<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997.
REGISTRATION NO. 333-37707
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INFORMATION ADVANTAGE, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 41-1718445
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction Industrial Identification
of Incorporation or Classification Code Number)
Organization) Number)
</TABLE>
7905 GOLDEN TRIANGLE DRIVE, SUITE 190
EDEN PRAIRIE, MINNESOTA 55344-7227
(612) 833-3700
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
DONALD W. ANDERSON
CHIEF FINANCIAL OFFICER
7905 GOLDEN TRIANGLE DRIVE, SUITE 190
EDEN PRAIRIE, MINNESOTA 55344-7227
(612) 833-3700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JAY K. HACHIGIAN BRIAN D. WENGER THOMAS A. BEVILACQUA
RENEE F. LANAM BRETT D. ANDERSON CURTIS L. MO
WILLIAM E. GROWNEY, JR. LORI J. KETOLA ANNA A. RUIZ
Gunderson Dettmer Stough Briggs and Morgan MICHAEL F. CYRAN
Villeneuve Franklin & Professional Association Brobeck, Phleger & Harrison LLP
Hachigian, LLP 2400 IDS Center, Two Embarcadero Place
155 Constitution Drive 80 South Eighth Street 2200 Geng Road
Menlo Park, CA 94025 Minneapolis, MN 55402 Palo Alto, CA 94303-0913
(650) 321-2400 (612) 334-8400 (650) 424-0160
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, 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, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) OFFERING PRICE (2) REGISTRATION FEE (3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value......... 3,834,100 Shares $8.00 $30,672,800 $9,295
</TABLE>
(1) Includes 500,100 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) Of such amount, $8,713 was previously paid on October 10, 1997.
------------------------
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 SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997
[LOGO]
3,334,000 SHARES
COMMON STOCK
All of the 3,334,000 shares of Common Stock offered hereby are being sold by
Information Advantage, Inc. ("Information Advantage" or the "Company"). Prior to
this offering, there has been no public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price will
be between $7.00 and $8.00 per share. See "Underwriting" for information
relating to the method of determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market System under the symbol "IACO."
----------------
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" commencing on page 6.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO COMPANY
PUBLIC COMMISSIONS (1)
<S> <C> <C> <C>
Per Share............................. $ $ $
Total (2)............................. $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $1,200,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 500,100 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
----------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1997.
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
FIRST ALBANY CORPORATION
The date of this Prospectus is , 1997
<PAGE>
[GRAPHIC]
[Narrative description of the "intelligent enterprise" in front of
background with the Company's logo.]
[Graphic depicting the relationship between the Company's DecisionSuite
product and desktop applications, online analytical processing servers and
distributed data warehouses and data marts.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary........................................................................................ 4
Risk Factors................................................................................... 6
Use of Proceeds................................................................................ 16
Dividend Policy................................................................................ 16
Capitalization................................................................................. 17
Dilution....................................................................................... 18
Selected Consolidated Financial Data........................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 20
Business....................................................................................... 29
Management..................................................................................... 42
Certain Transactions........................................................................... 51
Principal Stockholders......................................................................... 54
Description of Capital Stock................................................................... 57
Shares Eligible for Future Sale................................................................ 59
Underwriting................................................................................... 61
Legal Matters.................................................................................. 63
Experts........................................................................................ 63
Additional Information......................................................................... 63
Index to Consolidated Financial Statements..................................................... F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements examined by its independent public
accountants and quarterly reports containing unaudited financial statements for
each of the first three quarters of each fiscal year.
As used in this Prospectus, each fiscal year of the Company is identified by
the calendar year in which it ends. Thus, references to "fiscal year 1997" or
"fiscal 1997" shall mean the fiscal year ended January 31, 1997.
DecisionSuite Server-TM- and the Company's logo are trademarks of the
Company and DecisionSuite-Registered Trademark- and Information
Advantage-Registered Trademark- are registered trademarks of the Company. All
other trademarks, service marks or trade names referred to in this Prospectus
are the property of their respective owners.
The address of the Company's principal executive offices is 7905 Golden
Triangle Drive, Suite 190, Eden Prairie, Minnesota 55344-7227 and its telephone
number is (612) 833-3700. Unless otherwise indicated, all references in this
Prospectus to the "Company" or "Information Advantage" refer to Information
Advantage, Inc., a Delaware Corporation, and its predecessor Information
Advantage, Inc., a Minnesota Corporation.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
Information Advantage, Inc. (the "Company") develops, markets and supports
enterprise scalable on-line analytical processing ("OLAP") software that is
designed to allow a large number of users to access and analyze large amounts of
data to make quicker and more informed business decisions. The Company's
server-based solution, DecisionSuite, provides powerful, robust and flexible
analysis processing capabilities that transform raw data into meaningful
information from a wide range of desktop and Internet platforms. Through the use
of an advanced architecture, the Company designed DecisionSuite to accommodate
terabytes of data and thousands of active users, although to date, only a
limited number of customers have deployed DecisionSuite in such environments.
DecisionSuite enables organizations to push effective decision making to all
levels of users thereby creating an "intelligent enterprise," one capable of
quickly identifying and reacting to market opportunities. DecisionSuite supports
many popular UNIX operating systems and employs relational database technology,
allowing it to access most popular databases, data warehouses and data marts.
In order to compete effectively in today's global environment, businesses
must quickly identify and respond to changing market conditions and are,
therefore, dependent upon their ability to rapidly collect, organize, access and
analyze large amounts of data. Organizations are now collecting not only
internal financial and operational data, but are also collecting large amounts
of historical data on their customers, suppliers and other external sources. At
the same time, to more quickly react to changing business conditions, many
organizations have been flattening their organizational structures and
empowering employees at all levels to make decisions, creating a need by more
people to access the vast amounts of business data collected each day and to
perform complex computational analysis on this data. To meet these challenges,
organizations have implemented a number of technology solutions, including data
warehouses and data marts, query and reporting tools and OLAP applications.
According to IDC, an independent industry analyst, the information access
segment of the data warehousing market alone is estimated to be growing from
$664 million in 1996 to $1.4 billion in 2000.
Although many of today's query and reporting tools, desktop OLAP solutions
and non-relational server-based OLAP solutions successfully address some of the
market requirements, these technologies fall short of effectively delivering
enterprise scalable OLAP capabilities. The Company's relational server-based
OLAP solution, DecisionSuite, supports large data sets, thousands of active
users, and simple as well as complex analysis. Moreover, DecisionSuite is
designed for efficient and cost effective deployment and maintenance, and
compliance with industry standards, thereby enabling integration with hardware
and software from a variety of vendors.
Substantially all of the Company's revenues are derived from sales of
DecisionSuite and related services. The Company licenses DecisionSuite to
customers primarily in targeted industries such as retail, consumer packaged
goods, financial services, insurance, telecommunications and healthcare. The
Company sells its products primarily through direct sales. The Company has
direct sales offices in twelve states, Canada, the United Kingdom and Germany,
and has established strategic relationships in South Africa, the Netherlands and
Japan. The Company also utilizes strategic partners to sell its products,
including solution development partners, such as IBM and DynaMark, sales
affiliates, such as EDS and Cambridge Technology Group, and marketing partners,
such as HP and Sun. The Company was formed in 1992 and, accordingly, has a
limited operating history and capitalization.
To complement its advanced product offerings, the Company offers worldwide
training, consulting and support services to its customers directly through its
customer services group and indirectly through its solution development partners
and sales affiliates. The Company's training and consulting services consist of
technical support, education, implementation, prototyping workshops and other
advanced services. The Company also provides its customers with an extensive
array of ongoing support services, including software updates, documentation
updates, telephone support and product maintenance.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
Common Stock Offered by the Company.......... 3,334,000 shares
<S> <C>
Common Stock to be Outstanding after
the Offering............................... 14,989,359 shares(1)
Use of Proceeds.............................. For repayment of certain indebtedness,
general corporate purposes (primarily working
capital and, to a lesser extent, expansion of
the Company's sales, marketing and customer
support infrastructure), and potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol....... IACO
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
APRIL 14, 1992 ENDED
(INCEPTION) TO YEARS ENDED JANUARY 31, OCTOBER 31,
JANUARY 31, ------------------------------------------ --------------------
1993 1994 1995 1996 1997 1996 1997
--------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues........................... $ 1,751 $ 4,348 $ 3,817 $ 5,642 $ 11,746 $ 8,414 $ 17,501
Loss from operations............... (2,326) (1,147) (4,312) (3,795) (8,380) (4,980) (5,867)
Net loss........................... (2,377) (1,201) (4,395) (3,789) (8,476) (5,020) (5,956)
Pro forma net loss per share (2)... $ (0.83) $ (0.51)
Shares used in computing pro forma
net loss per share (2)........... 10,208 11,622
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1997
---------------------------------------
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
--------- ------------- -------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................................ $ (615) $ (615) $ 20,601
Total assets........................................................... 12,965 12,965 31,915
Total liabilities...................................................... 12,238 12,238 9,088
Convertible redeemable preferred stock................................. 24,410 -- --
Stockholders' equity (deficit)......................................... (23,683) 727 22,827
</TABLE>
- ----------------
(1) Based on the number of shares outstanding as of October 31, 1997. Excludes
(i) 2,257,113 shares subject to outstanding options as of October 31, 1997
at a weighted average exercise price of approximately $1.55 per share, (ii)
warrants to purchase 143,419 shares of Common Stock at an weighted average
exercise price of $2.91 per share, and (iii) 1,395,519 shares reserved for
issuance under the Company's stock plans. See "Management--1997 Equity
Incentive Plan,"
"--1997 Employee Stock Purchase Plan" and Notes 8 and 9 of Notes to
Consolidated Financial Statements.
(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net loss per share.
(3) Reflects the conversion of outstanding Preferred Stock into Common Stock and
the exercise of warrants to purchase 491,599 shares of Common Stock upon
completion of the offering.
(4) Adjusted to reflect the sale of shares of Common Stock by the Company at an
assumed initial public offering price of $7.50 per share and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
----------------
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) REFLECTS A
1-FOR-2 1/2 REVERSE STOCK SPLIT, WHICH WILL BE EFFECTIVE PRIOR TO THE CLOSING OF
THIS OFFERING AND, (III) REFLECTS, EXCEPT IN THE CONSOLIDATED FINANCIAL
STATEMENTS, THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO
COMMON STOCK AND THE EXERCISE OF WARRANTS TO PURCHASE 491,599 SHARES OF COMMON
STOCK UPON COMPLETION OF THE OFFERING.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; LACK OF PROFITABILITY
The Company was formed in 1992. Accordingly, the Company's prospects must be
considered in light of the risks and difficulties frequently encountered by
companies in the early stage of development, particularly companies in new and
rapidly evolving markets. To address these risks, the Company must, among other
things, respond to competitive developments, continue to attract, retain and
motivate qualified personnel, and continue to enhance and improve its products.
The Company has incurred net operating losses in each quarter since inception
and it is possible that the Company will not generate sufficient net income to
fully utilize its net operating loss carryforwards before they begin to expire
in 2007. As of October 31, 1997, the Company had an accumulated deficit of $26.4
million. The Company expects to incur additional net losses. The Company's
operating losses have been due in part to the commitment of significant
resources to the Company's technical support, research and development and sales
and marketing organizations. The Company expects to continue to devote
substantial resources in these areas and as a result will need to recognize
significant quarterly revenues to achieve profitability. In particular, the
Company intends to continue hiring a significant number of sales and research
and development personnel over the balance of fiscal 1998 and beyond. Future
operating results will depend on many factors, including, among others, demand
for and acceptance of the Company's products and services, including ongoing
acceptance of maintenance and other services purchased by existing customers,
the level of product and price competition, the ability of the Company to
control costs and to develop, market and deploy new products, the ability of the
Company to expand its direct sales force and indirect distribution channels both
domestically and internationally, the Company's success in attracting and
retaining key personnel, market acceptance of OLAP products and the ability of
the Company to successfully integrate technologies and businesses it may acquire
in the future. Although the Company's revenues have increased in recent periods,
there can be no assurance that the Company's revenues will grow in future
periods or, if they do grow, that they will grow at past rates, or that the
Company will ever become profitable. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
FLUCTUATIONS IN OPERATING RESULTS
The Company's limited operating history and the susceptibility of the
Company's operating results to significant fluctuations makes the prediction of
future operating results unreliable and the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's operating results have in the past, and will in the future, vary
significantly due to factors such as demand for the Company's products, the size
and timing of significant orders and their fulfillment, the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors, changes in pricing policies by the Company or its
competitors, customer order deferrals in anticipation of enhancements or new
products offered by the Company or its competitors, the ability of the Company
to develop, introduce and market new and enhanced versions of its products on a
timely basis, changes in the Company's level of operating expenses and its
ability to control costs, budgeting cycles of its customers, product life
cycles, software defects and other product quality problems, hiring needs and
personnel changes, changes in the Company's sales incentive plans, changes in
the mix of domestic and international revenues, the level of international
expansion, foreign currency exchange rate fluctuations, performance of indirect
channel partners, changes in the mix of indirect channels through which the
Company's products are offered, the impact of consolidation by competitors and
indirect channel partners
6
<PAGE>
and general domestic and international economic and political conditions. A
significant portion of the Company's revenues have been, and the Company
believes will continue to be, derived from a limited number of orders placed by
large organizations. The timing of such orders and their fulfillment have
caused, and are expected to continue to cause, material fluctuations in the
Company's operating results, particularly on a quarterly basis. A significant
portion of the Company's revenues are derived from existing customers. To the
extent that such customers no longer require new licenses or ongoing support,
the Company's business, financial condition and operating results could be
materially adversely affected. The Company has, from time to time, often
recognized a substantial portion of its revenues in the last month of a quarter,
with these revenues frequently concentrated in the last two weeks of a quarter.
In addition, the Company does not operate with a large order backlog because its
software products are typically shipped shortly after orders are received, which
makes product revenues in any quarter substantially dependent on orders booked
and shipped throughout that quarter. Accordingly, revenues for any future
quarter are difficult to predict. The Company expects that as international
sales increase as a percentage of total sales it will experience weaker demand
for DecisionSuite during the summer months. Product revenues are also difficult
to forecast because the market for OLAP applications is rapidly evolving, and
the Company's sales cycle, which may last from six to twelve months or more,
varies substantially from customer to customer. The Company's expense level and
plans for expansion, including its plan to significantly increase its sales and
marketing and research and development efforts, are based in significant part on
the Company's expectations of future revenues and are relatively fixed in the
short-term. Consequently, if revenue levels are below expectations, operating
results are likely to be adversely and disproportionately affected. In addition,
the Company expects that sales derived through indirect channels, which are more
difficult to forecast and generally have lower gross margins than direct sales,
will increase as a percentage of total revenues. See "--Expansion of Indirect
Channels."
Based upon all of the factors described above, the Company believes that its
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. Accordingly, the
Company has limited ability to forecast future revenues, and it is likely that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In the event that
operating results are below expectations, or in the event that adverse
conditions prevail or are perceived to prevail generally or with respect to the
Company's business, the price of the Company's Common Stock would likely be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LENGTHY SALES AND IMPLEMENTATION CYCLES
The licensing of the Company's products by its customers typically involves
a significant commitment of capital and other resources, and are therefore
subject to delays frequently associated with customers' internal procedures to
approve large capital expenditures and to test and accept new technologies that
affect key operations. For these and other reasons, the sales cycle associated
with the licensing of the Company's products is typically six to twelve months
and subject to a number of significant risks that are beyond the Company's
control, including customers' budgetary constraints and internal acceptance
reviews. Because of the lengthy sales cycle and the large size of customers'
orders, if revenues forecasted from a specific customer for a particular quarter
are not realized in that quarter, the Company's operating results for that
quarter could be materially adversely affected. In addition, the time required
to deploy the Company's products can vary significantly with the needs of each
customer and the complexity of a customer's data processing needs. Accordingly,
deployment of the Company's products is generally a process that extends for
several months and may involve a pilot implementation, successful completion of
which is typically a prerequisite for full-scale deployment. In situations
involving a pilot implementation, revenue recognition is deferred until
execution of a final license and the other prerequisites for revenue recognition
have been fulfilled. The Company has experienced difficulty implementing
DecisionSuite in the past due to the complexity of customer requirements. The
Company generally relies upon internal resources to implement its products.
There can be no assurance that the Company will not experience delays in the
implementation of orders in the future or that third-parties will be able to
7
<PAGE>
successfully install the Company's products. Any delays in the implementation of
DecisionSuite could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, any significant delay in
the implementation of a DecisionSuite could cause a customer to reject the
Company's software, which could impair the Company's reputation and a material
adverse effect on the Company's business, operating results and financial
condition. See "--Fluctuations in Operating Results," "--Dependence on Service
Revenues," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Sales and Marketing" and "--Customer
Support."
COMPETITION
The market in which the Company competes is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. The Company's current and prospective competitors offer a variety of
planning and analysis software solutions and generally fall within three
categories: (i) vendors of desktop OLAP software such as Cognos and Business
Objects; (ii) vendors of multidimensional OLAP software such as Oracle
(Express), Arbor Software, Seagate (Holos) and SAS; and (iii) vendors of
OLAP/relational database software such as MicroStrategy and Platinum Technology
(Prodea). The Company has experienced and expects to continue to experience
increased competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Also, certain current and potential competitors, including companies
such as Microsoft, IBM, Sybase and Informix, may have greater name recognition
or more extensive customer bases that could be leveraged. These companies could
integrate competing OLAP/relational database software with other widely accepted
products resulting in a loss of market share for the Company. The Company
expects additional competition as other established and emerging companies enter
into the OLAP software market and new products and technologies are introduced.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, longer sales cycles and loss of market share, any of
which would materially adversely affect the Company's business, operating
results and financial condition.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's
prospective customers. The Company's current or future indirect channel partners
may establish cooperative relationships with current or potential competitors of
the Company, thereby limiting the Company's ability to sell its products through
particular distribution channels. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain new and maintenance and support
renewals for existing licenses on terms favorable to the Company. Further,
competitive pressures may require the Company to reduce the price of
DecisionSuite, which would materially adversely affect the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect upon
the Company's business, operating results and financial condition.
DEPENDENCE ON GROWTH OF MARKET FOR OLAP APPLICATIONS AND ACCEPTANCE OF THE WEB
Although demand for DecisionSuite has grown in recent years, the market for
OLAP software applications is still emerging and there can be no assurance that
it will continue to grow or that, even if the market does grow, businesses will
adopt the Company's products. Because a significant portion of the Company's
revenues are derived from existing customer upgrades, the failure of such
upgrades to occur due to the lack of continued adoption of OLAP applications by
its installed customer base, would have a material adverse effect on the
Company's business, operating results and financial condition. The Company has
spent, and intends to continue to spend, considerable resources educating
potential customers about DecisionSuite and its functions and on-line analytical
processing generally. However, there can be no assurance that such expenditures
will enable
8
<PAGE>
DecisionSuite to achieve any additional degree of market acceptance, and if the
market for DecisionSuite fails to grow or grows more slowly than the Company
currently anticipates, the Company's business, operating results and financial
condition would be materially adversely affected. Historically, the software
industry has experienced significant periodic downturns, often in connection
with, or in anticipation of, declines in general economic conditions during
which management information systems budgets often decrease. As a result, the
Company's business, operating results and financial condition may in the future
reflect substantial fluctuations from period to period as a consequence of
patterns and general economic conditions in the software industry.
In addition, the success of the Company may be dependent on the acceptance
of the use of the World Wide Web as a means to disseminate information. The
Company has had limited large-scale deployment of its products for use on the
Web. If customers determine that the Company's products are not scalable or are
otherwise inadequate for Web-based use, or do not provide adequate security for
the dissemination of information over the Web, or if for any other reason
customers fail to accept the Company's products for use on the Web, the
Company's business, operating results and financial condition could be
materially adversely affected. See "Business--Industry Background," "--Customers
and Applications," "--Products and Technology" and "--Sales and Marketing."
LIMITED LARGE-SCALE DEPLOYMENT
The Company believes that DecisionSuite can accommodate terabytes of data
and thousands of active users; however, to date, the Company has had only a
limited number of customers who have deployed DecisionSuite in such
environments. If the Company's customers cannot successfully implement
large-scale deployments or determine for any other reason that the Company's
products cannot accommodate large-scale enterprise applications, or that such
products are not required or appropriate for such widespread use, the Company's
reputation and competitive advantage will be materially adversely affected,
which would, in turn, have a material adverse affect on the Company's business,
operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changing customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. The Company has focused its efforts on products that run on UNIX
operating systems and has not developed a product that runs on Windows NT or any
other operating system. As more of the Company's customers adopt Windows NT for
their businesses, the Company will need to develop a Windows NT version of
DecisionSuite. The development of a Windows NT product would require a
substantial investment of resources by the Company, and there is no assurance
that such a product could be introduced on a timely or cost effective basis or
at all. The Company believes that its future success will depend in large part
on its ability to support popular operating systems and databases, and on its
ability to maintain and improve its current product line and to develop new
products on a timely basis that achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. As a result of the complexities inherent in OLAP, major new
products and product enhancements can require long development and testing
periods. In addition, customers may delay their purchasing decisions in
anticipation of the general availability of new or enhanced versions of the
Company's products. As a result, significant delays in the general availability
of such new releases or significant problems in the installation or
implementation of such new releases could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be successful in developing and marketing, on a
timely and cost effective basis, product enhancements or new products that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of these
enhancements or that the Company's new products and product enhancements will
achieve market acceptance. See "Business--Research and Development."
9
<PAGE>
PRODUCT AND CUSTOMER CONCENTRATION
All of the Company's revenues to date have been attributable to the
DecisionSuite line of products and related services and are currently expected
to account for substantially all of the Company's revenues for the foreseeable
future. The Company's future operating results are dependent upon continued
market acceptance of DecisionSuite and enhancements to these products.
Consequently, a decline in the demand for, or market acceptance of,
DecisionSuite as a result of competition, technological change or other factors,
would have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business-- Products and
Technology."
A relatively small number of customers have accounted for a significant
percentage of the Company's revenues. In fiscal 1996, MasterCard International
Incorporated accounted for 13.6% of total revenues. In fiscal 1997, Tandy
Corporation accounted for 10.3% of total revenues. The Company expects that it
will continue to be dependent upon a limited number of new and existing
customers for a significant portion of its revenues in future periods, and such
customers are expected to vary from period to period. As a result, the failure
by the Company to successfully sell its products or services to one or more
targeted new or existing customers in any particular period, or the deferral or
cancellation of orders by one or more of these customers, could have a material
adverse effect on the Company's business, operating results and financial
condition. The loss of a major customer, or any reduction in orders by such
customer, including reductions due to market or competitive conditions, would
have a material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON SERVICE REVENUES
The Company licenses software and provides related services, which consist
of maintenance, support, training, consulting and implementation. Total license
revenues and service revenues have increased from year to year. Service revenues
represented 52.2%, 52.4% and 44.7% of total revenues for the fiscal years ended
January 31, 1995, 1996 and 1997, respectively, and 43.1% and 48.1% for the
nine-month periods ended October 31, 1996 and 1997. The Company anticipates that
service revenues will continue to represent a significant percentage of total
revenues. To a large degree, the level of service revenues is dependent upon the
ongoing acceptance of maintenance contracts by the Company's growing installed
customer base. If service revenues are less than anticipated, the Company's
operating results could be materially adversely affected. The Company's ability
to increase its service revenues will depend in large part on its ability to
increase the scale of its services organization, including its ability to
successfully recruit and train a sufficient number of qualified service
representatives. There can be no assurance that the Company will be able to
successfully expand its service organization. In addition, there can be no
assurance that the Company will be successful in implementing its strategy or
that such products will achieve market acceptance, the failure of which could
have a material adverse effect on its business, operating results and financial
condition. See "--Dependence on Key Personnel" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EXPANSION OF INDIRECT CHANNELS
The Company intends to expand its relationships with strategic partners and
to increase the proportion of the Company's customers licensed through these
indirect channels. The Company's indirect channels have accounted for less than
25% of total revenues to date. There can be no assurance that the Company will
continue to be represented by any of its indirect channels. The Company is
currently investing, and intends to increasingly invest in the future,
significant resources to develop this channel, which could adversely affect the
Company's operating results if the Company's efforts do not generate significant
license revenues. There can be no assurance that the Company will be able to
attract strategic partners that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The failure to recruit strategic partners could adversely
affect the Company's results of operations. The Company's ability to achieve
revenue growth in the future will depend in large part on its success in
maintaining
10
<PAGE>
and establishing additional relationships with strategic partners. In addition,
if it is successful in selling products through this channel, the Company's
gross margins will be negatively affected due to the lower unit prices that the
Company expects to receive when selling through indirect channels. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Sales and Marketing."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During fiscal years 1995, 1996 and 1997, the Company derived 24.8%, 10.7%
and 9.5% of its total revenues, respectively, from sales outside the United
States. The Company anticipates that for the foreseeable future a significant
portion of its revenues will be derived from sources outside the United States.
The Company intends to continue to expand its sales and support operations
outside the United States and to enter additional international markets. In
order to successfully expand international sales, the Company must establish
additional foreign operations, expand its international channel management and
support organizations, hire additional personnel, recruit additional
international resellers and increase the productivity of existing international
resellers. To the extent that the Company is unable to do so in a timely and
cost-effective manner, the Company's growth, if any, in international sales will
be limited, and the Company's business, operating results and financial
condition could be materially adversely affected. The Company also expects to
commit additional resources to customizing its products for selected
international markets and developing international channel sales and support
organizations. In addition, even if international operations are successfully
expanded and the Company's products are successfully customized, there can be no
assurance that the Company will be able to maintain or increase international
market demand for its products. See "Business--Sales and Marketing."
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition, dependence
on local vendors, compliance with multiple, conflicting and changing government
laws and regulations, longer sales and payment cycles, import and export
restrictions and tariffs, difficulties in staffing and managing foreign
operations, greater difficulty or delay in accounts receivable collection,
foreign currency exchange rate fluctuations, multiple and conflicting tax laws
and regulations and political and economic instability. To date, a majority of
the Company's revenues and costs have been denominated in U.S. dollars. However,
the Company believes that an increasing portion of the Company's revenues and
costs will be denominated in foreign currencies. Although the Company may from
time to time undertake foreign exchange hedging transactions to cover a portion
of its foreign currency transaction exposure, the Company does not currently
attempt to cover any foreign currency exposure. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
MANAGEMENT OF GROWTH; NEED FOR ADDITIONAL QUALIFIED PERSONNEL
The Company has recently experienced a period of significant revenue growth
and an expansion in the number of its employees, the scope of its operating and
financial systems and geographic area of its operations. From January 31, 1995
to October 31, 1997, the Company has increased its headcount from 75 to 219.
Further significant increases in the number of employees are anticipated in
fiscal 1998 and beyond. For example, the Company currently plans to expand its
sales and marketing services and research and development efforts by, among
other things, significantly increasing the number of employees dedicated to
those areas. This growth has resulted, and will continue to result, in new and
increased responsibilities for management personnel and may place a strain upon
the Company's management, operating financial systems and resources. The Company
expects that planned expansion of international operations will lead to
increased financial and administrative demands, such as increased operational
complexity associated with expanded facilities, administrative burdens
associated with managing an increasing number of relationships with foreign
partners and expanded treasury functions to manage foreign currency risks. The
Company's future operating results will also depend on its ability to further
develop indirect channels to penetrate different and broader markets and expand
its support organization to accommodate growth in the Company's installed base.
The failure of the Company to manage its
11
<PAGE>
expansion effectively could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Sales and Marketing" and "Management."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the efforts of
certain key management, technical support, sales, marketing, customer support
and research and development personnel. The loss of key personnel could
adversely affect the Company. The Company believes that its future success will
depend in large part upon its continuing ability to attract and retain highly
skilled managerial, sales, marketing, customer support and research and
development personnel. Like other software companies, the Company faces intense
competition for such personnel, and the Company has at times experienced and
continues to experience difficulty in recruiting qualified personnel. There can
be no assurance that the Company will be successful in attracting, assimilating
and retaining qualified personnel in the future. The loss of the services of one
or more of the Company's key individuals, or the failure to attract and retain
additional qualified personnel, could have a material and adverse effect on the
Company's business, operating results and financial condition. See
"Business--Employees" and "Management."
RISK OF SOFTWARE DEFECTS
Software products as complex as those offered by the Company may contain
errors or defects, particularly when first introduced, when new versions or
enhancements are released or when configured to individual customer computing
systems. The Company has in the past encountered system configuration problems
at certain customer sites. Although to date, the Company has not experienced
material adverse effects resulting from any such defects or problems, there can
be no assurance that, despite testing by the Company, defects and errors will
not be found in current versions, new versions or enhancements of its products
after commencement of commercial shipments, resulting in loss of revenues or
delay in market acceptance, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Research and Development."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT; USE OF
LICENSED TECHNOLOGY
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. For example, the Company licenses its
software pursuant to signed license agreements, which impose certain
restrictions on licensees' ability to utilize the software. In addition, the
Company seeks to avoid disclosure of its trade secrets, including requiring
those persons with access to the Company's proprietary information to execute
confidentiality agreements with the Company and restricting access to the
Company's source code. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of many countries do not protect the Company's proprietary rights to as
great an extent as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no assurance
that third parties will not claim infringement by the Company with respect to
current or future products. The Company expects that data warehouse and data
mart software product
12
<PAGE>
developers will increasingly be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than three years, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Although the Company's products are Year 2000
compliant, the Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by the Company, which could
result in a material adverse effect on the Company's business, operating results
and financial condition.
PRODUCT LIABILITY
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. The Company has not experienced any product liability claims
to date, however the sale and support of the Company's products may entail the
risks of such claims which are likely to be substantial in light of the use of
the Company's products in business-critical applications. A product liability
claim brought against the Company could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business--Products and Technology" and "--Research and Development."
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiation among the Company and the representatives of the
Underwriters, and may not be indicative of the price that will prevail in the
open market. See "Underwriting" for a discussion of the factors to be considered
in determining the initial public offering price.
The market price of the Common Stock is likely to be highly volatile and may
be significantly affected by factors such as actual or anticipated fluctuations
in the Company's operating results, announcements of technological innovations,
new products or new contracts by the Company or its competitors, developments
with respect to copyrights or proprietary rights, conditions and trends in the
software and other technology industries, adoption of new accounting standards
affecting the software industry, changes in financial estimates by securities
analysts, general market conditions and other factors. In addition, the stock
market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stocks of technology companies. In the past, following periods of volatility in
the market price of a particular company's securities, securities class action
litigation has often been brought against such company. There can be no
assurance that such litigation will not occur in the future with respect to the
Company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon the Company's business, operating results and financial condition. See
"Underwriting."
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<PAGE>
CONTROL OF COMPANY BY EXECUTIVE OFFICERS, DIRECTORS AND FIVE PERCENT
STOCKHOLDERS
Upon the consummation of this offering, the executive officers, directors,
five percent stockholders and their affiliates in the aggregate will
beneficially own approximately 49.44% of the outstanding Common Stock (47.89% if
the Underwriters' over-allotment option is exercised in full). As a result,
these stockholders will be able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See
"Principal Stockholders."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended ("Bylaws"), contain certain provisions
that may have the effect of discouraging, delaying or preventing a change in
control of the Company or unsolicited acquisition proposals that a stockholder
might consider favorable, including provisions authorizing the issuance of
"blank check" preferred stock, requiring the consent of at least 80% of the
Company's capital stock to amend the Certificate of Incorporation or Bylaws,
eliminating the ability of stockholders to act by written consent or call a
special meeting of stockholders and providing for a Board of Directors with
staggered, three-year terms. In addition, certain provisions of Delaware law and
the Company's 1997 Equity Incentive Plan (the "Plan") may also have the effect
of discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals. The antitakeover effect of these provisions
may also have an adverse effect on the public trading price of the Company's
Common Stock. See "Management" and "Description of Capital Stock-- Preferred
Stock" and "-- Antitakeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the offering, the Company will have outstanding 14,989,359 shares
of Common Stock (15,489,459 shares if the Underwriters' over-allotment option is
exercised in full), assuming no exercise of options after October 31, 1997. Of
these shares, the 3,334,000 shares offered hereby (3,834,100 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The remaining 11,655,359 shares of Common Stock
outstanding upon completion of the offering will be "restricted securities" as
that term is defined in Rule 144.
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from the registration under Rule 144, 144(k) or or
701 promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
(i) 37,327 shares will be eligible for immediate sale on the date of this
Prospectus, (ii) 2,299 shares will be eligible for sale 90 days after the date
of this Prospectus, (iii) 11,181,743 shares will be eligible for sale upon
expiration of lock-up agreements between certain stockholders of the Company and
the representatives of the Underwriters 180 days after the date of this
Prospectus, and (iv) 433,990 shares will be eligible for sale thereafter. In
addition to the foregoing, as of October 31, 1997, there were outstanding under
the Plan and its predecessor plan, options to purchase an aggregate of 2,257,113
shares of Common Stock. The shares underlying such options will be eligible for
sale upon expiration of the lock-up provisions contained in the Plan and its
predecessor plan the "Plan Stand-off Agreements" beginning 180 days after the
date of this Prospectus, subject in certain cases to such shares underlying
outstanding options becoming eligible for sale more than 180 days after the date
of this Prospectus as such options vest. The Company has agreed not to release
shares from the lock-up provisions of the Plan Stand-Off Agreements without the
prior written consent of BancAmerica Robertson Stephens. In addition, the
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<PAGE>
Company intends to register, following this offering, approximately 3,652,632
shares of Common Stock subject to outstanding options or reserved for issuance
under the Company's stock and option plans. Further, certain stockholders
holding approximately 10,438,924 shares of Common Stock (assuming the exercise
of warrants to purchase 30,000 shares of Common Stock held by holders of
registration rights) are entitled to demand registration of their shares of
Common Stock. By exercising their demand registration rights, such stockholders
could cause a large number of securities to be registered and sold in the public
market, which could have an adverse effect on the market price of the Common
Stock. See "Description of Capital Stock" and "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of the outstanding Common Stock. As a result, investors
purchasing Common Stock in this offering will incur immediate and substantial
dilution. In addition, the Company has issued options to acquire Common Stock at
prices significantly below the initial public offering price. To the extent such
outstanding options are exercised, there will be further dilution. See
"Dilution" and "Shares Eligible for Future Sale."
UNCERTAINTY AS TO USE OF PROCEEDS
The primary purposes of this offering are to increase the Company's equity
capital, to create a public market for the Company's Common Stock and to
facilitate future access to public markets. As of the date of this Prospectus,
the Company has no specific plans to use the net proceeds from this offering
other than for the repayment of indebtedness to a bank, general corporate
purposes, including working capital and expansion of the Company's sales,
marketing and customer support infrastructure, and potential future acquisitions
of businesses, products and technologies that complement the Company's business.
Accordingly, the Company's management will retain broad discretion as to the
allocation of a substantial portion of the net proceeds from this offering.
Pending any such uses, the Company plans to invest the net proceeds in
investment-grade, interest-bearing securities. See "Use of Proceeds."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,334,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $7.50,
are estimated to be $22.1 million ($25.5 million if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The primary purposes of this offering are to increase the Company's
equity capital, to create a public market for the Company's Common Stock and to
facilitate future access to public markets. As of the date of this Prospectus,
the Company has no specific plans to use the net proceeds from this offering
other than as set forth below.
The Company intends to use a portion of the net proceeds for repayment of
all amounts outstanding under a $2.0 million revolving line of credit expiring
in September 1998. In October 1997, the Company borrowed $1.7 million under this
revolving line of credit, bearing an annual interest rate of at 1.75% over the
bank's prime lending rate. The Company also expects to use a portion of the net
proceeds for repayment of a $400,000 term loan, bearing interest at 1.75% over
the bank's prime lending rate, undertaken to finance its capital expenditure
commitments. The Company also expects to use a portion of the net proceeds for
repayment of a subordinated promissory note, the outstanding principal balance
of which at October 31, 1997 was $1.1 million, and which bears interest at the
annual rate of 13.5%.
The Company expects to use the remainder of the net proceeds for general
corporate purposes, (primarily working capital and, to a lesser extent,
expansion of the Company's sales, marketing and customer support
infrastructure). Furthermore, from time to time the Company expects to evaluate
the acquisition of businesses, products and technologies that complement the
Company's business, for which a portion of the net proceeds may be used.
Currently, however, the Company does not have any understandings, commitments or
agreements with respect to any such acquisitions. Pending use of the net
proceeds for the above purposes, the Company plans to invest the net proceeds in
short-term, interest-bearing, investment-grade obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained by the Company to develop and expand its business. Any future
determination with respect to the payment of dividends will be at the discretion
of the Board of Directors and will depend upon, among other things, the
Company's operating results, financial condition and capital requirements, the
terms of then-existing indebtedness, general business conditions and such other
factors as the Board of Directors deems relevant. In addition, the terms of the
Company's credit facility prohibit the payment of cash dividends without the
lender's consent.
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CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
October 31, 1997, (i) on an actual basis after giving effect to a subsequent
1-for-2 1/2 reverse stock split, (ii) on a pro forma basis to reflect the filing
of a Restated Certificate of Incorporation and the conversion of all outstanding
shares of Preferred Stock into Common Stock and the exercise of warrants to
purchase 491,599 shares of Common Stock upon the closing of this offering and
(iii) on such pro forma basis as adjusted to reflect the sale of the shares of
Common Stock offered hereby (assuming an offering price of $7.50 per share) and
the application of the net proceeds therefrom. See "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ------------- -----------
(IN
THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion...................................... $ 1,135 $ 1,135 $ 251
Convertible redeemable preferred stock; $0.01 par value; 22,066,396 shares
authorized, 9,483,334 shares issued and outstanding actual; no shares
authorized, issued or outstanding pro forma and as adjusted............. 24,410 -- --
Stockholders' equity (deficit):
Preferred stock: $0.01 par value, no shares authorized, issued or
outstanding actual; 5,000,000 shares authorized, no shares issued or
outstanding, pro forma and as adjusted................................ -- -- --
Common stock: $0.01 par value, 60,000,000 shares authorized, 1,680,426
shares issued and outstanding actual; 60,000,000 shares authorized,
11,655,359 shares issued and outstanding pro forma and 14,989,359 as
adjusted (1).......................................................... 17 117 150
Additional paid-in capital.............................................. 2,665 26,975 49,042
Accumulated deficit..................................................... (26,382) (26,382) (26,382)
Cumulative translation adjustment....................................... 17 17 17
--------- ------------- -----------
Total stockholders' equity (deficit).................................... (23,683) 727 22,827
--------- ------------- -----------
Total capitalization.................................................. $ 1,862 $ 1,862 $ 23,078
--------- ------------- -----------
--------- ------------- -----------
</TABLE>
- ------------------------
(1) Excludes approximately 2,257,113 shares subject to outstanding options as of
October 31, 1997 at a weighted average exercise price of approximately $1.55
per share, and warrants to purchase 143,419 shares of Common Stock at a
weighted average exercise price of $2.91 per share. Also excludes 1,395,519
shares reserved for issuance under the Company's stock plans. See
"Management--1997 Equity Incentive Plan," "--1997 Employee Stock Purchase
Plan" and Notes 8 and 9 of Notes to Consolidated Financial Statements.
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
October 31, 1997, giving effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and the exercise of warrants to purchase
491,599 shares of Common Stock upon the closing of this offering, was $727,000,
or approximately $0.06 per share. "Pro forma net tangible book value" per share
represents the amount of total tangible assets of the Company less total
liabilities, divided by the 11,655,359 shares of Common Stock outstanding.
Dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the offering made hereby and the pro
forma net tangible book value per share of Common Stock immediately after
completion of the offering. After giving effect to the sale of 3,334,000 shares
of Common Stock in this offering at an assumed initial public offering price of
$7.50 per share and the application of the estimated net proceeds therefrom, the
pro forma net tangible book value of the Company as of October 31, 1997 would
have been $22,827,000, or $1.52 per share. This represents an immediate increase
in pro forma net tangible book value of $1.46 per share to existing stockholders
and an immediate dilution of $5.98 per share to purchasers of Common Stock in
the offering. Investors participating in this offering will incur immediate,
substantial dilution. This is illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share.................................................. $ 7.50
---------
Pro forma net tangible book value per share as of October 31, 1997............................. $ 0.06
Increase per share attributable to new investors............................................... 1.46
---------
Adjusted pro forma net tangible book value per share as of October 31, 1997...................... 1.52
---------
Dilution per share to new investors.............................................................. $ 5.98
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of October 31, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors before deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company at the assumed initial offering price of $7.50 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 11,655,359 77.8% $ 26,328,134 51.3% $ 2.26
New stockholders(1)................................ 3,334,000 22.2 25,005,000 48.7 7.50
------------ ----- ------------- -----
Totals........................................... 14,989,359 100.0% $ 51,333,134 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------------------
(1) Excludes 2,257,113 shares subject to outstanding options as of October
31, 1997, at a weighted average exercise price of approximately $1.55 per share
and warrants to purchase 143,419 shares of common stock at a weighted average
exercise price of $2.91 per share. Also excludes 1,395,519 shares reserved for
issuance under the Company's stock plans. To the extent outstanding options are
exercised, there will be further dilution to new investors. See
"Management--1997 Equity Incentive Plan," "--1997 Employee Stock Purchase Plan"
and Notes 8 and 9 of Notes to Consolidated Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this Prospectus. Fiscal 1993 is the
Company's first fiscal year subsequent to its inception and is not a full fiscal
year. The consolidated statement of operations data for the fiscal years ended
January 31, 1993 and 1994 and the consolidated balance sheet data at January 31,
1993, 1994 and 1995 are derived from unaudited consolidated financial statements
not included herein and in the opinion of the Company, include all adjustments,
consisting solely of normal recurring accruals, which are necessary to present
fairly the data for such periods and as of such dates. The consolidated
statement of operations data for the fiscal years ended January 31, 1995, 1996
and 1997 and for the nine months ended October 31, 1997, and the consolidated
balance sheet data at January 31, 1996 and 1997 and October 31, 1997 are derived
from the audited Consolidated Financial Statements included elsewhere in this
Prospectus. The consolidated statement of operations data for the nine months
ended October 31, 1996 are derived from unaudited consolidated financial
statements included elsewhere in this Prospectus and in the opinion of the
Company, include all adjustments, consisting solely of normal recurring
accruals, which are necessary to present fairly the data for such period and as
of such date. The results for interim periods are not necessarily indicative of
results to be expected for the year.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
PERIOD FROM APRIL FISCAL YEAR ENDED OCTOBER
14, 1992 JANUARY 31, 31,
(INCEPTION) TO ------------------------------------------ ---------
JANUARY 31, 1993 1994 1995 1996 1997 1996
----------------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.................................... $ 213 $ 2,704 $ 1,826 $ 2,686 $ 6,491 $ 4,786
Service.................................... 1,538 1,644 1,991 2,956 5,255 3,628
------- --------- --------- --------- --------- ---------
Total revenues........................... 1,751 4,348 3,817 5,642 11,746 8,414
------- --------- --------- --------- --------- ---------
Cost of revenues:
License.................................... 16 49 72 118 132 94
Service.................................... 1,103 2,266 1,636 2,129 3,308 2,263
------- --------- --------- --------- --------- ---------
Total cost of revenues................... 1,119 2,315 1,708 2,247 3,440 2,357
------- --------- --------- --------- --------- ---------
Gross margin................................. 632 2,033 2,109 3,395 8,306 6,057
------- --------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing........................ 593 1,431 3,406 3,854 11,350 7,407
Research and development................... 495 1,158 2,162 2,089 3,189 2,142
General and administrative................. 1,870 591 853 1,247 2,147 1,488
------- --------- --------- --------- --------- ---------
Total operating expenses................. 2,958 3,180 6,421 7,190 16,686 11,037
------- --------- --------- --------- --------- ---------
Loss from operations......................... (2,326) (1,147) (4,312) (3,795) (8,380) (4,980)
Other income (expense), net.................. (51) (54) (83) 6 (96) (40)
------- --------- --------- --------- --------- ---------
Loss before provision for income taxes....... (2,377) (1,201) (4,395) (3,789) (8,476) (5,020)
Provision for income taxes................... 0 0 0 0 0 0
------- --------- --------- --------- --------- ---------
Net loss..................................... $ (2,377) $ (1,201) $ (4,395) $ (3,789) $ (8,476) $ (5,020)
------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- ---------
Pro forma net loss per share(1)............ $ (0.83)
---------
---------
Shares used in computing pro forma net loss
per share(1)............................. 10,208
---------
---------
<CAPTION>
1997
-------------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.................................... $ 9,087
Service.................................... 8,414
-------------
Total revenues........................... 17,501
-------------
Cost of revenues:
License.................................... 107
Service.................................... 5,500
-------------
Total cost of revenues................... 5,607
-------------
Gross margin................................. 11,894
-------------
Operating expenses:
Sales and marketing........................ 12,305
Research and development................... 3,917
General and administrative................. 1,539
-------------
Total operating expenses................. 17,761
-------------
Loss from operations......................... (5,867)
Other income (expense), net.................. (89)
-------------
Loss before provision for income taxes....... (5,956)
Provision for income taxes................... 0
-------------
Net loss..................................... $ (5,956)
-------------
-------------
Pro forma net loss per share(1)............ $ (0.51)
-------------
-------------
Shares used in computing pro forma net loss
per share(1)............................. 11,622
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
OCTOBER
JANUARY 31, 31, 1997
------------------------------------------------------------- ---------
1993 1994 1995 1996 1997 ACTUAL
----------------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit).................. $ (1,020) $ (544) $ (2,071) $ 1,097 $ (2,102) $ (615)
Total assets............................... 980 1,839 1,599 4,321 5,918 12,965
Total liabilities.......................... 2,167 2,256 3,428 2,791 7,823 12,238
Convertible redeemable preferred stock..... -- 2,337 5,337 12,487 17,410 24,410
Stockholders' equity (deficit)............. (1,193) (2,755) (7,165) (10,957) (19,315) (23,683)
<CAPTION>
PRO FORMA(2)
-------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit).................. $ (615)
Total assets............................... 12,965
Total liabilities.......................... 12,238
Convertible redeemable preferred stock..... --
Stockholders' equity (deficit)............. 727
</TABLE>
- --------------------
(1) Pro forma net loss reflects the conversion of all outstanding Preferred
Stock into Common Stock and the exercise of warrants to purchase 491,599
shares of Common Stock upon completion of the offering. See Note 2 of Notes
to Consolidated Financial Statements for an explanation of the method used
to determine the number of shares used in computing pro forma net loss per
share.
(2) Reflects the assumed conversion of outstanding Preferred Stock into Common
Stock and the exercise of warrants to purchase 491,599 shares of Common
Stock upon completion of the offering.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following description of the Company's financial condition and results
of operations should be read in conjunction with the information included
elsewhere in this Prospectus. This description contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ significantly from the results discussed in the forward-looking
statements as a result of certain of the risk factors set forth below and
elsewhere in this Prospectus.
OVERVIEW
Information Advantage Software, Inc. (the "Company") develops, markets and
supports enterprise scalable OLAP software that is designed to allow a large
number of users to access and analyze large amounts of data to make quicker and
more informed business decisions. The Company's server-based solution,
DecisionSuite, provides powerful, robust and flexible analysis processing
capabilities that transform raw data into meaningful information from a wide
range of desktop and Internet platforms. Through the use of an advanced
architecture, the Company designed DecisionSuite to accommodate terabytes of
data and thousands of active users. DecisionSuite enables organizations to push
effective decision making to all levels of users thereby creating an
"intelligent enterprise," one capable of quickly identifying and reacting to
market opportunities. DecisionSuite supports many UNIX operating systems and
employs relational database technology, allowing it to access most popular
databases, data warehouses and data marts.
To date, all of the Company's revenues have been derived from licenses of
DecisionSuite and related services. The Company expects that sales of
DecisionSuite and related services will continue to account for all of the
Company's revenues for the foreseeable future. The Company's license revenues
are derived from one-time licenses for the right to use DecisionSuite in
perpetuity and are determined on a per server, per named user and database size
basis. The Company's service revenues, which have accounted for approximately
one-half of the Company's total revenues for the past three years, include fees
for maintenance, training and consulting services. The Company anticipates that
service revenues will continue to account for a significant portion of the
Company's total revenues.
Revenues derived from software licenses are recognized upon execution of a
license agreement, delivery of the software product and fulfillment of other
delivery requirements. Revenues from software provided for demonstration or
pilot purposes are not recognized until execution of a license agreement and
fulfillment of other delivery requirements. Revenues derived from maintenance
contracts, which are bundled with the initial licenses, and all revenues from
extended maintenance contracts are deferred and recognized ratably over the term
of the maintenance contract. Revenues from maintenance contracts are included in
service revenues. Revenue from training and consulting services are recognized
as the services are performed. The Company's revenue recognition policy is in
compliance with the provisions of the American Institute of Certified Public
Accountants' Statement of Position 91-1, "Software Revenue Recognition."
The Company licenses its software through its direct sales force and
increasingly through or in conjunction with solution development partners, sales
affiliates and marketing partners. Revenues from indirect sales involving
strategic partners accounted for approximately 18.1%, 11.5%, 12.7% and 14.5% of
the Company's license revenues for fiscal 1995, 1996, 1997 and the nine months
ended October 31, 1997, respectively. The Company intends to expand its
strategic relationships, thereby increasing the revenues generated from indirect
channels as a percentage of total license revenues. The Company intends to
expand its international operations and has committed, and continues to commit,
significant management time and financial resources to developing direct and
indirect international sales and support channels. The Company has international
sales and support offices in Toronto, Canada; London, England and Koln, Germany
and to date, most of the Company's international revenues have been derived from
the United Kingdom and Canada. Although the Company's personnel related costs
are higher in Europe than they are in the United States, and the Company's
international operations are subject to economic, fiscal and monetary policies
of foreign governments, to date,
20
<PAGE>
these factors have not had a material effect on the Company's results of
operations or liquidity. In addition, because all of the Company's sales have
been denominated in U.S. dollars, the Company has been able to mitigate the
impact of foreign exchange rate changes. There can be no assurance that the
Company will be able to continue to denominate foreign sales in U.S. dollars or
that international operations costs and economic, fiscal and monetary policies
of foreign governments will not in the future have a material adverse effect on
the Company's results of operations or liquidity. See "Risk Factors--Expansion
of Indirect Channels," "--Risks Associated with International Sales and
Operations."
Since inception, the Company has made significant strategic investments in
building an infrastructure to support long-term growth. The Company has nearly
tripled its headcount from 75 at January 31, 1995 to 219 at October 31, 1997,
reflecting personnel increases throughout the Company. As a result, although the
Company's revenues have increased in each of the last seven quarters, the
Company has incurred net losses in each quarter since inception, and had an
accumulated deficit of $26.4 million as of October 31, 1997. The Company expects
to incur additional net losses.
The Company's limited operating history makes the prediction of future
operating results difficult and unreliable. In addition, given its limited
operating history and recent rapid growth, historical growth rates in the
Company's revenues should not be considered indicative of future revenue growth
rates or operating results. There can be no assurance that any of the Company's
business strategies will be successful or that the Company will be able to
achieve profitability on a quarterly or annual basis. See "Risk Factors--Limited
Operating History; Lack of Profitability" and "--Fluctuations in Operating
Results."
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------------------- ---------------------
1995 1996 1997 1996 1997
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
License............................... 47.8% 47.6% 55.3% 56.9% 51.9%
Service............................... 52.2 52.4 44.7 43.1 48.1
----------- --------- --------- --------- ---------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
----------- --------- --------- --------- ---------
Cost of revenues:
License............................... 1.9 2.1 1.1 1.1 0.6
Service............................... 42.9 37.7 28.2 26.9 31.4
----------- --------- --------- --------- ---------
Total cost of revenues.............. 44.8 39.8 29.3 28.0 32.0
----------- --------- --------- --------- ---------
Gross margin............................ 55.2 60.2 70.7 72.0 68.0
----------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing................... 89.2 68.3 96.6 88.0 70.3
Research and development.............. 56.6 37.0 27.2 25.5 22.4
General and administrative............ 22.4 22.1 18.3 17.7 8.8
----------- --------- --------- --------- ---------
Total operating expenses............ 168.2 127.4 142.1 131.2 101.5
----------- --------- --------- --------- ---------
Loss from operations.................... (113.0) (67.2) (71.4) (59.2) (33.5)
Other income (expense), net............. (2.2) 0.0 (0.8) (0.4) (0.5)
----------- --------- --------- --------- ---------
Loss before provision for income
taxes................................. (115.2) (67.2) (72.2) (59.6) (34.0)
Provision for income taxes.............. 0.0 0.0 0.0 0.0 0.0
----------- --------- --------- --------- ---------
Net loss................................ (115.2)% (67.2)% (72.2)% (59.6)% (34.0)%
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
</TABLE>
21
<PAGE>
The following table sets forth, for each component of revenues, the gross
margin associated with such component of revenues for the period indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross margin:
License.............................................. 96.1% 95.6% 98.0% 98.0% 98.8%
Service.............................................. 17.8 28.0 37.1 37.6 34.6
</TABLE>
REVENUES
LICENSE. License revenues are recognized upon execution of a license
agreement and shipment of the product if no other significant obligations
remain, payments are due within twelve months and collection of the resulting
receivable is probable. License revenues were $1.8 million, $2.7 million and
$6.5 million in fiscal 1995, 1996 and 1997, respectively, representing increases
of 47.1% from fiscal 1995 to fiscal 1996, and 141.7% from fiscal 1996 to fiscal
1997. License revenues were $4.8 million and $9.1 million for the nine months
ended October 31, 1996 and 1997, respectively, representing an increase of
89.8%. The increase in the Company's license revenues in each period was
attributable primarily to greater market acceptance of DecisionSuite which led
to an increase in volume, an increase in the average revenues derived from each
license as the average number of seats per customer has increased, and an
increase in sales headcount. To date, price increases have not had a significant
impact on revenues. The Company does not believe that the historical percentage
growth rates of license revenues will be sustainable or are indicative of future
results.
SERVICE. Service revenues include fees from maintenance contracts, training
and consulting services. Fees for maintenance, training and consulting services
are charged separately from the license of DecisionSuite. Maintenance fees are
for ongoing support and product updates, and are recognized ratably over the
life of the contract. Revenues from training are recognized upon completion of
the related training class. Consulting revenues are recognized when the services
are performed. Service revenues were $2.0 million, $3.0 million and $5.3 million
in fiscal 1995, 1996 and 1997, respectively, representing increases of 48.5%
from fiscal 1995 to fiscal 1996, and 77.8% from fiscal 1996 to fiscal 1997.
Service revenues accounted for 52.2%, 52.4% and 44.7% of the Company's total
revenues in fiscal 1995, 1996 and 1997, respectively. Service revenues were $3.6
million and $8.4 million for the nine months ended October 31, 1996 and 1997,
respectively, representing an increase of 131.9%, and accounting for 43.1% and
48.1% of the Company's total revenues for these periods. In particular,
maintenance revenues accounted for 16.3%, 22.6% and 26.6% of service revenues in
fiscal 1995, 1996 and 1997, respectively, and 25.6% and 25.4% of service
revenues for the nine months ended October 31, 1996 and 1997, respectively. The
Company anticipates that service revenues will continue to account for a
significant percentage of the Company's total revenues and that revenues from
maintenance will increase as a percentage of service revenues as additional
licenses are sold.
INTERNATIONAL REVENUES. International revenues include all revenues other
than from the United States. International revenues from the Company's direct
sales organizations in Europe and export sales to or through strategic partners
in Europe and other areas outside of the United States accounted for 24.7%,
10.7% and 9.5% of total revenues in fiscal 1995, 1996 and 1997, respectively,
and 13.1% and 7.8% for the nine months ended October 31, 1996 and 1997,
respectively. The high percentage of international sales for fiscal 1995 was the
result of a single large consulting contract in the United Kingdom. The Company
expects that international license and related service revenues will continue to
account for a significant portion of its total revenues in the future.
COST OF REVENUES
LICENSE. Cost of license revenues consists primarily of salaries, product
packaging, documentation and production. Cost of license revenues was $72,000,
$118,000 and $132,000 in fiscal 1995, 1996 and 1997, respectively, representing
3.9%, 4.4% and 2.0% of license revenues for these years. Cost of license
revenues was
22
<PAGE>
$94,000 and $107,000 for the nine months ended October 31, 1996 and 1997,
respectively, representing 2.0% and 1.2% of license revenues for these periods.
SERVICE. Cost of service revenues consists primarily of personnel-related
and facilities costs incurred in providing customer support, training and
consulting services, as well as third-party costs incurred in providing training
and consulting services. Cost of service revenues was $1.6 million, $2.1 million
and $3.3 million in fiscal 1995, 1996 and 1997, respectively, representing
82.2%, 72.0% and 62.9% of service revenues for these years. Cost of service
revenues were $2.3 million and $5.5 million for the nine months ended October
31, 1996 and 1997, respectively, representing 62.4% and 65.4% of service
revenues for these periods. The decrease in cost of service revenues as a
percentage of service revenues in fiscal 1996 and 1997 was primarily due to
improved economies of scale of the technical support center and increased
productivity from a significant number of newly hired training, support and
consulting personnel. The increase in cost of service revenues as a percentage
of the related revenues for the nine months ended October 31, 1997, resulted
from the addition of new training, support and consulting personnel over this
period.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses, travel and entertainment and promotional expenses. Sales and
marketing expenses were $3.4 million, $3.9 million and $11.4 million in fiscal
1995, 1996 and 1997, respectively, and were $7.4 million and $12.3 million for
the nine months ended October 31, 1996 and 1997, respectively. The increase in
sales and marketing expenses was predominantly due to the hiring of additional
sales and marketing personnel and, to a lesser extent, the increase in the
number of sales offices and expanded promotional activities. Sales and marketing
expenses represented 89.2%, 68.3% and 96.6% of total revenues for these periods
in fiscal 1995, 1996 and 1997, respectively, and 88.0% and 70.3% of total
revenues in the nine months ended October 31, 1996 and 1997, respectively. The
changes in sales and marketing expenses as a percentage of total revenues were
primarily due to the timing of hiring additional sales personnel. The Company
expects that sales and marketing expenses will continue to increase in dollar
amounts as the Company continues to hire additional sales and marketing
personnel, establish additional sales offices and increase promotional
activities.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and benefits of software engineering personnel, payments
to contract programmers and expendable equipment purchases. The Company believes
that a significant level of investment for research and development is required
to remain competitive. Research and development expenses were $2.2 million, $2.1
million and $3.2 million in fiscal 1995, 1996 and 1997, respectively, and were
$2.1 million and $3.9 million for the nine months ended October 31, 1996 and
1997, respectively. These increases were primarily attributable to additional
hiring of research and development personnel. Research and development expenses
represented 56.6%, 37.0% and 27.2% of total revenues in fiscal 1995, 1996 and
1997, respectively, and 25.5% and 22.4% of total revenues for the nine months
ended October 31, 1996 and 1997, respectively. The Company anticipates that it
will continue to devote substantial resources to research and development and
that these expenses will increase in future periods. Because all costs incurred
in the research and development of software products and enhancements to
existing software products have been expensed as incurred, cost of license
revenues includes no amortization of capitalized software development costs. See
Note 2 of Notes to Consolidated Financial Statements.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$853,000, $1.2 million and $2.1 million in fiscal 1995, 1996 and 1997,
respectively, and were $1.5 million and $1.5 million for the nine months ended
October 31, 1996 and 1997, respectively. These increases were predominantly due
to increased staffing and, to a lesser extent, associated expenses necessary to
manage and support the Company's increased scale of operations. General and
administrative expenses represented 22.4%, 22.1% and 18.3% of total revenues in
fiscal 1995, 1996 and 1997, respectively, and 17.7% and 8.8% of total revenues
in the nine months ended
23
<PAGE>
October 31, 1996 and 1997, respectively. The Company believes that its general
and administrative expenses will increase in future periods as a result of an
expansion of the Company's administrative staff to support its growing
operations and as a result of an increase in expenses associated with being a
public company.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, represents
interest earned by the Company on its cash and short-term investments, offset by
interest expense on long-term debt and capitalized leases. See Notes 4 and 5 of
Notes to Consolidated Financial Statements.
PROVISION FOR INCOME TAXES. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." The Company incurred net losses and consequently paid no
federal or state income taxes in fiscal 1995, 1996 and 1997. At January 31,
1997, the Company had approximately $16.0 million in federal net operating loss
carryforwards. The federal net operating loss carryforwards will begin to expire
in the year 2007 if not utilized. In addition, the Tax Reform Act of 1986
contains certain provisions that may limit the net operating loss carryforwards
available for use in any given period upon the occurrence of certain events,
including a significant change in ownership interests. Based upon management's
estimates, the proposed initial public offering will not result in a change of
ownership.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 applies to entities
with publicly held common stock and is effective for financial statements issued
for periods ending after December 15, 1997. Under SFAS No. 128, the presentation
of primary earnings per share is replaced with a presentation of basic earnings
per share. SFAS No. 128 requires dual presentation of basic and diluted earnings
per share for entities with complex capital structures. Basic earnings per share
includes no dilution and is computed by dividing net income (loss) available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. Management believes the adoption of SFAS No. 128
will not have a material effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 is effective
for financial statements for fiscal years beginning after December 15, 1997.
This standard defines comprehensive income as the changes in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income are required to be reported in a new financial
statement. Management believes the adoption of SFAS No. 130 will not have a
material effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board also issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 establishes standards for
disclosures about operating segments, products and services, geographic areas
and major customers. Management believes the adoption of SFAS No. 131 will not
have a material effect on the Company's financial statements.
The American Institute of Certified Public Accountants' has approved a new
Statement of Position (SOP), SOP 97-2 which will supersede Statement of Position
91-1, "Software Revenue Recognition." Management has assessed this new statement
and believes that its adoption will not have a material effect on the timing of
the Company's revenue recognition or cause changes to its revenue recognition
policies.
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statement of
operations data for the seven quarters ended October 31, 1997, as well as such
data expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with the Consolidated
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
FISCAL YEAR 1997 FISCAL YEAR 1998
------------------------------------------ -------------------------------
APR. 30 JULY 31 OCT. 31 JAN. 31 APR. 30 JULY 31 OCT. 31
1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License..................................... $ 1,134 $ 1,819 $ 1,834 $ 1,704 $ 2,138 $ 2,862 $ 4,087
Service..................................... 1,126 1,083 1,419 1,627 2,207 2,941 3,266
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................ 2,260 2,902 3,253 3,331 4,345 5,803 7,353
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
License..................................... 24 34 36 38 36 41 30
Service..................................... 642 735 883 1,048 1,559 1,886 2,055
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues.................... 666 769 919 1,086 1,595 1,927 2,085
--------- --------- --------- --------- --------- --------- ---------
Gross margin.................................. 1,594 2,133 2,334 2,245 2,750 3,876 5,268
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing......................... 2,225 2,424 3,252 3,449 3,674 4,153 4,478
Research and development.................... 616 651 877 1,045 1,106 1,267 1,544
General and administrative.................. 439 515 581 612 485 550 504
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................. 3,280 3,590 4,710 5,106 5,265 5,970 6,526
--------- --------- --------- --------- --------- --------- ---------
Loss from operations.......................... (1,686) (1,457) (2,376) (2,861) (2,515) (2,094) (1,258)
Other income (expense), net................... 17 (28) (30) (55) (23) (17) (49)
--------- --------- --------- --------- --------- --------- ---------
Loss before provision for income taxes........ (1,669) (1,485) (2,406) (2,916) (2,538) (2,111) (1,307)
Provision for income taxes.................... 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- ---------
Net loss...................................... $ (1,669) $ (1,485) $ (2,406) $ (2,916) $ (2,538) $ (2,111) $ (1,307)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License..................................... 50.2% 62.7% 56.4% 51.2% 49.2% 49.3% 55.6%
Service..................................... 49.8 37.3 43.6 48.8 50.8 50.7 44.4
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
License..................................... 1.1 1.2 1.1 1.1 0.8 0.7 0.4
Service..................................... 28.4 25.3 27.2 31.5 35.9 32.5 27.9
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues.................... 29.5 26.5 28.3 32.6 36.7 33.2 28.4
--------- --------- --------- --------- --------- --------- ---------
Gross margin.................................. 70.5 73.5 71.7 67.4 63.3 66.8 71.6
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing......................... 98.4 83.5 99.9 103.5 84.5 71.6 60.9
Research and development.................... 27.3 22.4 27.0 31.4 25.5 21.8 21.0
General and administrative.................. 19.4 17.8 17.9 18.4 11.2 9.5 6.9
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................. 145.1 123.7 144.8 153.3 121.1 102.9 88.8
--------- --------- --------- --------- --------- --------- ---------
Loss from operations.......................... (74.6) (50.2) (73.1) (85.9) (57.9) (36.1) (17.1)
Other income (expense), net................... 0.8 (1.0) (0.9) (1.7) 0.5 0.3 0.7
--------- --------- --------- --------- --------- --------- ---------
Loss before provision for income taxes........ (73.8) (51.2) (74.0) (87.6) (58.4) (36.4) (17.8)
Provision for income taxes.................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0
--------- --------- --------- --------- --------- --------- ---------
Net loss...................................... (73.8)% (51.2)% (74.0)% (87.6)% (58.4)% (36.4)% (17.8)%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
25
<PAGE>
The Company's limited operating history and the susceptibility of the
Company's operating results to significant fluctuations makes the prediction of
future operating results unreliable and the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's operating results in any given period can vary due to factors such
as demand for the Company's products, the size and timing of significant orders
and their fulfillment, the number, timing and significance of product
enhancements and new product announcements by the Company and its competitors,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors, the ability of the Company to develop, introduce and market
new and enhanced versions of its products on a timely basis, changes in the
Company's level of operating expenses, budgeting cycles of its customers,
product life cycles, software defects and other product quality problems, hiring
needs and personnel changes, changes in the Company's sales incentive plans,
changes in the mix of domestic and international revenues, the level of
international expansion, foreign currency exchange rate fluctuations,
performance of indirect channel partners, changes in the mix of indirect
channels through which the Company's products are offered, the impact of
acquisitions of competitors and indirect channel partners, the Company's ability
to control costs and general domestic and international economic and political
conditions. A significant portion of the Company's revenues have been, and the
Company believes will continue to be, derived from a limited number of orders
placed by large organizations, and the timing of such orders and their
fulfillment has caused and are expected to continue to cause material
fluctuations in the Company's operating results, particularly on a quarterly
basis. A significant portion of the Company's revenues are derived from existing
customers. To the extent that such customers no longer require new licenses, or
ongoing support, the Company's business, financial condition and operating
results could be materially adversely affected. The Company has, from time to
time, often recognized a substantial portion of its revenues in the last month
of a quarter, with these revenues frequently concentrated in the last two weeks
of a quarter. In addition, the Company does not operate with a large order
backlog because its software products are typically shipped shortly after orders
are received, which makes product revenues in any quarter substantially
dependent on orders booked and shipped throughout that quarter. Accordingly,
revenues for any future quarter are difficult to predict. The Company also
expects that as international sales increase as a percentage of sales it will
experience weaker demand for DecisionSuite during the summer months. Product
revenues are also difficult to forecast because the market for OLAP applications
is rapidly evolving, and the Company's sales cycle, which may last from six to
twelve months or more, varies substantially from customer to customer. The
Company's expense level and plans for expansion, including its plan to
significantly increase its research and development efforts, are based in
significant part on the Company's expectations of future revenues and therefore
are relatively fixed in the short term. If revenue levels are below
expectations, operating results are likely to be adversely and
disproportionately affected because only a small portion of the Company's
expenses vary with its revenues. In addition, the Company expects that sales
derived through indirect channels, which are more difficult to forecast and
generally have lower gross margins than direct sales, will increase as a
percentage of total revenues. See "Risk Factors--Management of Growth; Need for
Additional Qualified Personnel" and "--Expansion of Indirect Channels."
Based upon all of the factors described above, the Company believes that its
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. Accordingly, the
Company has limited ability to forecast future revenues, and it is likely that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In the event that
operating results are below expectations, or in the event that adverse
conditions prevail or are perceived to prevail generally or with respect to the
Company's business, the price of the Common Stock would likely be materially
adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through the private
sale of equity securities and the use of long-term debt and equipment leases.
The Company has a revolving credit line of $2.0 million and a
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<PAGE>
$400,000 equipment note with a bank and a $1.1 million term loan with an
equipment lessor. The Company's sources of liquidity at October 31, 1997
consisted principally of cash and cash equivalents of $3.0 million. See Note 4
of Notes to Consolidated Financial Statements.
Net cash used in operating activities was $3.2 million, $3.6 million and
$6.4 million in fiscal 1995, 1996 and 1997, respectively, and $6.3 million for
the nine months ended October 31, 1997. For such periods, net cash used in
operating activities resulted primarily from net operating losses and increases
in prepaid expenses and accounts receivable associated with increases in
revenues, partially offset by increases in accounts payable, accrued liabilities
and deferred revenues.
Since 1995 the Company's investing activities have consisted primarily of
purchases of property and equipment. Capital expenditures, including those under
capital leases, totaled $355,000, $335,000 and $1,078,000 in fiscal 1995, 1996
and 1997, respectively, and $1.2 million for the nine months ended October 31,
1997. Capital leases are used to acquire property and equipment, primarily
computer hardware, for the Company's growing employee base. The Company expects
that its capital expenditures will continue to increase as the Company's
employee base grows. At October 31, 1997, the Company had material commitments
for capital expenditures totaling approximately $400,000, which the Company
financed initially through a bank term loan for a period not to exceed three
years. If amounts are outstanding under such term loan as of the date of
completion of this offering, the Company intends to repay such bank loan from
the proceeds of the offering.
The Company's financing activities provided $3.4 million, $5.4 million and
$6.0 million in fiscal 1995, 1996 and 1997, respectively, and $9.3 million for
the nine months ended October 31, 1997. In fiscal 1995, the cash provided by
financing activities was comprised primarily of $2.5 million received in
connection with the sale of Series A convertible redeemable preferred stock and
$1.0 million in proceeds from notes payable to certain stockholders, offset
partially by principal payments on long-term debt. In fiscal 1996, the cash
provided by financing activities was comprised primarily of $5.1 million
received in connection with the sale of Series B convertible redeemable
preferred stock and $1.0 million in proceeds from notes issued to shareholders,
offset by repayments of notes payable to a bank of $435,000 and principal
payments on long-term debt of $217,000. In fiscal 1997, the cash provided by
financing activities was comprised primarily of $4.9 million received in
connection with the sale of Series C convertible redeemable preferred stock and
$1.5 million in proceeds from long-term debt, offset by principal payments on
long-term debt of $502,000. For the nine month period ended October 31, 1997,
cash provided by financing activities consisted primarily of $6.9 million
received in connection with the sale of Series D convertible redeemable
preferred stock and $2.1 million in borrowings under line of credit and notes
payable, offset by principal payments on long-term debt of $666,000.
Total borrowings under the revolving credit line are limited generally to
the lesser of 70% of eligible accounts receivable or $2.0 million. In October
1997, the Company borrowed $1.7 million under the revolving line, bearing an
annual interest rate of 1.75% over the bank's prime lending rate. The Company
expects to use proceeds from this offering to repay such indebtedness. The
Company's line of credit contains certain financial covenants and restrictions
as to various matters including the Company's ability to pay cash dividends and
effect mergers or acquisitions without the bank's prior approval. The Company is
currently in compliance with such financial covenants and restrictions. The
Company has granted a first priority security interest in substantially all of
its assets as security for its obligations under its credit line which expires
in September 1998.
In addition to its $2.0 million bank line of credit, prior to the
effectiveness of this offering, the Company will enter into a $3.0 million
revolving line of credit with certain holders of its Preferred Stock pursuant to
the terms of a Loan and Warrant Purchase Agreement (the "Loan Agreement"). The
Loan Agreement will terminate upon the earlier of (i) ten days following the
closing of this offering or (ii) May 20, 1998. To date, the Company has not
drawn down any funds under the Loan Agreement and does not anticipate that it
will do so prior to the consummation of this offering. For a further description
of the terms of the Loan Agreement, see "Certain Transactions--Transactions with
Directors and Officers and 5% Stockholders."
On April 12, 1996, the Company issued a subordinated promissory note in
favor of Comdisco, Inc. in the principal amount of $1,500,000, which bears
interest at an annual rate of 13.5% (the "Note"). The Note is due in
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<PAGE>
varying monthly installments through April 1999. As of October 31, 1997, the
outstanding indebtedness under the Note was $1,065,000. The Company expects to
repay amounts outstanding under the Note with proceeds from this offering. See
Note 5 of Notes to Consolidated Financial Statements.
The Company believes that the net proceeds from the offering and its
existing cash and cash equivalents will be adequate to meet its cash needs for
at least the next 12 months. Thereafter, the Company may require additional
funds to support its working capital requirements or for other purposes and may
seek to raise such additional funds through public or private equity financing
or from other sources. There can be no assurance that additional financing will
be available at all or that, if available, such financing will be obtainable on
terms favorable to the Company or will not be dilutive.
28
<PAGE>
BUSINESS
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. This
description contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed in the forward-looking statements as a result of certain of
the factors set forth below and elsewhere in this Prospectus.
OVERVIEW
Information Advantage, Inc. (the "Company") develops, markets and supports
enterprise scalable OLAP software that is designed to allow a large number of
users to access and analyze large amounts of data to make quicker and more
informed business decisions. The Company's server-based solution, DecisionSuite,
provides powerful, robust and flexible analysis processing capabilities that
transform raw data into meaningful information from a wide range of desktop and
Internet platforms. Through the use of an advanced architecture, the Company
designed DecisionSuite to accomodate terabytes of data and thousands of active
users. DecisionSuite enables organizations to push effective decision making to
all levels of users thereby creating an "intelligent enterprise," one capable of
quickly identifying and reacting to market opportunities. DecisionSuite supports
many UNIX operating systems and employs relational database technology, allowing
it to access most popular databases, data warehouses and data marts.
INDUSTRY BACKGROUND
In order to compete effectively in today's global environment, businesses
must quickly identify and respond to changing market conditions and are,
therefore, dependent upon their ability to rapidly collect, organize, access and
analyze large amounts of data. Organizations are now collecting not only
internal financial and operational data, but are also collecting large amounts
of historical data on their customers, suppliers and other external affiliates.
At the same time, to more quickly react to changing business conditions, many
organizations have been flattening their organizational structures and
empowering employees at all levels to make decisions. The desire to distribute
decision making throughout all levels of an organization has created a need by
more people to access the vast amounts of business data collected each day. In
addition to data access, organizations also face the challenges of performing
complex computational analysis on the collected data, and disseminating
information broadly to employees, customers, suppliers and others.
To meet these challenges, organizations have implemented a number of
technology solutions, including data warehouses and data marts, query and
reporting tools and OLAP applications. According to IDC, an independent industry
analyst, the information access segment of the data warehousing market alone is
estimated to be growing from $664 million in 1996 to $1.4 billion in 2000. Data
warehouses and data marts are repositories of summarized historical data often
extracted from disparate departmental or enterprise databases. Data warehouses
and data marts store data in a format optimized for analysis and are frequently
implemented in conjunction with query and reporting tools designed to provide
end users with a means to retrieve data and perform certain pre-defined queries
and simple calculations. This level of analysis, however, is limited (for
example, query and reporting tools generally are not designed to perform
time-series analysis such as calculations of the weekly changes in market share
by region) and these tools often require users to understand the technical
aspects of data storage and data structures. As a result, the use of data query
and reporting tools is often limited to highly trained technical users.
In recent years, OLAP solutions have emerged to provide a means to analyze
complex data along a more intuitive set of business rules and dimensions (for
example, profitability analysis by product, channel, geography, customer or
fiscal period). In addition, by insulating the user from the technical aspects
of data storage and data structures, OLAP solutions enable less technically
sophisticated users within an organization to perform their own analysis.
Typically, OLAP solutions also provide more complex computational capabilities,
including sophisticated time-series analysis, as well as ad hoc, drill-down and
interactive analysis (for example, a
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<PAGE>
marketing manager identifying a market share reduction can drill down to isolate
the problem to a specific product at a specific store).
Today, two primary OLAP architectures exist: desktop OLAP and server-based
OLAP. Desktop OLAP provides a quick, low-cost solution for applications that do
not require complex analytical capabilities and involve small data sets that do
not require frequent updates. Desktop OLAP solutions are designed for a limited
number of active users and are typically used for personal analysis.
Server-based OLAP solutions are better suited for larger data sets and more
complex analysis. Because server-based OLAP does not require the movement of
large amounts of data to the desktop, it provides greater security and reduces
network traffic, thereby accommodating a larger number of active users. One
approach to server-based solutions utilizes proprietary, non-relational,
highly-indexed database technology. This approach is best suited for workgroups
and departments requiring fast access to medium-sized data sets (e.g., tens of
gigabytes of data) but often is not scalable to accommodate a large number of
concurrent users, is not capable of loading, storing or analyzing large amounts
of data (e.g., hundreds of gigabytes to terabytes of data) and cannot
efficiently update data sets on a frequent basis. In addition, these solutions
often require the data to be loaded in a pre-defined structure thereby limiting
the ability to perform ad hoc queries. The second approach to server-based OLAP
employs existing relational database technology. This approach allows access to
larger amounts of data and provides greater flexibility in performing ad hoc
queries than non-relational database technologies.
At the same time OLAP has emerged as a means to collect, organize, access
and analyze large amounts of data, the emergence of client/server and Internet
technologies has enabled organizations to create infrastructures through which
they can disseminate information throughout their enterprise as well as to
external sources. Client/server computing has provided many employees in an
organization with desktop access to critical information resources through
easy-to-use graphical user interfaces. The emergence of Internet technologies
has provided organizations with a less expensive means to reach an even larger
audience in real time and to securely disseminate information not only to
employees, but also to external business affiliates, such as customers,
suppliers and others.
Organizations are seeking ways to extend the benefits of OLAP in order to
empower employees and other users at all levels to make better business
decisions and react faster to market opportunities. To effectively deliver OLAP
capabilities throughout the enterprise, the solution must support large data
sets, thousands of active users, and simple as well as complex analysis.
Moreover, organizations require enterprise OLAP solutions with efficient and
cost effective deployment and maintenance, and compliance with industry
standards, thereby enabling integration with hardware and software from a
variety of vendors.
THE INFORMATION ADVANTAGE SOLUTION
Information Advantage develops, markets and supports enterprise scalable
OLAP software that is designed to allow large numbers of users to access and
analyze large data sets. The Company's relational server-based solution,
DecisionSuite, provides powerful, robust and flexible analysis processing
capabilities that transform raw data into meaningful information from a wide
range of desktop and Internet platforms. Through the use of an advanced
architecture, the Company designed DecisionSuite to accommodate terabytes of
data and thousands of active users. DecisionSuite enables organizations to push
effective decision making to all levels of users thereby creating an
"intelligent enterprise," one capable of quickly identifying and reacting to
market opportunities. Key attributes of the DecisionSuite solution include:
LARGE AMOUNTS OF DATA. DecisionSuite employs relational database technology
which the Company believes is the only available database technology suitable
for supporting large databases (e.g., hundreds of gigabytes to terabytes of
data) or databases that require frequent updates and access to terabytes of
centralized or distributed data. DecisionSuite processes data on the server and
disseminates the derived results to the user.
LARGE NUMBER OF USERS. The DecisionSuite architecture uses sophisticated
partitioning technology to balance the data processing between the database and
the application server. Application partitioning is designed to maximize the
performance and analytical capabilities as the database grows and the number of
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concurrent users increases. DecisionSuite's calculation processor is designed to
perform sophisticated business calculations on raw data without overburdening
the relational database with the use of inefficient temporary tables, thereby
increasing the number of users who can concurrently access the data.
POWERFUL ANALYTICAL CAPABILITY. DecisionSuite includes a powerful C++ OLAP
calculation processor that provides comprehensive multidimensional, yet
intuitive, analysis capabilities using advanced formula-based business rules. By
avoiding an overreliance on structured query language ("SQL") for business
calculations, DecisionSuite is designed to provide powerful analytical
capabilities in a scalable architecture. DecisionSuite allows users to join data
from multiple distributed relational databases and create agents that
automatically inform them of changes in market data or from user-defined norms.
MASS DEPLOYMENT FOR THE INTELLIGENT ENTERPRISE. The Company provides for
efficient and cost-effective deployment and maintenance of DecisionSuite by
using a thin-client architecture where minimal application code is deployed to,
and maintained on, the user's desktop. As a result, organizations can more
effectively deploy and support DecisionSuite over thousands of networked users.
OPEN ARCHITECTURE. DecisionSuite was designed to integrate with most
popular tools, databases and platforms provided by other vendors. DecisionSuite
runs on the following server operating systems: HP-UX, Sun Solaris, IBM AIX, NCR
SVR4, SGI IRIX, Sequent DYNIX/ptx and Unisys SVR4; and accesses the following
relational database platforms: Oracle, Red Brick Warehouse, HP--Intelligent
Warehouse, IBM DB2 6000, IBM DB2 Parallel Edition, Informix, NCR Teradata DBS,
Sybase, Sybase IQ and Tandem Non-Stop SQL. As a result, organizations
implementing DecisionSuite can leverage their often significant investment in
existing operating systems and database technologies.
To complement its advanced product offerings, the Company has developed a
highly trained customer support staff with technical competencies in a variety
of areas, including UNIX operating systems, database management, distributed
computing and multidimensional analysis. The Company believes that to enable its
customers to effectively develop and deploy OLAP applications, it must provide
training and consulting services in these and other areas. Accordingly, the
Company has established an extensive customer services group consisting of
technical support, education, implementation, prototyping workshops and other
advanced services (including customized enhancements, content development and
performance assessment).
STRATEGY
The Company's strategy is to establish Information Advantage as the leading
provider of enterprise scalable OLAP software solutions. Key elements of the
Company's strategy include:
EXTEND TECHNOLOGY LEADERSHIP. Since inception, the Company has focused its
research and development efforts on developing core technologies that address
the requirements of data warehousing applications involving large amounts of
data, large numbers of concurrent users, complex analysis and heterogeneous
environments. The Company's solution integrates a number of technologies,
including sophisticated agent technology, flexible information sharing and
dissemination, multidimensional analysis, multi-level security and an
architecture that permits a large number of concurrent users. The Company has
leveraged these technologies to develop DecisionSuite, a proven enterprise
scalable OLAP software solution for the intelligent enterprise. DecisionSuite is
designed to access and analyze terabytes of data. Of the Company's customers,
three are in production, and five are currently building, terabyte-sized
applications. The Company intends to extend its technology leadership by
continuing to devote significant resources to research and development efforts,
and by forming strategic relationships that will enable the Company to further
enhance DecisionSuite's functionality and performance.
EXPAND VERTICAL MARKET FOCUS. The Company targets industries that routinely
collect, organize, access and analyze large amounts of business-critical data.
These industries include retail, consumer packaged goods, financial services,
insurance, telecommunications and the healthcare industries. The Company has
developed significant vertical market expertise through the deployment of
software applications for its customers in these
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industries. The Company believes that by focusing on the needs of these specific
industries and by continuing to recruit solution development partners in these
industries, it can improve the efficiency and effectiveness of its sales and
marketing efforts in these vertical markets. The Company intends to continue
leveraging its experience to address the specific needs of organizations in
these industries and to expand to other targeted industries.
EXPAND GLOBAL DISTRIBUTION. The Company sells its products primarily
through direct sales. The Company also uses strategic partners to sell its
products in targeted markets. The Company has direct sales offices in twelve
states, Canada, the United Kingdom and Germany, and has established strategic
relationships in South Africa, Netherlands and Japan. The Company is presently
localizing DecisionSuite for the French and German markets. The Company intends
to expand its direct sales and pre-sales support organizations and to develop
additional strategic relationships both in its existing markets and in other
locations worldwide. To facilitate its international expansion, the Company
anticipates localizing DecisionSuite for additional foreign markets in the
future.
EXPAND STRATEGIC RELATIONSHIPS. The Company's strategy is to supplement its
direct sales organization with strategic relationships, including solution
development partners, sales affiliates and marketing partners. The Company's
solution development partners, such as DynaMark, VIPS and IBM, have developed
industry specific software applications in which DecisionSuite is embedded. The
Company sells its products directly to solution development partners who
integrate and sell solutions to customers. The Company also has relationships
with sales affiliates, such as Cambridge Technology Group, EDS, Ernst & Young
and KPMG, who help identify and qualify sales prospects, work closely with the
Company during the sales and implementation cycles and provide after-market
support. In addition, the Company has strategic relationships with marketing
partners, such as HP, Red Brick, Sun, SPSS and Brio, who provide complementary
marketing programs designed to promote product awareness for DecisionSuite.
These relationships provide additional sales and marketing channels, thereby
enhancing the Company's position as the leading provider of enterprise scalable
OLAP software solutions. The Company's objective is to increase license revenues
from strategic relationships as a percentage of total license revenues, by
enhancing its current strategic relationships and adding additional strategic
partners.
FOCUS ON SUCCESSFUL CUSTOMER IMPLEMENTATION. The Company's strategy is to
deliver technology and services that enable its customers to quickly and cost
effectively implement and maintain applications for the intelligent enterprise.
The Company's success is dependent upon its customers' successful
implementations of its products. The Company believes that its comprehensive
consulting, implementation, support and training services enable customers to
successfully implement DecisionSuite and contribute to customer satisfaction,
strong customer references and long-term relationships. The Company offers
worldwide training, consulting and support services for its customers directly
through its customer services group and indirectly through its solution
development partners and sales affiliates. In addition to its advanced training
and consulting services, the Company provides its customers with an extensive
array of ongoing support services, including software updates, documentation
updates, telephone support and product maintenance. A significant portion of the
Company's revenues each period is derived from upgrades and services provided to
its installed customer base. The Company intends to maintain its focus on
customer success and to continue to invest in support services designed to
ensure such success.
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CUSTOMERS AND APPLICATIONS
The following is a list of the Company's customers who have licensed
DecisionSuite or entered into maintenance agreements in the nine months ending
October 31, 1997.
RETAIL
Ahold USA, Inc.
Dayton Hudson Corporation
DFS Group, Ltd.
Dial Corporation
Fabri-Center of America, Inc.
Fingerhut Corporation
Gap Inc.
Longs Drug Stores California, Inc
National Grocers Co., Limited
Neiman-Marcus
Proffitt's Inc.
Quill Corporation
J. Sainsbury PLC (UK)
Sears Canada, Inc. (Canada)
Sears Roebuck, & Co.
Shopper's Drug Mart
The Southland Corp.
The Stop & Shop Supermarket Company
Superdrug Stores, PLC (UK)
SuperValu
Tandy Corporation
Dayton Hudson Corporation, Target
Stores Division
Tupperware Corporation
Tyson Foods, Inc.
The Warehouse Ltd.
Wearguard Corporation
PACKAGED GOODS
Birds Eye Walls, Inc. (U.K.)
Brunswick Corporation
ConAgra Frozen Foods
Dominick's Fine Foods
Land O'Lakes, Inc.
Nabisco, Inc.
The Quaker Oats Company
Sara Lee Corporation/Sara Lee Meats
Van Den Bergh Foods (U.K.)
FINANCIAL SERVICES
Banc One Services Corporation
DynaMark, Inc.
Fidelity Investments
Green Tree Financial Corporation
Honor Technologies, Inc.
MasterCard International Incorporated
NOVUS Services, Inc.
Strong Capital Management, Inc.
T. Rowe Price Investment
Technologies, Inc.
HEALTH CARE
Fairview Health Systems
MCC Behavioral Care
Owen Healthcare, Inc.
TheraTx, Inc.
United HealthCare Corporation
VIPS (a division of First Data Corp.)
INSURANCE
Cigna-Intercorp, Inc.
Medical Service Bureau of Idaho/Blue Shield of
Idaho
Liberty Health
Northland Insurance Company
The Northwestern Mutual Life Insurance Company
The Prudential Insurance Company of America
The St. Paul Fire and Marine Insurance Company
TECHNOLOGY/TELECOMMUNICATIONS
60 DEG. Communications Company
Aerial Communications, Inc.
APAC Teleservices, Inc.
CCC Information Services, Inc.
Pacific Bell Communications
Pacific Bell Video Services
PrimeStar Partners, LP
Silicon Graphics Inc.
GOVERNMENT
Inland Revenue (UK)
State of Washington Department of
Social and Health Services
Utah Courts
United States Customs Service
University of California, Berkeley
MANUFACTURING
Amgen, Inc.
The Goodyear Tire and Rubber Company
Mattel, Inc.
Minnesota Mining and Manufacturing Company
Polaroid Corporation
Rockwell International Corporation
Snap-On Tools Company
OTHER
Acxiom Corporation
The Automobile Association (UK)
Cargill, Inc.
Dana Computer Corporation
Electronic Data Systems Corporation
Excel Corporation
Federal Express Corporation
IBM Consumer Driven Solutions
KPMG Peat Marwick, LLP
Northwest Airlines, Inc.
NTT Data (Japan)
Oshawa Holdings Limited (Canada)
Perseco
The Reader's Digest Association, Inc.
Regie Media Belge S.A. (Netherlands)
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DecisionSuite can be used across a range of industries and is typically used
in three types of applications: (a) customer analysis, including applications
for analyzing customer buying patterns, database marketing and campaign
management; (b) product analysis, including sales analysis, inventory management
and promotion management; and (c) operational analysis, including financial
analysis, activity-based costing, forecasting and budgeting. The following
illustrates the variety of ways customers have deployed DecisionSuite:
FINANCIAL SERVICES: An international credit card company sought to
differentiate itself from its competitors by offering its 22,000 member
financial institutions the ability to access and analyze credit card transaction
activity and trends online. The goal was to provide member financial
institutions with customer usage data to facilitate and evaluate target
marketing campaigns. This customer's Oracle database contains approximately 1.6
terabytes of data and uses NCR servers. Because of the number of potential
users, the size of the data warehouse and the fact that over 11 million
transactions are added to the database daily, scalability was paramount.
DecisionSuite was selected to provide the OLAP engine necessary to build this
application. The Company believes that DecisionSuite was chosen because of the
expertise of its support personnel and the proven scalability, security and ease
of use of the product for the end-user. The first application of DecisionSuite
was available for deployment to members within six months of the date
DecisionSuite was selected and now allows the customer's clients to track usage
patterns and focus their efforts accordingly.
INSURANCE: A provider of auto insurance claim software, data and services
sought to offer over 350 auto insurance companies the ability to access and
analyze insurance claim data via the Web as an extranet. This customer uses a
Red Brick database and a Sun server. The Company believes that DecisionSuite was
selected primarily for its Web and agent capabilities and its ability to
efficiently manage large amounts of data at a granular level. DecisionSuite
allows the customer's sales associates to analyze the claims data for potential
clients via the Web as a tool in the sales process. Upon complete
implementation, this application will also allow auto insurance companies to
access and analyze the customer's nationwide insurance claim data, including
repair cycle times and amounts paid for vehicle parts, and to compare their
claims resolution performance against industry averages and historical trends.
RETAIL: A multi-billion dollar retailer of electronics with over 6,800
retail stores nationwide sought to deliver online analysis of its consumer and
product data throughout the organization. The customer's warehouse includes
consumer and census data, as well as behavioral and point-of-sale information
from its retail stores. The consumer database alone includes profiles of over
150 million consumers, making the customer's database one of the most
comprehensive marketing databases in the world. This customer uses a Red Brick
database and an HP server. The Company believes that DecisionSuite was selected
for its complex analytical capabilities, its Web accessibility and its ability
to handle terabytes of data. DecisionSuite provides online analysis of the
databases and allows the customer's headquarters to analyze the retail stores'
performance, improve inventory controls and target promotional mailings. In
addition, this customer plans to make this application available to its retail
store managers using a standard Web browser, thereby enabling these teams to
participate in the decision making process to improve the store's performance.
PACKAGED GOODS: A leading packaged food company, with more than 200 brands
and 1,000 products in 85 countries, sought to provide better and faster sales
and product information to its sales representatives. Its application required
not only the ability to access multiple, disparate databases (Red Brick and DB2)
that used IBM servers, but it required the ability to deliver both detailed and
summarized key account information to thousands of users. The client selected
DecisionSuite and has currently deployed the system to approximately 2,500 sales
representatives throughout the organization. Using DecisionSuite, the customer's
sales representatives are now able to access and analyze online product sales
by, among other things, location and season. This enables the customer to
anticipate inventory fluctuations, thereby improving inventory controls, and
provides the sales representatives with timely decision making information, such
as which products are likely to sell and when, that often leads to new business
opportunities.
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PRODUCTS AND TECHNOLOGY
The Company's DecisionSuite products are comprised of a server capable of
handling large data sets or large numbers of concurrent users, several desktop
products designed to deliver information to variously skilled end users over
client/server and Internet architectures, and several systems management,
connectivity and database driver modules. The Company also offers an advanced
tool kit for the rapid assembly of custom OLAP applications. The Company's
products are available on most popular UNIX platforms, including HP-UX, Sun
Solaris, IBM AIX, NCR SVR4, SGI IRIX, Sequent DYNIX/ptx and Unisys SVR4, and are
able to access the following databases: Oracle, Red Brick Warehouse,
HP--Intelligent Warehouse, IBM DB2 6000, IBM DB2 Parallel Edition, Informix, NCR
Teradata DBS, Sybase, Sybase IQ and Tandem Non-Stop SQL. The Company designed
DecisionSuite's architecture to be well suited for localization in foreign
markets. The Company licenses its DecisionSuite software for a one-time license
fee determined on a per server, per named user, and database size basis.
THE DECISIONSUITE PRODUCT ARCHITECTURE
[GRAPHIC]
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DECISIONSUITE SERVER
The DecisionSuite Server is a multi-user product designed to allow large
numbers of users to access and analyze large data sets. The DecisionSuite Server
delivers enhanced OLAP services including: agent and exception reporting
functions to push personalized information directly to users; security based on
individual, workgroup and enterprise level user privileges; and group or
personal query controls to minimize system performance degradation caused by
either individuals or user groups. DecisionSuite Server augments SQL with an
efficient and sophisticated C++ calculation processor that is scalable to
thousands of active users and terabytes of data. The DecisionSuite Server's
CONCURRENT SESSION MANAGER is designed to add, manage and delete concurrent
processes initiated by requests from multiple users or agents, allowing
customers to scale DecisionSuite across the enterprise. The DecisionSuite
Server's METADATA model centralizes maintenance and isolates users from
technical complexities by mapping database structures and business rules with
intuitive business descriptions, thereby simplifying user interactions with the
system.
DECISIONSUITE DB DRIVERS. DecisionSuite DB Drivers are designed to provide
organizations with the option of connecting DecisionSuite to target relational
databases with either native drivers or ODBC drivers. Each DB Driver accounts
for the unique SQL syntax and query optimizer of each target database while
allowing organizations to easily switch database vendors' products independently
of deployed DecisionSuite applications. DecisionSuite provides DB Drivers for
Oracle, Red Brick Warehouse, HP-- Intelligent Warehouse, IBM DB2 6000, IBM DB2
Parallel Edition, Informix, NCR Teradata DBS, Sybase, Sybase IQ, and Tandem
Non-Stop SQL.
DISTRIBUTED OLAP ENGINE. DecisionSuite's OLAP Engine uses distributed
processing technology to maximize user concurrency and analytical functionality.
In particular, the Company's calculation processor performs sophisticated
business analysis on raw data without overburdening the database with use of
inefficient temporary tables. This capability enables intensive application
processing to be off-loaded from the database so that organizations can
effectively scale to large numbers of users. This capability also allows support
of hundreds of business calculations and functions that are not currently
supported in SQL.
ENTERPRISE OLAP SERVICES. DecisionSuite provides essential services
required for enterprise-scale deployments including:
WORKGROUP SECURITY. The partitioned, server software design of
DecisionSuite allows additional levels of security provided by an
application server account. In this manner, users with similar
requirements are easily added to the system without risk of improper
information access. Reports, report components and database views are
secured at personal, workgroup and enterprise levels.
COLLABORATION. The Company's use of object technology enables report
data and logic to be shared among users. Each report contains the data,
assumptions and processing logic so that users can interactively exchange
and build on each other's analysis. This technology facilitates live
information sharing among users of the Company's product.
REPORT CASTING. The Company's use of report template technology allows
power users or information technology personnel to efficiently create a
few report models for thousands of different reports. Each report
template contains the instructions and parameters required to generate a
single request. Upon access, the user profile is used to map the
appropriate parameters into the instruction set at run-time so that each
user receives a personalized report. This capability enables the
administrator to build and maintain a relatively small number of
automatically adapting report templates, rather than tens of thousands of
user specific reports.
AGENTS. The Company's server-centric architecture and multi-user,
multi-tasking server technology allows DecisionSuite users to design
autonomous intelligent agents, the results of which can be shared by
multiple users. These agents are created by users and reside on the
server. The agents also can be
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triggered by areas of opportunity or trouble, without affecting desktop
performance. The results of the agents may be delivered in real time to
one or more users via e-mail, pager telephone and the Internet so their
assumptions and results can be explored and challenged, as well as shared
to reduce the use of system resources for repetitive batch processing.
DECISIONSUITE DESKTOPS
DecisionSuite Desktops include an array of products positioned to meet the
varying needs and skill levels of employees in an organization.
WEBOLAP. WebOLAP is intended for all users seeking OLAP capability over the
Internet. This product provides ad hoc reporting and OLAP capability using only
a browser, a DecisionSuite user name and a password. WebOLAP's Universal Access
functionality allows users direct access to the DecisionSuite Server from search
engines for seamless integration into corporate Web sites. WebOLAP's codeless
desktop architecture enables it to be used from any desktop with a Web browser,
without requiring a plug-in or extension, eliminating installation and reducing
administration costs in large user environments. Complete integration with the
DecisionSuite Server also allows WebOLAP users to seamlessly share secure,
interactive reports, and collaborate with co-workers using any DecisionSuite
Desktop.
NEWSLINE. NewsLine is intended for active users to deliver and receive live
information, reports, alerts and intelligent agents. Users of this product can
be alerted to the latest opportunities and problems affecting their business by
software agents that monitor, analyze and filter information 24 hours a day,
seven days a week. For example, users have the ability to drill up, down or
across business dimensions anywhere in the data warehouse then pivot and export
results with a spreadsheet hot-link. NewsLine allows experienced users the
ability to securely view and modify all assumptions underlying the analysis,
including calculations and filters. Users may drag and drop calculations and
filters to review the entire data warehouse. NewsLine has robust business
charting capabilities and can be integrated with external applications,
including operational systems, catalogs and powerful GIS mapping systems.
ANALYSIS. Analysis is intended for power users and provides authoring and
publishing capabilities in addition to all the functionality of NewsLine. This
product allows users to start with a "blank sheet of paper," then point and
click to author and publish filters, calculations, calculation templates,
reports, report templates, distributed intelligent agents, triggers and alerts
as well as navigate throughout the entire data warehouse. Alerts can be directed
and broadcast as "live" interactive reports and as messages via e-mail, pager,
telephone and the Internet. Users are presented information in business terms so
that they can explore gigabytes of information without the technical knowledge
of database structures or SQL.
DECISIONSUITE WORKBENCH
The DecisionSuite Workbench allows database and system administrators to
define, manage and support user profiles, security, and group or personal query
controls, as well as to customize and distribute desktop profiles across the
network. Developers can also use DecisionSuite Workbench to create more
sophisticated intelligent agents, custom applications and add-in functionality,
and to integrate DecisionSuite with operational systems. With DecisionSuite's
thin-client architecture, all applications are centrally managed from the
server, thereby reducing cost of ownership and allowing database and systems
administrators to improve DecisionSuite's efficiency.
DECISIONSUITE CONNECTIONS
DecisionSuite Connections provide connectivity with complementary OLAP and
productivity tools. To date, the Company has developed DecisionSuite Connections
for Microsoft Excel, Lotus 123 and Brio. These connections provide users of
DecisionSuite Desktops with the ability to automatically download data into
desktop tools. For example, Brio Connection provides users with the ability to
generate a small data cube that is automatically downloaded into Brio's OLAP
desktop, enabling the user to perform interactive analysis, formatting and
charting while disconnected from the network.
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SALES AND MARKETING
SALES
The Company sells its products in North America and the United Kingdom
primarily through its direct sales and services organizations. The Company
employs highly skilled engineers and technically proficient sales persons
capable of serving the sophisticated needs of its customers' information and
business management staffs. The Company has domestic sales or support staff
located in California, Colorado, Georgia, Illinois, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, Texas, Virginia, and international
offices in Toronto, Canada; London, England; and Koln, Germany.
To date, a majority of the Company's sales have been generated from its
direct sales force. The Company intends to supplement its sales efforts by
implementing and supporting its products through a network of solution
development partners, sales affiliates and marketing partners. The Company's
strategic partners are independent organizations that perform some or all of the
following functions: sales and marketing; systems implementation and
integration; software development and customization; and ongoing consulting,
training, service and technical support.
The Company has an ongoing program to recruit major systems integrators and
to train and support them in identifying sales opportunities and implementing
the Company's products. The Company is working with several of these affiliates
to develop additional applications for targeted markets, such as finance and
banking, insurance, telecommunications and retail. The Company offers such sales
affiliates discounts on products and training, a cooperative marketing program,
and field level assistance from the Company's direct sales force. The Company
currently has such a relationship with Cambridge Technology Group, EDS, Ernst &
Young, and KPMG.
The Company believes that its strategic partners have significant influence
over product choices by customers and that its relationships with these partners
are an essential element in its marketing, sales and implementation efforts.
Through its partner network, the Company is able to obtain leads and provide
customers with trained and knowledgeable software professionals who are
available locally to implement its systems as well as provide ongoing service
and support. Some of the Company's strategic partners customize the Company's
solutions to fit individual business needs and develop industry-specific
software applications that integrate with and extend the functionality of the
Company's products. The Company currently has solution development partnerships
with DynaMark, VIPS and IBM.
MARKETING
The Company is focused on building market awareness and acceptance of the
Company and its products as well as on developing strategic partnerships. The
Company has a comprehensive marketing strategy with several key components:
image and awareness building, direct marketing to both prospective and existing
customers, a strong Web presence, broad-scale events with strategic partners and
local marketing with partners. The Company's corporate image strategy includes
trade shows, as well as analyst and press tours. The Company's direct marketing
includes ongoing direct mail efforts to existing and prospective customers. For
prospective customers, the Company also offers seminars to assist them in
selecting enterprise scalable OLAP solutions. Seminars are offered in
conjunction with strategic partners in their local or industry-specific markets.
The Company's Web-based marketing is designed to generate new leads for the
Company. The Company increases product awareness by sponsoring large scale
events and seminars for prospective customers with key industry partners.
Finally, the Company's marketing strategy is designed to take advantage of the
Company's partnership network by including cooperative marketing programs
designed for partners' local markets. The Company's marketing partners include
HP, Red Brick, Sun, SPSS and Brio.
As of October 31, 1997, the Company's sales and marketing organization
consisted of 81 employees compared to 18, 28 and 70 employees at January 31,
1995, 1996 and 1997, respectively.
CUSTOMER SUPPORT
The Company believes that providing superior customer service is critical
for customer success. The Company's strategy is to deliver technology and
services that enable its customers to implement OLAP
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applications quickly. Its focused experience in designing and implementing
decision support applications is a significant factor in enabling the Company to
implement this strategy. The Company intends to continue to invest in
specialized training of its personnel to provide superior customer service. Most
of the Company's customers currently have maintenance agreements that entitle
them to technical support and periodic upgrades. The Company also offers
additional training and consulting services on a fee basis.
MAINTENANCE AND TECHNICAL SUPPORT. The Company has established a
centralized corporate maintenance and technical service group that is supported
by the consulting and research and development groups. The Company provides
customers with a comprehensive array of services, including software updates,
documentation updates, telephone support, product maintenance and emergency
response. The annual fee for such services is typically 18% of the list price of
the software products licensed and supported.
EDUCATION. The Company offers a series of business and technical courses to
meet the education and training requirements of all levels of professionals
associated with data warehousing and decision support. These courses are
designed to provide the knowledge, skills and confidence to implement
enterprise-wide decision support and enhance the use of DecisionSuite. The
Company offers several modular courses that can be tailored to specific customer
needs. Education specialists meet with customers to design an education plan to
meet organizational goals. Regularly scheduled courses are offered at the
Company's training facility located in Eden Prairie, Minnesota. End user
customer courses are provided at customers' facilities.
IMPLEMENTATION SERVICES. The Company offers a wide range of customer
services to support the implementation requirements of the DecisionSuite line of
products and promote customer self-sufficiency. The Company utilizes a
proprietary methodology for implementation support, called DecisionPath.
DecisionPath was developed internally and incorporates the Company's extensive
implementation experience. Because of the varying needs of its customers, the
Company offers modular services in the following areas: business application
design; data warehouse architecture design; DecisionSuite implementation;
end-user content and delivery; and DecisionSuite optimization.
DECISIONCENTER. The Company offers a series of prototyping workshops in its
DecisionCenter facility. DecisionCenter is a fully equipped prototyping
environment, staffed with knowledgeable business and technical personnel. Each
workshop utilizes the customer's own data, making the prototyping experience as
realistic as possible. The Company believes that a successful implementation of
new technology can be traced to a successful prototype. These prototype systems
use actual company data to assist the business users in identifying the
questions they need to ask but have been unable to visualize. The time and
effort to set up an evaluation environment can be expensive and fraught with
technical infrastructure complexities. The Company provides its customers with
the training benefits of prototyping but shields them from such complexities.
ADVANCED SERVICES. The advanced services group assists in the initial
development of specific solutions for OLAP applications, including
activity-based costing, forecasting, health care analysis and customer
segmentation. This group often provides consultation in the early stages of
modeling and solution-design, combining their strong, technical OLAP expertise,
their in-depth hands-on experience with APIs, and their proven creativity in
architecture and functionality design. Their solutions address the more complex
needs of enterprise OLAP while also focusing on usability and performance for
the end users. Their extensive experience with the APIs have led to the
development of a series of DecisionSuite extensions. These extensions are
optional programs that offer functionality not otherwise available within the
core DecisionSuite product. Extensions consist of either tools for the system
administrator or for the end user.
As of October 31, 1997, the Company's services organization consisted of 62
employees compared to 23, 26 and 41 employees at January 31, 1995, 1996 and
1997, respectively.
RESEARCH AND DEVELOPMENT
Research and development has provided the foundation for the Company's
success in the marketplace, and the Company intends to continue to make
substantial investments in research and development and related activities to
maintain and enhance its product lines. The Company believes that its future
success will, in large part, depend on its ability to maintain and improve
current products, and to develop new products that meet emerging decision
support needs. Research is focused in three areas: identifying market needs,
designing
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applications for these needs and implementing such solutions in a reliable and
easy-to-use fashion. Current development activities are focused on product
enhancements in several key areas: OLAP engine, Windows client delivery systems,
Internet delivery systems, agent technology and forecasting. The development
group infrastructure provides a full suite of documentation, quality assurance,
delivery and support capabilities (in addition to its design and implementation
functions) for the Company's products.
As of October 31, 1997, the Company's research and development organization
consisted of 58 employees compared to 26, 32 and 45 employees at January 31,
1995, 1996 and 1997, respectively. From inception through October 31, 1997 the
Company has spent $13.0 million on research and development. Most of the senior
members of the Company's research and development organization have been
employed by the Company since its inception.
COMPETITION
The market in which the Company competes is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. The Company's current and prospective competitors offer a variety of
planning and analysis software solutions and generally fall within three
categories: (i) vendors of desktop OLAP software such as Cognos and Business
Objects; (ii) vendors of multidimensional OLAP software such as Oracle
(Express), Arbor Software, Seagate (Holos) and SAS; and (iii) vendors of
OLAP/relational database software such as MicroStrategy and Platinum Technology
(Prodea). The Company has experienced and expects to continue to experience
increased competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Also, certain current and potential competitors, including companies
such as Microsoft, IBM, Sybase and Informix may have greater name recognition or
more extensive customer bases that could be leveraged. These companies could
integrate competing OLAP/relational database software with other widely accepted
products resulting in a loss of market share for the Company. The Company
expects additional competition as other established and emerging companies enter
into the OLAP software market and new products and technologies are introduced.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, longer sales cycles and loss of market share, any of
which would materially adversely affect the Company's business, operating
results and financial condition.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. The Company's current or future indirect
channel partners may establish cooperative relationships with current or
potential competitors of the Company, thereby limiting the Company's ability to
sell its products through particular distribution channels. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Such competition could
materially adversely affect the Company's ability to obtain new contracts and
maintenance and support renewals for existing contracts on terms favorable to
the Company. Further, competitive pressures may require the Company to reduce
the price of DecisionSuite, which would materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
The Company competes on the basis of certain factors, including data
scalability, user scalability, open architecture, analytical capabilities,
product features, product performance, product quality, time to market, ease of
use, customer support and price. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able to
compete successfully against current and future competitors, and the failure to
do so successfully will have a material adverse effect upon the Company's
business, operating results and financial condition.
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INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. For example, the Company licenses its
software pursuant to signed license agreements, which impose certain
restrictions on licensees' ability to utilize the software. In addition, the
Company seeks to avoid disclosure of its trade secrets, including requiring
those persons with access to the Company's proprietary information to execute
confidentiality agreements with the Company and restricting access to the
Company's source code. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of many countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no assurance
that third parties will not claim infringement by the Company with respect to
current or future products. The Company expects that data warehouse and data
mart software product developers will increasingly be subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the Company
or at all, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
The Company provides its products to end users under non-exclusive licenses,
which generally are non-transferable and have a perpetual term. The Company
generally licenses its products solely for the customer's internal operations.
The Company also licenses its software on an enterprise-wide basis. The Company
has entered into source code escrow agreements for its products. Generally,
customers are required to obtain separate licenses for the database management
systems they select directly from the RDBMS vendors. Furthermore, customers must
obtain separate licenses for any spreadsheets or other PC tools they use
directly from such other vendors.
EMPLOYEES
As of October 31, 1997, the Company had a total of 219 employees, of which
193 were based in the United States, 19 were based in the United Kingdom, 3 were
based in Canada and 4 in Germany. Of the total, 81 were engaged in sales and
marketing, 58 were in research and development, 62 were in services, and 18 were
in finance, administration and operations. The Company's future performance
depends in significant part upon the continued service of its key technical,
sales and senior management personnel, 6 of whom are bound by employment
agreements. None of the Company's employees is represented by a labor union. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.
FACILITIES
The Company's principal administrative, sales, marketing, support, and
research and development facility is located in approximately 36,500 square feet
of space in Eden Prairie, Minnesota. The lease on this office space expires on
June 30, 2002. The Company also leases other domestic sales offices throughout
the United States, as well as international offices in Canada, the United
Kingdom and Germany. The Company believes that suitable additional or
alternative space will be available in the future on commercially reasonable
terms as needed.
LITIGATION
The Company is not currently subject to any material legal proceeding.
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MANAGEMENT
BOARD MEMBERS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ----------------------------------------------------------------------
<S> <C> <C>
Larry J. Ford....................... 56 President, Chief Executive Officer and Director
Richard L. Tanler................... 47 Chairman of the Board and Senior Vice President, Strategic Planning
and Marketing
Donald W. Anderson.................. 44 Vice President and Chief Financial Officer
Mark Furtney........................ 51 Vice President, Engineering
Richard S. Parker................... 41 Vice President, Marketing
Robin L. Pederson................... 38 Vice President, Worldwide Sales
Rory C. (Butch) Terrien............. 37 Senior Vice President, Research and Development
Mary K. Trick....................... 42 Vice President, Customer Services
Fredric R. (Rick) Boswell(1)........ 53 Director
Ronald E.F. Codd(2)................. 42 Director
Promod Haque(1)..................... 49 Director
Donald R. Hollis(1)................. 61 Director
Jay H. Wein(2)...................... 65 Director
William H. Younger, Jr.(2).......... 47 Director
</TABLE>
- --------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
LARRY J. FORD has been President, Chief Executive Officer and Director since
May 1995. From August 1991 to November 1994, Mr. Ford served as Chairman and
Chief Executive Officer of Systems Software Associates, a Chicago-based,
enterprise-wide, vertically integrated applications software company
specifically targeting the manufacturing sector. Prior to August 1991, Mr. Ford
held several executive positions at IBM including President of the Latin America
Division, Vice President of Marketing for mid-range computing, and Vice
President of Information and Telecommunications Systems. Mr. Ford serves as a
director of Telular Corporation, where he serves on the Compensation and Audit
Committees. Mr. Ford holds a B.S. in Mathematics and Economics from Claremont
Men's College.
RICHARD L. TANLER has been Chairman of the Board of Directors and Senior
Vice President, Strategic Planning and Marketing since May 1995. Mr. Tanler is a
founder of the Company and served as President and Chief Executive Officer from
June 1992 through May 1995. Prior to this position, Mr. Tanler served as
Director of Services, Business Unit at Metaphor Computer Systems, Inc., a
software company ("Metaphor"). Mr. Tanler holds a B.S. in Business Quantitative
Systems from Arizona State University.
DONALD W. ANDERSON has been Vice President and Chief Financial Officer since
November 1996. From May 1996 to November 1996, Mr. Anderson served as Vice
President, Finance for the School Product Unit of The Learning Company, Inc., an
educational software company that merged with his previous employer, the
Minnesota Educational Computing Corporation ("MECC"). Mr. Anderson served as
Senior Vice President, Finance and Chief Financial Officer of MECC from August
1988 to May 1996 and held various positions at MECC since he joined MECC in
1980, including Vice President, Operations. Mr. Anderson holds a B.A. in
Accounting from Metropolitan State University.
MARK FURTNEY has been Vice President, Engineering since July 1997. From 1988
to July 1997, Dr. Furtney worked for Cray Research, Inc., a supercomputer
supplier, in a variety of positions, including Senior Director of Technology.
Dr. Furtney holds a Ph.D. in Computer Science from the University of Virginia,
an M.S. in Nuclear Engineering from the Massachusetts Institute of Technology
and a B.S. in Mechanical Engineering from Clarkson University.
42
<PAGE>
RICHARD S. PARKER has been Vice President of Marketing since January 1994.
He is a founder of the Company and served as Director of Marketing from April
1990 through December 1993. From September 1984 to April 1990, Mr. Parker was
employed with Metaphor in a variety of positions, including Director of Data
Management, Marketing Manager and Manager of Business Development for the
Metaphor Consulting Group. Mr. Parker attended the University of Minnesota,
majoring in Business Administration.
ROBIN L. PEDERSON has been Vice President, Worldwide Sales for the Company
since April 1996. From June 1995 to April 1996, Mr. Pederson was Senior Vice
President, Worldwide Sales, Marketing and Support for Great Plains Software,
Inc., a financial applications software company. From October 1990 to June 1995,
Mr. Pederson worked for Banyan Systems, Inc., a network software provider, in a
variety of positions including Vice President, Americas. Mr. Pederson holds a
B.S. in Business Administration from the University of North Dakota.
RORY C. (BUTCH) TERRIEN has been Senior Vice President, Research and
Development since June 1992. Prior to joining the Company, Mr. Terrien was
employed with Metaphor as the Development Manager for the Metaphor Consulting
Group. Mr. Terrien holds a B.S. in both Mechanical Engineering and Computer
Science from Northwestern University and an M.S. in Mechanical Engineering from
the University of Minnesota.
MARY K. TRICK has been Vice President, Customer Services since June 1995.
From November 1992 to July 1995, Ms. Trick was employed by Keane, Inc., a
technical consulting firm, in a variety of positions including Branch Manager
for the Minneapolis Branch. From October 1980 to November 1992, Ms. Trick was
employed by Wang Industries, a hardware and software firm, in a variety of
positions including business consultant, presales, Practice Manager and Services
Director for various regions. Ms. Trick attended the University of Minnesota.
FREDRIC R. (RICK) BOSWELL has been a director of the Company since March
1993. Since April 1989 Dr. Boswell has served as the Executive Vice President of
St. Paul Venture Capital, Inc., a venture capital firm. From September 1985 to
May 1989, Dr. Boswell served as President and Chief Operating Officer of ADC
Telecommunications, Inc., a manufacturer of telecommunications equipment and
systems. Prior to September 1985, Dr. Boswell served as President and Chief
Executive Officer of the E.F. Johnson Company, a manufacturer of components,
equipment and systems for wireless communications. Dr. Boswell has served as a
director of the Telecommunications Industry Association and the Minnesota High
Technology Council and as a member of the Executive Advisory Board of the
National Communications Forum. Dr. Boswell holds a B.S. in electrical
engineering and an M.S. and a Ph.D. in computer engineering from Case Western
Reserve University as well as an M.B.A. from the Harvard Business School.
RONALD E.F. CODD has been a director of the Company since August 1997. Mr.
Codd has worked at PeopleSoft, Inc. since 1991, and has served as the Senior
Vice President of Finance and Administration and Chief Financial Officer. From
March 1989 to August 1991, Mr. Codd served as Corporate Controller of MIPS
Computer Systems, Inc. Mr. Codd holds a B.S. in Accounting from the University
of California, Berkeley and an M.M. from the J.L. Kellogg Graduate School of
Management, Northwestern University.
PROMOD HAQUE has been a director of the Company since March 1993. Dr. Haque
joined Norwest Venture Capital Management, Inc., a venture capital firm, in
November 1990 and is currently a General Partner of Norwest Equity Partners V,
L.P. and a General Partner of Norwest Equity Partners IV, L.P. Dr. Haque
currently serves as a director of Optical Sensors, Inc., Prism Solutions, Raster
Graphics, Inc., Connect, Inc., Transaction Systems Architects, Inc. and several
privately held companies. Dr. Haque holds a B.S.E.E. from the University of
Delhi, India, an M.S.E.E. and a Ph.D.E.E. from Northwestern University, and an
M.M. from the J.L. Kellogg Graduate School of Management, Northwestern
University.
DONALD R. HOLLIS has been a director of the Company since August 1996. Mr.
Hollis is President of DRH Strategic Consulting, Inc., a consulting firm, where
he has been employed since March 1996. Prior to January 1996, Mr. Hollis served
as an Executive Vice President of First Chicago Corporation/First National
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<PAGE>
Bank of Chicago. Mr. Hollis serves as a director of Deluxe Corporation,
Teltrend, Inc., Open Port Technology and the Cambridge Assessment Center. Mr.
Hollis holds a B.B.A. from Kent State University.
JAY H. WEIN has been a director of the Company since June 1992. Mr. Wein has
worked as an independent investor and business consultant since September 1989.
From June 1992 to May 1995, Mr. Wein served as Chairman of the Board of the
Company. Between July 1974 and August 1989 Mr. Wein served as Managing Partner
of the Minneapolis/St. Paul office at Arthur Andersen & Co. Mr. Wein serves as a
director of Great Hall Investment Funds, Inc. and of several private companies
and non-profit organizations. Mr. Wein holds a B.S.B.A. from the University of
South Dakota.
WILLIAM H. YOUNGER, JR. has been a director of the Company since July 1995.
Since 1992, Mr. Younger has been a general partner of Sutter Hill Ventures, a
California Limited Partnership which is a venture capital management firm. Mr.
Younger currently serves as a director of COR Therapeutics, Inc., Celeritek,
Inc., Oacis Healthcare Systems, Inc. and Forte Software, Inc. Mr. Younger holds
a B.S.E.E. from the University of Michigan and an M.B.A. from Stanford
University.
COMMITTEES
The Audit Committee consists of Messrs. Codd, Wein and Younger. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent accountants, reviews the results and scope of audit and
other services provided by the Company's independent accountants and reviews and
evaluates the Company's audit and control functions.
The Compensation Committee consists of Drs. Boswell and Haque and Mr.
Hollis. The Compensation Committee makes recommendations regarding the Company's
1997 Equity Incentive Plan and makes decisions concerning salaries and incentive
compensation for employees and consultants of the Company.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from the Company
for their services as members of the Board of Directors, although members are
reimbursed for certain expenses in connection with attendance at Board of
Directors and Committee meetings. Messrs. Hollis and Wein also serve as
part-time consultants to the Company for which they have been compensated
separately. Non-employer directors will also receive periodic option grants
under the Company's 1997 Equity Incentive Plan. See "Management--1997 Equity
Incentive Plan."
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the fiscal year ended January 31, 1997 paid by the Company for services to the
Company by the Company's Chief Executive Officer and the Company's four other
highest-paid executive officers whose total salary and bonus for such fiscal
year exceeded $100,000 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------
LONG-TERM
COMPENSATION
-------------------
AWARDS
ANNUAL -------------------
COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
---------- --------- ------------------- -----------------
<S> <C> <C> <C> <C>
Larry J. Ford ................................... $ 175,000 $ 74,100 0 $ 25,000
President and Chief Executive Officer
Richard L. Tanler ............................... 150,000 42,400 0 0
Chairman and Senior Vice President, Strategic
Planning and Marketing
Robin L. Pederson(2) ............................ 119,423 56,250 172,000 15,612
Vice President, Worldwide Sales
Mary K. Trick ................................... 120,000 29,375 38,000 0
Vice President, Customer Services
Rory C. (Butch) Terrien ......................... 110,000 33,500 28,000 0
Senior Vice President, Research and Development
</TABLE>
- ------------------------
(1) Consists of moving expenses.
(2) Mr. Pederson's employment started on April 18, 1996 at an annual base salary
of $150,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the fiscal
year ended January 31, 1997 to each of the Named Executive Officers. No stock
appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM($)(4)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL 1997(2) ($/SHARE)(3) DATE 5% 10%
- -------------------------------- ------------- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Ford................... 0 -- -- -- -- --
Richard L. Tanler............... 0 -- -- -- -- --
Robin L. Pederson............... 172,000 23.3% $ 1.125 4/19/06 $ 121,691 $ 308,389
Mary K. Trick................... 12,000 1.6 1.125 7/23/06 8,490 21,516
26,000 3.5 1.125 7/26/06 18,395 46,617
Rory C. (Butch) Terrien......... 28,000 3.8 1.125 8/15/06 19,810 50,203
</TABLE>
- ------------------------
(1) Generally, twenty percent of these options vest on the first anniversary of
the date of grant; an additional 20% of these options vest on October 31,
1997; and an additional 20% of these options vest on each anniversary of the
date of grant occurring in 1998, 2000 and 2001. These options have a ten
year term, subject to earlier termination in the event of the optionee's
cessation of service with the Company.
45
<PAGE>
(2) Based on an aggregate of 736,120 shares subject to options granted to
employees of the Company under the 1992 Stock Option Plan.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or any other method
approved by the Board.
(4) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent the Company's prediction of its stock
price performance. The potential realizable values at 5% and 10%
appreciation are calculated by assuming that the exercise price on the date
of grant appreciates at the indicated rate for the entire term of the option
and that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price.
OPTION VALUES
The following table sets forth information concerning the unexercised
options that are held by the Named Executive Officers as of the end of fiscal
year 1997. No options were exercised by the Named Executive Officers in fiscal
year 1997. No stock appreciation rights were exercised by the Named Executive
Officers in fiscal year 1997 or were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END(#) FY- END($)(1)
-------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------- ----------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Larry J. Ford.............................................. 147,295 343,687 0 0
Richard L. Tanler.......................................... 93,738 151,752 2,700 0
Robin L. Pederson.......................................... 0 172,000 0 0
Mary K. Trick.............................................. 6,000 62,000 0 0
Rory C. (Butch) Terrien.................................... 39,600 60,400 1,500 0
</TABLE>
- ------------------------
(1) Based on the fair market value of the Company's Common Stock at fiscal
year-end (January 31, 1997) ($1.13 per share), as determined by the
Company's Board of Directors, less the exercise price payable for such
shares.
STOCK PLANS
1997 EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "Plan") was adopted by the
Board on September 23, 1997, subject to stockholder approval. The number of
shares of Common Stock reserved for issuance under the Plan is equal to (i)
1,000,000 plus (ii) 195,591 the aggregate number of shares remaining available
for grants under the Company's 1992 Stock Option Plan (the "Predecessor Plan")
on October 31, 1997. As of February 1 of each year, commencing with the year
1999, the number of shares reserved for issuance under the Plan will be
increased automatically by the lesser of (i) 3.5% of the total number of shares
of Common Stock then outstanding or (ii) 400,000 shares. As of October 31, 1997,
no options had been granted under the Plan. Under the Plan, employees,
non-employee members of the Board ("Outside Directors") and consultants may be
awarded options to purchase shares of Common Stock, stock appreciation rights
("SARs"), restricted shares or stock units (collectively, the "Awards"). Options
may be incentive stock options designed to satisfy Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or nonstatutory stock options not
designed to meet such requirements. If restricted shares or shares issued upon
the exercise of options granted under this Plan or the Predecessor Plan are
forfeited, then such shares will again become available for awards under the
Plan. If stock units, options or SARs granted under this Plan or the Predecessor
Plan are forfeited or terminate for any other reason before being exercised,
then the corresponding shares will again become available for awards under the
Plan.
46
<PAGE>
The Plan is administered by the Company's Compensation Committee (the
"Committee"). The Committee has the complete discretion to determine which
eligible individuals are to receive any award, determine the type, number,
vesting requirements and other features and conditions of such award, interpret
the Plan and make all other decisions relating to the operation of the Plan.
The exercise price for non-qualified and incentive stock options granted
under the Plan may not be less than 85% or 100%, respectively, of the fair
market value of the Common Stock on the option grant date and may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised by
using a cashless exercise method, a pledge of shares to a broker or promissory
note. The payment for the award of newly issued
restricted shares will be made in cash, by promissory note or the rendering of
past or future services.
The Committee has the authority to modify, extend or assume outstanding
options and SARs or may accept the cancellation of outstanding options or SARs
in return for the grant of new options or SARs for the same or a different
number of shares and at the same or a different exercise price.
Each Outside Director who first becomes a member of the Board after the date
of the offering will receive a one-time option grant for 8,000 shares of Common
Stock upon taking office. This option grant for 8,000 shares will become
exercisable with respect to 20% of the shares upon the completion of twelve
months of Board service and with respect to the balance of the shares in equal
installments on a monthly basis thereafter for the next four years of service.
Upon the conclusion of each regular annual meeting of the Company's stockholders
held in the 1998 calendar year and thereafter, each Outside Director who will
continue to serve as a Board member will receive an option for 1,600 shares of
Common Stock, except that an Outside Director will not receive an annual grant
for 1,600 shares in the same year he or she received the one-time option grant
for 8,000 shares. The option for 1,600 shares will become exercisable upon the
completion of sixty months of Board service from the grant date. The
exercisability of each 8,000-share or 1,600-share option granted to an Outside
Director will accelerate in the event of the optionee's death, disability or
retirement at age 65 and may accelerate in the event of a Change in Control (as
defined below).
The Board may decide to implement a program that allows an Outside Director
to elect to receive his or her annual retainer payments and meeting fees from
the Company in the form of cash, options, restricted shares, stock units or a
combination thereof. The number and terms of such options, restricted shares or
stock units to be granted to Outside Directors in lieu of annual retainers and
meeting fees will be calculated in a manner determined by the Board.
Upon a Change in Control, an Award will become fully exercisable as to all
shares subject to such Award if such Award is not assumed by the surviving
corporation or its parent and the surviving corporation or its parent does not
substitute such Award with another award of substantially the same terms. In the
event of an involuntary termination within 12 months following a Change in
Control, the vesting of an Award will accelerate, as if the holder of the Award
performed services for the Company for an additional 12 months.
A Change in Control includes (i) a merger or consolidation of the Company
after which the Company's then current stockholders own less than 50% of the
surviving corporation, (ii) sale of all or substantially all of the assets of
the Company, (iii) a proxy contest that results in replacement of more than
one-third of the directors over a 24-month period or (iv) acquisition of 50% or
more of the Company's outstanding stock by a person other than a trustee of any
of the Company's employee benefit plans or a corporation owned by the
stockholders of the Company in substantially the same proportions as their stock
ownership in the Company. In the event of a merger or other reorganization,
outstanding options, SARs, restricted shares and stock units will be subject to
the agreement of merger or reorganization, which may provide for the assumption
of outstanding Awards by the surviving corporation or its parent, for their
continuation by the Company (if the Company is a surviving corporation), for
accelerated vesting and accelerated expiration, for settlement in cash or for
cancellation of the outstanding Awards.
The Board may amend or terminate the Plan at any time. Amendments may be
subject to stockholder approval to the extent required by applicable laws.
47
<PAGE>
1997 EMPLOYEE STOCK PURCHASE PLAN
The Board adopted the Company's 1997 Employee Stock Purchase Plan (the
"Purchase Plan") on September 23, 1997, subject to stockholder approval. A total
of 200,000 shares of Common Stock have been reserved for issuance under the
Purchase Plan. The Purchase Plan is intended to qualify under Section 423 of the
Code. Each calendar year, two overlapping offering periods each with a duration
of 18 months will commence on January 1 and June 1 (except that the first
offering period will commence on the effective date of the offering and end on
December 31, 1999). Each offering period contains three six-month accumulation
periods, with purchases occurring at the end of each six-month accumulation
period. However, the initial accumulation period will begin on the effective
date of the offering and end on May 31, 1998. The Purchase Plan will be
administered by the Committee. Each employee will be eligible to participate if
he or she is (i) employed by the Company for at least 20 hours per week for more
than five months per year and (ii) is an employee on the effective date of the
offering or has been employed by the Company for at least three consecutive
months. The Purchase Plan permits each eligible employee to purchase Common
Stock through payroll deductions, which may not exceed 15% of an employee's
compensation, nor more than 500 shares on any purchase date. The price of each
share of Common Stock purchased under the Purchase Plan will be 85% of the lower
of (i) the fair market value per share of Common Stock on the date immediately
prior to the first date of the applicable offering period (except that in the
case of the first offering period, the price per share will be the price offered
to the public in the offering) or (ii) the date at the end of the applicable
accumulation period. Employees may end their participation in the Purchase Plan
at any time during the accumulation period, and participation ends automatically
upon termination of employment with the Company.
In the event of a Change in Control, all offering periods and accumulation
periods will terminate and each outstanding purchase right will be exercised.
The Board may amend or terminate the Purchase Plan at any time. However, the
Board may not, without stockholder approval, increase the number of shares of
Common Stock reserved for issuance under the Purchase Plan.
401(K) PLAN
The Company has adopted a 401(k) retirement savings plan referred to as the
"Information Advantage, Inc. Employees 401(k) Plan." This plan is available to
all employees who have attained age 21 and have completed six months of service.
An employee may contribute, on a pre-tax basis, up to 20% of the employee's
wages from the Company to limitations specified under the Internal Revenue Code.
Under the terms of the Information Advantage, Inc. Employees 401(k) Plan, the
Company may match employee contributions up to six percent of the employee's
compensation and may make discretionary profit sharing contributions, but has
not elected to do either. Contributions are allocated to each employee's
individual account and are, at the employee's election, invested in one, all, or
some combination of the investment funds available under this 401(k) plan.
Employee contributions are fully vested and non-forfeitable. Employees will vest
in any Company contributions at the rate of 20% for each year of service.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has employment contracts and severance agreements in effect with
Richard L. Tanler, Chairman of the Board and Senior Vice President, Strategic
Planning and Marketing; Larry J. Ford, President and Chief Executive Officer;
Robin L. Pederson, Vice President, Worldwide Sales; Rory C. (Butch) Terrien,
Senior Vice President, Research and Development; Donald W. Anderson, Vice
President and Chief Financial Officer; and Richard S. Parker, Vice President,
Marketing. The Company also has severance agreements in effect with Mark
Furtney, Vice President, Engineering; Mary K. Trick, Vice President, Customer
Service; Keith Deane, General Manager --United Kingdom division; and Michael
Gaard, General Manager --Financial Services business unit. Each severance
agreement provides for the acceleration of all unvested stock options of the
officer following a Change in Control if either (i) his or her employment by the
Company is terminated without cause, or (ii) he or she voluntarily terminates
his or her employment as a result of a reduction in authority or responsibility
as an employee of the Company.
48
<PAGE>
The Company and Mr. Tanler are parties to an employment agreement and an
amendment thereto dated June 11, 1992 and April 27, 1995, respectively,
governing his employment with the Company. The agreement sets forth Mr. Tanler's
compensation level and eligibility for salary increases, bonuses, benefits and
option grants under the 1992 Stock Option Plan. Pursuant to the agreement, Mr.
Tanler's employment is voluntary and may be terminated by the Company or Mr.
Tanler at any time with 30 days prior written notice, provided however, that if
the Company terminates Mr. Tanler's employment without cause, Mr. Tanler shall
receive an amount equal to his base salary per month at the end of each of the
six months immediately following the date of termination but in no event shall
he receive any such payments after he gains employment elsewhere. The Company
may immediately terminate Mr. Tanler's employment for cause upon written notice
with no further obligation to Mr. Tanler.
The Company and Mr. Ford are parties to an employment agreement and an
amendment thereto dated April 19, 1995 and May 23, 1995, respectively, governing
his employment with the Company. The agreement sets forth Mr. Ford's
compensation level and eligibility for salary increases, bonuses, benefits and
option grants under the 1992 Stock Option Plan. Mr. Ford's employment with the
Company under the agreement is voluntary and may be terminated by the Company or
Mr. Ford at any time with 30 days prior written notice, provided that if the
Company terminates Mr. Ford's employment for reasons other than cause, Company
shall pay to Mr. Ford a sum equal to his current base salary for a period of six
months following such termination. Notwithstanding the foregoing, if Mr. Ford's
employment is terminated (for reasons other than cause) due to a "change in
control of the Company" (defined to mean the acquisition by a person not
currently a stockholder of the Company of shares of Company stock representing
more than 50% of the voting power of the outstanding shares), Mr. Ford shall
receive a sum equal to his then current base salary for an additional 12 month
period. The Company may terminate Mr. Ford's employment for cause without notice
and without any further obligation to Mr. Ford. The agreement also provides for
full acceleration of vesting of his unvested stock options or shares if one of
the following events shall occur: (i) the sale by the Company of all or
substantially all of its assets and the discontinuance of its business; or (ii)
a change in control of the Company (as previously defined) resulting in the
termination of Mr. Ford's employment with the Company, a substantial change in
the scope of Mr. Ford's employment responsibilities, or job relocation.
The Company and Mr. Anderson are parties to a letter agreement executed on
November 4, 1996 governing his employment with the Company. The agreement sets
forth Mr. Anderson's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the 1992 Stock Option Plan. Pursuant
to the agreement, Mr. Anderson is entitled to receive, in the event of
termination of employment for reasons other than cause or if Mr. Anderson is not
employed in a capacity comparable to his then current position due to a change
of ownership of the Company, a sum equal to 12 months of base compensation. The
agreement also provides for accelerated vesting of unvested stock options if a
change of ownership of the Company occurs. If the change of ownership occurs
within the first two years of Mr. Anderson's first day of employment with the
Company and the Company is still privately owned, 75% of the unvested options or
shares shall vest, up to a maximum gain to Mr. Anderson of $1.2 million.
Conversely, if the change of ownership occurs after an initial public offering
of Company shares, all his unvested options shall immediately vest.
The Company and Mr. Parker are parties to an employment agreement dated June
11, 1992 governing his employment with the Company. The agreement sets forth Mr.
Parker's compensation level and eligibility for salary increases, bonuses,
benefits and option grants under the 1992 Stock Option Plan. Pursuant to the
agreement, Mr. Parker's employment is voluntary and may be terminated by the
Company or Mr. Parker at any time with 30 days prior written notice, provided
however, that if the Company terminates Mr. Parker's employment without cause,
Mr. Parker shall receive an amount equal to his base salary per month at the end
of each of the six months immediately following the date of termination but in
no event shall he receive any such payments after he gains employment elsewhere.
The Company may immediately terminate Mr. Parker's employment for cause upon
written notice with no further obligation to Mr. Parker.
The Company and Mr. Pederson are parties to a letter agreement dated March
6, 1996 governing his employment with the Company. The agreement sets forth Mr.
Pederson's compensation level and eligibility for
49
<PAGE>
salary increases, bonuses, benefits and option grants under the 1992 Stock
Option Plan. Pursuant to the agreement, Mr. Pederson is entitled to receive, in
the event of termination of Mr. Pederson's employment with the Company (for
reasons other than cause) or if Mr. Pederson is not employed in a capacity
comparable to his then current position due to a change in ownership of the
Company, a sum equal to 12 months of base compensation. The agreement also
provides for accelerated vesting of any unvested stock options or shares in the
event of a change in ownership of the Company. If Mr. Pederson is employed by
the acquiring or surviving entity in a capacity comparable to his then current
position, 50% of his unvested stock options or shares shall immediately vest;
the remaining 50% shall vest over the subsequent 24 months at a rate of 50% per
year. Conversely, if Mr. Pederson's employment with the acquiring or surviving
entity is terminated (for reasons other than cause) or if Mr. Pederson is not
retained by such acquiring or surviving entity in a capacity comparable to his
then current position with the Company, all his unvested stock options shall
immediately vest, up to a maximum gain to Mr. Pederson of $4.0 million.
The Company and Mr. Terrien are parties to an employment agreement dated
June 11, 1992 governing his employment with the Company. The agreement sets
forth Mr. Terrien's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the 1992 Stock Option Plan. Pursuant
to the agreement, Mr. Terrien's employment is voluntary and may be terminated by
the Company or Mr. Terrien at any time with 30 days prior written notice,
provided however, that if the Company terminates Mr. Terrien's employment
without cause, Mr. Terrien shall receive an amount equal to his base salary per
month at the end of each of the six months immediately following the date of
termination but in no event shall he receive any such payments after he gains
employment elsewhere. The Company may immediately terminate Mr. Terrien's
employment for cause upon written notice to Mr. Terrien.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in 1993, and
the members of the Compensation Committee are Drs. Boswell and Haque and Mr.
Hollis. None of these individuals was at any time during the year ended January
31, 1997, or at any other time, an officer or employee of the Company. No member
of the Compensation Committee of the Company 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 the Company's Board or Compensation Committee.
50
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS AND 5% STOCKHOLDERS
Since the Company's inception, the Company has raised capital primarily
through the sale of its Preferred Stock. In June 1995 the Company sold 3,010,515
shares of Series B convertible redeemable preferred stock at a price of $2.38
per share. In March 1996, the Company sold 1,514,837 shares of Series C
convertible redeemable preferred stock at a price of $3.25 per share. In
February 1997 the Company sold 1,399,992 shares of Series D convertible
redeemable preferred stock at a price of $5.00 per share. The following table
summarizes the shares of Preferred Stock purchased by executive officers,
directors and 5% stockholders of the Company and persons associated with them
since September 1994.
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D
PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK
- --------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Entities affiliated with Norwest Equity Partners(1).............................. 519,665 461,538 501,123
Entities affiliated with St. Paul Venture Capital, Inc.(2)....................... 519,665 183,579 200,000
Pathfinder Venture Capital Fund III(3)........................................... 223,827 61,538 50,000
Entities affiliated with Sutter Hill Ventures(4)................................. 863,469 99,147 197,568
Entities affiliated with Menlo Ventures(5)....................................... 842,105 93,651 100,000
Entities affiliated with Weiss, Peck & Greer(6).................................. -- 615,384 121,049
Donald R. Hollis................................................................. -- -- 40,000
William H. Younger, Jr.(7)....................................................... 59,497 6,621 12,784
Donald W. Anderson............................................................... -- -- 20,000
</TABLE>
- ------------------------
(1) Includes shares purchased by Norwest Equity Partners IV, a Minnesota Limited
Partnership and Norwest Equity Partners V, a Minnesota Limited Partnership.
Dr. Haque is a partner of Itasca Partners and Itasca Partners V, which are
the General Partners of Norwest Equity Partners IV and Norwest Equity
Partners V, respectively.
(2) Includes shares purchased by St. Paul Fire and Marine Insurance Company and
St. Paul Venture Capital IV, L.L.C. Dr. Boswell is the Executive Vice
President of St. Paul Venture Capital, Inc., which is an affiliate of St.
Paul Fire and Marine Company and the managing member of St. Paul Venture
Capital IV, L.L.C.
(3) Messrs. Brian P. Johnson, Andrew J. Greenshields, Gary A. Stoltz, Jack
Ahrens, Eugene Fisher and Ms. Barbara L. Santry are General Partners of
Pathfinder Venture Capital Fund III.
(4) Includes shares purchased by Sutter Hill Ventures, a California Limited
Partnership, William H. Younger, Jr. and 15 other individuals and entities
associated with Sutter Hill Ventures. Mr. Younger is a General Partner of
Sutter Hill Ventures.
(5) Includes shares purchased by Menlo Ventures VI, L.P. and Menlo Entrepeneur
Fund VI, L.P. (collectively, "Menlo Ventures"). Messrs. H. Dubose
Montgomery, Thomas H. Bredt, Douglas C. Carlisle, John W. Jarve, Michael D.
Laufer, M.D. and Ms. Sonja L. Hoel are General Partners and Managing
Directors of Menlo Ventures.
(6) Includes shares purchased by WPG Enterprise Fund II, L.P. and Weiss, Peck &
Greer Venture Associates III, L.P. (collectively, "Weiss, Peck & Greer").
Mr. Christopher J. Schaepe is the General Partner of Weiss, Peck & Greer.
(7) Includes shares purchased by Mr. Younger as Trustee of a living trust.
In April 1996, the Company loaned $70,000 to Richard L. Tanler, the
Company's Chairman of the Board and Senior Vice President of Strategic Planning
and Marketing. In conjunction with the loan, Mr. Tanler issued a promissory note
to the Company for $70,000, bearing interest at the rate of 5.33% per annum,
which note is
51
<PAGE>
payable 60 days after demand by the Company. As of October 31, 1997, there had
been no payments on the loan and the aggregate indebtedness under the loan was
$76,316.
In August 1996, Donald R. Hollis, a director of the Company, was granted an
option to purchase 8,000 shares of Common Stock at an exercise price of $1.13
per share in conjunction with becoming a director. Also in August 1996, Mr.
Hollis received an option to purchase 2,000 shares of Common Stock at an
exercise price of $1.13 per share in conjunction with entering into a consulting
agreement with the Company.
In July 1997, in connection with the acceptance of an employment offer, Mark
Furtney, the Company's Vice President, Engineering, was granted an option to
purchase 40,000 shares of the Company's Common Stock at an exercise price of
$2.13 per share.
In August 1997, the Company granted Ronald E.F. Codd an option to purchase
8,000 shares of Common Stock at an exercise price of $3.75 per share in
conjunction with becoming a director.
The Company also has granted additional options to certain of its executive
officers. Such options are described further in the Management Section under
"Executive Compensation" and "Option Grants in Last Fiscal Year."
The Company has entered into employment agreements with Messrs. Ford,
Tanler, Anderson, Parker, Pederson and Terrien. See "Management--Employment
Agreements and Change in Control Arrangements."
Prior to the effectiveness of the offering, the Company and certain holders
of its outstanding Preferred Stock (the "Lenders") will enter into a Loan and
Warrant Purchase Agreement (the "Loan Agreement") to provide the Company with a
source of funds for its working capital requirements pending completion of the
offering. The Loan Agreement will provide the Company with a revolving loan
commitment of $3.0 million. Each loan to the Company under the Loan Agreement
will bear interest at the rate of 8.0% per annum, compounded annually, from the
date funds are provided. All unpaid advances received by the Company under the
Loan Agreement, together with accrued interest thereon, will be due and payable
upon the earlier of (i) ten days following the closing date of the offering or
(ii) May 20, 1998 (such earlier date being the "Maturity Date"). If amounts
outstanding under the Loan Agreement are not fully paid on the Maturity Date,
then the outstanding unpaid balance will automatically convert on the Maturity
Date into shares of the Company's authorized Series D convertible redeemable
preferred stock, or if the Company has consummated the offering, shares of
Common Stock, at the conversion rate of one share for each $5.00 of principal
and interest then outstanding. The Company does not expect to request advances
from Lenders prior to the closing of the offering. If the Company receives
advances under the Loan Agreement, it intends to pay in cash the outstanding
balance of such indebtedness with a portion of the proceeds received by the
Company from the offering rather than having such sums convert into equity.
In consideration of the revolving loan commitment of the Lenders, the
Company will issue warrants to the Lenders to purchase an aggregate of 30,000
shares of the Company's authorized Series D convertible redeemable preferred
stock (which will be converted into a right to acquire an equal number of shares
of Common Stock following completion of the offering) at a per share purchase
price of $5.00. In the event the Company requests advances from the Lenders
under the Loan Agreement, the Company will be required to issue additional
warrants on a pro rata basis to the Lenders, with the number of shares subject
to such additional warrants equal to 4.0% of the principal amount of each
advance from the Lenders. Shares purchased upon exercise of the warrants are
entitled to certain registration rights. See "Description of Capital Stock--
Registration Rights."
The Company believes that all of the transactions set forth herein were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans (if any),
between the Company and its officers, directors, and principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors of
the Board of Directors, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
52
<PAGE>
INDEMNIFICATION
The Company's Restated Certificate of Incorporation limits the liability of
its directors for monetary damages arising from a breach of their fiduciary duty
as directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has entered into indemnification agreements with its officers
and directors containing provisions that may require the Company, among other
things, to indemnify such officers and directors against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of October 31, 1997, and
as adjusted to reflect the sale of shares offered hereby and the conversion of
all outstanding shares by Preferred Stock into shares of Common Stock and the
exercise of warrants to purchase 491,599 shares of Common Stock, by (i) each
person who is known by the Company to own beneficially more than five percent of
the Company's Common Stock, (ii) each of the Company's directors, (iii) each of
the Named Executive Officers and (iv) all current executive officers and
directors as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
NUMBER OF OWNED(1)(2)(3)
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(1)(2) OFFERING OFFERING
- ------------------------------------------------------------------------------- ------------ --------- ---------
<S> <C> <C> <C>
Entities affiliated with Norwest Equity Partners(4)............................ 3,048,700 26.16% 20.34%
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Entities affiliated with St. Paul Venture Capital, Inc.(5)..................... 2,384,426 20.46 15.91
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, MN 55437
Entities affiliated with Sutter Hill Ventures(6)............................... 1,201,968 10.31 8.02
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Pathfinder Venture Capital Fund III(7)......................................... 1,197,164 10.27 7.99
Suite 585, One Corporate Center
7300 Metro Blvd.
Edina, MN 55439
Entities affiliated with Menlo Ventures(8)..................................... 1,035,756 8.89 6.91
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Entities affiliated with Weiss, Peck & Greer(9)................................ 736,433 6.32 4.91
555 California Street
Suite 3130
San Francisco, CA 94104
Larry J. Ford(10).............................................................. 229,125 1.93 1.51
Robin L. Pederson.............................................................. 34,400 * *
Richard L. Tanler(11).......................................................... 169,247 1.43 1.12
Mary K. Trick(12).............................................................. 28,000 * *
Rory C. (Butch) Terrien(13).................................................... 65,200 * *
Ronald E.F. Codd............................................................... 0 * *
Fredric R. (Rick) Boswell(5)................................................... 2,384,426 20.46 15.91
Promod Haque(4)................................................................ 3,048,700 26.16 20.34
Donald R. Hollis(14)........................................................... 44,000 * *
Jay H. Wein(15)................................................................ 333,359 2.86 2.22
William H. Younger, Jr.(7)..................................................... 1,201,968 10.31 8.02
All directors and executive officers as a group (14 persons)(16)............... 7,645,625 63.03% 49.44%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
54
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Unless otherwise indicated, the address for
each listed stockholder is c/o Information Advantage Software, Inc., 7905
Golden Triangle Drive, Eden Prairie, Minnesota 55344-7227. To the Company's
knowledge, except as indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. The number of shares of Common Stock beneficially owned includes
shares issuable pursuant to warrants and stock options that are exercisable
within 60 days of October 31, 1997.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(3) Percentage of beneficial ownership is based on 11,655,359 shares of Common
Stock outstanding as of October 31, 1997 and 14,989,359 shares of Common
Stock to be outstanding after the closing of this offering. Shares issuable
pursuant to warrants and stock options are deemed outstanding for computing
the percentage of the person holding such warrants or options but are not
deemed outstanding for computing the percentage of any other person.
(4) Includes 1,930,792 shares held by Norwest Equity Partners IV, a Minnesota
Limited Partnership, 1,117,908 shares held by Norwest Equity Partners V, a
Minnesota Limited Partnership. Dr. Haque is a partner of Itasca Partners
and Itasca Partners V, which are the General Partners of Norwest Equity
Partners IV, a Minnesota Limited Partnership and Norwest Equity Partners V,
a Minnesota Limited Partnership, respectively. Dr. Haque disclaims
beneficial ownership of the shares held by Norwest Equity Partners IV, a
Minnesota Limited Partnership and Norwest Equity Partners V, a Minnesota
Limited Partnership, except to the extent of his pecuniary interest therein
arising from his partnership interests in Itasca Partners and Itasca
Partners V.
(5) Includes 2,184,426 shares held by St. Paul Fire and Marine Insurance
Company, 200,000 shares held by St. Paul Venture Capital IV, L.L.C. Dr.
Boswell is the Executive Vice President of St. Paul Venture Capital, Inc.,
which is an affiliate of St. Paul Fire and Marine Insurance Company and a
managing member of St. Paul Venture Capital IV, L.L.C. Dr. Boswell
disclaims beneficial ownership of the shares held by St. Paul Fire and
Marine Insurance Company and St. Paul Venture Capital IV, L.L.C.
(6) Includes 716,632 shares of Common Stock held by Sutter Hill Ventures, a
California Limited Partnership ("Sutter Hill"), 78,902 shares held by Mr.
William H. Younger, Jr. as Trustee of a living trust and 406,434 shares
held of record for 15 other individuals and entities associated with Sutter
Hill. Mr. Younger is a General Partner of Sutter Hill and shares voting and
investment power with respect to the shares held by Sutter Hill. Mr.
Younger disclaims beneficial ownership of the shares held by Sutter Hill
and the individuals and entities associated with Sutter Hill, except as to
the shares held of record in his name and as to his partnership interest in
Sutter Hill.
(7) Messrs. Brian P. Johnson, Andrew J. Greenshields, Gary A. Stoltz, Jack
Ahrens, Eugene Fisher and Ms. Barbara L. Santry are General Partners of
Pathfinder Venture Capital Fund III.
(8) Includes 1,020,449 shares held by Menlo Ventures VI, L.P. and 15,307 shares
held by Menlo Entrepreneur Fund VI, L.P. Messrs. H. Dubose Montgomery,
Thomas H. Bredt, Douglas C. Carlisle, John W. Jarve, Michael D. Laufer,
M.D. and Ms. Sonja L. Hoel are General Partners and Managing Directors of
Menlo Ventures.
(9) Includes 334,340 shares of Common Stock shares held by Weiss, Peck & Greer
Venture Associates III, L.P., and 402,093 shares of Common Stock shares
held by WPG Enterprise Fund II, L.P. Mr. Christopher J. Schaepe is the
General Partner of Weiss, Peck & Greer.
(10) Includes 201,125 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days after October 31, 1997.
55
<PAGE>
(11) Includes 140,676 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days after October 31, 1997.
(12) Includes 18,800 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days after October 31, 1997.
(13) Includes 65,200 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days after October 31, 1997.
(14) Includes 4,000 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days after October 31, 1997.
(15) Includes 18,000 shares of Common Stock held in the aggregate by Douglas C.
Wein, Steven L. Wein and Patricia J. Bazany, children of Mr. Wein, over
which Mr. Wein retains voting power.
(16) Includes 475,001 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days after October 31, 1997. If the
over-allotment option is exercised in full, the percentage of shares
beneficially owned will be 47.89%.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, $0.01 par value, and
5,000,000 shares of Preferred Stock, $0.01 par value.
COMMON STOCK
As of October 31, 1997, there were 11,655,359 shares of Common Stock
outstanding that were held of record by approximately 72 stockholders. There
will be 14,989,359 shares of Common Stock outstanding (assuming no exercise of
the Underwriters' over-allotment option and assuming no exercise after October
31, 1997, of outstanding options) after giving effect to the sale of the shares
of Common Stock to the public offered hereby and the conversion of the Company's
Preferred Stock into Common Stock at a one-to-one ratio.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation provides that, upon the closing
of this offering, 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 the
Company and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors. The Certificate of Incorporation also
provides that, effective upon the closing of this offering, all stockholder
actions must be effected at a duly called meeting and not by a consent in
writing. The Company's Bylaws, effective upon the closing of this offering, will
not permit stockholders of the Company to call a special meeting of
stockholders. Further, provisions of the Bylaws and the Certificate of
Incorporation provide that the stockholders may amend the Bylaws or certain
provisions of the Certificate of Incorporation only with the affirmative vote of
80% of the Company's capital stock. These provisions of the Certificate of
Incorporation and Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company. These
57
<PAGE>
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for the
Company's shares and as a consequence, they also may inhibit fluctuations in the
market price of the Company's shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in the management of the Company and may have an adverse effect on the
public trading price of the Company's Common Stock. See "Risk Factors--Effect of
Certain Charter Provisions; Antitakeover Effects of Certificate of
Incorporation, Bylaws, and Delaware Law."
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,438,924 shares of
Common Stock (assuming the exercise of warrants to purchase 30,000 shares of
Common Stock held by holders of registration rights) will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreement between the Company and the holders of such
registrable securities, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of such registration and are entitled to include share of
such Common Stock therein. Additionally, such holders are also entitled to
certain demand registration rights pursuant to which they may require the
Company to file a registration statement under the Securities Act at its expense
with respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect such registration. Further, holders may require the
Company to file additional registration statements on Form S-3 at the Company's
expense. All of these registration 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, National Association, and its telephone number is (612) 450-4064.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 14,989,359 shares of
Common Stock outstanding. Of this amount, the 3,334,000 shares offered hereby
will be available for immediate sale in the public market as of the date of this
Prospectus. Approximately 11,221,369 additional shares will be available for
sale in the public market following the expiration of 180-day lockup agreements
with the Representatives of the Underwriters or the Company, subject in some
cases to compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
APPROXIMATE SHARES
DAYS AFTER DATE OF ELIGIBLE FOR FUTURE
THIS PROSPECTUS SALE COMMENT
- -------------------------------------------- ---------------------- --------------------------------------------
<S> <C> <C>
Upon Effectiveness.......................... 3,371,327 Freely tradable shares sold in offering and
shares salable under Rule 144(k) that are
not subject to 180-day lockup
90 days..................................... 2,299 Shares salable under Rule 144, 144(k) or 701
that are not subject to 180-day lockup.
180 days.................................... 11,181,743 Lockup released; shares salable under Rule
144, 144(k) or 701
Over 180 days............................... 433,990 Restricted securities held for one year or
less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock (approximately 150,000
shares immediately after the offering) or (ii) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the offering. Any future sale of
substantial amounts of the Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders and optionholders have agreed
pursuant to the Underwriting Agreement and other agreements that they will not
sell any Common Stock without the prior consent of BancAmerica Robertson
Stephens for a period of 180 days from the date of this Prospectus (the "180-day
Lockup Period"), except that the Company may, without such consent, grant
options and sell shares pursuant to the Company's stock plans.
Any employee of or consultant to the Company who purchased his or her shares
under the 1992 plan or pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with the Rule 144 holding period restrictions, in each case commencing 90
days after the date of this Prospectus. As of October 31, 1997, the holders of
options exercisable into approximately 2,257,113 shares of Common Stock will be
eligible to sell their shares upon the expiration of the 180-day Lockup Period,
subject in certain cases to vesting of such options.
59
<PAGE>
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register 1,200,000 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the 1997 Plan and the
Purchase Plan within 180 days after the date of this Prospectus, and thereafter
up to 2,452,632 Shares of Common Stock subject to outstanding stock options or
reserved for issuance under the 1992 Stock Option Plan thus permitting the
resale of such shares by nonaffiliates in the public market without restriction
under the Securities Act.
In addition, after this offering, the holders of approximately 10,438,924
shares of Common Stock (assuming the exercise of warrants to purchase 30,000
shares of Common Stock held by holders of registration rights) will be entitled
to certain rights with respect to registration of such shares under the
Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. See "Description of
Capital Stock--Registration Rights."
60
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, NationsBanc Montgomery Securities, Inc., Piper
Jaffray Inc. and First Albany Corporation (the "Representatives"), have
severally agreed with the Company, subject to the terms and conditions of the
Underwriting Agreement, to purchase the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all shares if any are purchased. In the event of default by
an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
BancAmerica Robertson Stephens....................................................
NationsBanc Montgomery Securities, Inc............................................
Piper Jaffray Inc.................................................................
First Albany Corporation..........................................................
----------
Total........................................................................... 3,334,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering, the
public offering price, concession, and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 500,100
additional shares of Common Stock at the same price per share as will be paid
for the 3,334,000 shares that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage of such additional shares that the number of shares of
Common Stock to be purchased by it shown in the above table represents as a
percentage of the 3,334,000 shares offered hereby. If purchased, such additional
shares will be sold by the Underwriters on the same terms as those on which the
3,334,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director who holds shares of the Company, holders
(including such officers and directors) of 11,615,734 shares of Common Stock and
all warrantholders of the Company and optionholders of the Company holding
options exercisable within the 180-day Lockup Period have agreed, for the 180
day Lockup Period, subject to certain exceptions, not to offer to sell, contract
to sell, or otherwise sell (including without limitation in a short sale),
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock, or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock owned as of the date of this Prospectus directly by such holders or
with respect to which they have the power of disposition, without the prior
written consent of BancAmerica Robertson Stephens. However, BancAmerica
Robertson Stephens may, in its sole discretion and at any time or from time to
time without notice, release all or any portion of the securities subject to
lock-up agreements.
There are no agreements between the Representatives and any of the Company's
stockholders providing consent by the Representatives to the sale of shares
prior to the expiration of the 180-day Lockup Period.
61
<PAGE>
In addition, the Company has agreed that during the 180-day Lockup Period,
the Company will not, without the prior written consent of BancAmerica Robertson
Stephens, subject to certain exceptions, issue, offer to sell, sell, contract to
sell (including without limitation in a short sale), dispose of, loan, pledge or
grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of Common Stock upon the
exercise of outstanding options, and the Company's issuance of options and
shares under existing employee stock option and stock purchase plans. See
"Shares Eligible For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined through negotiations among the Company
and the Representatives. Among the factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company and the industry in which it competes, an assessment of the
Company's management, its past and present operations, the prospects for, and
timing of, future revenues of the Company, the present state of the Company's
development and other factors deemed relevant. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to the offering at or above the
initial offering price.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and if commenced, may be
discontinued at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for certain individuals
designated by the Company who have expressed an interest in purchasing such
shares of Common Stock in the offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as other shares offered
hereby.
62
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo
Park, California. Certain legal matters in connection with the offering will be
passed upon for the Company by Briggs and Morgan, Professional Association,
Minneapolis, Minnesota. Certain legal matters in connection with the offering
will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP,
Palo Alto, California.
EXPERTS
The consolidated financial statements as of January 31, 1996 and 1997 and
October 31, 1997 and for each of the three years in the period ended January 31,
1997 and for the nine months ended October 31, 1997 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to the Company and such Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained in
this Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance to
the copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified by such reference to such exhibit.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
63
<PAGE>
INFORMATION ADVANTAGE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
Report of Independent Accountants..................................................... F-2
<S> <C>
Consolidated Financial Statements:
Consolidated Balance Sheet as of January 31, 1996 and 1997 and October 31, 1997..... F-3
Consolidated Statement of Operations for the Years Ended January 311995, 1996 and
1997 and for the Nine Months Ended October 31, 1996 (Unaudited) and 1997.......... F-4
Consolidated Statement of Stockholders' Equity (Deficit) for the Years Ended January
31, 1995, 1996 and 1997 and for the Nine Months Ended October 31, 1997............ F-5
Consolidated Statement of Cash Flows for the Years Ended January 31, 1995, 1996 and
1997 and for the Nine Months Ended October 31, 1996 (Unaudited) and 1997.......... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Information Advantage, Inc.
The reverse stock split described in Note 2 to the consolidated financial
statements has not been consummated at November 13, 1997. When the split has
been consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Information Advantage, Inc. and its subsidiaries at January 31, 1996 and
1997 and October 31, 1997, and the results of their operations and their
cash flows for each of the three years in the period ended January 31, 1997
and for the nine months ended October 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
November 13, 1997
F-2
<PAGE>
INFORMATION ADVANTAGE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31, 1997
-------------------- ----------------------
1996 1997 ACTUAL
--------- --------- --------- PRO FORMA
-----------
(UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 1,939 $ 874 $ 3,011 $ 3,011
Accounts receivable.................................................. 1,562 3,215 6,537 6,537
Receivable from officer.............................................. -- 70 76 76
Prepaid expenses and other current assets............................ 112 318 864 864
--------- --------- --------- -----------
Total current assets............................................... 3,613 4,477 10,488 10,488
--------- --------- --------- -----------
Furniture and equipment................................................ 611 1,294 2,338 2,338
Other assets........................................................... 97 147 139 139
--------- --------- --------- -----------
$ 4,321 $ 5,918 $ 12,965 $ 12,965
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit borrowings............................................ $ -- $ -- $ 1,685 $ 1,685
Current portion--long-term debt...................................... 275 790 919 919
Accounts payable..................................................... 419 580 929 929
Accrued expenses..................................................... 552 1,838 2,682 2,682
Deferred revenue..................................................... 1,270 3,371 4,888 4,888
--------- --------- --------- -----------
Total current liabilities.......................................... 2,516 6,579 11,103 11,103
--------- --------- --------- -----------
Long-term debt, less current portion................................... 275 1,244 1,135 1,135
--------- --------- --------- -----------
Total liabilities.................................................. 2,791 7,823 12,238 12,238
--------- --------- --------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 6 and 8)
Series A convertible redeemable preferred stock, $0.01 par value....... 5,337 5,337 5,337 --
Series B convertible redeemable preferred stock, $0.01 par value....... 7,150 7,150 7,150 --
Series C convertible redeemable preferred stock, $0.01 par value....... -- 4,923 4,923 --
Series D convertible redeemable preferred stock, $0.01 par value....... -- -- 7,000 --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 60,000,000 shares authorized; 979,259,
1,059,139, 1,680,426 and 11,655,359 shares issued and outstanding,
respectively....................................................... 10 11 17 117
Additional paid-in-capital........................................... 847 1007 2,665 26,975
Cumulative translation adjustments................................... 19 19 17 17
Accumulated deficit.................................................. (11,833) (20,352) (26,382) (26,382)
--------- --------- --------- -----------
Total stockholders' equity (deficit)................................... (10,957) (19,315) (23,683) 727
--------- --------- --------- -----------
$ 4,321 $ 5,918 $ 12,965 $ 12,965
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 31, OCTOBER 31,
-------------------------------- -------------------------
1995 1996 1997 1997
--------- --------- ---------- 1996 ----------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License................................................ $ 1,826 $ 2,686 $ 6,491 $ 4,786 $ 9,087
Service................................................ 1,991 2,956 5,255 3,628 8,414
--------- --------- ---------- ------ ----------
Total revenues................................... 3,817 5,642 11,746 8,414 17,501
--------- --------- ---------- ------ ----------
Cost of revenues:
License................................................ 72 118 132 94 107
Service................................................ 1,636 2,129 3,308 2,263 5,500
--------- --------- ---------- ------ ----------
Total cost of revenues........................... 1,708 2,247 3,440 2,357 5,607
--------- --------- ---------- ------ ----------
Gross margin............................................. 2,109 3,395 8,306 6,057 11,894
--------- --------- ---------- ------ ----------
Operating expenses:
Sales and marketing.................................... 3,406 3,854 11,350 7,407 12,305
Research and development............................... 2,162 2,089 3,189 2,142 3,917
General and administrative............................. 853 1,247 2,147 1,488 1,539
--------- --------- ---------- ------ ----------
Total operating expenses......................... 6,421 7,190 16,686 11,037 17,761
--------- --------- ---------- ------ ----------
Loss from operations..................................... (4,312) (3,795) (8,380) (4,980) (5,867)
Other income (expense):
Interest expense....................................... (102) (110) (244) (181) (177)
Interest income........................................ 19 116 148 141 88
--------- --------- ---------- ------ ----------
Total other income (expense)..................... (83) 6 (96) (40) (89)
--------- --------- ---------- ------ ----------
Net loss................................................. $ (4,395) $ (3,789) $ (8,476) $ (5,020) $ (5,956)
--------- --------- ---------- ------ ----------
--------- --------- ---------- ------ ----------
Unaudited pro forma net loss per share................... $ (0.83) $ (0.51)
---------- ----------
---------- ----------
Shares used in computing unaudited pro forma net loss per
share.................................................. 10,207,765 11,622,166
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
---------------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT DEFICIT
--------- ----------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1994............... 973,659 $ 10 $ 841 $ -- $ (3,606) $ (2,755)
Preferred stock issuance costs........ -- -- -- -- (17) (17)
Stock options......................... 2,000 -- 2 -- -- 2
Translation adjustments............... -- -- -- -- -- --
Net loss.............................. -- -- -- -- (4,395) (4,395)
--
--------- ----------- --- ------------- -------------
Balance, January 31, 1995............... 975,659 10 843 -- (8,018) (7,165)
Preferred stock issuance costs........ -- -- -- -- (26) (26)
Stock options......................... 3,600 -- 4 -- -- 4
Translation adjustments............... -- -- -- 19 -- 19
Net loss.............................. -- -- -- -- (3,789) (3,789)
--
--------- ----------- --- ------------- -------------
Balance, January 31, 1996............... 979,259 10 847 19 (11,833) (10,957)
Preferred stock issuance costs........ -- -- -- -- (43) (43)
Stock options......................... 79,880 1 160 -- -- 161
Translation adjustments............... -- -- -- -- -- --
Net loss.............................. -- -- -- -- (8,476) (8,476)
--
--------- ----------- --- ------------- -------------
Balance, January 31, 1997............... 1,059,139 11 1,007 19 (20,352) (19,315)
Preferred stock issuance costs........ -- -- -- -- (74) (74)
Stock options......................... 187,296 2 905 -- -- 907
Stock purchase warrants exercised..... 433,991 4 753 -- -- 757
Translation adjustments............... -- -- -- (2) -- (2)
Net loss.............................. -- -- -- -- (5,956) (5,956)
--
--------- ----------- --- ------------- -------------
Balance, October 31, 1997............... 1,680,426 $ 17 $ 2,665 $ 17 $ (26,382) $ (23,683)
--
--
--------- ----------- --- ------------- -------------
--------- ----------- --- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 31, OCTOBER 31,
------------------------------- ------------------------
1995 1996 1997 1997
--------- --------- --------- 1996 ---------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (4,395) $ (3,789) $ (8,476) $ (5,020) $ (5,956)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization................................ 242 193 470 277 1,199
Interest expense converted to preferred stock................ -- 58 -- -- --
Changes in operating assets and liabilities:
Accounts receivable........................................ 256 (801) (1,653) (1,618) (3,322)
Prepaid expenses and other current assets.................. (111) (1) (276) (243) (546)
Accounts payable........................................... 53 15 162 371 349
Accrued expenses........................................... 267 27 1,286 527 844
Deferred revenue........................................... 431 670 2,101 754 1,117
Other...................................................... 71 (18) (50) (22) 8
--------- --------- --------- ------ ---------
Net cash used by operating activities.................... (3,186) (3,646) (6,436) (4,974) (6,307)
--------- --------- --------- ------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture and equipment........................... (231) (32) (592) (529) (875)
--------- --------- --------- ------ ---------
Net cash used by investing activities.......................... (231) (32) (592) (529) (875)
--------- --------- --------- ------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options........................ 2 4 86 74 217
Proceeds from exercise of stock purchase warrants.............. -- -- -- -- 757
Proceeds from sale of convertible redeemable preferred stock,
net
of expenses.................................................. 2,483 5,067 4,880 4,880 6,926
Proceeds from issuance of notes payable-stockholders........... 1,000 1,000 -- -- --
Borrowings under lines of credit............................... 90 -- -- -- 1,685
Repayments on lines of credit.................................. -- (435) -- -- --
Proceeds from long-term debt................................... -- -- 1,500 1,500 400
Principal payments on long-term debt........................... (170) (217) (502) (279) (666)
--------- --------- --------- ------ ---------
Net cash provided by financing activities...................... 3,405 5,419 5,964 6,175 9,319
--------- --------- --------- ------ ---------
Net (decrease) increase in cash and cash equivalents............. (12) 1,741 (1,064) 672 2,137
Cash and cash equivalents, beginning of period................... 210 198 1,939 1,939 874
--------- --------- --------- ------ ---------
Cash and cash equivalents, end of period......................... $ 198 $ 1,939 $ 874 $ 2,611 $ 3,011
--------- --------- --------- ------ ---------
--------- --------- --------- ------ ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest......................... $ 105 $ 132 $ 234 $ 171 $ 168
--------- --------- --------- ------ ---------
--------- --------- --------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION
Information Advantage develops, markets and supports enterprise scalable
on-line analytical processing software that is designed to allow large numbers
of users to access and analyze large amounts of data to make quick and more
informed business decisions. The Company's relational server-based solution,
DecisionSuite, provides powerful, robust and flexible analysis processing
capabilities that transform raw data into meaningful information from a wide
range of desktop and Internet platforms. The Company also provides a
comprehensive range of related training, consulting and customer support
services.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include accounts of the Company and
wholly-owned subsidiaries operating in the United Kingdom and Germany. All
significant intercompany accounts and transactions have been eliminated.
Information for the nine months ended October 31, 1996 is unaudited. The
information furnished in the unaudited October 31, 1996 statements of operations
and cash flows include all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
presentation of such financial statements.
REVERSE STOCK SPLIT
On October 8, 1997, the Company's Board of Directors approved a reverse
1-for-2 1/2 stock split effective upon filing of an amended Certificate of
Incorporation. The effect of the reverse stock split has been reflected for all
periods presented in the accompanying financial statements.
PRO FORMA BALANCE SHEET (UNAUDITED)
If the offering contemplated by this Prospectus is consummated, all of the
convertible redeemable preferred stock outstanding at the closing date will be
converted share for share into 9,483,334 shares of common stock. In addition,
639,739 of the 783,158 stock purchase warrants outstanding as of October 31,
1997 will be exercised automatically and converted into 491,599 shares of common
stock if not exercised prior to the closing of this offering. The unaudited pro
forma balance sheet reflects the conversion of outstanding convertible
redeemable preferred stock and common stock warrants at October 31, 1997 into
shares of common stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's foreign subsidiaries are
translated from local currencies to U.S. dollars at period end rates of
exchange, while the consolidated statement of operations is translated at the
average exchange rates during the period. The functional currency for the
Company's United Kingdom and
F-7
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
German subsidiaries is the respective local currencies. Translation adjustments
arising from the translation of net assets located outside of the United States
into U.S. dollars are recorded as a separate component of stockholders' equity.
Transaction gains or losses on sales to foreign customers which are denominated
in their local currencies are recorded in the statement of operations. The
Company has not experienced any material transaction gains or losses.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents are valued at amounts which approximate fair
value. The fair value of all other financial instruments approximates cost as
stated.
REVENUE RECOGNITION AND SIGNIFICANT CUSTOMERS
Revenues derived from software licenses are recognized upon execution of a
license agreement, delivery of the software product and fulfillment of other
revenue recognition requirements. For software provided for demonstration or
pilot purposes, or where significant post-delivery obligations exist, revenues
are not recognized until execution of a license agreement and fulfillment of all
revenue recognition requirements. Revenues derived from maintenance contracts
which are bundled with the initial licenses and all revenues from extended
maintenance contracts are deferred and recognized ratably over the term of the
maintenance contract. Revenues from maintenance contracts are included in
services revenues. Revenues from training and consulting services are recognized
as the services are performed. The Company's policy is in compliance with the
provisions of the American Institute of Certified Public Accountants' Statement
of Position 91-1, "Software Revenue Recognition."
Financial instruments which potentially subject the Company to credit risk
consist primarily of accounts receivable. The Company grants credit to customers
in the ordinary course of business. Three different customers each accounted for
approximately 20%, 17% and 12%, respectively, of total revenues during 1995.
Different individual customers accounted for approximately 14% and 10% of
revenues during 1996 and 1997, respectively. For the nine months ended October
31, 1997, no single customer accounted for greater than 10% of total revenues.
Receivables from the individual significant customer in 1996 represented
approximately 9% of total receivables at January 31, 1996. As of October 31,
1997, a single customer accounted for 21% of total accounts receivable.
Accounts receivable are stated net of the related allowance for doubtful
accounts of $21, $101 and $101 as of January 31, 1996 and 1997 and October 31,
1997, respectively.
RESEARCH AND DEVELOPMENT
Expenditures for research and software development are expensed as incurred.
Such costs are required to be expensed until the point that technological
feasibility of the product is established and the realizability of any
capitalized costs is determined. Technological feasibility is evidenced by a
working model. The period between achieving technological feasibility and the
general availability to the public of such software has been short.
Consequently, costs otherwise capitalizable after technological feasibility is
achieved have been expensed because they have been insignificant to both total
assets and net loss.
F-8
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE AND EQUIPMENT
Furniture and equipment, including those assets acquired under capital
leases, consists of computers and office equipment, and is depreciated using the
straight-line method over the estimated useful lives of the assets, which
generally range from 3 to 5 years. Significant additions or improvements
extending asset lives are capitalized, while repairs and maintenance are charged
to expense as incurred. Amortization of assets under capital leases is included
in depreciation expense. The amount of leased equipment consists of the
following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------------- OCTOBER 31,
1996 1997 1997
---------- ---------- -----------
<S> <C> <C> <C>
Equipment cost......................................... $ 441 $ 927 $ 1,215
Less: Accumulated amortization......................... (130) (336) (590)
---------- ---------- -----------
$ 311 $ 591 $ 625
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
INCOME TAXES
Income taxes are accounted for on the liability method in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities reduced by a valuation allowance, as necessary.
UNAUDITED PRO FORMA NET LOSS PER SHARE
Unaudited pro forma net loss per share is based on the unaudited pro forma
weighted average number of shares of common stock and common equivalent shares
outstanding for the period. The unaudited pro forma weighted average number of
shares assumes the conversion of the Company's convertible redeemable preferred
stock into 9,483,334 shares of common stock, and the automatic conversion of
convertible preferred stock warrants to 491,599 shares of Common Stock, which
will occur upon completion of the offering. Because of the significant impact of
the assumed conversion on the Company's capital structure and earnings per
share, historical earnings per share have been excluded from the financial
statements. Pursuant to certain Securities and Exchange Commission (SEC) Staff
Accounting Bulletins, all common stock, warrants and options issued by the
Company with exercise prices below the initial public offering (IPO) price
during the 12-month period preceding the date of the initial filing of the
Registration Statement have been included in the calculation of net loss per
share, using the treasury stock method based on the assumed IPO price, as if
they were outstanding for all prior periods presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 applies to entities
with publicly held common stock and is effective for financial statements issued
for periods ending after December 15, 1997. Under SFAS No. 128 the presentation
of primary earnings per share is replaced with a presentation of basic earnings
per share. SFAS No. 128 requires dual presentation of basic and diluted earnings
per share for entities with complex capital structures. Basic earnings per share
includes no dilution and is computed by dividing net income (loss) available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
F-9
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
diluted earnings per share. Management believes the adoption of SFAS No. 128
will not have a material effect on the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 is effective
for financial statements for fiscal years beginning after December 15, 1997.
This standard defines comprehensive income as the changes in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income are required to be reported in a new financial
statement. Management believes the adoption of SFAS No. 130 will not have a
material effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board also issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 establishes standards for
disclosures about operating segments, products and services, geographic areas
and major customers. Management believes the adoption of SFAS No. 131 will not
have a material effect on the Company's financial statements.
The American Institute of Certified Public Accountants' has approved a new
Statement of Position (SOP), SOP 97-2 which will supersede Statement of Position
91-1, "Software Revenue Recognition." Management has assessed this new statement
and believes that its adoption will not have a material effect on the timing of
the Company's revenue recognition or cause changes to its revenue recognition
policies.
NOTE 3--FINANCIAL STATEMENT COMPONENTS
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- OCTOBER 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
Computer equipment............................................ $ 785 $ 1,615 $ 2,325
Furniture and office equipment................................ 474 722 1,572
Less: Accumulated depreciation................................ (648) (1,043) (1,559)
--------- --------- -----------
$ 611 $ 1,294 $ 2,338
--------- --------- -----------
--------- --------- -----------
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- OCTOBER 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
Accrued wages and benefits.................................... $ 365 $ 1,294 $ 2,076
Other accrued expenses........................................ 187 544 606
--------- --------- -----------
$ 552 $ 1,838 $ 2,682
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 4--LINE OF CREDIT
The Company has a $2.0 million working capital line of credit with a bank.
Borrowings are limited to the lesser of $2.0 million or 70% of eligible accounts
receivable. Borrowings bear interest at an annual rate of 1.75% above the bank's
prime rate (8.25% at January 31, and 8.50% at October 31, 1997) and are
collateralized by all of the Company's assets. The agreement expired on
September 3, 1997 and was renewed through September 2, 1998 under substantially
the same terms. Borrowings outstanding under this line at January 31, 1996 and
1997
F-10
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--LINE OF CREDIT (CONTINUED)
and October 31, 1997 were $0, $0, and $1,685, respectively. The line of credit
agreement contains certain covenants pertaining to operating results and certain
other financial ratios. At October 31, 1997, the Company was in compliance with
these covenants.
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- OCTOBER 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
Subordinated note payable; bears interest at 13.5% per annum;
due in varying monthly installments through April 1999;
secured by certain Company assets............................ $ -- $ 1,397 $ 1,065
Capital lease obligations; bear interest at 8.0% to 13.5% per
annum; due in varying monthly installments through October
2000......................................................... 382 581 589
Equipment note payable; bears interest at 1.75% above prime
(8.50% at October 31, 1997); due in 30 monthly installments
of $15 through September 3, 2000............................. -- -- 400
Note payable; bears interest at 10% per annum; due in quarterly
installments of $28, plus accrued interest, through June
1997......................................................... 168 56 --
--------- --------- -----------
550 2,034 2,054
Current portion--long-term debt................................ (275) (790) (919)
--------- --------- -----------
$ 275 $ 1,244 $ 1,135
--------- --------- -----------
--------- --------- -----------
</TABLE>
Future payments of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998................................................................................. $ 363
1999................................................................................. 1,206
2000................................................................................. 694
2001................................................................................. 163
---------
2,426
Less: Amount representing interest................................................... (372)
---------
$ 2,054
---------
---------
</TABLE>
F-11
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6--OPERATING LEASES
The Company leases equipment and office space in several facilities under
non-cancelable operating leases which expire on various dates through January
2002. Rental expense under such leases were $571, $547 and $721, for the years
ended January 31, 1995, 1996 and 1997, respectively and $644 for the nine months
ended October 31, 1997. Future minimum payments under the lease agreements are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998................................................................................. $ 574
1999................................................................................. 704
2000................................................................................. 667
2001................................................................................. 373
2002................................................................................. 86
---------
$ 2,404
---------
---------
</TABLE>
NOTE 7--INCOME TAXES
At October 31, 1997, the Company had net operating loss carryforwards of
approximately $20 million for income tax purposes. The net operating loss
carryforwards will begin to expire in 2007. Utilization of these net operating
loss carryforwards in the future by the Company may be limited or deferred
subject to Section 382 of the Internal Revenue Code. No future tax benefit for
such carryforwards or other temporary differences has been recognized since
utilization of such benefits is not presently deemed by management to be more
likely than not based on the weight of available evidence.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- OCTOBER 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of financial reporting......... $ 36 $ 37 $ --
--------- --------- -----------
Deferred tax assets:
Net operating loss carryforward........................... 3,638 6,284 7,955
Vacation and other accruals............................... 313 851 772
Book depreciation in excess of tax........................ -- -- 89
Research and development credit carryforward.............. -- 48 85
Accounts receivable allowance............................. 8 33 39
Amortization.............................................. 168 49 --
--------- --------- -----------
Total deferred tax assets............................... 4,127 7,265 8,940
--------- --------- -----------
Valuation allowance......................................... (4,091) (7,228) (8,940)
--------- --------- -----------
Total net deferred income taxes........................... $ -- $ -- $ --
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-12
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--CAPITAL STRUCTURE
The Company has the following authorized capital stock: 60,000,000 common
shares, 4,000,000 Series A convertible redeemable preferred shares, 4,000,000
Series B convertible redeemable preferred shares, 1,633,198 Series C convertible
redeemable preferred shares, 1,400,000 Series D convertible redeemable preferred
shares, 4,000,000 Series E convertible redeemable preferred shares, 4,000,000
Series F convertible redeemable preferred shares, 1,633,198 Series G convertible
redeemable preferred shares, and 1,400,000 Series H convertible redeemable
preferred shares (collectively, the Preferred Shares), all of which have $0.01
par value. The Preferred Shares are convertible, at the option of the holder,
into common stock on a share for share basis, have certain voting rights and
provide for certain liquidation preferences. The conversion feature is automatic
upon the closing of an initial public offering of the Company's common stock.
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
During March 1993, the Company issued 1,558,000 shares of Series A
convertible redeemable preferred stock for $1.50 per share. Total proceeds were
$2,310, net of expenses. As part of this sale, preferred stockholders were
issued warrants to purchase 779,000 shares of common stock at $1.50 per share.
These warrants expire on March 10, 1998. Using an option-pricing model the fair
value of the warrants was immaterial.
During February 1994, the Company completed the sale of an additional
1,999,990 shares of Series A convertible redeemable preferred stock at $1.50 per
share. In anticipation of this sale, certain preferred stockholders had, as of
January 31, 1994, advanced $500 to the Company. In February 1994, these advances
were applied to the purchase price of the shares acquired. Total proceeds from
the sale, including the initial stockholder advances, were $2,983, net of
expenses. Total proceeds from the sales of all shares of Series A convertible
redeemable preferred stock were $5,293, net of expenses, with 3,557,990 shares
outstanding.
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
During June 1995, the Company completed the sale of 3,010,515 shares of
Series B convertible redeemable preferred stock at $2.375 per share to
substantially all of the preferred stockholders who purchased preferred stock in
February 1994 and several new investors. In anticipation of this sale, certain
preferred stockholders had, as of January 31, 1995, advanced $1,000 to the
Company. Such advances were reflected as notes payable-- stockholders in the
balance sheet at January 31, 1995. Additionally during February 1995, the
Company obtained an additional $1,000 of advances from the preferred
stockholders. As a condition of the advances, such stockholders received
warrants to purchase 294,734 common shares at $2.375 per share for a period of
four years from the date of issuance. Using the fair value method prescribed in
SFAS No. 123, the fair value of the warrants was immaterial. In June 1995, these
advances were applied to the purchase price of the shares acquired. Total
proceeds from the sale were $7,124, net of expenses.
SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK
During March 1996, the Company sold 1,514,837 shares of Series C convertible
redeemable preferred stock at $3.25 per share to substantially all existing
preferred stockholders and several new investors. Total proceeds from the sale
were $4,880, net of expenses.
F-13
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--CAPITAL STRUCTURE (CONTINUED)
SERIES D CONVERTIBLE REDEEMABLE PREFERRED STOCK
During February 1997, the Company sold 1,399,992 shares of Series D
convertible redeemable preferred stock at $5.00 per share to both existing and
several new investors. Total proceeds from the sale were $6,926, net of
expenses.
MANDATORY PREFERRED STOCK REDEMPTION
One-fourth of the Series A and E convertible redeemable preferred shares are
subject to redemption during each of the fiscal years from 1998 through 2000,
with the balance to be redeemed during fiscal year 2001. One-fourth of the
Series B and F convertible redeemable preferred shares are subject to redemption
during each of the fiscal years from 2000 through 2002, with the balance to be
redeemed during fiscal year 2003. One-fourth of the Series C and G convertible
redeemable preferred shares are subject to redemption during each of the fiscal
years from 2001 through 2003, with the balance to be redeemed during fiscal year
2004. One-fourth of the Series D and H convertible redeemable preferred shares
are subject to redemption during each of the fiscal years from 2002 through
2004, with the balance to be redeemed during fiscal year 2005. The redemption
price shall equal the per share issuance price plus any unpaid and accumulated
or accrued dividends on the preferred stock. The Preferred Shares are recorded
at redemption value which also is the Preferred Shares liquidation value. In the
event any dividend or distribution is declared or made with respect to the
common stock, a comparable dividend or distribution must be simultaneously
declared or made with respect to the Preferred Shares. There have been no
dividends declared or paid through October 31, 1997.
Future redemptions of the Series A, B, C and D convertible redeemable
preferred shares outstanding as of October 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
- ---------------------------------------------------------------
<S> <C>
1998........................................................... $ 1,334
1999........................................................... 1,334
2000........................................................... 3,122
2001........................................................... 4,353
2002........................................................... 4,768
Thereafter..................................................... 9,499
---------
$ 24,410
---------
---------
</TABLE>
CAPITAL STRUCTURE CHANGES
In September 1997, subject to certain conditions, the Board of Directors
authorized the reincorporation of the Company in Delware, increased the
authorized shares of the Company and designated a par value of $0.01 for common
and convertible redeemable preferred shares. All applicable share data included
in the financial statements has been adjusted to give retroactive effect to such
action. In addition, the Company authorized 5,000,000, $.01 par value preferred
shares to be effective subsequent to the closing of an initial public offering.
F-14
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--CAPITAL STRUCTURE (CONTINUED)
OTHER WARRANTS
In conjunction with certain bank financing activities, the Company issued a
warrant in March 1995 to its bank to purchase 15,000 common shares at $2.00 per
share. The warrant expires on March 30, 2000. In conjunction with certain other
financings in fiscal 1996 and 1997, the Company issued warrants to a different
lender to purchase 33,683 Series B convertible redeemable preferred shares at
$2.375 per share. The warrants expire on September 29, 1999 (13,473 shares) and
November 20, 2000 (20,210 shares). In addition, the Company issued an additional
warrant to this lender in fiscal 1997 to purchase 94,736 Series C convertible
redeemable preferred shares at $3.25 per share, which expires on April 12, 2003.
Using the fair value method prescribed in SFAS No. 123, the fair value of the
warrants was immaterial.
As of October 31, 1997, the Company had outstanding 783,158 stock purchase
warrants at conversion prices ranging from $1.50 to $3.25. Of these, 639,739
warrants will be automatically exercised and converted into 491,599 shares of
common stock if not exercised prior to the closing of this offering.
NOTE 9--STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
STOCK OPTION PLANS
The Company has a stock incentive plan (the "1992 Stock Option Plan") that
reserves a total of 2,000,000 shares of common stock for issuance of stock
options to employees, officers and directors. On October 8, 1997, the Company's
Board of Directors increased, subject to stockholder approval, the number of
options which may be granted under the Company's stock option plan to 2,640,000.
In September 1997, the Company's Board of Directors adopted, subject to
stockholder approval, the 1997 Equity Incentive Plan (the "1997 Plan"). The
number of shares of common stock reserved for issuance under the 1997 Plan is
equal to 1,000,000, plus the number of remaining shares available for grant
under the Company's 1992 Stock Option Plan at the effective date of the
offering. Beginning February 1, 1999 and each year thereafter, the number of
shares reserved for issuance will automatically increase by the lesser of
400,000 shares or 3.5% of the total number of shares of common stock then
outstanding.
The option price for stock options granted is determined by the Company's
Board of Directors on the date of grant. Canceled options are available for
future grant and unvested options issued to employees are canceled when their
employment with the Company terminates. Generally, options granted to employees
vest over a five-year period and expire ten years after the date of grant.
The Company records compensation related to stock options using the
intrinsic value method of APB No. 25. Compensation related to stock options
granted below fair market value through October 31, 1997 approximates $1.1
million. Such compensation is considered deferred compensation and amortized
over the vesting period of the related options.
The Company has adopted the disclosure-only provisions of SFAS No. 123. For
purposes of the pro forma disclosures below, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation cost for the Company's stock plan been determined based on the
minimum value at the grant date for awards during fiscal years 1996, 1997 and
during the nine months ended October 31, 1997,
F-15
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
consistent with the provisions of SFAS No. 123, the Company's net losses would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------- OCTOBER 31,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net loss--as reported............................. $ (3,789) $ (8,476) $ (5,956)
Net loss--pro forma............................... (3,830) (8,595) (6,357)
</TABLE>
The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal years 1996, 1997, and for the nine months
ended October 31, 1997, respectively; dividend yield of 0%; risk-free interest
rates of 6.7%, 6.4% and 6.3%; and expected lives of 8.5 years. Volatility
factors are not applicable to non-public companies.
A summary of the stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE PRICE EXERCISE
OPTIONS PER SHARE PRICE
---------- ----------------- -----------
<S> <C> <C> <C>
Outstanding at January 31, 1994.................... 257,600 $0.875 - $1.125 $ 1.05
Granted............................................ 340,640 $1.125 $ 1.13
Exercised.......................................... (2,000) $0.875 - $1.125 $ 1.10
Canceled........................................... (26,600) $0.875 - $1.125 $ 1.13
----------
Outstanding at January 31, 1995.................... 569,640 $0.875 - $1.125 $ 1.10
Granted............................................ 767,633 $1.125 $ 1.13
Exercised.......................................... (3,600) $0.875 - $1.125 $ 1.03
Canceled........................................... (60,040) $0.875 - $1.125 $ 1.13
----------
Outstanding at January 31, 1996.................... 1,273,633 $0.875 - $1.125 $ 1.10
Granted............................................ 736,120 $1.125 $ 1.13
Exercised.......................................... (79,880) $0.875 - $1.125 $ 1.08
Canceled........................................... (153,220) $0.875 - $1.125 $ 1.13
----------
Outstanding at January 31, 1997.................... 1,776,653 $0.875 - $1.125 $ 1.13
Granted............................................ 719,900 $1.125 - $8.75 $ 2.51
Exercised.......................................... (187,296) $0.875 - $2.125 $ 1.16
Canceled........................................... (52,144) $1.125 - $7.50 $ 1.27
----------
Outstanding at October 31, 1997.................... 2,257,113 $0.875 - $8.75 $ 1.55
----------
----------
</TABLE>
Stock options exercisable at January 31, 1995, 1996 and 1997 and at October
31, 1997 were 112,120, 220,040 and 409,986, and 742,993, respectively. The
weighted-average fair value of options granted during fiscal years 1996 and 1997
during the nine months ended October 31, 1997 using the Black-Scholes
option-pricing model was $0.22, $0.46 and $2.27 per share, respectively.
F-16
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
The following table summarizes information about fixed-price stock options
outstanding at October 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTURAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------------ ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.875 - $2.125 2,004,213 8.1 $ 1.210 742,993 $ 1.125
$3.750 - $5.625 195,500 9.8 $ 4.000 -- --
$7.50 - $8.75 57,400 9.9 $ 7.750 -- --
----------- -----------
Totals 2,257,113 742,993
----------- -----------
----------- -----------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In September 1997, the Board of Directors adopted, subject to stockholder
approval, the Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan").
Under the Purchase Plan, eligible employees may purchase on each purchase date,
as defined, shares of common stock at 85% of its fair market value, up to the
lesser of 500 shares or 15% of the employee's compensation. In addition, 200,000
shares of common stock have been reserved for issuance under the Purchase Plan.
NOTE 10--BENEFIT PLAN
The Company offers its employees a 401(k) savings plan. Eligible employees
may elect to contribute a portion of their salaries up to limits defined by the
Internal Revenue Code. The Company may, at its sole discretion, match up to 6%
of employee contributions. There have been no employer contributions to date.
The Company also offers employees of its subsidiaries in the United Kingdom and
Germany a defined contribution plan. The Company does not offer other
post-retirement or post-employment benefits.
NOTE 11--RELATED PARTY TRANSACTION
At January 31, and October 31, 1997, the Company has a receivable from an
officer in the amount of $70 and $76, respectively. The receivable bears
interest at 5.3%, is secured by 28,572 shares of Company common stock and is due
sixty days after demand by the Company.
NOTE 12--SEGMENT AND GEOGRAPHIC AREAS
The Company operates in one industry segment, the development and marketing
of business analysis software products for data warehouse applications and
related services. International operations include operations in the United
Kingdom and Germany by the Company's wholly-owned subsidiaries. The Company's
subsidiaries in the United Kingdom and Germany sell the Company's software
products and services in Europe.
F-17
<PAGE>
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--SEGMENT AND GEOGRAPHIC AREAS (CONTINUED)
The following table presents a summary of operating information and certain
balance sheet information by geographic region:
<TABLE>
<CAPTION>
NINE
FISCAL YEARS ENDED MONTHS
JANUARY 31, ENDED
------------------------------- OCTOBER 31,
1995 1996 1997 1997
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenues:
Domestic operations............................ $ 2,872 $ 5,037 $ 10,629 $ 16,136
International operations....................... 945 605 1,117 1,365
--------- --------- --------- -----------
Consolidated..................................... $ 3,817 $ 5,642 $ 11,746 $ 17,501
--------- --------- --------- -----------
--------- --------- --------- -----------
Net income (loss):
Domestic operations............................ $ (4,404) $ (3,437) $ (7,495) $ (4,966)
International operations....................... 9 (352) (981) (990)
--------- --------- --------- -----------
Consolidated..................................... $ (4,395) $ (3,789) $ (8,476) $ (5,956)
--------- --------- --------- -----------
--------- --------- --------- -----------
Identifiable assets:
Domestic operations............................ $ 1,200 $ 3,809 $ 4,942 $ 11,275
International operations....................... 399 512 976 1,690
--------- --------- --------- -----------
Consolidated..................................... $ 1,599 $ 4,321 $ 5,918 $ 12,965
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
NOTE 13--NON-CASH TRANSACTIONS
During 1995, 1996, 1997, and during the nine months ended October 31, 1996
and 1997, the Company acquired $124, $303, $486, $340, $288, respectively, of
fixed assets through capital leases.
During 1996, $2 million of notes payable--stockholders was converted to
Series B convertible redeemable preferred stock at $0.95 per share.
F-18
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 9,295
NASD fee........................................................ 3,376
Nasdaq National Market listing fee.............................. 24,171
Printing and engraving expenses................................. 225,000
Legal fees and expenses......................................... 500,000
Accounting fees and expenses.................................... 150,000
Blue sky fees and expenses...................................... 5,000
Transfer agent fees............................................. 13,000
Miscellaneous fees and expenses................................. 270,158
---------
Total......................................................... $1,200,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Restated
Certificate of Incorporation provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the directors'
fiduciary duty as directors to the Company and its stockholders. This provision
in the Restated Certificate of Incorporation does not eliminate the directors'
fiduciary duty, 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 Company for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into Indemnification Agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law." The Registrant maintains directors and
officers liabilities insurance. Reference is made to Section 8(b) of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following transactions reflect the issuance during the previous three
years, and in one pending transaction, of securities not registered under the
Securities Act:
1. In November 1997, the Company will issue warrants to purchase a total of
30,000 shares of Series D convertible redeemable preferred stock to certain
holders of outstanding Preferred Stock, at a per share
II-1
<PAGE>
purchase price of $5.00, in conjunction with a $3.0 million revolving loan
commitment from such investors to the Company. In the event the Company requests
advances from such lenders, the Company will be required to issue additional
warrants on a pro rata basis to the lenders, with the number of shares subject
to such additional warrants equal to 4% of the principal amount of each advance
from the lenders.
2. As of July 31, 1997, the Company had issued and sold 129,560 shares of
its Common Stock to employees and consultants at a price of $.875 or $1.125 per
share pursuant to exercises of options under its 1992 Stock Option Plan.
3. On June 2, 1995, the Company issued 3,010,515 shares of Series B
Preferred Stock for an aggregate purchase price of approximately $7,150,000 to a
group of 27 investors.
4. On March 13, 1996, the Company issued 1,514,837 shares of Series C
Preferred Stock for an aggregate purchase price of approximately $4,925,000 to a
group of 22 investors.
5. On February 28, 1997, the Company issued 1,399,992 shares of Series D
Preferred Stock for an aggregate purchase price of $7,000,000 to a group of 29
investors.
6. On October 20, 1994 and February 28, 1995, the Company issued warrants
to purchase a total of 294,734 shares of Common Stock to a group of three
investors in conjunction with loans made by such investors to the Company with
an aggregate exercise price of approximately $700,000.
7. On March 31, 1995, the Company issued a warrant to purchase 15,000
shares of Common Stock to a lender of the Company with an aggregate exercise
price of $30,000.
8. On September 29, 1995, the Company issued a warrant to purchase 13,473
shares of Series B Preferred Stock with an aggregate exercise price of
approximately $32,000 to a lender.
9. On April 12, 1996, the Company issued a warrant to purchase 94,736
shares of Series C Preferred Stock of the Company with an aggregate exercise
price of approximately $308,000 to a lender.
10. On November 20, 1996, the Company issued a warrant to purchase 20,210
shares of Series B Preferred Stock with an aggregate exercise price of
approximately $48,000 to a lender.
The issuances described in Items 15(1) - (10) were or will be deemed exempt
from registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act or Section 4(2) of the Securities Act. The issuances of
the securities described in Items 15(1) - (10) were or will be deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
such Act as transactions by an issuer not involving any public offering. In
addition, the recipients of securities in each such transaction represented or
will represent their intentions to acquire the securities for investment only
and not with a view to or for sale in connection with any distribution thereof
and appropriate legends were or will be affixed to the share certificates issued
in such transactions. All recipients had or will have adequate access, through
their relationships with the Registrant, to information about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Form of Certificate of Incorporation to be filed upon the closing of the offering made hereby.
3.3+ Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Specimen Common Stock certificate.
4.3+ 1993 Stock Purchase Agreement.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP.
10.1+ Form of Indemnification Agreement.
10.2+ 1992 Stock Option Plan.
10.3+ 1997 Equity Incentive Plan.
10.4+ 1997 Employee Stock Purchase Plan
10.5+ Employment Agreement between the Company and Larry J. Ford, dated April 19, 1995 ("Ford Agreement").
10.6+ Amendment to the Ford Agreement, dated May 23, 1995.
10.7+ Amended and Restated Employment Agreement between the Company and Richard L. Tanler, dated June 11,
1992.
10.8+ Promissory Note between the Company and Richard Tanler, dated April 11, 1996.
10.9+ Employment Agreement between the Company and Richard S. Parker, dated June 11, 1992.
10.10+ Employment Agreement between the Company and Rory Torrien, dated June 11, 1992
10.11+ Offer Letter to Robin L. Pederson, dated March 6, 1996.
10.12+ Offer Letter to Donald W. Anderson, executed November 4, 1996.
10.13+ Amended and Restated Business Loan Agreement between the Company and Silicon Valley Bank, dated
September 3, 1997.
10.14+ Subordinated Loan and Security Agreement between the Company and Comdisco, Inc., dated April 12, 1996.
10.15 Severance Agreement between the Company and Larry J. Ford, dated November 10, 1997.
10.16 Form of Severance Agreement between the Company and Richard L. Tanler, Robin L. Pederson, Rory C.
(Butch) Terrien, Donald W. Anderson, Richard S. Parker, Mark Furtney, Mary K. Trick, Keith Deane and
Michael Gaard, dated November 10, 1997.
10.17* Form of Loan and Warrant Purchase Agreement between the Company and certain holders of Preferred
Stock, dated November , 1997.
11.1 Pro forma Net Loss Per Share.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP. Reference is made to Exhibit
5.1.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ------------------------------------------------------------------------------------------------------
<C> <S>
24.1+ Power of Attorney for Larry J. Ford, Donald W. Anderson, Richard L. Tanler, Promod Haque, Fredric R.
Boswell, Jay H. Wein, William H. Younger, Jr. and Ronald E.F. Codd.
24.2 Power of Attorney for Donald R. Hollis (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set forth
therein is not applicable or is readily available in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
The 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 Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Restated
Certificate of Incorporation or the Bylaws of the Registrant, the Underwriting
Agreement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of 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 Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities 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 Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Eden
Prairie, State of Minnesota, on this 17th day of November, 1997.
INFORMATION ADVANTAGE, INC.
By: /s/ LARRY J. FORD
--------------------------------------
Larry J. Ford
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that Donald R. Hollis, whose signature
appears below, constitutes and appoints Larry J. Ford and Donald W. Anderson,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
NAME TITLE DATE
- ------------------------- -------------------------- -------------------
President, Chief Executive
/s/ LARRY J. FORD Officer and Director
- ------------------------- (Principal Executive November 17, 1997
Larry J. Ford Officer)
Chief Financial Officer,
/s/ DONALD W. ANDERSON Vice President
- ------------------------- (Principal Executive and November 17, 1997
Donald W. Anderson Accounting Officer)
Chairman of the Board of
* RICHARD L. TANLER Directors and Senior
- ------------------------- Vice President, November 17, 1997
Richard L. Tanler Strategic Planning and
Marketing
* PROMOD HAQUE
- ------------------------- Director November 17, 1997
Promod Haque
II-5
<PAGE>
NAME TITLE DATE
- ------------------------- -------------------------- -------------------
* FREDRIC R. BOSWELL
- ------------------------- Director November 17, 1997
Fredric R. Boswell
/s/ DONALD R. HOLLIS
- ------------------------- Director November 17, 1997
Donald R. Hollis
* JAY H. WEIN
- ------------------------- Director November 17, 1997
Jay H. Wein
* WILLIAM H. YOUNGER, JR.
- ------------------------- Director November 17, 1997
William H. Younger, Jr.
* RONALD E.F. CODD
- ------------------------- Director November 17, 1997
Ronald E.F. Codd
*By: /s/ Donald W.
Anderson
- -------------------------
Donald W. Anderson
(ATTORNEY-IN-FACT)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Form of Certificate of Incorporation to be filed upon the closing of the offering made hereby.
3.3+ Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Specimen Common Stock certificate.
4.3+ 1993 Stock Purchase Agreement.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP.
10.1+ Form of Indemnification Agreement.
10.2+ 1992 Stock Option Plan.
10.3+ 1997 Equity Incentive Plan.
10.4+ 1997 Employee Stock Purchase Plan
10.5+ Employment Agreement between the Company and Larry J. Ford, dated April 19, 1995 ("Ford Agreement").
10.6+ Amendment to the Ford Agreement, dated May 23, 1995.
10.7+ Amended and Restated Employment Agreement between the Company and Richard L. Tanler, dated June 11,
1992.
10.8+ Promissory Note between the Company and Richard Tanler, dated April 11, 1996.
10.9+ Employment Agreement between the Company and Richard S. Parker, dated June 11, 1992.
10.10+ Employment Agreement between the Company and Rory Torrien, dated June 11, 1992
10.11+ Offer Letter to Robin L. Pederson, dated March 6, 1996.
10.12+ Offer Letter to Donald W. Anderson, executed November 4, 1996.
10.13+ Amended and Restated Business Loan Agreement between the Company and Silicon Valley Bank, dated
September 3, 1997.
10.14+ Subordinated Loan and Security Agreement between the Company and Comdisco, Inc., dated April 12, 1996.
10.15 Severance Agreement between the Company and Larry J. Ford, dated November 10, 1997.
10.16 Form of Severance Agreement between the Company and Richard L. Tanler, Robin L. Pederson, Rory C.
(Butch) Terrien, Donald W. Anderson, Richard S. Parker, Mark Furtney, Mary K. Trick, Keith Deane and
Michael Gaard, dated November 10, 1997.
10.17* Form of Loan and Warrant Purchase Agreement between the Company and certain holders of Preferred
Stock, dated November , 1997.
11.1 Pro forma Net Loss Per Share.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP. Reference is made to Exhibit
5.1.
24.1+ Power of Attorney for Larry J. Ford, Donald W. Anderson, Richard L. Tanler, Promod Haque, Fredric R.
Boswell, Jay H. Wein, William H. Younger, Jr. and Ronald E.F. Codd.
24.2 Power of Attorney for Donald R. Hollis (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
<PAGE>
3,334,000 SHARES(1)
INFORMATION ADVANTAGE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
____________ __, 1997
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
FIRST ALBANY CORPORATION
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Information Advantage, Inc., a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several
Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
3,334,000 shares (the "Firm Shares") of its authorized and unissued Common
Stock, par value $0.01 per share, to the several Underwriters. The Company
also proposes to grant to the Underwriters an option to purchase up to
500,100 additional shares (the "Option Shares") of the Company's Common
Stock, par value $0.01 per share, as provided in Section 7 hereof. As used
in this Agreement, the term "Shares" shall include the Firm Shares and the
Option Shares. All shares of Common Stock, par value $0.01 per share, of the
Company to be outstanding after giving effect to the sales contemplated
hereby, including the Shares, are hereinafter referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
I. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-37707)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements pursuant to Rule 462(b) of the Rules and Regulations as may have
been required prior to the date hereof have been similarly prepared and filed
with the Commission; and the Company will file such additional amendments to
such registration statement, such amended prospectuses subject to completion
and such abbreviated registration statements as may hereafter be required.
Copies of such registration statement and
_______________________________
(1) Plus an option to purchase up to 500,100 additional shares
from the Company to cover over-allotments.
<PAGE>
amendments, of each related prospectus subject to completion (the
"Preliminary Prospectuses") and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to
you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare
and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancAmerica Robertson
Stephens, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or
(c), as applicable, of the Rules and Regulations pursuant to subparagraph
(1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares has
not been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if BancAmerica Robertson Stephens,
on behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the information required to be included in
any term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the
Rules and Regulations. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files
a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such
amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations); PROVIDED, HOWEVER, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of BancAmerica
Robertson Stephens, on behalf of the several Underwriters, the Company shall
have provided to the Underwriters a term sheet pursuant to Rule 434(b) or
(c), as applicable, prior to the time that a confirmation is sent or given
for purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean
the "prospectus subject to completion" (as defined in Rule 434(g) of the
Rules and Regulations) last provided to the Underwriters by the Company and
circulated by the Underwriters to all prospective purchasers of the Shares
(including the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters
for such use. If in reliance on Rule 434 of the Rules and Regulations and
with the consent of BancAmerica Robertson Stephens, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term
sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act,
the Prospectus and the term sheet, together, will not be materially different
from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings
for that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up
2
<PAGE>
to and on the Closing Date (hereinafter defined) and on any later date on
which Option Shares are to be purchased, (i) the Registration Statement and
the Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to
the requirements of the Act and the Rules and Regulations, (ii) the
Registration Statement, and any amendments or supplements thereto, did not
and will not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties contained in this subparagraph (b) shall apply
to information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter specifically for use in the preparation
thereof.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation with full power and authority (corporate and other) to
own, lease and operate its properties and conduct its business as described
in the Prospectus; the Company owns all of the outstanding capital stock of
its subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; the Company is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure
to be so qualified or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification; the Company is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to
the conduct of its business, all of which are valid and in full force and
effect; the Company is not in violation of its charter or bylaws or in
default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which the Company is a party or by which
it or its properties may be bound; and the Company is not in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its properties of which
it has knowledge. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
Information Advantage International, Ltd. and Information Advantage GmbH
(collectively, the "European Subsidiaries"). Neither of the European
Subsidiaries are significant subsidiaries (as defined in Rule 1-02 of
Regulation S-X under the Securities Act) of the Company.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; the performance of this
Agreement and the consummation of the transactions herein contemplated will
not result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any bond, debenture, note
or other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, license agreement, joint venture or
other agreement or instrument to which the Company is a party or by which it
or its properties may be bound, (ii) the charter or bylaws of the Company, or
(iii) any law, order, rule, regulation, writ, injunction, judgment or decree
of any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its properties. No consent,
approval, authorization or order of or
3
<PAGE>
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its
properties is required for the execution and delivery of this Agreement and
the consummation by the Company of the transactions herein contemplated,
except such as may be required under the Act or under state or other
securities or Blue Sky laws, all of which requirements have been satisfied in
all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company
or any of its officers or any of its properties, assets or rights before any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company or might materially and adversely affect its
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are
no agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the
Act or the Rules and Regulations which have not been accurately described in
all material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in
the Prospectus under the caption "Capitalization" and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly
state the substance of the instruments defining the capitalization of the
Company); the Firm Shares and the Option Shares to be purchased from the
Company hereunder have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued and fully paid and nonassessable,
and will be sold free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Firm Shares or Option Shares
to be purchased from the Company hereunder or the issuance and sale thereof
other than those that have been expressly waived prior to the date hereof and
those that will automatically expire upon and will not apply to the
consummation of the transactions contemplated on the Closing Date. No
further approval or authorization of any stockholder, the Board of Directors
of the Company or others is required for the issuance and sale or transfer of
the Shares except as may be required under the Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or under state or other
securities or Blue Sky laws. Except as disclosed in the Prospectus and the
financial statements of the Company, and the related notes thereto, included
in the Prospectus, the Company has no outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(g) Price Waterhouse LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, for the six months ended January 31, 1996 and 1997 and for each of the
fiscal years in the three (3) fiscal years ended July 31, 1997 filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are independent accountants within the meaning of the Act and the
Rules and Regulations; the audited consolidated financial statements of the
Company, together with the related schedules and notes, and the unaudited
consolidated financial information, forming part of the Registration
Statement and Prospectus, fairly present the financial position and the
results of operations of the
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Company at the respective dates and for the respective periods to which they
apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company, (ii) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company, incurred
by the Company, except obligations incurred in the ordinary course of
business, (iv) any change in the capital stock or outstanding indebtedness of
the Company that is material to the Company, (v) any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company, or
(vi) any loss or damage (whether or not insured) to the property of the
Company which has been sustained which has a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties
and assets described in the Registration Statement and Prospectus as owned by
it, free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest, other than such as would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, (ii) the agreements to which
the Company is a party described in the Registration Statement and Prospectus
are valid agreements, enforceable by the Company, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the Company's knowledge,
the other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) the Company has
valid and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. Except as set forth in the
Registration Statement and Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed
to be conducted.
(j) The Company has timely filed all necessary federal, state
and foreign income and franchise tax returns and have paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the
Company's knowledge, might be asserted against the Company that might have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; and all tax
liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full
force and effect; the Company has not been refused any insurance coverage
sought or applied for; and the Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not materially
adversely affect the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
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(l) To the Company's knowledge, no labor disturbance by the
employees of the Company exists or is imminent; and the Company is not aware
of any existing or imminent labor disturbance by the employees of any of its
principal suppliers, subassemblers, value added resellers, independent
software vendors, original equipment manufacturers, authorized dealers or
distributors that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company. No collective bargaining agreement exists
with any of the Company's employees and, to the Company's knowledge, no such
agreement is pending or imminent.
(m) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus
(provided, however, that the Company's only representations and warranties
herein with respect to infringements of or conflicts with rights of others
with respect to patents, patent rights, trademarks, service marks and trade
names of the Company are set forth below in this paragraph (m)); the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company; the Company has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of the Company by others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company.
(n) The Common Stock has been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
at any time become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option
Shares are to be purchased, as the case may be, and (ii) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(q) The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office
or failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each
beneficial owner of 1% or more shares of Common Stock, has agreed in writing
that such person will not, for a period of 180 days from the date that the
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Registration Statement is declared effective by the Commission (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock (collectively, "Securities") now
owned directly by such person or with respect to which such person has the
power of disposition, otherwise than (i) as a bona fide gift or gifts,
provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or stockholders of such
person, provided that the distributees thereof agree in writing to be bound
by the terms of this restriction, or (iii) with the prior written consent of
BancAmerica Robertson Stephens. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging
or other transaction which is designed to or reasonably expected to lead to
or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or
grant of any right (including, without limitation, any put or call option)
with respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Such person has also agreed
and consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Securities held by such person
except in compliance with this restriction. Furthermore, each such person
has also agreed that, without the prior written consent of BancAmerica
Robertson Stephens, such person will not, during the period ending with the
conclusion of the Lock-Up Period, make any demand for or exercise any right
with respect to, the registration of any Securities. The Company has
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and stockholders have agreed to
such or similar restrictions (the "Lock-up Agreements") presently in effect
or effected hereby. The Company hereby represents and warrants that, prior
to the conclusion of the Lock-Up Period, it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements
currently existing or hereafter effected without the prior written consent of
BancAmerica Robertson Stephens.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus, (iii) to the Company's knowledge,
the Company will not be required to make future material capital expenditures
to comply with Environmental Laws and (iv) to the Company's knowledge, no
property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601,
ET SEQ.), or otherwise designated as a contaminated site under applicable
state or local law.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access
to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
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(w) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
(x) The Company has given notice of the filing of the
Registration Statement and the offering contemplated thereby and taken such
other actions as may be required pursuant to all agreements to which the
Company is a party which require such notice and/or other action.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $___________ per share,
the respective number of Firm Shares as hereinafter set forth. The
obligation of each Underwriter to the Company shall be to purchase from the
Company that number of Firm Shares which is set forth opposite the name of
such Underwriter in Schedule A hereto (subject to adjustment as provided in
Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the several Underwriters by
certified or official bank check or checks drawn in next-day funds, payable
to the order of the Company (and the Company agrees not to deposit any such
check in the bank on which it is drawn, and not to take any other action with
the purpose or effect of receiving immediately available funds, until the
business day following the date of its delivery to the Company and, in the
event of any breach of the foregoing, the Company shall reimburse the
Underwriters for the interest lost and any other expenses borne by them by
reason of such breach), at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California
94025 (or at such other place as may be agreed upon among the Representatives
and the Company), at 7:00 A.M., San Francisco time (a) on the third (3rd)
full business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is
executed and delivered or (c) at such other time and date not later than
seven (7) full business days following the first day that Shares are traded
as the Representatives and the Company may determine (or at such time and
date to which payment and delivery shall have been postponed pursuant to
Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date"; PROVIDED, HOWEVER, that if the Company has not
made available to the Representatives copies of the Prospectus within the
time provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full
business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered
will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably
request for checking at least one (1) full business day prior to the Closing
Date and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the Closing Date for the Firm Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
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The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters,
and under the second, sixth, eighth and tenth paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company that the statements made therein do not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as
promptly as possible; the Company will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement, any
subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the
Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus and term sheet meeting the requirements of Rule 434(b) or
(c), as applicable, of the Rules and Regulations, have been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (7) of
Rule 424(b) of the Rules and Regulations; if for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the
time period prescribed; it will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information; promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to
the Registration Statement or Prospectus which, in the opinion of counsel for
the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus relating
to the Shares as then in effect would include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Act; and it will file no amendment or supplement
to the Registration Statement or Prospectus, or, prior to the end of the
period of time in which a prospectus relating to the Shares is required to be
delivered under the Act, which shall not previously have been submitted to
you a reasonable time prior to the proposed filing thereof or to which you
shall reasonably object in writing, subject, however, to compliance with the
Act and the Rules and Regulations and the provisions of this Agreement.
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(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions
as you may designate and to continue such qualifications in effect for so
long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements
and reports in each year as are or may be required by the laws of such
jurisdiction.
(d) The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term
sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you
may from time to time reasonably request. Notwithstanding the foregoing, if
BancAmerica Robertson Stephens, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the
Company shall provide to you copies of a Preliminary Prospectus updated in
all respects through the date specified by you in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section
11(a) of the Act and covering a twelve (12) month period beginning after the
effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof,
the Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal
year, and will furnish to you and the other several Underwriters hereunder,
upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity, and of cash flows of the Company for
such fiscal year, accompanied by a copy of the certificate or report thereon
of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange
or the National Association of Securities Dealers, Inc. ("NASD"), (v) every
material press release and every material news item or article in respect of
the Company or its affairs which was generally released to stockholders or
prepared by the Company, and (vi) any additional information of a public
nature concerning the Company or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for
any significant subsidiary which is not so consolidated.
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(g) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 11(a) hereof, or
if the Underwriters shall terminate this Agreement pursuant to Section
11(b)(i), the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating or preparing to market
or marketing the Shares.
(j) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith consult with you concerning the substance of and
advisability of disseminating a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(k) During the Lock-up Period, the Company will not, without
the prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Firm Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's
presently authorized 1997 Equity Incentive Plan and 1997 Employee Stock
Purchase Plan (collectively, the "Employee Plans").
(l) During a period of one hundred eighty (180) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the 1992 Stock Option Plan.
5. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of
the Registration Statement (including financial statements,
schedules and exhibits), Preliminary Prospectuses and the
Prospectus and any amendments or supplements thereto; the printing
of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any
Supplemental Blue Sky Survey, the Underwriters' Questionnaire and
Power of Attorney, and any instruments related to any of the
foregoing; the issuance and delivery of the Shares hereunder to the
several Underwriters, including transfer taxes, if any, the cost of
all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any of the foregoing; NASD
filing fees and the cost of qualifying the Shares under the laws of
such jurisdictions as you may designate (including filing fees and
fees and
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disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses
directly incurred by the Company in connection with the performance
of their obligations hereunder.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(a) hereof, it will
reimburse the Underwriters on a monthly basis for all reasonable
legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the
Company's obligation to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held
to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to
have been improper, the Underwriters shall promptly return such
payment to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed
from time to time in The Wall Street Journal which represents the
base rate on corporate loans posted by a substantial majority of
the nation's thirty (30) largest banks (the "Prime Rate"). Any
such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company for such expenses and
the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within
thirty (30) days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis
on which such amounts shall be apportioned among the reimbursing parties,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does
not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to
do so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 5(a)(ii) and 5(b) hereof and
will not resolve the ultimate propriety or enforceability of the obligation
to indemnify for expenses which is created by the provisions of Sections 8(a)
and 8(b) hereof or the obligation to contribute to expenses which is created
by the provisions of Section 8(d) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Shares as provided
herein shall be subject to the accuracy, as of the date hereof and the
Closing Date and any later date on which Option Shares are to be purchased,
as the case may be, of the representations and warranties of the Company
herein, to the performance by the Company of their respective obligations
hereunder and to the following additional conditions:
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(a) The Registration Statement shall have become effective
not later than 2:00 P.M., San Francisco time, on the date following the date
of this Agreement, or such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information
as they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus.
(d) The Company's Common Stock shall have been approved for
inclusion on the Nasdaq National Market and the Company's registration
statement pursuant to Section 12(g) of the Exchange Act shall have been
declared effective by the Commission.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be,
the following opinion of Briggs and Morgan, Professional Association, counsel
for the Company, dated the Closing Date or such later date on which Option
Shares are to be purchased addressed to the Underwriters and with reproduced
copies or signed counterparts thereof for each of the Underwriters, to the
effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
(iii) The Company is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or
business of the Company;
(iv) To such counsel's knowledge, the Company does
not own or control, directly or indirectly, any corporation,
association or other entity other than the European Subsidiaries;
(v) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, and the
issued and outstanding shares of capital stock of the Company have
been duly and validly issued and, to such counsel's knowledge, are
fully paid and nonassessable;
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(vi) The Firm Shares or the Option Shares, as the
case may be, when issued by the Company pursuant to the terms of
this Agreement, will not have been issued in violation of or subject
to any preemptive right, set forth in the Certificate of
Incorporation or Bylaws or, any contractual preemptive right,
co-sale right, registration right, right of first refusal or other
similar right known to such counsel;
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by it
hereunder;
(viii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be
limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally
or by general equitable principles;
(ix) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder,
concerning which no opinion need be expressed) will not (a) result
in any violation of the Company's charter or bylaws or (b) result
in a material breach or violation of any of the terms and
provisions of, or constitute a default under, any agreement or
instrument filed as an exhibit to the Registration Statement or
listed on Annex A attached hereto and to which the Company is a
party or by which its properties are bound, or any applicable
statute, rule or regulation, or any order, writ or decree known to
such counsel, of any court, government or governmental agency or
body having jurisdiction over the Company, or over any of its
properties or operations;
(x) To such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the
Company of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein; and
(xi) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived
such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the
Registration Statement or to have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights.
In addition, such counsel shall state that those attorney(ies)
employed by such counsel who are responsible for such counsel's representation
of the Company and rendered legal services in connection with the transactions
contemplated hereby have read the Registration Statement and Prospectus and
although none of them has verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, they do
not believe, based on their present knowledge and without any independent
review, that, at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on
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any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including supporting schedules and other financial and
statistical information derived therefrom or contained therein, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or, at the Closing Date or any later date on which the
Option Shares are to be purchased as the case may be, the Registration
Statement, the Prospectus and any amendment, or supplement thereto (except as
aforesaid) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of Minnesota
and Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company and of government
officials, in which case their opinion is to state that they are so relying
and that they have no knowledge of any material misstatement or inaccuracy in
any such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(f) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be,
the following opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, special counsel for the Company dated the Closing Date or
such later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(i) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or
are pending or threatened under the Act;
(ii) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and other financial or
statistical data contained therein as to which such counsel need
express no opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations;
(iii) The information in the Prospectus under
the caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed
by such counsel and is a fair summary in all material respects of
such matters and conclusions; and the form of certificate
evidencing the Common Stock and filed as an exhibit to the
Registration Statement complies with Delaware law;
(iv) The discussion under "Risk
Factors--Anti-takeover Effects of Certificate of Incorporation,
Bylaws and Delaware Law, -Shares Eligible for Future Sale",
"Description of Capital Stock" and "Shares Eligible for Future
Sale" in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and
fairly present the information required to be presented by the Act
and the applicable Rules and Regulations;
(v) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is
a party of a character required to be described or referred to in
the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
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(vi) No consent, approval, authorization or order of
or qualification with any court, government or governmental agency
or body having jurisdiction over the Company or over any of its
properties or operations is necessary in connection with the
consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or
such as may be required under state or other securities or Blue Sky
laws in connection with the purchase and the distribution of the
Shares by the Underwriters; and
(vii) The Firm Shares or the Option Shares, as
the case may be, to be issued by the Company pursuant to the terms
of this Agreement have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms
hereof, will be duly and validly issued and fully paid and
nonassessable.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters
were discussed, and although they have not verified the accuracy or
completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which leads
them to believe that, at the time the Registration Statement became effective
and at all times subsequent thereto up to and on the Closing Date and on any
later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including supporting schedules and other financial and statistical
information derived therefrom or contained therein, as to which such counsel
need express no comment) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or at the Closing Date or any
later date on which the Option Shares are to be purchased, as the case may
be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of California
and Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company and of government
officials, in which case their opinion is to state that they are so relying
and that they have no knowledge of any material misstatement or inaccuracy in
any such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(h) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Price Waterhouse LLP addressed to the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a
date not more than five (5) business days prior to the Closing Date or such
later date on which Option Shares are to be purchased, as the case may be,
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such
later date on which Option Shares are to be purchased,
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as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of more
recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth
in the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus. The Original Letter from Price Waterhouse
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
[July 31], 1997 and related consolidated statements of operations,
stockholders' equity, and cash flows for the twelve (12) months ended January
31, 1995, 1996 and 1997, (iii) state that Price Waterhouse LLP has performed
the procedures set out in Statement on Auditing Standards No. 71 ("SAS 71")
for a review of interim financial information and providing the report of
Price Waterhouse LLP as described in SAS 71 on the financial statements for
each of the quarters in the ____-quarter period ended July 31, 1997 (the
"Quarterly Financial Statements"), (iv) state that in the course of such
review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and
(v) address other matters agreed upon by Price Waterhouse LLP and you. In
addition, you shall have received from Price Waterhouse LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements
as of January 31 and July 31, 1997, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(i) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and
as of the Closing Date or any later date on which Option Shares are
to be purchased, as the case may be, and the Company has complied
with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date
or any later date on which Option Shares are to be purchased, as
the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement and the Prospectus,
and any amendments or supplements thereto, contained all material
information required to be included therein by the Act and the
Rules and Regulations and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, the
Registration Statement, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, and, since the effective date of the Registration
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Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set
forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or
business prospects of the Company, (b) any transaction that is
material to the Company, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company, incurred by the
Company, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company that is material to the Company, (e)
any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, or (f) any loss or damage
(whether or not insured) to the property of the Company which has
been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(j) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company and each beneficial
owner of 1% or more shares of Common Stock, in writing prior to the date
hereof that such person will not, during the Lock-up Period, effect the
Disposition of any Securities now owned directly by such person or with
respect to which such person has the power of disposition, otherwise than (i)
as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners
or stockholders of such person, provided that the distributees thereof agree
in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of BancAmerica Robertson Stephens. The foregoing
restriction shall have been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be
disposed of by someone other than the such holder. Such prohibited hedging
or other transactions would including, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Such person will have also agreed and consented
to the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by such person except in
compliance with this restriction. Furthermore, such person will have also
agreed that, without the prior written consent of BancAmerica Robertson
Stephens, such person will not, during the period ending with the conclusion
of the Lock-up Period, make any demand for or exercise any right with respect
to, the registration of any Securities.
(k) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company herein, as to the performance
by the Company of their respective obligations hereunder and as to the other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company will furnish you with
such number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants to the several Underwriters, for the
purpose of covering over-allotments in connection with the distribution and
sale of the Firm Shares only, a nontransferable option to purchase up to an
aggregate of 500,100 Option Shares at the purchase price per share for the
Firm
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Shares set forth in Section 3 hereof. Such option may be exercised by the
Representatives on behalf of the several Underwriters on one (1) or more
occasions in whole or in part during the period of thirty (30) days after the
date on which the Firm Shares are initially offered to the public, by giving
written notice to the Company. The number of Option Shares to be purchased
by each Underwriter upon the exercise of such option shall be the same
proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (set forth in Schedule A hereto)
bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is
drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the
date of its delivery to the Company). In the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach. Such delivery
and payment shall take place at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park,
California 94025, or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the
Option Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose funds shall not have been received by you prior to the
date of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment
and delivery for such Option Shares) to the accuracy of and compliance with
the representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and
to the condition that all proceedings taken at or prior to the payment date
in connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and
you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company or the
satisfaction of any of the conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
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(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD),
under the Act, the Exchange Act or otherwise, specifically including, but not
limited to, losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of the Company herein contained, (ii) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal
or other expenses reasonably incurred by it in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement thereto, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof and, PROVIDED FURTHER,
that the indemnity agreement provided in this Section 8(a) with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, damages, liabilities or
actions based upon any untrue statement or alleged untrue statement of
material fact or omission or alleged omission to state therein a material
fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time required
by the Act and the Rules and Regulations, unless such failure is the result
of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages
or liabilities, joint or several, to which the Company may become subject
under the Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof, and agrees to
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
of the Company who signed the Registration Statement and each
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director of the Company and each person, if any, who controls the Company
within the meaning of the Act or the Exchange Act. This indemnity agreement
shall be in addition to any liabilities which each Underwriter may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notified the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER,
that if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available
to the indemnifying party, the indemnified party or parties shall have the
right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section
8(a) or 8(b) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; PROVIDED
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution
in any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, all the parties hereto shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Underwriters severally and not jointly are responsible pro rata for
the portion represented by the percentage that the underwriting discount
bears to the initial public offering price, and the Company is responsible
for the remaining portion, PROVIDED, HOWEVER, that (i) no Underwriter shall
be required to contribute any amount in excess of the amount by which the
underwriting discount applicable to the Shares purchased by such Underwriter
exceeds the amount of damages which such Underwriter has otherwise required
to pay and (ii) no person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(d) shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if any,
who controls any
21
<PAGE>
Underwriter or the Company within the meaning of the Act or the Exchange Act
and each officer of the Company who signed the Registration Statement and
each director of the Company.
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 8, and are fully informed
regarding said provisions. They further acknowledge that the provisions of
this Section 8 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties, covenants and agreements
of the Company and the Underwriters herein or in certificates delivered
pursuant hereto, and the indemnity and contribution agreements contained in
Section 8 hereof shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any of its officers,
directors or controlling persons within the meaning of the Act, and shall
survive the delivery of the Shares to the several Underwriters hereunder or
termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares
agreed by such Underwriter or Underwriters to be purchased hereunder upon
tender of such Firm Shares in accordance with the terms hereof, and if the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters so agreed but failed to purchase does not exceed 10% of the Firm
Shares, the remaining Underwriters shall be obligated, severally in
proportion to their respective commitments hereunder, to take up and pay for
the Firm Shares of such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to take up and pay for exceeds 10% of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them)
the Firm Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing
Date shall be postponed for twenty-four (24) hours to allow the several
Underwriters the privilege of substituting within twenty-four (24) hours
(including non-business hours) another underwriter or underwriters (which may
include any nondefaulting Underwriter) satisfactory to the Company. If no
such underwriter or underwriters shall have been substituted as aforesaid by
such postponed Closing Date, the Closing Date may, at the option of the
Company, be postponed for a further twenty-four (24) hours, if necessary, to
allow the Company the privilege of finding another underwriter or
underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If
it shall be arranged for the remaining Underwriters or substituted
underwriter or underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section 10, (i) the Company
shall have the right to postpone the time of delivery for a period of not
more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement, supplements to
the Prospectus or other such documents which may thereby be made necessary,
and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to
be purchased by the defaulting Underwriter or Underwriters or substitute
another underwriter or underwriters as aforesaid and the Company shall not
find or shall not elect to seek another underwriter or underwriters for such
Firm Shares as aforesaid, then this Agreement shall terminate.
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<PAGE>
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of
Firm Shares agreed by such Underwriter to be purchased hereunder, which
Underwriter shall remain liable to the Company and the other Underwriters for
damages, if any, resulting from such default) be liable to the Company
(except to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections
4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the
case may be, (i) if the Company shall have failed, refused or been unable to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled
is not fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New
York Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall have
been suspended on either such exchange or in the over the counter market by
the NASD, or if a banking moratorium shall have been declared by federal, New
York or California authorities, or (iii) if the Company shall have sustained
a loss by strike, fire, flood, earthquake, accident or other calamity of such
character as to interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in
the general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency
which, in the reasonable opinion of the Representatives, makes it
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In the event of termination
pursuant to subparagraph (i) above, the Company shall remain obligated to pay
costs and expenses pursuant to Sections 4(j), 5 and 8 hereof. Any
termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in
Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement
from becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
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<PAGE>
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to
you shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to you c/o BancAmerica Robertson
Stephens, 555 California Street, Suite 2600, San Francisco, California 94104,
telecopier number (415) 781-0278, Attention: General Counsel; if sent to the
Company, such notice shall be mailed, delivered, telegraphed (and confirmed
by letter) or telecopied (and confirmed by letter) to 7905 Golden Triangle
Drive, Suite 190, Eden Prairie, Minnesota 55344-7227, telecopier number
(612) 833-3702, Attention: Larry J. Ford, President and Chief Executive
Officer.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. It is specifically
acknowledged and agreed that on June 8, 1997, the parent entities of
BancAmerica Robertson Stephens agreed to be acquired by BankAmerica
Corporation and, in connection therewith, BancAmerica Robertson Stephens will
be merged with and into BancAmerica Securities, Inc., which will be renamed
BancAmerica Robertson Stephens. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity,
other than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8
hereof, any legal or equitable right, remedy or claim in respect of this
Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall
act on behalf of each of the several Underwriters, and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement
made or given by you jointly or by BancAmerica Robertson Stephens on behalf
of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
[Signature page follows]
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company and the several Underwriters.
Very truly yours,
INFORMATION ADVANTAGE, INC.
By
----------------------------------
Accepted as of the date first above written:
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
FIRST ALBANY CORPORATION
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCAMERICA ROBERTSON STEPHENS
By
----------------------------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
Number of
Firm Shares
To Be
Underwriters Purchased
------------------------------- ---------------
BancAmerica Robertson Stephens . . . . . . . .
NationsBanc Montgomery Securities, Inc. . . .
Piper Jaffray Inc. . . . . . . . . . . . . . .
First Albany Corporation . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . .
----------------
----------------
<PAGE>
CERTIFICATE OF INCORPORATION
OF
INFORMATION ADVANTAGE SOFTWARE, INC.
The undersigned, for the purpose of organizing a corporation under the
General Corporation Law of the State of Delaware, certifies:
ARTICLE 1
The name of the corporation is Information Advantage Software, Inc.
(hereinafter referred to as the "Corporation").
ARTICLE 2
The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (hereinafter referred to as the "GCL").
ARTICLE 4
4.1 AUTHORIZED CAPITAL. The total number of shares of stock which the
Corporation shall have authority to issue is 210,000,000 shares, consisting of
150,000,000 shares of common stock, par value $0.01 per share (hereinafter
referred to as the "Common Stock"), and 60,000,000 shares of preferred stock,
par value $0.01 per share (hereinafter referred to as the "Preferred Stock").
The powers, designations, preferences and relative, participating, optional or
other special rights (and the qualifications, limitations or restrictions
thereof) of the Common Stock and the Preferred Stock are as set forth in this
Article 4.
4.2 COMMON STOCK. The Common Stock shall be subject to the express terms
of the Preferred Stock established pursuant to Section 4.3 of this Article 4 and
any other series of Preferred Stock set forth in the Preferred Stock Designation
(as defined below in Section 4.4 of this Article 4) relating thereto. Each
holder of Common Stock shall have one vote in respect of each share of Common
Stock held by such holder of record on the books of the Corporation for the
election of directors and on all other matters on which stockholders of the
Corporation are entitled to vote. The holders of shares of Common Stock shall
be entitled to receive, when and if declared by the Board of Directors, out of
the assets of the Corporation which are by law available therefor, dividends
payable either in cash, in stock or otherwise.
<PAGE>
4.3 SERIES A, B, C, D, E, F, G AND H CONVERTIBLE PREFERRED STOCK. There
is hereby created the following series of convertible Preferred Stock: (i)
series A convertible preferred shares ("Series A Preferred Stock") consisting of
10,000,000 shares; (ii) series B convertible preferred shares ("Series B
Preferred Stock") consisting of 10,000,000 shares; (iii) series C convertible
preferred shares ("Series C Preferred Stock") consisting of 4,082,995 shares;
(iv) series D convertible preferred shares ("Series D Preferred Stock")
consisting of 3,500,000 shares; (v) series E convertible preferred shares
("Series E Preferred Stock") consisting of 10,000,000 shares; (vi) series F
convertible preferred shares ("Series F Preferred Stock") consisting of
10,000,000 shares; (vii) series G convertible preferred shares ("Series G
Preferred Stock") consisting of 4,082,995 shares; and (viii) series H
convertible preferred shares ("Series H Preferred Stock") consisting of
3,500,000 shares. The shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock, Series G Preferred Stock and Series H Preferred
Stock are referred to herein collectively as the "Convertible Preferred Stock".
(A) VOTING PRIVILEGES.
(1) GENERAL. Each holder of Convertible Preferred Stock shall have
that number of votes on all matters submitted to the stockholders that is
equal to the number of shares of Common Stock into which such holder's
shares of Convertible Preferred Stock are then convertible, as hereinafter
provided. Each holder of Common Stock shall have one vote on all matters
submitted to the stockholders for each share of Common Stock standing in
the name of such holder on the books of the Corporation. Except as
otherwise provided herein, and except as otherwise required by agreement or
law, the shares of capital stock of the Corporation shall vote as a single
class on all matters submitted to the stockholders.
(2) ELECTION OF DIRECTORS: GENERAL. Four of the Purchasers under the
Purchase Agreements hereinafter referred to shall be entitled to elect
directors of the Corporation and to exercise any right of removal or
replacement of such directors to the following extent: St. Paul Fire and
Marine Insurance Company ("St. Paul") shall elect one director, Norwest
Equity Partners IV, a Minnesota Limited Partnership ("Norwest"), shall
elect one director, Menlo Ventures VI, L.P. ("Menlo") shall elect one
director and Sutter Hill Ventures, a California Limited Partnership
("Sutter Hill") shall elect one director. St. Paul, Norwest, Menlo and
Sutter Hill shall each be referred to herein as a "Convertible Preferred
Holder".
The right of a Convertible Preferred Holder to elect a director as set
forth above shall terminate from and after the earlier of (i) the date on
which such Convertible Preferred Holder no longer holds a number of shares
of Convertible Preferred Stock and/or Common Stock equal to at least 10% of
the number of shares of Convertible Preferred Stock purchased by such
Convertible Preferred Holder under the Purchase Agreements (in each case
appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected) or
(ii) the first date on which all of the shares of Convertible Preferred
Stock owned by such Convertible Preferred Holder have been converted into
shares of Common Stock under the circumstances contemplated under
"Mandatory Conversion" below.
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<PAGE>
So long as any of the Convertible Preferred Holders is entitled to elect a
director as set forth above, (i) the Board of Directors of the Corporation
shall consist of not more than seven members, (ii) the holders of the
Common Stock (other than the Convertible Preferred Holders), exclusively
and voting as a single class, shall be entitled, by a vote of a majority of
the outstanding shares of Common Stock held by such holders, to elect two
directors of the Corporation and to exercise any right of removal or
replacement of such directors, and (iii) the election of a seventh
director, who shall have relevant industry experience and shall not be an
affiliate of any holder of Common Stock or Convertible Preferred Stock,
shall require the vote of a majority of the directors elected by the
Convertible Preferred Holders and of a majority of the directors elected by
the holders of the Common Stock, as set forth above.
No delay or failure by the Convertible Preferred Holders or the other
holders of Common Stock to elect members of the Board of Directors whom
such holders are entitled to elect shall invalidate the election of the
remaining members of the Board of Directors as set forth above.
(3) ELECTION OF DIRECTORS: CERTAIN EVENTS OF DEFAULT. Upon the
occurrence of an Event of Default as defined in the Stock Purchase
Agreement dated March 9, 1993, as amended (the "First Purchase Agreement"),
in the Stock Purchase Agreement dated February 15, 1994, as amended (the
"Second Purchase Agreement"), in the Stock Purchase Agreement dated June 1,
1995, as amended (the "Third Purchase Agreement"), in the Stock Purchase
Agreement dated March 13, 1996, as amended (the "Fourth Purchase
Agreement"), or in the Stock Purchase Agreement dated February 27, 1997
(the "Fifth Purchase Agreement", and together with the First Purchase
Agreement, the Second Purchase Agreement, the Third Purchase Agreement and
the Fourth Purchase Agreement, the "Purchase Agreements") among the
Corporation and the Purchasers named therein, and so long as such Event of
Default continues unremedied, then, unless such Event of Default shall have
been waived by the holders of a majority of the outstanding shares of
Convertible Preferred Stock, the holders of a majority of the outstanding
shares of Convertible Preferred Stock shall be entitled to designate a
majority of the Board of Directors of the Corporation as hereinafter
provided. In the event the holders of the outstanding shares of
Convertible Preferred Stock are entitled to designate a majority of the
Board of Directors of the Corporation pursuant to the immediately preceding
sentence, the Corporation shall, immediately upon receiving written notice
from the holders of a majority of the outstanding shares of Convertible
Preferred Stock, call a special stockholders' meeting to be held as soon as
possible, but in any event within fifteen days of the date of the notice of
such meeting. At such special stockholders' meeting a majority of the
directors of the Corporation shall be elected from designees nominated by
the holders of a majority of the outstanding shares of Convertible
Preferred Stock. Any right to continue to designate a majority of the
Board of Directors of the Corporation shall expire, and a stockholders'
meeting to elect new directors shall be called, two months after the later
of (a) the curing of the Event of Default upon which the right was
exercised, or (b) the curing of any Event of Default occurring after the
Event of Default upon which such right was exercised. When, to its
knowledge, any Event of Default described herein has occurred or exists,
the Corporation agrees to give written notice within three business days of
such Event
3
<PAGE>
of Default to the holders of all outstanding shares of Convertible
Preferred Stock. If the holder of any shares of Convertible Preferred
Stock shall give any notice or take any other actions in respect of a
claimed Event of Default, the Corporation will forthwith give written
notice thereof to all other holders of Convertible Preferred Stock at the
time outstanding, describing such notice or action and the nature of the
claimed Event of Default.
(4) ADDITIONAL CLASS VOTES BY CONVERTIBLE PREFERRED STOCK. Without
the affirmative vote or written consent of the holders (acting together as
a class) of a majority of the shares of Convertible Preferred Stock at the
time outstanding, the Corporation shall not:
(a) authorize or issue any additional shares of Convertible Preferred
Stock, except for shares of Exchange Preferred (as hereinafter
defined) pursuant to subsection 3.5(3)(c)(vi) hereof, or any
shares of stock having priority over Convertible Preferred Stock
or ranking on a parity therewith as to the payment or
distribution of assets upon the liquidation or dissolution,
voluntary or involuntary, of the Corporation; or
(b) amend the Articles of Incorporation of the Corporation so as to
alter any existing provision relating to Convertible Preferred
Stock or the holders thereof or waive any of the rights granted
to the holders of the Convertible Preferred Stock by the Articles
of Incorporation of the Corporation; or
(c) effect a reclassification or recapitalization of the outstanding
capital stock of the Corporation, or sell, lease or otherwise
dispose of all or substantially all of the assets of the
Corporation or of any subsidiary of the Corporation, or any asset
or assets which have a material effect upon the business or
financial condition of the Corporation or any subsidiary of the
Corporation, nor shall the Corporation or any subsidiary of the
Corporation consolidate with or merge into any other corporation
or entity, or permit any other corporation or entity to
consolidate or merge into the Corporation or any subsidiary of
the Corporation, or enter into a plan of exchange with any other
corporation or entity, or otherwise acquire any other corporation
or entity.
(5) NO CUMULATIVE VOTING. No holder of shares of capital stock of
the Corporation shall have any cumulative voting rights.
(B) PREEMPTIVE RIGHTS.
Except for the rights granted by Section 8.16 of the First Purchase
Agreement, no holder of shares of any class of capital stock of the Corporation
shall be entitled as such, as a matter of right, to subscribe for, purchase or
receive any part of any new or additional issue of stock of any class
whatsoever, or of securities convertible into or exchangeable for
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any stock of any class whatsoever, whether now or hereafter authorized and
whether issued for cash or other consideration or by way of dividend.
(C) DIVIDENDS.
In the event any dividend or distribution is declared or made with respect
to outstanding shares of Common Stock, a comparable dividend or distribution
must be simultaneously declared or made with respect to the outstanding shares
of Convertible Preferred Stock. In the event any dividend or distribution is
declared or made with respect to the Common Stock, each holder of shares of
Convertible Preferred Stock shall be paid such comparable dividend or receive
such comparable distribution on the basis of the number of shares of Common
Stock into which such holder's shares of such Convertible Preferred Stock are
then convertible, as hereinafter provided.
Dividends on shares of capital stock of the Corporation shall be payable
only out of funds legally available therefor.
(D) OTHER TERMS OF THE CONVERTIBLE PREFERRED STOCK.
(1) LIQUIDATION PREFERENCE. In the event of an involuntary or
voluntary liquidation or dissolution of the Corporation at any time, the
holders of shares of Series A and Series E Convertible Preferred Stock
shall be entitled to receive out of the assets of the Corporation an amount
equal to $.60 per share (appropriately adjusted to reflect stock splits,
stock dividends, reorganizations, consolidations and similar changes
hereafter effected), plus dividends unpaid and accumulated or accrued
thereon, if any, the holders of shares of Series B and Series F Convertible
Preferred Stock shall be entitled to receive out of the assets of the
Corporation an amount equal to $.95 per share (appropriately adjusted to
reflect stock splits, stock dividends, reorganizations, consolidations and
similar changes hereafter effected), plus dividends unpaid and accumulated
or accrued thereon, if any, and the holders of shares of Series C and
Series G Convertible Preferred Stock shall be entitled to receive out of
the assets of the Corporation an amount equal to $1.30 per share
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected),
plus dividends unpaid and accumulated or accrued thereon, if any, and the
holders of shares of Series D and Series H Convertible Preferred Stock
shall be entitled to receive out of the assets of the Corporation an amount
equal to $2.00 per share (appropriately adjusted to reflect stock splits,
stock dividends, reorganizations, consolidations and similar changes
hereafter effected), plus dividends unpaid and accumulated or accrued
thereon, if any. In the event of either an involuntary or a voluntary
liquidation or dissolution of the Corporation payment shall be made to the
holders of shares of Convertible Preferred Stock in the amounts herein
fixed before any payment shall be made or any assets distributed to the
holders of the Common Stock or any other class of shares of the Corporation
ranking junior to the Convertible Preferred Stock with respect to payment
upon dissolution or liquidation of the Corporation. If upon any
liquidation or dissolution of the Corporation the assets available for
distribution shall be insufficient to pay the holders of all outstanding
shares of Convertible Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of such
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<PAGE>
shares shall share pro rata in any such distribution in proportion to the
full amounts to which such holders would otherwise be entitled.
At any time, in the event of the merger or consolidation of the
Corporation into or with another corporation or the merger or consolidation
of any other corporation into or with the Corporation or a plan of exchange
between the Corporation and any other corporation (in which consolidation
or merger or plan of exchange any stockholders of the Corporation receive
distributions of cash or securities or other property), or the sale,
transfer or other disposition of all or substantially all of the assets of
the Corporation, then, subject to the provisions of this paragraph, such
transaction shall be deemed, solely for purposes of determining the amounts
to be received by the holders of the Convertible Preferred Stock in such
merger, consolidation, plan of exchange, sale, transfer or other
disposition, and for purposes of determining the priority of receipt of
such amounts as between the holders of the Convertible Preferred Stock and
the holders of the Common Stock, to be a liquidation or dissolution of the
Corporation if the holders of a majority of the outstanding shares of
Convertible Preferred Stock so elect by giving written notice thereof to
the Corporation at least five days before the effective date of such
transaction. If no such notice is given, the provisions of subparagraph
(3)(g) hereof shall apply. The Corporation shall give each holder of
record of Convertible Preferred Stock written notice of such impending
transaction not later than 14 days prior to the stockholders' meeting of
the Corporation called to approve such transaction, or 14 days prior to the
closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of
the transaction and of this subparagraph (1) (including, without limiting
the generality of the foregoing, a description of the value of the
consideration, if any, being offered to the holders of the Convertible
Preferred Stock in the transaction and the amount to which such holders
would be entitled if such transaction were (as described above) to be
deemed to be a liquidation or dissolution of the Corporation), and the
Corporation shall thereafter give such holders prompt notice of any
material changes to such terms and conditions. The transaction shall in no
event take place sooner than 14 days after the mailing by the Corporation
of the first notice provided for herein or sooner than ten days after the
mailing by the Corporation of any notice of material changes provided for
herein; PROVIDED, HOWEVER, that such periods may be reduced upon the
written consent of the holders of a majority of the Convertible Preferred
Stock, voting together as a single class.
Nothing hereinabove set forth shall affect in any way the right of
each holder of shares of Convertible Preferred Stock to convert such shares
at any time and from time to time in accordance with subparagraph (3)
below.
(2) REDEMPTION. The Corporation shall, to the extent that funds are
legally available therefor, and upon payment by the Corporation in cash of
the sum of $.60 per share of Series A and Series E Convertible Preferred
Stock (appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected),
plus dividends unpaid and accumulated or accrued thereon, if any, redeem
during each of the years 1997, 1998 and 1999 a
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<PAGE>
number of shares of the outstanding Series A and Series E Convertible
Preferred Stock equal to 25% of the shares of Series A and Series E
Convertible Preferred Stock issued by the Corporation on or prior to the
last day of the year 1993, and redeem the balance, if any, of the
outstanding shares of Series A and Series E Convertible Preferred Stock
during the year 2000, all such redemptions to be effected in equal
quarterly installments as of the last days of March, June, September and
December in each of such years.
The Corporation shall, to the extent that funds are legally available
therefor, and upon payment by the Corporation in cash of the sum of $.95
per share of Series B and Series F Convertible Preferred Stock
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected),
plus dividends unpaid and accumulated or accrued thereon, if any, redeem
during each of the years 1999, 2000 and 2001 a number of shares of the
outstanding Series B and Series F Convertible Preferred Stock equal to 25%
of the shares of Series B and Series F Convertible Preferred Stock issued
by the Corporation on or prior to the last day of the year 1995, and redeem
the balance, if any, of the outstanding shares of Series B and Series F
Convertible Preferred Stock during the year 2002, all such redemptions to
be effected in equal quarterly installments as of the last days of March,
June, September and December in each of such years.
The Corporation shall, to the extent that funds are legally available
therefor, and upon payment by the Corporation in cash of the sum of $1.30
per share of Series C and Series G Convertible Preferred Stock
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected),
plus dividends unpaid and accumulated or accrued thereon, if any, redeem
during each of the years 2000, 2001 and 2002 a number of shares of the
outstanding Series C and Series G Convertible Preferred Stock equal to 25%
of the shares of Series C and Series G Convertible Preferred Stock issued
by the Corporation on or prior to the last day of the year 1996, and redeem
the balance, if any, of the outstanding shares of Series C and Series G
Convertible Preferred Stock during the year 2003, all such redemptions to
be effected in equal quarterly installments as of the last days of March,
June, September and December in each of such years.
The Corporation shall, to the extent that funds are legally available
therefor, and upon payment by the Corporation in cash of the sum of $2.00
per share of Series D and Series H Convertible Preferred Stock
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected),
plus dividends unpaid and accumulated or accrued thereon, if any, redeem
during each of the years 2001, 2002 and 2003 a number of shares of the
outstanding Series D and Series H Convertible Preferred Stock equal to 25%
of the shares of Series D and Series H Convertible Preferred Stock issued
by the Corporation on or prior to the last day of the year 1997, and redeem
the balance, if any, of the outstanding shares of Series D and Series H
Convertible Preferred Stock during the year 2004, all such redemptions to
be effected in equal quarterly installments as of the last days of March,
June, September and December in each of such years.
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<PAGE>
Shares of Convertible Preferred Stock shall also be subject to
redemption in the circumstances set forth in Section 8.18 of the Third
Purchase Agreement and the Fourth Purchase Agreement and the Fifth Purchase
Agreement.
If at the time of any required redemption the funds legally available
for such redemption shall be insufficient to redeem the number of shares of
Convertible Preferred Stock specified in the immediately preceding five
paragraphs, redemptions shall be made as among the holders of such shares
of Convertible Preferred Stock on a pro rata basis, to the extent funds are
then legally available for such redemptions, in proportion to the full
amounts to which such holders would otherwise be entitled. Thereafter, as
and to the extent legally available funds for the redemption thereof exist
from time to time, the Corporation shall redeem additional shares of
Convertible Preferred Stock, pro rata as among the holders thereof in
proportion to the full amounts to which such holders would otherwise be
entitled, until all shares of Convertible Preferred Stock required by this
subparagraph (2) to be redeemed have been redeemed.
In the event of a redemption of less than all of the outstanding
shares of Convertible Preferred Stock of any series pursuant to the first
five paragraphs of this subparagraph (2), redemptions as among the holders
of such shares of such series of Convertible Preferred Stock shall be on a
pro rata basis.
Optional redemptions of shares of Convertible Preferred Stock by the
Corporation from any holder thereof in addition to the aforesaid required
redemptions are not permitted without the consent of such holder.
The Corporation shall give notice by mail of redemptions to the
holders of record of the shares of Convertible Preferred Stock at least 30
days prior to the date of redemption. The notice (i) shall specify the
date of redemption and the number of shares to be redeemed from each
stockholder and (ii) shall be addressed to each stockholder at his
post-office address as shown on the records of the Corporation. On or
after the date fixed for redemption, each holder of shares of Convertible
Preferred Stock called for redemption shall surrender the certificate or
certificates evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive
payment. If less than all of the shares represented by any such
surrendered certificate or certificates are redeemed, the Corporation shall
issue a new certificate for the unredeemed shares.
If the Corporation deposits, on or prior to any date fixed for
redemption of shares of Convertible Preferred Stock, with any bank or trust
company having capital and surplus of at least $10,000,000, as a trust
fund, a sufficient sum to redeem, on the date fixed for redemption thereof,
the shares then called for redemption, with instructions and authority to
such bank or trust company to pay the redemption price on or after the date
fixed for redemption or prior thereto upon the surrender of the
certificates representing the shares then being redeemed, then and from and
after the date of such deposit, and notwithstanding that any certificate
for shares so called for redemption shall not have been surrendered for
cancellation, the shares so called for redemption shall no longer be deemed
to be outstanding and all rights with respect
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<PAGE>
thereto shall forthwith cease and terminate, except only the right of the
holders thereof to receive from such bank or trust company, at any time
after the date of such deposit the sum so deposited, without interest, and
the right to convert such shares as provided in subparagraph (3) below.
Any funds so deposited and unclaimed at the end of four years from such
redemption date shall be released or repaid to the Corporation, after which
the holders of the shares so called for redemption shall be entitled to
receive payment of the redemption price only from the Corporation.
(3) CONVERSION RIGHT. At the option of the holders thereof, the
shares of Convertible Preferred Stock shall be convertible, at the office
of the Corporation (or at such other office or offices, if any, as the
Board of Directors may designate), into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100th of a share) of
Common Stock of the Corporation, at the conversion price, determined as
hereinafter provided, in effect at the time of conversion, each share of
Series A and Series E Convertible Preferred Stock being deemed to have a
value of $.60 for the purpose of such conversion, each share of Series B
and Series F Convertible Preferred Stock being deemed to have a value of
$.95 for the purpose of such conversion, each share of Series C and Series
G Convertible Preferred Stock being deemed to have a value of $1.30 for the
purpose of such conversion and each share of Series D and Series H
Convertible Preferred Stock being deemed to have a value of $2.00 for the
purpose of such conversion. The price at which shares of Common Stock
shall be delivered upon conversion shall be initially $.60 per share of
Common Stock for the Series A and Series E Convertible Preferred Stock,
$.95 per share of Common Stock for the Series B and Series F Convertible
Preferred Stock, and $1.30 per share of Common Stock for the Series C and
Series G Convertible Preferred Stock and $2.00 per share of Common Stock
for the Series D and Series H Convertible Preferred Stock (i.e., at an
initial conversion rate of one share of Common Stock for each share of
Convertible Preferred Stock), PROVIDED, HOWEVER, that such initial
conversion price shall be subject to adjustment from time to time in
certain instances as hereinafter provided. Hereinafter, "conversion price"
shall mean the conversion price of the Series A Convertible Preferred
Stock, the conversion price of the Series B Convertible Preferred Stock,
the conversion price of the Series C Convertible Preferred Stock, the
conversion price of the Series D Convertible Preferred Stock, the
conversion price of the Series E Convertible Preferred Stock, the
conversion price of the Series F Convertible Preferred Stock, the
conversion price of the Series G Convertible Preferred Stock or the
conversion price of the Series H Convertible Preferred Stock, as the case
may be. In the case of the call for redemption of any shares of
Convertible Preferred Stock, such right of conversion shall cease and
terminate as to the shares designated for redemption on the day such shares
are actually redeemed by the Corporation. The following provisions shall
govern such right of conversion:
(a) In order to convert shares of Convertible Preferred Stock into
shares of Common Stock of the Corporation, the holder thereof
shall surrender at any office hereinabove mentioned the
certificate or certificates therefor, duly endorsed to the
Corporation or in blank, and give written notice to the
Corporation at such office that such holder
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<PAGE>
elects to convert such shares. Shares of Convertible Preferred
Stock shall be deemed to have been converted immediately prior to
the close of business on the day of the surrender of such shares
for conversion as herein provided, and the person entitled to
receive the shares of Common Stock of the Corporation issuable
upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock at such time. As
promptly as practicable on or after the conversion date, the
Corporation shall issue and deliver or cause to be issued and
delivered at such office a certificate or certificates for the
number of shares of Common Stock of the Corporation issuable upon
such conversion.
(b) The conversion price shall be subject to adjustment from time to
time as hereinafter provided. Upon each adjustment of the
conversion price each holder of shares of Convertible Preferred
Stock shall thereafter be entitled to receive the number of
shares of Common Stock of the Corporation obtained by multiplying
the conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to
conversion immediately prior to such adjustment and dividing the
product thereof by the conversion price resulting from such
adjustment.
(c) Except for (i) options to purchase shares of Common Stock and the
issuance of awards of Common Stock pursuant to key employee and
consultant benefit plans adopted by the Corporation and except
for shares of Common Stock issued upon the exercise of such
options granted pursuant to such plans (provided that the
aggregate number of shares thus awarded and covered by
unexercised options and thus issued pursuant to such options
shall not be in excess of 6,000,000 (appropriately adjusted to
reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes)), (ii) shares of Common Stock
issued upon conversion of shares of Convertible Preferred Stock
or exercise of 1995 Warrants or 1993 Warrants (as those terms are
defined in the Fourth Purchase Agreement), (iii) 37,500 shares of
Common Stock to be issued upon exercise of warrants granted to
Silicon Valley Bank dated March 31, 1995, (iv) 33,684 shares of
Series B Convertible Preferred Stock which are convertible into
the Common Stock to be issued upon exercise of warrants granted
to Comdisco, Inc. dated September 29, 1995, (v) 236,842 shares of
Series C Convertible Preferred Stock which are convertible into
Common Stock to be issued upon exercise of warrants granted to
Comdisco, Inc. dated April 12, 1996 and (vi) 50,526 shares of
Series B Convertible Preferred Stock which are convertible into
the Common Stock to be issued upon exercise of warrants granted
to Comdisco, Inc. dated November 20, 1996, if and whenever the
Corporation shall issue or sell any shares of its Common Stock
for a consideration per share less than the conversion price in
effect immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, the
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<PAGE>
conversion price shall be reduced to such lesser price as
provided in the following clauses (i) to (vi) of this
subparagraph (c).
No adjustment of the conversion price, however, shall be made in
an amount less than 2% of the conversion price in effect on the
date of such adjustment, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with
the next subsequent adjustment which, together with any such
adjustment so carried forward, shall be an amount equal to or
greater than 4% of the conversion price then in effect.
For the purposes of this subparagraph (c), the following
provisions (i) to (vi), inclusive, shall also be applicable:
(i) In case at any time the Corporation shall grant (whether
directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options
for the purchase of, (a) Common Stock or (b) any
obligations or any shares of stock of the Corporation
which are convertible into, or exchangeable for, Common
Stock (any of such obligations or shares of stock being
hereinafter called "Convertible Securities") whether or
not such rights or options or the right to convert or
exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such rights or
options or upon conversion or exchange of such
Convertible Securities (determined by dividing (x) the
total amount, if any, received or receivable by the
Corporation as consideration for the granting of such
rights or options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon
the exercise of such rights or options, plus, in the case
of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue of such
Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of
all such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than
the conversion price in effect immediately prior to the
time of the granting of such rights or options, then the
total maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon
conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of
such rights or options shall (as of the date of granting
of such rights or options) be deemed to have been issued
for such price per share. Except as provided in
subparagraph (f) below, no further adjustments of the
conversion price shall be made upon the
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<PAGE>
actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or
upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) In case the Corporation shall issue or sell (whether
directly or by assumption in a merger or otherwise) any
Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately
exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or
receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or
exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be
less than the conversion price in effect immediately
prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and
to have been issued for such price per share, provided
that (a) except as provided in subparagraph (f) below, no
further adjustments of the conversion price shall be made
upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities,
and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to
subscribe for or to purchase or any option to purchase
any such Convertible Securities for which adjustments of
the conversion price have been or are to be made pursuant
to other provisions of this subparagraph (c), no further
adjustment of the conversion price shall be made by
reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or
sold for cash, the consideration received therefor shall
be deemed to be the amount received by the Corporation
therefor, without deducting therefrom any expenses
incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock
or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such
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<PAGE>
consideration as determined by the Board of Directors of
the Corporation, without deducting therefrom any expenses
incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock
or Convertible Securities or any rights or options to
purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or
consolidation in which the Corporation is the surviving
corporation, the amount of consideration therefor shall
be deemed to be the fair value as determined by the Board
of Directors of the Corporation of such portion of the
assets and business of the non-surviving corporation or
corporations as such Board shall determine to be
attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In
the event of any consolidation or merger of the
Corporation in which the Corporation is not the surviving
corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for
stock or other securities of any other corporation, the
Corporation shall be deemed to have issued a number of
shares of its Common Stock for stock or securities of the
other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated
and for a consideration equal to the fair market value on
the date of such transaction of such stock or securities
of the other corporation, and if any such calculation
results in adjustment of the conversion price, the
determination of the number of shares of Common Stock
issuable upon conversion immediately prior to such
merger, conversion or sale, for purposes of subparagraph
(g) below, shall be made after giving effect to such
adjustment of the conversion price.
(iv) In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling
them (a) to receive a dividend or other distribution
payable in Common Stock or in Convertible Securities, or
in any rights or options to purchase any Common Stock or
Convertible Securities, or (b) to subscribe for or
purchase Common Stock or Convertible Securities, then
such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the
date of the granting of such rights of subscription or
purchase, as the case may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition
of any such
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<PAGE>
shares shall be considered an issue or sale of Common
Stock for the purpose of this subparagraph (c).
(vi) Notwithstanding the foregoing, if the Corporation should
determine to issue and sell Additional Securities (as
that term is defined in Section 8.16 of the First
Purchase Agreement) at a price per share that is less
than the conversion price for the Series A Convertible
Preferred Stock, the Series B Convertible Preferred
Stock, the Series C Convertible Preferred Stock or the
Series D Convertible Preferred Stock (the "Diluted
Series") in effect immediately prior to the time of the
first sale of such Additional Securities, and if Section
8.16 of the First Purchase Agreement is then applicable
to such proposed issue and sale and the Corporation
complies with the notice and other requirements thereof,
in the event a holder of shares of the Diluted Series
entitled by Section 8.16 of the First Purchase Agreement
to purchase a proportion of such Additional Securities
(or a person or entity affiliated therewith) shall not
purchase at least such holder's pro rata share, as
hereinafter defined, then, concurrently with the closing
of such offering of Additional Securities, the
Corporation shall issue one share of Series E Convertible
Preferred Stock (if the Diluted Series is Series A
Convertible Preferred Stock), one share of Series F
Convertible Preferred Stock (if the Diluted Series is
Series B Convertible Preferred Stock), one share of
Series G Convertible Preferred Stock (if the Diluted
Series is Series C Convertible Preferred Stock) or one
share of Series H Convertible Preferred Stock (if the
Diluted Series is Series D Convertible Preferred Stock)
(such Series E Convertible Preferred Stock, Series F
Convertible Preferred Stock, Series G Convertible
Preferred Stock and Series H Convertible Preferred Stock
being herein sometimes referred to as the "Exchange
Preferred") in redemption of and in exchange for each
share of the Diluted Series held by such holder. The
rights, privileges and preferences of such Exchange
Preferred shall be identical to those of the Diluted
Series for which it is to be exchanged, except that the
provisions of this subparagraph (c) shall be deleted and
the initial conversion price of such Exchange Preferred
shall be the conversion price of the Diluted Series in
effect immediately prior to the issuance and sale of such
Additional Securities. Concurrently with the closing of
such offer of Additional Securities, the shares of the
Diluted Series held by holders who fail to purchase their
pro rata share in accordance with the terms hereof shall
be deemed exchanged for shares of the Exchange Preferred
automatically, without any further action by such holders
and whether or not the certificates representing such
shares of the Diluted Series are surrendered to the
Corporation or its transfer agent; and such
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<PAGE>
holders shall be treated for all purposes as the record
holders of such shares of Exchange Preferred; provided,
however, that the Corporation shall not be obligated to
issue certificates evidencing shares of Exchange
Preferred unless certificates evidencing such shares of
the Diluted Series being exchanged have been delivered to
the Corporation or any transfer agent or the holder
notifies the Corporation or any transfer agent that such
certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in
connection therewith. Series E Convertible Preferred
Stock may be issued only in exchange for Series A
Convertible Preferred Stock, Series F Convertible
Preferred Stock may be issued only in exchange for Series
B Convertible Preferred Stock, Series G Convertible
Preferred Stock may be issued only in exchange for Series
C Convertible Preferred Stock and Series H Convertible
Preferred Stock may be issued only in exchange for Series
D Convertible Preferred Stock pursuant to this clause
(vi). A holder's "pro rata share" for purposes of this
clause (vi) shall have the meaning specified in Section
8.16 of the First Purchase Agreement. The Corporation
shall provide each holder of shares of a Diluted Series
notice of such holder's pro rata share as far in advance
of the time of consummation of the sale of Additional
Securities pursuant to this clause (vi) as is
practicable. The provisions of this clause (vi) may be
waived by the affirmative vote of the holders (acting
together as a single class) of at least eighty percent
(80%) of the outstanding shares of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock,
Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock.
(d) In case the Corporation shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of
Common Stock, as described in subparagraph (e) below) or
Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other
dividend or make any other distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus, then
thereafter each holder of shares of Convertible Preferred Stock
upon the conversion thereof will be entitled to receive the
number of shares of Common Stock into which such shares of
Convertible Preferred Stock have been converted, and, in addition
and without payment therefor, each dividend described in clause
(i) above and each dividend or distribution described in clause
(ii) above which such holder would have received by way of
dividends or distributions if continuously since such holder
became the record holder of such shares of Convertible Preferred
Stock such holder (i) had been the record holder of the number of
shares of Common Stock
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then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock or
Convertible Securities, or in any rights or options to purchase
any Common Stock or Convertible Securities) payable in respect of
such Common Stock or in respect of any stock or securities paid
as dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the
foregoing a dividend or distribution other than in cash shall be
considered payable out of earnings or earned surplus only to the
extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend or distribution as
determined by the Board of Directors of the Corporation.
(e) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares, the conversion price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock of the Corporation
shall be combined into a smaller number of shares, the conversion
price in effect immediately prior to such combination shall be
proportionately increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of subparagraph (c), or (ii) the
additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in clause (i) or
clause (ii) of subparagraph (c), or (iii) the rate at which any
Convertible Securities referred to in clause (i) or clause (ii)
of subparagraph (c) are convertible into or exchangeable for
Common Stock, shall change at any time (other than under or by
reason of provisions designed to protect against dilution), the
conversion price then in effect hereunder shall forthwith be
increased or decreased to such conversion price as would have
obtained had the adjustments made upon the issuance of such
rights, options or Convertible Securities been made upon the
basis of (a) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such options
or rights or upon the conversion or exchange of such Convertible
Securities, and the total consideration received therefor, and
(b) the issuance at the time of such change of any such options,
rights, or Convertible Securities then still outstanding for the
consideration, if any, received by the Corporation therefor and
to be received on the basis of such changed price; and on the
expiration of any such option or right or the termination of any
such right to convert or exchange such Convertible Securities,
the conversion price then in effect hereunder shall forthwith be
increased to such conversion price as would have obtained had the
adjustments made upon the issuance of such rights or options or
Convertible Securities been made upon the basis of the issuance
of the shares of Common Stock theretofore actually delivered (and
the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such
Convertible
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Securities. If the purchase price provided for in any right or
option referred to in clause (i) of subparagraph (c), or the rate
at which any Convertible Securities referred to in clause (i) or
clause (ii) of subparagraph (c) are convertible into or
exchangeable for Common Stock, shall decrease at any time under
or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common
Stock upon the exercise of any such right or option or upon
conversion or exchange of any such Convertible Security, the
conversion price then in effect hereunder shall forthwith be
decreased to such conversion price as would have obtained had the
adjustments made upon the issuance of such right, option or
Convertible Security been made upon the basis of the issuance of
(and the total consideration received for) the shares of Common
Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale,
and subject to subparagraph (2) above, lawful and adequate
provision shall be made whereby the holders of Convertible
Preferred Stock shall thereafter have the right to receive upon
the basis and upon the terms and conditions specified herein and
in lieu of the shares of the Common Stock of the Corporation
immediately theretofore receivable upon the conversion of
Convertible Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to
the number of shares of such stock immediately theretofore
receivable upon the conversion of Convertible Preferred Stock had
such reorganization, reclassification, consolidation, merger or
sale not taken place, plus all dividends unpaid and accumulated
or accrued thereon to the date of such reorganization,
reclassification, consolidation, merger or sale, and in any such
case appropriate provision shall be made with respect to the
rights and interests of the holders of Convertible Preferred
Stock to the end that the provisions hereof (including without
limitation provisions for adjustments of the conversion price and
of the number of shares receivable upon the conversion of
Convertible Preferred Stock) shall thereafter be applicable, as
nearly as may be in relation to any shares of stock, securities
or assets thereafter receivable upon the conversion of
Convertible Preferred Stock. The Corporation shall not effect any
such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written
instrument executed and mailed to the
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registered holders of Convertible Preferred Stock, at the last
addresses of such holders appearing on the books of the
Corporation, the obligation to deliver to such holders such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holders may be entitled to receive.
(h) Upon any adjustment of the conversion price, then and in each
case the Corporation shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the registered
holders of Convertible Preferred Stock, at the addresses of such
holders as shown on the books of the Corporation, which notice
shall state the conversion price resulting from such adjustment
and the increase or decrease, if any, in the number of shares
receivable at such price upon the conversion of Convertible
Preferred Stock, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(i) In case at any time:
(i) the Corporation shall declare any cash dividend on its
Common Stock at a rate in excess of the rate of the last
cash dividend theretofore paid;
(ii) the Corporation shall pay any dividend payable in stock
upon its Common Stock or make any distribution (other
than regular cash dividends) to the holders of its Common
Stock;
(iii) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of
stock of any class or other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the Corporation,
or consolidation or merger of the Corporation with, or
sale of all or substantially all of its assets to,
another corporation; or
(v) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall
give written notice, by first-class mail, postage prepaid,
addressed to the registered holders of Convertible Preferred
Stock at the addresses of such holders as shown on the books of
the Corporation, of the date on which (a) the books of the
Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the
case may be. Such notice shall also specify the date as of which
the holders of Common
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Stock of record shall participate in such dividend, distribution
or subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding up, as the case may
be. Such written notice shall be given at least 20 days prior to
the action in question and not less than 20 days prior to the
record date or the date on which the Corporation's transfer books
are closed in respect thereto.
(j) If any event occurs as to which in the opinion of the Board of
Directors of the Corporation the other provisions of this
paragraph (3) are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders of
Convertible Preferred Stock in accordance with the essential
intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid.
(k) As used in this paragraph (3) the term "Common Stock" shall mean
and include the Corporation's presently authorized Common Stock
and shall also include any capital stock of any class of the
Corporation hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation; provided that the shares
receivable pursuant to conversion of shares of Convertible
Preferred Stock shall include shares designated as Common Stock
of the Corporation as of the date of issuance of such shares of
Convertible Preferred Stock, or, in case of any reclassification
of the outstanding shares thereof, the stock, securities or
assets provided for in subparagraph (g) above.
(l) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which would
otherwise be issuable, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the
same fraction of the market price per share of Common Stock as of
the close of business on the day of conversion. "Market price"
shall mean if the Common Stock is traded on a securities exchange
or on the NASDAQ National Market System, the closing price of the
Common Stock on such exchange or the NASDAQ National Market
System, or, if the Common Stock is otherwise traded in the
over-the-counter market, the closing bid price, in each case
averaged over a period of 20 consecutive business days prior to
the date as of which "market price" is being determined. If at
any time the Common Stock is not traded on an exchange or the
NASDAQ National Market System, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to be
the higher of (i) the book value thereof as determined by any
firm of
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independent public accountants of recognized standing selected by
the Board of Directors of the Corporation as of the last day of
any month ending within 60 days preceding the date as of which
the determination is to be made, or (ii) the fair value thereof
determined in good faith by the Board of Directors of the
Corporation as of a date which is within 15 days of the date as
of which the determination is to be made.
4.3 MANDATORY CONVERSION. The Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock, Series D Convertible Preferred Stock,
Series E Convertible Preferred Stock, Series F Convertible Preferred Stock
and Series H Convertible Preferred Stock shall automatically be converted
into shares of Common Stock of the Corporation, without any act by the
Corporation or the holders of such Convertible Preferred Stock, concurrently
with the closing of the first public offering by the Corporation of shares of
Common Stock of the Corporation registered under the Securities Act of 1933,
as amended, in which (1) the aggregate public offering price of the
securities sold for cash by the Corporation in the offering is at least
$15,000,000, or such lower amount as may be approved by the holders of at
least 75% of the shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E
Convertible Preferred Stock, Series F Convertible Preferred Stock and Series
H Convertible Preferred Stock then outstanding, and (2) the offering is
underwritten on a firm commitment basis by an underwriter, or a group of
underwriters represented by an underwriter or underwriters, which is a member
of the New York Stock Exchange, unless this requirement is waived by the
holders of at least 75% of the shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Series D Convertible Preferred
Stock, Series E Convertible Preferred Stock, Series F Convertible Preferred
Stock and Series H Convertible Preferred Stock then outstanding, and (3) the
public offering price per share of Common Stock is at least $5.00 (as
adjusted from time to time to reflect stock splits, dividends,
recapitalizations, combinations or the like), or such lower amount as may be
approved by the holders of at least 75% of the shares of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series D Convertible
Preferred Stock, Series E Convertible Preferred Stock, Series F Convertible
Preferred Stock and Series H Convertible Preferred Stock then outstanding.
The Series C Convertible Preferred Stock and Series G Convertible Preferred
Stock shall automatically be converted into shares of Common Stock of the
Corporation, without any act by the Corporation or the holders of such
Convertible Preferred Stock, concurrently with the closing of the first
public offering by the Corporation of shares of Common Stock of the
Corporation registered under the Securities Act of 1933, as amended, in which
(1) the aggregate public offering price of the securities sold for cash by
the Corporation in the offering is at least $15,000,000, or such lower amount
as may be approved by the holders of at least 66-2/3% of the shares of Series
C Convertible Preferred Stock and Series G Convertible Preferred Stock then
outstanding, and (2) the offering is underwritten on a firm commitment basis
by an underwriter, or a group of underwriters represented by an underwriter
or underwriters, which is a member of the New York Stock Exchange, unless
this requirement is waived by the holders of at least 66-2/3% of the shares
of Series C Convertible Preferred Stock and Series G Convertible Preferred
Stock then outstanding, and (3) the public offering price per share of Common
Stock is at least $2.60 (as adjusted from time to time to reflect stock
splits, dividends, recapitalizations, combinations or the like), or such
lower amount as may be approved by the holders of at least 66-2/3% of the
shares of Series C Convertible Preferred Stock and
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Series G Convertible Preferred Stock then outstanding. As used herein, the
term "closing" shall mean the delivery by the Corporation to the underwriters
of certificates representing the shares of Common Stock of the Corporation
offered to the public against delivery to the Corporation by such
underwriters of payment therefor. The term "firm commitment basis" with
respect to the underwriting of such public offering shall mean a commitment
pursuant to a written underwriting agreement under which the nature of the
underwriters' commitment is such that all securities will be purchased by
such underwriters if any securities are purchased by such underwriters. Each
holder of a share of Convertible Preferred Stock so converted shall be
entitled to receive the full number of shares of Common Stock into which such
share of Convertible Preferred Stock held by such holder could be converted
if such holder had exercised its conversion right at the time of closing of
such public offering. Upon such conversion, each holder of a share of
Convertible Preferred Stock shall immediately surrender such share in
exchange for appropriate stock certificates representing a share or shares of
Common Stock of the Corporation.
4.4 ADDITIONAL PREFERRED STOCK. The Board of Directors of the Corporation
(hereinafter referred to as the "Board of Directors") is hereby expressly
authorized at any time following the closing of the Corporation's initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock of this
Corporation (the "Initial Public Offering"), and from time to time thereafter,
to create and provide for the issuance of additional shares of Preferred Stock
in one or more series and, by filing a certificate pursuant to the GCL
(hereinafter referred to as a "Preferred Stock Designation"), to establish the
number of shares to be included in each such series, and to fix the
designations, preferences and relative, participating, optional or other special
rights of the shares of each such series and the qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
including, but not limited to, the following:
(A) the designation of and the number of shares constituting such series,
which number the Board of Directors may thereafter (except as otherwise provided
in the Preferred Stock Designation) increase or decrease (but not below the
number of shares of such series then outstanding or reserved for issuance);
(B) the dividend rate for the payment of dividends on such series, if any,
the conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends, if any, shall bear to the dividends
payable on any other class or classes of or any other series of capital stock,
the conditions and dates upon which such dividends, if any, shall be payable,
and whether such dividends, if any, shall be cumulative or non-cumulative;
(C) whether the shares of such series shall be subject to redemption by
the Corporation, and, if made subject to such redemption, the times, prices and
other terms and conditions of such redemption;
(D) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
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(E) whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes of, any other series of
any class or classes of capital stock of, or any other security of, the
Corporation or any other corporation, and, if provision be made for such
conversion or exchange, the times, prices, rates, adjustments and any other
terms and conditions of the such conversion or exchange;
(F) the extent, if any, to which the holders of the shares of such series
shall be entitled to vote as a class or otherwise with respect to the election
of directors or otherwise;
(G) the restrictions, if any, on the issue or reissue of shares of the
same series or of any other class or series;
(H) the amounts payable on and the preferences, if any, of the shares of
such series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
(I) any other relative rights, preferences and limitations of that series.
ARTICLE 5
The Board of Directors is hereby authorized, at any time following the
Initial Public Offering, and from time to time thereafter, to create and issue,
whether or not in connection with the issuance and sale of any of its stock or
other securities or property, rights entitling the holders thereof to purchase
from the Corporation shares of stock or other securities of the Corporation or
any other corporation, recognizing that, under certain circumstances, the
creation and issuance of such rights could have the effect of discouraging third
parties from seeking, or impairing their ability to seek, to acquire a
significant portion of the outstanding securities of the Corporation, to engage
in any transaction which might result in a change of control of the Corporation
or to enter into any agreement, arrangement or understanding with another party
to accomplish the foregoing or for the purpose of acquiring, holding, voting or
disposing of any securities of the Corporation. The times at which and the
terms upon which such rights are to be issued will be determined by the Board of
Directors and set forth in the contracts or instruments that evidence such
rights. The authority of the Board of Directors with respect to such rights
shall include, but not be limited to, determination of the following:
(A) the initial purchase price per share or other unit of the stock or
other securities or property to be purchased upon exercise of such rights;
(B) provisions relating to the times at which and the circumstances under
which such rights may be exercised or sold or otherwise transferred, either
together with or separately from, any other stock or other securities of the
Corporation;
(C) provisions which adjust the number or exercise price of such rights or
amount or nature of the stock or other securities or property receivable upon
exercise of such rights in the event of a combination, split or recapitalization
of any stock of the Corporation, a change in ownership of the Corporation's
stock or other securities or a reorganization, merger, consolidation, sale of
assets or other occurrence relating to the Corporation or any
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<PAGE>
stock of the Corporation, and provisions restricting the ability of the
Corporation to enter into any such transaction absent an assumption by the
other party or parties thereto of the obligations of the Corporation under
such rights;
(D) provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to exercise
such rights and/or cause the rights held by such holder to become void;
(E) provisions which permit the Corporation to redeem or exchange such
rights, which redemption or exchange may be within the sole discretion of the
Board of Directors, if the Board of Directors reserves such right to itself; and
(F) the appointment of a rights agent with respect to such rights.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, following the Initial Public Offering, the
affirmative vote of at least 80 percent of the voting power of the then
outstanding Voting Stock (as defined below), voting together as a single class,
shall be required to amend, repeal or adopt any provision inconsistent with this
Article 5. For the purposes of this Certificate of Incorporation, "Voting
Stock" shall mean the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors.
ARTICLE 6
6.1 ADOPTION, AMENDMENT OR REPEAL OF BYLAWS; RIGHT OF INSPECTION. In
furtherance, and not in limitation, of the powers conferred by law, the Board of
Directors is expressly authorized and empowered:
(A) to adopt, amend or repeal the Bylaws of the Corporation, PROVIDED,
HOWEVER, that any Bylaws adopted by the Board of Directors under the powers
hereby conferred may be amended or repealed by the Board of Directors or by the
stockholders having voting power with respect thereto; and
(B) from time to time to determine whether and to what extent, and at what
times and places, and under what conditions and regulations, the accounts and
books of the Corporation, or any of them, shall be open to inspection of
stockholders; and, except as so determined, or as expressly provided in the
Purchase Agreements, this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account, book or
document of the Corporation other than such rights as may be conferred by law.
6.2 ADDITIONAL POWERS. The Corporation may in its Bylaws confer powers
upon the Board of Directors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon the Board of Directors by law.
6.3 AMENDMENT OF BYLAWS AND THIS ARTICLE 6. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, following the
Initial Public Offering, the affirmative vote of the holders of at least 80
percent of the voting power of the then
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outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with (i) this
Article 6 or (ii) Section 2.2, 2.4, 2.5, 2.7 or 2.10 of Article II, Section
3.2, 3.3 or 3.5 of Article III or Article IX of the Bylaws of the Corporation.
ARTICLE 7
7.1 NO ACTION BY WRITTEN CONSENT. Subject to the rights of the holders of
any series of Preferred Stock or any other series or class of stock as set forth
in this Certificate of Incorporation to elect additional directors under
specified circumstances or to consent to specific actions taken by the
Corporation, following the Initial Public Offering, any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing in lieu of a meeting of such
stockholders.
7.2 SPECIAL MEETINGS. Subject to the rights of the holders of any series
of Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, a special meeting of the holders of stock of the Corporation
entitled to vote on any business to be considered at any such meeting may be
called only by the Chairman of the Board of the Corporation, and shall be called
by the Secretary of the Corporation at the request of the Board of Directors
pursuant to a resolution adopted by a majority of the total number of directors
which the Corporation would at the time have if there were no vacancies (the
"Whole Board").
7.3 AMENDMENT OF THIS ARTICLE 7. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, following the Initial Public
Offering, the affirmative vote of at least 80 percent of the voting power of the
then outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with this Article
7.
ARTICLE 8
8.1 NUMBER OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
this Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed, and
may be increased or decreased from time to time, in such a manner as may be
prescribed by the Bylaws of the Corporation.
8.2 ELECTION BY WRITTEN BALLOT NOT REQUIRED. Unless and except to the
extent that the Bylaws of the Corporation shall so require, the election of
directors of the Corporation need not be by written ballot.
8.3 STAGGERED BOARD. Following the Initial Public Offering, the
directors, other than those who may be elected by the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation, shall be divided into three classes, as nearly
equal in number as reasonably possible, and designated as Class I, Class II and
Class III. Class I directors shall be initially elected for a term expiring at
the first
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annual meeting of stockholders following the Initial Public Offering, Class
II directors shall be initially elected for a term expiring at the second
annual meeting of stockholders following the Initial Public Offering, and
Class III directors shall be initially elected for a term expiring at the
third annual meeting of stockholders following the Initial Public Offering.
Members of each class shall hold office until their successors are elected
and qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election, and until their successors are elected and qualified.
8.4 REMOVAL OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
this Certificate of Incorporation to elect additional directors under specified
circumstances, following the Initial Public Offering, any director may be
removed from office at any time, but only for cause.
8.5 ADVANCE NOTICE. Advance notice of stockholder nominations for the
election of directors shall be given in the manner provided in the Bylaws of the
Corporation.
8.6 VACANCIES. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, following the Initial Public Offering, vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
8.7 AMENDMENT OF THIS ARTICLE 8. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, following the Initial Public
Offering, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provisions inconsistent
with this Article 8.
ARTICLE 9
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the GCL or (iv) for any transaction
from which the director derived an improper personal benefit.
If the GCL is amended after the filing of this Certificate of Incorporation
with the Secretary of State of the State of Delaware to authorize corporation
action further
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eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the GCL.
No amendment or repeal of this Article 9 shall adversely affect any right
or protection of a director of the Corporation existing hereunder in respect of
any act or omission occurring prior to such amendment or repeal.
ARTICLE 10
Except as may be expressly provided in this Certificate of Incorporation,
the Corporation reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by law,
and all powers, preferences and rights of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article 10, PROVIDED, HOWEVER,
that no Preferred Stock Designation shall be amended after the issuance of any
shares of the series of Preferred Stock created thereby, except in accordance
with the terms of such Preferred Stock Designation and the requirements of law.
ARTICLE 11
The name and mailing address of the incorporator is Brian Wenger, 2400 IDS
Center, Minneapolis, Minnesota 55412.
WITNESS my signature this 24th day of September, 1997.
/s/ Brian Wenger
----------------------------------------
Brian Wenger
Sole Incorporator
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INFORMATION ADVANTAGE, INC.
The undersigned, for the purpose of organizing a corporation under the
General Corporation Law of the State of Delaware, certifies:
ARTICLE 1
The name of the corporation is Information Advantage, Inc. (hereinafter
referred to as the "Corporation").
ARTICLE 2
The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (hereinafter referred to as the "GCL").
ARTICLE 4
4.1 AUTHORIZED CAPITAL. The total number of shares of stock which the
Corporation shall have authority to issue is 84,000,000 shares, consisting of
60,000,000 shares of common stock, par value $0.01 per share (hereinafter
referred to as the "Common Stock"), and 5,000,000 shares of preferred stock,
par value $0.01 per share (hereinafter referred to as the "Preferred Stock").
The powers, designations, preferences and relative, participating, optional or
other special rights (and the qualifications, limitations or restrictions
thereof) of the Common Stock and the Preferred Stock are as set forth in this
Article 4.
4.2 COMMON STOCK. The Common Stock shall be subject to the express terms
of any series of Preferred Stock set forth in the Preferred Stock Designation
(as defined below in Section 4.5 of this Article 4) relating thereto. Each
holder of Common Stock shall have one vote in respect of each share of Common
Stock held by such holder of record on the books of the Corporation for the
election of directors and on all other matters on which stockholders of the
Corporation are entitled to vote. The holders of shares of Common Stock shall
be entitled to receive, when and if declared by the Board of Directors, out of
the
<PAGE>
assets of the Corporation which are by law available therefor, dividends
payable either in cash, in stock or otherwise.
4.3 CUMULATIVE VOTING. No holder of shares of capital stock of the
Corporation shall have any cumulative voting rights.
4.4 PREEMPTIVE RIGHTS. No holder of shares of any class of capital stock
of the Corporation shall be entitled as such, as a matter of right, to subscribe
for, purchase or receive any part of any new or additional issue of stock of any
class whatsoever, or of securities convertible into or exchangeable for any
stock of any class whatsoever, whether now or hereafter authorized and whether
issued for cash or other consideration or by way of dividend.
4.5 PREFERRED STOCK. The Board of Directors of the Corporation
(hereinafter referred to as the "Board of Directors") is hereby expressly
authorized at any time following the closing of the Corporation's initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock of this
Corporation (the "Initial Public Offering"), and from time to time thereafter,
to create and provide for the issuance of shares of Preferred Stock in one or
more series and, by filing a certificate pursuant to the GCL (hereinafter
referred to as a "Preferred Stock Designation"), to establish the number of
shares to be included in each such series, and to fix the designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
providing for the issue thereof adopted by the Board of Directors, including,
but not limited to, the following:
(A) the designation of and the number of shares constituting such series,
which number the Board of Directors may thereafter (except as otherwise provided
in the Preferred Stock Designation) increase or decrease (but not below the
number of shares of such series then outstanding or reserved for issuance);
(B) the dividend rate for the payment of dividends on such series, if any,
the conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends, if any, shall bear to the dividends
payable on any other class or classes of or any other series of capital stock,
the conditions and dates upon which such dividends, if any, shall be payable,
and whether such dividends, if any, shall be cumulative or non-cumulative;
(C) whether the shares of such series shall be subject to redemption by
the Corporation, and, if made subject to such redemption, the times, prices and
other terms and conditions of such redemption;
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(D) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(E) whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes of, any other series of
any class or classes of capital stock of, or any other security of, the
Corporation or any other corporation, and, if provision be made for such
conversion or exchange, the times, prices, rates, adjustments and any other
terms and conditions of the such conversion or exchange;
(F) the extent, if any, to which the holders of the shares of such series
shall be entitled to vote as a class or otherwise with respect to the election
of directors or otherwise;
(G) the restrictions, if any, on the issue or reissue of shares of the
same series or of any other class or series;
(H) the amounts payable on and the preferences, if any, of the shares of
such series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
(I) any other relative rights, preferences and limitations of that series.
ARTICLE 5
The Board of Directors is hereby authorized, at any time following the
first public offering of the Common Stock of the Corporation under the
Securities Act of 1933, as amended (the "Initial Public Offering"), and from
time to time thereafter, to create and issue, whether or not in connection with
the issuance and sale of any of its stock or other securities or property,
rights entitling the holders thereof to purchase from the Corporation shares of
stock or other securities of the Corporation or any other corporation,
recognizing that, under certain circumstances, the creation and issuance of such
rights could have the effect of discouraging third parties from seeking, or
impairing their ability to seek, to acquire a significant portion of the
outstanding securities of the Corporation, to engage in any transaction which
might result in a change of control of the Corporation or to enter into any
agreement, arrangement or understanding with another party to accomplish the
foregoing or for the purpose of acquiring, holding, voting or disposing of any
securities of the Corporation. The times at which and the terms upon which such
rights are to be issued will be determined by the Board of Directors and set
forth in the contracts or instruments that evidence such rights. The authority
of the Board of Directors with respect to such rights shall include, but not be
limited to, determination of the following:
(A) the initial purchase price per share or other unit of the stock or
other securities or property to be purchased upon exercise of such rights;
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(B) provisions relating to the times at which and the circumstances under
which such rights may be exercised or sold or otherwise transferred, either
together with or separately from, any other stock or other securities of the
Corporation;
(C) provisions which adjust the number or exercise price of such rights or
amount or nature of the stock or other securities or property receivable upon
exercise of such rights in the event of a combination, split or recapitalization
of any stock of the Corporation, a change in ownership of the Corporation's
stock or other securities or a reorganization, merger, consolidation, sale of
assets or other occurrence relating to the Corporation or any stock of the
Corporation, and provisions restricting the ability of the Corporation to enter
into any such transaction absent an assumption by the other party or parties
thereto of the obligations of the Corporation under such rights;
(D) provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to exercise
such rights and/or cause the rights held by such holder to become void;
(E) provisions which permit the Corporation to redeem or exchange such
rights, which redemption or exchange may be within the sole discretion of the
Board of Directors, if the Board of Directors reserves such right to itself; and
(F) the appointment of a rights agent with respect to such rights.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, following the Initial Public Offering, the
affirmative vote of at least 80 percent of the voting power of the then
outstanding Voting Stock (as defined below), voting together as a single class,
shall be required to amend, repeal or adopt any provision inconsistent with this
Article 5. For the purposes of this Certificate of Incorporation, "Voting
Stock" shall mean the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors.
ARTICLE 6
6.1 ADOPTION, AMENDMENT OR REPEAL OF BYLAWS; RIGHT OF INSPECTION. In
furtherance, and not in limitation, of the powers conferred by law, the Board of
Directors is expressly authorized and empowered:
(A) to adopt, amend or repeal the Bylaws of the Corporation, PROVIDED,
HOWEVER, that any Bylaws adopted by the Board of Directors under the powers
hereby conferred may be amended or repealed by the Board of Directors or by the
stockholders having voting power with respect thereto; and
(B) from time to time to determine whether and to what extent, and at what
times and places, and under what conditions and regulations, the accounts and
books of the Corporation, or any of them, shall be open to inspection of
stockholders; and, except as so
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determined, or as expressly provided in the Purchase Agreements, this
Certificate of Incorporation or in any Preferred Stock Designation, no
stockholder shall have any right to inspect any account, book or document of
the Corporation other than such rights as may be conferred by law.
6.2 ADDITIONAL POWERS. The Corporation may in its Bylaws confer powers
upon the Board of Directors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon the Board of Directors by law.
6.3 AMENDMENT OF BYLAWS AND THIS ARTICLE 6. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, following the
Initial Public Offering, the affirmative vote of the holders of at least 80
percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with (i) this Article 6 or (ii) Section 2.2, 2.4, 2.5,
2.7 or 2.10 of Article II, Section 3.2, 3.3 or 3.5 of Article III or Article IX
of the Bylaws of the Corporation.
ARTICLE 7
7.1 NO ACTION BY WRITTEN CONSENT. Following the Initial Public Offering,
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing in lieu of a meeting of such stockholders.
7.2 SPECIAL MEETINGS. A special meeting of the holders of stock of the
Corporation entitled to vote on any business to be considered at any such
meeting may be called only by the Chairman of the Board of the Corporation, and
shall be called by the Secretary of the Corporation at the request of the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would at the time have if there were no
vacancies (the "Whole Board").
7.3 AMENDMENT OF THIS ARTICLE 7. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, following the Initial Public
Offering, the affirmative vote of at least 80 percent of the voting power of the
then outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with this Article
7.
ARTICLE 8
8.1 NUMBER OF DIRECTORS. The number of directors of the Corporation shall
be fixed, and may be increased or decreased from time to time, in such a manner
as may be prescribed by the Bylaws of the Corporation.
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8.2 ELECTION BY WRITTEN BALLOT NOT REQUIRED. Unless and except to the
extent that the Bylaws of the Corporation shall so require, the election of
directors of the Corporation need not be by written ballot.
8.3 STAGGERED BOARD. Following the Initial Public Offering, the directors
shall be divided into three classes, as nearly equal in number as reasonably
possible, and designated as Class I, Class II and Class III. Class I directors
shall be initially elected for a term expiring at the first annual meeting of
stockholders following the Initial Public Offering, Class II directors shall be
initially elected for a term expiring at the second annual meeting of
stockholders following the Initial Public Offering, and Class III directors
shall be initially elected for a term expiring at the third annual meeting of
stockholders following the Initial Public Offering. Members of each class shall
hold office until their successors are elected and qualified. At each
succeeding annual meeting of the stockholders of the Corporation, the successors
of the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election, and until their successors
are elected and qualified.
8.4 REMOVAL OF DIRECTORS. Following the Initial Public Offering, any
director may be removed from office at any time, but only for cause.
8.5 ADVANCE NOTICE. Advance notice of stockholder nominations for the
election of directors shall be given in the manner provided in the Bylaws of the
Corporation.
8.6 VACANCIES. Following the Initial Public Offering, vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors, and directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the Whole Board shall shorten the term of any incumbent director.
8.7 AMENDMENT OF THIS ARTICLE 8. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, following the Initial Public
Offering, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provisions inconsistent
with this Article 8.
ARTICLE 9
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
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misconduct or a knowing violation of law, (iii) under Section 174 of the GCL
or (iv) for any transaction from which the director derived an improper
personal benefit.
If the GCL is amended after the filing of this Certificate of Incorporation
with the Secretary of State of the State of Delaware to authorize corporation
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the GCL.
No amendment or repeal of this Article 9 shall adversely affect any right
or protection of a director of the Corporation existing hereunder in respect of
any act or omission occurring prior to such amendment or repeal.
ARTICLE 10
Except as may be expressly provided in this Certificate of Incorporation,
the Corporation reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by law,
and all powers, preferences and rights of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article 10, PROVIDED, HOWEVER,
that no Preferred Stock Designation shall be amended after the issuance of any
shares of the series of Preferred Stock created thereby, except in accordance
with the terms of such Preferred Stock Designation and the requirements of law.
ARTICLE 11
The name and mailing address of the incorporator is Brian Wenger, 2400 IDS
Center, Minneapolis, Minnesota 55402.
WITNESS my signature this day of December, 1997.
--------------------------------------
Larry Ford, President and CEO
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November 17, 1997
Information Advantage Software, Inc.
7905 Golden Triangle Drive, Suite 190
Eden Prairie, MN 55344-7227
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
37707) originally filed by Information Advantage Software, Inc. (the "Company")
with the Securities and Exchange Commission (the "Commission") on October 10,
1997, as thereafter amended or supplemented (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of up to 3,834,100 shares of the Company's Common Stock (the "Shares"). The
Shares, which include an over-allotment option granted to the underwriters to
purchase up to 500,100 additional shares of the Company's Common Stock, are to
be sold to the underwriters as described in the Registration Statement for
resale to the public. As your counsel in connection with this transaction, we
have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE>
INFORMATION ADVANTAGE SOFTWARE, INC.
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of November 10, 1997, by and between
Larry J. Ford (the "Executive"), and INFORMATION ADVANTAGE SOFTWARE, INC.,
Delaware corporation (the "Company").
WHEREAS, the Executive is employed by the Company; and
WHEREAS, pursuant to the terms of the Company's 1992 Stock Option Plan and
Stock Option Agreements between the Company and the Executive, the Company has
granted to the Executive options to purchase shares of its common stock (the
"Options"); and
WHEREAS, the Company desires to provide for accelerated vesting of the
Options upon the occurrence of certain events.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall remain in effect from the
date hereof until the earlier of:
(a) The date when the Executive's employment with the Company
terminates for any reason not described in Section 5(a); or
(b) The date when the Company has met all of its obligations under
this Agreement following a termination of the Executive's employment with
the Company for a reason described in Section 5(a).
2. DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement,
"Change in Control" shall mean the occurrence of any of the following events
after the date of this Agreement:
(a) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other
reorganization;
<PAGE>
(b) The sale, transfer or other disposition of all or substantially
all of the Company's assets;
(c) A change in the composition of the Board, as a result of which
fewer than 66% of the incumbent directors are directors who either (i) had
been directors of the Company on the date 24 months prior to the date of
the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at least
50% of the total voting power represented by the Company's then outstanding
voting securities. For purposes of this Subsection (d), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of subsidiary
of the Company and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
3. DEFINITION OF GOOD REASON. For purposes of this Agreement, "Good
Reason" shall mean that the Executive:
(i) Has incurred a material reduction in his authority or
responsibilities as an employee of the Company, including (without
limitation) a material reduction or elimination of his authority to
approve expenditures or to hire, promote, demote or terminate
subordinates;
(ii) Has incurred a reduction in his base salary, other than
pursuant to a Company-wide reduction of salaries for employees of the
Company generally;
(iii) Has incurred a material reduction in his opportunity to
earn a cash bonus, other than pursuant to a reduction of bonus
opportunities for executives of the Company generally; or
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(iv) Has been notified that his principal place of work as an
employee of the Company will be relocated by a distance of 30 miles or
more.
4. DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" shall
mean (a) an act or acts of personal dishonesty taken by Executive and intended
to result in substantial personal enrichment of Executive at the expense of the
Company, (b) repeated violations by Executive of his obligations which are
demonstrably willful and deliberate on Executive's part and which are not
remedied within a reasonable period after Executive's receipt of written notice
of such violations from the Company, (c) the willful engaging by Executive in
illegal conduct that is materially and demonstrably injurious to the Company,
(d) sexual harassment by Executive of any other employee of the Company, as
determined by a court of competent jurisdiction, or (e) illegal use of drugs.
No act, or failure to act, on Executive's part shall be considered "dishonest",
"willful" or "deliberate" unless done, or omitted to be done, by Executive in
bad faith and without reasonable belief that Executive's action or omission was
in the best interest of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based upon
the advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by Executive in good faith and in the best interests of
the Company.
5. CONDITIONS FOR ACCELERATED VESTING OF STOCK OPTIONS.
(a) TERMINATION OF EMPLOYMENT. The Executive shall be entitled to
the accelerated vesting of stock options described in Section 6 if one of
the following events occurs:
(i) If after a Change in Control the Executive voluntarily
resigns his employment for Good Reason; or
(ii) If after a Change in Control, the Company terminates the
Executive's employment for any reason other than Cause.
(b) POOLING OF INTERESTS. Subsection (a) above notwithstanding, if
the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in
fact is so treated, then the accelerated vesting of stock options described
in Section 6 shall not occur to the extent that the Company's independent
public accountants and such other party's independent public accountants
separately determine in good faith that such acceleration would preclude
the use of "pooling of interests" accounting.
6. SCOPE OF ACCELERATED VESTING OF STOCK OPTIONS. If the conditions
described in Section 5 are satisfied, then the Executive's stock options shall
vest as follows:
(a) All options to purchase shares of the Company's Common Stock held
by the Executive at the time of his employment termination shall
immediately
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become exercisable in full, whether such options were granted before or
after the date of this Agreement.
(b) All shares of the Company's Common Stock held by the Executive at
the time of his employment termination shall immediately vest in full and
the Company's right to repurchase such shares shall lapse, whether such
shares were issued before or after the date of this Agreement.
To the extent provided in this Section 6, this Agreement shall be deemed to be
an amendment of the exercisability and vesting provisions of all stock option
agreements, stock purchase agreements and similar instruments executed by the
Executive and the Company.
7. LIMITATION ON PAYMENTS.
(a) BASIC RULE. Any other provision of this Agreement
notwithstanding, the Company shall not be required to make any payment or
property transfer to, or for the benefit of, the Executive (under this
Agreement or otherwise) that would be nondeductible by the Company by
reason of section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), or that would subject the Executive to the excise tax
described in section 4999 of the Code. All calculations required by this
Section 7 shall be performed by the independent auditors retained by the
Company most recently prior to the Change in Control (the "Auditors"),
based on information supplied by the Company and the Executive, and shall
be binding on the Company and the Executive. All fees and expenses of the
Auditors shall be paid by the Company.
(b) REDUCTIONS. If the amount of the aggregate payments or property
transfers to the Executive must be reduced under this Section 7, then the
Executive shall direct in which order the payments or transfers are to be
reduced, but no change in the timing of any payment or transfer shall be
made without the Company's consent. As a result of uncertainty in the
application of sections 280G and 4999 of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that a payment will
have been made by the Company that should not have been made (an
"Overpayment") or that an additional payment that will not have been made
by the Company could have been made (an "Underpayment"). In the event that
the Auditors, based upon the assertion of a deficiency by the Internal
Revenue Service against the Company or the Executive that the Auditors
believe has a high probability of success, determine that an Overpayment
has been made, such Overpayment shall be treated for all purposes as a loan
to the Executive that he shall repay to the Company, together with interest
at the applicable federal rate specified in section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Executive to the
Company if and to the extent that such payment would not reduce the amount
that is nondeductible under section 280G of the Code or is subject to an
excise tax under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has
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<PAGE>
occurred, such Underpayment shall promptly be paid or transferred by the
Company to, or for the benefit of, the Executive, together with interest at
the applicable federal rate specified in section 7872(f)(2) of the Code.
8. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. The Company shall require any successor
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets, by an agreement in substance and form
satisfactory to the Executive, to assume this Agreement and to agree
expressly to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform it in the absence of a
succession. For all purposes under this Agreement, the term "Company"
shall include any successor to the Company's business and/or assets which
executes and delivers the assumption agreement described in this Subsection
(a) or which becomes bound by this Agreement by operation of law.
(b) EXECUTIVE'S SUCCESSORS. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
9. MISCELLANEOUS PROVISIONS.
(a) NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case
of the Executive, mailed notices shall be addressed to him at the home
address which he most recently communicated to the Company in writing. In
the case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the
Company (other than the Executive). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another
time.
(c) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full
force and effect.
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(d) NO RETENTION RIGHTS. Nothing in this Agreement shall confer upon
the Executive any right to continue in service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of
the Company or any subsidiary of the Company or of the Executive, which
rights are hereby expressly reserved by each, to terminate his or her
service at any time and for any reason, with or without Cause.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
/s/ Larry J. Ford
-------------------------------
Larry J. Ford
INFORMATION ADVANTAGE
SOFTWARE, INC.
By: /s/ Donald W. Anderson
---------------------------
Its: Chief Financial Officer
--------------------------
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INFORMATION ADVANTAGE SOFTWARE, INC.
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of November 10, 1997, by and between
[executive](the "Executive"), and INFORMATION ADVANTAGE SOFTWARE, INC.,
Delaware corporation (the "Company").
WHEREAS, the Executive is employed by the Company; and
WHEREAS, pursuant to the terms of the Company's 1992 Stock Option Plan and
Stock Option Agreements between the Company and the Executive, the Company has
granted to the Executive options to purchase shares of its common stock (the
"Options"); and
WHEREAS, the Company desires to provide for accelerated vesting of the
Options upon the occurrence of certain events.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall remain in effect from the
date hereof until the earlier of:
(a) The date when the Executive's employment with the Company
terminates for any reason not described in Section 5(a); or
(b) The date when the Company has met all of its obligations under
this Agreement following a termination of the Executive's employment with
the Company for a reason described in Section 5(a).
2. DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement,
"Change in Control" shall mean the occurrence of any of the following events
after the date of this Agreement:
(a) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other
reorganization;
<PAGE>
(b) The sale, transfer or other disposition of all or substantially
all of the Company's assets;
(c) A change in the composition of the Board, as a result of which
fewer than 66% of the incumbent directors are directors who either (i) had
been directors of the Company on the date 24 months prior to the date of
the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at least
50% of the total voting power represented by the Company's then outstanding
voting securities. For purposes of this Subsection (d), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of subsidiary
of the Company and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
3. DEFINITION OF GOOD REASON. For purposes of this Agreement, "Good
Reason" shall mean that the Executive:
(i) Has incurred a material reduction in his authority or
responsibilities as an employee of the Company, including (without
limitation) a material reduction or elimination of his authority to
approve expenditures or to hire, promote, demote or terminate
subordinates;
(ii) Has incurred a reduction in his base salary, other than
pursuant to a Company-wide reduction of salaries for employees of the
Company generally;
(iii) Has incurred a material reduction in his opportunity to
earn a cash bonus, other than pursuant to a reduction of bonus
opportunities for executives of the Company generally; or
2
<PAGE>
(iv) Has been notified that his principal place of work as an
employee of the Company will be relocated by a distance of 30 miles or
more.
4. DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" shall
mean:
(a) The unauthorized use or disclosure of the confidential
information or trade secrets of the Company, which use or disclosure causes
material harm to the Company;
(b) Conviction of, or a plea of "guilty" or "no contest" to, a felony
under the laws of the United States or any state thereof;
(c) Gross negligence; or
(d) Continued failure to perform assigned duties after receiving
written notification from the Board of Directors.
The foregoing, however, shall not be deemed an exclusive list of all acts or
omissions that the Company (or a subsidiary of the Company) may consider as
grounds for the discharge of the Employee.
5. CONDITIONS FOR ACCELERATED VESTING OF STOCK OPTIONS.
(a) TERMINATION OF EMPLOYMENT. The Executive shall be entitled to
the accelerated vesting of stock options described in Section 6 if one of
the following events occurs:
(i) If after a Change in Control, the Executive voluntarily
resigns his employment for Good Reason; or
(ii) If after a Change in Control, the Company terminates the
Executive's employment for any reason other than Cause.
(b) POOLING OF INTERESTS. Subsection (a) above notwithstanding, if
the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in
fact is so treated, then the accelerated vesting of stock options described
in Section 6 shall not occur to the extent that the Company's independent
public accountants and such other party's independent public accountants
separately determine in good faith that such acceleration would preclude
the use of "pooling of interests" accounting.
6. SCOPE OF ACCELERATED VESTING OF STOCK OPTIONS. If the conditions
described in Section 5 are satisfied, then the Executive's stock options shall
vest as follows:
3
<PAGE>
(a) All options to purchase shares of the Company's Common Stock held
by the Executive at the time of his employment termination shall
immediately become exercisable in full, whether such options were granted
before or after the date of this Agreement.
(b) All shares of the Company's Common Stock held by the Executive at
the time of his employment termination shall immediately vest in full and
the Company's right to repurchase such shares shall lapse, whether such
shares were issued before or after the date of this Agreement.
To the extent provided in this Section 6, this Agreement shall be deemed to be
an amendment of the exercisability and vesting provisions of all stock option
agreements, stock purchase agreements and similar instruments executed by the
Executive and the Company.
7. LIMITATION ON PAYMENTS.
(a) BASIC RULE. Any other provision of this Agreement
notwithstanding, the Company shall not be required to make any payment or
property transfer to, or for the benefit of, the Executive (under this
Agreement or otherwise) that would be nondeductible by the Company by
reason of section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), or that would subject the Executive to the excise tax
described in section 4999 of the Code. All calculations required by this
Section 7 shall be performed by the independent auditors retained by the
Company most recently prior to the Change in Control (the "Auditors"),
based on information supplied by the Company and the Executive, and shall
be binding on the Company and the Executive. All fees and expenses of the
Auditors shall be paid by the Company.
(b) REDUCTIONS. If the amount of the aggregate payments or property
transfers to the Executive must be reduced under this Section 7, then the
Executive shall direct in which order the payments or transfers are to be
reduced, but no change in the timing of any payment or transfer shall be
made without the Company's consent. As a result of uncertainty in the
application of sections 280G and 4999 of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that a payment will
have been made by the Company that should not have been made (an
"Overpayment") or that an additional payment that will not have been made
by the Company could have been made (an "Underpayment"). In the event that
the Auditors, based upon the assertion of a deficiency by the Internal
Revenue Service against the Company or the Executive that the Auditors
believe has a high probability of success, determine that an Overpayment
has been made, such Overpayment shall be treated for all purposes as a loan
to the Executive that he shall repay to the Company, together with interest
at the applicable federal rate specified in section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Executive to the
Company if and to the extent that such payment would not reduce the amount
that is nondeductible
4
<PAGE>
under section 280G of the Code or is subject to an excise tax under section
4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to, or for the benefit of, the Executive,
together with interest at the applicable federal rate specified in section
7872(f)(2) of the Code.
8. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. The Company shall require any successor
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets, by an agreement in substance and form
satisfactory to the Executive, to assume this Agreement and to agree
expressly to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform it in the absence of a
succession. For all purposes under this Agreement, the term "Company"
shall include any successor to the Company's business and/or assets which
executes and delivers the assumption agreement described in this Subsection
(a) or which becomes bound by this Agreement by operation of law.
(b) EXECUTIVE'S SUCCESSORS. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
9. MISCELLANEOUS PROVISIONS.
(a) NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case
of the Executive, mailed notices shall be addressed to him at the home
address which he most recently communicated to the Company in writing. In
the case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the
Company (other than the Executive). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another
time.
5
<PAGE>
(c) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full
force and effect.
(d) NO RETENTION RIGHTS. Nothing in this Agreement shall confer upon
the Executive any right to continue in service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of
the Company or any subsidiary of the Company or of the Executive, which
rights are hereby expressly reserved by each, to terminate his or her
service at any time and for any reason, with or without Cause.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
------------------------------
[executive]
INFORMATION ADVANTAGE
SOFTWARE, INC.
By:
---------------------------
Its:
--------------------------
6
<PAGE>
EXHIBIT 11.1
INFORMATION ADVANTAGE, INC.
COMPUTATION OF PRO FORMA NET LOSS PER SHARE (1)(2)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
JANUARY 31, OCTOBER 31,
1997 1997
--------------- ---------------
<S> <C> <C>
Weighted average common shares outstanding..................................... 1,019,199 1,110,531
Common stock equivalents:
Assumed conversion of convertible redeemable preferred stock (3)............. 8,083,342 9,406,411
Warrants converted to common stock upon closing of the offering.............. 491,599 491,599
Cheap stock (4):
Options outstanding........................................................ 862,700 862,700
Warrants outstanding....................................................... 20,210 20,210
Less: Treasury stock repurchase of cheap stock attributed to options
and warrants (assumed $7.50 price)....................................... (269,285) (269,285)
--------------- ---------------
Pro forma weighted average common and common equivalent shares
outstanding.................................................................. 10,207,765 11,622,166
--------------- ---------------
--------------- ---------------
Net loss....................................................................... $ (8,476,000) $ (5,956,000)
--------------- ---------------
--------------- ---------------
Unaudited pro forma net loss per share......................................... $ (0.83) $ (0.51)
--------------- ---------------
--------------- ---------------
</TABLE>
- ------------------------
(1) This exhibit should be read in conjunction with the "Summary of Significant
Accounting Policies-- Unaudited Pro Forma Net Loss Per Share" in Note 2 of
the Notes to the Consolidated Financial Statements.
(2) Supplemental net loss per share to give effect to the repayment of certain
indebtedness with a portion of the proceeds of the offering has been
excluded as the effect on net loss per share is less than 3%.
(3) Assumes the conversion of the Company's convertible redeemable preferred
stock into 9,483,334 shares of common stock effective February 1, 1996 or
date of issuance, if later. Because of the significant impact of the assumed
conversion on the Company's capital structure and earnings per share,
historical earnings per share has been excluded.
(4) Cheap stock includes stock options granted and warrants issued subsequent to
October 11, 1996 (one year prior to initial filing) pursuant to SAB Topic
4-D.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated November 13, 1997,
relating to the financial statements of Information Advantage, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Minneapolis Minnesota
November 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED
OCTOBER 31, 1997. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 3,011
<SECURITIES> 0
<RECEIVABLES> 6,638
<ALLOWANCES> (101)
<INVENTORY> 0
<CURRENT-ASSETS> 10,488
<PP&E> 3,897
<DEPRECIATION> (1,559)
<TOTAL-ASSETS> 12,965
<CURRENT-LIABILITIES> 11,103
<BONDS> 0
0
24,410
<COMMON> 0
<OTHER-SE> 17
<TOTAL-LIABILITY-AND-EQUITY> (22,429)
<SALES> 12,965
<TOTAL-REVENUES> 17,501
<CGS> 0
<TOTAL-COSTS> 5,607
<OTHER-EXPENSES> 17,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177
<INCOME-PRETAX> (5,956)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,956)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> (0.51)<F2>
<FN>
<F1>Because of the significant impact of assumed conversion of P/S and warrants
into C/S on historical earnings per share, this amount has been excluded from
the F/S.
<F2>Diluted EPS includes the pro forma effect of P/S and warrant conversions,
plus cheap stock in accordance with SAB Topic 4-D.
</FN>
</TABLE>
