
THE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA PRESENTED BELOW IS
DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF NEWGEN AND ITS SUBSIDIARY.
THE FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1998 HAVE BEEN AUDITED BY INDEPENDENT PUBLIC ACCOUNTANTS. THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS DATA FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
ARE DERIVED FROM NEWGEN'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
ACTIVE NAMES ARE VEHICLE IDENTIFICATION NUMBERS CONTAINED IN OUR
PURIFIED DATABASE CORRESPONDING TO VEHICLE OWNERS SOLICITED BY US FOR VEHICLE
MAINTENANCE SERVICES ON A REGULAR BASIS. WE INVOICE OUR DEALERSHIP CUSTOMERS
BASED ON THE NUMBER OF ACTIVE NAMES FOR EACH DEALERSHIP. WE DID NOT TRACK THE
NUMBER OF ACTIVE NAMES IN 1994.
THE PRO FORMA, AS ADJUSTED CONSOLIDATED BALANCE SHEET DATA SUMMARIZED
BELOW REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO
COMMON STOCK AND APPLICATION OF THE NET PROCEEDS FROM THE SALE OF THE 2,724,370
SHARES OF COMMON STOCK OFFERED BY NEWGEN AT THE ASSUMED INITIAL PUBLIC OFFERING
PRICE OF $13.00 AND AFTER DEDUCTING THE UNDERWRITING DISCOUNTS AND COMMISSIONS
AND ESTIMATED OFFERING EXPENSES, AND REPAYMENT OF $600,000 OF SHORT-TERM
INDEBTEDNESS.
----------------
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND SUPPLEMENTAL OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- --------------------
1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ---------
1994
-----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues........................... $2,018 $ 3,614 $11,629 $26,414 $40,106 $9,274 $12,104
Gross profit (loss)...................... 195 (513) 1,478 6,017 10,843 2,277 4,184
Selling, general and administrative
expenses............................... 727 2,178 5,396 6,234 8,877 1,854 2,927
Net income (loss)........................ (596) (2,811) (4,691) (2,189) (3,203) (663) 524
Basic net income (loss) per share........ $(0.16) $(0.75) $(1.25) $(0.62) $(1.21) $(0.27) $0.04
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Diluted net income (loss) per share...... $(0.16) $(0.75) $(1.25) $(0.62) $(1.21) $(0.27) $0.03
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Basic weighted average common shares
outstanding.......................... 3,767 3,767 3,767 3,767 3,767 3,767 3,830
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Diluted weighted average common shares
outstanding.......................... 3,767 3,767 3,767 3,767 3,767 3,767 4,681
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Pro forma basic net income (loss) per
share.................................. $(0.45) $0.07
--------- ---------
--------- ---------
Pro forma diluted net income (loss) per
share.................................. $(0.45) $0.06
--------- ---------
--------- ---------
Pro forma basic weighted average common
shares outstanding................... 7,176 7,239
--------- ---------
--------- ---------
Pro forma diluted weighted average
common shares outstanding............ 7,176 8,090
--------- ---------
--------- ---------
SUPPLEMENTAL OPERATING DATA (UNAUDITED):
Number of dealerships.................... 66 177 802 1,285 1,902 1,458 2,092
Number of active names................... 396,213 1,970,738 2,905,484 4,128,865 3,159,388 4,816,746
</TABLE>
SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues...... $ 4,962 $ 5,663 $ 6,828 $ 8,961 $ 9,274 $ 10,101 $ 9,834 $ 10,897
Gross profit........ 1,045 1,191 1,613 2,168 2,277 2,651 2,663 3,252
Net income (loss)... (531) (599) (688) (371) (663) (647) (664) (1,229)
<CAPTION>
MAR. 31,
1999
-----------
<S> <C>
Total revenues...... $ 12,104
Gross profit........ 4,184
Net income (loss)... 524
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 1,230 $ 32,868
Working capital.......................................................................... 2,906 35,144
Total assets............................................................................. 14,186 45,824
Long-term debt, less current maturities.................................................. 837 837
Redeemable convertible preferred stock................................................... 16,415 --
Total stockholders' equity (deficit)..................................................... (10,882) 37,771
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, INCLUDING OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, AND COULD RESULT IN A COMPLETE
LOSS OF YOUR INVESTMENT.
WE HAVE A HISTORY OF LOSSES AND MAY EXPERIENCE FUTURE LOSSES
We incurred net losses of $4.7 million in 1996, $2.2 million in 1997 and
$3.2 million in 1998. As of March 31, 1999, we had an accumulated retained
deficit of $15.0 million. We have not achieved profitability on an annual basis,
and we may incur net losses in the future. We anticipate continuing to incur
significant sales and marketing, service development, technology, and general
and administrative expenses as we continue to develop and introduce new
services, increase our customer base, and extend our technology capabilities. As
a result, we will need to generate significantly higher revenues to achieve and
sustain profitability. Although our revenues have grown in recent quarters, we
cannot be certain that we will continue to achieve revenue growth or generate
sufficient revenues to achieve profitability. Our financial results would be
harmed if our revenue does not grow or grows more slowly than we anticipate, or
if our operating or capital expenditures exceed our expectations and cannot be
adjusted accordingly.
OUR LIMITED OPERATING HISTORY PROVIDES LITTLE INFORMATION WITH WHICH TO EVALUATE
OUR BUSINESS AND PROSPECTS
We were incorporated in February 1994 and have a limited operating
history. Investors must consider our business and prospects in light of the
risks typically encountered by companies in their early stages of development.
Some of these risks, in addition to those risks discussed elsewhere in this
section, include:
- our evolving business model;
- the intensely competitive market for outsourced database management
and direct marketing services to automobile dealerships and
manufacturers;
- the risks relating to the timely introduction of new services;
- the risks associated with the expansion of our operational and
technology infrastructure;
- the challenges encountered in expanding our sales and customer support
organization; and
- our reliance on the cyclical auto industry.
We may not be successful in implementing any of our business strategies or in
addressing these risks or others. Even if we are successful, we still may not be
profitable in the future.
THERE ARE MANY FACTORS, INCLUDING SOME BEYOND OUR CONTROL, THAT MAY CAUSE
FLUCTUATIONS IN OUR QUARTERLY RESULTS
Our quarterly and annual revenues, gross margins and operating results
have fluctuated in the past and are likely to fluctuate in the future. The
various services we offer have different gross margins and, as a result, our
revenue mix will affect our total gross margin. In addition, some of our
operating expenses are relatively fixed and cannot be reduced in the short term
to compensate for unanticipated variations in revenue. Thus, our total gross
margin will be materially adversely affected in the event of any unexpected
revenue shortfall.
7
<PAGE>
Future fluctuations in our results of operations may be caused by
various factors, many of which are outside of our control. Some of these factors
include:
- our ability to attract new dealerships as customers;
- the cancellation of contracts;
- changes in our average revenues per customer;
- our ability to introduce new services;
- the introduction of alternative services by competitors;
- our ability to retain existing personnel and attract new personnel in
a timely and effective manner;
- changes in our pricing policies or those of our competitors resulting
from competitive pressures and other factors;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure,
including the rewrite of our database management and customer
retention software and upgrades to our computer and telephony
technology;
- our ability to effectively manage growth;
- increases in costs of services and supplies provided to us by third
parties, including the price of paper, toner and postage; and
- the cost of labor.
Historically, our quarterly fluctuations in revenue have been due
primarily to fluctuations in consulting revenues, which have consisted of a
small number of significant contracts. For example, in the fourth quarter of
1997, total revenues increased by $2.1 million to $9.0 million, primarily as a
result of an increase in consulting revenues. Consulting revenues as a
percentage of our total revenues for the nine quarterly periods ended March 31,
1999 ranged from 12% to 32%. In addition, our consulting business currently
depends entirely on Ford. Ford engages our consulting division to perform
discrete consulting projects. Our current consulting purchase order with Ford is
expected to be completed in August 1999. Ford is under no obligation to continue
to engage us for future projects. In the event that we are not engaged by Ford
to perform additional consulting services, our revenues from consulting services
will decrease significantly.
Due to these and other factors, quarterly revenues, expenses and results
of operations could vary significantly in the future, and period-to-period
comparisons should not be relied upon as indications of future performance. We
may not be able to increase our revenues in future periods or be able to sustain
our existing level of revenues or our rate of revenue growth on a quarterly or
annual basis. In addition, our annual or quarterly operating results may not
meet the expectations of securities analysts and investors. If this happens, the
trading price of our common stock could significantly decline.
WE ARE HIGHLY DEPENDENT ON OUR RELATIONSHIP WITH FORD MOTOR COMPANY
We derive a substantial portion of our revenues from Ford and Ford
dealerships. In 1998 sales of our RESULTS Program and other services to Ford
dealerships represented 54% of our revenues while consulting services provided
to Ford represented 23% of our revenues. We collect accounts receivable from a
majority of Ford dealerships directly from Ford. We expect that sales to Ford
and Ford dealerships will continue to comprise a significant percentage of our
revenues and accounts receivable for the foreseeable future.
8
<PAGE>
Due to a change in Ford's accounting system in late 1998, we were
temporarily unable to collect accounts receivable from Ford in a timely manner.
If in the future we are unable to collect accounts receivable from Ford in a
timely manner for any reason, this could reduce the amount of cash available to
us to operate our business. As a result, we could be required to use cash
reserves or increase our outstanding indebtedness in order to continue our
normal business operations.
Ford also has acted as a key reference in our solicitation of Ford
dealerships and other manufacturers as new customers. We expect that we will
need to continue to develop relationships with existing and future Ford
management in order to maintain strong ties with Ford and to continue to receive
Ford's endorsement of our services to Ford dealerships. Our relationship with
Ford could be damaged if Leslie J. Silver, our Executive Vice President, who has
developed a relationship with certain key Ford personnel, terminates his
employment with Newgen. We contract individually with Ford dealerships which are
under no obligation to use our services. Any change in our relationship with
Ford or any change in Ford's recommendation of our services could result in a
significant reduction in the number of customers we service and hinder our
ability to contract with new customers which could harm our business, financial
condition and results of operations.
IF OUR COMPUTER SOFTWARE REWRITE IS NOT COMPLETED IN A TIMELY MANNER WE WILL
INCUR SUBSTANTIAL EXPENSE OR BE REQUIRED TO MODIFY OUR CURRENT SOFTWARE
We have commissioned a substantial rewrite of our enterprise-wide
database management software that we expect to be completed in the fourth
quarter of 1999. The new software is being developed by Information and Graphic
Systems Inc., a company that merged with Bolder Heuristics Inc. (IGS). The
software rewrite was scheduled to be completed in the first quarter of 1999. We
have not yet received a version of the software that meets our business
requirements. The schedule for completion of the software rewrite has therefore
been revised and we now expect a completed version of the software to be
delivered to us in the fourth quarter of 1999. IGS may not be able to complete
the software development in a timely manner and the software may not perform
according to design specifications. We are incurring expenses of between $50,000
and $100,000 per month of additional operating costs and for revisions to our
existing software as a result of the delay in the completion of the software
rewrite. Further delays or failure in the completion of the software rewrite may
result in additional costs. In the event that IGS is unable to complete the
software rewrite in accordance with our specifications, we may rewrite our
enterprise-wide database management software using our own staff and resources.
If we elect to perform such a software rewrite internally, this may divert our
technology resources away from servicing our existing customers, or developing
new services. Any such diversion of resources may reduce our customers' level of
satisfaction with Newgen's existing services or in delays in the development or
introduction of new services. Our new enterprise-wide database management
software will be complex and may initially impair our ability to provide
satisfactory customer service. For example, it may result in the distribution of
incorrect data. In addition, our current hardware may be insufficient to support
the software rewrite. Our introduction of new services is dependent in part upon
the development and implementation of the new software. Other risks related to
the software rewrite include:
- the integration of the new software with our existing systems;
- the training of technical personnel to use and enhance the new system;
- cost overruns associated with development and implementation of the
system;
- lost productivity associated with testing and debugging the software,
unexpected defects or failures;
- credits to customers that may be required in connection with such
defects or failures and additional costs associated with converting to
and supporting the software rewrite; and
9
<PAGE>
- the inability to scale our existing software to support a substantial
increase in the number of customer dealerships without modifying our
existing software.
Any delay or failure to successfully complete or implement the software
could harm our business, financial condition and results of operations.
WE WILL NEED TO INTRODUCE NEW SERVICES TO EXPAND OUR BUSINESS
Our future growth will depend, in part, on our ability to enhance our
existing services with new features and to develop new services that address the
expanding needs of our customers. In addition, our future growth will also
depend on our ability to respond to technological advances and emerging industry
practices in a timely and cost-effective manner. Acceptance of our new services
depends on several factors, including dealerships' needs for these services,
demonstration of tangible benefits of the services, pricing and dealership
industry conditions and trends. We recently introduced our Reservations, Around
the Wheel and Welcome Home Programs. Our customers may not accept or contract
with us for any of our new services. In addition, certain of our new services
may benefit competitors of our current customers, which may cause certain of our
current customers to cease using our services. Also, several of our competitors
have substantially greater resources than we do. This may allow them to
introduce new services or features before we do or develop services or features
superior to our services. In the future, we may experience product development,
marketing and other difficulties that could delay or prevent our development,
introduction or marketing of new or enhanced services. A substantial portion of
the $2.3 million in technology and product development expenses we incurred in
1998 consisted of expenses related to the development of new services. In the
future, we will also have to incur substantial marketing expenses to encourage
the acceptance of our new services by our customers and any potential new
customers. If we are unable to develop and introduce new or enhanced services in
a timely or cost-effective manner, our business could be harmed.
OUR ABILITY TO SECURE NEW CONTRACTS WILL AFFECT OUR FUTURE GROWTH
If we are unable to expand our customer base or successfully market and
sell our services to dealerships, we may not be able to increase our revenues,
or our revenues may decline. In general, our ability to secure new contracts
depends upon several factors, including:
- the effectiveness of our sales and marketing personnel;
- the establishment of more automobile manufacturer relationships;
- the ability of our sales personnel to gain access to decision makers
at dealerships;
- the perceived value of our services; and
- our reputation among dealerships.
Newgen's growth is driven largely by increasing our dealership base. Our
customer base grew from 177 dealerships at December 31, 1995 to 2,092
dealerships at March 31, 1999. We may not be able to secure new contracts in the
future or successfully retain our existing contracts. We are also seeking to
develop relationships with automobile manufacturers as a means of securing
service contracts with dealerships. In the event we are unable to develop such
relationships, our ability to secure or retain service contracts with
dealerships may be hindered. We may not be successful in developing such
relationships and our competitors may use their greater financial and other
resources to preclude or hinder our efforts to develop such relationships. Our
failure to increase the number of dealerships we service would restrict our
future growth and would harm our business.
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DEALERSHIP TURNOVER MAY HARM OUR BUSINESS
Our contracts with dealerships are of various durations, typically
ranging from six months to two years. All of our contracts may be terminated
upon the expiration of the contract term. In addition, during the contract term,
dealerships may choose to reduce the number of active names serviced by us,
which may result in reduced revenues to Newgen. Our ability to renew customer
contracts is dependent upon various factors including:
- the perceived value of our services;
- the ability of customer satisfaction representatives to deal
proactively with issues as they arise;
- the quality of our services;
- our ability to develop new services; and
- the pricing of our services.
Our inability to meet the expectations of our customers with respect to any of
these factors may result in cancellation of our services by such customers.
Although we have taken measures to reduce turnover, dealership turnover rates
may increase in the future. In 1998, 348 customers cancelled their contracts
after the expiration of their contract term. Because our contracts are subject
to risk of cancellation, the number of dealerships contracting for our services
at any given time may not be a reliable measure of our future revenues. Any
termination, significant reduction or modification of our business relationships
with a significant number of dealerships may harm our business.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY IN THE MARKET FOR OUTSOURCED SERVICES TO
AUTOMOBILE DEALERSHIPS AND MANUFACTURERS
We operate in a highly competitive business environment. We compete with
a variety of companies, including large national or multi-national companies
which have greater financial and marketing resources than us and smaller
regional or local companies that are involved to varying degrees in the same
business as us. Our three significant national competitors are Reynolds &
Reynolds, Co. (R&R), Automatic Data Processing, Inc. (ADP) and Moore Corporation
Limited (Moore). R&R's Service Systems Division offers automobile dealerships
database management and customer retention services that compete directly with
our services. ADP's automobile dealership services competes with us by providing
customer retention services similar to ours. Moore also delivers integrated
business communications, personalized direct marketing and other related
services to automobile dealerships and manufacturers. We believe that R&R and
ADP each have significantly more customers than we do. Moreover, R&R, ADP and
Moore have significantly greater financial and marketing resources and all of
them actively compete against us for dealership business. For example, in the
past R&R has offered a discount on customer retention systems to dealerships
that purchase certain hardware and software and ADP has offered free services
for up to three months. We also compete to a limited degree with other small
customer retention service providers and in-house customer retention systems.
Dealerships may decide to satisfy their database management and direct marketing
needs internally rather than outsourcing, especially as dealerships grow larger
due to industry consolidation.
R&R, ADP and Moore price their services on a per letter basis, although
certain customers of Moore may elect to be billed on the number of active names
in the customer database. Therefore, meaningful price comparisons between our
services and our competitors' are difficult. Dealerships may perceive that our
services are priced higher than those of our competitors. In addition, our
competitors may increase their emphasis on programs similar to those programs we
offer and new competitors may enter the market. Furthermore, dealerships or
automobile manufacturers themselves may introduce competing programs. If any of
these were to occur, we may be unable to compete effectively against them.
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OUR RELIANCE ON A SMALL NUMBER OF SUPPLIERS EXPOSES US TO BUSINESS INTERRUPTIONS
We depend on a small number of suppliers to enable us to deliver our
services. For example Anderson Print & Mail, Inc. (Anderson) and Delta Mailing,
Inc. (Delta) are currently the only sources for our printing and direct mail
needs. In August 1998, we agreed to purchase a significant portion of our
printing requirements from Anderson. To date, we have not experienced quality
problems with Anderson. However, Anderson may not continue to perform in a
satisfactory manner or we may experience quality or performance problems from
Anderson in the future. From time to time, we have experienced certain quality
or performance problems with respect to Delta's services. Examples of such
problems include: letters stuffed in the wrong dealership's envelopes, letters
mailed out a few days behind schedule and incorrect shades of color placed on
dealership letterhead. To date, these quality problems have been minor and we
have been reimbursed by Delta for any credits we issue to customers as a result
of these problems. In 1998, these credits totaled less than $10,000. In
addition, we depend on a small number of companies to provide us with
information that assists us in managing our database. Failure of such suppliers
to provide the information we require in an accurate, consistent or timely
manner could result in lost revenues. A sudden unexpected loss of services
provided by key suppliers could interrupt our business and prevent us from
providing services to our customers, which, in turn could adversely affect our
results of operations and damage our relationships with affected dealerships.
Our reliance on these limited source vendors could result in performance
shortfalls and limits our control over quality and costs. We may experience
quality or performance problems with any of our suppliers. Further, a
significant increase in the price of one or more of these services could harm
our business by forcing us to raise our prices or by decreasing our gross
margins.
WE RELY ON CERTAIN THIRD PARTIES TO ACCESS DEALERSHIP DATA
We depend on third parties for access to the data of a portion of our
dealership base. For example, Universal Computer Systems (UCS) is our sole
source for data updates from dealerships that use UCS dealership-services
software and we do not have a fixed-term contract with UCS to obtain such data.
Approximately 25% of our dealership customers use UCS software. We obtain data
updates from most other dealerships by interfacing directly with the
dealership's computer system. A change in dealership computer hardware or
software may inhibit our access to dealership data and would inhibit our ability
to provide certain services to our customers. Implementation of Reservations,
CSI and ROAD at dealerships that use UCS dealership service software will
require an amendment to our existing agreement with UCS. We may not be able to
modify our agreement with UCS on satisfactory terms, and therefore, we may not
be able to offer Reservations, CSI and ROAD to our dealership customers using
UCS systems, which could reduce or limit our revenue growth and profitability.
WE ARE DEPENDENT ON THE PROFITABILITY OF THE AUTOMOBILE INDUSTRY AND ON GENERAL
ECONOMIC CONDITIONS
Our business depends on both the profitability of automobile dealerships
and the volume of sales of new automobiles, as well as general economic
conditions that may affect the service and maintenance habits of automobile
owners. The automobile industry is highly cyclical and historically has
experienced periods of reduced demand for automobiles. When automobile sales
decline, dealerships have historically looked for ways to cut costs, including
reducing expenditures for certain marketing and outsourced functions. General
economic conditions directly impact the demand for new and used automobiles and
may affect the service and maintenance habits of automobile owners. During
periods of economic slowdown, automobile owners may have their vehicles serviced
less often. They may also be less inclined to have their vehicles serviced at
automobile dealerships, which generally have a reputation for being more
expensive than other automotive repair shops. We believe that a downturn in new
and used automobile sales or decreased dealership profitability could result in
contract cancellations, reduced revenues from our ongoing dealership
relationships and difficulty in attracting new dealership customers. In
addition, the
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automobile dealership industry has been undergoing consolidation. This
consolidation trend may result in decreased demand for our services if large
dealerships or dealership chains decide to implement their own data management
and marketing services rather than outsource those services to Newgen and other
third parties.
WE ARE SUBSTANTIALLY DEPENDENT ON OUR MANAGEMENT AND KEY PERSONNEL AND SUCH
INDIVIDUALS MAY NOT REMAIN WITH NEWGEN IN THE FUTURE
Our continued success is largely dependent on the efforts and abilities
of our senior management and other key personnel, in particular our Chief
Executive Officer, Executive Vice President, Senior Vice President of Operations
and Senior Vice President and Chief Financial Officer. Our dependence on our
management is due to their individual and combined experience in the market for
outsourced services for automobile dealerships and manufacturers. This includes
their personal relationships, knowledge of Newgen's operations and technology,
and understanding of the competitive environment in which we operate. In
particular, our relationship with Ford could be damaged if our Executive Vice
President, who has developed a relationship with certain key Ford personnel,
terminates his employment with Newgen. We do not have employment agreements with
any of our key employees. Other than the Chief Executive Officer of Newgen, we
have not obtained key man life insurance on any of our officers. The loss of the
services of certain management and key personnel could harm our business.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED
We have experienced growth in revenues and expansion of our operations
that have placed significant demands on our management and facilities. Continued
growth will also require us to hire more sales, operations, technical and
administrative personnel. We have at times experienced, and continue to
experience, difficulty in recruiting and retaining qualified personnel, in
particular technical and sales personnel. For example, we have experienced
turnover in our sales personnel and we cannot assure you that this turnover will
decrease. Recruiting qualified personnel is an intensely competitive and time-
consuming process and we expect competition for such personnel to remain
intense. In addition, with our introduction of new products and services, the
pay scales for direct labor to support these new products and services may
change. The affected personnel may not find these changes satisfactory. We may
not be able to attract and retain the necessary personnel to accomplish our
growth strategies and we may experience constraints that will adversely affect
our ability to satisfy customer demand in a timely fashion or to support
satisfactorily our customers and operations. Our inability to attract and retain
key employees could harm our business.
INCREASES IN THE COST OF PAPER, TONER OR POSTAGE RATES MAY REDUCE OUR
PROFITABILITY
Our services require significant quantities of paper and toner to
generate and mail letters. The price of paper increased significantly during
1995 and the price of toner increased significantly in 1996. In addition, Delta
increased the price of its services in 1998 due to further increases in toner
prices. We generally have not been able to change our prices to our dealerships
to compensate for increases in paper and toner prices. The price of paper or
toner may increase in the future. Furthermore, although we have the right under
our dealership contracts to increase the prices of our services in response to
increases in postage rates, we may choose to absorb postage rate increases
rather than pass them on to dealerships for competitive reasons. Although we
adjusted our rates to reflect the January 1999 postage rate increase, we may not
be able to pass on future postage rate increases in our pricing. Any significant
increase in paper or toner prices or postage rates that are not reflected in our
pricing to dealerships could materially adversely affect our business, financial
condition and results of operations.
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FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS MAY HARM OUR BUSINESS
Our rapid growth has placed significant demands on our managerial,
operational and financial resources. In order to address these demands, we
continue to hire new employees, invest in new equipment and make other capital
expenditures. In addition, if we increase the number of services offered to
automobile dealerships and the number of dealerships to which we provide
services, we will need to develop further financial and managerial controls and
reporting systems and procedures. We expect that we will need to expand into
additional facilities as we continue to grow. Our business may be harmed if we
fail to expand any of the foregoing areas in an efficient manner or if we
otherwise are unable to manage growth effectively.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS, CAUSE US TO
INCUR DEBT AND ASSUME CONTINGENT LIABILITIES
We may seek to expand our operations and leverage our technology,
database management and dealership processes expertise by investing in or
acquiring businesses or technologies complementary to our existing operations.
From time to time, we engage in discussions with third parties with respect to
investments in or acquisitions of other businesses. However, we currently have
not made any commitments or entered into any agreements concerning any
investment in or acquisition of other businesses.
Our investment in or acquisition of businesses or technologies could
materially adversely affect our operating results and the price of our common
stock. Acquisitions also entail numerous risks, including:
- difficulties in the assimilation of acquired operations, technologies
or products;
- unanticipated costs;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with suppliers and
customers;
- risks of entering markets where we have no or limited prior
experience; and
- potential loss of key employees.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we invest in or acquire in the future, and our
failure to do so could harm our business. In addition, future acquisitions may
require us to issue dilutive equity securities, incur substantial debt, or
assume contingent liabilities.
OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS COULD HARM OUR BUSINESS
Our success and ability to compete is dependent in part upon our
proprietary technology. The most critical element of our operations is our
sophisticated database management system. We rely primarily on a combination of
copyright and trademark laws, trade secrets and nondisclosure agreements to
protect our proprietary rights. We currently have no patents. We typically enter
into confidentiality and proprietary information agreements with our employees
and limit access to and distribution of our software, documentation and other
proprietary information. Our protection of this system has served as a barrier
to our competitors which have not been able to duplicate such a database
management system. If competitors were able to duplicate our database management
system, we would lose our competitive advantage and face increased competition.
Our confidentiality agreements and confidentiality procedures may not be
adequate to deter misappropriation or independent third-party development of our
technology or to prevent an unauthorized third party from obtaining or using
information that we regard as proprietary. For example, attempts may be made to
copy aspects of our technology or to obtain and use information that we regard
as proprietary. Accordingly, we may not be able to protect our proprietary
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rights against unauthorized third-party copying or use. Any infringement of our
proprietary rights could materially adversely affect our future operating
results. Furthermore, policing the unauthorized use of our products is difficult
and litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could materially adversely
affect our future operating results.
THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS
Third parties may assert infringement claims against us or our
customers. We believe that our technological processes do not infringe upon the
proprietary rights of others, but we cannot assure you that third parties will
not assert claims that we violate their rights. In addition, we believe that we
have the right to use the data we collect for our database, but we cannot assure
you that third parties will not assert claims that we violate their trade
secrets or copyrights. Although there has not been any claim of this type in the
past, any claims or litigation, should they occur, could subject us to
significant liability for damages or could result in invalidation of our rights.
In addition, even if we prevail, litigation could be time consuming and
expensive to defend, and could result in diversion of our time and attention.
Any claims or litigation from third parties may also result in limitations on
our ability to use the trademarks and other intellectual property subject to
these claims or litigation. We may be required to enter into arrangements with
the third parties responsible for the claims or litigation, which may be
unavailable on commercially reasonable terms, if at all.
SYSTEM FAILURE, INTERRUPTIONS OR SECURITY BREAKS IN THE TELECOMMUNICATIONS
INFRASTRUCTURE OR OUR COMPUTER AND TELEPHONY SYSTEMS MAY HARM OUR BUSINESS
Our operations are dependent on our ability to protect our computer and
telephony systems and databases against damage or system interruptions from
fire, earthquake, power loss, telecommunications failure, technical failure,
unauthorized entry or other events beyond our control. We receive data from
dealerships primarily via modem. In addition, a significant portion of our
business involves contacting dealership customers telephonically and our
mailings to dealership customers is dependent upon the data generated using our
computer systems. A significant amount of our computer and telephony equipment
is located at a single site in San Diego, California. In the future, we intend
to use the Internet as a platform for delivery of our services. Any actual or
perceived degradation in the performance of the Internet as a whole could
undermine the benefits of our services. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new technology required to accommodate increased levels of Internet activity or
due to increased government regulation. Unanticipated problems with our
computer, telephony or other communications systems may result in a significant
system outage or data loss, which could result in interruptions in our
operations. Despite implementing security measures, our infrastructure may also
be vulnerable to break-ins, computer viruses or other disruptions caused by our
customers or other third parties. Our business will be materially adversely
affected if there is any damage to our databases, failure of communication
links, security breach or other loss that causes interruptions in our
operations.
WE MAY DEPEND ON THE INTERNET AS A DELIVERY PLATFORM FOR SERVICES
Our growth strategy depends in part on providing database management and
direct marketing services for automobile dealerships and manufacturers over the
Internet. This may include delivering RESULTS Program reminder notices via
e-mail, providing certain information contained in our databases on an
outsourced basis to Web sites, providing dealerships and their customers with an
online appointment reservations system and providing dealerships access to our
database via the Internet. Development and implementation of any of these and
other services using the Internet is subject to substantial risks and
uncertainties.
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We have limited experience providing database management and direct
marketing services over the Internet. We may need to hire additional personnel
and expend significant resources to develop these services. The manner in which
we intend to provide and charge for these services is new and unproven and may
result in lower revenues or gross margins. We may need to enter into agreements
with third parties, such as Internet service providers, to implement these
services. Privacy concerns may cause consumers to resist providing the personal
data necessary to support these services in development. For example, consumers
may be unwilling to disclose their identity, vehicle identification information
or e-mail addresses. Moreover, our ability to disseminate data generated from
our databases may be limited by agreements with our customers. Various system
failures or delays may decrease our ability to effectively deliver information
contained in our databases to automobile dealerships, manufacturers, dealership
customers or Web sites. Our servers and network infrastructure may not be able
to handle the volume of data traffic generated as a result of the deployment of
these new services. Implementation of an Internet-based reservations system will
require us to interface with dealership service department appointment
calendars, which will be complex and may be prone to errors. Our future services
using the Internet may not be successfully developed and implemented, widely
accepted or result in future revenues. We recently signed a letter of intent
with autobytel.com to form a joint venture to provide certain database
management and direct marketing services over the Internet. Our joint venture
with autobytel.com may not be successful, could result in substantial costs and
diversion of resources and could materially adversely affect our future
operating results.
The widespread acceptance and adoption of the Internet by automobile
dealerships and manufacturers to conduct business and exchange information is
likely to occur only if greater efficiencies and improvements in service can be
demonstrated to these dealerships and manufacturers. The recent growth in
Internet traffic has caused frequent periods of decreased performance and
reliability. Our ability to provide services over the Internet will be
ultimately limited by and dependent upon the speed and reliability of the
Internet. Additionally, the tax treatment of the Internet and e-commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local level and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities.
Furthermore, costs of communication over the Internet may increase substantially
if access fees are imposed on Internet service providers and online service
providers. If we are unable to adapt our business to meet changes in the
database management and direct marketing industry as a result of growth in the
Internet, our business may be harmed.
WE COULD BE ADVERSELY AFFECTED BY GOVERNMENTAL REGULATIONS
We are subject to varying degrees of federal, state and local
telemarketing regulation. The jurisdiction of the Federal Trade Commission (FTC)
and the Federal Communications Commission (FCC) extends to the telemarketing
industry, including some of the services we provide to our customers. The FTC
has issued regulations which prohibit certain types of deceptive or abusive
telemarketing acts or practices. Regulations issued by the FCC place limits on
the use of certain types of equipment used in telephone solicitation, require
telemarketing companies to provide certain identifying information, and require
the maintenance of a list of persons who do not wish to be called. We believe
that we are not currently engaging in, and we do not plan to engage in, any of
the activities prohibited by the FTC and FCC regulations. The FCC and FTC
regulations have, therefore, not materially restricted our operations. If future
regulations are adopted by the FCC and FTC or other regulatory bodies, our
business may be harmed. In addition, violations may occur in the future as a
result of human error, equipment failure or other causes. Our failure to comply
with applicable domestic and international regulations could also harm our
business. Furthermore, the media often publicizes perceived non-compliance with
consumer protection regulations and violations of notions of fair dealing with
consumers. Any such publicity is potentially damaging to our reputation, client
relationships and consumer acceptance and loyalty.
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WE MAY BE UNABLE TO RAISE CAPITAL IN THE FUTURE
Various elements of our growth strategies will require additional
capital. We believe that our existing capital resources together with cash
generated from operations and amounts available under our line of credit will be
sufficient to meet our capital requirements for at least the next twelve months.
Additionally, the proceeds from this offering will provide additional liquidity
to Newgen. However, our capital requirements depend on several factors,
including market acceptance of our services, the ability to expand our customer
base, the development of new services, the expansion of our sales and marketing
capabilities, potential acquisitions and other factors. If capital requirements
vary materially from those currently planned, we may require additional
financing sooner than anticipated. Our credit facility with Silicon Valley Bank
expires in May 1999. If additional funds are raised through the issuance of
equity securities, our stockholders may experience additional dilution, or such
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
we may be unable to develop or enhance our services, take advantage of future
opportunities or respond to competitive pressures.
WE MAY BE EXPOSED TO RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
Currently, we provide services to automobile dealerships in the United
States and Canada. We may expand our database management, customized direct
marketing services and teleservices to automobile dealerships in foreign markets
other than Canada. We have had limited experience providing services outside the
United States. Conducting business outside of the United States is subject to
certain risks, including:
- longer accounts receivable collection cycles;
- difficulties in managing operations across disparate geographic areas;
- difficulties associated with enforcing agreements and collecting
receivables;
- through foreign legal systems;
- changes in a specific country's or region's political or economic
conditions;
- trade protection measures;
- import or export licensing requirements;
- fluctuations in currency exchange rates;
- potential adverse tax consequences;
- unexpected changes in regulatory requirements; and
- reduced or limited protection of our intellectual property rights in
some countries.
In addition, we may be unable to successfully market, sell and deliver our
services in foreign markets and we cannot be certain that one or more of such
factors will not harm our future international operations.
YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
The use of computer systems and software products that rely on two-digit
date programs to perform computations and decision-making functions may cause
computer systems to malfunction in the Year 2000 and lead to significant
business delays and disruptions. We use a significant number of computer
software programs and operating systems in our operations and we are therefore
particularly sensitive to the problems which may be caused by the Year 2000
problem. We anticipate that a significant element of our exposure to Year 2000
problems created by noncompliance is in our information technology systems.
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These systems include our data retrieval, purification, financial,
administrative and communication operations. We are currently evaluating our
exposure in all of these areas.
We have commissioned a substantial rewrite of our enterprise-wide
database management software. The rewritten enterprise-wide database management
software is designed to be Year 2000 compliant. We expect the software rewrite
to be completed in the fourth quarter of 1999. Because we expect to implement
our rewritten enterprise-wide database management software prior to the end of
1999, we have not undertaken a comprehensive review of our existing
enterprise-wide database management software to date. As a result, in the event
that the software rewrite is not completed on time or the software does not
perform according to design, we may face significant Year 2000 non-compliance
issues. We are monitoring the progress of the software rewrite, and in the event
that we determine that such rewrite will not be completed according to schedule
we intend to undertake an internal software rewrite to address potential Year
2000 problems in our enterprise-wide database management software. We are in the
process of conducting a comprehensive inventory and evaluation of our other
information systems used to run our business, which is expected to be completed
in the third quarter of 1999. Systems which are identified as non-compliant will
be or are in the process of being upgraded or replaced. For the Year 2000
non-compliance issues identified to date, the cost of remediation is not
expected to be material in our operating results. We have not included the cost
of our software rewrite as a cost related to Year 2000 compliance matters.
However, if implementation of replacement systems is delayed, or if significant
new non-compliance issues are identified, we may incur significant additional
expenses related to Year 2000 issues.
Any failure of third-party networks, systems or services upon which our
business depends could harm our business. We rely on the telecommunications
infrastructure, our customers' computer systems and systems and services that
third parties provide to our customers. As a result, the success of our plan to
address Year 2000 issues depends in part on parallel efforts being undertaken by
third parties. We have begun to identify and initiate communications with third
parties whose networks, systems or services are critical to our business to
determine the status of their Year 2000 compliance. We cannot assure you that
all such parties will provide accurate and complete information, or that all
their networks, systems or services will achieve full Year 2000 compliance in a
timely fashion. The most reasonably likely worst-case scenario for us resulting
from Year 2000 issues is that third-party non-compliance would disrupt, reduce
or eliminate for a period of time our ability to service existing customers or
to solicit new customers. If such occurrences are frequent or long in duration,
they could harm our business. Where practicable, we will attempt to mitigate our
risks with respect to the failure of our suppliers to be prepared for any Year
2000 problems. However, such failures remain a possibility and could harm our
business.
OUR SENIOR MANAGEMENT WILL HAVE DISCRETION OVER THE USE OF PROCEEDS FROM THIS
OFFERING
The primary purposes of this offering are to obtain additional working
capital, create a public market for our common stock, to facilitate future
access to public equity markets and to increase our visibility. A significant
portion of the anticipated net proceeds of this offering has not been designated
for specific use. As a consequence, our management will have the discretion to
allocate this portion of the net proceeds of this offering to uses the
stockholders may not deem desirable. We may not be able to invest these proceeds
to yield a significant return. Substantially all of the proceeds of the offering
may be invested in short-term, interest-bearing, investment grade securities.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE OFFERING PRICE
There has previously not been a public market for our common stock. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the
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underwriters and may not be indicative of prices that will prevail in the
trading market. The trading price of our common stock could be subject to wide
fluctuations in response to factors such as:
- actual or anticipated variations in quarterly operating results;
- changes in financial estimates by securities analysts;
- new services offered by us or our competitors;
- announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments by us or our competitors;
- announcements of technological innovations;
- additions or departures of key personnel;
- sales of common stock; and
- other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices and multiples of
many technology companies' stocks are at or near historical highs. These trading
prices and multiples may not be sustained. These broad market and industry
factors may materially adversely affect the market price of our common stock,
regardless of our actual operating performance. In the past, following periods
of volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which would materially adversely affect
our business, financial condition and operating results.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO
INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND CERTAIN TRANSACTIONS
Upon completion of this offering, our principal stockholders, executive
officers, directors and affiliated individuals and entities (Controlling
Stockholders) together will beneficially own approximately 62.1% of the
outstanding shares of common stock (58.8% if the underwriters' over-allotment
option is exercised in full). Three of our directors are brothers. Their father
is also a director and our Senior Vice President and Chief Financial Officer is
their cousin (collectively, Related Stockholders). Together, these family
members will beneficially own approximately 22.4% of the outstanding shares of
our common stock (21.2% if the underwriters' over-allotment option is exercised
in full). These Controlling Stockholders and Related Stockholders, acting
together, or in some cases independently, will be able to influence
significantly and possibly control most matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combination transactions.
CERTAIN PROVISIONS IN OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKEOVER
ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK
Provisions in our Certificate of Incorporation, as amended and restated
upon the closing of this offering (the Restated Certificate) may have the effect
of delaying or preventing a change of control or changes in our management.
These provisions include:
- the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors;
- the ability of the board of directors to alter our bylaws without
getting stockholder approval;
19
<PAGE>
- the requirement that at least 10% of the outstanding shares are needed
to call a special meeting of stockholders; and
- staggered terms for the members of the Board of Directors.
This could discourage potential takeover attempts and could adversely
affect the market price of our common stock. In addition, these provisions may
limit the ability of stockholders to remove our current management.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on shares outstanding as of March 31, 1999, upon completion
of this offering we will have outstanding 9,970,682 shares of common stock
(assuming no exercise of the underwriters' over-allotment option). Of these
shares, 3,725,000 will be eligible for sale in the public market. After the
lockup agreements with Newgen or the underwriters of this offering expire 180
days from the date of this prospectus, an additional 6,245,682 shares will be
eligible for sale in the public market.
These share numbers exclude 1,202,394 shares subject to outstanding
options and warrants and 630,550 shares reserved for future issuance under our
1996 Equity Incentive Plan and 1998 Equity Incentive Plan as of March 31, 1999.
See "Shares Eligible for Future Sale" and "Underwriting" for detailed
information about the ability of our stockholders, option holders and warrant
holders to sell their shares after this offering.
YOU WILL INCUR SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING
The initial public offering price is expected to be substantially higher
than the pro forma net book value per share of the outstanding common stock. As
a result, investors purchasing common stock in this offering will incur
immediate substantial dilution in the amount of $9.21. In addition, we have
issued options and warrants to acquire common stock at prices significantly
below the initial public offering price. To the extent these outstanding options
and warrants are exercised, there will be further dilution to investors in this
offering. Please see "Dilution" for detailed information on this dilution.
20
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 2,724,370
shares of common stock will be approximately $32,238,000, at an assumed initial
public offering price of $13.00 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses. If the
underwriter's over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $38,993,000.
We intend to use the net proceeds from this offering for general
corporate purposes, including approximately $4.0 million for the purchase of
infrastructure equipment in connection with the upgrade of our computer and
telephony technology, $2.0 million for an investment in a joint venture with
autobytel.com, $600,000 for the repayment of secured promissory notes to a
related party which bear interest at a rate of prime plus 2.0% (at March 31,
1999, the interest rate was 9.75%) and which will mature on December 31, 1999,
and additional working capital. We may also use a portion of the net proceeds
from this offering to acquire or invest in other businesses, technologies or
services that are complementary to our business. Except for certain arrangements
with autobytel.com, we currently have not made any commitments or entered into
any agreements with respect to any such transactions. Pending such uses, we
intend to invest the net proceeds from this offering in short-term,
interest-bearing, investment-grade securities. Newgen will not receive any
proceeds from the sale of common stock by the selling stockholders.
DIVIDEND POLICY
To date, we have not declared or paid any cash dividends on our capital
stock. We currently intend to retain future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of Newgen as of
March 31, 1999 and the capitalization as of that date on a pro forma, as
adjusted basis to give effect to the conversion of each outstanding share of
preferred stock into common stock upon the completion of this offering and the
receipt by Newgen of the estimated net proceeds from the sale of 2,724,370
shares of common stock offered by Newgen at an assumed initial public offering
price of $13.00 per share and after deducting estimated underwriting discounts
and commissions and offering expenses.
The information set forth in the table below should be read in
conjunction with the consolidated financial statements of Newgen and the Notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term obligations, including current maturities of long-term
obligations......................................................... $ 2,512 $ 1,912
--------- -----------
--------- -----------
Long-term obligations, less current maturities........................ 837 837
Redeemable Convertible Series A and B Preferred stock, $.001 par
value, 3,460,137 shares authorized, 3,408,741 issued and
outstanding, actual; no shares authorized, no shares issued and
outstanding, pro forma and as adjusted.............................. 16,415 --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value, 39,863 shares authorized, no
shares issued and outstanding, actual; 2,000,000 shares
authorized, no shares issued and outstanding, pro forma and as
adjusted.......................................................... -- --
Common Stock, $.001 par value, 15,000,000 shares authorized,
3,829,995 shares issued and outstanding, actual; 28,000,000 shares
authorized, 9,970,682 shares issued and outstanding pro forma, as
adjusted.......................................................... 4 10
Additional paid-in capital.......................................... 5,553 54,199
Notes receivable from stockholders.................................. (56) (56)
Deferred compensation............................................... (1,414) (1,414)
Retained deficit.................................................... (14,968) (14,968)
--------- -----------
Total stockholders' equity (deficit).............................. (10,881) 37,771
--------- -----------
Total capitalization............................................ $ 6,371 $ 38,608
--------- -----------
--------- -----------
</TABLE>
- ------------------------
The outstanding share information set forth in the table above excludes:
- 1,086,370 shares of common stock issuable upon the exercise of
outstanding options, at a weighted average exercise price of $3.76 per
share;
- 116,024 shares of common stock issuable upon exercise of outstanding
warrants, at a weighted average exercise price of $1.06 per share; and
- an aggregate 1,130,550 shares available for future grant under the
1998 Equity Incentive Plan, 1996 Equity Incentive Plan, Non-Employee
Stock Option Plan and Employee Stock Purchase Plan.
22
<PAGE>
DILUTION
The pro forma net tangible book value of Newgen as of March 31, 1999 was
approximately $5,533,000 or $0.76 per share of common stock. The pro forma net
tangible book value per share represents the amount of Newgen's total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, assuming conversion of all outstanding shares of preferred stock
into common stock. After giving effect to the receipt of the net proceeds from
the sale of the 2,724,370 shares of common stock offered by Newgen (at an
assumed initial public offering price of $13.00 per share, and after deducting
the estimated underwriting discounts and commissions and offering expenses) the
pro forma net tangible book value of Newgen as of March 31, 1999 would have been
approximately $37,771,000 or $3.79 per share. This represents an immediate
increase in pro forma net tangible book value of $3.03 per share to existing
stockholders and an immediate dilution of $9.21 per share to new investors
purchasing shares at the initial public offering price. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 13.00
Pro forma net tangible book value per share before the offering........ $ 0.76
Increase per share attributable to new investors....................... 3.03
---------
Pro forma net tangible book value per share after this offering.......... 3.79
---------
Dilution per share to new investors...................................... $ 9.21
---------
---------
</TABLE>
The following table summarizes as of March 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from
Newgen, the total consideration paid and the average price per share paid by
existing stockholders and by investors purchasing shares of common stock in this
offering (before deducting the estimated underwriting discounts and commissions
and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(2)
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 7,246,312 72.7% $15,357,659 30.2% $ 2.12
New investors(1)................ 2,724,370 27.3 35,416,810 69.8 13.00
--------- ----- ----------- -----
Total......................... 9,970,682 100.0% $50,774,469 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
The foregoing discussion and tables assume no exercise of any stock
options or warrants outstanding as of March 31, 1999. As of March 31, 1999,
there were options and warrants to purchase a total of 1,202,394 shares of
common stock with a weighted average exercise price of $3.50 per share. To the
extent these options or warrants are exercised or shares are granted, there will
be further dilution to new investors. See "Management" and Notes 7 and 12 of
Notes to Consolidated Financial Statements.
- ------------------------
(1) Sales by the selling stockholders in this offering will reduce the number of
shares held by existing stockholders to 6,238,106 or approximately 62.6%
(approximately 59.2% if the underwriters' over-allotment option is exercised
in full) and will increase the number of shares held by new investors to
3,725,000 or approximately 37.4% (4,283,750 shares or approximately 40.7% if
the underwriters' over-allotment option is exercised in full) of the total
number of shares of common stock outstanding after this offering. See
"Principal and Selling Stockholders." Includes 7,576 shares issuable upon
exercise of a warrant by a selling stockholder concurrently with the closing
of this offering.
(2) Excludes approximately $3,700,000 of capital contributions related to losses
funded by affiliates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998, are derived from our consolidated financial statements that have been
audited by Arthur Andersen LLP, independent public accountants, which are
included elsewhere in this prospectus. The consolidated balance sheet data as of
March 31, 1999 and the related consolidated statements of operations data for
the three months ended March 31, 1998 and 1999 are derived from Newgen's
unaudited consolidated financial statements which are included elsewhere in this
prospectus. The consolidated statement of operations data for the years ended
December 31, 1995 and 1996 and the consolidated balance sheet data at December
31, 1995 and 1996 are derived from our consolidated financial statements which
were also audited by Arthur Andersen LLP and which are not included herein. The
consolidated statements of operations data for the year ended December 31, 1994
and the consolidated balance sheet data at December 31, 1994 are derived from
our unaudited consolidated financial statements not included herein. The
unaudited financial statements reflect all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of the financial position and results of operations for these periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND SUPPLEMENTAL OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Database marketing services.................... $ 729 $ 1,824 $ 9,771 $20,974 $31,513 $6,908 $10,572
Consulting services............................ 1,289 1,790 1,858 5,440 8,593 2,366 1,532
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................... 2,018 3,614 11,629 26,414 40,106 9,274 12,104
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
Cost of database marketing services............ 582 1,673 6,796 14,232 21,157 4,673 6,216
Cost of consulting services.................... 1,144 1,798 1,699 4,233 6,695 1,902 1,340
Installation costs............................. 97 656 1,656 1,932 1,411 422 364
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues....................... 1,823 4,127 10,151 20,397 29,263 6,997 7,920
--------- --------- --------- --------- --------- --------- ---------
Gross profit (loss).......................... 195 (513) 1,478 6,017 10,843 2,277 4,184
--------- --------- --------- --------- --------- --------- ---------
Operating costs:
Selling, general and administrative expenses... 727 2,178 5,396 6,234 8,876 1,854 2,927
Technology and product development............. 54 117 544 937 2,259 393 627
Software rewrite cost.......................... -- -- -- 617 2,842 694 --
--------- --------- --------- --------- --------- --------- ---------
Total operating costs........................ 781 2,295 5,940 7,788 13,977 2,941 3,554
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations.................. (586) (2,808) (4,462) (1,771) (3,134) (664) 630
Interest income (expense), net................. (10) (3) (229) (418) (69) 1 (106)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ (596) $ (2,811) $ (4,691) $ (2,189) $ (3,203) $ (663) $ 524
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic net income (loss) per share (1)............ $ (0.16) $ (0.75) $ (1.25) $ (0.62) $ (1.21) $ (0.27) $ 0.04
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted net income (loss) per share (1).......... $ (0.16) $ (0.75) $ (1.25) $ (0.62) $ (1.21) $ (0.27) $ 0.03
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic weighted average common shares outstanding
(1)............................................ 3,767 3,767 3,767 3,767 3,767 3,767 3,830
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted weighted average common shares
outstanding (1)................................ 3,767 3,767 3,767 3,767 3,767 3,767 4,681
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma basic net income (loss) per share
(1)............................................ $ (0.45) $ 0.07
--------- ---------
--------- ---------
Pro forma diluted net income (loss) per share
(1)............................................ $ (0.45) $ 0.06
--------- ---------
--------- ---------
Pro forma basic weighted average common shares
outstanding (1)................................ 7,176 7,239
--------- ---------
--------- ---------
Pro forma diluted weighted average common shares
outstanding (1)................................ 7,176 8,090
--------- ---------
--------- ---------
SUPPLEMENTAL OPERATING DATA (UNAUDITED):
Number of dealerships............................ 66 177 802 1,285 1,902 1,458 2,092
Number of active names........................... 396,213 1,970,738 2,905,484 4,128,865 3,159,388 4,816,746
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 16 $ -- $ 128 $ 4,630 $ 817
Working capital...................................................... 69 (15) 484 6,291 2,558
Total assets......................................................... 450 1,190 5,492 12,302 12,772
Long-term debt, less current maturities.............................. 23 24 1,264 435 874
Redeemable convertible preferred stock............................... -- -- 5,422 14,679 16,050
Total stockholders' equity (deficit)................................. (296) (477) (4,494) (6,815) (11,133)
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 1,230
Working capital...................................................... 2,906
Total assets......................................................... 14,186
Long-term debt, less current maturities.............................. 837
Redeemable convertible preferred stock............................... 16,415
Total stockholders' equity (deficit)................................. (10,882)
</TABLE>
- ------------------------------
(1) Computed on the basis described in Note 2 of Notes to Consolidated Financial
Statements.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS OF NEWGEN AND THE NOTES THERETO INCLUDED
ELSEWHERE IN THIS PROSPECTUS. OUR DISCUSSION BELOW AND ELSEWHERE IN THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS
THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. NEWGEN'S ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Newgen provides customized, outsourced database management, direct
marketing and related services for service departments of automobile dealerships
and automobile manufacturers. We have expertise both in database marketing and
customer retention services, as well as an in-depth knowledge of automobile
service department operations.
Newgen generates revenues from database marketing services and
consulting services. Our revenues from database marketing services are derived
primarily from our customer retention services, including the RESULTS Program.
Database marketing services comprised 87% and 79% of our total revenues for the
three months ended March 31, 1999 and for the year ended December 31, 1998,
respectively. For the three months ended March 31, 1999 and for the year ended
December 31, 1998, our revenues from consulting services were derived from
consulting services provided to Ford Motor Company and its dealerships.
Consulting services comprised 13% and 21% of our total revenues for the three
months ended March 31, 1999 and for the year ended December 31, 1998,
respectively. We have increased our customer base from approximately 177
dealerships at December 31, 1995 to 2,092 dealerships at March 31, 1999. Our
revenues grew at a rate of 52% to $40.1 million in 1998 from $26.4 million in
1997.
Revenues for the RESULTS Program are based on the number of active names
in a dealership's database, typically a fixed number determined by the
dealership. We generally invoice each of our customers on a monthly basis in
advance. Revenues for our consulting services are based on a per diem rate for
the services we provide. We are also reimbursed for travel expenses and
associated costs we incur in providing consulting services, which are included
as revenue. Dealerships are charged a monthly fee for these books, and
dealerships receive up to two updates per year. We recognize all of our revenue
in the month during which we perform the related database marketing or
consulting services.
During 1998 we launched two new customer retention services, Around the
Wheel and Welcome Home. Around the Wheel is an extension of our RESULTS Program
that was designed to increase Ford dealerships' brake and tire sales. Welcome
Home is a personalized coupon mailer that was designed to recapture a
dealership's lost customers. Revenues for Around the Wheel are reflected as an
additional charge to our basic RESULTS Program. Revenues for our Welcome Home
service are based upon the number of Welcome Home letters sent during a month.
We began to introduce these services to our dealership base in the third quarter
of 1998. In addition, in late 1998 we initiated customer pilots of our
Reservations Program, which provides outsourced service department appointment
scheduling and shop loading. We expect to price this service based on the number
of reservations that are kept.
We are investing significant resources in the development of other
services that draw upon our expertise in the service department operations of
automobile dealerships. For the three months ended March 31, 1999 and for the
year ended December 31, 1998, our technology and product development expenses
were $627,000 and $2.3 million, respectively. Most of our technology and product
development expenses in 1998 were related to the development of new services.
25
<PAGE>
We provide our database marketing services to automobile dealerships
under contracts that generally have an initial term of between six months and
two years. Most of our customers, however, continue to use our services beyond
the expiration of the initial term of our contracts. In order to maximize our
customer retention, we have established a customer satisfaction department,
improved our quality of operations and enhanced our commission structure to
encourage our sales force to promote one and two year contracts. To emphasize
our commitment to improving the quality of our operations, we have completed the
certification process for ISO 9001, an international quality standard
established by the International Standards Organization.
Although each Ford dealership utilizing our database marketing services
enters into a separate contract with us, collection of receivables from Ford
dealerships is centralized through Ford's accounting department. As a result, we
generally receive prompt payment of those invoices directly from Ford with a
minimum amount of collection effort. Our current consulting engagement with Ford
relating to implementation of the Around the Wheel Program is expected to be
completed in August 1999. We currently do not have a commitment from Ford for a
new consulting engagement beyond that approximate date. In 1998, all of our
consulting revenues were attributable to Ford. A majority of our database
marketing services are attributable to Ford dealerships. In 1998, sales of our
RESULTS Program and other database marketing services to Ford dealerships
represented 54% of our revenues, while consulting services provided to Ford
represented 23% of our revenues.
Our cost of revenues consist of our database marketing services costs,
consulting costs and installation costs. Costs of database marketing services
include the printing and mailing of letters, as well as the costs of the
teleservice contacts of dealership customers. The costs of database marketing
services also include all costs of managing and purifying the dealership
databases, as well as the costs of our customer service and satisfaction
departments. The costs of additional services, such as Welcome Home and Around
the Wheel, include only the direct costs of those services because no additional
costs associated with database management or customer service are incurred.
Costs of consulting include the direct costs of our consulting personnel, as
well as the cost of any independent consultants subcontracted by Newgen. Costs
of consulting also include costs of travel and associated costs incurred by our
Consulting Division. Installation costs include the direct costs of implementing
our program at dealerships and the costs of the initial download, setup and
purification of the dealership's customer database. These costs are expensed as
incurred and represent a one-time charge for each new dealership we add to our
customer base. As a result, these costs are expected to decrease as a percentage
of total revenues as our database marketing services revenues increase.
Installation costs are presented as a separate line item to illustrate our
investment in implementing new dealerships. For the purposes of calculating the
gross profit associated with database marketing services in Management's
Discussion and Analysis of Financial Condition and Results of Operations,
installation costs are added to cost of database marketing services.
Operating expenses consist of the fixed costs of our business, such as
selling, general and administrative expenses, technology and product development
costs, and the cost of the software rewrite of our core data management and
customer retention software system. We anticipate that our operating expenses
will increase as we develop and introduce new services and increase our customer
base. Historically, we have been able to leverage our operating expenses over a
growing revenue base, and to the extent that our business continues to grow we
expect that we will continue to do so. However, because we are generally unable
to significantly reduce expenses in the short term to compensate for any
unexpected revenue shortfall, any such shortfall would have an immediate adverse
effect on our business, results of operations and financial condition. Selling
costs include costs of our internal sales department, as well as commissions
earned by sales representatives. General and administrative costs include our
accounting, payroll and human resources functions. General and administrative
costs also include other non-allocated costs, such as professional fees and
general corporate services. Technology and product development costs include the
cost of programming personnel who enhance our current services and develop new
services. The cost of the software rewrite to our core database management
system includes
26
<PAGE>
all costs associated with the implementation of our enterprise-wide software
application by a third-party developer. The costs of the software rewrite were
expensed as they were incurred in 1998. Because of new accounting standards, any
costs incurred during 1999 may be capitalized and amortized over an appropriate
useful life. We do not expect these costs to be material. Except for ongoing
support that will be provided by our technology and product development
department, we currently expect that there will be no further costs associated
with the software rewrite subsequent to the completion of the project during the
fourth quarter of 1999.
We recorded deferred compensation charges of $901,000 related to certain
stock option grants in 1997. With respect to certain stock option grants in
July, October and December 1998, we recorded deferred compensation charges
aggregating $749,000. During the three months ended March 31, 1999, we recorded
deferred compensation charges of $112,000 relating to options granted during the
quarter. These amounts are initially recorded as deferred compensation and
amortized to cost of revenues and selling, general and administrative expenses
over the vesting periods of the options, generally four to five years. We
amortized $256,000 of the compensation charges in 1998 and $92,000 in the three
months ended March 31, 1999. See Note 7 of Notes to Consolidated Financial
Statements.
As of December 31, 1998, we had net operating loss carryforwards for
federal income purposes of approximately $6.5 million. These net operating loss
carryforwards expire in various years beginning in 2009. The net deferred asset
is fully reserved because of uncertainty regarding its realizability.
We were incorporated in California in February 1994 and we
reincorporated in Delaware in December 1998. Certain of our officers, directors
and stockholders were officers, directors, stockholders and partners of Newgen
Services, Inc. and Newgen Services, L.P. In the past, Newgen Services, Inc.
provided services to Newgen Results Corporation and Newgen Services, L.P. Newgen
Services, Inc. and Newgen Services, L.P. commenced operations in 1991 and from
inception through December 31, 1993 these entities incurred losses of
approximately $7.0 million. Our financial data includes the consulting
operations of Newgen Services, Inc. from its inception until August 1996, at
which time we assumed the consulting activities of Newgen Services, Inc.
Revenues from Newgen Services, Inc. included in our results of operations for
1994, 1995 and 1996 were $1.3 million, $1.4 million, and $815,000, respectively.
Net income (loss) from Newgen Services, Inc. included in our results of
operations for 1994, 1995 and 1996 were $111,000, $(245,000) and $(14,000)
respectively. Prior to 1996, Newgen Services L.P. funded certain aspects of our
operations, which have been reflected in our historical financial data.
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues,
certain statement of operations data for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Database marketing services........................ 84.0% 79.4% 78.6% 74.5% 87.3%
Consulting services................................ 16.0 20.6 21.4 25.5 12.7
--------- --------- --------- --------- ---------
Total revenues................................... 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Cost of revenues:
Cost of database marketing services................ 58.4 53.9 52.8 50.4 51.3
Cost of consulting services........................ 14.6 16.0 16.7 20.5 11.1
Installation costs................................. 14.2 7.3 3.5 4.6 3.0
--------- --------- --------- --------- ---------
Total cost of revenues........................... 87.2 77.2 73.0 75.5 65.4
--------- --------- --------- --------- ---------
Gross profit..................................... 12.8 22.8 27.0 24.5 34.6
--------- --------- --------- --------- ---------
Operating costs:
Selling, general and administrative expenses....... 46.4 23.6 22.1 20.0 24.2
Technology and product development................. 4.7 3.6 5.6 4.2 5.2
Software rewrite cost.............................. -- 2.3 7.1 7.5 --
--------- --------- --------- --------- ---------
Total operating costs............................ 51.1 29.5 34.8 31.7 29.4
--------- --------- --------- --------- ---------
Income (loss) from operations...................... (38.3) (6.7) (7.8) (7.2) 5.2
Interest income (expense), net..................... (2.0) (1.6) (0.2) 0.0 (0.9)
--------- --------- --------- --------- ---------
Net income (loss).................................. (40.3)% (8.3)% (8.0)% (7.2)% 4.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES. Total revenues increased by $2.8 million, or 31%, to $12.1
million in the three months ended March 31, 1999 from $9.3 million in the three
months ended March 31, 1998. Revenues from database marketing services increased
by $3.7 million, or 53%, to $10.6 million in the three months ended March 31,
1999 from $6.9 million in the three months ended March 31, 1998. The increase in
database marketing services revenues was primarily due to a net increase of over
630 customers and, to a lesser extent, an increase in our active names per
dealership customer. We increased our active names primarily as a result of a
marketing campaign to encourage dealerships to activate more names. Revenues
from consulting services decreased by $834,000, or 35%, to $1.5 million in the
three months ended March 31, 1999 from $2.4 million in the three months ended
March 31, 1998. The decrease in consulting services revenues was primarily due
to the completion of the Quality Care Maintenance Program, and the winding down
of the Around the Wheel Program.
GROSS PROFIT. Gross profit increased by $1.9 million, or 84%, to $4.2
million in the three months ended March 31, 1999 from $2.3 million in the three
months ended March 31, 1998. As a percentage of total revenues, gross profit
increased to 34.6% in the three months ended March 31, 1999 from 24.5% in the
three months ended March 31, 1998. Gross profit from database marketing services
increased by $2.2 million, or 120%, to $4.0 million in the three months ended
March 31, 1999 from $1.8 million in the three months ended March 31, 1998. This
increase was primarily due to a decrease in labor costs associated with the
production of our letters, lower communication costs for our teleservice
solicitations,
28
<PAGE>
and to a lesser extent, reduced letter pricing from Anderson and the
introduction of a more efficient telephony system. The leverage achieved by
spreading our new customer installation costs over a larger revenue base also
contributed to the increase in gross profit. Gross profit from consulting
services decreased by $272,000, or 59%, to $192,000 in the three months ended
March 31, 1999 from $464,000 in the three months ended March 31, 1998. This
decrease was primarily due to reduced consulting revenue.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by $1.1 million, or 58%, to $2.9 million in
the three months ended March 31, 1999 from $1.9 million in the three months
ended March 31, 1998. As a percentage of revenues, selling, general and
administrative expenses increased to 24.2% in the three months ended March 31,
1999 from 20.0% in the three months ended March 31, 1998. These dollar and
percentage increases were primarily due to increased sales commissions
associated with increased installations, the hiring of additional sales
personnel and increased cash compensation for certain personnel.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
expenses increased by $235,000, or 60%, to $627,000 in the three months ended
March 31, 1999 from $393,000 in the three months ended March 31, 1998. As a
percentage of revenues, technology and product development expenses increased to
5.2% in the three months ended March 31, 1999 from 4.2% in the three months
ended March 31, 1998. These dollar and percentage increases were primarily due
to the hiring of additional technical personnel and related infrastructure in
order to develop new services, and to a lesser extent, the enhancement of our
existing services.
SOFTWARE REWRITE. We did not incur software rewrite expenses in the
quarter ended March 31, 1999. Software rewrite expenses were $694,000 in the
quarter ended March 31, 1998.
NET INTEREST INCOME (EXPENSE). Net interest expense was $106,000 in the
three months ended March 31, 1999. Net interest income was $1,000 in the three
months ended March 31, 1998. This increase in net interest expense was primarily
due to increased borrowings under our line of credit, due to a temporary delay
in collecting accounts receivable from Ford due to a change in Ford's accounting
system in late 1998, as well as capital lease obligations related to the
purchase of computing equipment.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Total revenues increased by $13.7 million, or 52%, to $40.1
million in 1998 from $26.4 million in 1997. Revenues from database marketing
services increased by $10.5 million, or 50%, to $31.5 million in 1998 from $21.0
million in 1997. The increase in database marketing services revenues was
primarily due to a net increase of over 610 customers. To a lesser extent, the
increase was due to our improved operations, which allowed us to eliminate
certain customer discounts and credits. Revenues from consulting services
increased by $3.2 million, or 58%, to $8.6 million in 1998 from $5.4 million in
1997. The increase in consulting services revenues was primarily due to the
continuation of the Around the Wheel Program for Ford throughout 1998.
GROSS PROFIT. Gross profit increased by $4.8 million, or 80%, to $10.8
million in 1998 from $6.0 million in 1997. As a percentage of total revenues,
gross profit increased to 27.0% in 1998 from 22.8% in 1997. Gross profit from
database marketing services increased by $4.1 million, or 86%, to $8.9 million
in 1998 from $4.8 million in 1997. This increase was primarily due to leverage
obtained by spreading new customer installation costs over a larger revenue base
and greater efficiency in operations. Gross profit from consulting services
increased by $691,000, or 57% to $1.9 million in 1998 from $1.2 million in 1997.
This increase was primarily due to our ability to fully utilize our consulting
personnel as a result of the Around the Wheel Program throughout 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by $2.6 million, or 42%, to $8.9 million in
1998 from $6.2 million in 1997. The dollar increase was due
29
<PAGE>
primarily to the establishment of the marketing department and the addition of
sales personnel and related infrastructure. To a lesser extent, the increase
resulted from the write-off in December 1998 of $600,000 in deferred expenses
relating to our previously delayed initial public offering and increased
deferred compensation charges related to stock options granted in 1997 and 1998.
As a percentage of revenues, selling, general and administrative expenses
decreased to 22.1% in 1998 from 23.6% in 1997. This decrease was due primarily
to our ability to leverage our existing infrastructure across a larger revenue
base.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
expenses increased by $1.3 million, or 141%, to $2.3 million in 1998 from
$937,000 in 1997. As a percentage of revenues, technology and product
development expenses increased to 5.6% in 1998 from 3.6% in 1997. The dollar
increase and the percentage increase were primarily due to the development of
new services and the addition of technical personnel and related infrastructure
in preparation for the completion of the software rewrite.
SOFTWARE REWRITE. Software rewrite expenses increased by $2.2 million
to $2.8 million in 1998 from $617,000 in 1997. This increase was due to the
continued rewrite of our core database management and customer retention
software system. The software rewrite commenced late in the second quarter of
1997.
NET INTEREST INCOME (EXPENSE). Net interest expense decreased to
$69,000 in 1998 from $419,000 in 1997. This decrease was primarily due to
decreases in the amount of our indebtedness and increases in interest income
related to higher cash balances resulting from our Series B Preferred Stock
financing.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1997
REVENUES. Total revenues increased by $14.8 million, or 127%, to $26.4
million in 1997 from $11.6 million in 1996. Revenues from database marketing
services increased by $11.2 million, or 115%, to $21.0 million in 1997 from $9.8
million in 1996. The increase in database marketing services revenues was
primarily due to a net increase of approximately 480 customers, due in large
part to the addition of dealerships under the Quality Care Maintenance Program.
To a lesser extent, the increase was due to our elimination of certain discounts
and credits resulting from improved operations. Revenues from consulting
services increased by $3.6 million, or 193%, to $5.4 million in 1997 from $1.9
million in 1996. The increase in consulting services revenues was primarily due
to the implementation of the Quality Care Maintenance Program that began in July
1997.
GROSS PROFIT. Gross profit increased by $4.5 million, or 307%, to $6.0
million in 1997 from $1.5 million in 1996. As a percentage of total revenues,
gross profit increased to 22.8% in 1997 from 12.7% in 1996. Gross profit from
database marketing services increased by $3.5 million, or 265%, to $4.8 million
in 1997 from $1.3 million in 1996. This increase was primarily due to the
implementation of certain technologies to reduce labor costs and the leverage
obtained by spreading our new customer installation costs over a larger revenue
base, offset in part by the establishment of our customer satisfaction
department. Gross profit from consulting services increased by $1.0 million, or
659%, to $1.2 million in 1997 from $159,000 in 1996. This increase was primarily
due to our ability to fully utilize our consulting personnel as a result of the
Quality Care Maintenance Program in the latter part of 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by $838,000, or 16%, to $6.2 million in 1997
from $5.4 million in 1996. This dollar increase was primarily due to the
addition of sales personnel, increased rent expense related to our move to
larger premises, the addition of a human resources department, and additional
administrative infrastructure. As a percentage of revenues, selling, general and
administrative expenses decreased to 23.6% in 1997 from 46.4% in 1996. This
decrease was primarily due to our ability to leverage its existing
infrastructure across a larger revenue base.
30
<PAGE>
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
expenses increased by $393,000, or 72%, to $937,000 in 1997 from $544,000 in
1996. As a percentage of revenues, technology and product development expenses
decreased to 3.6% in 1997 from 4.7% in 1996. The dollar increase was primarily
due to adding technical personnel and related infrastructure in preparation for
the software rewrite, and secondarily due to the enhancement of our existing
services.
SOFTWARE REWRITE. Software rewrite expenses were $617,000 in the year
ended December 31, 1997. We did not incur software rewrite expenses in the year
ended December 31, 1996. We commenced the rewrite of our core database
management and customer retention software system late in the second quarter of
1997.
NET INTEREST INCOME (EXPENSE). Net interest expense increased to
$419,000 in 1997 from $229,000 in 1996. This increase was primarily due to
increased borrowings under our line of credit and capital lease obligations
related to the purchase of computing equipment.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statement of operations
data for each of our last nine quarters ended March 31, 1999, as well as such
data expressed as a percentage of our total revenues for the periods indicated.
This data has been derived from Newgen's unaudited financial statements that, in
management's opinion, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with Newgen's audited Consolidated Financial Statements
and the Notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Database marketing services revenues.... $4,349 $4,946 $5,562 $6,117 $6,908 $ 7,562 $8,124 $ 8,919
Consulting revenues..................... 613 717 1,266 2,844 2,366 2,539 1,710 1,978
-------- -------- --------- -------- -------- -------- --------- --------
Total revenues........................ 4,962 5,663 6,828 8,961 9,274 10,101 9,834 10,897
Gross profit............................ 1,045 1,191 1,613 2,168 2,277 2,651 2,663 3,252
Selling, general and administrative
expenses.............................. 1,363 1,411 1,559 1,901 1,854 1,893 2,045 3,085
Net income (loss)....................... $ (531) $ (599) $ (688) $ (371) $ (663) $ (647) $ (664) $ (1,229)
PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------------------------------------
Gross profit............................ 21.1% 21.0% 23.6% 24.2% 24.6% 26.2% 27.1% 29.8%
Selling, general and administrative
expenses.............................. 27.5 24.9 22.8 21.2 20.0 18.7 20.8 28.3
Net income (loss)....................... (10.7) (10.6) (10.1) (4.1) (7.2) (6.4) (6.8) (11.3)
<CAPTION>
MAR. 31,
1999
---------
<S> <C>
Database marketing services revenues.... $ 10,572
Consulting revenues..................... 1,532
---------
Total revenues........................ 12,104
Gross profit............................ 4,184
Selling, general and administrative
expenses.............................. 2,927
Net income (loss)....................... $ 524
Gross profit............................ 34.6%
Selling, general and administrative
expenses.............................. 24.2
Net income (loss)....................... 4.3
</TABLE>
In the past we have experienced fluctuations in quarterly and annual
revenues, gross margins and operating results. We expect to continue to
experience such fluctuations in the future. Historically, these fluctuations
have been due primarily to fluctuations in consulting revenues, which consist of
a small number of significant contracts. For example, during the fourth quarter
of 1997, total revenues increased by $2.1 million, to $9.0 million, due to an
increase in consulting revenues. Consulting revenues as a percentage of total
revenues during the nine quarterly periods ended March 31, 1999 fluctuated from
12% to 32%. Selling, general and administrative expenses fluctuated in the third
and fourth quarters of 1998 due to the write-off in December 1998 of deferred
expenses related to our previously delayed initial public offering and increased
deferred compensation charges related to stock options granted in 1997 and 1998.
Our quarterly results of operations have varied in the past, and you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. Fluctuations
31
<PAGE>
in our results of operations may be caused by various factors, many of which are
beyond our control as outlined in "Risk Factors."
In addition, our various services have different gross margins and, as a
result, our revenue mix may affect our total gross margin. Our revenue and
operating results depend on a variety of factors, many of which are beyond our
control. As a result, there is no certainty that we will realize revenue growth
or profitability in the future. In addition, our annual or quarterly operating
results may not meet the expectation of securities analysts and investors. If
this happens, the trading price of our common stock could significantly decline.
LIQUIDITY AND CAPITAL RESOURCES
Since 1996, we have financed our operations through borrowings under our
credit facility with Silicon Valley Bank and borrowings from the following
affiliates and parties related to affiliates: Abraham Simkin, Murray Simkin,
Gary Simkin, Bernard Simkin, Samuel Simkin and the Simkin Children Irrevocable
Trust. We have also financed our operations from the sale of preferred stock and
lease financing of capital expenditures. Sales of preferred stock have generated
an aggregate of $14.5 million, net of issuance costs. Cash provided by financing
activities was $6.9 million in 1996, $7.7 million in 1997, $58,000 in 1998 and
$740,000 in the three months ended March 31, 1999.
Cash used in operating activities was $5.5 million in 1996, $2.7 million
in 1997, $2.4 million in 1998. In each period, cash used in operating activities
was primarily related to losses from operations and increases in accounts
receivable. Cash provided by operating activities was $287,000 in the first
quarter of 1999.
Cash used in investing activities was $1.3 million in 1996, $501,000 in
1997, $1.5 million in 1998 and $614,000 in the three months ended March 31,
1999. In each period, cash used in investing activities was primarily related to
purchases of property and equipment in connection with the expansion of the
business. We have financed our acquisitions of property and equipment primarily
through operating and capital leases. See Note 10 of Notes to Consolidated
Financial Statements.
Our credit facility with Silicon Valley Bank provides for borrowings of
up to the lesser of $4.5 million and 80% of qualified accounts receivables,
including a $1,000,000 sublimit for securing letters of credit. Borrowings under
this credit facility bear interest at the bank's prime rate plus 1.00% (8.75% at
March 31, 1999). This interest rate will be reduced to the bank's prime rate
plus 0.5% if we have two consecutive fiscal quarters without a loss. The credit
facility is scheduled to expire in May 1999. Substantially all of our assets are
pledged as security under the Silicon Valley Bank credit facility and for
borrowings from related parties. As of March 31, 1999, we had a letter of credit
for $339,000 under the Silicon Valley Bank credit facility. The credit facility
contains certain covenants and restrictions, including a limitation on
indebtedness requiring Newgen, as of the last day of each month, to maintain a
ratio of quick assets to current liabilities of at least 1.75 to 1.0. In
December 1998, we were not in compliance with the limitation on indebtedness
covenant; however, we have since come into compliance and Silicon Valley Bank
has waived our earlier non-compliance. We also have two lease lines of credit of
$2.0 million each for equipment acquisitions. One of these lines of credit
expires in July 1999. Currently $760,000 is available under that line of credit.
The second line of credit expires in December 1999 and currently $730,000 is
available under that line of credit.
As of March 31, 1999 we had approximately $1.2 million of cash and cash
equivalents and our outstanding receivables were particularly high due to a
temporary delay in our receipt of certain cash payments from Ford. We expect to
finance our short term obligations through lease financing, reduction of
receivables and use of cash on hand. We may also utilize our credit facility
with Silicon Valley Bank, if extended, to meet our short term needs. We believe
that our existing capital resources together with cash generated from operations
and amounts available under our line of credit will be sufficient to meet our
capital requirements for at least the next twelve months. Additionally, the
proceeds from this offering will provide additional liquidity to Newgen. Beyond
the next twelve months, we have no committed source of
32
<PAGE>
long-term liquidity other than working capital. See "Risk Factors -- We May Be
Unable to Raise Capital in the Future."
We may use a portion of the net proceeds from this offering to acquire
or invest in businesses, technologies or services that are complementary to our
business. We currently have not made any commitments or entered into any
agreements with respect to any such transactions. In addition, future
acquisitions may require us to issue dilutive equity securities, incur
substantial debt, or assume contingent liabilities.
YEAR 2000 COMPLIANCE
The use of computer systems and software products that rely on two-digit
date programs to perform computations and decision-making functions may cause
computer systems to malfunction in the Year 2000 and lead to significant
business delays and disruptions. We use a significant number of computer
software programs and operating systems in our operations and we are therefore
particularly sensitive to the problems which may be caused by the Year 2000
problem. We anticipate that a significant element of our exposure to malfunction
created by noncompliance is in our information technology systems. These systems
include our data retrieval, purification, distribution, financial,
administrative and communication operations.
We have commissioned a substantial rewrite of our enterprise-wide
database management software. To date, we have spent $3.5 million for such
rewrite. The rewritten enterprise-wide database management software is designed
to be Year 2000 compliant. We expect the software rewrite to be completed in the
fourth quarter of 1999. Because we expect to implement our rewritten
enterprise-wide database management software prior to the end of 1999, we have
not undertaken a comprehensive review of our existing enterprise-wide database
management software to date. We have developed a program to determine our
exposure to other potential Year 2000 problems and to develop plans to reduce or
eliminate our exposure. We expect that all phases of this program will be
successfully completed by the end of 1999. In the first phase of this program,
we are making a detailed assessment of our computer systems, other than the
enterprise-wide database management software, to identify those systems which
have Year 2000 problems. We are currently developing plans to correct systems
critical to our business. Critical systems will then be replaced or modified
according to plan to eliminate the Year 2000 problems which were discovered.
Finally, in the later part of 1999, we will conduct a test of our internal
systems to insure that they are ready for the year 2000.
We have not spent a material amount to date in addressing Year 2000
problems. The funds used to address the Year 2000 problem to date have come from
our working capital. Additionally, we do not expect to spend material amounts
during 1999 to complete our assessment of our Year 2000 readiness. Unanticipated
costs associated with any Year 2000 compliance may exceed our present
expectations and harm our business. We are also assessing the Year 2000
readiness of our customers and suppliers. Any failure of third party networks,
systems or services upon which our business depends could have a material
adverse impact on our business. We also rely on other systems and services that
third parties provide to our customers. As a result, the success of our plan to
address Year 2000 issues depends in part on parallel efforts being undertaken by
other third parties. We have begun to identify and initiate communications with
third parties whose networks, systems or services are critical to our business
to determine the status of their Year 2000 compliance. To date, we have
contacted and received responses from approximately two-thirds of our third
party suppliers concerning their Year 2000 compliance. We cannot assure you that
all such parties have provided, or in the future will provide, accurate and
complete information, or that all their networks, systems or services will
achieve full Year 2000 compliance in a timely fashion. The most reasonably
likely worst-case scenario for us resulting from Year 2000 issues is that
third-party noncompliance would disrupt, reduce or eliminate for a period of
time our ability to service existing customers or to solicit new customers. If
such occurrences are frequent or long in duration, they could harm our business.
33
<PAGE>
Once we complete the first phase of our Year 2000 program, and are aware
of the nature of our potential exposure to Year 2000 related issues, we will
develop a contingency plan describing how we will handle Year 2000 problems
which would occur if our preparatory efforts are not successful. Despite our
Year 2000 program or other efforts, we cannot assure you that all problems have
been or will be foreseen and corrected or that no material disruption of our
business will occur. For instance, in the event that the software rewrite of our
enterprise-wide database management software is not completed on time or the
software does not perform according to design, it could result in significant
Year 2000 non-compliance issues for our operations, some of which may be
unforeseen at this time. Potential systems interruptions and expenditures of
significant financial or management resources to solve any Year 2000 issues may
have a material adverse effect on our business, financial condition and results
of operations. Furthermore, the failure of our customers and suppliers to
achieve Year 2000 compliance could result in a reallocation of our financial
resources to deal with the issue and reduce customers' ability to utilize
services, which could have a material adverse effect on our business, financial
condition and results of operation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE (SOP 98-1). This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal use software as well
as assists in determining when computer software is for internal use. SOP 98-1
is effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. The impact of the adoption of this SOP is highly
dependent upon the nature, timing and extent of future internal use software
development.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES. This
Statement of Position provides guidance on the financial reporting of start-up
costs and organization costs. It requires that the cost of start-up activities
and organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect adoption of this SOP to have a material adverse impact on the
financial statements.
34
<PAGE>
BUSINESS
OVERVIEW
Newgen provides customized, outsourced database management, direct
marketing and related services for automobile dealerships' service departments
and automobile manufacturers. We believe that the combination of our breadth of
services and our technological innovations make us among the leaders in the
industry. We combine our expertise in database marketing and customer retention
services, our focus on customer service and our in-depth knowledge of automobile
service department operations to provide highly targeted and customized
solutions. Our RESULTS Program employs efficient and cost-effective technology
to enable dealerships to increase their number of service department customers
as well as revenues per customer. In addition, we believe our services improve
the operations and processes of a dealership's service department thereby
differentiating the dealership from its competition and creating enhanced
customer satisfaction and loyalty. We have grown our customer base from 177
dealerships at December 31, 1995 to 2,092 dealerships at March 31, 1999,
notwithstanding competition from a number of competitors, including two
companies with significantly greater resources.
INDUSTRY BACKGROUND
Increasing competition has driven businesses to enhance their market
position by strengthening relationships with existing customers and targeting
new markets and customers. While technological advances, such as the Internet,
are making information more accessible and less expensive, the marketing costs
to reach and retain customers is increasing. As a result, businesses are trying
to use their marketing resources more efficiently and effectively to drive
customer retention and loyalty through the use of specialized information
products and data management services. Many businesses, however, lack the
technology infrastructure or expertise to implement these new marketing methods.
Businesses are increasingly electing to outsource key processes to service
providers that are able to apply advanced database systems to capture, process
and store customer and market information, and use this experience to provide
targeted and effective services.
The automobile industry is relatively mature. According to the National
Automobile Dealers Association (NADA), annual growth in the number of
automobiles sold by dealerships has not grown significantly between 1987 and
1997. A number of industry and market trends, however, are affecting the future
structure of the industry. Over the next five years, the number of automobile
dealerships in the United States is expected to decrease, reflecting the
consolidation of the industry into fewer and larger dealerships. In addition,
margins on sales of new vehicles are decreasing because of the emergence of
megadealers and Internet-based comparison shopping. According to the NADA, the
average dealership realized pre-tax income margins of only 1.4% in 1997. We
believe that the emergence of megadealers resulting from the industry's
consolidation, together with emerging sales and marketing channels such as the
Internet, will lead to greater professionalization of management at dealerships,
and correspondingly, more sophisticated approaches to increase dealership
revenues and margins.
Automobile dealerships historically have focused on sales of
automobiles, viewing customer retention for service-related revenue as being
secondary. Customer dissatisfaction with dealership service combined with
increased competition from other service outlets, such as Sears Auto Center or
Jiffy Lube, has caused consumers to avoid returning to dealerships for vehicle
service or maintenance. Based on our experience, we believe that dealerships
perform approximately 15% of scheduled maintenance on the automobiles they sell.
Moreover, those that do return for service historically do not always receive
satisfactory customer service. Dealerships provide only a small portion of
service on all automobiles in the United States. For example, we believe that
U.S. consumers spend approximately $250 billion to service and repair their
vehicles, but according to the NADA, in 1997 dealerships provided only $63
billion, or approximately 25%, of those services. Not only are dealerships
performing a small portion of all service on automobiles, but their revenue from
warranty-related service is declining. The reduction in revenues from
35
<PAGE>
warranty-related service is due to increased scrutiny of warranty claims and
higher quality manufacturing of automobiles. As a result, dealerships are being
forced to rely more on customer pay labor and parts sales in order to replace
lost warranty-related service revenues.
Dealerships are realizing that their parts and service departments
represent an opportunity for increased revenues and profits. More importantly,
despite declining market share of service related spending by consumers at
dealerships, the percentage of dealership profits generated from the service and
parts department has increased from approximately 16% in 1985 to approximately
59% in 1997. Based on these trends, we believe that dealerships will increase
the portion of their marketing budgets dedicated to automobile service
department customer retention and loyalty programs.
PERCENTAGE OF DEALERSHIPS' PROFITS GENERATED FROM THE SERVICE AND PARTS
DEPARTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1985
<S> <C>
Service and Parts 16%
Sales and Other 84%
1997
Service and Parts 59%
Sales and Other 41%
Source: NADA
</TABLE>
Typically, automobile dealerships use general mass media advertisements,
bulk mail coupons or generic reminder notices to promote their services.
However, the effectiveness of these solicitation techniques is limited for
several reasons. First, because these forms of marketing often involve
untargeted mailings, many solicitations are sent to individuals who no longer
own their vehicle. In addition, these general marketing solicitations lack the
impact associated with a more focused marketing program. Furthermore, these
solicitation techniques have limited data gathering and storing capabilities and
do not allow dealerships to receive customer feedback. Because of the
deficiencies of these traditional marketing methods, such methods also tend to
be expensive when compared to the amount of revenue they generate for
dealerships. Some manufacturers have attempted to support their dealerships
through manufacturer sponsored marketing. However, manufacturers do not have
specific information about dealership customers nor do they track maintenance
activity at the dealerships. Consequently, manufacturers are unable to develop
effective nationwide programs to encourage customers to return to dealerships
for service.
The proper implementation of a targeted marketing campaign promoting
automobile service is highly complex. Maintenance schedules vary immensely from
vehicle to vehicle. At a typical Ford dealership, for example, there may be as
many as 2,500 different maintenance schedule combinations based on a vehicle's
model, year, engine and other characteristics. Matching the correct maintenance
schedule to each vehicle, while taking into account other factors such as the
owner's driving habits, service history of the car, seasonal and regional
variations, and any special maintenance programs offered by the dealership,
requires complex algorithms and advanced data management systems. Adding to this
complexity, dealerships need to manage and update their databases of service
customers in order to eliminate customers who should not be solicited and to
focus on customers who are most likely to return
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for service. Ensuring that the right maintenance reminder gets to the right
person at the right time requires sophisticated database marketing techniques
and the use of a system that continuously updates customer data and monitors the
results of the marketing campaign.
While advances in technology and information processing now permit
dealerships to engage in highly targeted marketing initiatives, these
initiatives are generally dependent upon complex and costly data management
processes. For example, dealerships require sophisticated systems that enable
the purification of databases that contain old or inaccurate data to effectively
market to customers. Dealerships are increasingly focusing on their core
competencies of selling and servicing automobiles and outsourcing to experts the
development and implementation of complex processes that support and enhance
their business objectives. Thus, automobile dealerships need outsourced services
that employ efficient and cost-effective technology to increase the number of
service department customers per dealership and dealership revenues per
customer. These services will also improve the operations and processes of the
dealership thereby differentiating the dealership from its competition and
creating increased customer satisfaction and loyalty.
THE NEWGEN SOLUTION
Newgen provides customized, outsourced database management, direct
marketing and related services for automobile dealerships' service departments
and automobile manufacturers. Our expertise in both database marketing and
customer retention services, as well as our in-depth knowledge of automobile
service department operations enables us to provide comprehensive and highly
targeted marketing solutions. Our RESULTS Program promotes automobile service
business from a dealership's customer base by using direct marketing campaigns
involving direct mail and outbound teleservice follow-up. We implement our
RESULTS Program for automobile dealerships using a dealership's own customer and
transaction data that we process and purify to ensure the data is current and
relevant. After downloading a dealership's database into our system, we combine
the data with maintenance schedule databases and our proprietary databases and
algorithms to develop customized solicitations targeting service visits. Our
system tracks every dealership customer in order to update the database
appropriately throughout the solicitation process and to provide feedback to the
dealership. Our services are designed to:
- attract more service customers to dealerships from the dealerships'
customer base;
- increase dealership revenues per customer;
- promote customer loyalty;
- increase customer satisfaction;
- differentiate the dealership from its competition through improved
operations and processes; and
- provide dealership customers with the benefits of a safer vehicle with
increased resale value.
Our studies indicate that over the course of a year customers we solicit
for a dealership will visit that dealership more than three times as often, and
spend more than two and one-half times as much, compared to customers with
similar demographic characteristics not solicited by us.
Our RESULTS Program significantly reduces untargeted solicitations and
unnecessary expenses. This, in turn, increases a dealership's return on
investment compared with untargeted customer retention programs. As a result, we
estimate that approximately 25% to 30% of dealership customers solicited by us
return to the dealership for vehicle service. This compares very favorably with
response rates for direct mail marketing campaigns, which typically range
between 1% and 3%. Through our teleservice department, we are able to forward
dealership customer concerns to the dealership before those customers defect.
Dealerships can address these concerns and significantly increase the
satisfaction of their customers. In addition, we provide dealerships with
comprehensive monthly management reports that
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track response rates and spending habits of solicited customers. Dealerships can
therefore measure the quantifiable financial and customer retention benefits
attributable to our services. We have an extensive customer support
infrastructure to provide assistance to dealership management in understanding
the benefits of our services. We also advise dealerships on methods of
customized solicitation, such as promotions, coupons and special targeted
programs, and work closely with our customers to accommodate their individual
requests and needs. In providing all of these services, we regularly visit most
of our customers at their facility.
We have recently introduced a number of new services that utilize our
expertise in automobile service department operations and complement the RESULTS
Program. Our Reservations Program provides dealerships with a solution for the
challenges of scheduling service appointments with dealership customers and,
subsequently, loading the service department for maximum efficiency. Our Welcome
Home service is designed to recapture dealership customers who may have defected
to other service outlets. Such services, among others in development, leverage
our database marketing and customer retention skills to provide a range of
outsourced services to dealerships.
We maintain a close working and strategic relationship with Ford. We
strongly believe that our work with Ford supports our own marketing and product
development efforts as well as our credibility with dealerships. Ford also has
acted as a key reference account in our effort to develop relationships with
other manufacturers. The key elements of our relationship with Ford include:
- marketing programs developed jointly by us and Ford for deployment to
Ford dealerships nationwide;
- private labeling by Ford of our database marketing services as the
Quality Care Maintenance Reminder System; and
- a consulting engagement which puts us in contact with Ford
dealerships.
Our Consulting Division leverages its expertise in automobile service
department operations to develop and implement new techniques and programs that
enable dealerships to grow their business, streamline inefficient processes and
more effectively market their services. To date, our consulting services have
been provided primarily to Ford dealerships, although they are applicable to
dealerships of any make of vehicle. We believe that our consulting services
enhance our overall understanding of dealership needs and processes, and also
reinforce our business relationship with such dealerships. In addition, the
Consulting Division is a key generator of new service ideas that can be deployed
throughout our dealership base. For example, we recently introduced the Around
the Wheel Program and the Pricing Center, both of which were developed by our
Consulting Division and are now being implemented throughout our Ford dealership
base.
GROWTH STRATEGY
Newgen's objective is to be the leading provider of customized,
outsourced database management, direct marketing and related services for
automobile dealerships and manufacturers. Using our sophisticated database
management capabilities, personalized customer service and in-depth knowledge of
automobile service department operations, we have quickly and effectively
penetrated the automobile dealership and manufacturer industry. Our growth
strategy consists of the following key elements:
PROVIDE SERVICES TO MORE AUTOMOBILE DEALERSHIPS. We have experienced
significant growth in the number of dealerships we service. Our customer base
has grown from 177 dealerships at December 31, 1995 to 2,092 dealerships at
March 31, 1999. Our strategy to increase our share of the automobile dealership
market consists of the following elements:
- increasing the size of our direct field sales force;
- more actively marketing our services to dealerships;
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- continuing to expand our field force of customer satisfaction
representatives to service our dealership base;
- seeking to establish additional manufacturer relationships using the
Ford relationship as a model; and
- lengthening the term of our dealership contracts.
INCREASE THE NUMBER OF ACTIVE NAMES PER AUTOMOBILE DEALERSHIP. Our
revenues for the RESULTS Program are based on a monthly fee per active name in
our database. As a result, dealerships generally control the number of active
names in our database in order to control their expenses. Currently, we solicit
approximately two-thirds of our purified database. We seek to increase the
number of active names per dealership by demonstrating a tangible return on
investment to the dealership resulting from our programs. As we further
demonstrate the economic value of our services to our customer base, we believe
dealerships are likely to increase the number of active names that we solicit.
We are focused on developing tools and sales techniques designed to emphasize
the tangible financial benefits of our services. We recently engaged in a
marketing campaign to encourage dealerships to activate more dealership customer
names from their customer base, resulting in an increase of approximately
135,000 active names to date.
OFFER A BROAD RANGE OF CUSTOMIZED DIRECT MARKETING SERVICES TO
AUTOMOBILE DEALERSHIPS. We intend to cross-sell new services to satisfied
dealerships, as well as to sell broader lines of services to new customers. Our
Consulting Division serves as a key generator of new service ideas that can be
developed throughout our dealership base. For example, we recently introduced
three new targeted direct marketing programs:
- Reservations--designed to improve the efficiency of service department
appointment scheduling and shop loading;
- Welcome Home--designed to recapture dealership customers who have
previously defected; and
- Around the Wheel--designed to increase the sale of brakes and tires at
Ford dealerships.
In addition, we are currently developing several other innovative
services and programs. For example, we are currently developing an after visit
follow-up program involving teleservice calls to ascertain the level of
satisfaction from a customer's service experience following vehicle service and
a data delivery, query and fulfillment system over the Internet for our
customers.
LEVERAGE DATA MANAGEMENT CAPABILITIES. We intend to use our expertise
and resources in data management to provide data extraction and data warehousing
services. Our database contains comprehensive and detailed information regarding
virtually every repair order processed by a dealership since implementation of
the RESULTS Program. Because we are able to extract repair order information
from dealerships on a daily basis, we can provide statistical data to
manufacturers and dealerships in a variety of different formats. We can also
mine our data to search for trends that could be useful to manufacturers and
dealerships. We currently are working with Ford and Toyota Motor Sales to
provide such services. We believe that the benefits of such data management
services to manufacturers and dealerships include:
- creating manageable information regarding customer and vehicle service
patterns;
- providing information that supports customer promotions and recall
programs; and
- establishing the foundation for future direct marketing services.
UTILIZE THE INTERNET AS A DELIVERY PLATFORM FOR OUR SERVICES. We
believe that the Internet may provide a compelling platform to deliver our
database management and direct marketing services for
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automobile dealerships and manufacturers. We have begun to develop a number of
online services that complement and extend the capabilities of our current
services. We believe that e-mail may serve as an effective mechanism for
delivering service reminder notices. We are attempting to collect e-mail
addresses through our dealership customer contacts and develop the technology
necessary to deliver our RESULTS Program using e-mail. In addition, we intend to
promote our maintenance schedule database and our RESULTS Program on a private
label basis to specialized Web portals and other providers of Internet services
that may work with dealerships or manufacturers. We recently introduced our
Reservations Program which, in the future, we intend to make accessible over the
Internet such that dealership customers will be able to schedule service
appointments online. We are currently developing ROAD, a service that is
designed to allow dealerships to access, manipulate and query our database and
receive our management reports over the Internet. We intend to continue to
actively develop services that leverage the Internet's advantages as an
information and content delivery platform.
In addition, we may seek to expand our operations and use our technology
and process expertise by investing in or acquiring businesses or technologies
complementary to our existing operations. We cannot assure you that any future
acquisitions will be completed or that, if completed, any such acquisitions will
be effectively integrated with our operations. For a discussion of risks
associated with future acquisitions, see "Risk Factors -- We May Engage in
Future Acquisitions that Dilute our Stockholders, Cause Us to Incur Debt and
Assume Contingent Liabilities."
SERVICES
Newgen's services include (1) the RESULTS Program, (2) consulting
services, (3) other recently introduced services, and (4) services in
development. All of our services utilize our expertise in both database
marketing and customer retention services, as well as our knowledge of
automobile service department operations.
RESULTS PROGRAM
The RESULTS Program promotes automobile service business from a
dealership's own customer base by using direct marketing campaigns involving
direct mailing and outbound teleservice follow-up. We implement our RESULTS
Program on behalf of dealerships using dealership customer and transaction data
that we process and purify to ensure that the data is current and relevant. We
enhance the dealership's database by combining it with maintenance schedule
databases and our own proprietary databases and algorithms to develop customized
solicitations targeting service visits. Our closed-loop customer retention
system tracks the status of each dealership customer to enable targeted and
personalized interaction and follow-up with the customer at every phase of the
solicitation process. We monitor results daily and provide dealerships with
comprehensive monthly management reports that track maintenance, response rates
and spending habits of solicited customers.
DATABASE UPDATING, MAINTENANCE AND INTEGRATION. Our RESULTS Program is
based on sophisticated data management. The first phase of the RESULTS Program
is a download of a dealership's database of customer transaction data onto our
database management system. This initial data download is comprehensive, but
often inaccurate. To ensure our database is current, we also download customer
transaction data each time a dealership customer comes into the dealership. We
use this data to update the information and history relating to a particular
customer or vehicle. This data is compiled to develop a maintenance schedule for
each vehicle in the database. In order to maximize response rates, we purify
each dealership's initial database by eliminating:
- dealership employees;
- fleet customers performing their own maintenance;
- dealership trades;
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- database records with incomplete names, addresses, or missing or
incomplete vehicle identification numbers; and
- other vehicles that are inappropriate for dealership servicing (such
as a Dodge purchased at a Toyota dealership).
CUSTOM DATA MANAGEMENT. We use the purified, enhanced database and our
industry knowledge and expertise to design and execute a customized direct
marketing campaign for the dealership. After the data is analyzed, it is then
overlaid on other relevant databases such as maintenance schedules or zip code
exclusion tables. We consult with dealerships on a customized program that takes
into account maintenance schedules, geography, demographics and the dealership's
service operations. Once our database includes all of the necessary data, we are
able to execute the RESULTS Program and begin to provide direct marketing
services.
TARGETED DIRECT MAIL SOLICITATION. We send to each dealership customer
a personalized letter on that dealership's letterhead. The personalized letter
is tailored to each customer's car make, mileage and maintenance schedule,
indicating that the vehicle is due for service. The letter also describes the
suggested service required, as well as dealership contact information and hours
of operation. We can then monitor the response rate of our direct mail
solicitations through regular transaction downloads from dealerships, as well as
use the most current information to update and enhance our database for each
dealership. We are attempting to develop technology to enable us to e-mail
reminder notices and our goal is to add this capability to our RESULTS Program
in the future.
TELESERVICE FOLLOW-UP. If the regular transaction downloads show that
the vehicle owner did not visit the dealership within a specified time after the
personalized letter is sent, a telephone solicitation from Newgen is made on
behalf of the dealership, encouraging the dealership customer to bring the
vehicle to the dealership for service. Ideally, the Newgen teleservice
representative speaks directly to the dealership customer and is able to:
- confirm the vehicle's mileage;
- explain the type of service that is due;
- set an appointment for service of the vehicle; and
- obtain customer feedback for dealerships.
If an answering machine is reached, a message is left for the dealership
customer. Our research indicates that the response rate from solicitations by
telephone messages is approximately the same as solicitations by direct
telephone contact. If an appointment is scheduled, the dealership customer's
name returns to the database for future solicitation. If the dealership customer
is no longer appropriate for solicitation (for example, because the customer
sold the vehicle or moved away), the name is made inactive in the database and
no longer solicited. If Newgen's teleservice representatives receive a complaint
from a dealership customer, a "customer opportunity" form is created identifying
the reason for the dissatisfaction (for example, the customer experienced a rude
service advisor or the vehicle was not ready when promised). Each "customer
opportunity" form is immediately sent to the dealership via facsimile. These
forms provide an opportunity for dealerships to salvage fragile customer
relationships and improve customer retention. We believe that our teleservice
calls are effective because they are not made as sales calls. Rather, they are
simply reminder calls provided as a service to the vehicle owner.
CLOSED-LOOP SYSTEM. The RESULTS Program is a closed-loop system that
allows Newgen to know whether a dealership customer has responded to our direct
marketing services. By updating our database throughout the solicitation
process, our closed-loop system is designed to ensure that all dealership
customers experience appropriate and personalized interaction and follow-up. The
RESULTS
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Program is effective because we are able to maintain the most current record
possible for each dealership customer and vehicle. As a result, we minimize
inappropriate and ineffective solicitations.
COMPREHENSIVE MANAGEMENT REPORTS. Each month we produce comprehensive
management reports for each of our dealerships. These reports are sent to
dealerships shortly after the end of the month and contain specific,
quantifiable information about the results of their customized program. The
information in these reports includes data on customer spending habits, return
on the dealership's investment and database purification. These reports also
contain information on service advisor performance and other relevant feedback
enabling the dealership to improve its operations and processes.
CONSULTING SERVICES
Newgen leverages its industry expertise in the parts and service
departments operations of automobile dealerships through its Consulting
Division. To date, these services have been directed primarily to Ford
dealerships, although the programs are applicable to manufacturers and
dealerships of any make of vehicle. These services are designed to improve the
quality of the dealership's parts and service departments by finding ways to
improve various processes used by dealerships to acquire and service their
customers. These services are also intended to provide dealerships with
additional revenue opportunities. Our Consulting Division serves as a key
generator of new service ideas that can be deployed throughout our customer
base. At March 31, 1999, our Consulting Division consisted of 19 employees,
including 11 consultants and 8 internal administrative and technical staff. In
June 1997, we initiated a consulting purchase order for the implementation of
the Quality Care Maintenance (QCM) Program, during which we consulted to over
2,700 Ford dealerships. We have privately labeled a version of our RESULTS
Program as the Quality Care Management Reminder System to fulfill the
requirements of QCM. During the implementation of QCM, we provided consulting
services to each of the 2,700 Ford dealerships.
We currently have a separate consulting purchase order to help Ford
dealerships increase sales of tires and brakes. This program is called Around
the Wheel and is expected to be implemented in over 2,400 Ford dealerships by
August 1999. The Around the Wheel Program is designed to increase brake and tire
sales by including specialized graphs showing brake and tire wear in each
regular reminder letter we mail to a dealership customer. In addition, our
consultants help dealerships increase brake and tire sales by teaching effective
sales techniques and by improving distribution channels for these products.
RECENTLY INTRODUCED SERVICES
An important component of our growth strategy is to continue to
introduce new services to our dealerships. While we believe that our new
services represent an opportunity for future growth, to date these services have
generated limited revenues for Newgen.
RESERVATIONS. One of the most challenging processes for the service
department of an automobile dealership is the reservations process. The service
department is difficult for the dealership to staff appropriately, such that
service advisors often spend inadequate time with customers on the phone to
address service or maintenance concerns, especially at peak times such as Monday
mornings. Furthermore, service advisors may not check the dealership customer's
service history report to determine whether or not the customer is due for
additional maintenance that could result in additional revenue to the
dealership. Finally, service advisors generally are not trained in proper
service shop loading techniques, resulting in an inefficient system for
completing service orders.
Newgen's Reservations Program is designed to overcome these challenges.
When a dealership customer calls the dealer to set an appointment for service,
the call is transferred to Newgen's teleservice facility. Through our database,
the dealership customer's service history is accessed along with the
dealership's service calendar. Newgen service representatives are trained in a
decision tree process that enables them to accurately diagnose the problem with
the vehicle. At the same time, the teleservice
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representative can recommend other needed maintenance or recall related service
work. We then transmit the reservation information to the dealership's computer
system. Through Newgen's proprietary scheduling algorithm, the repair work is
scheduled for a mutually convenient time that is designed to load the service
department for maximum efficiency. Newgen currently has ten dealerships in
pilot, and expects to launch this service on a larger scale in June 1999.
DATA EXTRACTION AND DATA WAREHOUSING. We intend to leverage our
expertise and resources in data management to provide data extraction and data
warehousing services. We are currently working with Ford and Toyota to perform
data warehousing and mining services. Leveraging our expertise in dealership
data extraction, we will gather data from dealerships and utilize our database
expertise to transmit information back to a manufacturer in different and
customized formats. The manufacturer will then use that information for its own
marketing and research programs. We are currently introducing this service.
PRICING CENTER. The Pricing Center provides dealerships with a price
book outlining the required maintenance schedules and suggested maintenance
prices for every Ford vehicle. There are over 2,500 permutations of service
operations. The price book is used by dealerships to accurately determine prices
for maintenance packages and thereby better service their customers. Dealerships
are charged a monthly fee for these pricing books and receive up to two updates
per year.
WELCOME HOME. The Welcome Home Program is designed to recapture those
customers who may have defected from the dealership. When we initiate the
RESULTS Program with a customer, the dealership may choose to solicit only
vehicles that have visited the dealership for service within the last twelve
months. However, many of the dealership's customers that visited the dealership
prior to the last 12 months are still good prospects for service visitation.
We believe that the Welcome Home Program is an effective means for
dealerships to market their service to a larger group of potential customers. As
part of the Welcome Home Program, all potential customers are sent a four-color
mailing with a personalized message inviting the customer to return to the
dealership for service. The mailing includes personalized coupons as well as an
innovative "scratch-off" feature. The "scratch-off" feature provides the
customer with a chance to win a special gift from the dealership, such as a free
oil change or a discount on service. When the customer returns to the
dealership, the customer is added to our active database for regular
solicitation by that dealership. We introduced this service offering to our
customers during the third quarter of 1998 and we believe that the response rate
is substantially higher than response rates typically generated by direct mail.
SERVICES IN DEVELOPMENT
We believe we can continue to leverage our expertise in database
management, direct marketing and the service department operations of automobile
dealerships to introduce innovative new services to automobile dealerships. We
have several new service programs under development.
CSI. Many dealerships call their customers after a service visit to
inquire about the quality of their experience. We are well positioned to provide
this service through our CSI Program on an outsourced basis because we already
acquire the necessary data as part of our RESULTS Program. Our CSI Program is a
survey system that enables our dealerships to track their customer satisfaction.
This program allows us to leverage our existing teleservice expertise and
operational infrastructure. We initiated a pilot of our CSI Program during the
fourth quarter of 1998 and expect to introduce this service to our customers in
1999. One element of this program will be a kiosk at the service cashier's desk,
at which a customer can input, on a touch screen, responses to various questions
regarding the service experience. The survey can be supplemented by a telephone
call a few days after the service, to ensure that the vehicle is working
properly. Feedback from both of these surveys is sent to the dealer on a regular
basis, with immediate notification to the dealer of any responses that would
warrant special handling.
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ROAD. ROAD is a service that is designed to provide dealerships with
immediate access over the Internet to the large amount of information contained
in our database and use such information for direct marketing or other purposes.
Dealerships will be able to receive management reports, to access our database
and to perform queries. For example, ROAD will be designed to enable a
dealership to determine the zip codes of its service customers and then display
their locations on a map. In addition, queries may be conducted to identify
customers with expiring leases, and dealers may direct Newgen to send a sales
promotion letter. We also intend to enhance the dealership data with demographic
data to enable the dealer to perform data mining.
AUTOBYTEL.COM JOINT VENTURE. In May 1999, we entered into a non-binding
letter of intent with autobytel.com under which we intend to enter into a joint
venture and form a new entity that will be jointly owned by Newgen and
autobytel.com to provide automobile maintenance reminders to dealership
customers who prefer to receive information via e-mail, instead of the more
traditional direct mail method. We expect that the venture also will promote
dealership service and maintenance to customers who visit the autobytel.com Web
site, and will combine our database management and direct marketing expertise,
with autobytel.com's Internet expertise and strong consumer brand of
autobytel.com.
We intend to provide telephone follow-up services to the new venture,
and to actively promote the new venture to any existing dealership customers who
prefer to receive maintenance reminders via
e-mail. Under the terms of the letter of intent, Newgen and autobytel.com each
are expected to contribute $2 million to fund the new venture. The venture is
subject to approval of the board of directors of Newgen and autobytel.com, as
well as the negotiation and execution of a definitive agreement between the
companies, and we cannot assure you that the companies will enter into a
definitive agreement based on the terms of the letter of intent.
For a discussion of risks associated with the introduction of new
services see "Risk Factors--We Will Need to Introduce New Services to Expand Our
Business."
SALES AND MARKETING
SALES
At March 31, 1999, we employed 35 sales professionals located in major
markets throughout the United States. Although our sales representatives and
their supervisors do receive a small monthly expense allowance, the sales force
is otherwise compensated exclusively by commission. The commission is based on a
salesperson's implementation of the RESULTS Program at dealerships. In addition,
at March 31, 1999, we had 14 customer satisfaction representatives located
throughout the United States. We believe their regular visits to our customers
increase both dealership awareness of our services and an appreciation of the
benefits and value of our services. Our experience has been that educated and
satisfied customers are more likely to provide us with referrals to other
dealerships. In addition, our attention to our customers has helped us increase
the number of active names in our database and the number of services that we
provide to our individual dealerships.
The continued consolidation of automobile dealerships has enabled us to
target our sales efforts more effectively. Because the larger dealerships are
able to derive the greatest benefit from our services and represent our greatest
potential source of revenue, our sales professionals focus primarily on these
dealerships.
Newgen uses two different strategies for selling services to automobile
dealerships. When a manufacturer or dealership group recommends our services,
our salesperson is able to more effectively contact the dealership principal.
Our salesperson also is able to make a sales presentation that is tailored to
the manufacturer or dealer group program. Manufacturers influence the decisions
made by dealerships through both financial and non-financial incentives and
support our sales efforts. For example, Ford's recommendation of our services
has been instrumental in securing appointments with Ford-affiliated
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dealership principals. In turn, sales of our services to Ford dealerships has
increased. In addition, through Ford-sponsored dealership seminars, we have
enrolled several hundred dealerships in our Around the Wheel Program. Other
benefits of a manufacturer's recommendation include co-branded marketing
materials and administrative support with our management of receivables and the
fee collection process.
When a dealership is not affiliated with a manufacturer that recommends
our services, our sales representatives directly solicit the dealership. We
employ an active prospecting and sales management process intended to increase
direct sales by facilitating appointments with key decision makers at
dealerships. Regional market-support personnel address administrative
responsibilities for teams of salespeople. Word-of-mouth, cold-call prospecting
by market-support personnel, special mailings to dealerships and booths at local
and regional dealership exhibits create sales leads that are then responded to
by sales representatives. In addition, we have an internal database system that
electronically tracks our customer prospects throughout our solicitation of new
business.
We believe that our credibility among automobile dealerships is based on
our ethical sales practices, demonstrated industry expertise, manufacturer
recommendations, leading edge technology and efficient back office operations.
MARKETING
Our marketing department is responsible for the introduction of new
services to our existing customer base. In addition, our marketing efforts focus
on enhancing Newgen's brand name recognition, developing an Internet strategy
and networking with prominent dealerships through a Dealership Advisory Board.
The marketing department is also responsible for our participation in the annual
National Automobile Dealers Association trade show, dealer association
presentations, as well as other smaller regional trade shows across the United
States that increase awareness of Newgen's services. The marketing department
also has two business development managers whose primary functions are to secure
new automobile manufacturer relationships.
OPERATIONS
We have developed broad expertise in the operational aspects of database
management, direct marketing and teleservice. Our core competencies include:
- developing and installing databases with dealership-specific
information;
- downloading dealership data through our highly automated computer
system;
- purifying and enhancing data;
- maintaining automobile maintenance schedules;
- providing systems for personalized customer solicitation through
direct mail and teleservice; and
- satisfying customers.
In December 1997, we completed the certification process for ISO 9001.
To become ISO 9001 certified, an independent certifying agency audited our
internal processes and certified that they met a set of specific international
quality standards established by the International Standards Organization. We
believe that ISO 9001 certification will allow Newgen to achieve special vendor
status with major manufacturers by signifying our attention to quality and
operational excellence. We believe that our operations expertise provides us
with a competitive advantage and is a key reason for the growth of our customer
base.
INSTALLATIONS. The installation department has the initial interaction
with a dealership in implementing the RESULTS Program. This department's
activities consist primarily of programming
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scripts to obtain dealership data via modem, ensuring that all appropriate
maintenance schedules and dealership information are input to our database
system and creating customized digital letterhead for sending to dealership
customers. In addition, the installation department works with dealerships to
develop customized dealership-specific information for our database or other
special dealership offerings, such as "winterization" packages in Michigan or
"desert protection" plans in Texas. The installation department also creates
letter templates for the direct marketing component of our business.
COMPUTER OPERATIONS. The computer operations department downloads the
initial data from the dealership and is responsible for downloading data from
the dealership on a daily basis. For most dealerships, data is automatically
downloaded nightly containing a detailed list of dealership customers who have
come in for service or have purchased a vehicle. This highly automated system
allows us to know whether a contacted dealership customer has come in for
service or made an appointment. If the dealership customer has had his or her
vehicle serviced, the record is returned to the file for future solicitation. If
the dealership customer does not come in for service within a time frame
specified by the dealership, the name is transferred to a phone list. The
computer operations department is also responsible for maintaining our HP9000
computers. In addition, the computer operations department facilitates the
analysis of data for sale to manufacturers as part of our data warehousing and
mining services.
DATABASE OPERATIONS. Newgen is focused on maintaining a comprehensive
transaction database by concentrating on continuous database purification. The
database operations department prepares new records for processing by ensuring
that each dealership customer name has a proper salutation, proper address
(utilizing the National Change of Address Registry) and that each address is in
compliance with postal regulations. The database operations department also
processes the files that are used to generate letters and downloads these files
to our print vendors. Newgen's print vendors then utilize innovative
print-on-demand technology to generate customized letters on dealership
letterhead.
Dealerships are able to change the number of active customers in their
database at any time. New names are added to the database whenever an existing
active name is made inactive as part of the ongoing database purification
activities or when a new vehicle is sold. This process helps us maintain the
number of active names requested by the dealership. The database operations
department also develops the general and dealership-specific information for our
database. This database includes current information on virtually every make and
model of vehicle produced for sale in North America and their recommended
maintenance schedules. These standard maintenance schedules include a
combination of time parameters (for example, every six months) and mileage
parameters (for example, every 3,000 miles). Our proprietary software
individualizes these schedules by making adjustments for the driving habits of
each vehicle owner in our database.
TELESERVICE. The teleservice department contacts dealership customers
that do not respond to solicitation letters. At March 31, 1999, the teleservice
department had 131 full-time and 97 part-time employees. The teleservice
department currently contacts over 600,000 customers per month. When a personal
contact cannot be made, a message is left for the dealership's customer. Our
research indicates that the response rate from solicitations by telephone
messages is approximately the same as solicitations by direct telephone contact.
When a contact is made, the teleservice department either makes an appointment
for the dealership, or "closes the loop" by establishing reasons for
non-response. Teleservice representatives may also identify dealership customers
who are dissatisfied with the dealership and do not wish to return for service.
We believe that our teleservice calls are effective because they are not made as
sales calls. Rather, they are simply reminder calls provided as a service to the
vehicle owner.
CUSTOMER SERVICE. The customer service center ensures that the needs of
dealerships are addressed. This department answers questions from dealerships
and our own employees about all of our services. The customer service center
also implements changes to a dealership's program, such as letter changes and
maintenance schedule changes. We use the information we gather through our
customer
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service center to constantly improve our processes. This department employed 18
persons at March 31, 1999 and is available to answer questions 24 hours a day,
seven days a week.
CUSTOMER SATISFACTION. The mission of our customer satisfaction
department is to improve dealership satisfaction and retention. At March 31,
1999, the department consisted of 14 field representatives. Our field
representatives regularly visit our customers. During the field visits our
representatives proactively deal with any issues that may have arisen at the
dealership, such as management or operational changes. In addition, the field
representatives review management reports with dealership representatives and
explore new avenues for revenue enhancement with the dealership. The field
representatives are able to introduce new services to dealerships during their
visits, thereby supplementing the efforts of the sales department.
TECHNOLOGY
We are a leader in applying advanced technology to database management
and direct marketing. Our current software and database systems have been
developed over several years, and we have increased their functionality as they
have grown. We have, where necessary, license agreements for the software we use
from third parties.
In order to take advantage of the most current advanced technology, we
are in the process of implementing a software rewrite to our core database
management and customer retention software system. We expect to complete this
rewrite by the fourth quarter of 1999. We expect to greatly enhance our core
computing and database management services through the implementation of the
software rewrite. We believe that the improvements in our operating processes as
a result of the software rewrite will produce a significant return on our
investment through cost savings. In particular, we believe the software rewrite
will:
- provide us with increased scalability as our customer base grows;
- result in a more flexible database that will enhance our ability to
provide new services and customized extract reports;
- enable us to introduce new products and services more quickly;
- increase our data processing efficiency;
- enhance our ability to utilize the Internet as part of future service
offerings;
- improve our customer service by providing more effective user
interfaces and information; and
- strengthen our ability to more effectively purify data, which will
greatly reduce labor and postage expense.
The new system will utilize Oracle database software and a graphical
user interface written in the Visual Basic 5 programming language. See "Risk
Factors -- If Our Software Rewrite Is Not Completed in a Timely Manner We Will
Incur Substantial Expense or Be Required to Modify Our Current Software."
In early 1999, we installed new telephony equipment for our teleservice
operations. We believe our updated telephony equipment will result in
significant improvements in our teleservice operations. In particular, we
believe the telephony equipment will increase the efficiency, consistency and
quality of our services, as well as provide increased feedback that will enable
us to better understand our business.
COMPETITION
We operate in a highly competitive business environment. We compete with
a variety of companies, including large national or multi-national companies
which have greater financial and
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marketing resources and smaller regional or local companies that are involved to
varying degrees in the same business as us. Our three significant national
competitors are Reynolds & Reynolds, Co. (R&R), Automatic Data Processing, Inc.
(ADP) and Moore Corporation Limited (Moore). R&R's Service Systems Division
offers automobile dealerships database management and customer retention
services that compete directly with our services. ADP's automobile dealership
services competes with us by providing customer retention services similar to
ours. Moore also delivers integrated business communications, personalized
direct marketing and other related services. We believe that R&R and ADP each
have significantly more customers than we do. Moreover, R&R, ADP and Moore have
significantly greater financial and marketing resources and all of them actively
compete against us for dealership business. For example, R&R has in the past
offered a discount on customer retention systems to dealerships that purchase
certain hardware and software. ADP has in the past offered free services for up
to three months in order to compete on price. We also compete to a limited
degree with other small customer retention service providers and in-house
customer retention systems. As the trend towards dealership consolidation
continues, dealerships will be able to create internal economies of scale, and
could choose to satisfy their database management and directed marketing needs
internally rather than outsourcing. Our potential customers may decide to
internally develop database management and direct marketing services. Our
ability to compete effectively will depend on a number of factors, including:
- our knowledge of dealership service department operations;
- the value of the services we offer;
- the state of our relationships with automobile manufacturers;
- the quality and breadth of our service;
- our ability to identify, develop and offer innovative services;
- our ability to overcome difficulties associated with replacing
incumbent service providers; and
- pricing and reputation among dealerships.
R&R, ADP and Moore price their services on a per letter basis, although
certain customers of Moore may elect to be billed on the number of active names
in the customer base. Therefore, meaningful price comparisons between our
services and our competitors' are difficult. Dealerships may perceive that our
services are priced higher than those of our competitors. In addition, our
competitors may increase their emphasis on programs similar to those programs we
offer and new competitors may enter the market. Furthermore, dealerships or
automobile manufacturers themselves may introduce competing programs. If any of
these were to occur, we may be unable to compete effectively against them.
TELEMARKETING REGULATIONS
We are subject to varying degrees of federal, state and local
telemarketing regulation. The jurisdiction of the Federal Trade Commission (FTC)
and the Federal Communications Commission (FCC) extends to the telemarketing
industry, including some of the services we provide to our customers. The FTC
has issued regulations which prohibit certain types of deceptive or abusive
telemarketing acts or practices. Regulations issued by the FCC place limits on
the use of certain types of equipment used in telephone solicitation, require
telemarketing companies to provide certain identifying information, and require
the maintenance of a list of persons who do not wish to be called. We do not
currently engage in, and have no plans to engage in, any of the activities
prohibited by the FTC and FCC regulations. The FCC and FTC regulations have,
therefore, not materially restricted our operations. If future regulations are
adopted by the FCC and FTC or other regulatory bodies, our business may be
materially adversely effected. In addition, violations may occur in the future
as a result of human error, equipment failure or other causes. Our failure to
comply with, applicable domestic and international regulations could have a
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<PAGE>
material adverse effect on our business, financial condition and results of
operations. The media often publicizes perceived non-compliance with consumer
protection regulations and violations of notions of fair dealing with consumers.
Any such publicity is potentially damaging to our reputation, client
relationships and consumer acceptance and loyalty.
EMPLOYEES
As of March 31, 1999, we had 472 employees, of whom 360 were full-time
and 112 were part-time (primarily teleservice personnel). From time to time we
also employ independent contractors within our consulting division. Our
employees are not represented by any collective bargaining organization and we
have never experienced a work stoppage. We believe that our relations with our
employees are good.
PROPERTIES
We lease a facility in San Diego, California having approximately 28,000
square feet of space. The current lease for this facility expires in September
2001. In addition, we lease a second facility in San Diego, California having
approximately 7,000 square feet of space. This facility houses some of our
teleservice and database operations. The lease for this facility expires on
August 31, 1999. We also lease a facility in Hayward, California that has
approximately 2,500 square feet of space. The Hayward, California facility
houses our repair functions and some of our modems and dealership communications
equipment. The lease for this facility expires in July 2001.
LEGAL PROCEEDINGS
On January 29, 1999, Jeffery B. Davis, our former Vice President of
Sales, filed suit against Newgen in Superior Court in San Diego, California
(Case No. 727730). In August 1998, Mr. Davis' employment with us was terminated.
In his lawsuit, Mr. Davis alleges that he was unlawfully discharged from his
employment with Newgen and that he is owed certain compensation that was not
paid to him prior to termination of his employment. Mr. Davis is requesting
unspecified damages in connection with his lawsuit. While we intend to
vigorously defend this lawsuit, we cannot assure you that the costs of defending
his lawsuit or an unfavorable outcome of the case would not harm our financial
position or results of operations.
We may from time to time become a party to various other legal
proceedings arising in the ordinary course of our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides certain information with respect to the
executive officers and directors of Newgen as of March 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------
<S> <C> <C>
Gerald L. Benowitz........... 54 Chairman, President and Chief Executive
Officer
Samuel Simkin................ 43 Senior Vice President, Chief Financial
Officer and Secretary
Leslie J. Silver............. 49 Executive Vice President and President,
Newgen Consulting Services
James K. Roche............... 39 Senior Vice President, Operations
Mario Sanchez................ 43 Vice President and Chief Information Officer
Frederick Wallace............ 52 Vice President, Marketing
Eugene J. Fischer............ 52 Director
H. Robert Gill(1)............ 62 Director
Jess R. Marzak(2)............ 48 Director
John Moragne................. 41 Director
Abraham L. Simkin............ 76 Director
Bernard C. Simkin(1)(2)...... 49 Director
Gary Simkin.................. 51 Director
Murray Simkin(3)............. 47 Director
Todd A. Springer............. 32 Director
Bert Winemiller(2)........... 56 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Immediately following the closing of this offering, Murray Simkin will no
longer serve as a director of Newgen.
GERALD L. BENOWITZ has served as Chairman, President and Chief Executive
Officer of Newgen since our inception. From October 1984 to June 1991, Mr.
Benowitz served as Project Manager for Otay International Center, a 400-acre
multi-use industrial park. From May 1980 to August 1984, he served as President
and Chief Operating Officer of Harco Medical Electronic Devices, a medical
device company. Mr. Benowitz holds a B.S. from the University of Tennessee.
SAMUEL SIMKIN was named Senior Vice President of Newgen in August 1998.
Mr. Simkin has served as Vice President and Chief Financial Officer of Newgen
since our inception. From November 1986 to June 1991, Mr. Simkin served as
President of Morite Investments, Inc., a private investment company. From June
1978 to November 1986, Mr. Simkin served as Vice President and Secretary of
Rudacel Investment Company Limited where he was responsible for investing in and
managing various companies. Among the companies managed by Mr. Simkin were
Mostly Software, a software retailer, and Citation Software, a software
distributor. Mr. Simkin holds both a B.A. and an L.L.B. from the University of
Manitoba, and an M.B.A. from the University of Western Ontario. He is a member
of the Manitoba and California Bar Associations, and is also a Certified General
Accountant.
LESLIE J. SILVER was named Executive Vice President of Newgen in August
1998. Mr. Silver has served as President of Newgen Consulting Services since
Newgen's inception. From May 1982 until February 1994, Mr. Silver served in
various senior management capacities at Newgen Service Systems, Inc., and its
successor corporations, which developed and sold database management and
customer retention software to automobile dealerships, primarily in Canada. From
May 1976 to April 1982,
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Mr. Silver served as Vice President of the Western Canadian division of SHL
Systemhouse, Inc., an international software development and systems integration
company. Mr. Silver holds both a B.S. and an M.S. from the University of
Manitoba.
JAMES K. ROCHE was named Senior Vice President, Operations of Newgen in
August 1998. Prior to then, Mr. Roche served as our Vice President, Operations
of Newgen since our inception. Since 1983, Mr. Roche has held management
positions with several companies that were providing consulting and hardware and
software systems to the service departments of automobile dealerships. From May
1991 to September 1993, Mr. Roche served as the General Manager of United States
Support Services of Newgen Services, L.P. From September 1990 to April 1991, he
served as Director of International Operations of Newgen Services Systems
International. From September 1987 to August 1990, Mr. Roche served as Director
of United States Operations of Newgen Service Systems, Inc. Mr. Roche holds a
B.S. from St. Louis University.
MARIO SANCHEZ joined Newgen in May 1998 as Vice President and Chief
Information Officer. Mr. Sanchez is responsible for initiating, developing and
directing our information technology projects. From April 1997 to May 1998, Mr.
Sanchez served as Divisional Vice President, Information Technology for American
International Underwriters, a worldwide marketer of property-casualty products.
From 1996 to 1997, Mr. Sanchez served as Director of Information Technology for
Precision Response Corporation, a telephone-based marketing and customer service
company. From 1994 to 1996, Mr. Sanchez served as Director of Communications of
the High Performance Database Research Center at Florida International
University. Mr. Sanchez holds both a B.A. and an M.S. from Florida International
University.
FRED WALLACE joined Newgen in June 1998 as Vice President, Marketing.
From 1997 to June 1998, Mr. Wallace served as Vice President, Vehicle
Acquisition and Remarketing of AutoNation USA, a division of Republic
Industries, Inc., an automobile consolidator. From 1996 to 1997, Mr. Wallace
served as Director, Sales and Marketing of Fleetwood Enterprises, Inc., a
motorhome manufacturer. From 1990 to 1996, Mr. Wallace directed marketing and
promotional activities for Mazda Motor of America. From 1981 to 1990, Mr.
Wallace developed and directed marketing plans for Volkswagen of America. From
1968 to 1981, Mr. Wallace developed and coordinated the initial marketing launch
for Ford Motor Company's Extended Service Plan. Mr. Wallace holds a B.S. from
the University of Florida, Gainesville.
EUGENE J. FISCHER has been a Director of Newgen since August 1996. Since
July 1996, Mr. Fischer has been a Managing Member of Capstone Management L.L.C.,
a venture capital firm. Since October 1988, Mr. Fischer has been a general
partner of Pathfinder Venture Capital Funds, a venture capital firm, and a Vice
President of Pathfinder Ventures, Inc., its management company. Mr. Fischer is a
member of the Board of Directors of InnerDyne Inc. Mr. Fischer holds a B.S. from
the University of Minnesota and an M.S. from the University of California.
H. ROBERT GILL has been a Director of the Company since September 1996.
Mr. Gill has served as Chairman and Chief Executive Officer of MobileForce
Technologies, Inc., a computer systems and service provider, since May 1997.
From April 1996 to May 1997, Mr. Gill has served as President of the Topaz
Group, a consulting services company. From March 1995 to April 1996, he was
Senior Vice President of Frontier Corporation, a telecommunications company. Mr.
Gill is a member of the Board of Directors of QualMark Corporation, MOSAIX, Inc.
and Spatial Technologies, Inc. Mr. Gill holds a B.E.E. from Indiana Institute of
Technology, an M.S.E.E. from Purdue University and an M.B.A. from Pepperdine
University.
JESS R. MARZAK has served as a Director of Newgen since August 1996.
Since January 1994, Mr. Marzak has been a managing director of BankAmerica
Ventures, a venture capital firm. Prior to that, Mr. Marzak was a co-founder and
general partner of Paragon Partners and Paragon Venture Partners II, each a
venture capital firm. Mr. Marzak holds a B.A. from Occidental College and an
M.B.A. from The Wharton School at the University of Pennsylvania.
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<PAGE>
JOHN MORAGNE has been a Director of Newgen since December 1997. Since
1993, Mr. Moragne has been a Managing Director of Trident Capital Management,
LLC, a private investment firm which he helped found (Trident Capital). From
1989 to 1993, Mr. Moragne served as a principal of Information Partners, a
private equity firm, and from 1989 to 1993, he served as a principal of Bain
Capital, a leveraged-buyout firm. Mr. Moragne is also a director of DAOU
Systems, Inc. and Mapquest.com, Inc. Mr. Moragne holds a B.A. from Dartmouth
College, an M.S. from the Stanford Graduate School of Applied Earth Sciences and
an M.B.A. from Stanford Graduate School of Business.
ABRAHAM L. SIMKIN has served as a Director of Newgen since March 1994.
Since the late 1980s, Mr. Simkin has been active in founding and operating
SNS/Assure, Inc. ("SNS"), a Canadian company that provides electronic commerce
solutions to a variety of industries and electronically processes insurance
claims. Mr. Simkin serves as Chairman of the Board of SNS. Mr. Simkin holds an
L.L.B. from the University of Manitoba.
MURRAY SIMKIN has been a Director of Newgen since March 1994. He is
currently Chairman of the Board and Chief Executive Officer of Wordwide Roller
Hockey Facilities, LLC, a developer and operator of roller hockey facilities. He
is also President of Roma Ribs Ltd., a multi-location operator and developer of
Tony Roma Restaurants in Canada. In addition, he serves on the Board of
Directors of SNS. Mr. Simkin holds a Bachelor of Commerce degree from the
University of Manitoba.
GARY SIMKIN has served as a Director of Newgen since March 1994. Since
1972, Mr. Simkin has been an active private investor in information and
communication-based companies. Since the early 1990s, Mr. Simkin has served on
the Board of Directors of SNS. He also serves on the Board of Directors of
Doubleday Canada Limited, a publishing company. Mr. Simkin holds a Bachelor of
Commerce degree from the University of Manitoba.
BERNARD C. SIMKIN has served as a Director of Newgen since March 1994.
Since the early 1990s, Mr. Simkin has served on the Board of Directors of SNS.
Since 1997, Mr. Simkin has also served as Vice President and a member of the
Board of Directors of Westkin Properties, a real estate development company. Mr.
Simkin holds a B.A. and an L.L.B. from the University of Manitoba.
TODD A. SPRINGER has been a Director of Newgen since December 1997.
Since June 1998, Mr. Springer has been a Managing Director of Trident Capital.
From March 1996 to June 1998, Mr. Springer served as Vice President of Trident
Capital. From September 1994 to February 1996, Mr. Springer was an associate at
Jefferies and Company, Inc., an investment bank. Mr. Springer holds a B.S. from
The Wharton School at the University of Pennsylvania and an M.B.A. from Stanford
Graduate School of Business.
BERT WINEMILLER has served as a Director of Newgen since December 1997.
Mr. Winemiller is currently President, Chief Executive Officer, and serves on
the Board of Directors of PROS Strategic Solutions, Inc., a privately-held
software company. Mr. Winemiller is also a private investor and President of
Albert Winemiller, Inc. a privately-held consulting company focused on the
information processing industry. From 1996 to 1997, Mr. Winemiller served as
President and Chief Executive Officer of Research Ltd., an Internet investment
database and report publishing company. From 1994 to 1995, Mr. Winemiller served
as President and Chief Operating Officer of American Business Information, a
credit and business information provider. Mr. Winemiller holds a B.S. and an
M.A. from the University of Missouri and an M.B.A. from Harvard Business School.
Officers serve at the discretion of the Board of Directors. Gary Simkin,
Bernard C. Simkin and Murray Simkin are brothers. Abraham L. Simkin is their
father and Samuel Simkin is their first cousin.
In accordance with our Restated Certificate of Incorporation, upon the
completion of this offering our Board of Directors will be divided into three
classes, serving staggered terms of three years each. Any vacancies that occur
during the year may be filled by the Board of Directors for the remainder of the
full
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term. Members of our Board of Directors serving in each class are described
below. For each class of directors we have also included the year during which
their current term will end.
<TABLE>
<CAPTION>
YEAR IN WHICH CURRENT
BOARD MEMBER CLASS TERM ENDS
- ------------------------------------ ----- ---------------------
<S> <C> <C>
Gerald L. Benowitz.................. I 2000
H. Robert Gill...................... I 2000
Murray Simkin....................... I 2000
Todd A. Springer.................... I 2000
Jess R. Marzak...................... II 2001
Gary Simkin......................... II 2001
Bert Winemiller..................... II 2001
Eugene J. Fischer................... III 2002
John Moragne........................ III 2002
Abraham L. Simkin................... III 2002
Bernard C. Simkin................... III 2002
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an Audit Committee and a Compensation Committee. The
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors and reviews the scope and results of the audit
and other services provided by our independent auditors. The Audit Committee
also reviews and evaluates our internal control functions. Following the
offering, the Audit Committee will consist of Bernard C. Simkin and H. Robert
Gill.
The Compensation Committee makes recommendations regarding our 1998
Equity Incentive Plan and makes recommendations concerning salaries and
incentive compensation for our employees and consultants. Following the
offering, the Compensation Committee will consist of Bernard C. Simkin, Jess R.
Marzak and Bert Winemiller.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for
services on the Board of Directors or any of our committees. However, directors
may be reimbursed for certain expenses in connection with attendance at Board
and committee meetings. All directors are eligible to participate in our 1998
Equity Incentive Plan. Non-employee directors receive automatic grants of
options under our Non-Employee Directors' Stock Option Plan as described below.
See "Management--Equity Incentive Plan" and "--Non-Employee Directors' Stock
Option Plan."
BOARD COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our Board of Directors or Compensation
Committee.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid for services rendered to Newgen in all capacities during 1998 by our
Company's Chief Executive Officer and our four other most highly compensated
executive officers (together, the Named Executive Officers).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(2)
- ------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gerald L. Benowitz ........................ 1998 $ 254,550 $ 6,000 24,750 $ 12,000
President and Chief Executive Officer
Samuel Simkin ............................. 1998 146,755 11,000 6,160 12,000
Senior Vice President, Chief Financial
Officer and Secretary
Leslie J. Silver .......................... 1998 166,620 418,390 22,500 18,000
President, Newgen Consulting Services,
Executive Vice President
James K. Roche ............................ 1998 118,408 22,400 10,300 12,000
Senior Vice President, Operations
Jeffery B. Davis(1) ....................... 1998 -- 202,455 -- 4,000
Vice President, Sales
</TABLE>
- ------------------------
(1) Effective August 1998, Mr. Davis was no longer employed by Newgen.
(2) Includes automobile expenses and miscellaneous reimbursable expenses.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each stock option grant during 1998 to
our Named Executive Officers. No stock appreciation rights were granted to these
individuals during 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM($)(3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED(#) 1998(%)(1) SHARE($)(2) DATE 5% 10%
- ------------------------------ ------------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gerald L. Benowitz............ 24,750 5.9% $ 4.50 12/1/08 $ 70,043 $ 177,503
Samuel Simkin................. 6,160 1.5% 4.50 12/1/08 17,433 44,179
Leslie J. Silver.............. 22,500 5.4% 4.50 12/1/08 63,676 161,366
James K. Roche................ 10,300 2.5% 4.50 12/1/08 29,149 73,870
</TABLE>
- --------------------------
(1) Based on options to purchase 416,270 shares granted to employees in 1998,
including the Named Executive Officers. 336,270 options were granted under
the 1998 Equity Incentive Plan and 80,000 options were granted outside of
the plans. The options vest 25% on the first anniversary of the vesting
commencement date and 25% on each anniversary thereafter. Each option
expires on the earlier of (i) 10 years from the date of grant or (ii) 90
days after termination of the optionee's services to Newgen.
(2) Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our Board of Directors.
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<PAGE>
(3) The potential realizable value is calculated based on the term of the option
(10 years) and is calculated by assuming that the fair market value of
common stock on the date of the grant as determined by the Board appreciates
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and the common stock received
therefor is sold on the last day of the term of the option for the
appreciated price. The 5% and 10% rates of appreciation are derived from the
rules of the Commission. The actual value realized may be greater than or
less than the potential realizable values set forth in the table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There were no exercises of options by any Named Executive Officer in the
fiscal year ended December 31, 1998.
1996 EQUITY INCENTIVE PLAN
We adopted the 1996 Equity Incentive Plan in August 1996. The Board of
Directors reserved 700,000 shares of common stock for issuance under the 1996
Equity Incentive Plan. The 1996 Equity Incentive Plan provides for the grant, to
our employees, directors and consultants, of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
nonstatutory stock options and rights to purchase restricted stock (each an
Award). The 1996 Equity Incentive Plan is administered by our Board of Directors
or a Committee appointed by the Board of Directors. Subject to certain
restrictions under the 1996 Equity Incentive Plan, our Board of Directors has
broad authority to grant awards to our employees, directors and consultants.
Subject to those same limitations, our Board of Directors also may determine to
whom Awards will be made, the number of shares to be covered by each Award, and
whether an option will be an incentive stock option or a nonstatutory stock
option. The Board of Directors also may determine the vesting schedule, if any,
that may apply to an Award, the option exercise or stock purchase price and
specify other terms of Awards in accordance with the 1996 Equity Incentive Plan.
The maximum term of options granted under the 1996 Equity Incentive Plan
is 10 years. Options granted under the 1996 Equity Incentive Plan generally are
non-transferable and expire three months after an optionee's service with Newgen
terminates. In general, if an optionee is permanently disabled or dies during
his or her service with Newgen, that person's option may be exercised up to 12
months following such disability or death.
The exercise price of options granted under the 1996 Equity Incentive
Plan is determined by the Board of Directors in accordance with the guidelines
set forth in the 1996 Equity Incentive Plan. The exercise price of an incentive
stock option cannot be less than 100% of the fair market value of the common
stock on the date of the grant. The exercise price of incentive stock options
granted to stockholders who hold our securities with more than 10% of our voting
power (10% Stockholders) must be at least equal to 110% of that value and the
term of such options cannot exceed five years. The exercise price of a
nonstatutory stock option cannot be less than 85% of the fair market value of
the common stock on the date of grant. Options granted under the 1996 Equity
Incentive Plan vest at the rate specified in an optionee's option agreement.
Options may be exercised prior to the full vesting of the option. Any unvested
shares purchased, however, are subject to our right to repurchase those shares
that have not yet vested.
Subject to certain limitations provided in the 1996 Equity Incentive
Plan, the Board of Directors also has broad authority to determine the form and
terms of any restricted stock purchase awards granted thereunder. The purchase
price under any restricted stock purchase agreement will not be less than 85% of
the fair market value of the common stock on the date of grant. However, in the
case of a sale to a 10% Stockholder, the purchase price will be not less than
100% of the fair market value of the common stock on the date of grant.
Restricted stock purchase agreements awarded under the 1996 Equity Incentive
Plan generally are non-transferable.
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<PAGE>
Shares subject to Awards that have expired or have otherwise terminated
without having been exercised in full become available again for grant under the
1996 Equity Incentive Plan. The Board of Directors have the authority to reprice
outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares.
Upon certain changes in control of Newgen, all outstanding Awards under
the 1996 Equity Incentive Plan shall either be assumed or substituted by the
surviving entity. If the surviving entity determines not to assume or substitute
those Awards, then the vesting of such Awards will accelerate in full, but if
the Awards are not exercised at or before the change of control, they will be
terminated.
As of March 31, 1999, options to purchase 447,200 shares of common stock
were outstanding under the 1996 Equity Incentive Plan. The 1996 Equity Incentive
Plan will terminate in August 2006 unless sooner terminated by the Board of
Directors.
1998 EQUITY INCENTIVE PLAN
In August 1998 our Board of Directors adopted the 1998 Equity Incentive
Plan. The 1998 Equity Incentive Plan was approved by stockholders in November
1998. The Board of Directors reserved 1,000,000 shares of the common stock for
issuance under the 1998 Equity Incentive Plan. An additional 500,000 shares may
be reserved for issuance under the 1998 Equity Incentive Plan to the extent that
options outstanding on the effective date of this offering under our 1996 Plan
are returned to the 1996 Plan. The 1998 Equity Incentive Plan will terminate in
August 2008, unless sooner terminated by the Board of Directors.
The 1998 Equity Incentive Plan permits the granting of incentive stock
options and nonstatutory stock options to employees, directors and consultants.
In addition, the 1998 Equity Incentive Plan permits the granting of Stock
Appreciation Rights (SARs) together with or independently of stock options, as
well as stock bonuses and rights to purchase restricted stock (collectively
Awards). No person is eligible to be granted stock options and SARs covering
more than 300,000 shares of common stock in any calendar year.
The 1998 Equity Incentive Plan is administered by the Board of Directors
or a committee appointed by the Board of Directors. Subject to certain
restrictions described in the 1998 Equity Incentive Plan, the Board of Directors
has broad authority to select the persons to whom Awards are to be made. Subject
to other restrictions under the 1998 Equity Incentive Plan, our Board of
Directors has broad authority to grant options and rights to purchase restricted
stock to our employees, directors and consultants. The Board of Directors also
may determine to whom Awards will be made, the number of shares to be covered by
each Award, and whether an option will be an incentive stock option or a
nonstatutory stock option. The Board of Directors may also determine the vesting
schedule, if any, that may apply to an Award, the option exercise or stock
purchase price and to specify other terms of Awards in accordance with the 1996
Equity Incentive Plan.
Stock options granted under the 1998 Equity Incentive Plan expire 10
years from their date of grant. Such stock options also generally are
non-transferable and expire 30 days after an optionee ceases providing service
to Newgen. However, in the case of the optionee's permanent disability, the
options generally may be exercised up to six months following such disability.
In the case of the optionee's death, the options generally may be exercised up
to 12 months thereafter.
The exercise price of stock options granted under the 1998 Equity
Incentive Plan is determined by the Board of Directors in accordance with the
guidelines set forth in the 1998 Equity Incentive Plan. The exercise price of an
incentive stock option cannot be less than 100% of the fair market value of the
common stock on the date of the grant. The exercise price of a nonstatutory
stock option cannot be less than 85% of the fair market value of the common
stock on the date of grant. Options granted under the 1998 Equity Incentive Plan
vest at the rate specified in the option agreement. The exercise price of
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<PAGE>
incentive stock options granted to any 10% stockholder must be at least 110% of
the fair market value of such stock on the date of grant and the term of such
incentive stock options cannot exceed five years.
Subject to certain limitations described in the 1998 Equity Incentive
Plan, the Board of Directors has broad authority to determine the form of and
the terms and conditions of any stock bonuses or restricted stock purchase
awards granted under the 1998 Equity Incentive Plan. The purchase price under
any restricted stock purchase agreement will not be less than 85% of the fair
market value of the common stock on the date of grant. Stock bonuses and
restricted stock purchase agreements awarded under the 1998 Equity Incentive
Plan are generally non-transferable.
Shares subject to Awards under the 1998 Equity Incentive Plan that have
expired or otherwise terminated without having been exercised in full again
become available for grant, but shares subject to SARs will not again become
available for grant. The Board of Directors has the authority to reprice
outstanding stock options and SARs and to offer optionees and holders of SARs
the opportunity to replace outstanding stock options and SARs with new stock
options or SARs for the same or a different number of shares.
Upon certain changes in control of Newgen, all outstanding Awards under
the 1998 Equity Incentive Plan must either be assumed or substituted by the
surviving entity. In the event the surviving entity does not assume or
substitute those Awards, the vesting of such Awards will accelerate in full, but
if the Awards are not exercised at or before the change of control, they will be
terminated.
As of March 31, 1999, options to purchase 559,170 shares of common stock
were outstanding under the 1998 Equity Incentive Plan.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In August 1998, the Board of Directors adopted our Non-Employee
Directors' Stock Option Plan (the Directors' Plan) to provide for the automatic
grant of options to purchase shares of common stock to non-employee directors of
the Company. The Directors' Plan was approved by stockholders in October 1998.
The Directors' Plan is administered by the Board of Directors, unless the Board
of Directors delegates administration to a committee of at least two
disinterested directors.
The Board of Directors has reserved 150,000 shares of common stock for
issuance from the exercise of stock options granted under the Directors' Plan.
Under the terms of the Directors' Plan: (i) each person who, on the effective
date of this offering, is a non-employee director of Newgen or, after the
effective date of this offering, for the first time becomes a non-employee
director of Newgen automatically will be granted, upon the effective date of
this offering or upon the date of his or her initial appointment or election to
be a non-employee director, as the case may be, a one-time option to purchase
6,000 shares of common stock (the Inaugural Option); and (ii) on the date of our
annual meeting of the stockholders in each year after the effective date of this
offering, each person who is elected at such annual meeting to serve as a
non-employee director (who was also a non-employee director prior to such annual
meeting) automatically will be granted an option to purchase 2,000 shares of
common stock.
No options granted under the Directors' Plan may be exercised after the
expiration of 10 years from the date it was granted. The Inaugural Option vests
monthly over a three year period. All other options granted under the Directors'
Plan vest monthly over a one-year period. The exercise price of options under
the Directors' Plan will equal 100% of the fair market value of the common stock
on the date of grant. Options granted under the Directors' Plan are generally
non-transferable. Unless otherwise terminated by the Board of Directors, the
Directors' Plan automatically terminates when all of our shares of common stock
reserved for issuance under the Directors' Plan have been issued. As of the date
of this prospectus, no options to purchase shares of common stock have been
granted under the Directors' Plan. Options granted under the Directors' Plan
vest in full upon certain changes in ownership or control of Newgen.
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<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
In August 1998, the Board of Directors approved our Employee Stock
Purchase Plan (the Purchase Plan). The Purchase Plan was subsequently approved
by our stockholders in November 1998. A total of 350,000 shares of common stock
are reserved for issuance under the Purchase Plan. The Purchase Plan is intended
to qualify as an employee stock purchase plan within the meaning of Section 423
of the Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the commencement of the Purchase Plan. The initial offering under the
Purchase Plan will commence on or shortly after the effective date of this
offering and terminate six months after the commencement of such offering.
Unless otherwise determined by the Board of Directors, employees are
eligible to participate in the Purchase Plan only if they are employed by Newgen
or one of our subsidiaries designated by the Board of Directors for at least 20
hours per week and are customarily employed by Newgen or one of our subsidiaries
designated by the Board of Directors for at least five months each calendar
year. Employees who participate in an offering may have up to 15% of their
earnings withheld under the Purchase Plan. The amount withheld is then used to
purchase shares of the common stock on specified dates determined by the Board
of Directors. The price of common stock purchased under the Purchase Plan will
be equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period and participation ends automatically on termination of
employment with Newgen or one of our subsidiaries, as the case may be.
In the event of a merger, reorganization, consolidation or liquidation
involving Newgen, the Board of Directors has discretion to provide that each
right to purchase common stock will be assumed or an equivalent right
substituted by the successor corporation or the Board of Directors may provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board of Directors
has the authority to amend or terminate the Purchase Plan, provided, however,
that no such action may adversely affect any outstanding rights to purchase
common stock.
401(k) PLAN
In January 1996, the Board of Directors adopted an employee retirement
savings plan (the 401(k) Plan) covering certain of our employees who have at
least one year of service with us and work a minimum of 1,000 hours during the
plan year. Eligible employees may make pre-tax contributions to the 401(k) Plan
of up to 20% of their eligible earnings, subject to a statutorily determined
annual limit. In addition, eligible employees may make roll-over contributions
to the 401(k) Plan from a tax-qualified retirement plan. The 401(k) Plan allows
us to make discretionary matching and additional profit sharing contributions to
an employee's account. In 1998, we made contributions of approximately $53,000
into the 401(k) Plan.
EMPLOYMENT AGREEMENTS
On April 29, 1999, we entered into employment agreements with the
following officers: Gerald L. Benowitz, President and Chief Executive Officer;
Samuel Simkin, Senior Vice President, Chief Financial Officer and Secretary;
Leslie J. Silver, President, Newgen Consulting Services and Executive Vice
President; and James K. Roche, Senior Vice President, Operations. Pursuant to
the employment agreements, the base salaries of such officers for 1999 were set
as follows: Mr. Benowitz--$275,000; Mr. Silver--$250,000; Mr. Simkin--$154,000;
and Mr. Roche--$130,000. Except with respect to each officer's position and base
salary, the terms of each employment agreement are substantially the same.
The employment agreements have a two year term. Under the employment
agreements, in the event any of these officers is terminated by Newgen without
cause, such officer shall be engaged to
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<PAGE>
perform services pursuant to a consulting agreement for up to a one-year period
in exchange for consulting fees equal to such officer's annual base salary in
effect as of the date of termination. In addition, such officer shall receive,
as severance, a payment equal to the bonus earned by such officer in the
previous year. In the event any such officer voluntarily terminates his
employment without cause or his employment is terminated by Newgen for cause (as
defined in the employment agreement), such officer may be engaged, at Newgen's
election, to perform services pursuant to a consulting agreement for up to a
one-year period.
CHANGE IN CONTROL ARRANGEMENTS
Under Newgen's 1996 and 1998 Equity Incentive Plans, in the event of a
change in control transaction, all outstanding Awards under such Plans shall be
assumed or substituted by the surviving entity. If the surviving entity does not
assume or substitute the Awards, the vesting of such Awards will accelerate in
full. The Awards will terminate if they are not exercised at or before a change
in control event.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
Our Restated Certificate of Incorporation limits the liability of our
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a director of a corporation will not be personally liable for monetary
damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law (DGCL)
regarding unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper
personal benefit.
As permitted by the DGCL, our Bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by the DGCL, provided that each indemnified officer and
director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to Newgen's best
interests;
- we must indemnify our other employees and agents to the same extent
that we indemnify our officers and directors, unless otherwise
required by law, our Restated Certificate of Incorporation, our Bylaws
or any agreements;
- we must advance expenses, as incurred, to our directors and officers
in connection with a legal proceeding to the fullest extent permitted
by the DGCL, subject to certain very limited exceptions; and
- the rights conferred in our Bylaws are not exclusive.
In addition to the indemnification required in our Restated Certificate
of Incorporation and our Bylaws, we have entered into indemnity agreements with
each of our current directors and officers. These agreements provide, among
other things, for the indemnification of our officers and directors for all
expenses and liabilities incurred in connection with any action or proceeding
brought against them, including liability under the Securities Act of 1933, by
reason of the fact that they are or were agents of Newgen. In addition, we
intend to obtain directors' and officers' insurance to cover our directors,
officers and certain employees for certain liabilities. We believe that these
indemnification provisions and agreements and this insurance are necessary to
attract and retain qualified directors and officers.
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<PAGE>
The limitation of liability and indemnification provisions in our
Restated Certificate of Incorporation and Bylaws may discourage stockholders
from bringing a lawsuit against directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though an action, if successful, might otherwise benefit us
and other stockholders. Furthermore, a stockholder's investment may be adversely
affected to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any
of our directors, officers or employees regarding which indemnification by
Newgen is sought, nor are we aware of any threatened litigation that may results
in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Newgen pursuant to the foregoing provisions, Newgen has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
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CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1996, to
which we have been a party, in which the amount involved in the transaction
exceeded $60,000 and in which any of our directors, executive officers or
holders of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements which are
otherwise required to be described under "Management."
In August and December 1996, we sold 1,250,137 shares of Series A
Preferred Stock at a purchase price of $4.40 per share, pursuant to a Series A
Preferred Stock Agreement dated August 7, 1996 (the Series A Agreement). The
shares of Series A Preferred Stock were sold in a private placement. See Note 6
of Notes to Financial Statements for a description of the Series A Preferred
Stock. Upon the closing of this offering, each share of Series A Preferred Stock
will automatically convert into one share of common stock. The following
directors and beneficial owners of more than 5% of our common stock (assuming
the conversion of all shares of preferred stock into common stock) acquired
beneficial ownership of Series A Preferred Stock pursuant to the Series A
Agreement:
<TABLE>
<CAPTION>
DIRECTORS/5% STOCKHOLDERS NUMBER OF SHARES
- --------------------------------------------------------- ----------------
<S> <C>
Eugene J. Fisher/Capstone Ventures....................... 397,775
Jess R. Marzak/Entities Affiliated with BankAmerica
Ventures............................................... 795,545
</TABLE>
In November 1997, we sold 2,158,604 shares of Series B Preferred Stock
at a purchase price of $4.52 per share (the Series B Financing), pursuant to a
Series B Preferred Stock Agreement dated November 26, 1997 (the Series B
Agreement). The shares of Series B Preferred Stock were sold in a private
placement. See Note 6 of Notes to Financial Statements for a description of the
Series B Preferred Stock. Upon the closing of this offering, each share of
Series B Preferred Stock will automatically convert into one share of common
stock. The following directors and beneficial owners of more than 5% of our
common stock (assuming the conversion of all shares of preferred stock into
common stock) acquired beneficial ownership of Series B Preferred Stock pursuant
to the Series B Agreement:
<TABLE>
<CAPTION>
DIRECTORS/5% STOCKHOLDERS NUMBER OF SHARES
- --------------------------------------------------------- ----------------
<S> <C>
John Moragne and Todd A. Springer/Entities Affiliated
with Trident Companies(1).............................. 1,592,921
Eugene J. Fischer/Capstone Ventures...................... 111,172
Jess R. Marzak/Entities Affiliated with BankAmerica
Ventures............................................... 294,246
Johari Investment Company Ltd............................ 36,873
Bernard Simkin........................................... 36,873
Murray Simkin............................................ 36,873
</TABLE>
- ------------------------------
(1) See "Principal and Selling Stockholders," Note 3.
In May and September 1997, we issued certain Convertible Unsecured
Promissory Notes (the Notes) in the aggregate amount of $2,332,500 (the Bridge
Financings) to certain of our directors and entities affiliated with such
directors. In connection with the Bridge Financings, we also issued warrants to
purchase an aggregate of 106,024 shares of our common stock (the Bridge
Warrants) to certain of our directors and to entities affiliated with those
directors. The participants in the Bridge Financings and their respective levels
of participation are described as follows: BankAmerica Ventures was issued Notes
in the amount of $1,197,000 and Bridge Warrants to purchase 54,409 shares of
common stock and BA Venture Partners II was issued Notes in the amount of
$133,000 and Bridge Warrants to purchase 6,046 shares of common stock.
BankAmerica Ventures and BA Venture Partners II are affiliated with Jess R.
Marzak. Johari Investment Company Ltd. was issued Notes in the amount of
$166,667 and Bridge Warrants to purchase 7,575 shares of common stock. Johari
Investment Company Ltd. is affiliated with Gary Simkin.
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<PAGE>
Capstone Ventures was issued Notes in the amount of $502,500 and Bridge Warrants
to purchase 22,842 shares of common stock. Capstone Ventures is affiliated with
Eugene J. Fisher. In addition, both Bernard C. Simkin and Murray Simkin were
each issued Notes in the amount of $166,667 and Bridge Warrants to purchase
7,576 shares of common stock. Notes were converted on November 26, 1997, in
connection with our Series B Financing, into shares of Series B Preferred Stock,
at a purchase price of $4.52 per share.
In January 1996, the Simkin Children Irrevocable Trust and Samuel
Simkin, our Senior Vice President, Chief Financial Officer and Secretary, loaned
us $220,000 and $380,000, respectively. The loans were made under secured
promissory notes. The principal amounts under such notes is due on the earlier
of the completion our initial public offering and December 31, 1999. Interest
was payable monthly and was charged at a rate equal to the prime rate plus 2.0%.
In addition, a bonus was payable annually to the noteholders at a rate of 1.7%.
We intend to use a portion of the proceeds received from the offering to repay
these promissory notes. See "Description of Capital Stock."
Between January and August 1996, Abraham Simkin, one of our directors,
loaned us various amounts. As of August 31, 1996 such amounts totaled $400,000
under a secured promissory note. Interest was charged at a rate equal to the
prime rate plus 2.0%. In addition, during the periods that the loan was
outstanding, a bonus was paid annually to Mr. Simkin at a rate of 1.7%. We
repaid this loan in full in December 1997.
In March 1994, we entered into an agency agreement with Newgen Services
L.P., a company owned by certain members of our Board of Directors. Pursuant to
the agency agreement, Newgen Services L.P. funded our operations and, as a
result, substantially all of our revenues and expenses were reported by Newgen
Services L.P. Those amounts have, however, been included in our consolidated
results of operations from our inception through the termination of the agency
agreement in January 1996.
Effective January 1, 1996, we entered into an administrative services
agreement with Newgen Services L.P. Under that agreement, we agreed to provide
administrative services for Newgen Services L.P. in exchange for the monthly
payment of $7,500, which is subject to adjustment. The term of this agreement
was for a period of one year, with automatic renewals for additional one year
periods, unless terminated earlier by the mutual consent of both parties to the
agreement. Amounts earned under this agreement totaled $43,000 for 1998. This
agreement was terminated as of January 1, 1999.
We entered into capital lease agreements for certain equipment with
parties related to one of our stockholders. In 1998, we made payments under one
of these leases totaling $7,000. The lease agreements expired in 1997 and 1998.
We entered into certain other agreements in connection with the Series A
Agreement and the Series B Agreement. Pursuant to one such agreement, certain
stockholders acquired registration rights. See "Description of Capital
Stock--Registration Rights."
We have entered into indemnification agreements with each of our
directors and executive officers. See "Management--Limitations on Directors' and
Executive Officers' Liability and Indemnification."
We have entered into employment agreements with certain of our executive
officers. See "Management--Employment Agreements."
We have granted options to purchase shares of our common stock to
certain of our directors and executive officers.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock as of March 31, 1999 and as adjusted to
reflect our sale of shares and the sale of shares by the selling stockholders in
this offering for (i) each stockholder known to us to be the beneficial owner of
more than five percent of our common stock, (ii) each of our directors, (iii)
each of our Named Executive Officers, (iv) all directors and officers as a
group, and (v) the selling stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)(2)
---------------------- SHARES BEING ----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------- --------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
John Moragne
Todd A. Springer
Entities Affiliated with
Trident Capital(3)................... 1,592,921 22.0% -- 1,592,921 16.0%
Jess R. Marzak
Entities Affiliated with
BankAmerica Ventures(4).............. 1,150,346 15.8 -- 1,150,346 11.5
Gary Simkin
Johari Investment Company Ltd.(5).... 975,629 13.5 225,000 750,629 7.5
Bernard C. Simkin(6)................... 975,630 13.5 170,000 805,630 8.1
Murray Simkin(7)....................... 975,630 13.5 580,630 395,000 4.0
Eugene J. Fischer
Capstone Ventures(8)................. 531,789 7.3 25,000 506,789 5.1
Gerald L. Benowitz(9).................. 377,185 5.2 -- 377,185 3.8
Samuel Simkin
K&S Imports, Inc.(10)................ 283,718 3.9 -- 283,718 2.8
Leslie J. Silver(11)................... 252,623 3.5 -- 252,623 2.5
James K. Roche(12)..................... 41,298 * -- 41,298 *
Jeffery B. Davis(13)................... 38,423 * -- 38,423 *
All directors and officers as a group
(11 persons)(14)...................... 7,195,192.. 97.1% 1,000,630 6,194,562 62.1%
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons and entities named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. Shares of common stock subject to options or
warrants that are currently exercisable or exercisable within 60 days of
March 31, 1999 are deemed to be outstanding and to be beneficially owned by
the person holding the options or warrants for the purpose of computing the
percentage ownership of that person or entity, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person or entity. Percentage of beneficial ownership is based on
7,238,736 shares of common stock outstanding on an as-converted basis as of
March 31, 1999 and 9,970,682 shares on an as-converted basis immediately
following the completion of the offering. Except as shown otherwise in the
footnotes to the table, the address of each stockholder listed is in care
of Newgen, 12680 High Bluff Drive, Suite 300, San Diego, CA 92130.
(2) Assumes that the underwriters' over-allotment option to purchase up to
558,750 shares from Newgen is not exercised.
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<PAGE>
(3) Of the total shares indicated as beneficially owned, Information
Associates-II, L.P. owns 923,430 shares which represent 12.8% and 9.3% of
the total shares before and after this offering, respectively. Information
Associates, L.P. owns 598,908 shares which represent 8.3% and 6.0% of total
shares before and after this offering, respectively. IA-II Affiliates Fund,
L.L.C. owns 53,869 shares and Information Associates, C.V. owns 16,714
shares, which in each case represent less than one percent of total shares
before and after this offering. The general partner of Information
Associates-II, L.P. is Trident Capital Management-II, L.L.C., a Delaware
limited liability company. Two of our directors, John Moragne and Todd
Springer are members of Trident Capital Management-II, L.L.C. The general
partner of Information Associates, L.P. and the investment general partner
of Information Associates, C.V. is Trident Capital Management, L.L.C., a
Delaware limited liability company. Mr. Moragne is also a member of Trident
Capital Management, L.L.C. Trident Capital Management-II, L.L.C. and
Trident Capital Management, L.L.C. are collectively referred to as "Trident
Capital." Messrs. Moragne and Springer disclaim beneficial ownership of the
shares held by these entities, except to the extent of their pecuniary
interest in such shares arising from their interest in Trident Capital. The
address of Messrs. Moragne and Springer and each entity is 2480 Sand Hill
Road, Menlo Park, CA 94025.
(4) Of the total shares indicated as beneficially owned, BankAmerica Ventures
owns 980,812 shares and warrants to purchase 54,509 shares, which (assuming
the exercise of such warrants) represents 14.2% and 10.3% of total shares
before and after this offering, respectively; and BA Venture Partners II
owns 108,979 shares and warrants to purchase 6,046 shares which (assuming
the exercise of such warrants) represents 1.5% and 1.2% of total shares
before and after this offering, respectively. Jess R. Marzak, a director of
Newgen, is a managing director of BankAmerica Ventures and a general
partner of BA Venture Partners II. Mr. Marzak disclaims beneficial
ownership of all shares owned by BankAmerica Ventures and BA Venture
Partners II except to the extent of his proportionate general partnership
interest in BA Venture Partners II. The address of Mr. Marzak and each
entity is 950 Tower Lane, Suite 700, Foster City, CA 94404.
(5) Includes 7,575 shares issuable upon the exercise of warrants held by Johari
Investment Company Ltd. Gary Simkin, a director of Newgen, is the president
of Johari Investment Company Ltd. Mr. Simkin disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
(6) Includes 7,576 shares issuable upon the exercise of warrants held by
Bernard C. Simkin.
(7) Includes 7,576 shares issuable upon the exercise of warrants held by Murray
Simkin. Mr. Simkin, the selling stockholder, will exercise his warrant to
purchase 7,576 shares concurrently with this offering.
(8) Includes 22,842 shares issuable upon the exercise of warrants held by
Capstone Ventures. Eugene J. Fischer, a director of Newgen, is a managing
member of Capstone Management LLC, the general partner of Capstone
Ventures. Mr. Fischer disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest therein. The address of Mr. Fischer
and Capstone Ventures is 3000 Sand Hill Road, Suite 1-290, Menlo Park, CA
94025.
(9) Includes 327,185 shares held by the Gerald and Sandra Benowitz Trust dated
January 29, 1999, of which Gerald L. Benowitz and Sandra H. Benowitz are
co-trustees.
(10) Includes 271,218 shares held by K&S Imports. Mr. Simkin, our chief
financial officer, disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(11) Includes 232,623 shares held by the Silver Family Trust dated January 15,
1996, of which Leslie J. Silver and Francis Silver are co-trustees, and
7,500 shares held by Leslie J. Silver as custodian for Leigh Silver, Mason
Silver and Darcy Silver. Includes 12,500 shares subject to options
exercisable within 60 days of March 31, 1999.
(12) Includes 2,875 shares subject to options exercisable within 60 days of
March 31, 1999.
(13) Mr. Davis is no longer employed by Newgen effective August 1998. Mr.
Davis' address is 504 S. The Strand, Oceanside, CA 92054
(14) Includes 15,375 shares subject to options exercisable within 60 days of
March 31, 1999 and 106,124 shares subject to warrants. See Notes 4, 5, 6,
7, 8, 11, and 12.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized
capital stock of Newgen will consist of 28,000,000 shares of common stock,
$0.001 par value, and 2,000,000 shares of preferred stock, $0.001 par value.
COMMON STOCK
As of March 31, 1999, assuming the conversion of all outstanding
preferred stock into common stock, there were 7,238,736 shares of common stock
outstanding held of record by 33 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive out of funds legally available therefor dividends as our
Board of Directors may declare from time to time. Upon a liquidation,
dissolution or winding up of Newgen, holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
Certain holders of common stock are entitled to registration rights. See
"--Registration Rights."
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into 3,408,741 shares of common stock. Following such
conversion, our Certificate of Incorporation will be amended and restated to
delete all references to such shares of preferred stock. Under the Certificate
of Incorporation, as amended and restated upon the closing of this offering (the
Restated Certificate), the Board of Directors will have the authority, without
further action by stockholders, to issue up to 2,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges,
qualifications and restrictions granted to or imposed upon such preferred stock,
including dividend rights, conversion rights, voting rights, rights and terms of
redemption, liquidation preference and sinking fund terms, any or all of which
may be greater than the rights of the common stock. The issuance of preferred
stock could adversely affect the voting power of holders of common stock and
reduce the likelihood that such holders will receive dividend payments and
payments upon liquidation. Such issuance could have the effect of decreasing the
market price of the common stock. The issuance of preferred stock could have the
effect of delaying, deterring or preventing a change in control of Newgen. We
have no present plans to issue any shares of preferred stock.
WARRANTS
In November 1996, in conjunction with the execution of a Revolving Loan
and Security Agreement with Silicon Valley Bank, the Company issued to Silicon
Valley Bank a warrant to purchase up to 10,000 shares of our Series A Preferred
Stock. Upon the closing of this offering, this warrant shall become a warrant to
purchase 10,000 shares of common stock. The warrant has an exercise price of
$4.40 per share, subject to adjustment for stock dividends and splits, capital
exchanges, recapitalization, consolidation and diluting issuances, and expires
on November 27, 2001.
65
<PAGE>
In May and September 1997, in connection with our Bridge Financings, we
issued Bridge Warrants to purchase an aggregate of 106,024 shares of our common
stock in the following amounts to the following persons and entities:
<TABLE>
<CAPTION>
NUMBER OF WARRANTS TO
NAME PURCHASE COMMON STOCK
- ---------------------------------------------------- -------------------------
<S> <C>
BankAmerica Ventures................................ 54,409
BA Venture Partners II.............................. 6,046
Capstone Ventures................................... 22,842
Johari Investment Company Ltd....................... 7,575
Bernard C. Simkin................................... 7,576
Murray Simkin....................................... 7,576
</TABLE>
The exercise price of the Bridge Warrants is $0.75 per share, subject to
adjustment for stock splits, reverse splits and stock dividends. The Bridge
Warrants may be exercised by applying the value of a portion of the Bridge
Warrants (equal to the number of shares issuable under the Bridge Warrant being
exercised multiplied by the fair market value of the security receivable upon
exercise of the Bridge Warrant, less the aggregate per share exercise price) in
lieu of payment of the exercise price per share. 30,770 of the Bridge Warrants
expire in May 2002, 61,618 expire in September 2002 and 13,636 will expire in
November 2002.
REGISTRATION RIGHTS
After this offering, the holders of 3,393,741 shares of common stock
will be entitled to certain rights with respect to the registration of such
shares under the Securities Act. The Restated Investor Rights Agreement provides
such rights to holders of 3,383,741 shares of common stock. Under the terms of
the Restated Investor Rights Agreement, if we propose to register any of our
securities under the Securities Act of 1933, as amended (the Securities Act),
either for our own account or for the account of other security holders
exercising registration rights, the holders having registration rights are
entitled to notice of such registration and are entitled, subject to certain
limitations, to include shares therein. The holders of common stock or rights to
acquire common stock may also require us to file a registration statement under
the Securities Act with respect to their shares, and we are required to use our
best efforts to effect such registrations. Furthermore, these holders of common
stock or rights to acquire common stock may require us to register their shares
on Form S-3 if that form becomes available to us. Generally, we are required to
bear all registration and selling expenses incurred in connection with any such
registrations. These rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration.
ANTI-TAKEOVER PROVISIONS
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sale or
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in control of Newgen.
Our Restated Certificate provides that the Board of Directors will be
divided into three classes of directors, with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Newgen. The classification system of directors may also
maintain the composition of the
66
<PAGE>
Board of Directors, as the classification of the Board of Directors generally
increases the difficulty of replacing a majority of directors. Our Restated
Certificate provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing. In addition, our
Bylaws provide that special meetings of our stockholders may be called only by
Newgen's Chairman of the Board of Directors, Chief Executive Officer or Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors or by the holders of 10% of Newgen's outstanding voting
stock. Our Restated Certificate also specifies that the authorized number of
directors may be changed only by resolution of the Board of Directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in the Restated Certificate and our Bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in control of Newgen or our management (including transactions
in which stockholders might otherwise receive a premium for their shares over
then current prices) and may limit the ability of stockholders to remove current
management of Newgen or approve transactions that stockholders may deem to be in
their best interests and, therefore, could adversely affect the price of our
common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, NY 10005.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock (including shares issued upon exercise of
outstanding options and warrants) in the public market could adversely affect
market prices prevailing from time to time. Furthermore, since only a limited
number of our shares will be available for sale shortly after this offering
because of certain contractual and legal restrictions on resale described below,
sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have 9,970,682 shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, the 3,725,000 shares of common stock sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless such shares are purchased by any of our "affiliates" as that term is
defined in Rule 144 under the Securities Act. The remaining 6,245,682 shares of
common stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act. Restricted shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 701 promulgated under the Securities Act,
which rules are summarized below. No shares will be available for sale in the
public market as of the effective date of this offering (the Effective Date)
without restriction pursuant to Rule 144(k), and no shares will be eligible for
sale beginning 90 days after the Effective Date without restriction pursuant to
Rule 701 and Rule 144.
Our officers, directors and stockholders have agreed with us or with
Hambrecht & Quist LLC that they will not, without the prior written consent of
Hambrecht & Quist LLC, directly or indirectly offer, sell, contract to sell or
otherwise dispose of 6,270,682 shares of the restricted shares or any securities
convertible into or exercisable or exchangeable for common stock during the
180-day period commencing on the Effective Date (the Lock-Up Agreement). We have
also agreed that we will not, without the prior written consent of Hambrecht &
Quist LLC, (i) directly or indirectly offer, sell, contract to sell or otherwise
dispose of any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock during such 180-day period except
for the sale of the shares of common stock in this offering, the issuance of
options and shares of common stock pursuant to our employee benefit plans and
the issuance of shares of common stock upon exercise of warrants or options
presently outstanding; provided, however, that, without the prior written
consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period or (ii) allow any security holder of Newgen
subject to the Lock-Up Agreement to sell, transfer or otherwise dispose any
shares of common stock or security exercisable for common stock without the
prior written consent of Hambrecht & Quist LLC. Any shares subject to the
Lock-Up Agreement may be released at any time by Hambrecht & Quist LLC.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 3,393,741 shares of
common stock or rights to acquire common stock, or their transferees, will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. After registration, these shares would become freely
tradable without restriction under the Securities Act (except for shares
purchased by our Affiliates). See "Description of Capital Stock--Registration
Rights."
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, an affiliate of Newgen, or a person (or
persons whose shares are aggregated) who has
68
<PAGE>
beneficially owned restricted shares for at least one year but less than two
years, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding
(approximately 99,707 shares immediately after this offering); or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice of sale with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and has beneficially
owned the shares proposed to be sold for at least two years (including the
holding period of any prior owner except one of our affiliates) is entitled to
sell such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
STOCK OPTIONS
Within 90 days following this offering we intend to file a registration
statement under the Securities Act covering all shares of common stock reserved
for issuance under the 1996 Equity Incentive Plan, the 1998 Equity Incentive
Plan, the 1998 Employee Stock Purchase Plan and the 1998 Non-Employee Directors
Stock Option Plan. Based on the number of options outstanding and options and
shares reserved for issuance at March 31, 1999, such registration statement
would cover approximately 2,637,000 shares. The registration statement will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will, subject to Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market, unless
such shares are subject to vesting restrictions and the expiration of the
180-day lock-up period described above.
69
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
BancBoston Robertson Stephens Inc. and Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated (Dain Rauscher Wessels), have severally agreed to purchase
from Newgen and the selling stockholders the following respective numbers of
shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- -----------
<S> <C>
Hambrecht & Quist LLC...........................................
BancBoston Robertson Stephens Inc...............................
Dain Rauscher Wessels...........................................
-----------
Total........................................................... 3,725,000
-----------
-----------
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in Newgen's business and the receipt of certain
certificates, opinions and letters from Newgen and the selling stockholders,
their counsel and the independent auditors. The nature of the underwriters'
obligation is such that they are committed to purchase all shares of common
stock offered hereby if any of such shares are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the underwriters.
Newgen has granted to the underwriters an option, exercisable no later
than 30 days after the date of this prospectus, to purchase up to 558,750
additional shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
Newgen will be obligated, pursuant to the option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of common stock offered hereby.
The following table summarizes the underwriting discounts and
commissions, and estimated expenses Newgen and the selling stockholders will
pay.
<TABLE>
<CAPTION>
TOTAL
----------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
------------- ------------- -------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
Newgen.......................................
Expenses payable by Newgen.....................
Underwriting discounts and commissions paid by
the selling stockholders.....................
</TABLE>
70
<PAGE>
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Newgen and the selling stockholders have agreed to indemnify the
underwriters against liabilities arising under the Securities Act and other
laws, including claims arising out of or based upon any untrue statement of a
material fact in this prospectus or the omission to state a material fact
necessary to make the statements in this prospectus not misleading, and to
contribute to payments the underwriters may be required to make in respect
thereof.
The selling stockholders and certain other stockholders of Newgen,
including the executive officers and directors, who will own in the aggregate
6,245,682 shares of common stock after the offering, have agreed with Newgen or
Hambrecht & Quist LLC that they will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common
stock, options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into shares of common stock owned by them during
the 180-day period following the date of this prospectus. Newgen has agreed that
it will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of common stock, options or warrants to
acquire shares of common stock or securities exchangeable for or convertible
into shares of common stock during the 180-day period following the date of this
prospectus, except that Newgen may offer shares pursuant to its Employee Stock
Purchase Plan, may issue shares upon the exercise of options granted prior to
the date hereof and may grant additional options under its stock option plans.
Prior to the offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation among Newgen, the selling stockholders and the representatives of
the underwriters. Among the factors to be considered in determining the initial
public offering price are prevailing market and economic conditions, Newgen's
revenues and earnings, market valuations of other companies engaged in
activities similar to Newgen, estimates of the business potential and prospects
of Newgen, the present state of Newgen's business operations, Newgen's
management and other factors deemed relevant. The estimated initial public
offering price range set forth on the cover of this preliminary prospectus is
subject to change as a result of market conditions and other factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
Dain Rauscher Wessels is affiliated with Capstone Ventures. Capstone
Ventures holds 397,775 shares of Newgen's Series A Preferred Stock, 111,172
shares of Newgen's Series B Preferred Stock and warrants to purchase 22,842
shares of Newgen's common stock. Capstone Ventures will sell 25,000 shares of
Newgen's common stock as part of this offering. The decision of Dain Rauscher
Wessels to underwrite this offering was made independently of Capstone Ventures,
which had no involvement in determining whether or when to underwrite this
offering or its terms. Dain Rauscher Wessels will not receive any benefit from
this offering other than its portion of the underwriting commission payable by
Newgen. However, since Capstone Venture's holdings represents more than 10% of
Newgen's preferred stock, this
71
<PAGE>
offering is being conducted pursuant to Rule 2720(c) of the NASD Conduct Rules.
In accordance with this rule, Hambrecht & Quist LLC has agreed to act as a
qualified independent underwriter (QIU) pursuant to the requirements of Rule
2720(c)(3) of the NASD Conduct Rules. In connection with Rule 2720(c)(3)(A), the
initial public offering price of Newgen's common stock will be set at a price
that is no higher than recommended by Hambrecht & Quist LLC, as a QIU. Moreover,
Hambrecht & Quist LLC, as a QIU, has performed due diligence investigations and
has reviewed and participated in the preparation of this prospectus.
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for Newgen and the selling stockholders by Cooley Godward LLP, San Diego,
California. Certain legal matters will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. As of the date of this prospectus, certain members and associates of
Cooley Godward beneficially own an aggregate of approximately 5,530 shares of
common stock through an investment partnership.
EXPERTS
The consolidated financial statements of Newgen Results Corporation as
of December 31, 1998 and 1997 and for the three years in the period ended
December 31, 1998 included in this prospectus or elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information with respect to Newgen
and the common stock, reference is made to the registration statement and the
exhibits and schedules thereto. You may read and copy any document we file at
the SEC's public reference rooms in Washington D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. Our SEC filings are also available to the
public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the Web site of the SEC referred to above.
72
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)................ F-3
Consolidated Statements of Operations For The Years Ended December 31, 1996, 1997 and 1998 and for the
Three Months Ended March 31, 1998 and 1999 (unaudited)................................................... F-4
Consolidated Statements of Stockholders' Deficit For The Years Ended December 31, 1996, 1997 and 1998 and
for the Three Months Ended March 31, 1999 (unaudited).................................................... F-5
Consolidated Statements of Cash Flows For The Years Ended December 31, 1996, 1997 and 1998 and for the
Three Months Ended March 31, 1998 and 1999 (unaudited)................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newgen Results Corporation:
We have audited the accompanying consolidated balance sheets of NEWGEN
RESULTS CORPORATION (a Delaware corporation) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Newgen Results
Corporation and subsidiary as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Diego, California
March 18, 1999
F-2
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------ MARCH 31, PRO FORMA
1999 STOCKHOLDERS'
------------ EQUITY (NOTE
2)
(UNAUDITED) --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 4,630,147 $ 816,753 $ 1,229,915
Accounts receivable, net of allowance for doubtful
accounts of $114,000, $299,000 and $349,000,
respectively....................................... 4,909,831 8,211,773 9,008,883
Prepaid expenses and other........................... 645,559 376,636 352,954
------------ ------------ ------------
Total current assets............................... 10,185,537 9,405,162 10,591,752
PROPERTY AND EQUIPMENT, net............................ 2,046,662 2,931,836 2,737,287
OTHER ASSETS........................................... 69,883 435,337 856,690
------------ ------------ ------------
Total assets....................................... $ 12,302,082 $ 12,772,335 $ 14,185,729
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable..................................... $ 1,728,160 $ 2,787,802 $ 2,689,188
Accrued and other current liabilities................ 1,187,262 2,324,041 2,484,433
Line of credit....................................... -- -- 994,000
Notes payable to related parties..................... 600,000 800,000 600,000
Current portion of capital lease obligations......... 379,498 935,256 918,228
------------ ------------ ------------
Total current liabilities.......................... 3,894,920 6,847,099 7,685,849
------------ ------------ ------------
LONG TERM LIABILITIES:
Long-term portion of capital lease obligations....... 434,619 874,147 837,184
Deferred rent........................................ 108,876 134,481 129,902
------------ ------------ ------------
543,495 1,008,628 967,086
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, no par value, 3,500,000
shares authorized:
Series A convertible, 1,250,137 shares issued and
outstanding in 1997, 1998 and 1999, no shares pro
forma (aggregate liquidation preference of
$9,386,229 at December 31, 1998 and $9,573,953 at
March 31, 1999), stated at......................... 5,466,259 5,925,054 6,047,820
Series B convertible, 2,158,604 shares issued and
outstanding in 1997, 1998 and 1999, no shares pro
forma, (aggregate liquidation preference of
$15,876,412 at December 31, 1998 and $16,193,940 at
March 31, 1999), stated at......................... 9,212,612 10,124,726 10,367,065
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value in 1997 and $.001 par
value in 1998 and 1999, 15,000,000 shares
authorized, 3,766,915, 3,767,415 and 3,829,995
shares issued and outstanding in 1997, 1998 and
1999, respectively, and 7,238,736 shares pro
forma.............................................. 4,639,084 3,767 3,830 $ 7,239
Additional paid-in capital........................... -- 5,384,455 5,553,012 21,964,488
Deferred compensation................................ (900,900) (1,393,968) (1,414,314) (1,414,314)
Notes receivable from stockholders................... -- -- (56,250) (56,250)
Retained deficit..................................... (10,553,388) (15,127,426) (14,968,369) (14,968,369)
------------ ------------ ------------ --------------
Total stockholders' equity (deficit)............... (6,815,204) (11,133,172) (10,882,091) $ 5,532,794
------------ ------------ ------------ --------------
--------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 12,302,082 $ 12,772,335 $ 14,185,729
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Database marketing services.............. $ 9,771,080 $ 20,974,032 $ 31,512,768 $ 6,908,011 $ 10,571,515
Consulting services...................... 1,858,459 5,439,660 8,593,061 2,366,387 1,532,137
------------- ------------- ------------- ------------- -------------
Total revenues......................... 11,629,539 26,413,692 40,105,829 9,274,398 12,103,652
------------- ------------- ------------- ------------- -------------
COST OF REVENUES:
Cost of database marketing services...... 6,795,534 14,231,960 21,156,695 4,673,597 6,215,530
Cost of consulting services.............. 1,699,481 4,232,822 6,694,764 1,902,110 1,339,970
Installation costs....................... 1,656,293 1,931,649 1,410,997 421,963 363,997
------------- ------------- ------------- ------------- -------------
Total cost of revenues................. 10,151,308 20,396,431 29,262,456 6,997,670 7,919,497
------------- ------------- ------------- ------------- -------------
Gross profit........................... 1,478,231 6,017,261 10,843,373 2,276,728 4,184,155
------------- ------------- ------------- ------------- -------------
OPERATING COSTS:
Selling, general and administrative
expenses............................... 5,396,402 6,234,096 8,876,608 1,853,842 2,926,858
Technology and product development....... 543,909 937,252 2,258,892 392,559 627,313
Software rewrite costs................... -- 616,593 2,842,083 694,292 --
------------- ------------- ------------- ------------- -------------
Total operating costs.................. 5,940,311 7,787,941 13,977,583 2,940,693 3,554,171
------------- ------------- ------------- ------------- -------------
Income (loss) from operations.......... (4,462,080) (1,770,680) (3,134,210) (663,965) 629,984
------------- ------------- ------------- ------------- -------------
INTEREST INCOME (EXPENSE), net:
Interest income.......................... 15,811 44,660 143,381 47,144 2,518
Interest expense......................... (245,042) (463,322) (212,300) (46,482) (108,340)
------------- ------------- ------------- ------------- -------------
Interest income (expense), net......... (229,231) (418,662) (68,919) 662 (105,822)
------------- ------------- ------------- ------------- -------------
Net income (loss)...................... (4,691,311) (2,189,342) (3,203,129) (663,303) 524,162
Adjustment for accretion of redeemable
convertible preferred stock.......... -- (132,236) (1,370,909) (340,693) (365,105)
------------- ------------- ------------- ------------- -------------
Income (loss) applicable to common
stockholders......................... $ (4,691,311) $ (2,321,578) $ (4,574,038) $ (1,003,996) $ 159,057
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Basic income (loss) per share.......... $ (1.25) $ (0.62) $ (1.21) $ (0.27) $ 0.04
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Diluted income (loss) per share........ $ (1.25) $ (0.62) $ (1.21) $ (0.27) $ 0.03
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Shares used in basic per share
calculation.......................... 3,766,915 3,766,915 3,767,415 3,766,915 3,829,995
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Shares used in diluted per share
calculation.......................... 3,766,915 3,766,915 3,767,415 3,766,915 4,681,047
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE
---------------------- PAID-IN DEFERRED FROM RETAINED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER DEFICIT TOTAL
--------- ----------- ----------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 3,766,915 $ 3,445,884 $ -- $ -- $ -- $ (3,540,499) $ (94,615)
Capital contribution................. -- 292,300 -- -- -- -- 292,300
Net loss............................. -- -- -- -- -- (4,691,311) (4,691,311)
--------- ----------- ----------- ------------- ----------- ------------ ------------
BALANCE, December 31, 1996........... 3,766,915 3,738,184 -- -- -- (8,231,810) (4,493,626)
Accretion of redeemable preferred
stock.............................. -- -- -- -- -- (132,236) (132,236)
Deferred compensation related to
options granted.................... -- 900,900 -- (900,900) -- -- --
Net loss............................. -- -- -- -- -- (2,189,342) (2,189,342)
--------- ----------- ----------- ------------- ----------- ------------ ------------
BALANCE, December 31, 1997........... 3,766,915 4,639,084 -- (900,900) -- (10,553,388) (6,815,204)
Accretion of redeemable preferred
stock.............................. -- -- -- -- -- (1,370,909) (1,370,909)
Deferred compensation related to
options granted.................... -- 748,825 -- (748,825) -- -- --
Amortization of deferred
compensation....................... -- -- -- 255,757 -- -- 255,757
Exercise of stock options............ 500 313 -- -- -- -- 313
Reincorporation...................... -- (5,384,455) 5,384,455 -- -- -- --
Net loss............................. -- -- -- -- -- (3,203,129) (3,203,129)
--------- ----------- ----------- ------------- ----------- ------------ ------------
BALANCE, December 31, 1998........... 3,767,415 3,767 5,384,455 (1,393,968) -- (15,127,426) (11,133,172)
(Unaudited):
Accretion of redeemable preferred
stock.............................. -- -- -- -- -- (365,105) (365,105)
Deferred compensation related to
options granted.................... -- -- 112,311 (112,311) -- -- --
Amortization of deferred
compensation....................... -- -- -- 91,965 -- -- 91,965
Exercise of stock options............ 62,580 63 56,246 -- (56,250) -- 59
Net income........................... -- -- -- -- -- 524,162 524,162
--------- ----------- ----------- ------------- ----------- ------------ ------------
BALANCE, March 31, 1999.............. 3,829,995 $ 3,830 $ 5,553,012 $(1,414,314) $ (56,250) $(14,968,369) $(10,882,091)
--------- ----------- ----------- ------------- ----------- ------------ ------------
--------- ----------- ----------- ------------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $(4,691,311) $(2,189,342) $(3,203,129) $(663,303) $ 524,162
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 379,907 837,492 1,292,943 261,139 387,283
Deferred rent................................... 83,272 25,604 25,605 (4,580) (4,579)
Deferred compensation........................... -- -- 255,757 53,523 91,965
Loss on retirements of property and equipment... 66,243 -- -- -- --
Changes in assets and liabilities:
Accounts receivable........................... (2,312,816) (2,086,897) (3,301,942) (936,175) (797,110)
Prepaid expenses and other.................... 63,808 (460,833) 357,720 237,891 23,682
Accounts payable.............................. 980,483 335,690 1,059,642 98,838 (98,614)
Accrued and other current liabilities......... (35,889) 864,607 1,136,779 345,718 160,419
---------- ---------- ---------- ----------- ----------
Net cash provided by (used in) operating
activities................................ (5,466,303) (2,673,679) (2,376,625) (606,949) 287,208
---------- ---------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (1,262,280) (500,467) (1,128,928) (165,311) (192,734)
Other assets...................................... (38,929) (709) (365,454) (4,009) (421,353)
---------- ---------- ---------- ----------- ----------
Net cash used in investing activities....... (1,301,209) (501,176) (1,494,382) (169,320) (614,087)
---------- ---------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock transactions.................. 5,713,839 9,125,096 313 -- 59
Repayments of related party loans................. (255,000) (400,000) -- -- (200,000)
Proceeds from related party loans................. 1,255,000 -- 200,000 -- --
Repayment of notes payable to affiliate........... (433,955) -- -- -- --
Payments on capital lease obligations............. (118,609) (313,857) (735,134) (142,997) (253,661)
Decrease (increase) in restricted cash............ (566,105) 566,105 -- -- --
(Repayments) proceeds of/from lines of credit,
net............................................. 1,300,000 (1,300,000) 592,434 -- 1,193,643
---------- ---------- ---------- ----------- ----------
Net cash provided by (used in) financing
activities................................ 6,895,170 7,677,344 57,613 (142,997) 740,041
---------- ---------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 127,658 4,502,489 (3,813,394) (919,266) 413,162
CASH AND CASH EQUIVALENTS, beginning of period...... -- 127,658 4,630,147 4,630,147 816,753
---------- ---------- ---------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of period............ $ 127,658 $4,630,147 $ 816,753 $3,710,881 $1,229,915
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 228,279 $ 452,886 $ 212,300 $ 53,982 $ 115,840
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations entered into for
equipment....................................... $ 544,335 $ 661,931 $1,730,420 $ 353,876 $ 199,670
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
Accretion of redeemable preferred stock........... $ -- $ 132,236 $1,370,909 $ 340,693 $ 365,105
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Newgen Results Corporation (Newgen) was incorporated in California on
February 16, 1994 and is a provider of customized, outsourced database
management, direct marketing and related services for automobile dealerships'
service departments and automobile manufacturers throughout the United States
and Canada. Newgen also provides consulting services to both automobile
manufacturers and individual dealerships. In December 1998, the Company
reincorporated in Delaware and established the par value of its preferred and
common stock at $0.001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL DATA
The accompanying interim balance sheet at March 31, 1999, and the
statements of operations and cash flows for the three months ended March 31,
1998 and 1999 and the statement of stockholders' equity (deficit) for the three
months ended March 31, 1999, together with the related notes as of and for the
periods then ended, are unaudited, but have been prepared on the same basis as
the audited financial statements, and reflect all adjustments consisting only of
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of the interim
periods presented in accordance with generally accepted accounting principles.
Operating results for the unaudited three months ended March 31, 1999 are not
necessarily indicative of results for the entire year.
PRINCIPLES OF CONSOLIDATION
In 1998 Newgen formed Newgen Dealer Pricing Center, Inc. (NDPC). NDPC is
a wholly-owned subsidiary of Newgen. The consolidated financial statements
include the accounts of Newgen and NDPC and are collectively referred to as the
"Company." All significant intercompany accounts and transactions have been
eliminated in consolidation.
RISKS AND UNCERTAINTIES
The Company has a retained deficit of approximately $15,127,000 at
December 31, 1998 and has incurred losses of approximately $4,691,000,
$2,189,000 and $3,203,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. The Company's future success is dependent upon several factors
including the continued acceptance of the Company's services in the marketplace,
the Company's ability to expand and maintain its relationships with its major
customers and vendors, the Company's enhancement of its existing services and
the development of new services and technologies that address the changing needs
of its customers, the Company's continued employment and recruitment of key
personnel, the successful management of the Company's growth and the Company's
ability to maintain or obtain adequate financing.
UNAUDITED PRO FORMA CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) PRESENTATION
The unaudited pro forma consolidated stockholders' equity (deficit) is
presented to show the effects on the March 31, 1999 balance sheet of the
conversion of all outstanding shares of preferred stock into 3,408,741 shares of
common stock which will occur upon closing of the Company's proposed initial
public offering as if the conversion took place on March 31, 1999.
F-7
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
other current assets, and accounts payable and accrued and other current
liabilities approximates fair value because of the short-term nature of those
instruments. Based on borrowing rates currently available to the Company for
credit arrangements with similar terms, the carrying amounts of balances under
notes payable and capital lease obligations approximate fair value.
REVENUE RECOGNITION
The Company has standard agreements with its database marketing services
customers. Although the terms of each individual agreement may vary, most
agreements call for the Company to provide customized letters and telephone
contacts for its dealership customers, in exchange for the payment of a monthly
fee per active name in the automobile dealership's customer list. Most
agreements have an initial minimum 6 to 24 month term, with 30 day notice of
cancellation without penalty thereafter.
The Company recognizes revenue from both its database marketing services
and consulting services in the month that services are provided. In certain
instances, the Company's customers may pay an amount in advance for services to
be provided over a period of time. In other cases, customers may pay the Company
a fixed amount per month with the Company providing more services in certain
months than in others. Advance payments are reflected as deferred revenue.
CONCENTRATION OF CREDIT RISK
Certain of the database marketing services provided by the Company have
been recommended by its major customer, Ford Motor Company (Ford). However, the
Company contracts separately with each individual dealership, and uses the
corporate recommendation to generate business. For all periods presented,
substantially all of the Company's consulting business is with Ford. During the
years ended December 31, 1996, 1997 and 1998, approximately 67%, 75% and 77%,
respectively, and for the three months ended March 31, 1998 and 1999,
approximately 79% and 70%, respectively, of the Company's revenues were with
Ford and Ford dealerships.
As of December 31, 1998 and March 31, 1999, 91% and 91% of the Company's
accounts receivable are due from Ford or its dealerships, respectively.
The Company invests its excess cash and has established guidelines
relative to diversification and maturities in an effort to maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.
F-8
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1997 consisted primarily of commercial paper and at December 31,
1998 and March 31, 1999 consisted primarily of money market accounts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method by charges to
operations in amounts estimated to allocate the costs of the property or
equipment over the estimated useful lives. The estimated useful lives for
computer equipment, furniture and other is three years, and for leasehold
improvements is the shorter of the estimated useful life of the leaseholds or
the life of the lease. Periodically, the Company reviews for possible impairment
of its long-lived assets. Whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable, asset values
are adjusted accordingly.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Computer equipment, furniture and other........... $ 3,284,054 $ 5,408,905 $ 5,592,887
Leasehold improvements............................ 271,056 324,322 333,074
------------ ------------ ------------
3,555,110 5,733,227 5,925,961
Accumulated depreciation and amortization......... (1,508,448) (2,801,391) (3,188,674)
------------ ------------ ------------
Property and equipment, net....................... $ 2,046,662 $ 2,931,836 $ 2,737,287
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Maintenance and repairs are charged to operations as incurred. When
assets are sold, or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, the Company accounts for its stock-based
compensation plans under the provisions of APB No. 25 under which compensation
cost is measured by the excess, if any, of the fair market value of the
Company's common stock at the date of grant over the exercise price of the
option.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred income taxes are recorded to
reflect the tax consequences on future years of temporary differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year
F-9
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
end. If it is more likely than not that some portion or all of the net deferred
tax asset will not be realized, a valuation allowance is recognized.
DEFERRED RENT
Rent expense is recognized on a straight-line basis over the terms of
the leases. Accordingly, rent expense incurred in excess of rent paid is
reflected as deferred rent.
SOFTWARE DEVELOPMENT AND REWRITE COSTS
The Company has commissioned a substantial rewrite of its
enterprise-wide database management software. This rewrite is expected to be
completed in the fourth quarter of 1999. Through December 31, 1998, the
Company's policy has been to expense the cost of these rewrites as incurred.
During the years ended 1997 and 1998, the Company incurred software rewrite
costs of approximately $617,000 and $2,842,000, respectively. No software
rewrite costs were incurred during the three months ended March 31, 1999.
COMPUTATION OF INCOME (LOSS) PER SHARE
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS 128 requires
companies to compute basic and diluted per share data for all periods for which
a statement of operations is presented. Basic earnings per share is computed by
dividing income available to common stockholders by the weighted average number
of common shares that were outstanding during the period. Diluted earnings per
share is computed giving effect to all dilutive potential common shares that
were outstanding for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net income (loss).......................... $ (4,691,311) $ (2,189,342) $ (3,203,129) $ (663,303) $ 524,162
Accretion of redeemable convertible
preferred stock.......................... -- (132,236) (1,370,909) (340,693) (365,105)
------------ ------------ ------------ ------------ -----------
Income (loss) applicable to common
stockholders............................. $ (4,691,311) $ (2,321,578) $ (4,574,038) $ (1,003,996) $ 159,057
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
Shares used in basic per share
calculation.............................. 3,766,915 3,766,915 3,767,415 3,766,915 3,829,995
Effect of dilutive securities:
Employee stock options................... -- -- -- -- 746,791
Warrants................................. -- -- -- -- 104,260
------------ ------------ ------------ ------------ -----------
Shares used in diluted per share
calculation.............................. 3,766,915 3,766,915 3,767,415 3,766,915 4,681,046
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
Basic income (loss) per share.............. $ (1.25) $ (0.62) $ (1.21) $ (0.27) $ 0.04
Diluted income (loss) per share............ $ (1.25) $ (0.62) $ (1.21) $ (0.27) $ 0.03
</TABLE>
F-10
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic and diluted net loss per share for the year ended December 31,
1998 and basic net income per share for the three months ended March 31, 1999 on
a pro forma basis would be ($0.45) and $0.07, respectively, and are computed by
dividing the respective net income or loss by the sum of the weighted average
number of common shares outstanding during the periods and the weighted average
shares resulting from the conversion of 3,408,741 outstanding shares of the
redeemable convertible preferred stock at the closing of the proposed initial
public offering. Potentially dilutive securities have not been included on a pro
forma basis in the December 31, 1998 calculation of diluted loss per share as
their inclusion would be antidilutive. Diluted earnings per share for the three
months ended March 31, 1999 on a pro forma basis would be $0.06 and is computed
by dividing net income by the sum of the shares used in the historical diluted
per share calculation and the weighted average shares resulting from the
conversion of 3,408,741 outstanding shares of the redeemable convertible
preferred stock at the closing of the proposed initial public offering.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" (SOP
98-5). SOP 98-5 provides guidance on the financial reporting of start-up costs
and organization costs. It requires that the cost of start-up activities and
organization costs to be expensed as incurred and is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect adoption of this SOP to have a material adverse impact on the
financial statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current presentation.
3. LINES OF CREDIT
The Company has a working capital line of credit with a bank that is
secured by substantially all assets. The total available amount of the line is
$4,500,000, with advances limited to 80% of qualified accounts receivable. In
March 1999, the line was extended to May 9, 1999. The Company has reduced its
available line of credit by allocating approximately $339,000 of the line of
credit to support a letter of credit collateralizing a facility lease (See Note
10). Interest on the borrowings is charged at the bank's prime rate plus 1.00%.
The line of credit agreement contains certain financial covenants including,
among others, minimum revenue requirements, minimum quick and profitability
ratios, as defined in the agreement, and limitations and restrictions on capital
expenditures and additional indebtedness. As of December 31, 1998, the Company
was not in compliance with certain of the financial covenants and has received a
waiver from the bank.
There were no borrowings outstanding under the line of credit at
December 31, 1997 or 1998. As of March 31, 1999, the Company had borrowed
$994,000 under the line of credit. All outstanding borrowings under the line of
credit were repaid on April 27, 1999.
F-11
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. INCOME TAXES
The net deferred tax asset results from the following temporary
differences:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Depreciation and amortization.................................... $ (11,797) $ (5,856)
Accrued and other current liabilities............................ 252,905 580,262
Net operating loss carryforwards................................. 2,102,438 2,473,182
Other............................................................ 28,492 382,599
------------ ------------
Total.......................................................... 2,372,038 3,430,187
Less valuation allowance....................................... (2,372,038) (3,430,187)
------------ ------------
Total............................................................ $ -- $ --
------------ ------------
------------ ------------
</TABLE>
As of December 31, 1998, the Company had net operating loss
carryforwards of approximately $6.5 million and $3.0 million for Federal and
California reporting purposes, respectfully. The differences between the federal
and the California losses are primarily attributable to the 50% limitation on
state carryforwards. The Federal loss carryforwards will begin expiring in 2009,
unless previously utilized, while the California losses will begin expiring in
1999. The Company has approximately $70,000 of research and development credits
which will begin expiring in 2012. Utilization of the Company's net operating
loss carryforwards may be limited as a result of certain changes in the
Company's ownership. The realization of the deferred tax asset is dependant upon
the Company generating sufficient taxable income prior to expiration of its
operating loss and credit carryforwards. Due to the uncertainty regarding
realization of the deferred tax asset, management has provided a full valuation
allowance against the net deferred tax asset.
5. CONVERTIBLE PROMISSORY NOTES PAYABLE
In 1997, the Company issued convertible subordinated unsecured
promissory notes to existing shareholders totaling $2,332,500. Automatic
conversion of these notes into preferred stock occurred in connection with the
issuance of Series B Preferred Stock in November 1997. Interest at 10% per annum
was paid at the time of conversion. In connection with the issuance of the
convertible notes, the Company issued 106,024 warrants to purchase common stock.
The Company has allocated no value to these warrants as the amount would be
immaterial.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 3,500,000 shares of preferred stock for
issuance. The Board of Directors designated 1,260,137 and 2,200,000 shares as
Series A Preferred Stock and Series B Preferred Stock, respectively. The
remaining 39,863 shares of preferred stock are undesignated. Both issuances of
preferred stock carry the following rights and privileges:
a) VOTING: The holder of each preferred share has a right to the number of
votes equal to the number of shares issuable upon conversion, as defined.
F-12
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
b) REDEMPTION: Beginning November 26, 2002, and in each year thereafter,
the Company is obligated to redeem, at the option of the preferred
stockholders, up to 25% of the aggregate number of shares outstanding.
The redemption value of each share shall equal the original issuance
price ($4.40 for Series A and $4.52 for Series B), plus any declared and
unpaid dividends and a premium of 8% per annum, compounded annually. In
the event that the Company does not redeem the required shares at each
redemption date, a premium of 12% per annum would be charged until the
shares are redeemed by the Company. In order to state the preferred stock
at redemption value, as of December 31, 1998 and March 31, 1999, the
Company has accreted approximately $1,503,000 and $1,868,000,
respectively, including amounts related to the 8% premium.
c) DIVIDENDS: The preferred stockholders are entitled to non-cumulative
dividends, when and if declared, at the same rate the dividends are paid
to the common stockholders.
d) LIQUIDATION: In the event of any merger, sale or reorganization in
which control transfers or in liquidation or dissolution, the preferred
stockholders have a liquidation preference over common stockholders. The
liquidation preference is an amount equal to a multiple of 1.5 times the
original purchase price.
e) CONVERSION: Each share of the preferred stock is generally convertible
at the option of the holder into one share of common stock and is subject
to certain anti-dilution provisions. The preferred stock automatically
converts into a certain number of common shares, as defined, upon the
closing of certain offerings, as defined, and upon the election of 75%
and 70% of the Series A Preferred Stock and the Series B Preferred Stock,
respectively.
In August 1996, the Company completed a private offering of 1,136,487
shares of Series A Preferred Stock at $4.40 per share resulting in net proceeds
of $4,921,479. In December 1996, the investors exercised an option for
additional 113,650 shares of Series A Preferred Stock resulting in additional
net proceeds of $500,060.
In November 1997, the Company completed a private offering of 2,158,604
shares of Series B Preferred Stock at $4.52 per share resulting in net proceeds
of $9,125,096.
The Board of Directors has the authority, without further action by the
shareholders, to issue any authorized but undesignated shares of preferred stock
in one or more series and to fix all the terms, including rights, preferences,
restrictions and redemptions.
At the closing of an initial public offering, all outstanding shares of
preferred stock will be converted into 3,408,741 shares of common stock.
7. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
The Company has authorized 15,000,000 shares of common stock of which
3,766,915, 3,767,415 and 3,829,995 shares of common stock were outstanding as of
December 31, 1997 and 1998 and March 31, 1999, respectively. Outstanding shares
of common stock have been issued to officers and employees
F-13
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
pursuant to agreements which entitle the Company, under certain circumstances,
the option to repurchase the shares at fair value in the event of termination of
employment. As of December 31, 1998 and March 31, 1999, no shares have been
repurchased.
STOCK OPTION PLANS
In August 1996, the Company adopted the 1996 Equity Incentive Plan (the
Plan), under which incentive stock options, nonstatutory options and rights to
purchase restricted stock may be granted to employees, directors, consultants or
advisors of the Company. Options issued under the Plan vest over either four or
five years. No options granted under the Plan have a term in excess of ten years
from the date of grant. The exercise price of an incentive stock option may not
be less than 100% of the fair market value of the common stock on the date of
grant as determined by the Board of Directors. The exercise price of a
nonstatutory option cannot be less than 85% of the fair market value of the
common stock on the date of grant as determined by the Board of Directors. As of
December 31, 1998 and March 31, 1999, 700,000 common shares have been reserved
for issuance under the Plan. As of December 31, 1998 and March 31, 1999, 512,300
and 447,200 options are outstanding under the 1996 Plan, respectively.
1998 EQUITY INCENTIVE PLAN
In August 1998, the Board of Directors adopted the 1998 Equity Incentive
Plan (the 1998 Plan) and obtained stockholder approval in November 1998. The
1998 Plan permits the granting of incentive stock options, nonstatutory options,
stock appreciation rights and rights to purchase restricted stock. An aggregate
of 1,000,000 shares of the Company's common stock have initially been reserved
for issuance pursuant to the exercise of stock awards granted to employees,
directors and consultants under the 1998 Plan. An additional 500,000 shares may
be reserved for issuance under the 1998 Plan to the extent that options
outstanding on the effective date of the Company's initial public offering under
the Company's 1996 Plan are returned to the 1996 Plan. The exercise price of an
Incentive Stock Option cannot be less than 100% of the fair market value of the
common stock on the date of the grant. The exercise price of a nonstatutory
stock option cannot be less than 85% of the fair market of the common stock on
the date of grant. Options granted under the 1998 Plan vest at the rate
specified in the option agreement. As of December 31, 1998 and March 31, 1999,
332,370 and 559,170 options are outstanding under the 1998 Plan, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In August 1998 the Board of Directors adopted the Employee Stock
Purchase Plan (Purchase Plan) and obtained stockholder approval in November
1998. The Company has reserved 350,000 shares of common stock for issuance under
the Purchase Plan. The Purchase Plan will enable eligible employees to purchase
common stock at 85% of the lower of the fair market value of the Company's
common stock on the first day of each option purchase period, or the relevant
purchase date. As of December 31, 1998 and March 31, 1999, no shares have been
issued under the Purchase Plan.
F-14
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In August 1998, the Board of Directors adopted and in November 1998 the
stockholders approved the Non-employee Director's Option Plan (Director Plan).
The Company has reserved 150,000 shares of common stock for issuance under the
Director Plan. The Director Plan provides an initial grant of options to
purchase 6,000 shares of common stock to each new eligible outside director of
the Company upon the effective date of an initial public offering or upon
election to the Board. In addition, such eligible outside directors will be
granted an option to purchase 2,000 shares of common stock at each annual
meeting of the stockholders after the effective date of an initial public
offering. The exercise price per share of all options granted under the Director
Plan will be equal to the 100% of fair market value of the Company's common
stock on the date of grant. Options granted expire after ten years and generally
vest monthly over a one-year period. The initial grant options vest monthly over
a three-year period. As of December 31, 1998 and March 31, 1999, no options have
been granted under the Director Plan.
The following table summarizes stock option plan activity:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------
MARCH 31,
1996 1997 1998 1999
---------------------- ---------------------- ---------------------- -----------------------
WTD. AVG. WTD. AVG. WTD. AVG. WTD. AVG.
SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE
--------- ----------- --------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.... -- -- 38,250 $ 0.50 641,100 $ 1.06 924,670 $ 2.31
Granted......................... 38,250 $ 0.50 616,250 1.09 416,270 4.12 232,600 8.77
Exercised....................... -- -- -- -- (500) 0.63 (62,580) .90
Terminated...................... -- -- (13,400) 0.73 (132,200) 1.97 (8,320) 3.38
--------- ----- --------- ----- --------- ----- ---------- -----
Outstanding, end of year.......... 38,250 0.50 641,100 1.06 924,670 2.31 1,086,370 3.76
Exercisable, end of period........ -- -- 7,400 0.50 111,455 0.87 61,915 .78
Weighted average fair value of
options granted............... -- $ 0.50 -- $ 2.32 -- $ 5.91 -- $ 9.25
</TABLE>
As required by SFAS 123, the Company has determined the pro forma
information as if the Company had accounted for stock options under the minimum
value method of SFAS 123. The following weighted average assumptions were used;
risk-free interest rate ranging between 4.4% and 6.9%; dividend yield of zero;
expected market price volatility factor of zero; and a weighted average expected
life of the options of seven years. Had compensation cost for stock options
granted during the years ended December 31, 1996 and 1997 been determined
consistent with SFAS 123, the Company's net loss and related per share amounts
on a pro forma basis would not materially differ from the amounts reported in
the accompanying consolidated statements of operations for those periods. Had
compensation cost for stock options granted during the year ended December 31,
1998 been determined consistent with SFAS 123, the Company's net loss and
related per share amount on a pro forma basis would be as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------
AS REPORTED PRO FORMA
------------ ------------
<S> <C> <C>
Loss applicable to common stockholders............................................... $ (4,574,038) $ (4,753,424)
Basic and diluted net loss per share................................................. $ (1.21) $ (1.26)
</TABLE>
F-15
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The Company recorded $900,900 as deferred compensation related to
429,000 options granted in December 1997. The deferred compensation is being
amortized on a straight-line basis over the four or five year vesting period of
the underlying options.
In 1998, the Company issued 416,270 options at exercise prices ranging
between $2.50 and $4.50 per share. The Company recorded deferred compensation
charges of $748,825 related to the grant of certain of these options. The
deferred compensation is being amortized over the four or five year vesting
period of the underlying options.
During the three months ended March 31, 1999 the Company issued 232,600
options at exercise prices ranging between $5.25 and $9.25 per share. The
Company recorded deferred compensation charges of $112,311 related to the grant
of certain of these options. The deferred compensation is being amortized on a
straight-line basis over the four or five year vesting period of the underlying
options.
WARRANTS
As of December 31, 1998 and March 31, 1999 the Company has outstanding
warrants to purchase 10,000 shares of its Series A preferred stock. The warrants
have an exercise price of $4.40 per share and expire in November 2001.
As of December 31, 1998 and March 31, 1999 the Company has outstanding
warrants to purchase 106,024 shares of its common stock. The warrants have an
exercise price of $0.75 per share and expire at various dates in 2002.
8. EMPLOYEE BENEFITS
The Company has a 401(k) Plan (the 401(k) Plan) covering substantially
all full-time employees. The 401(k) Plan is subject to the provisions of the
Employee's Retirement Income Security Act of 1974. The 401(k) Plan allows for
the Company to make matching contributions, up to a maximum of $750 per year per
employee. The contributions made by the Company were approximately $28,000,
$35,000 and $53,000 for the years ended December 31, 1996, 1997 and 1998,
respectively and approximately $29,000 and $50,000 for the three months ended
March 31, 1998 and 1999, respectively.
The Company has a bonus plan for certain members of management. The
bonuses earned are based upon factors such as meeting certain operating targets,
including defined results of operations.
During the years ended December 31, 1996, 1997 and 1998, the Company
granted discretionary bonuses to its officers and employees in the amount of
approximately $411,000, $834,000 and $928,000, respectively and approximately
$241,000 and $283,000 for the three months ended March 31, 1998 and 1999,
respectively.
F-16
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS
The Company has notes payable to related parties in the amount of
$600,000, $800,000 and $600,000 at December 31, 1997 and 1998 and March 31,
1999, respectively. These notes are secured and subordinated to the bank line of
credit and mature December 31, 1999. Interest is payable monthly and is charged
at a rate of prime plus 2.0%. In addition, a bonus is payable annually to the
noteholders at a rate of approximately 1.7% on the outstanding balance. Interest
expense related to these notes totaled approximately $183,000, $101,000 and
$73,000 for the years ended December 31, 1996, 1997 and 1998, respectively and
$18,000 and $19,000 for the three months ended March 31, 1998 and 1999,
respectively.
Effective January 1, 1996, the Company entered into an administrative
service agreement with Newgen Services L.P., an affiliate, wherein the Company
agreed to provide administrative services for Newgen Services L.P., in exchange
for a monthly payment of up to $7,500, subject to adjustment. The agreement is
in effect for a period of one year, with automatic renewals, unless terminated
by the mutual consent of both companies. Amounts earned under this agreement
totaled $90,000 for each of 1996 and 1997 and $43,000 for 1998. This agreement
was terminated as of January 1, 1999. In addition, during 1996 the Company
repaid advances from this affiliate aggregating approximately $434,000. The
Company also performs consulting services for customers of this affiliate and
has earned approximately $219,000, $131,000 and $59,000 for the years ended
December 31, 1996, 1997 and 1998, respectively and $20,000 and $8,000 for the
three months ended March 31, 1998 and 1999, respectively.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has both operating and capital lease commitments for
facilities and certain equipment which expire through June 2003. Provisions of
the facility lease provide for abatement of rent during certain periods and
escalating rent payments during the lease term. The Company maintains a letter
of credit of $339,000 as collateral related to the facility lease. Collateral
requirements decline annually over the term of the lease.
F-17
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The future lease commitments as of December 31, 1998, are summarized as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
1999.............................................................. $ 643,758 $ 1,084,296
2000.............................................................. 574,272 633,554
2001.............................................................. 430,015 306,687
2002.............................................................. -- 2,566
2003.............................................................. -- 676
Thereafter........................................................ -- --
------------ ------------
Total minimum lease payments...................................... $ 1,648,045 2,027,779
------------
------------
Less amount representing interest................................. (218,376)
------------
Present value of remaining minimum capital lease payments......... 1,809,403
Less amount due in one year....................................... (935,256)
------------
Long-term portion of obligations under capital leases............. $ 874,147
------------
------------
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $306,000, $574,000 and $813,000, respectively and $166,000 and
$242,000 for the three months ended March 31, 1998 and 1999, respectively. At
December 31, 1998 and March 31, 1999, the net book value of assets subject to
capital leases was $1,597,000 and $1,539,000, respectively.
In January 1999, the Company entered into a lease commitment agreement
to lease telephony equipment. The lease will be a four year lease commencing
April 1999 for up to approximately $2,000,000.
CONTINGENCIES
In January 1999, a former officer of the Company filed a lawsuit
alleging he was unlawfully discharged from his employment with the Company and
that he is owed certain compensation. Damages of unspecified amounts are
requested in the lawsuit. The Company intends to vigorously defend this lawsuit
and, while the ultimate outcome is uncertain, management, based on advice of
counsel, does not believe its resolution will have a material adverse effect on
the Company's financial position or its results of operations.
PROCESSING AGREEMENTS
The Company has an annual agreement with a third party, whereby the
Company was given the rights to purchase dealership customers names to whom it
provides services, for a fixed rate and a percentage of the Company's revenue
from those dealers. Although the Company is under no obligation to purchase any
data from this company at any time, the Company continues to exercise its rights
under this agreement and incurred costs of approximately $671,000, $1,552,000
and $1,498,000 during the years ended December 31, 1996, 1997 and 1998,
respectively, and $376,000 and $422,000 for the three months ended March 31,
1998 and 1999, respectively.
F-18
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has agreements with third parties whereby it purchases
postage and services relating to the production of letters for the Company's
customers. Costs incurred related to these agreements during the years ended
December 31, 1996, 1997 and 1998, were approximately $994,000, $4,304,000 and
$6,666,000, respectively, and $1,343,000 and $2,184,000 for the three months
ended March 31, 1998 and 1999, respectively.
11. OTHER FINANCIAL STATEMENT DATA
Accrued and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Compensation and benefits......................... $ 606,664 $ 699,162 $ 918,564
Deferred revenue.................................. 375,498 694,128 654,994
Other............................................. 205,100 930,751 910,875
------------ ------------ ------------
$ 1,187,262 $ 2,324,041 $ 2,484,433
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In December 1998, the Company wrote off to general and administrative
expense approximately $600,000 of previously deferred costs related to its
delayed 1998 proposed initial public offering.
12. SEGMENT INFORMATION
The Company's revenues are substantially derived from two service
segments: database marketing and consulting operations.
The database marketing segment provides outsourced database management,
direct marketing and related customer retention services for the service
department of automobile dealerships and manufacturers.
The consulting segment develops and implements new techniques and
programs that enable automobile dealerships to grow their business, streamline
inefficient processes and more effectively market their services.
F-19
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
12. SEGMENT INFORMATION (CONTINUED)
The following table summarizes segment information for the years ended
December 31, 1997 and 1998 and for the three months ended March 31, 1998 and
1999:
<TABLE>
<CAPTION>
1997 1998
------------------------------------------ ------------------------------------------
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues............. $ 20,974,032 $ 5,439,660 $ 26,413,692 $ 31,512,768 $ 8,593,061 $ 40,105,829
Segment cost of revenues..... 16,163,609 4,232,822 20,396,431 22,567,692 6,694,764 29,262,456
------------- ------------ ------------- ------------- ------------ -------------
Segment gross profit....... $ 4,810,423 $ 1,206,838 $ 6,017,261 $ 8,945,076 $ 1,898,297 $ 10,843,373
------------- ------------ ------------- ------------- ------------ -------------
------------- ------------ ------------- ------------- ------------ -------------
DEPRECIATION:
Segment depreciation......... $ 781,377 $ 56,115 $ 837,492 $ 1,236,961 $ 55,982 $ 1,292,943
ASSETS:
Segment assets............... $ 10,246,762 $ 2,055,320 $ 12,302,082 $ 10,957,700 $ 1,814,635 $ 12,772,335
Capital expenditures......... 286,663 214,513 501,176 1,423,923 70,459 1,494,382
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------
1998 1999
------------------------------------------ ------------------------------------------
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues............. $ 6,908,011 $ 2,366,387 $ 9,274,398 $ 10,571,515 $ 1,532,137 $ 12,103,652
Segment cost of revenues..... 5,095,560 1,902,110 6,997,670 6,579,527 1,339,970 7,919,497
------------- ------------ ------------- ------------- ------------ -------------
Segment gross profit....... $ 1,812,451 $ 464,277 $ 2,276,728 $ 3,991,988 $ 192,167 $ 4,184,155
------------- ------------ ------------- ------------- ------------ -------------
------------- ------------ ------------- ------------- ------------ -------------
DEPRECIATION:
Segment depreciation......... $ 249,314 $ 11,825 $ 261,139 $ 371,105 $ 16,178 $ 387,283
ASSETS:
Segment assets............... $ 10,051,704 $ 2,291,463 $ 12,343,167 $ 12,638,353 $ 1,547,376 $ 14,185,729
Capital expenditures......... 154,315 10,996 165,311 183,250 9,484 192,734
</TABLE>
F-20
<PAGE>
[INSIDE BACK COVER]
THE RESULTS PROGRAM
PROMOTING AUTOMOBILE SERVICE DEPARTMENT BUSINESS
A diagram depicting the individual components of Newgen's Results
Program. In the center of the diagram is a circle labelled with the caption
"Proprietary Closed-Loop System." Outside of this circle are six boxes
representing the service features of Newgen's Results Program. These boxes are
connected by spokes to the circle in the center of the diagram. The boxes are
labelled with the following captions: "Database Integration, Maintenance and
Updating," "Development and Use of Comprehensive Maintenance Schedules,"
"Development of a Customized Direct Marketing Campaign," "Direct and Electronic
Mail Solicitation of Dealership Customers," "Teleservice Follow-up Utilizing
Advanced Telephony Technology," and "Generation of Management Reports for
Dealerships to Monitor Campaigns."
The left corner of the diagram contains a box with the following
caption: "Return on Investment for Dealerships." To the right of the box is the
following text: "Company Studies Indicate That Over the Course of a Year...
1 25% to 30% of Dealership Customers Solicited Return for Service
2 Customers Visit Dealerships 3 Times as Often
3 Customers Spend 2 1/2 Times More
...As Compared to Customers Not Solicited by Newgen Results."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,725,000 SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
------------------
, 1999
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK IN THAT JURISDICTION. PERSONS
WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED
STATES ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS
AS TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT
JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All the amounts
shown are estimates except for the Commission registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 17,522
NASD filing fee................................................... 6,457
Nasdaq Stock Market Listing Application fee....................... 90,000
Blue Sky qualification fees and expenses.......................... 5,000
Printing and engraving expenses................................... 175,000
Legal fees and expenses........................................... 175,000
Accounting fees and expenses...................................... 175,000
Transfer agent and registrar fees................................. 10,000
Miscellaneous..................................................... 46,021
---------
Total........................................................... $ 700,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the Delaware
Law) , the Registrant has broad powers to indemnify its Directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and Bylaws include
provisions to (i) eliminate the personal liability of its Directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by Section 102(b)(7) of the Delaware Law and (ii) require the Registrant to
indemnify its Directors and officers to the fullest extent permitted by Section
145 of the Delaware Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a
corporation generally has the power to indemnify its present and former
Directors, officers, employees and agents against expenses incurred by them in
connection with any suit to which they are or are threatened to be made a party
by reason of their serving in such positions so long as they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action, they had
no reasonable cause to believe their conduct was unlawful. The Registrant
believes that these provisions are necessary to attract and retain qualified
persons as Directors and officers. These provisions do not eliminate the
Directors' duty of care, and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware Law. In addition, each Director will continue to be subject to
liability for breach of the Director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for acts or omissions that the Director believes to
be contrary to the best interests of the Registrant or its stockholders, for any
transaction from which the Director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the Director's duty to the
Registrant or its stockholders when the Director was aware or should have been
aware of a risk of serious injury to the Registrant or its stockholders, for
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the Director's duty to the Registrant or its
stockholders, for improper transactions between the Director and the Registrant
and for improper distributions to stockholders and loans to Directors and
officers. The provision also does not affect a Director's responsibilities under
any other law, such as the federal securities law or state or federal
environmental laws.
II-1
<PAGE>
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful. The indemnification agreements also
set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and
Directors of the Registrant with respect to certain liabilities, including
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Registrant has sold and issued the following
unregistered securities:
(a) Since January 1, 1995, the Company has issued a total of 1,086,370
options for shares of its common stock at exercise prices ranging from $0.50
to $9.25. As of March 31, 1998, optionees have exercised 250 options at an
exercise price of $0.50 per share, 330 options at an exercise price of
$0.75, 62,500 options at an exercise price of $0.90 and 1,086,370 options
are outstanding (153,920 options having been cancelled), 61,915 of which are
vested. The Registrant relied on the exemption provided by Rule 701 under
the Securities Act.
(b) In August and December 1996, the Registrant issued and sold
1,250,137 shares of its Series A Preferred Stock to certain accredited
investors for an aggregate purchase price of $5,500,603, or $4.40 per share
to the following accredited investors in the following respective amounts:
Capstone Ventures, a Delaware Limited Partnership: 397,775; BankAmerica
Ventures: 715,990; BA Venture Partners II: 79,555; SF Growth Fund: 5,682;
Duncan Naylor: 5,682 and Elaine McKay Revocable Trust: 45,453. Upon the
closing of this offering, the shares of Series A Preferred Stock will
automatically convert into 1,250,137 shares of common stock. The Registrant
relied on the exemption provided by Section 4(2) under the Act. See "Certain
Transactions."
(c) In November 1996, in conjunction with the execution of a Revolving
Loan and Security Agreement with Silicon Valley Bank (SVB), the Company
issued to SVB a warrant to purchase up to 10,000 shares of Series A
Preferred Stock. Upon the closing of this offering, this warrant shall
become a warrant to purchase 10,000 shares of common stock. This warrant has
an exercise price of $4.40 per share and expires on November 27, 2001. The
Registrant relied on the exemption provided by Section 4(2) under the Act.
(d) In May and September 1997, the Company entered into certain
Convertible Unsecured Promissory Notes (the Notes) in the aggregate amount
of $2,332,500 (the Bridge Financings) with directors of the Company and
entities affiliated with directors of the Company as follows: BankAmerica
Ventures ($1,197,000) and BA Venture Partners II ($133,000), affiliated with
Jess R. Marzak; Johari Investment Company Ltd. ($166,667), affiliated with
Gary Simkin; Bernard C. Simkin ($166,667); Murray Simkin ($166,667); and
Capstone Ventures ($502,500), affiliated with Eugene J. Fisher. All Notes
were converted on November 26, 1997, in connection with the Company's Series
B Financing, into shares of the Company's Series B Preferred Stock, at a
purchase price of $4.52 per share.
II-2
<PAGE>
In connection with the Bridge Financings, the Company issued warrants to
purchase an aggregate of 106,024 shares of its common stock (the Bridge
Warrants) in the following amounts to the following entities: 54,409 to
BankAmerica Ventures, 6,046 to BA Venture Partners II, 22,842 to Capstone
Ventures, 7,576 to each of Bernard C. Simkin and Murray Simkin and 7,575 to
Johari Investment Company, Ltd. The exercise price of the Bridge Warrants is
$0.75 per share. The Bridge Warrants may be exercised by applying the value
of a portion of the Bridge Warrants (equal to the number of shares issuable
under the Bridge Warrant being exercised multiplied by the fair market value
of the security receivable upon exercise of the Bridge Warrants, less the
aggregate per share exercise price) in lieu of payment of the exercise price
per share. 30,770 of the Bridge Warrants expire in May 2002, 61,618 expire
in September 2002 and 13,636 will expire in November 2002. The Registrant
relied on the exemption provided by Section 4(2) under the Act. See "Certain
Transactions."
(e) In November 1997, the Registrant issued and sold 2,158,604 shares of
Series B Preferred Stock to an aggregate purchase price of $9,756,890, or
$4.52 per share (includes the shares from the conversion of the Unsecured
Convertible Promissory Notes) to the following accredited investors as
follows:
<TABLE>
<CAPTION>
INVESTORS NAME SHARES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Information Associates, L.P........................................................ 598,908
Information Associates, C.V........................................................ 16,714
Information Associates--II, L.P.................................................... 923,430
IA--II Affiliates Fund, L.L.C...................................................... 53,869
Capstone Ventures.................................................................. 111,172
BankAmerica Ventures............................................................... 264,822
BA Venture Partners II............................................................. 29,424
BancBoston Robertson Stephens Inc.................................................. 15,929
GC&H Investments................................................................... 5,530
Johari Investment Company Ltd...................................................... 36,873
Bernard Simkin..................................................................... 36,873
Murray Simkin...................................................................... 36,873
Bayview Investors, Ltd............................................................. 28,187
</TABLE>
Upon the closing of this offering the shares of Series B Preferred Stock
will automatically convert into 2,158,664 shares of common stock. The Registrant
relied on the exemption provided by Section 4(2) under the Act. See "Certain
Transactions."
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
3.3 Restated Certificate of Incorporation, to be filed and become effective
upon closing of this offering.(1)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.(1)
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.(1)
10.1 1996 Equity Incentive Plan (the 1996 Plan).(1)
10.2 Form of Stock Option Agreement of Registrant pursuant to the 1996 Plan.(1)
10.3 1998 Equity Incentive Plan, as amended (the 1998 Plan).(1)
10.4 Form of Stock Option Agreement of Registrant pursuant to the 1998 Plan.(1)
10.5 1998 Non-Employee Directors Stock Option Plan.(1)
10.6 1998 Employee Stock Purchase Plan.(1)
10.7 Restated Investor Rights Agreement by and among the Company and certain
stockholders of the Company, dated as of November 26, 1997.(1)
10.8 Restated Right of First Refusal and Co-Sale Agreement between the Company
and certain investors, dated as of November 26, 1997.(1)
10.9 Master Equipment Lease No. 0053 between the Company and Phoenix Leasing
Incorporated, dated as of December 15, 1996.(1)
10.10 License Agreement between the Company and Service Systems Development
Limited Partnership, dated as of October 11, 1995.(1)
10.11 Amended and Restated Security Agreement between the Company and Silicon
Valley Bank, dated March 10, 1998.(1)
10.12* Data Distribution Agreement between the Company and Universal Computer
Services, dated as of May 15, 1996.
10.13 Office Lease between the Company and WCB II Limited Partnership, dated as
of July 31, 1996.(1)
10.14 Office Lease between the Company and Plaza Holdings, Inc., dated as of
April 6, 1998.(1)
10.15* Purchase Agreement between the Company and Geomel Enterprises, Inc., dated
September 4, 1998.
10.16 Form of Warrant between the Company and the following directors and
entities affiliated with directors: Bernard C. Simkin, Murray Simkin,
Johari Investment Company, Ltd. BankAmerica Ventures, BA Venture
Partners II and Capstone Ventures.
10.17 Promissory Note, as amended, between the Company as borrower and Sam
Simkin as lender.(1)
10.18 Promissory Note, as amended, between the Company as borrower and Jack
Simkin, as Trustee for Simkin Children Irrevocable Trust, as lender.(1)
10.19 General Services Agreement between the Company and Bolder Heuristics,
Inc., dated December 25, 1996.(1)
10.20 Ford Purchase Order No. 2460 293627 for Consulting Services.(1)
10.21 Ford Purchase Order No. A50 P099 002382 for Data Extraction Services.(1)
10.22 Form of Employment Agreement dated April 29, 1999 between the Company and
the following officers: Gerald L. Benowitz, Samuel Simkin, Leslie J.
Silver and James K. Roche.(1)
10.23* Letter of Intent between the Company and autobytel.com dated as of May 4,
1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
21 Subsidiaries of the Registrant.(1)
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.(1)
27 Financial Data Schedule.(1)
</TABLE>
- ------------------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant
pursuant to provisions described in Item 14 or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange
Act)(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated
by reference in the Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 4 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, County of San Diego, State of California, on May 20, 1999.
<TABLE>
<S> <C> <C>
By: /s/ SAMUEL SIMKIN
-----------------------------------------
Samuel Simkin
Chief Financial Officer, Senior Vice
President and Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ President, Chief Executive May 20, 1999
Gerald L. Benowitz Officer and Director
/s/ SAMUEL SIMKIN Chief Financial Officer,
- ------------------------------ Senior Vice President May 20, 1999
Samuel Simkin and Secretary
*
- ------------------------------ Director May 20, 1999
Eugene Fischer
*
- ------------------------------ Director May 20, 1999
H. Robert Gill
*
- ------------------------------ Director May 20, 1999
Jess Marzak
*
- ------------------------------ Director May 20, 1999
John Moragne
*
- ------------------------------ Director May 20, 1999
Abraham Simkin
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director May 20, 1999
Bernard C. Simkin
*
- ------------------------------ Director May 20, 1999
Murray Simkin
*
- ------------------------------ Director May 20, 1999
Gary Simkin
*
- ------------------------------ Director May 20, 1999
Todd A. Springer
*
- ------------------------------ Director May 20, 1999
Bert Winemiller
/s/ SAMUEL SIMKIN
- ------------------------------
*Samuel Simkin May 20, 1999
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
DESCRIPTION OF DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Form of Underwriting Agreement (1)................................................ 1.1
Certificate of Incorporation (1).................................................. 3.1
Amended and Restated Bylaws (1)................................................... 3.2
Restated Certificate of Incorporation, to be filed and become effective upon
closing of this offering (1).................................................... 3.3
Reference is made to Exhibits 3.1, 3.2 and 3.3 (1)................................ 4.1
Specimen Stock Certificate.(1).................................................... 4.2
Opinion of Cooley Godward LLP. (1)................................................ 5.1
1996 Equity Incentive Plan (the 1996 Plan) (1).................................... 10.1
Form of Stock Option Agreement of Registrant pursuant to the 1996 Plan (1)........ 10.2
1998 Equity Incentive Plan, as amended (the 1998 Plan) (1)........................ 10.3
Form of Stock Option Agreement of Registrant pursuant to the 1998 Plan (1)........ 10.4
1998 Non-Employee Directors Stock Option Plan (1)................................. 10.5
1998 Employee Stock Purchase Plan (1)............................................. 10.6
Restated Investor Rights Agreement by and among the Company and certain
stockholders of the Company, dated as of November 26, 1997 (1).................. 10.7
Restated Right of First Refusal and Co-Sale Agreement between the Company and
certain investors, dated as of November 26, 1997 (1)............................ 10.8
Master Equipment Lease No. 0053 between the Company and Phoenix Leasing
Incorporated, dated as of December 15, 1996.(1)................................. 10.9
License Agreement between the Company and Service Systems Development Limited
Partnership, dated as of October 11, 1995 (1)................................... 10.10
Amended and Restated Security Agreement between the Company and Silicon Valley
Bank, dated March 10, 1998 (1).................................................. 10.11
Data Distribution Agreement between the Company and Universal Computer Services,
dated as of May 15, 1996........................................................ 10.12*
Office Lease between the Company and WCB II Limited Partnership, dated as of
July 31, 1996 (1)............................................................... 10.13
Office Lease between the Company and Plaza Holdings, Inc., dated as of April 6,
1998 (1)........................................................................ 10.14
Purchase Agreement between the Company and Geomel Enterprises, Inc., dated
September 4, 1998............................................................... 10.15*
Form of Warrant between the Company and the following directors and entities
affiliated with directors: Bernard C. Simkin, Murray Simkin Johari Investment
Company, Ltd. BankAmerica Ventures, BA Venture Partners II and Capstone
Ventures........................................................................ 10.16
Promissory Note, as amended, between the Company as borrower and Sam Simkin as
lender (1)...................................................................... 10.17
Promissory Note, as amended, between the Company as borrower and Jack Simkin, as
Trustee for Simkin Children Irrevocable Trust, as lender (1).................... 10.18
General Services Agreement between the Company and Bolder Heuristics, Inc., dated
December 25, 1996 (1)........................................................... 10.19
Ford Purchase Order No. 2460 293627 for Consulting Services (1)................... 10.20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
DESCRIPTION OF DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Ford Purchase Order No. A50 P099 002382 for Data Extraction Services (1).......... 10.21
Form of Employment Agreement dated April 29, 1999 between the Company and the
following officers: Gerald L. Berowitz, Samuel Simkin, Leslie J. Silver and
James K. Roche (1).............................................................. 10.22
Letter of Intent between the Company and autobytel.com dated as of May 4, 1999*... 10.23
Subsidiaries of the Registrant (1)................................................ 21
Consent of Arthur Andersen LLP, Independent Public Accountants.................... 23.1
Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1................... 23.2
Power of Attorney. Reference is made to page II-5 (1)............................. 24.1
Financial Data Schedule (1)....................................................... 27
</TABLE>
- ------------------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Previously filed.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.406 * INDICATES OMITTED
MATERIAL THAT IS THE SUBJECT OF
CONFIDENTIAL TREATMENT REQUEST
THAT IS FILED SEPARATELY WITH THE
COMMISSION
DATA DISTRIBUTION AGREEMENT
THIS AGREEMENT IS SUBJECT TO ARBITRATION.
This Agreement is made and entered into this 15th day of May, 1996, by
and between Newgen Results Corporation ("Newgen") with offices located at
12526 High Bluff Drive, Suite 150, San Diego, California 92130, and Universal
Computer Services, Inc. ("UCS"), Universal Computer Consulting, Ltd. ("UCC"),
and Ford Dealer Computer Services, Inc. ("FDCS"), (UCS, UCC, and FDCS
collectively referred to as "Supplier"), with offices located at 6700
Hollister, Houston, Texas 77040.
WHEREAS, UCC, UCS and FDCS provide computer services and support to
automobile dealerships in the United States, for, respectively, the UCS In-House
Computer System and the FDCS In-Dealership Computer System;
WHEREAS, Newgen desires Supplier's assistance with its Service Results
program and other related services or products which are for the
merchandising and sale of service and parts business to vehicle owners;
WHEREAS, Newgen desires to obtain historical customer pay repair order
information, recurring customer pay repair order information, historical
warranty repair order information, recurring warranty repair order
information, historical vehicle service file information, historical vehicle
sales file information, newly sold vehicle information, and newly serviced
vehicle information, in tape format from the UCS In-House Computer System or
the FDCS In-Dealership Computer System of participating automobile dealers;
WHEREAS, Newgen and Supplier desire, by this Agreement to provide for the
terms and conditions under which Supplier will provide this information to
Newgen.
NOW, THEREFORE, In consideration of the mutual promises and obligations
contained in this Agreement, Newgen and Supplier agree to enter into this
Data Distribution Agreement on the following terms and conditions:
SECTION 1
DEFINITIONS
For the purpose of this Agreement, the following words will have the
meanings ascribed to them as follows:
1.1 ANALYSIS REPORT - Report generated by Supplier which shows the number of
different vehicles which visited a potential Dealer's service department
or were sold by Dealer during the [***], [***], [***], [***], [***], and
[***] months prior to Newgen's request for the report.
1.2 COMPUTER SYSTEM - Either the UCS In-House Computer System or the FDCS 7000
MP In-Dealership Computer System.
1.3 DEALER - Automobile dealer as designated by Newgen in accordance with
Section 4.6 as a participating dealer under this Agreement, who uses either
the UCS In-House Computer System or the FDCS In-Dealership Computer System.
1.4 DEALER AGREEMENT - Agreement between Dealer and either UCS, UCC, or FDCS
for support of Dealer's Computer System.
1.5 Dealer Data - The historical customer pay repair order information, the
recurring customer pay repair order information, the historical customer
repair information, the recurring warranty repair order information, the
historical vehicle service file information, the historical vehicle sales
file information, the
* Confidential Treatment Requested
1
<PAGE>
newly sold vehicle information, and the newly serviced vehicle information
contained on Dealer's Computer System which Dealer has licensed to Supplier
for the purposes described in this Agreement.
1.6 FDCS IN-DEALERSHIP COMPUTER SYSTEM - The 7000 MP integrated computer system
for automobile dealerships supported by FDCS. This does not include any
DX-10, UNIX, or Rainbow computer systems which may be supported by FDCS.
1.7 NEWGEN'S REVENUE - The monthly gross revenue Newgen generates from all
services and products Newgen provides to Dealers and other entities each
month, including any special charges or surcharges, which were derived
from or used the Dealer Data provided to Newgen by Supplier.
1.8 UCS IN-HOUSE COMPUTER SYSTEM - The integrated computer system for
automobile dealerships supported by UCS.
SECTION 2
TITLE AND LICENSE OF DATA
2.1 TITLE. Except as a licensee of Dealer Data pursuant to the Dealer Agreements
and this Agreement, Supplier and Newgen each acknowledge that all rights, title
and interest in Dealer Data will remain vested in each individual Dealer.
2.2 LICENSE. Supplier hereby grants Newgen a personal, non-exclusive,
non-transferable sublicense to use that Dealer Data which has been provided
by Supplier to Newgen for the sole purpose of assisting Newgen in providing
to Dealers Newgen's Service Results program and other related services or
products which are for the merchandising and sale of service and parts
business to vehicle owners, pursuant to this Agreement.
SECTION 3
RESPONSIBILITIES OF SUPPLIER
3.1 DEALER DATA COPIES. Supplier will provide Newgen with a tape(s) of the
Dealer Data collected from each Dealer's Computer System once per week for all
Dealers. Supplier will provide the Dealer Data in the format specified in
Exhibit B.
3.2 ANALYSIS REPORTS. Upon request by Newgen, Supplier will provide to Newgen an
Analysis Report.
3.3 OPERATION CODES. Supplier will provide to Newgen, at no charge, on a one
time basis, the Dealer's operation codes. The specifications for the Dealer
operation codes are set forth in Exhibit B.
SECTION 4
RESPONSIBILITIES OF NEWGEN
4.1 AMENDMENT TO DEALER AGREEMENT. Newgen acknowledges that every Dealer will be
required to execute an amendment to Dealer's Agreement whereby Dealer grants to
Supplier a royalty-free license to use and distribute Dealer Data to Newgen for
the purpose of facilitating Newgen's internal use of the Dealer Data. Supplier
will provide to Newgen blank forms of said amendment which will incorporate the
provisions of Exhibit A. Supplier authorizes Newgen to present to Dealers said
form amendment for execution by Dealer. Newgen agrees to have every Dealer
execute said amendment. Upon receipt by Newgen of an executed amendment from a
Dealer, Newgen shall immediately forward the original of said executed amendment
to Supplier. Newgen agrees that said amendment may not be altered in any
manner, and that said amendment is not deemed effective and binding unless and
until it is executed by an officer of Supplier. Newgen acknowledges that they
are not granted any other authority by Supplier other than to present said
amendments for execution and the collection of said executed amendments.
2
<PAGE>
4.2 PAYMENT FOR DATA AND REPORTS. Newgen agrees to pay Supplier for the Dealer
Data and Analysis Reports as described in Section 5 of this Agreement.
4.3 EXPENSES. Newgen agrees to pay $[****] to Supplier within thirty (30)
days of the execution date of this Agreement, for the creation of the
software program(s) necessary to produce the Dealer Data tape. In addition,
if Newgen requires modifications to any such software program(s), Newgen
agrees to pay to Supplier any and all costs and expenses associated with such
modification. Newgen agrees to pay $[****] to Supplier within thirty (30)
days of the execution date of this Agreement for the creation of the software
program(s) necessary to produce the Analysis Report.
It is anticipated that the development time to create the software program(s)
necessary to produce the Dealer Data tape will be thirty (30) to sixty (60)
days. However, should Supplier be unable to create the software program(s)
necessary to produce the Dealer Data tape within one hundred twenty (120)
days, Supplier will refund to Newgen the $[****] amount Newgen paid to
Supplier pursuant to Section 4.2 above, and this Agreement will be terminated.
It is anticipated that the development time to create the software program(s)
necessary to produce the Analysis Report will be thirty (30) to sixty (60)
days. However, should Supplier be unable to create the software program(s)
necessary to produce the Analysis Report within one hundred twenty (120)
days, Supplier will refund to Newgen the $[****] Newgen paid to Supplier
pursuant to Section 4.2 above, and Supplier will have no further obligation
to produce any Analysis Reports. Newgen acknowledges that such a failure by
Supplier to create the software program(s) necessary to produce the Analysis
Report shall not constitute a default under this Agreement.
4.4 DEALER DATA TAPE FORMAT. The specifications for the Dealer Data are listed
in Exhibit B.
4.5 AUTHORIZATION FOR REPRESENTATIONS, WARRANTIES OR GUARANTEES. Newgen
shall refrain from making any representations, warranties or guarantees to
any third parties regarding the Dealer Data supplied by Supplier to Newgen,
except as specified herein or as expressly authorized in writing by Supplier,
such authorization not to be unreasonably withheld.
4.6 DEALER DESIGNATION. Newgen shall provide to Supplier, within thirty (30)
days of the execution of this Agreement, a written list of the Dealers which
Newgen wants to participate under this Agreement. Newgen shall give Supplier
written notice of any new Dealers whom Newgen wants to participate under this
Agreement. Newgen acknowledges that Supplier makes no guarantees on the length
of time it will take to set up a Dealer in the program.
Newgen shall provide to Supplier written notice of a Dealer's termination from
the program within ten (10) days after the Dealer's termination date from the
program.
4.7 INVOICING INFORMATION. In order that Supplier may generate an invoice to
Newgen, Newgen shall, at no charge, provide to Supplier no later than the 5th
calendar day of the month following the month to be invoiced, or within three
(3) calendar days of the date Newgen provides the billing tape or hard copy
of the billing information to Ford Motor Company, whichever comes first, a
copy of the billing tape or hard copy of the billing information which Newgen
supplies to Ford Motor Company to enable Ford Motor Company to bill Dealers
for the services and products Newgen provides Dealers. Newgen shall, at no
charge to Supplier, provide Supplier with data specifications and cooperate
with Supplier to assist Supplier in reading the billing tape. If Supplier is
unable to read the billing tape or if there is no billing tape, Newgen shall
provide Supplier the billing information in hard copy format.
For all non-Ford and non-Lincoln-Mercury Dealers, Newgen shall, at no charge,
provide to Supplier, no later than the 5th calendar day of the month
following the month to be invoiced, a billing tape or hard copy of the
billing information of what Newgen invoiced Dealers for the services and
products Newgen provided the Dealers.
3
* Confidential Treatment Requested
<PAGE>
Section 5
PRICES AND COMPENSATION
5.1 DEALER DATA CHARGE FOR HISTORICAL DATA. Newgen agrees to pay Supplier a
charge per historical customer pay repair order, historical warranty repair
order, historical vehicle service file, and historical vehicle sales file,
included on each [***] Dealer Data [***] provided to Newgen. This charge will
be $[****] per historical customer pay repair order, $[****] per historical
warranty repair order, $[****] per historical vehicle service file, and
$[****] per historical vehicle sales file provided to Newgen. The maximum
Dealer Data charge for historical data, as described in this Section 5.1, for
any one Dealer will not exceed $[****]. This $[****] limit will apply to each
individual dealership site owned by a dealer, not to a group of dealership
sites owned by a Dealer. Where a Dealer owns more than one dealership site,
the maximum Dealer Data charge for historical data will be as follows:
<TABLE>
NUMBER OF DEALERSHIP MAXIMUM DEALER DATA
SITES OWNED BY A DEALER CHARGE FOR
HISTORICAL DATA FOR THE DEALER
---------------------- ----------------------------------
<S> <C>
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****] plus [***] for each
additional dealership
site over [***]
</TABLE>
Supplier may increase this charge at any time after twelve (12) months from
the date of execution of this Agreement by an amount based on the percentage
rate of price increases for all goods and services as determined by the
Bureau of Labor Statistics of the U.S. Department of Labor (Consumer Price
Index).
5.2 PAYMENT OF DEALER DATA CHARGE FOR HISTORICAL DATA. The Dealer Data
charges for historical data described in Section 5.1, for each new Dealer,
may be paid by Newgen in [***] payments. Each payment shall be in an amount
equal to [***] of the total Dealer Data charges for historical data for the
new Dealer. Newgen will not be charged interest on the unpaid portion of the
Dealer Data charges for historical data should Newgen elect to pay these
charges as described herein. However, should Newgen fail to pay the [***]
payments in a timely manner, Newgen will be charged interest as described in
Section 5.5. Supplier will not invoice Newgen for the Dealer Data charges for
historical data prior to the date that the Dealer Data [***] containing the
historical data is shipped to Newgen.
5.3 DEALER DATA CHARGE FOR RECURRING DATA. Newgen agrees to pay Supplier a
charge for recurring customer pay repair orders, recurring warranty repair
orders, newly sold vehicle files, and newly serviced vehicle files. The
charge shall be based on the number of [***] and [***], as defined in Section
1.7, during that month. The charge shall be as follows:
<TABLE>
# of [***] CHARGE
------------ ------
<S> <C>
[***] [****]% of Newgen's [***]
[***] [****]% of Newgen's [***]
[***] [****]% of Newgen's [***]
[***] [****]% of Newgen's [***]
</TABLE>
(for example, if there are [***], the Dealer Data Charge would be
[****]% of [***] for each [***].)
For new Dealers who start after the first of the month, Newgen will be
charged in accordance with this Section 5.3, based on [***] received by Newgen
from that new Dealer for the partial month.
* Confidential Treatment Requested
4
<PAGE>
5.4 ANALYSIS REPORT CHARGE. Newgen agrees to pay Supplier a charge per
Analysis Report. This charge will be $[****] per Analysis Report produced.
Supplier may increase this charge at any time after twelve (12) months from
the date of execution of this Agreement by an amount based on the percentage
rate of price increases for all goods and services as determined by the
Bureau of Labor Statistics of the U.S. Department of Labor (Consumer Price
Index).
5.5 FREIGHT AND TAPE CHARGES. Newgen agrees to pay to Supplier a charge for
each physical data tape sent to Newgen at Supplier's then current rate.
Newgen shall be responsible for freight and insurance charges for all
shipments to or from Newgen, including but not limited to all shipments of
Dealer Data tapes.
5.6 INVOICING. Supplier will invoice Newgen each month for all amounts due
to Supplier under this Agreement. Newgen agrees to make payment to Supplier
within thirty (30) days of the date of the invoice. In the event that payment
is not received by the 30th day of the month following the month for which
the invoice is dated, Newgen will be in default of this Agreement and
Supplier may invoke any and all remedies available, in law or in equity.
Interest calculated at the lesser of 1 1/2% per month or the maximum
non-usurious rate currently permitted by law, will be charged to Newgen on
all invoices unpaid after thirty (30) days from the date of the invoice.
Section 6
DELIVERY
6.1 MANNER OF DELIVERY. Supplier will deliver all Dealer Data tapes to
Newgen utilizing the shipping service selected by Newgen. Newgen accepts the
risk of loss for the Dealer Data tapes upon shipment from Supplier's
location. Newgen shall be responsible for and pay all shipping and handling
costs for delivery of the Dealer Data tapes and reports from Supplier to
Newgen.
Section 7
WARRANTIES AND LIMITATION OF LIABILITY
7.1 WARRANTIES. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THERE ARE NO
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE MADE BY
SUPPLIER WITH RESPECT TO THE DEALER DATA OR OTHER TRANSACTIONS OR SERVICES
CONTEMPLATED HEREIN. This Agreement states the entire obligation of Supplier
in connection with the license and provision of Dealer Data to Newgen.
7.2 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED HEREIN, SUPPLIER SHALL NOT UNDER ANY CIRCUMSTANCES, BE LIABLE TO
NEWGEN OR ITS DEALERS FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, EVEN IF
SUPPLIER HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
FURTHERMORE, SUPPLIER SHALL NOT BE LIABLE TO NEWGEN OR ITS DEALERS FOR DAMAGE
OR LOSS OF ANY NATURE. WHATSOEVER, AND NEWGEN'S OR ITS DEALERS' SOLE AND
EXCLUSIVE REMEDY HEREUNDER SHALL BE THE RIGHT TO HAVE SUPPLIER REPLACE ANY
DEFECTIVE TAPE MEDIA CONTAINING THE DEALER DATA WHICH WAS PROVIDED TO NEWGEN.
IN ANY EVENT, SUPPLIER SHALL NOT BE LIABLE TO NEWGEN FOR ANY AMOUNT GREATER
THAN THE AMOUNT OF THE MONTHLY CHARGES PAID BY NEWGEN TO SUPPLIER FOR THE
MONTH IN WHICH THE LIABILITY AROSE.
Section 8
TAXES
8.1 Newgen agrees to pay all taxes, other than those taxes based on
Supplier's income, or provide appropriate exemptions, including personal
property, sales, use or excise taxes, which may be imposed by any taxing
authority as a result of Supplier's sublicense and distribution of the Dealer
Data to Newgen.
* Confidential Treatment Requested
5
<PAGE>
Section 9
ARBITRATION
9.1 ARBITRATION. All disputes, claims, controversies and other matters in
question between the parties to this Agreement, arising out of, or relating
to this Agreement, or to the breach thereof, including any claim in which
either party is demanding monetary damages of any nature including
negligence, strict liability or intentional acts or omissions by either
party, and which cannot be resolved by the parties, shall be settled by
arbitration. Except as provided otherwise in this Section 9, the arbitration
shall be administered in accordance with the commercial arbitration rules of
the American Arbitration Association. Arbitrators shall be chosen from a
panel of persons with knowledge of electronic data processing industry
practices, contracts, and data processing systems. If the parties cannot
agree on arbitrators within fifteen (15) days of receipt of the arbitration
demand, then the arbitrators shall be chosen in accordance with the
commercial arbitration rules of the American Arbitration Association. The
arbitration proceeding will be held in Houston, Texas. In no event shall the
demand for arbitration be made more than one (1) year after the claim or cause
of action arises. The award of the arbitrator or arbitration panel shall be
final and binding, and there shall be no appeal therefrom. Judgment upon the
award rendered by the arbitrator or arbitration panel may be entered in any
court having jurisdiction. The Federal Arbitration Act (9 U.S.C. sections 1
et seq.) shall govern the interpretation and application of this Section 9.
Section 10
TERM AND TERMINATION
10.1. INITIAL TERM. The initial term of this Agreement is two (2) years
("Initial Term"), commencing on the date Supplier ships to Newgen the first
Dealer Data tape, such date to be conclusively determined by Supplier.
10.2 RENEWAL TERM(S). This Agreement shall be automatically renewed after
the Initial Term for consecutive periods of twelve (12) months each ("Renewal
Terms"), unless and until terminated by Supplier or Newgen delivering to the
other written notice of their intent to terminate the Agreement at least one
hundred twenty (120) days prior to the end of the Initial Term or any
subsequent Renewal Term.
10.3 TERMINATION OF AGREEMENT. If Newgen materially breaches any obligation
of Newgen under this Agreement, except any obligation to make payment to
Supplier, Newgen shall have thirty (30) days after receipt of written notice
of such default within which to cure such default, and if such default is not
cured within such period of time, then Supplier shall have the right without
further notice to terminate this Agreement. If Newgen fails to make any
payment to Supplier when due, Newgen shall have ten (10) days after receipt
of written notice of such payment default within which to cure such payment
default, and if such payment default is not cured within such period of time,
then Supplier shall have the right without further notice, at Supplier's
option, to suspend the delivery of Dealer Data until such payment default is
cured, or terminate this Agreement. If Supplier materially breaches any
obligation of Supplier under this Agreement, Supplier shall have thirty (30)
days after receipt of written notice of such default within which to cure
such default, and if such default is not cured within such period of time,
then Newgen shall have the right without further notice to terminate this
Agreement.
10.4 BANKRUPTCY. If either party becomes the subject of any voluntary
proceeding, or any involuntary proceeding which remains undismissed for sixty
(60) days, relating to bankruptcy, insolvency, liquidation, receivership,
composition of or assignment for the benefit of creditors ("Bankrupt Party"),
the other party may, at its option, terminate this Agreement upon giving
Bankrupt Party thirty (30) days written notice of its intention to terminate.
10.5 SURVIVAL OF OBLIGATIONS. The termination of this Agreement shall not
terminate, affect or impair any rights, obligations or liabilities of either
party hereto which may accrue prior to such termination. Supplier and Newgen
specifically agree that the obligations provided in the following sections:
Sections 2.1, 2.2, 4.4, 7.1, 7.2, 8.1, 9.1, 12.1, 13
shall remain in effect and survive termination.
6
<PAGE>
SECTION 11
EXCUSE FOR NONPERFORMANCE
11.1 Supplier shall not be held responsible for any delay or failure to
perform hereunder where such delay or failure is due to any cause beyond
Supplier's direct control including, but not limited to, Acts of God, fire,
explosion, flood, strikes or other labor dispute, riot, communications or
power supply failure, delay in delivery, failure or malfunction of equipment,
lack of or inability to obtain Dealer Data from Dealers, or any other causes,
contingencies or circumstances which prevent or hinder performance hereunder
or make such performance hereunder impracticable.
SECTION 12
INDEMNIFICATION
12.1 Newgen agrees to indemnify, defend and hold Supplier, its officers,
directors, employees, and agents harmless from and against any and all
obligations, liabilities, costs, damages and expenses (including reasonable
attorney's fees) incurred or arising out of or relating to the provision of
Dealer Data by Supplier to Newgen and the use of such Dealer Data by Newgen.
12.2 Supplier agrees to indemnify, defend and hold Newgen, its officers,
directors, employees, and agents harmless from and against any and all
obligations, liabilities, costs, damages and expenses (including reasonable
attorney's fees) incurred or arising out of or relating to the use or
distribution of Dealer Data by Supplier.
12.3 A party seeking indemnification will give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of
each claim for indemnification hereunder, specifying the amount and nature of
the claim, and of any matter which in the opinion of the Indemnified Party is
likely to give rise to an indemnification claim under this Agreement.
Indemnified Party will have the right to participate at its own expense in
the defense of any such matter or in this settlement. The Indemnifying Party
shall use its best efforts consistent with sound business practice to defend
any claim or cause of action, and to mitigate the damages, liabilities,
losses and expenses giving this to any claim for indemnity pursuant to this
Section 12.
SECTION 13
MISCELLANEOUS
13.1 NONCOMPETITION. Once Newgen notifies Supplier, as set forth in Section
4.6, that a Dealer is participating under this Agreement. Supplier agrees it
will not solicit for a period of one hundred twenty (120) days, that Dealer
on any of Supplier's products or services which are for the merchandising and
sale of service and parts business to vehicle owners. However, should a
Dealer who is participating under this Agreement contact Supplier regarding
Supplier's products or services for the merchandising and sale of service and
parts business to vehicle owners, this section 13.1 shall not restrict
Supplier in any way from selling those products or services to that Dealer.
Newgen acknowledges that any Dealer which currently uses any of Supplier's
products or services for the merchandising and sale of service and parts
business to vehicle owners must fulfill its contractual commitments to
Supplier. Further, Newgen agrees that Newgen shall not allow a Dealer to
begin on the Newgen Results program prior to the termination of Dealer's
contract with Supplier.
13.2 BILLING AUDIT. Newgen shall allow Supplier, at Supplier's own expense,
to audit Newgen's billing and accounting records up to four (4) times per
year, provided that said audits will be during Newgen's normal business hours
and will not cause significant disruption to Newgen's business. Newgen shall
cooperate fully with Supplier throughout the audit, and provided to Supplier,
in a timely manner, any and all documents necessary to conduct such an audit.
13.3 PUBLICITY; USE OF TRADEMARKS. A party may not use the registered
trademarks, service marks, logo, name or any other proprietary designations of
the other party without that party's prior written consent, and shall submit
to the other party for prior approval any advertising or promotional
materials in which such trademarks, service marks or logos are to used, which
approval shall not unreasonably be withheld or delayed. Neither party will
issue or
7
<PAGE>
permit to be issued any publicity, advertisement or other public statement
concerning the subject matter of this Agreement without the prior written
consent of the other party.
13.4 ASSIGNMENT. Neither party may assign any rights or delegate any duties
under this Agreement to any person or entity, except an affiliate of such
party, unless the other party has given its prior written consent such
consent not to be unreasonably withheld, and any attempt to do so without
that consent will be void. However, if either party sells all or
substantially all of its assets or a majority interest in its capital stock
to a non-affiliated company ("Purchasing Company"), then the other party will
allow the assignment of this Agreement to the Purchasing Company. This
Agreement will bind and inure to the benefit of the parties and their
respective successors and assigns as permitted in this Agreement.
13.5 RELATIONSHIP OF THE PARTIES. Supplier and Newgen agree that each party
shall undertake performing their responsibilities pursuant to this Agreement
as an independent contractor. Nothing contained herein or done pursuant
hereto shall make either party or its agents or employees legal
representative, agent or employee of the other for any purpose whatsoever.
Neither Supplier nor Newgen (nor any of their agents or employees) shall have
any right, power or authority to assume, create or incur, in writing or
otherwise, any expense, liability or obligation in the name, or in the
behalf, of the other party. Neither Supplier nor Newgen will state or imply
the contrary to any third party.
13.6 NOTICES. All notices, requests and approvals required by this
Agreements (i) shall be in writing, (ii) shall be addressed to the parties as
indicated below unless notified in writing of a change in address, and (iii)
shall be deemed to have been delivered either when personally delivered or,
if sent by mail, in which event it shall be sent postage prepaid, thereof
three (3) business days after mailing, or, if sent by telex, upon delivery
thereof. The addresses of the parties are as follows:
To Newgen: Newgen Results Corporation
12526 High Bluff Drive, Suite 150
San Diego, CA 92130
Attention: Sam Simkin
Copy to: Newgen Results Corporation
330 St. Mary Avenue, Suite 620
Winnipeg, Canada R3C3Z5
Attention: Alan Cantor, Q.C.
To Supplier: Universal Computer Services, Inc.
6700 Hollister
Houston, TX 77040
Attention: Dan Agan
Copy to: Universal Computer Services, Inc.
6700 Hollister
Houston, TX 77040
Attention: Legal Department
13.7 HEADINGS. The Headings contained herein are for convenience of
reference only and are not intended to define, limit, expand, or describe the
scope or intent of any provision of this Agreement.
13.8 ENFORCEABILITY. This Agreement shall be governed by the laws of the
state of Texas. If a part of this Agreement is found invalid or unenforceable,
it will be enforced to the maximum extent permitted by law, and other parts
of this Agreement will remain in force.
13.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original instrument and all
of which together shall constitute the same instrument.
8
<PAGE>
13.10 ENTIRE AGREEMENT, MODIFICATIONS AND CHANGES. This Agreement, together
with any exhibits attached hereto, constitutes the entire Agreement between
the parties relating to the subject matter herein. This Agreement may only be
amended by a written document signed by all parties.
13.11 ACTIONS. No action (including arbitration), regardless of form,
arising out of transactions under this Agreement, shall be brought by either
party more than one year after the cause of action occurred.
13.12 EXECUTION OF AGREEMENT. This Agreement will be effective and binding
only when accepted in Houston, Texas by Supplier, and obligations and
undertakings of each of the parties to this Agreement shall be performable in
Harris County, Texas.
13.13 NO WAIVER. No waiver will be implied from conduct or failure to
enforce rights. No waiver will be effective unless in a writing signed on
behalf of the party claimed to have waived.
13.14 INJUNCTIVE RELIEF. Either party may have injunctive, preliminary or
other equitable relief to remedy any actual or threatened unauthorized
disclosure of trade secrets or unauthorized use, copying, marketing,
distribution or sublicensing of trade secrets or other proprietary rights.
13.15 ATTORNEYS' FEES; COSTS. In any suit to enforce this Agreement, the
prevailing party will have the right to request the award of costs and
reasonable attorneys' fees and expenses, including costs, fees, and expenses
on appeal from the arbitrator(s).
13.16 TERMS OF THIS AGREEMENT. Neither party shall, without prior written
consent of the other party, such consent not to be unreasonably withheld,
disclose to any third party, the terms of this Agreement except as may be
necessary to establish or assert rights hereunder or as required by law.
Newgen, however, is permitted to disclose to Ford Motor Company, the pricing
terms of this Agreement. Further, Newgen agrees that it will not refer to or
cite, to any Dealer or other third party, Supplier as the cause of any
pricing increases, including any surcharges, Newgen institutes in its pricing
of products and services to Dealers.
13.17 RIGHTS OUTSIDE OF AGREEMENT. Nothing contained in this Agreement
shall be construed as limiting rights that any party may enjoy outside the
obligations set forth or created herein, or in any way preclude any party
from independent development or marketing of any product.
13.18 PARTIES. Wherever the reference is made in this Agreement to
"parties", this shall be understood to refer to Supplier as one party and
Newgen as the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of this 15th day of May 1996.
NEWGEN RESULTS CORPORATION UNIVERSAL COMPUTER SERVICES, INC.
12526 HIGH BLUFF DRIVE, SUITE 150 6700 HOLLISTER
SAN DIEGO, CA 92130 HOUSTON, TX 77040
By: /s/ Sam Simkin By: /s/ R.M. Nalley
---------------------------------- ------------------------------
Name: Sam Simkin Name: R.M. Nalley
--------------------------------- -----------------------------
Title: Vice President/CFO Title: Exec. V.P.
------------------------------- ----------------------------
UNIVERSAL COMPUTER CONSULTING, LTD. FORD DEALER COMPUTER SERVICES, INC.
BY U.C. CONSULTING, INC., GENERAL PARTNER 6700 HOLLISTER
6700 HOLLISTER HOUSTON, TX 77040
HOUSTON, TX 77040
By: /s/ R.M. Nalley By: /s/ R.M. Nalley
-------------------------------------- -------------------------------
Name: R.M. Nalley Name: R.M. Nalley
----------------------------------- -----------------------------
Title: Exec. V.P. Title: Exec. V.P.
---------------------------------- ----------------------------
9
<PAGE>
EXHIBIT A
TERMS TO BE PRESENT IN AMENDMENT TO
DEALER AGREEMENT FOR LICENSE OF DEALER DATA
Dealer acknowledges that Dealer is participating in Newgen's service
reminder programs. This program is for the merchandising and sale of service
and parts business to vehicle owners.
Dealer grants to UCC [UCS] [FDCS] a royalty-free license to use and
distribute to Newgen historical customer pay repair order information, recurring
customer pay repair order information, historical warranty repair order
information, recurring warranty repair order information, historical vehicle
service file information, historical vehicle sales file information, newly sold
vehicle information, and newly serviced vehicle information ("Dealer Data")
contained on Dealer's Computer System.
Dealer acknowledges and agrees that UCC [UCS] [FDCS] shall not be liable to
Dealer in any way, including but not limited to actual, consequential or
incidental damages, for any use of the Dealer Data by Newgen, or any failure by
Newgen to use the Dealer Data or provide services to Dealer of which the Dealer
Data is a part.
Dealer hereby waives and releases all claims of any nature whatsoever
against UCC [UCS] [FDCS] and relieves UCC [UCS] [FDCS] of all liabilities due to
errors, omissions, and delays in the provision of the Dealer Data to Newgen.
This amendment contains the entire understanding between the parties and
will be effective and binding only when executed by an officer of UCC [UCS]
[FDCS] denoting its acceptance.
10
<PAGE>
Exhibit B
DATA FROM UCS/FDCS SYSTEMS 5/9/96
SPECIFICATIONS
1. Line sequential ASCII file.
2. Files and fields to be fixed length, not variable.
3. Repair orders to be included are customer pay and warranty, no internal
repair orders.
4. Tape format is 8mm.
5. Newly added vehicle records and RO history data are to be sent weekly to
Newgen.
6. All alpha fields should be left justified, upper case and filled with
spaces to the right.
7. All numeric fields will be right justified and filled with zeros.
8. The only FDCS clients which data can be provided for are 7000 MPs.
9. On the initial data file, the last 2 years of vehicles sold and the last 2
years of vehicles serviced will be sent. This file is called the SOLD
VEHICLE AND SERVICE VEHICLE INFORMATION FILE. Thereafter, the only data
which will be sent in the SOLD VEHICLE AND SERVICE VEHICLE INFORMATION FILE
are;
A. Those vehicles (new and used) which have been sold in the last week or
newly serviced in the past week, and
B. Any previously sold or serviced vehicle which had a change to one
of the address fields.
These records, for both the initial SOLD VEHICLE AND SERVICE VEHICLE
INFORMATION FILE and the weekly SOLD VEHICLE AND SERVICE VEHICLE
INFORMATION FILE will be on a separate tape from the REPAIR ORDER HISTORY
FILE and the OPERATION CODE FILE.
10. The past 12 months REPAIR ORDER HISTORY FILE will be on a separate tape
from the current week's REPAIR ORDER HISTORY FILE. In some cases,
dealerships may not have 12 months of RO history, and in those situations,
UCS will provide whatever amount of history a dealership has.
11. All RO's closed in the past week will be sent. This file is called the
REPAIR ORDER HISTORY FILE. The weekly REPAIR ORDER HISTORY FILE records
will be on a separate tape from that of the weekly SOLD VEHICLE AND SERVICE
VEHICLE INFORMATION FILE.
<PAGE>
12. The Operation Codes and Descriptions table will only be sent one time and
will be on a separate tape. This file is called the OPERATION CODE FILE.
The Operation Codes can be duplicated within the UCS/FDCS System, and
duplicate Operation Codes are only distinguishable by VIN prefixes.
Therefore, a table will be needed by Operation Code and VIN prefix, to
distinguish duplicate Operation Codes. (ie. Operation Code 200, may be an
alignment for a Taurus and an oil change for a Pickup.)
13. On the initial processing for each dealership, three tapes will be sent for
each dealership. They are;
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION FILE (2 years)
REPAIR ORDER HISTORY FILE (last 12 months if available)
OPERATION CODE FILE
If 5 new dealerships begin in one week 15 tapes will be sent.
14. On every processing thereafter, only two tapes will be sent. They are;
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION FILE (current week's)
REPAIR ORDER HISTORY FILE (current week's)
All dealerships' data (for the same type of data) will be on the same tape.
Meaning if 10 dealerships' data is being sent, 2 tapes will be sent, not
20, (assuming they all fit on two tapes).
15. Customer Pay RO's and Warranty RO's will each be on a separate record on
the initial REPAIR ORDER HISTORY FILE tape containing the 12 months of
history. Customer Pay RO's and Warranty RO's will each be contained in the
same record on the weekly REPAIR ORDER HISTORY FILE tape.
16. Because of the large amount of data stored and the difficulty involved in
any retroactive processing or collection of data, Newgen must inform UCS
within 3 days of the receipt of any Data tape, if an error or omission was
found.
<PAGE>
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION 5/9/96
<TABLE>
<CAPTION>
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
---------------------- ---------- ------- ------- ------------------------------
<S> <C> <C> <C> <S>
1. Dealer Number A/N 6 1 This is the six digit internal
UCS account number for the
dealership. UCS will provide
the dealerships' names and
corresponding account numbers.
2. Name (Customer) A/N 35 1 UCS to provide name exactly as
it appears in the field on the
dealerships' computer, usually
"Last, First". UCS is to do no
field editing.
3. Address 1 A/N 30 1
4. Address 2 A/N 30 1
5. City A/N 20 1
6. State A 2 1
7. Zip A/N 9 1 Left justify, fill with spaces.
8. Customer Home N 10 1 Include area code. If no area
Phone code, first three
characters will be spaces.
9. Customer Work N 10 1 Include area code. If no area
Phone code, first three
characters will be spaces.
10. VIN Number A/N 17 1
11. Stock Numnber A/N 8 1
12. License Number A/N 8 1
13. New/Used A 1 1 Either "N" or "U"
14. Car Year N 2 1 Year can come from the VIN
15. Car Make A/N 10 1 Make can come from the VIN
16. Car Model A/N 10 1 Make can come from the VIN
<PAGE>
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION (cont) 5/9/96
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
---------------------- ---------- ------- ------- ------------------------------
<S> <C> <C> <C> <C>
17. Car Color A/N 10 1
18. In Service Date N 6 1 Format is YYMMDD (year, month, day)
19. Sold Date N 6 1 Format is YYMMDD (year, month, day)
20. Salesman Number N 3 1 Origianl Salesman
who sold the car.
21. Original Miles N 7 1 Original mileage when sold.
22. Extended Service Policy A/N 10 1 UPS field EXTWARRTYP, the first one listed.
23. Extended Warranty Miles A/N 9 1 UPS field EXTWARRMILES, the first one listed.
24. Extened Service Date A/N 6 1 UPS field JULEXWARDTE, the format is
YYMMDD (year, month, day), the first one listed.
25. Service Advisor A/N 8 1 Left justify, fill with spaces.
Number The permanent assigned advisor.
26. Las Service Date N 6 1 Format is YYMMDD (year, month, day)
27. Last Service Miles N 7 1 As of the date the car was
serviced. Right justify and
fill with zeros.
28. Expected Payoff Date N 6 1 Format is YYMMDD (year, month, day)
UPS field JULPAYOFFDATE
29. Sales Type A/N 1 1 UPS field SALETYPE
30. Occupation A/N 35 1
31. Buyer Title A/N 4 1
32. Buyer Birthdate N 6 1 Format is YYMMDD (year, month, day)
33. Spouse's Birthdate N 6 1 Format is YYMMDD (year, month, day)
<PAGE>
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION (cont) 5/9/96
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
---------------------- ---------- ------- ------- ------------------------------
<S> <C> <C> <C> <C>
34. Spouse's Name A/N 15 1
35. Mail Flag A/N 1 1
36. Lease Flag A/N 1 1
37. Warranty Flag A/N 1 1
38. Warranty Month A/N 3 1 UPS field WARRMONTH
39. Warranty Policy A/N 15 1 UPS field WARRPOLICY
40. Record A/N 2 1 Can be a linefeed or carriage
Terminator return linefeed.
</TABLE>
<PAGE>
Repair Order History File 5/9/96
- -------------------------
<TABLE>
<CAPTION>
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
------------------ --------- ------ ------ -------------------------------
<S> <C> <C> <C> <C>
1. Dealer Number A/N 6 1 This is the six digit internal
UCS account number for the
dealership. UCS will provide
the dealerships' names and
corresponding account numbers.
2. VIN Number A/N 17 1
3. Repair Order A/N 8 1 Left justify, fill with spaces.
Number
4. Date RO was N 6 1 Format is
Closed YYMMDD(year,month,day)
5. Service Writer A/N 8 1 Left justify, fill with spaces.
Number
6. Car Miles N 6 1 As of the date the car was
serviced. Right justify and
fill with zeros.
7. Invoice Charges N 7 1 Format is DDDDDCC(dollar,cents)
for Customer Pay No decimal point. Right
justify and fill with zeros.
8. Invoice Charges N 7 1 Format is DDDDDCC(dollar,cents)
for Warranty No decimal point. Right
justify and fill with zeros.
9. Invoice Charges N 7 1 Format is DDDDDCC(dollar,cents)
(Total of Customer No decimal point. Right
Pay and Warranty) justify and fill with zeros.
10. Operation Codes A/N 16 40 The first 40 operation codes
Table used will be identified, along
with the following information.
10A. Operation Code A/N 15 1 Operation Code, left justify
10B. Customer Pay, A 1 1 C = Customer Pay, W = Warranty,
Warranty or
11. Record A/N 2 1 Can be a linefeed or carriage
Terminator return linefeed.
</TABLE>
<PAGE>
Operation Code File 5/9/96
-------------------
SPECIFICATIONS
- --------------
1. Operation Codes will be on a separate tape from the repair order data.
2. The operation code file will only be submitted a single time.
3. The following format will be repeated for the number of operation codes
the dealership has.
Operation Code Format
- ----------------------
<TABLE>
<CAPTION>
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
----------------- --------- ------ ------ -------------------------------
<S> <C> <C> <C> <C>
1. Dealer Number A/N 6 1 This is the six digit UCS
account number for the
dealership.
2. Operation Codes A/N 15 1 The dealership's operation
code.
3. VIN Prefix Mask A/N 8 1 VIN prefixes which relate to
this operation code. Any dash
is a wild card.
4. Description A/N 40 1 The dealership's operation
code description.
5. Record A/N 2 1 Carriage return linefeed.
Terminator
</TABLE>
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.406 * INDICATES OMITTED
MATERIAL THAT IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST
THAT IS FILED SEPARATELY WITH THE
COMMISSION
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is entered into as of
September 4, 1998 (the "Effective Date") by and between NEWGEN RESULTS
CORPORATION ("Newgen") and GEOMEL ENTERPRISES, INC., ("Anderson").
RECITALS
WHEREAS, Newgen provides integrated database management, personalized
direct-marketing and related services to automobile manufacturers and
dealerships (e.g. Newgen offers personalized vehicle maintenance reminders to
a dealership's customers);
WHEREAS, Anderson possesses experience and expertise in commercial
printing and mailing; and
WHEREAS, Newgen desires to purchase from Anderson, and Anderson desires
to sell to Newgen, the Products (as defined below) on the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the parties hereto hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "Product" means a four-color, laser printed, personalized letter
folded and inserted into a corresponding window envelope, which meets the
Product Specifications.
1.2 "PRODUCT SPECIFICATIONS" means the product specifications set forth
on Exhibit A attached hereto.
1.3 "PRODUCTION SCHEDULE" means the schedule for the production of
Products set forth on Exhibit B attached hereto.
2. PURCHASE OF PRODUCTS
2.1 PURCHASE AND SALE. In accordance with the terms and subject to the
conditions set forth in this Agreement, Newgen hereby orders and agrees to
purchase from Anderson, and Anderson hereby accepts and agrees to sell to
Newgen, Products at the price set forth herein.
2.2 PRODUCT SPECIFICATIONS. Products supplied pursuant to this
Agreement shall
comply with the applicable Product Specifications.
3. PURCHASE PRICE AND PAYMENT; VOLUME REQUIREMENTS
3.1 PURCHASE PRICE. Newgen shall pay to Anderson $[****] for each
Product purchased under this Agreement for each month Newgen purchases
greater than [****]
1.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Products. The purchase price will depend upon volume and shall remain fixed
for the term of this Agreement, as set forth on Exhibit C. Notwithstanding
the foregoing, in the event the cost of paper from time to time is in excess
of [****]% of the cost of paper in effect on the date of this Agreement (such
cost of paper in effect on the date of this agreement hereinafter referred to
as "Initial Paper Cost" and set out in Exhibit D hereto) for [****]
consecutive months, Newgen agrees to pay Anderson the difference between the
paper cost at the end of such [****] month period and [****]% of the Initial
Paper Cost. Anderson will notify Newgen within 30 days of the date on which
the cost of paper exceeds [****]% of the Initial Paper Cost.
3.2 PAYMENT. Anderson will invoice Newgen twice each month, and Newgen
shall pay all undisputed invoices amounts issued under this Agreement within
30 days from the date of invoice, unless otherwise mutually agreed upon in
writing by Newgen and Anderson. Time is of the essence herein.
3.3 VOLUME. As of the Effective Date, Newgen operates its business such
that its volume requirements equal approximately [****] Products per month.
After the Effective Date, Newgen expects its volume requirements to initially
equal at least [****] Products per month, but there can be no assurance that
Newgen's volume requirements will be consistent or meet any particular
threshold level.
3.4 REQUIREMENTS. During the term of this Agreement, Newgen shall
purchase from Anderson, so long as Anderson is in compliance herewith, at
least [****]% of its Product volume requirements; and Anderson shall supply
to Newgen each Product in the amount of such requirements. In the event
Newgen's requirements exceed Anderson's capacity for such Product Newgen
shall have the right to purchase such excess Product (or substitute products)
from third parties without any obligation to Anderson; provided, however, in
all other respects this contract shall remain in full force and effect.
4. PRODUCTION; SHIPMENT; PACKAGING; TITLE AND RISK OF LOSS
4.1 PRODUCTION.
(a) Newgen shall provide to Anderson in a timely manner all data
necessary for Anderson to produce the Products in accordance with the
Production Schedule. Newgen shall send such data to Anderson by computer
mail or other electronic means or on a diskette; and
(b) Anderson shall produce the Products in accordance with the
Production Schedule.
4.2 SHIPMENT. A presort bureau designated by Newgen will arrange for
pick-up at its sole cost and expense of any and all finished Products, within
a reasonable period following completion thereof.
4.3 PACKAGING. Anderson shall package and deliver each Product in bulk
containers that are standard for such Product.
* CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE>
4.4 TITLE AND RISK OF LOSS. Title and risk of loss for Products
purchased hereunder shall transfer to Newgen upon delivery of such Products
by Anderson to a common carrier or a third party intermediary approved by
Newgen (including a presort bureau).
5. REPRESENTATIONS AND WARRANTIES
5.1 CORPORATE POWER. Each party hereby represents and warrants that it
is duly organized, validly existing and in good standing under the laws of
the state or country of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof.
5.2 DUE AUTHORIZATION. Each signatory hereto represents and warrants
that such person is duly authorized to execute and deliver this Agreement and
to perform its obligations hereunder.
5.3 BINDING AGREEMENT. Each party hereby represents and warrants that
this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a
party or by which it may be bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency having authority
over it.
5.4 WARRANTY. ANDERSON WARRANTS THAT THE PRODUCTS SUPPLIED TO NEWGEN
SHALL COMPLY WITH THE APPLICABLE PRODUCT SPECIFICATIONS AND SHALL BE FREE
FROM DEFECTS IN MATERIALS AND WORKMANSHIP.
5.5 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE ENTITLED TO
RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR THE PRODUCTS PURCHASED
HEREUNDER.
6. CONFIDENTIALITY
6.1 CONFIDENTIAL INFORMATION. Each party acknowledges that all
information relating to any marketing, business plan or financial matter
relating to the other party, its present or future products, sales,
suppliers, customers, employees, operations, investors or business, whether
in oral, written, graphic or electronic form, constitutes confidential or
proprietary information of the other party (collectively, "Confidential
Information"); PROVIDED, HOWEVER, that Confidential Information shall not
include any information which the receiving party can prove by competent
evidence (a) is now, or hereafter becomes, through no act or failure to act
on the part of the receiving party, generally known or available in the
public domain, (b) is known by the receiving party at the time of receiving
such information, as evidenced by its records, or (c) is hereafter furnished
to the receiving party by a Third Party, as a matter of right and without
restriction on disclosure.
6.2 NONDISCLOSURE. During the term of this Agreement and for a period
of five years thereafter, each party will maintain all Confidential
Information of the other party as confidential and will not disclose any
Confidential Information of the other party to any Third Party or use
3.
<PAGE>
any Confidential Information of the other party for any purpose, except (a)
as expressly authorized by this Agreement, (b) as required by law, rule,
regulation or court order (provided that the disclosing party shall use
commercially reasonable efforts to obtain confidential treatment of any such
information required to be disclosed), or (c) to its affiliates, employees,
agents, consultants and other representatives (including third party support
vendors), to accomplish the purposes of this Agreement so long as such
persons are under an obligation of confidentiality no less stringent than as
set forth herein; and without limiting the generality of the foregoing
exceptions, Newgen may disclose Confidential Information to the extent deemed
necessary, in its reasonable discretion, to the Securities and Exchange
Commission. Each party may use such Confidential Information only to the
extent required to accomplish the purposes of this Agreement. Each party
will use at least the same standard of care as it uses to protect its own
Confidential Information to ensure that its affiliates, employees, agents,
consultants and other representatives do not disclose or make any
unauthorized use of Confidential Information of the other party. Each party
will promptly notify the other upon discovery of any unauthorized use or
disclosure of the Confidential Information of the other party.
7. TERM AND TERMINATION
7.1 TERM. This Agreement shall commence as of the date of delivery of
the first Product pursuant hereto and shall continue for three years
thereafter, unless terminated earlier as provided herein.
7.2 TERMINATION. Either party may terminate this Agreement prior to
the expiration of the term of this Agreement upon the occurrence of any of
the following:
(a) Upon or after the bankruptcy, insolvency, dissolution or
winding up of the other party (other than dissolution or winding up for the
purposes of reconstruction or amalgamation); or
(b) Upon or after the breach of any material provision of this
Agreement by the other party if the breaching party has not cured such breach
within 30 days after written notice thereof by the non-breaching party.
7.3 TERMINATION BY NEWGEN. Newgen shall have the right to terminate
this Agreement prior to the expiration of the term of this Agreement at any
time following Anderson's third failure to meet the Product Specifications
within 60 days as required herein.
7.4 EFFECT OF TERMINATION. Expiration or termination of this Agreement
shall not relieve the parties of any obligation accruing prior to such
expiration or termination. The provisions of Sections 1, 6.1, 6.2, and 7
shall survive termination or expiration of this Agreement.
8. GENERAL PROVISIONS
8.1 FORCE MAJEURE. Neither party shall be held liable or responsible
to the other party nor be deemed to have defaulted under or breached this
Agreement for failure or delay in fulfilling or performing any term of this
Agreement when such failure or delay is caused by or results from causes
beyond the reasonable control of the affected party, including, without
4.
<PAGE>
limitation, fire, floods, earthquakes, natural disasters, embargoes, war,
acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, acts of God or
acts, omissions or delays in acting by any governmental authority or the
other party. If Anderson is unable to perform its obligations hereunder due
to one of the foregoing events, Newgen shall have the right to purchase
Products (or substitute products) from third parties without any obligation
to Anderson.
8.2 ASSIGNMENT. Except as expressly provided hereunder, neither this
Agreement nor any rights or obligations hereunder may be assigned or
otherwise transferred by either party without the prior written consent of
the other party (which consent shall not be unreasonably withheld); provided,
however, that Newgen may assign this Agreement and its rights and obligations
hereunder without Anderson's consent to any affiliate of Newgen. The rights
and obligations of the parties under this Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the parties.
Any assignment not in accordance with this Agreement shall be void. Newgen
shall remain liable for payment of all outstanding invoices and charges
accrued up to the date of any valid assignment hereunder.
8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the
exhibits attached hereto) sets forth all of the covenants, promises,
agreements, warranties, representations, conditions and understandings
between the parties with respect to the subject matter hereof, and supersedes
and terminates all prior agreements and understanding between the parties
with respect to the subject matter hereof. There are no covenants, promises,
agreements, warranties, representations conditions or understandings with
respect to the subject matter hereof, either oral or written, between the
parties other than as set forth herein. No subsequent alteration, amendment,
change or addition to this Agreement shall be binding upon the parties hereto
unless reduced to writing and signed by the respective authorized officers of
the parties.
8.4 HEADINGS. The captions contained in this Agreement are not a part
of this Agreement, but are merely guides or labels to assist in locating and
reading the several Sections hereof.
8.5 NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be mailed by first-class, registered
or certified mail, postage paid, or delivered personally, by overnight
delivery service or by facsimile, computer mail or other electronic means,
with confirmation of receipt, addressed as follows:
IF TO NEWGEN: NEWGEN RESULTS CORPORATION
12680 High Bluff Drive
San Diego, CA 92130
Attn: Chief Financial Officer
Fax No. (619) 481-1299
IF TO ANDERSON: GEOMEL ENTERPRISES, INC.
7831 Ostrow St.
San Diego, CA 92111-3602
Attn: President
Fax No. (619) 694-0555
5.
<PAGE>
Either party may by like notice specify or change an address to which
notices and communications shall thereafter be sent. Notices sent by
facsimile, computer mail or other electronic means shall be effective upon
confirmation of receipt, notices sent by mail or overnight delivery service
shall be effective upon receipt, and notices given personally shall be
effective when delivered.
8.6 INDEPENDENT CONTRACTORS. It is expressly agreed that Anderson and
Newgen shall be independent contractors and that the relationship between the
two parties shall not constitute a partnership, joint venture or agency of
any kind. Neither party shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which
shall be binding on the other, without the prior written consent of the other
party.
8.7 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
8.8 WAIVER. Except as specifically provided for herein, the waiver
from time to time by either of the parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a
continuing waiver of the same rights or remedies or of any other of such
party's rights or remedies provided in this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above set forth.
NEWGEN RESULTS CORPORATION GEOMEL ENTERPRISES, INC.
By: /s/ SAM SIMKIN By: /s/ JIM LEE
--------------------------------- ---------------------------------
Name: SAMUEL SIMKIN Name: JIM LEE
------------------------------- -------------------------------
Senior Vice President and
Title: Chief Financial Officer Title: President
------------------------------ ------------------------------
PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
PRODUCT SPECIFICATIONS
Dealer Letter Package
LETTERS
SIZE: 8 1/2 x 11
PRINT: 4 colors 1 Side
Laser printed and personalized
10% toner coverage (average)
PAPER: White - 95% usage
COLORS -- blue, ivory, gray, speckled - 5% of usage
ENVELOPES
#10 Standard left-handed window-- 95% of total envelopes
SIZE: 4 1/8 x 9 1/2
PRINT: 1 color 1 side
PAPER: White - 95% of usage
COLORS -- blue, ivory, gray, speckled - 5% of usage
#10 Double Window -- 5% of total envelopes
SIZE: 4 1/8 x 9 1/2
PRINT: 1 color 1 side
PAPER: White
MAIL PREPARATION
Fold and insert letters into appropriate #10 envelopes
insert 1 additional 8 1/2 x 11 sheet upon request [****] of [****] and
[****] the [****] not included)
submit to Presort Bureau for mailing
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT B
Goals and Objectives
- - Provide production site close to Newgen Results corporate office
- - Facilitate [****] from letter creation to delivery to USPS
- - Provide a "state of the art" production facility that will stay current
as technology progresses
- - Provide an accurate accounting and reporting of data processed in our
Facility
- - Meet NewGen Result's expectations in the monitoring and control of:
Laser print quality
Color print quality
Accuracy of envelopes, paper and inserting
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****] Production Overview
<TABLE>
<CAPTION>
[****] [****] [****] [****] [****]
------- ------- --------- -------- --------
<S> <C> <C> <C> <C>
NewGen Results APM matches data APM inserts laser letters APM reprints damaged letters Mail enters mailstream
generates[****] with Newgen datalog into specific envelope types
letter copy and Confirmation that all data
Transmits data APM Laser prints irregularities are resolved
to APM letters
APM folds letters Presort Bureau pick up mail
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
NewGen generates [****] of [****] letter copy
- - Files will be generated using the [****], with the [****] enabled.
- - Each file will be comprised of letters representing [***], with
these letters having been designed to fit on [****] particular [***].
- - There are some 1,500 active Dealerships and any or all of these may have
files generated on any given day.
- - The total individual letters making up one output will average
near [****] copies.
- - The [****] files will be named using the current Newgen file naming
conventions.
- - There will be no lead page generated with each file, as is currently the
case.
- - Letter files will be transferred to APM in [****] ([****]
and [****]). The transfer will be an [****] from Newgen to APM.
- - Each [****] sent will be accompanied by a logfile listing the [****] in
[***] and [****] for [****].
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
7:00 am - 8:00 am at Anderson Print & Mail the letter files sent the
[****] from Newgen are analyzed and prepared for laser printing.
- - It is verified that a logfile was received with the data.
- - It is checked that each letter file is based on the logfile.
- - It is determined whether, for each entry on the logfile, a corresponding
data file has been received.
- - It is verified that for each [****] letter file there is a matching
letterhead file available.
- - Files that are not verified are moved to a [****] to await further
investigation.
- - NewGen is immediately notified of any discrepancies brought to light by
the verification process.
- - The data files are separated into [***] in
accordance with their [****] and their [****].
8:00 am Letter groups are assigned to [****] laser printer operators and
printed.
- - [****] sheets are printed by each laser operator to check [***] quality
and machine [***]. [***] sheets are checked and signed by the supervisor.
- - Each laser operator prints [***] copies during the [****].
- - [****] test sheets are produced and reviewed at [****], [****], and
[****].
- - Laser operators do a final quality review of a sample from each stack
of output (approximately 500) as it is removed from the
printer to include:
[****] code
[****] type
[****] quality
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
- - As letter copies are produced they are placed on [****] and [****]
designated for only one particular [****] type. There will be only one
[****] at a laser printing station at one time.
- - When a group of a particular type has completed printing, that [****] is
moved to a [****] in the post-print staging area.
- - A report will be generated from the [****] listing the [****]
for each [****] processed that [****]. The counts will be
matched against the original NewGen logfile.
[****]
5:00 pm - 8:00 pm all letters are folded to fit the proper #10 window
envelope.
- - Materials are moved on [****] and [****] as separate [****] type groups
to [****] in the pre-insert staging area. [****] types will not be mixed.
- - The folder operator will periodically [****] review [***]
and [****] vs [***].
- - Folding counts for each envelope type batch are measured and recorded by
the folder operator. Numbers processed are entered against an expected
count report.
- - Any damaged pieces are separated out and attached to a "reprint
requested" form.
- - The count reports and any pieces to be reprinted are left for review by the
morning supervisor.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
8:00 am - 5:00 pm Inserting of letters is assigned by group to inserter
operators.
- - Each inserter operator will process [****] letters per [***].
- - At any given time, only one type of envelope is staged at an inserter.
- - At 8:00 am, 10:00 am, 1:00 pm and 3:00 pm the inserter personnel will
review output with the supervisor and both will sign a quality
verification form verifying [***] and envelope [***].
- - Inserter operators will periodically (approximately [****]) review [****]
and [****] vs [***].
- - Inserted letters will be metered with the date of 2nd following working
day.
- - Inserting counts for each envelope type batch are measured and recorded
by the inserter operator. Numbers processed are entered against an
expected count report.
- - Any damaged pieces are separated out and attached to a "reprint requested"
form.
- - The count report and any pieces to be reprinted are left for review by
the morning supervisor.
- - Completed inserting will be moved to a final quality check area.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
All damaged pieces are reprinted, folded and inserted. These letters are then
remarried with their original group in the mail pickup area.
- - Any problems arising from incoming file verification questions are
resolved. The supervisor signs these off before the mail is released.
- - The supervisor assembles all report information from the previous [****],
determines that it is consistent and complete. It is seen that all
computer data has been saved to the "master" transaction log.
- - Data files are archived to computer type to be retained for 90 days.
- - The Supervisor does a visual examination that the [****] and [****] of
the outgoing mail are correct.
- - The supervisor releases the mail to the "Presort House".
[****]
"Presort House" submits mail to USPS.
FOLLOW UP
The "Presort House" will return counts of mail to APM. These counts will be
entered and checked against the "Master" log file.
[****] reports with [****], [****] times and [****] will be forwarded to NewGen.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]: Date: July 9, 1998
------------------------------------------ --------------------
Operator:
---------------------------------------
<TABLE>
<CAPTION>
[****] Laser Count
<S> <C> <C>
Ford
------------------- -------------------
GM
------------------- -------------------
Nissan [****]
------------------- -------------------
Infiniti [****]
------------------- -------------------
Canadian [****]
------------------- -------------------
Standard [****]
------------------- -------------------
Double
------------------- -------------------
Lincoln
------------------- -------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Color Codes Paper
<S> <C> <C> <C> <C> <C>
8:00 am (S)
----------- ----------- ----------- ----------- -----------
8:00 am (O)
----------- ----------- ----------- ----------- -----------
10:00 am (S)
----------- ----------- ----------- ----------- -----------
10:00 am (O)
----------- ----------- ----------- ----------- -----------
1:00 pm (S)
----------- ----------- ----------- ----------- -----------
1:00 pm (O)
----------- ----------- ----------- ----------- -----------
3:00 pm (S)
----------- ----------- ----------- ----------- -----------
3:00 pm (O)
----------- ----------- ----------- ----------- -----------
* CONFIDENTIAL TREATMENT REQUESTED
</TABLE>
<PAGE>
[****]: Date: July 9, 1998
------------------------------------------ --------------------
Operator:
---------------------------------------
<TABLE>
<CAPTION>
[****] Folding Count
<S> <C> <C>
Ford [****]
------------------- -------------------
GM
------------------- -------------------
Nissan [****]
------------------- -------------------
Infiniti [****]
------------------- -------------------
Canadian [****]
------------------- -------------------
Standard [****]
------------------- -------------------
Double
------------------- -------------------
Lincoln
------------------- -------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Color Window Codes Paper
<S> <C> <C> <C> <C> <C>
8:00 am (S)
----------- ----------- ----------- ----------- -----------
8:00 am (O)
----------- ----------- ----------- ----------- -----------
10:00 am (S)
----------- ----------- ----------- ----------- -----------
10:00 am (O)
----------- ----------- ----------- ----------- -----------
1:00 pm (S)
----------- ----------- ----------- ----------- -----------
1:00 pm (O)
----------- ----------- ----------- ----------- -----------
3:00 pm (S)
----------- ----------- ----------- ----------- -----------
3:00 pm (O)
----------- ----------- ----------- ----------- -----------
* CONFIDENTIAL TREATMENT REQUESTED
</TABLE>
<PAGE>
[****]: Date: July 9, 1998
--------------------------------------- --------------------
Operator:
---------------------------------------
<TABLE>
<CAPTION>
[****] Inserting Count
<S> <C> <C>
Ford [****]
------------------- -------------------
GM
------------------- -------------------
Nissan [****]
------------------- -------------------
Infiniti [****]
------------------- -------------------
Canadian [****]
------------------- -------------------
Standard [****]
------------------- -------------------
Double
------------------- -------------------
Lincoln
------------------- -------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Color Window Codes Paper Envelope
<S> <C> <C> <C> <C> <C>
8:00 am (S)
----------- ----------- ----------- ----------- -----------
8:00 am (O)
----------- ----------- ----------- ----------- -----------
10:00 am (S)
----------- ----------- ----------- ----------- -----------
10:00 am (O)
----------- ----------- ----------- ----------- -----------
1:00 pm (S)
----------- ----------- ----------- ----------- -----------
1:00 pm (O)
----------- ----------- ----------- ----------- -----------
3:00 pm (S)
----------- ----------- ----------- ----------- -----------
3:00 pm (O)
----------- ----------- ----------- ----------- -----------
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
NewGen Reprints
Date:
---------------------------------------------------------------
Machine:
------------------------------------------------------------
Operator:
-----------------------------------------------------------
Remarks:
------------------------------------------------------------
<TABLE>
<CAPTION>
Envelope:
- --------------------
<S> <C> <C>
Ford .......................... / /
- ------------------------------
GM ............................ / /
- ------------------------------
Nissan ......................... / /
- ------------------------------
Infiniti ....................... / /
Canadian ....................... / /
- ------------------------------
Standard ....................... / /
- ------------------------------
Double ......................... / /
- ------------------------------
Lincoln ........................ / /
- ------------------------------
</TABLE>
Laser Reprint Quantity:
---------------------------------------------
Laser Operator:
-----------------------------------------------------
Data Entry Info Log:
------------------------------------------------
<PAGE>
EXHIBIT C
PRICING GRID FOR NEWGEN RESULTS
<TABLE>
<CAPTION>
Volume Price
<S> <C> <C>
[****] - PLUS $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] $[****]
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT D
INITIAL PRICE OF PAPER
THE INITIAL PRICE OF PAPER IS $[****] PER '000.
* CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT 10.23
[AUTOBYTEL.COM LOGO]
CONFIDENTIAL TREATMENT REQUESTED
Mr. Jerry Benowitz UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
Chief Executive Officer 200.83 AND 230.406 * INDICATES OMITTED
Newgen Results Corporation MATERIAL THAT IS THE SUBJECT OF A
12680 High Bluff Drive, Suite 300 CONFIDENTIAL TREATMENT REQUEST THAT IS
San Diego, CA 92130 FILED SEPARATELY WITH THE COMMISSION.
Regarding: Letter of Intent between Newgen Results Corporation and AUTOBYTEL.COM
Dear Jerry,
This Letter of intent, upon your execution and return, will confirm the
non-binding agreement in principle between autobytel.com, Inc., a Delaware
corporation ("ABT"), and Newgen Results Corporation, a Delaware corporation
("NGR") regarding the proposed establishment of a joint venture ("New
Venture") to offer certain automotive services to customers of ABT and NGR
(the "Transaction"), the proposed terms of which are outlined below. The
consummation of the Transaction will be subject to the negotiation and
execution of definitive agreements acceptable in form and substance to each
of ABT and NGR.
1. Ownership - New Venture will take the form of a partnership and will be
owned 51 percent by ABT and 49 percent by NGR. The partnership will be
converted into a limited liability company one year after the formation of
the partnership unless otherwise agreed to by the management committee.
2. Management and control - the Management committee will assert Control over
New Venture through established authority for management and oversight of
management. The management committee will consist of 6 individuals three
designated by NGR and three by ABT. Both parties agree to endorse and
support the "management committee" members designated by the other party.
Therefore at no time will the authority of the management committee be
unequal unless the ownership of New Venture is changed.
3. ABT will establish a five-year agreement with New Venture that allows
placement of New Venture's service offering in a prominent location on its
web site. Also ABT will enter into a five-year agreement to promote and
contribute to New Venture all items outlined within this letter of intent.
4. NGR will enter into a five-year agreement to promote and contribute to New
Venture all items outlined within this letter of intent.
5. Both parties acknowledge that all technology contributed to New Venture
will become the property of New Venture as well as the contributing party.
6. The products offered to dealers by the New Venture:
BASIC
- -----
/ / This product will be introduced to [***] at the initial
launch of the program.
/ / The product will include the following features
- Referral of individuals interested in receiving service offering
from a dealer.
- Reminder program will be commenced utilizing ABT data base.
- Dealers will have access to reports through a "Sales Dealer Real
Time" which will allow dealers to e-mail to consumers [***] and other
information.
- This will be described to the dealer as a minimal product and the
objective of the New Venture will be to [***] within the first
year to the [***].
- No follow up service call will be offered.
- No scheduling software will be offered.
05/04/99 4:33 PM 1
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* CONFIDENTIAL TREATMENT REQUESTED
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FULL FEATURED
- --------------
/ / This will be the New Venture's complete product.
/ / The product will include the following features
- Referral of individuals interested in receiving service offering
from a dealer.
- Scheduling via the Internet.
- Follow-up calls to individuals who have not responded to E-mails.
- Extranet reporting system for all dealers.
- Reminder program for all E-mail prospects.
- Both ABT and NGR's databse will be utilized to prospect customers.
7. NGR will actively market to its customer base to expand New Venture's
E-mail customers. This will include using a good faith effort to request
customers preference in joining an E-mail reminder program. Any and all
names expressing an e-mail preference will be contributed to New Venture.
Customer names will be contributed to New Venture.
8. ABT will, in good faith, actively market to its dealer base the Gold and
Platinum programs. It will be paid a marketing fee for all converted
dealers to the Gold and Platinum programs. The fee will be paid to ABT
personnel who actively sell the program less applicable taxes. Customer
names will be contributed to New Venture.
9. Management/staffing: The new venture anticipates staffing of senior
management, 4 to 5 technical employees, 4 to 5 tele-marketing employees, 1
to 2 administrative employees. The parties anticipate the staffing to be
trained and employed gradually over the first six to eight months of
operation.
10. Technology undertakings of the parties. The responsibilities of the
parties to contribute technology is as follows:
/ / ABT will contribute the front end Internet consumer interface.
/ / NGR will contribute dealership scheduling software.
/ / Both parties will contribute the appropriate expertise to integrate
the Internet consumer software with the scheduling software of NGR.
11. Both parties will use commercially reasonable efforts to promote New
Venture to its dealers and its dealers' customers, which will include
contributing to New Venture the dealer contact information (i.e. dealer
name, phone number, service manager name and other relevant information).
12. The cost charged by NGR for the Call center will be [***] by call center
personnel. The definition of a [***] is [***]. In addition, New Venture
has the right to enact one of the following in an effort to reduce New
Venture's cost:
/ / Establish a call center utilizing NGR call center software at cost.
/ / Sub-contract out to another call center company if the cost is [***].
/ / Other technological or physical process which ultimately reduces the
cost of New Venture.
13. The parties will contribute any and all service content of value to the
Internet consumer for the service web site. New Venture will share
information with NGR and ABT to enhance their content and product
offerings as long as the cost of doing so is nominal.
14. Capital contributions - Each party will contribute $2 million to New
Venture.
15. Losses and profits shared - ABT will incur the first $1 million in losses
and NGR will incur the next $1 million in losses. If New Venture
generates profit prior to NGR incurring $1 million in losses then ABT's
capital account will accumulate all profits until the capital accounts
are equal.
05/04/99 4:33 PM 2
Privilege and Confidential Property of autobytel.com and NewGen Results
* CONFIDENTIAL TREATMENT REQUESTED
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16. No press releases without prior review and approval will be undertaken by
either party, such approval not to be unreasonably withheld.
17. Arbitration - Any dispute will be arbitrated by the American
Arbitration Association in Orange County by an independent arbitrator.
18. Jurisdiction and Legal interpretation - The partnership and related
agreements will be governed in accordance with the laws of the state of
California.
19. Board of Directors approval - The Board of Directors of NGR and ABT will
need to approve any final agreement prior to binding the parties.
20. Expiration - This Letter of Intent will expire automatically within 14
days of the signing by both paries, if the parties do not enter into a
final definitive agreement.
If you are in agreement with the foregoing, please have the enclosed copy of
this Letter of Intent executed in the space provided below and return a
fully executed copy to the undersigned prior to 5:00 p.m. (Pacific Daylight
Time) on May 5, 1999 at which time the terms of this Letter of Intent will
expire if not then countersigned by you. We look forward to working with you
toward a successful transaction.
Very truly yours,
autobytel.com, inc.
/s/ Mark Lorimer
---------------------------
Mark Lorimer
Chief Executive Officer
Agreed and Accepted
NewGen Results Corporation
/s/ Jerry Benowitz
- -------------------------------
Jerry Benowitz
Chief Executive Officer
05/04/99 4:33 PM 3
Privilege and Confidential Property of autobytel.com and NewGen Results
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made part of this
Registration Statement.
/s/ Arthur Andersen LLP
San Diego, California
May 19, 1999
