<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
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 JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
7905 GOLDEN TRIANGLE DRIVE
EDEN PRAIRIE, MN 55344
(612) 833-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LARRY J. FORD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INFORMATION ADVANTAGE, INC.
7905 GOLDEN TRIANGLE DRIVE
EDEN PRAIRIE, MN 55344
(612) 833-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
JAY K. HACHIGIAN, ESQ. UGO F. IPPOLITO, ESQ.
GUNDERSON DETTMER STOUGH MILLER & MARTIN LLP
VILLENEUVE FRANKLIN & HACHIGIAN, LLP 100 GALLERIA PARKWAY, N.W., SUITE 1200
155 CONSTITUTION DRIVE ATLANTA, GA 30339
MENLO PARK, CA 94025 (770) 953-3500
(650) 321-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As promptly as practicable after this Registration Statement becomes
effective and the effective time of the merger (the "Merger") of a wholly owned
subsidiary of Information Advantage, Inc. with and into IQ Software Corporation,
as described in the Agreement and Plan of Merger, dated June 29, 1998, attached
as Appendix A to the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01........................ 9,503,128 $5.11798 48,636,866 $14,348.88
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, $.01 par
value per share, of Information Advantage, Inc. ("IA Common Stock") issuable
in connection with the Merger, based upon an exchange ratio of 1.96 shares
of IA Common Stock for each outstanding share of common stock, $.00033 par
value per share, of IQ Software Corporation ("IQ Common Stock") and 166,069
shares reserved for issuance upon the potential exercise of currently
outstanding options to purchase IQ Common Stock between the date of
effectiveness of this Registration Statement and the effective time of the
Merger.
(2) Estimated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, based on (a) $10.03125, the average of the high and low prices per
share of IQ Common Stock on August 17, 1998, as reported on the Nasdaq
National Market, multiplied by (b) 4,848,535, the aggregate number of shares
of IQ Common Stock outstanding as of August 14, 1998, after applying an
exchange ratio of 1.96 shares of IA Common Stock for each outstanding share
of IQ Common Stock and including 166,069 shares reserved for issuance upon
the potential exercise of currently outstanding options to purchase IQ
Common Stock between the date of effectiveness of this Registration
Statement and the effective time of the Merger.
(3) Includes $11,636.48 previously paid upon the filing of a Preliminary Proxy
Statement on Schedule 14A with the Commmission on July 27, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION ADVANTAGE, INC.
7905 GOLDEN TRIANGLE DRIVE
EDEN PRAIRIE, MN 55344
(612) 833-3700
August 21, 1998
Dear Information Advantage Stockholder:
As many of you are aware, Information Advantage, Inc. has entered into an
agreement to acquire IQ Software Corporation. You are cordially invited to
attend a Special Meeting of Stockholders of Information Advantage to be held at
the Marquette Hotel, located at 710 Marquette Avenue, Minneapolis, Minnesota, on
September 23, 1998 at 10:00 a.m. local time. At the Special Meeting, you will be
asked to vote on a proposal to approve the issuance of Information Advantage
common stock to IQ Software stockholders in connection with the merger of IQ
Software with a wholly-owned subsidiary of Information Advantage.
Your Board of Directors believes that the acquisition of IQ Software will
result in a combined company with significantly greater resources and the
opportunity to market a more complete product offering than Information
Advantage alone. We further believe that the acquisition of IQ Software will
enable Information Advantage to enhance its competitive position as a leader in
relational on-line analytical processing software.
The merger of the two companies will be effected by the issuance of 1.96
shares of Information Advantage common stock for each share of IQ Software
common stock. Each share of Information Advantage common stock will remain
outstanding and will represent one share of the combined company.
If the requisite approvals of the stockholders of Information Advantage and
IQ Software are received, the merger is expected to be consummated on or about
September 24, 1998.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE
TRANSACTIONS RELATED THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR
TO AND IN THE BEST INTERESTS OF INFORMATION ADVANTAGE AND ITS STOCKHOLDERS.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE MERGER PROPOSAL.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Information Advantage stockholders at the Special
Meeting, copies of the IQ Software Annual Report on Form 10-K for the year ended
January 31, 1998 and its Quarterly Report on Form 10-Q for the quarter ended
April 30, 1998 and a proxy card. The Joint Proxy Statement/Prospectus more fully
describes the merger proposal and includes information about Information
Advantage and IQ Software.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
/s/ LARRY J. FORD
-------------------------------------
Larry J. Ford
President and Chief Executive Officer
<PAGE> 3
INFORMATION ADVANTAGE, INC.
7905 GOLDEN TRIANGLE DRIVE
EDEN PRAIRIE, MN 55344
(612) 833-3700
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 23, 1998
Notice is hereby given that a Special Meeting of Stockholders (the "IA
Special Meeting") of Information Advantage, Inc., a Delaware corporation ("IA"),
will be held at the Marquette Hotel, located at 710 Marquette Avenue,
Minneapolis, Minnesota, on September 23, 1998 at 10:00 a.m., local time, for the
following purposes:
(1) To consider and vote upon a proposal (the "IA Merger Proposal") to
approve the issuance of shares of IA common stock, par value $.01 per share
("IA Common Stock"), pursuant to the terms of an Agreement and Plan of
Merger, as amended, dated June 29, 1998 (the "Plan of Merger") by and among
IA, IQ Software Corporation, a Georgia corporation ("IQ"), and IAC Merger
Corp., a Georgia corporation and a wholly-owned subsidiary of IA ("Merger
Sub"), pursuant to which, among other things, (a) Merger Sub will be merged
with and into IQ; (b) each share of IQ common stock, $.00033 par value,
outstanding as of the closing of the Merger (other than shares that are
owned by IA or IQ or any subsidiary of IQ) will be converted into the right
to receive 1.96 shares of IA Common Stock (the "Exchange Ratio"); (c) all
IQ stock options, together with the underlying IQ stock option plans, will
be assumed by IA and converted into options to purchase shares of IA Common
Stock at the Exchange Ratio; and (d) IQ will become a wholly owned
subsidiary of IA; and
(2) To transact such other business as may properly come before the IA
Special Meeting or any adjournments or postponements thereof.
The Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Plan of Merger is attached to the Joint
Proxy Statement/Prospectus as Appendix A.
Only stockholders of record at the close of business on August 14, 1998 are
entitled to notice of and to vote at the IA Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of a majority of the
outstanding shares of IA Common Stock is required to approve the IA Merger
Proposal.
IMPORTANT
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE IA SPECIAL MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE IA SPECIAL MEETING IN PERSON, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE IA SPECIAL MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE IA
SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ BRIAN D. WENGER
-----------------------------------
Brian D. Wenger
Corporate Secretary
Eden Prairie, MN
August 21, 1998
<PAGE> 4
IQ SOFTWARE CORPORATION
3295 RIVER EXCHANGE DRIVE, SUITE 550
NORCROSS, GA 30092
(770) 446-8880
August 21, 1998
Dear IQ Software Stockholder:
As many of you are aware, IQ Software has entered into an agreement to be
acquired by Information Advantage, Inc. You are cordially invited to attend a
Special Meeting of Stockholders of IQ Software Corporation to be held at the IQ
Software principal executive offices on September 23, 1998 at 10:00 a.m. local
time. At the Special Meeting, you will be asked to vote on a proposal to approve
the merger of IQ Software with a wholly-owned subsidiary of Information
Advantage.
Your Board of Directors believes that the acquisition of IQ Software by
Information Advantage will result in a combined company with significantly
greater resources and the opportunity to market a more complete product offering
than IQ Software alone. We further believe that the combination of IQ Software
and Information Advantage will enhance IQ Software's competitive position as a
leader in enterprise reporting software applications.
The merger of the two companies will be effected by the issuance of 1.96
shares of Information Advantage common stock for each share of IQ Software
common stock. Each share of Information Advantage common stock will remain
outstanding and will represent one share of the combined company.
If the requisite approvals of the stockholders of Information Advantage and
IQ Software are received, the merger is expected to be consummated on or about
September 24, 1998.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER, THE RELATED
PLAN OF MERGER AND THE TRANSACTIONS RELATED THERETO AND HAS UNANIMOUSLY
DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST INTERESTS OF IQ SOFTWARE AND
ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE MERGER PROPOSAL.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by IQ Software stockholders at the Special Meeting, copies
of the IQ Software Annual Report on Form 10-K for the year ended January 31,
1998 and its Quarterly Report on Form 10-Q for the quarter ended April 30, 1998
and a proxy card. The Joint Proxy Statement/Prospectus more fully describes the
merger proposal and includes information about IA and IQ.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
/s/ CHARLES R. CHITTY
---------------------------
Charles R. Chitty
Chairman, President
and Chief Executive Officer
<PAGE> 5
IQ SOFTWARE CORPORATION
3295 RIVER EXCHANGE DRIVE, SUITE 550
NORCROSS, GA 30092
(770) 446-8880
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 23, 1998
Notice is hereby given that a Special Meeting of Stockholders (the "IQ
Special Meeting") of IQ Software Corporation, a Georgia corporation ("IQ"), will
be held at the IQ Software principal executive offices on September 23, 1998, at
10:00 a.m. local time, for the following purposes:
(1) To consider and vote upon a proposal (the "IQ Merger Proposal") to
approve an Agreement and Plan of Merger, as amended, dated as of June 29,
1998 (the "Plan of Merger"), by and among IQ, Information Advantage, Inc.,
a Delaware corporation ("IA"), and IAC Merger Corp., a Georgia corporation
and a wholly owned subsidiary of IA ("Merger Sub"), pursuant to which,
among other things, (a) Merger Sub will be merged with and into IQ (the
"Merger"); (b) each share of IQ common stock, $.00033 par value (the "IQ
Common Stock"), outstanding as of the closing of the Merger (other than
shares that are owned by IA or IQ or any subsidiary of IQ) will be
converted into the right to receive 1.96 shares (the "Exchange Ratio") of
the common stock, $.01 par value of IA (the "IA Common Stock"); (c) all IQ
stock options, together with the underlying IQ stock option plans, will be
assumed by IA and converted into options to purchase shares of the IA
Common Stock at the Exchange Ratio; and (d) IQ will become a wholly owned
subsidiary of IA; and
(2) To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
The Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Plan of Merger is attached to the Joint
Proxy Statement/Prospectus as Appendix A.
Only stockholders of record at the close of business on August 14, 1998 are
entitled to notice of and to vote at the IQ Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of 66 2/3% of the
outstanding shares of IQ Common Stock is required to approve the IQ Merger
Proposal.
IMPORTANT
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE IQ SPECIAL MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE IQ SPECIAL MEETING IN PERSON, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE IQ SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND VOTE
IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE IQ
SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ UGO F. IPPOLITTO
-----------------------------------
Ugo F. Ippolitto
Corporate Secretary
Norcross, GA
August 21, 1998
PLEASE DO NOT SEND IN ANY
STOCK CERTIFICATES AT THIS TIME.
<PAGE> 6
LOGO
LOGO
JOINT PROXY STATEMENT
INFORMATION ADVANTAGE, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 23, 1998
IQ SOFTWARE CORPORATION
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 23, 1998
------------------------
PROSPECTUS
INFORMATION ADVANTAGE, INC.
------------------------
This Joint Proxy Statement/Prospectus of Information Advantage, Inc., a
Delaware corporation ("IA"), and IQ Software Corporation, a Georgia corporation
("IQ"), is being used (a) to solicit proxies on behalf of the IA Board of
Directors (the "IA Board") from holders of the outstanding IA common stock, $.01
par value ("IA Common Stock"), in connection with the Special Meeting of
Stockholders of IA to be held at the Marquette Hotel, 710 Marquette Avenue,
Minneapolis, MN, on September 23, 1998 at 10:00 a.m., local time (the "IA
Special Meeting"), and (b) to solicit proxies on behalf of the IQ Board of
Directors (the "IQ Board") from holders of the outstanding IQ common stock,
$.00033 par value ("IQ Common Stock"), in connection with a Special Meeting of
Stockholders of IQ to be held at the IQ principal executive offices, 3295 River
Exchange Drive, Suite 550, Norcross, GA 30092, on September 23, 1998 at 10:00
a.m., local time (the "IQ Special Meeting"). This Joint Proxy
Statement/Prospectus and the accompanying proxies are first being mailed to
stockholders of IA and stockholders of IQ on or about August 24, 1998.
At the IA Special Meeting, stockholders of IA will be asked (1) to consider
and vote upon a proposal (the "IA Merger Proposal") to approve the issuance of
shares of IA Common Stock to the stockholders of IQ pursuant to the terms of an
Agreement and Plan of Merger, as amended, (the "Plan of Merger") dated as of
June 29, 1998, by and among IA, IQ and IAC Merger Corp., a Georgia corporation
and wholly-owned subsidiary of IA ("Merger Sub"), pursuant to which, among other
things, (a) Merger Sub will be merged with and into IQ (the "Merger"); (b) each
share of IQ Common Stock outstanding as of the closing of the Merger (other than
shares that are owned by IA or IQ or any subsidiary of IQ) will be converted
into the right to receive 1.96 shares of IA Common Stock (the "Exchange Ratio");
(c) all outstanding IQ stock options, together with the underlying IQ stock
option plans (collectively, the "IQ Stock Plans") , will be assumed by IA and
converted at the Exchange Ratio into options to purchase shares of IA Common
Stock and (d) IQ will become a wholly-owned subsidiary of IA; and (2) to
transact such other business as may properly come before the IA Special Meeting
or any adjournments or postponements thereof.
At the IQ Special Meeting, stockholders of IQ will be asked to (1) consider
and vote upon a proposal (the "IQ Merger Proposal") to approve the Merger and
Plan of Merger, pursuant to which, among other things, (a) Merger Sub will be
merged with and into IQ, (b) each share of IQ Common Stock outstanding as of the
closing of the Merger (other than shares that are owned by IA or IQ or
subsidiary of IQ) will be converted into the right to receive 1.96 shares of IA
Common Stock (the "Exchange Ratio"), (c) all IQ stock options, together with the
IQ Stock Plans, will be assumed by IA and converted into options to purchase
shares of IA Common Stock, and (d) IQ will become a wholly owned subsidiary of
IA and (2) to transact such other business as may properly come before the IQ
Special Meeting or any adjournments or postponements thereof.
Based upon the number of outstanding shares of IA Common Stock and IQ Common
Stock as of August 14, 1998 (the record date for the IA Special Meeting and the
IQ Special Meeting), the shares of IA Common Stock issued to IQ stockholders in
the Merger (and issuable with respect to outstanding IQ stock options) would
represent approximately 36.4% of the outstanding shares of IA Common Stock
(including shares issuable by IA and IQ upon the exercise of outstanding options
to purchase shares of IA Common Stock and IQ Common Stock) immediately following
the closing of the Merger.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of IA
under the Securities Act of 1933, as amended (the "Securities Act"), for the
offering of shares of IA Common Stock in connection with the Merger. IA Common
Stock and IQ Common Stock are traded on the Nasdaq National Market under the
symbols "IACO" and "IQSW," respectively. On August 19, 1998, the closing sale
prices of the IA Common Stock and IQ Common
<PAGE> 7
Stock as reported on the Nasdaq National Market were $6.625 and $11.25 per
share, respectively. The information set forth in this Joint Proxy
Statement/Prospectus concerning IA and Merger Sub has been furnished by IA, and
the information set forth in this Joint Proxy Statement/Prospectus concerning IQ
has been furnished by IQ. The current market quotations for the IA Common Stock
and the IQ Common Stock may be obtained on the World Wide Web at
http://www.nasdaq.com.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED CAREFULLY BY BOTH IQ STOCKHOLDERS AND IA STOCKHOLDERS IN
EVALUATING THE IQ MERGER PROPOSAL, THE IA MERGER PROPOSAL AND THE ACQUISITION OF
SECURITIES OFFERED HEREBY.
THE SECURITIES TO BE ISSUED BY IA IN CONNECTION WITH THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. FURTHERMORE, NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED THE
FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is August 21, 1998.
<PAGE> 8
AVAILABLE INFORMATION
IA and IQ are each subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at Seven World Trade Center (13th Floor), New York, New
York 10048. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also makes electronic
filings publicly available on the Internet within 24 hours of acceptance. The
SEC's Internet address is http://www.sec.gov. The SEC web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC. IA Common Stock and IQ Common
Stock are quoted on the Nasdaq National Market, and the reports, proxy
statements and other information referred to above can also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. After
the consummation of the Merger, IQ will no longer file reports, proxy statements
or other information with the SEC or the Nasdaq National Market. Instead, such
information will be provided, to the extent required, in filings made by IA.
IA has filed with the SEC a registration statement on Form S-4, including
this Joint Proxy Statement/ Prospectus and other information (herein, together
with all amendments and exhibits, referred to as the "Registration Statement"),
under the Securities Act with respect to the shares of IA Common Stock to be
issued to holders of IQ Common Stock in the Merger. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statement. Copies of the Registration Statement
and the exhibits and schedules thereto may be inspected, without charge, at the
offices of the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or obtained from the SEC web site. Although statements
contained in this Joint Proxy Statement/Prospectus as to the contents of any
contract or other document referred to herein set forth all material elements of
such documents, such statements are not necessarily complete. With respect to
each such contract or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matters involved, and each such statement, although setting forth all
material elements of such document, shall be deemed qualified in all respects by
such reference.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF IA OR IQ SINCE SUCH DATE. THIS JOINT PROXY STATEMENT/
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES OF IA TO BE ISSUED IN THE
MERGER, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
i
<PAGE> 9
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed with the SEC by IQ under the
Exchange Act are incorporated herein by reference:
(a) IQ's Annual Report on Form 10-K for the year ended January 31,
1998 (the "IQ 10-K");
(b) IQ's Quarterly Report on Form 10-Q for the quarter ended April 30,
1998 (the "IQ 10-Q");
(c) IQ's Current Report on Form 8-K, dated as of July 2, 1998 and
filed with the SEC on July 6, 1998 and
(d) The description of IQ's Common Stock contained in IQ's
Registration Statement on Form 8-A, dated October 5, 1992.
All documents filed by IQ pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Joint Proxy Statement/Prospectus and
prior to the IA Special Meeting and IQ Special Meeting shall be deemed to be
incorporated by reference into this Joint Proxy Statement/Prospectus and to be a
part hereof from the date of filing of such documents. Any statement contained
in the document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
that is or is deemed to be incorporated by reference herein) modifies or
supersedes such previous statement. Any statement so modified or superseded
shall not be deemed to constitute a part hereof except as so modified or
superseded.
This Joint Proxy Statement/Prospectus is accompanied by copies of the IQ
10-K and IQ 10-Q.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to IA or Merger Sub has been supplied by IA and
all such information relating to IQ has been supplied by IQ.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED,
FROM IQ SOFTWARE CORPORATION, 3295 RIVER EXCHANGE DRIVE, SUITE 550, NORCROSS, GA
30092. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST
SHOULD BE MADE BY SEPTEMBER 14, 1998.
ii
<PAGE> 10
TRADEMARKS
DecisionSuite(TM) and IA's logo are trademarks of IA, and DecisionSuite(R)
and Information Advantage(R) are registered trademarks of IA. IQ/Liveweb(TM) and
IQ/Vision Server(TM) are trademarks of IQ and Intelligent Query(R), IQ
Access(R), IQ/Objects(R), IQ/SmartServer(R), IQ/Vision(R), and IQ's logo are
registered trademarks of IQ. This Joint Proxy Statement/Prospectus also includes
trademarks of companies other than IA and IQ.
FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT (THE "FORWARD-LOOKING STATEMENTS"). FOR THIS PURPOSE, ANY
STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE
WORDS "BELIEVES," "ANTICIPATES," "PLANS," "INTENDS," "EXPECTS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS
FOR MANY REASONS, INCLUDING, WITHOUT LIMITATION, AS A RESULT OF THE FACTORS SET
FORTH UNDER "RISK FACTORS" HEREIN. IN CONNECTION WITH THE FORWARD-LOOKING
STATEMENTS, IA STOCKHOLDERS AND IQ STOCKHOLDERS SHOULD CAREFULLY REVIEW THE
FACTORS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS UNDER "RISK FACTORS."
NEITHER IA NOR IQ MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY
AS TO THE ATTAINABILITY OF THE PROJECTED OR ESTIMATED FINANCIAL INFORMATION
REFERENCED OR SET FORTH HEREIN UNDER "THE MERGER AND RELATED
TRANSACTIONS -- OPINION OF IA FINANCIAL ADVISOR," "THE MERGER AND RELATED
TRANSACTIONS -- OPINION OF IQ FINANCIAL ADVISOR" OR ELSEWHERE HEREIN OR AS TO
THE ACCURACY OR COMPLETENESS OF THE ASSUMPTIONS FROM WHICH THAT PROJECTED OR
ESTIMATED INFORMATION IS DERIVED. PROJECTIONS OR ESTIMATIONS OF THE COMBINED
COMPANY'S FUTURE PERFORMANCE ARE NECESSARILY SUBJECT TO A HIGH DEGREE OF
UNCERTAINTY AND MAY VARY MATERIALLY FROM ACTUAL RESULTS. REFERENCE IS MADE TO
THE PARTICULAR DISCUSSIONS SET FORTH UNDER "RISK FACTORS."
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<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION....................................... i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... ii
TRADEMARKS.................................................. iii
FORWARD-LOOKING STATEMENTS.................................. iii
SUMMARY..................................................... 1
The Parties to the Merger................................. 1
IA Special Meeting of Stockholders........................ 1
IQ Special Meeting of Stockholders........................ 2
The Merger................................................ 2
Risk Factors.............................................. 7
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA................................... 8
COMPARATIVE PER SHARE DATA.................................. 11
MARKET PRICE INFORMATION.................................... 13
RISK FACTORS................................................ 14
Uncertainty Relating to Integration of Multiple Operations
and Product Lines; Management of Growth................ 14
Fixed Merger Consideration Despite Potential Changes in
Stock Prices........................................... 15
Interests of Certain Persons in the Merger................ 15
Cost of Integration; Transactions Expenses................ 15
Shares Eligible for Public Sale........................... 15
Pooling of Interests...................................... 15
Future Acquisition-Related Risks.......................... 16
Limited Operating History; Lack of Profitability.......... 16
Fluctuations in Operating Results......................... 17
Lengthy Sales and Implementation Cycles................... 18
Revenue Recognition....................................... 18
Competition............................................... 19
Dependence on Growth of Market for OLAP Applications and
Acceptance of the Web.................................. 19
Limited Large-Scale Deployment............................ 20
Rapid Technological Change and New Products............... 20
Product and Customer Concentration........................ 20
Dependence on Service Revenues............................ 21
Expansion of Indirect Channels............................ 21
Risks Associated with International Sales and
Operations............................................. 22
Management of Growth; Need for Additional Qualified
Personnel.............................................. 22
Dependence on Key Personnel............................... 23
Limited Protection of Proprietary Technology; Risks of
Infringement; Use of Licensed Technology............... 23
IQ Class Action Litigation................................ 23
Risk of Software Defects.................................. 24
Year 2000 Compliance...................................... 24
Product Liability......................................... 24
Possible Volatility of Common Stock....................... 24
Control of Combined Company by Executive Officers,
Directors and Five Percent Stockholders................ 25
Effect of Certain Charter Provisions; Antitakeover Effects
of Certificate of Incorporation; Bylaws and Delaware
Law.................................................... 25
PROPOSALS AND BOARD RECOMMENDATIONS......................... 26
VOTING AND PROXIES.......................................... 26
Date, Time and Place of IA Special Meeting and IQ Special
Meeting................................................ 26
</TABLE>
iv
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Record Date and Outstanding Shares........................ 26
IA Stockholder Vote Required.............................. 27
IQ Stockholder Vote Required.............................. 27
Solicitation of Proxies; Expenses......................... 28
NO DISSENTERS' OR APPRAISAL RIGHTS.......................... 28
THE MERGER AND RELATED TRANSACTIONS......................... 28
General................................................... 28
Material Contacts and Board Deliberations................. 28
Reasons for the Merger.................................... 29
Opinion of IA Financial Advisor........................... 32
Opinion of IQ's Financial Advisor......................... 36
Conversion of IQ Shares................................... 39
Representations and Warranties............................ 40
Certain Covenants......................................... 40
No Solicitation........................................... 41
Interests of Certain Persons.............................. 42
Voting Agreements......................................... 43
Resale of IA Common Stock; Agreements with Affiliates..... 43
Related Matters After the Merger.......................... 43
IQ Stock Option Plans..................................... 43
Director and Officer Indemnification...................... 44
Employment Agreement...................................... 44
Reseller Agreement........................................ 45
Conditions................................................ 45
Termination; Termination Fees and Expenses................ 46
Closing................................................... 47
Amendment and Waiver...................................... 47
Stock Option Agreement.................................... 48
Certain Federal Income Tax Considerations................. 49
Accounting Treatment...................................... 50
INFORMATION ADVANTAGE, INC. AND IQ SOFTWARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 51
INFORMATION CONCERNING IA................................... 56
Business.................................................. 56
Overview.................................................. 56
Industry Background....................................... 56
The Information Advantage Solution........................ 57
Strategy.................................................. 58
Customers and Application................................. 60
Products and Technology................................... 61
Sales and Marketing....................................... 64
Customer Support.......................................... 65
Research and Development.................................. 66
Competition............................................... 66
Intellectual Property Rights.............................. 67
Employees................................................. 67
Properties................................................ 67
Legal Proceedings......................................... 67
</TABLE>
v
<PAGE> 13
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Selected Financial Data................................... 68
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 69
Overview.................................................. 69
Results of Operations..................................... 70
Revenues.................................................. 71
Cost of Revenues.......................................... 71
Operating Expenses........................................ 72
Recently Issued Accounting Standards...................... 73
Quarterly Results of Operations........................... 74
Liquidity and Capital Resources........................... 75
Year 2000 Compliance...................................... 77
MANAGEMENT.................................................. 78
Board Members and Executive Officers...................... 78
Committees................................................ 80
Director Compensation..................................... 80
Executive Compensation.................................... 81
Option Values............................................. 82
Employment Agreements and Change in Control
Arrangements........................................... 83
Security Ownership of Certain Beneficial Owners and
Management............................................. 85
Certain Relationships and Related Transactions............ 87
Indemnification........................................... 88
DESCRIPTION OF IA CAPITAL STOCK............................. 89
Common Stock.............................................. 89
Preferred Stock........................................... 89
Antitakeover Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law................. 89
COMPARISON OF RIGHTS OF IA STOCKHOLDERS AND IQ
STOCKHOLDERS.............................................. 90
Power to Call Special Stockholders' Meetings; Action by
Written Consent........................................ 90
Boards of Directors....................................... 91
Limitation on Personal Liability of Directors............. 91
Indemnification of Directors and Officers................. 91
Vote on Extraordinary Corporate Transactions.............. 92
Certain Business Combinations............................. 93
Authorized Preferred Stock................................ 94
Amendments to the IQ Articles and the IA Certificate...... 94
Amendments to the IQ Bylaws and the IA Bylaws............. 94
Rights Plan............................................... 95
LEGAL MATTERS............................................... 95
EXPERTS..................................................... 95
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. 96
INDEX TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS................................................ 111
</TABLE>
APPENDICES
<TABLE>
<CAPTION>
<S> <C>
Appendix A Amended and Restated Agreement and Plan of Merger by and
among Information Advantage, Inc., IQ Software Corporation
and IAC Merger Corp. and Exhibits Thereto
Appendix B Written Opinion of BancAmerica Robertson Stephens LLP
Appendix C Written Opinion of First Albany Corporation
</TABLE>
vi
<PAGE> 14
SUMMARY
The following summary of certain information contained elsewhere in this
Joint Proxy Statement/ Prospectus and the appendices hereto is not intended to
be a complete statement of all material features of the proposals to be voted
on, and is qualified in its entirety by the more detailed information and
unaudited pro forma condensed combined financial statements and related notes
and appendices appearing elsewhere in this Joint Proxy Statement/Prospectus or
incorporated by reference herein. Capitalized terms used but not defined in this
Summary have the meanings given to them elsewhere in this Joint Proxy
Statement/Prospectus. Stockholders are urged to read this Joint Proxy
Statement/Prospectus and the appendices hereto in their entirety.
For purposes of this Joint Proxy Statement/Prospectus, "IA" refers to
Information Advantage, Inc., a Delaware corporation, and its subsidiaries,
including IAC Merger Corp., a Georgia corporation ("Merger Sub"), "IQ" refers to
IQ Software Corporation and its subsidiaries, and the "combined company" refers
to the combined business of IA and IQ formed as a result of the Merger. The
"surviving corporation" refers to IQ after completion of the Merger.
THE PARTIES TO THE MERGER
Information Advantage, Inc. IA 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. IA'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, IA 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. IA's principal executive offices are located at
7905 Golden Triangle Drive, Eden Prairie, MN 55344, and its telephone number is
(612) 833-3700. See "Information Concerning IA -- Business."
IQ Software Corporation IQ designs, develops, markets and supports a suite
of business intelligence software products for data access, analysis, ad hoc
query and reporting designed to facilitate decision support. IQ has licensed
approximately 500,000 copies of its software products. IQ has five principal
software products that can be licensed separately or in combination. Its
principal products, IQ/Objects, IQ/SmartServer, IQ/Vision, IQ/Vision Server and
IQ/Liveweb are end user business intelligence tools that allow users to access
data stored in relational databases, data warehouses and many legacy and
non-relational database file systems. IQ's principal customers include (i) large
corporate customers, (ii) federal, state and local governments and (iii)
vertical market application software developers who integrate IQ's software into
their products for license to end users. IQ's principal executive offices are
located at 3295 River Exchange Drive, Suite 550, Norcross, GA 30092, and its
telephone number is (770) 446-8880.
IAC Merger Corp. Merger Sub is a wholly owned subsidiary of IA with no
business operations other than in connection with facilitating the Merger.
Merger Sub's principal executive offices are located at 7905 Golden Triangle
Drive, Eden Prairie, MN 55344, and its telephone number is (612) 833-3700.
IA SPECIAL MEETING OF STOCKHOLDERS
Time, Date and Purpose. The IA Special Meeting will be held at the
Marquette Hotel, 710 Marquette Avenue, Minneapolis, MN, on September 23, 1998 at
10:00 a.m. local time. The purpose of the IA Special Meeting is to consider and
vote upon the IA Merger Proposal including the issuance of shares of IA Common
Stock in connection with the Merger and to transact such other business as may
properly come before the IA Special Meeting or any adjournments or postponements
thereof.
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<PAGE> 15
Record Date; Vote Required. The record date for determining stockholders of
IA entitled to notice of and to vote at the IA Special Meeting is August 14,
1998 (the "IA Record Date"). On the IA Record Date there were 15,621,931 shares
of IA Common Stock outstanding, held by approximately 175 holders of record and
approximately 2,450 beneficial owners. Each share of IA Common Stock entitles
the holder thereof to one vote upon all matters submitted to a vote of
stockholders. The presence at the IA Special Meeting in person or by proxy of
the holders of a majority of the outstanding shares of IA Common Stock
constitutes a quorum. The affirmative vote of a majority of the outstanding
shares of IA Common Stock is required to approve the IA Merger Proposal.
On the IA Record Date, IA directors and executive officers beneficially
owned in the aggregate approximately 50.1% of the outstanding shares of IA
Common Stock entitled to vote at the IA Special Meeting. See "Information
Concerning IA -- Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners."
IQ SPECIAL MEETING OF STOCKHOLDERS
Time, Date and Purpose. The IQ Special Meeting will be held at the IQ
principal executive offices, on September 23, 1998 at 10:00 a.m. local time. The
purpose of the IQ Special Meeting is to consider and vote upon the IQ Merger
Proposal and to transact such other business as may properly come before the IQ
Special Meeting or any adjournments or postponements thereof.
Record Date; Vote Required. The record date for determining stockholders of
IQ entitled to notice of and to vote at the IQ Special Meeting is August 14,
1998 (the "IQ Record Date"). On the IQ Record Date there were 4,682,466 shares
of IQ Common Stock outstanding, held by approximately 200 holders of record and
approximately 2,900 beneficial owners. Each share of IQ Common Stock entitles
the holder thereof to one vote upon all matters submitted to a vote of
stockholders. The presence at the IQ Special Meeting in person or by proxy of a
majority of the outstanding shares of IQ Common Stock constitutes a quorum.
The affirmative vote of the holders of 66 2/3% of the outstanding shares of
IQ Common Stock is required for the approval of the IQ Merger Proposal. Each
director and executive officer of IQ has executed and delivered to IA, voting
agreements and irrevocable proxies obligating them, among other things, to vote
the shares of IQ Common Stock under their control in favor of approval and
adoption of the IQ Merger Proposal. On the IQ Record Date, IQ directors,
executive officers and their affiliates beneficially owned in the aggregate
approximately 11.4% of the outstanding shares of IQ Common Stock entitled to
vote at the IQ Special Meeting. See "Voting and Proxies."
THE MERGER
General. At the time and on the date the Certificate of Merger is filed
with the Office of the Secretary of State of the State of Georgia (the
"Effective Time" or "Closing Date" of the Merger), (a) Merger Sub will be merged
with and into IQ, (b) the separate existence of Merger Sub will cease and (c) IQ
will become a wholly owned subsidiary of IA. In addition, at the Effective Time
of the Merger, (a) each share of IQ Common Stock outstanding as of the closing
of the Merger (other than shares that are owned by IA or IQ or any subsidiary of
IQ) will be converted into the right to receive 1.96 shares of IA Common Stock;
and (b) all IQ stock options, together with the underlying IQ Stock Plans, will
be assumed by IA and converted into options to purchase shares of IA Common
Stock at an exercise price based upon the Exchange Ratio. Each share of IA
Common Stock will remain outstanding and will represent one share of the
combined company. The vesting of certain stock options issued to IQ executive
officers under the IQ Stock Plans will accelerate, by their terms, automatically
upon consummation of the Merger. See "The Merger and Related Transactions -- IQ
Stock Option Plans."
No fractional shares of IA Common Stock will be issued in the Merger.
Instead, cash will be paid in lieu of the issuance of fractional shares. See
"The Merger and Related Transactions -- Conversion of IQ Shares."
Assuming that all conditions to the Merger are met or waived prior thereto,
and that the IA Merger Proposal and the IQ Merger Proposal are approved, it is
anticipated that the Effective Time of the Merger will
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<PAGE> 16
occur promptly following the IA Special Meeting and the IQ Special Meeting. The
current market quotations for the IA Common Stock and the IQ Common Stock may be
obtained on the World Wide Web at http://www.nasdaq.com.
Based on the number of shares of IQ Common Stock outstanding as of August
14, 1998, an aggregate of up to 9,177,633 shares of IA Common Stock will be
issued in the Merger. In addition, IA will assume outstanding stock options to
purchase an aggregate of 664,275 shares of IQ Common Stock (based on the number
of shares subject to outstanding IQ stock options on August 14, 1998), which, as
adjusted to give effect to the Exchange Ratio, will become options to purchase
an aggregate of approximately 1,301,979 shares of IA Common Stock. The
conversion will be effected by multiplying the number of shares of IQ Common
Stock subject to each IQ stock option immediately prior to the Merger by the
Exchange Ratio and dividing the exercise price of each such option by the
Exchange Ratio. If a holder of an IQ stock option were to exercise such option
before the Effective Time of the Merger, each share of IQ Common Stock issued
pursuant to such option will be converted into the right to receive 1.96 shares
of IA Common Stock. As soon as practicable after the Closing Date, IA will file
a Registration Statement on Form S-8 with respect to the shares of IA Common
Stock issuable with respect to IQ stock options assumed by IA pursuant to the
Merger. See "The Merger and Related Transactions -- IQ Stock Option Plans."
The following table presents the equity interests in the combined company
of IA stockholders and IQ stockholders on a pro forma combined basis as of
August 14, 1998 (including shares issuable by IA and IQ upon the exercise of
outstanding options to purchase shares of IA Common Stock and IQ Common Stock):
<TABLE>
<CAPTION>
SHARES
(IN THOUSANDS) %
-------------- ------
<S> <C> <C>
IA Stockholders...................................... 18,335 63.6%
IQ Stockholders...................................... 10,480 36.4
---------- ------
Total Pro Forma Combined Company Stockholders........ 28,815 100.0%
========== ======
</TABLE>
Exchange of certificates evidencing IQ Common Stock for certificates
evidencing IA Common Stock will be made upon surrender of certificates
evidencing IQ Common Stock to Norwest Bank Minnesota, National Association, as
exchange agent.
IQ STOCK CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE PRIOR TO THE
RECEIPT OF THE NECESSARY APPROVALS OF THE IA STOCKHOLDERS AT THE IA SPECIAL
MEETING AND OF THE IQ STOCKHOLDERS AT THE IQ SPECIAL MEETING. IN ADDITION, IQ
STOCKHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES UNTIL THEY ARE PROVIDED
WITH A LETTER OF TRANSMITTAL AND RELATED INSTRUCTIONS AND MATERIALS FOR THE
EXCHANGE OF THEIR CERTIFICATES AFTER THE EFFECTIVE TIME. SEE "THE MERGER AND
RELATED TRANSACTIONS -- CONVERSION OF IQ SHARES."
Material Contacts and Board Deliberations. From January 1998, to June 25,
1998 senior executives of IA and IQ met at various times to discuss potential
business relationships. At such meetings beginning in June 1998, senior
executives of IA and IQ, and their respective financial representatives,
tentatively agreed upon a transaction structure and terms, including a
preliminary exchange ratio. In addition, throughout June 1998 senior management
of IA and IQ, and their respective financial, legal and accounting advisors,
conducted due diligence reviews. On June 26, 1998 (in the case of the IQ Board)
and June 28, 1998 (in the case of the IA Board), the respective boards of
directors met separately at which time each Board unanimously concluded that the
Merger was fair and in the best interests of their respective companies and
stockholders and approved and adopted the Plan of Merger, a copy of which is
attached hereto as Appendix A. The Plan of Merger was executed by IA and IQ on
June 29, 1998 and amended on July 24, 1998 in order to effect certain technical
changes. For a more detailed discussion of the background of the Merger, see
"The Merger and Related Transactions -- Material Contacts and Board
Deliberations."
Recommendations; Reasons for the Merger. THE IA BOARD UNANIMOUSLY APPROVED
THE IA MERGER PROPOSAL AND RECOMMENDS THAT HOLDERS OF IA COMMON STOCK VOTE FOR
THE IA MERGER PROPOSAL.
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<PAGE> 17
THE IQ BOARD UNANIMOUSLY APPROVED THE IQ MERGER PROPOSAL AND RECOMMENDS
THAT HOLDERS OF IQ COMMON STOCK VOTE FOR THE IQ MERGER PROPOSAL.
Both the IA Board and the IQ Board considered many factors in reaching
their conclusion to approve the Plan of Merger and the Merger and to recommend
that stockholders vote for approval of the IA Merger Proposal and the IQ Merger
Proposal, respectively. See "The Merger and Related Transactions -- Reasons for
the Merger" and "-- Interests of Certain Persons."
Opinion of IA Financial Advisor. On June 28, 1998, BancAmerica Robertson
Stephens LLP ("BancAmerica Robertson Stephens") delivered its written opinion
(the "BancAmerica Robertson Stephens Opinion") to the IA Board that, as of such
date, and based on the procedures followed, factors considered and assumptions
made as set forth therein, the Exchange Ratio pursuant to the Plan of Merger was
fair from a financial point of view to IA. The full text of the BancAmerica
Robertson Stephens Opinion, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review undertaken, is
attached as Appendix B to this Joint Proxy Statement/Prospectus and should be
read carefully and in its entirety in connection with this Joint Proxy
Statement/Prospectus. The BancAmerica Robertson Stephens Opinion is directed to
the IA Board, addresses only the fairness to IA as of June 28, 1998, from a
financial point of view, of the Exchange Ratio pursuant to the Plan of Merger
and does not constitute a recommendation to any holder of IA Common Stock as to
how such stockholder should vote at the IA Special Meeting. A summary of all
material provisions of the BancAmerica Robertson Stephens Opinion is set forth
in this Joint Proxy Statement/Prospectus and such summary is qualified in its
entirety by reference to the full text of such opinion. See "The Merger and
Related Transactions -- Opinion of IA Financial Advisor" and "Appendix B."
Opinion of IQ Financial Advisor. First Albany Corporation ("First Albany")
has rendered a written opinion (the "First Albany Opinion") to the IQ Board
that, as of June 26, 1998, and based on the procedures followed, factors
considered and assumptions made as set forth therein, the Exchange Ratio
pursuant to the Plan of Merger was fair from a financial point of view to the
holders of IQ Common Stock. The full text of the First Albany Opinion, which
sets forth the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached as Appendix C to this Joint
Proxy Statement/Prospectus and should be read carefully and in its entirety in
connection with this Joint Proxy Statement/Prospectus. The First Albany Opinion
was provided to the IQ Board in connection with its consideration of the Merger
and does not constitute a recommendation as to how any holder of IQ Common Stock
should vote at the IQ Special Meeting. A summary of all material elements of the
First Albany Opinion is set forth in this Joint Proxy Statement/Prospectus and
such summary is qualified in its entirety by reference to the full text of such
opinion. See "The Merger and Related Transactions -- Opinion of IQ Financial
Advisor" and "Appendix C."
Representations and Warranties and Certain Covenants. Under the Plan of
Merger, IA and IQ made a number of representations and warranties regarding
their respective capital structures, operations, financial conditions and other
matters. IQ has agreed that, until the closing of the Merger or the termination
of the Plan of Merger, it will (a) carry on its business in the ordinary course
and attempt to preserve its present business and relationships with customers,
suppliers and others, and (b) not take certain actions without IA's consent.
Each of IA and IQ have agreed to use its best efforts to complete the Merger.
See "The Merger and Related Transactions -- Representations and Warranties" and
"-- Certain Covenants."
No Solicitation. IQ has agreed not to solicit, initiate discussions with or
engage in negotiations with any person relating to a possible acquisition of IQ,
except that if the IQ Board receives an unsolicited Acquisition Proposal (as
defined in the Plan of Merger) that it believes in its good faith reasonable
judgment (based upon and consistent with advice received in consultation with
independent financial and legal advisors) is reasonably capable of being
completed on the terms proposed and, after taking into account the strategic
benefits anticipated to be derived from the Merger and the long-term prospects
of IA and IQ as a combined company, would, if consummated, result in a
transaction more favorable over the long term from a financial point of view
than the Merger, then the IQ Board will not be prevented from providing
information or entering into such discussions or negotiations with the party
making the Superior Proposal (as defined in the Plan of Merger) or recommending
the Superior Proposal to IQ Stockholders, as may be necessary to discharge the
directors' fiduciary duties. See "The Merger and Related Transactions -- No
Solicitation."
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<PAGE> 18
Resale of IA Common Stock; Agreements with Affiliates. The shares of IA
Common Stock to be issued in the Merger have been registered under the
Securities Act and, except as set forth below, will be freely transferable. As a
condition to the obligations of the parties under the Plan of Merger, IA and IQ
have each received agreements from each person or entity who may be deemed an
affiliate (as defined in the Securities Act and the rules and regulations
thereunder) of IA or IQ, pursuant to which such persons have agreed not to sell,
transfer or otherwise dispose of shares of IA Common Stock or IQ Common Stock
for 30 days prior to the Effective Time and until such time after the Effective
Time as IA has publicly released a report including financial results for a
period of at least 30 days of combined operations of IA and IQ. Furthermore,
pursuant to such agreements, the affiliates of IQ have agreed to refrain from
the sale or transfer of any IA Common Stock received in connection with the
Merger, except in accordance with the provisions of the Securities Act and the
general rules and regulations thereunder. See "The Merger and Related
Transactions -- Resale of IA Common Stock; Agreements with Affiliates."
Interests of Certain Persons in the Merger. As a result of the transactions
and agreements set forth below, the directors and executive officers of IQ have
personal interests in the Merger and Plan of Merger that are not identical to
the interests of IQ stockholders.
As of the IQ Record Date, directors and executive officers of IQ and their
affiliates beneficially owned an aggregate of 532,104 shares of IQ Common Stock
(excluding 74,750 shares of IQ Common Stock subject to unexercised stock
options). Based on the last reported sales price of IA Common Stock on August
19, 1998 of $6.625, the aggregate dollar value of the shares of IA Common Stock
to be received in the Merger, excluding shares subject to stock options, by the
executive officers and directors of IQ and their affiliates is approximately
$6.9 million.
The directors and executive officers of IQ have agreed to vote all shares
of IQ Common Stock under their control in favor of the IQ Merger Proposal and
have executed voting agreements and granted irrevocable proxies to IA. See "The
Merger and Related Transactions -- Voting Agreements."
The Plan of Merger provides that Charles R. Chitty, the Chairman of the
Board, President and Chief Executive Officer of IQ shall become a member of the
IA Board following the Effective Time. In addition, Mr. Chitty will enter into a
one-year employment agreement to be followed by a two-year consulting
arrangement with IA, effective upon the Effective Time. See "The Merger and
Related Transactions -- Employment Agreement."
Certain of the outstanding stock option agreements held by IQ executive
officers, provide for the acceleration of existing vesting provisions in the
event of a change of control of IQ, such as the Merger. As a result of these
provisions, options to purchase an additional 45,000 shares of IQ Common Stock
will vest on the Effective Date. See "The Merger and Related Transactions -- IQ
Stock Option Plans."
Pursuant to the Plan of Merger, IA has agreed that the surviving
corporation shall indemnify each person who was an officer or director of IQ
against certain liabilities. See "The Merger and Related Transactions --
Director and Officer Indemnification."
Indemnification of IQ Officers and Directors. IA has agreed that, after the
Effective Time of the Merger, the surviving corporation will indemnify each
present and former officer and director of IQ as provided in the General
Business Corporation Code of the State of Georgia ("GCC") and the IQ Certificate
of Incorporation and Bylaws. IA is currently a party to indemnification
agreements with its directors, and it is anticipated that the combined company
will enter into similar agreements with its new director following consummation
of the Merger. See "The Merger and Related Transactions -- Director and Officer
Indemnification" and "-- Interests of Certain Persons."
Conditions. The closing of the Merger is subject to various conditions,
including the approval by IA's stockholders of the IA Merger Proposal; the
approval by IQ's stockholders of the IQ Merger Proposal; receipt of opinions of
counsel to the effect that the Merger will qualify as a reorganization (a
"Reorganization") under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (see "-- Certain Federal Income Tax Considerations"); and
receipt of a letter from PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"),
independent auditors to IA, and a letter from Ernst & Young LLP ("Ernst &
5
<PAGE> 19
Young"), independent auditors to IQ, stating that the Merger will qualify as a
pooling of interests under Accounting Principles Board Opinion No. 16. Except
for matters required by law, each of the parties to the Plan of Merger may, at
its option, waive compliance with any condition to its obligation to consummate
the Merger. See "The Merger and Related Transactions -- Conditions" and
"-- Accounting Treatment" and "Risk Factors -- Pooling of Interests."
Termination; Termination Fees and Expenses. The Plan of Merger may be
terminated (a) by mutual agreement of IA and IQ; (b) by either IA or IQ if the
closing of the Merger has not occurred on or before November 30, 1998 (the
"Outside Date"); or (c) by either IA or IQ before the Outside Date upon the
occurrence of certain events. See "The Merger Agreement and Related
Transactions -- Termination; Termination Fees and Expenses."
Under certain circumstances, IA may be required to reimburse IQ for
expenses up to $450,000. IQ may also be required under certain circumstances to
pay IA a termination fee of $2,240,000 if the Plan of Merger is terminated. In
addition, IA's right to exercise its option to purchase shares of IQ Common
Stock will be triggered if the Plan of Merger is terminated under certain
circumstances. See "The Merger and Related Transactions -- Termination;
Termination Fees and Expenses" and "-- Stock Option Agreement."
Closing. The Merger will be completed on the date that the Certificate of
Merger is filed with the Office of the Secretary of State of the State of
Georgia. The Effective Time is expected to occur as soon as practicable after
receipt of the necessary approvals at the IA Special Meeting and the IQ Special
Meeting and satisfaction or waiver of the other conditions precedent to the
Merger, as set forth in the Plan of Merger (the "Closing"). It is anticipated
that the Closing will occur promptly following receipt of the necessary
approvals at the IA Special Meeting and the IQ Special Meeting. See "The Merger
and Related Transactions -- Closing."
Amendment and Waiver. The Plan of Merger may be amended by the agreement of
the IA and IQ Boards at any time before or after approval by the IA stockholders
or the IQ stockholders, except that, after such approval, no amendment may be
made which by law requires further approval by such stockholders without such
further approval. See "The Merger and Related Transactions -- Amendment and
Waiver."
Stock Option Agreement. IA and IQ have entered into a Stock Option
Agreement, dated June 29, 1998, pursuant to which (i) IA has the right, under
certain circumstances, to purchase up to 930,169 shares of IQ Common Stock (or
approximately 19.9% of the outstanding IQ Common Stock as of June 29, 1998 prior
to giving effect to such issuance) at a price based on the market price of IQ
Common Stock (the "Stock Option Agreement"). The Stock Option Agreement contains
features which, among other things, (a) permit IA to receive a cash payment in
lieu of stock upon exercise of the option and (b) limit the profit which IA can
realize in connection with the option to $3,200,000, inclusive of any
termination fees that IA may receive pursuant to the Plan of Merger. If the
Merger is consummated, the Stock Option Agreement will terminate by its terms.
See "The Merger and Related Transactions -- Stock Option Agreement."
Certain Federal Income Tax Considerations. As a condition to the
consummation of the Merger, IA and IQ will receive opinions from Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson Dettmer") and
Miller & Martin LLP ("Miller & Martin"), respectively, that the Merger will be
treated for federal income tax purposes as a Reorganization if the Merger is
consummated in accordance with the terms of the Plan of Merger. Provided that
the Merger does qualify as a Reorganization, no gain or loss should be
recognized for federal income tax purposes by IQ stockholders upon their receipt
of shares of IA Common Stock in exchange for their shares of IQ Common Stock,
except to the extent of cash received in lieu of fractional shares. Such legal
opinions have been filed as exhibits to the Registration Statement of which this
Joint Proxy Statement/Prospectus is a part, are subject to certain limitations
and qualifications and are based upon certain factual assumptions and
representations. Furthermore, such legal opinions are not binding on the
Internal Revenue Service. ALL IQ STOCKHOLDERS SHOULD READ CAREFULLY THE
DISCUSSION UNDER "THE MERGER AND RELATED TRANSACTIONS -- CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS." IN VIEW OF THE COMPLEXITIES OF FEDERAL INCOME AND OTHER TAX
LAWS, EACH IQ STOCKHOLDER SHOULD CONSULT WITH SUCH STOCKHOLDER'S TAX ADVISOR
REGARDING, AMONG OTHER THINGS, THE FEDERAL,
6
<PAGE> 20
STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES OF THE MERGER APPLICABLE TO
SUCH STOCKHOLDER'S SPECIFIC CIRCUMSTANCES.
The Merger will not have any United States federal tax consequences for IA
stockholders. See "The Merger and Related Transactions -- Certain Federal Income
Tax Considerations."
Accounting Treatment. The Merger is expected to be accounted for as a
pooling of interests in accordance with the provisions of Accounting Principles
Board Opinion No. 16. Under this method of accounting, the recorded assets and
liabilities of IA and IQ will be carried forward to the combined company at
their recorded amounts, the operating results of the combined company will
include the operating results of IA and IQ for the entire fiscal year in which
the combination occurs, and the reported operating results of the separate
companies for prior periods will be combined and restated as the operating
results of the combined company. It is a condition to the consummation of the
Merger that the Merger qualify as a pooling of interests under Accounting
Principles Board Opinion No. 16. See "The Merger and Related Transactions --
Accounting Treatment" and "Risk Factors -- Pooling of Interests."
No Dissenters' or Appraisal Rights. Holders of IQ Common Stock are not
entitled to dissenters' rights under Section 1302 of the GCC in connection with
the Merger because the IQ Common Stock was listed on the Nasdaq National Market
on the record date for the IQ Special Meeting and the shares of IA Common Stock
to be issued pursuant to the Merger will be listed on the Nasdaq National Market
as of the Effective Time. Holders of IA Common Stock are not entitled to
appraisal rights under Section 262 of the Delaware General Corporation Law
("DGCL") in connection with the Merger because IA is not a constituent
corporation in the Merger.
RISK FACTORS
The completion of the Merger and an investment in shares of IA Common Stock
each involve substantial risks. Stockholders of IQ and stockholders of IA should
consider the information set forth in "Risk Factors" and the other information
contained herein before deciding whether or not to approve the IA Merger
Proposal or the IQ Merger Proposal, as applicable.
7
<PAGE> 21
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following selected historical financial information of IA and IQ has
been derived from their respective historical financial statements and should be
read in conjunction with such consolidated financial statements and notes
thereto included elsewhere or incorporated by reference in this Joint Proxy
Statement/ Prospectus. The selected historical financial information as of July
31, 1998, and for the six month periods ended July 31, 1997 and 1998, for IA and
IQ has been derived from the unaudited consolidated financial statements of IA
and IQ, and in the opinion of management reflects all adjustments, consisting
only of normal recurring accruals, considered necessary for the fair
presentation of the unaudited interim financial information. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for the entire fiscal year or any future period.
The selected pro forma combined financial information set forth below is
derived from the unaudited pro forma condensed combined financial statements,
and should be read in conjunction with such unaudited pro forma condensed
combined financial statements and the notes thereto included in this Joint Proxy
Statement/ Prospectus. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of future operating results or
financial position that would have occurred if the Merger had been consummated
at the beginning of the periods indicated, nor is it necessarily indicative of
future operating results or financial position.
<TABLE>
<CAPTION>
SELECTED HISTORICAL FINANCIAL DATA
------------------------------------------------------------------------------
------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
-------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INFORMATION ADVANTAGE, INC.
HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
License........................... $ 2,704 $ 1,826 $ 2,686 $ 6,491 $ 13,661 $ 5,000 $ 10,926
Service........................... 1,644 1,991 2,956 5,255 11,929 5,148 8,172
------- ------- -------- -------- -------- -------- --------
Total revenues............. 4,348 3,817 5,642 11,746 25,590 10,148 19,098
------- ------- -------- -------- -------- -------- --------
Income (loss) from operations....... (1,147) (4,312) (3,795) (8,380) (6,466) (4,609) 261
Net income (loss)................... $(1,201) $(4,395) $ (3,789) $ (8,476) $ (6,520) $ (4,649) $ 562
======= ======= ======== ======== ======== ======== ========
Net income (loss) per common share:
Basic............................. $ (1.20) $ (4.51) $ (3.87) $ (8.32) $ (2.24) $ (4.37) $ 0.04
======= ======= ======== ======== ======== ======== ========
Diluted........................... $ (1.20) $ (4.51) $ (3.87) $ (8.32) $ (2.24) $ (4.37) $ 0.03
======= ======= ======== ======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding:
Basic............................. 998 975 978 1,019 2,906 1,064 15,535
======= ======= ======== ======== ======== ======== ========
Diluted........................... 998 975 978 1,019 2,906 1,064 17,443
======= ======= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF
-------------------------------------------------- JULY 31,
1994 1995 1996 1997 1998 1998
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit).................... $ (544) $(2,071) $ 1,097 $ (2,102) $ 17,588 $ 18,320
Total assets................................. 1,839 1,599 4,321 5,918 30,916 31,219
Total liabilities............................ 2,256 3,428 2,791 7,823 10,903 10,256
Convertible redeemable preferred stock....... 2,337 5,337 12,487 17,410 -- --
Stockholders' equity (deficit)............... (2,755) (7,165) (10,957) (19,315) 20,013 20,963
</TABLE>
8
<PAGE> 22
<TABLE>
<CAPTION>
SELECTED HISTORICAL FINANCIAL DATA
-------------------------------------------------------------------
SIX MONTHS
ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
IQ SOFTWARE CORPORATION
HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
License.................................. $15,444 $15,314 $15,582 $17,184 $15,309 $ 7,573 $ 7,424
Service.................................. 3,675 4,783 6,273 7,494 9,396 4,512 5,569
------- ------- ------- ------- ------- ------- -------
Total revenues.................... 19,119 20,097 21,855 24,678 24,705 12,085 12,993
------- ------- ------- ------- ------- ------- -------
Operating income (loss).................... 3,289 2,501 (3,630) 2,340 1,922 752 1,699
Net income (loss).......................... $ 2,556 $ 1,737 $(2,897) $ 2,165 $ 1,976 $ 899 $ 1,479
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common share:
Basic.................................... $ 0.63 $ 0.42 $ (0.67) $ 0.47 $ 0.42 $ 0.19 $ 0.32
======= ======= ======= ======= ======= ======= =======
Diluted.................................. $ 0.60 $ 0.40 $ (0.67) $ 0.45 $ 0.42 $ 0.19 $ 0.31
======= ======= ======= ======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding:
Basic.................................... 4,076 4,142 4,304 4,588 4,655 4,648 4,673
======= ======= ======= ======= ======= ======= =======
Diluted.................................. 4,236 4,319 4,304 4,792 4,706 4,689 4,780
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF JULY 31,
----------------------------------------------- ---------------
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................ $14,554 $15,266 $13,655 $17,279 $19,669 $21,984
Total assets................................... 19,840 22,316 22,124 25,295 28,330 30,130
Total liabilities.............................. 3,148 3,565 4,104 3,466 4,273 4,558
Stockholders' equity........................... 16,692 18,751 18,020 21,829 24,057 25,572
</TABLE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
-------------------------------- --------------------
1996 1997 1998 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA(1)(2):
Revenues:
License..................................... $ 18,268 $ 23,676 $ 28,970 $ 12,573 $ 18,350
Service..................................... 9,229 12,749 21,325 9,660 13,741
-------- -------- -------- -------- --------
Total revenues....................... 27,497 36,425 50,295 22,233 32,091
-------- -------- -------- -------- --------
Income (loss) from operations................. (7,426) (6,040) (4,544) (3,857) 1,960
Net income (loss)............................. $ (6,686) $ (6,311) $ (4,544) $ (3,750) 2,041
======== ======== ======== ======== ========
Income (loss) per common share:
Basic....................................... $ (0.71) $ (0.63) $ (0.38) $ (0.37) $ 0.08
======== ======== ======== ======== ========
Diluted..................................... $ (0.71) $ (0.63) $ (0.38) $ (0.37) $ 0.08
======== ======== ======== ======== ========
Shares used to compute income (loss) per
common share:
Basic....................................... 9,414 10,012 12,029 10,174 24,694
======== ======== ======== ======== ========
Diluted..................................... 9,414 10,012 12,029 10,174 26,811
======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 23
<TABLE>
<CAPTION>
AS OF
JULY 31, 1998
-------------
<S> <C>
COMBINED BALANCE SHEET DATA(1)(2):
Working capital............................................. $ 33,204
Total assets................................................ 61,349
Total liabilities........................................... 21,914
Stockholders' equity........................................ 39,435
</TABLE>
- ---------------
(1) It is anticipated that IA will incur charges to operations related to the
Merger, currently estimated to be $7.1 million, principally in the quarter
during which the Merger is consummated. These charges include direct
transaction costs, primarily for financial advisory, accounting and legal
fees, printing expenses, filing fees and other Merger-related costs
associated with combining the operations of the two companies. The estimated
charge is reflected in the unaudited pro forma condensed combined balance
sheet data, but is not reflected in the unaudited pro forma condensed
combined statement of operations data. This charge is a preliminary estimate
only, and is therefore subject to change.
(2) The unaudited pro forma condensed combined balance sheet as of July 31, 1998
gives effect to the Merger as if it had occurred on July 31, 1998, and
combines the unaudited historical consolidated balance sheets of IA and IQ
as of that date. The unaudited pro forma condensed combined statements of
operations give effect to the Merger as if it had occurred at the beginning
of the earliest period presented.
10
<PAGE> 24
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of IA and
IQ and combined per share data on an unaudited pro forma basis after giving
effect to the Merger on a pooling of interests basis of accounting. The
information set forth below should be read in conjunction with the selected
historical financial data, and the unaudited pro forma condensed combined
financial information, included elsewhere in this Joint Proxy
Statement/Prospectus or incorporated herein by reference. The pro forma combined
per share data are not necessarily indicative of the operating results that
would have been achieved had the Merger been consummated as of the beginning of
the periods presented and should not be construed as representative of future
operating results. Neither IA nor IQ has paid cash dividends during the periods
presented.
<TABLE>
<CAPTION>
AS OF AND FOR
THE SIX
FISCAL YEAR ENDED JANUARY 31, MONTHS ENDED
------------------------------- JULY 31,
1996 1997 1998 1998
-------- --------- -------- --------------
<S> <C> <C> <C> <C>
HISTORICAL IA
Basic income (loss) per common share................... $(3.87) $ (8.32) $(2.24) $0.04
Diluted income (loss) per common share................. (3.87) (8.32) (2.24) 0.03
Book value per common share(1)......................... 1.29 1.34
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR
FISCAL YEAR ENDED THE SIX
JANUARY 31, MONTHS ENDED
---------------------- JULY 31,
1996 1997 1998 1998
------ ----- ----- --------------
<S> <C> <C> <C> <C>
HISTORICAL IQ
Basic income (loss) per common share...................... $(0.67) $0.47 $0.42 $0.32
Diluted income (loss) per common share.................... (0.67) 0.45 0.42 0.31
Book value per common share(1)............................ 5.16 5.46
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR
FISCAL YEAR ENDED THE SIX
JANUARY 31, MONTHS ENDED
------------------------ JULY 31,
1996 1997 1998 1998
------ ------ ------ --------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED -- IA
Basic income (loss) per common share(2)(3).............. $(0.71) $(0.63) $(0.38) $0.08
Diluted income (loss) per common share(2)(3)............ (0.71) (0.63) (0.38) 0.08
Book value per common share(1)(2)....................... 1.50 1.59
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR
FISCAL YEAR ENDED THE SIX
JANUARY 31, MONTHS ENDED
------------------------ JULY 31,
1996 1997 1998 1998
------ ------ ------ --------------
<S> <C> <C> <C> <C>
EQUIVALENT PRO FORMA COMBINED -- IQ(4)
Basic income (loss) per share(2)(3)..................... $(1.39) $(1.23) $(0.74) $0.16
Diluted income (loss) per share(2)(3)................... (1.39) (1.23) (0.74) 0.15
Book value per common share(1)(2)....................... 2.94 3.12
</TABLE>
- ---------------
(1) Historical book value per common share is computed by dividing total
stockholders' equity by the number of common shares outstanding at the end
of the period. Pro forma combined book value per common share is calculated
by dividing the pro forma book value for the combined company by the number
of shares of IA Common Stock outstanding at the end of the period, and the
number of shares of IQ Common Stock outstanding at the end of the period
multiplied by the exchange ratio of 1.96 shares of IA Common Stock for each
share of IQ Common Stock.
(2) The unaudited pro forma condensed combined balance sheet as of July 31, 1998
gives effect to the Merger as if it had occurred on July 31, 1998, and
combines the unaudited consolidated balance sheet of IA and the unaudited
consolidated balance sheet of IQ as of July 31, 1998. The unaudited pro
forma condensed
11
<PAGE> 25
combined statements of operations give effect to the Merger as if it had
occurred at the beginning of the earliest period presented.
(3) Pro forma combined basic earnings per share is calculated by dividing the
pro forma net income (loss) for the combined company by the weighted average
number of IA Common Stock shares outstanding during the period, and the
weighted average number of IQ Common Stock shares outstanding during the
period multiplied by the exchange ratio of 1.96 shares of IA Common Stock
for each share of IQ Common Stock. Pro forma combined diluted earnings per
share is calculated by dividing the pro forma net income (loss) for the
combined company by the weighted average number of shares and potential
common shares outstanding of IA Common Stock during the period, and the
weighted average number of shares and potential common shares outstanding of
IQ Common Stock during the period multiplied by the exchange ratio of 1.96
shares of IA Common Stock for each share of IQ Common Stock.
(4) The Equivalent Pro Forma Combined -- IQ amounts are calculated by
multiplying the pro forma combined -- IA per share amounts by the exchange
ratio of 1.96.
12
<PAGE> 26
MARKET PRICE INFORMATION
IA Common Stock is traded on the Nasdaq National Market under the symbol
IACO and IQ Common Stock is traded on the Nasdaq National Market under the
symbol "IQSW". Trading of IA Common Stock began on December 17, 1997, and
trading of IQ Common Stock began on October 15, 1992.
The following table sets forth the closing price per share of IA Common
Stock and IQ Common Stock, as reported by the Nasdaq National Market, on (a)
June 29, 1998, the last full trading day prior to the public announcement of the
execution of the Plan of Merger by IA and IQ, and (b) August 19, 1998, the
latest practicable trading day before printing this Joint Proxy
Statement/Prospectus, as well as the equivalent pro forma per share value of IQ
Common Stock based on the Exchange Ratio of 1.96 and the IA Common Stock prices
as of such dates. IA stockholders and IQ stockholders are strongly encouraged to
obtain current market information for shares of IA Common Stock and IQ Common
Stock. The current market quotations for the IA Common Stock and the IQ Common
Stock may be obtained on the World Wide Web at http://www.nasdaq.com. See "Risk
Factors -- Possible Volatility of Common Stock."
<TABLE>
<CAPTION>
IQ
IA IQ EQUIVALENT
COMMON COMMON PER
STOCK PRICE STOCK PRICE SHARE PRICE
----------- ----------- -----------
<S> <C> <C> <C>
June 29, 1998............................................. 6 11/16 12 13 1/8
August 19, 1998........................................... 6 5/8 11 1/4 12 15/16
</TABLE>
The following table sets forth, for the fiscal quarters indicated, the
reported high and low closing prices of IA Common Stock and IQ Common Stock on
the Nasdaq National Market.
<TABLE>
<CAPTION>
IA IQ
COMMON STOCK COMMON STOCK
------------- ------------
HIGH LOW HIGH LOW
----- ---- ---- ----
<S> <C> <C> <C> <C>
Fiscal Year Ended January 31, 1997:
First Quarter............................................. -- -- 13 1/2 10 1/4
Second Quarter............................................ -- -- 25 12 1/4
Third Quarter............................................. -- -- 20 3/4 14 1/2
Fourth Quarter............................................ -- -- 28 1/4 14 3/8
Fiscal Year Ended January 31, 1998:
First Quarter............................................. -- -- 16 1/2 6 3/
Second Quarter............................................ -- -- 10 3/4 7 1/
Third Quarter............................................. -- -- 14 1/2 7 1/
Fourth Quarter............................................ 6 1/2 5 7/16 9 1/ 6
Fiscal Year Ending January 31, 1999:
First Quarter............................................. 9 5/8 6 11 1/8 7 1/
Second Quarter............................................ 10 1/8 5 7/8 13 5/8 10 1/16
Third Quarter (through August 19, 1998)................... 6 5/8 5 7/8 11 1/4 9 5/
</TABLE>
As of August 14, 1998, there were approximately 175 holders of record of IA
Common Stock and approximately 200 holders of record of IQ Common Stock. No cash
dividends have been paid on the IA Common Stock since IA's initial public
offering in December 1997. IA does not anticipate paying cash dividends in the
foreseeable future.
IQ has never declared or paid any cash dividends on its capital stock. IQ
currently anticipates that it will retain any future earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
13
<PAGE> 27
RISK FACTORS
This Joint Proxy Statement/Prospectus contains Forward-Looking Statements.
Actual results could differ materially from those projected in the
Forward-Looking Statements as a result of the factors set forth below and other
matters described elsewhere in this Joint Proxy Statement/Prospectus. See
"Forward-Looking Statements." The following risk factors, in addition to the
other information contained or incorporated by reference herein, should be
considered carefully in evaluating the proposals to be considered and voted upon
at each of the IA Special Meeting and the IQ Special Meeting and the acquisition
of the securities offered hereby.
UNCERTAINTY RELATING TO INTEGRATION OF MULTIPLE OPERATIONS AND PRODUCT LINES;
MANAGEMENT OF GROWTH
The integration of IA's and IQ's business and personnel following the
Merger presents difficult challenges for the management of the combined company.
Further, both IA and IQ entered into the Plan of Merger with the expectation
that the Merger will result in synergies for the combined company. The combined
company, however, will be more complex and diverse than either IA or IQ
individually, and the combination and continued operation of their business
operations will be difficult. While the management and Boards of both IA and IQ
believe that the combination of IA and IQ can be effected in a manner that will
realize the value of the combined company, the management group of the combined
company has limited experience in combinations of this complexity or size.
Accordingly, there can be no assurance that the process of effecting the
business combination can be effectively managed to realize the synergies
anticipated to result therefrom.
IA and IQ entered into the Plan of Merger, among other reasons, in order to
achieve potential mutual benefits from combining each of their respective
expertise, product lines and distribution channels for the enterprise software
market. Realization of these potential benefits will require, among other
things, integrating the companies' respective product offerings and coordinating
the combined company's sales and marketing and research and development efforts.
IA and IQ each have different systems and procedures in many operational areas
that must be rationalized and integrated. There can be no assurance that such
integration will be accomplished effectively, expeditiously or efficiently. The
difficulties of such integration may be increased by the necessity of
coordinating geographically separated divisions, integrating personnel with
disparate business backgrounds and combining different corporate cultures. The
integration of certain operations following the Merger will require the
dedication of management resources that may temporarily distract attention from
the day-to-day business of the combined company. The business of the combined
company may also be disrupted by employee uncertainty and lack of focus during
such integration. There can also be no assurance that the combined company will
be able to retain all of its key technical, sales and other personnel. Failure
to effectively accomplish the integration of the operations of IA and IQ could
have a material adverse effect on the combined company's business, operating
results and financial condition. Moreover, uncertainty in the marketplace or
customer hesitation relating to the Merger could negatively affect the combined
company's business, operating results and financial condition.
IA has experienced periods of rapid growth and expansion that have placed
and will continue to place significant strains upon its management systems,
resources and personnel. The combined company's ability to compete effectively
and to manage future growth, if any, will require the combined company to
continue to implement and improve operational, financial and management
information systems on a timely basis and to expand, train, motivate and manage
its work force. There can be no assurance that the combined company's personnel,
systems, procedures and controls will be adequate to support the combined
company's operations.
Although IA and IQ believe that beneficial synergies will result from the
Merger, there can be no assurance that the combining of IA's and IQ's
businesses, even if achieved in an efficient and effective manner, will result
in combined results of operations and financial condition superior to that which
would have been achieved by each company independently, or as to the period of
time required to achieve such result. There is no assurance that IA stockholders
or IQ stockholders would not achieve greater returns on their respective
investments were IA or IQ to remain independent companies.
14
<PAGE> 28
FIXED MERGER CONSIDERATION DESPITE POTENTIAL CHANGES IN STOCK PRICES
Pursuant to the Plan of Merger, each share of IQ Common Stock outstanding
at the close of the Merger will be converted into the right to receive 1.96
shares of IA Common Stock. The Exchange Ratio is a fixed number and will not be
adjusted in the event of any increases or decreases in the price of either IA
Common Stock or IQ Common Stock. The prices of IA Common Stock and IQ Common
Stock at the Effective Time may vary from their respective prices at the date of
this Joint Proxy Statement/Prospectus and at the date of the IA Special Meeting
and the IQ Special Meeting. Such variations may be the result of changes in the
business operations or prospects of IA or IQ, market assessments of the
likelihood that the Merger will be consummated, the timing thereof, the
prospects of the Merger and post-Merger operations, regulatory considerations
and general market and economic conditions among other things. Because the
Effective Time may occur at a date later than the IA Special Meeting and IQ
Special Meeting, there can be no assurance that the prices of IA Common Stock
and IQ Common Stock on the date of the IA Special Meeting and IQ Special Meeting
will be indicative of their respective prices at the Effective Time.
Stockholders of IA and IQ are urged to obtain current market quotations for IA
Common Stock and IQ Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the IA Board and IQ Board with respect
to the Merger and the Plan of Merger, IA and IQ stockholders should be aware
that certain members of IQ's management and Board of Directors have interests in
connection with the Merger and the agreements and transactions contemplated
thereby that are in addition to those of IQ stockholders generally. See "The
Merger and Related Transactions -- Interests of Certain Persons in the Merger,"
"-- Employment Agreement," "-- IQ Stock Option Plans" and "-- Director and
Officer Indemnification."
COST OF INTEGRATION; TRANSACTION EXPENSES
Transaction costs relating to the Merger and the anticipated combination of
certain operations of IA and IQ are expected to result in one-time charges to
the combined company's earnings. Although it will not be feasible to determine
the actual amount of these charges until the operational and transition plans
are completed, the management of IA believes that the aggregate charge will be
$7.1 million before taxes, although such amount may be increased by
unanticipated additional expenses incurred in connection with the Merger. This
aggregate charge is expected to include the estimated costs associated with
financial advisory, accounting and legal fees, printing expenses, filing fees
and other Merger-related costs. While the exact timing of these expenses cannot
be determined at this time, it is anticipated that this aggregate charge to
earnings will be recorded principally in the quarter in which the Merger is
consummated. See "Unaudited Pro Forma Condensed Combined Financial Statements."
SHARES ELIGIBLE FOR PUBLIC SALE
Sales of substantial amounts of IA Common Stock in the public market after
the consummation of the Merger could materially adversely affect prevailing
market prices of IA Common Stock. Except for shares of IA Common Stock to be
received by affiliates of IQ, all the shares of IA Common Stock to be issued in
the Merger will be eligible for immediate sale in the public market. Although
affiliates of IA and IQ have agreed not to sell any shares controlled by them
for a period of time after the Effective Time, such agreements are expected to
expire in November 1998. Thereafter such shares may be sold only subject to
certain limitations under the Securities Act applicable to affiliates of the
combined company. See "The Merger and Related Transactions -- Resale of IA
Common Stock; Agreements with Affiliates" "-- Pooling of Interests."
POOLING OF INTERESTS
In order to qualify the Merger as a pooling of interests for accounting and
financial reporting purposes, affiliates of IA and IQ have agreed not to sell,
or otherwise reduce their risk with respect to, any shares of stock, except for
a de minimus number as defined by certain rules and regulations of the SEC, of
either IA or IQ during the period beginning 30 days preceding the Effective Time
and continuing until IA publicly announces
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financial results covering at least 30 days of combined operations of IA and IQ.
Assuming that the Merger is completed and the Effective Time occurs on or before
October 1, 1998, it is not expected that such combined financial results would
be published until the latter part of November, 1998. If affiliates of IA or IQ
sell their IA Common Stock or IQ Common Stock despite their contractual
obligation not to do so, the Merger may not qualify for accounting as a pooling
of interests for financial reporting purposes in accordance with generally
accepted accounting principles, which would in turn materially and adversely
affect IA's reported earnings and, potentially, its stock price. See "The Merger
and Related Transactions -- Accounting Treatment."
FUTURE ACQUISITION-RELATED RISKS
It is anticipated that a significant component of the combined company's
growth strategy will be the acquisition of complementary businesses, products
and technologies that meet the combined company's criteria for revenues,
profitability, growth potential and operating strategy. The successful
implementation of this strategy depends on the combined company's ability to
identify suitable acquisition candidates, acquire such companies on acceptable
terms and integrate their operations successfully with those of the combined
company. There can be no assurance that the combined company will be able to
identify suitable acquisition candidates or that the combined company will be
able to acquire such candidates on acceptable terms. Moreover, in pursuing
acquisition opportunities the combined company may compete with other companies
with similar growth strategies. Certain of these competitors may be larger and
have greater financial and other resources than the combined company.
Competition for these acquisition targets could also result in increased prices
of acquisition targets and a diminished pool of companies available for
acquisition. Acquisitions involve a number of other risks, including, among
other things, adverse effects on the combined company's reported operating
results from goodwill amortization, acquired in-process technology, stock
compensation expense and increased compensation expense resulting from newly
hired employees, difficulties in managing diverse geographic sales and research
and development operations, the diversion of management attention, potential
disputes with the sellers of acquired entities and the possible failure to
retain key acquired personnel and the impairment of relationships with employees
and strategic partners as a result of such acquisitions or the integration of
new personnel. Due to the foregoing, the combined company's pursuit of an
acquisition strategy or any individual acquisition may have a material adverse
effect on the combined company's business, operating results and financial
condition.
The combined company's future performance will depend on its ability to
integrate any acquired organization, which, even if successful, may take a
significant period of time, will place a significant strain on the combined
company's resources, and could subject the combined company to additional
expenses. As a result, there can be no assurance that the combined company will
be able to integrate acquired businesses successfully or in a timely manner in
accordance with its strategic objectives. If the combined company is unable to
manage acquisition-based growth effectively, the combined company's business,
operating results and financial condition will be materially adversely affected.
LIMITED OPERATING HISTORY; LACK OF PROFITABILITY
The combined 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 combined 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. IA has incurred net
operating losses in each quarter, except the most recent two quarters, since its
inception and it is possible that the combined company will not generate
sufficient net income to fully utilize its net operating loss carryforwards
before they begin to expire in 2007. As of July 31, 1998, IA had an accumulated
deficit of $26.4 million. The combined company expects to incur additional net
losses. IA operating losses have been due in part to the commitment of
significant resources to its technical support, research and development and
sales and marketing organizations. The combined 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 combined company intends to continue hiring a significant number
of sales and research and development personnel over the balance of fiscal 1999.
Future
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operating results will depend on many factors, including, among others, demand
for and acceptance of the combined 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
combined company to control costs and to develop, market and deploy new
products, the ability of the combined company to expand its direct sales force
and indirect distribution channels both domestically and internationally, the
combined company's success in attracting and retaining key personnel, market
acceptance of OLAP products and the ability of the combined company to
successfully integrate technologies and businesses it may acquire in the future.
Although the revenues of both IA and IQ have increased in recent periods, there
can be no assurance that the combined company's revenues will grow in future
periods or, if they do grow, that they will grow at past rates, or that the
combined company will remain profitable.
FLUCTUATIONS IN OPERATING RESULTS
The limited operating history of IA and IQ and the susceptibility of each
company's operating results to significant fluctuations make the prediction of
future operating results for the two companies unreliable and IA and IQ believe
that period-to-period comparisons of their respective operating results are not
necessarily meaningful and should not be relied upon as indications of the
future performance of the combined company. The operating results of both IA and
IQ have in the past, and the operating results of the combined company will in
the future, vary significantly due to factors such as demand for the combined
company's products, unanticipated events or announcements, the size and timing
of significant orders and their fulfillment, the number, timing and significance
of product enhancements and new product announcements by the combined company
and its competitors or changes in pricing policies by the combined company or
its competitors, customer order deferrals in anticipation of enhancements or new
products offered by the combined company or its competitors, the ability of the
combined company to develop, introduce and market new and enhanced versions of
its products on a timely basis, changes in the combined 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 combined 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 combined company's products are offered, the
impact of consolidation by competitors and indirect channel partners and general
domestic and international economic and political conditions, among other
things. A significant portion of IA's revenues have been, and it is expected
that a significant portion of the combined company's revenues 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 combined company's operating
results, particularly on a quarterly basis. A significant portion of revenues of
both IA and IQ, equalling approximately 52% of their combined revenues, are
derived from existing customers, including resellers. To the extent that such
customers no longer require new licenses or ongoing services, the combined
company's business, financial condition and operating results could be
materially adversely affected. Each of IA and IQ have, from time to time, often
recognized a substantial portion of their respective revenues in the last month
of a quarter, with these revenues frequently concentrated in the last two weeks
of a quarter. In addition, neither company operates with a large order backlog
because their software products are typically shipped shortly after orders are
received, which makes product revenues from licenses in any quarter
substantially dependent on orders booked and shipped throughout that quarter.
Accordingly, revenues for any given quarter are difficult to predict. IA has in
the past experienced and the combined company will continue to experience weaker
demand for its DecisionSuite software products during the summer months. Product
revenues are also difficult to forecast because the market for the combined
company's products is rapidly evolving, and the sales cycles for the two
companies, which may last from three to six months in the case of IQ and from
six to twelve months or more in the case of IA, vary substantially from customer
to customer. The combined company's expense level and plans for expansion,
including its plan to significantly increase its sales and marketing and
research and development efforts, will be based in significant part on the
combined 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
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combined 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.
Based upon all of the factors described above, both IA and IQ believe that
their respective quarterly revenues, expenses and operating results are likely
to vary significantly in the future, that period-to-period comparisons of their
respective operating results are not necessarily meaningful and that, in any
event, such comparisons should not be relied upon as indications of the future
performance of the combined company. Accordingly, the combined company has
limited ability to forecast future revenues, and it is likely that in some
future quarter the combined 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
combined company's business, the price of IA Common Stock would be materially
adversely affected.
LENGTHY SALES AND IMPLEMENTATION CYCLES
The licensing of IA and IQ's respective products by their respective
customers typically involves a significant commitment of capital and other
resources, and is 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 IA's products is
typically six to twelve months and for IQ's products is typically three to six
months. Both companies' sales cycles are subject to a number of significant
risks that are beyond such 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 combined
company's operating results for that quarter could be materially adversely
affected. In addition, the time required to deploy the combined 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
combined company's products may extend 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 of
products, revenue recognition is deferred until execution of a final license and
the other prerequisites for revenue recognition have been fulfilled. IA has
experienced difficulty implementing their products in the past due to the
complexity of customer requirements. IA generally relies upon internal resources
to implement its products. There can be no assurance that the combined company
will not experience delays in the implementation of orders in the future or that
third parties will be able to successfully install the combined company's
products. Any delays in the implementation of the combined company products
could have a material adverse effect on the combined company's business,
operating results and financial condition. In addition, any significant delay in
the implementation of the combined company products could cause a customer to
reject the combined company's software, which could impair the combined
company's reputation and have a material adverse effect on the combined
company's business, operating results and financial condition.
REVENUE RECOGNITION
License agreements executed during any quarter may not meet the combined
company's revenue recognition criteria; as a result, the combined company may
meet or exceed its forecast of aggregate contracting activity, but not meet its
forecast for license revenues. In addition, Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" was issued in October 1997 and addresses software
revenue recognition matters primarily from a conceptual level and does not
include specific implementation guidance. The SOP supersedes SOP 91-1 and is
effective for transactions entered into for fiscal years beginning after
December 15, 1997. Based on their interpretation of SOP 97-2, each of IA and IQ
believes it is currently in compliance with the final standard. However, further
implementation guidelines are currently being formulated. Once issued, such
implementation guidance could lead to unanticipated changes in the combined
company's current revenue accounting practices.
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COMPETITION
The markets in which IA and IQ compete, and the market in which the
combined company will compete, are competitive, highly fragmented and
characterized by rapidly changing technology and evolving standards. IA'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). IQ generally faces competition
from Actuate, Business Objects, Cognos, and Seagate (Crystal Reports). Each of
IA and IQ have experienced, and the combined company 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 combined 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 combined 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 combined company. The combined company expects additional competition as
other established and emerging companies enter into the OLAP and business
intelligence software markets 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 combined 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 combined company's
customers and prospective customers. The combined company's current or future
indirect channel partners may establish cooperative relationships with current
or potential competitors of the combined company, thereby limiting the combined
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 combined company's ability to
obtain new licenses, and maintenance and support renewals for existing licenses,
on terms favorable to the combined company. Further, competitive pressures may
require the combined company to reduce the price of the combined company
products, which would materially adversely affect the combined company's
business, operating results and financial condition. There can be no assurance
that the combined 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 combined company's business, operating results and financial
condition.
DEPENDENCE ON GROWTH OF MARKET FOR OLAP APPLICATIONS AND ACCEPTANCE OF THE WEB
Although demand for the combined company products has grown in recent
years, the markets for OLAP and business intelligence 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 combined company's
products. Because a significant portion of the combined 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 combined company's
business, operating results and financial condition. IA has spent, and the
combined company intends to continue spending, considerable resources educating
potential customers about the combined company products and its functions and
on-line analytical processing generally. However, there can be no assurance that
such expenditures will enable the combined company products to achieve any
additional degree of market acceptance, and if the market for the combined
company products fails to grow or grows more slowly than the combined company
currently anticipates, the combined 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
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conditions during which management information systems budgets often decrease.
As a result, the combined 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 combined company may be dependent on the
acceptance of the use of the World Wide Web as a means to disseminate
information. IA has had limited large-scale deployment of its products for use
on the Web. If customers determine that the combined 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 combined company's products for
use on the Web, the combined company's business, operating results and financial
condition could be materially adversely affected.
LIMITED LARGE-SCALE DEPLOYMENT
IA believes that DecisionSuite can accommodate terabytes of data and
thousands of active users; however, IA has had only a limited number of
customers who have deployed DecisionSuite in such environments. If the combined
company's customers cannot successfully implement large-scale deployments or
determine for any other reason that the combined company's products cannot
accommodate large-scale enterprise applications, or that such products are not
required or appropriate for such widespread use, the combined company's
reputation and competitive advantage will be materially adversely affected,
which would, in turn, have a material adverse affect on the combined company's
business, operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The markets for IA and IQ's products are 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. IA 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 combined company's customers adopt Windows NT
for their businesses, the combined company will need to develop a Windows NT
version of the combined company products. The development of a Windows NT
product would require a substantial investment of resources by the combined
company, and there is no assurance that such a product could be introduced on a
timely or cost effective basis or at all. The future success of the combined
company will depend in large part on its ability to support popular operating
systems and databases, and on its ability to maintain and improve its proposed
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 the
combined company's software development, 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 combined 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 combined company's business,
operating results and financial condition. There can be no assurance that the
combined 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 combined company will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of these
enhancements or that the combined company's new products and product
enhancements will achieve market acceptance.
PRODUCT AND CUSTOMER CONCENTRATION
Substantially all of IA's revenues have been attributable to the
DecisionSuite line of products and related services and substantially all of
IQ's revenues have been attributed to the IQ suite of business intelligence
products and related services. Such products and services are expected to
account for substantially all of the
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combined company's revenues for the foreseeable future. The combined company's
future operating results will depend upon continued market acceptance of the
DecisionSuite and the IQ products and enhancements to these products.
Consequently, a decline in the demand for, or market acceptance of, the combined
company products as a result of competition, technological change or other
factors, would have a material adverse effect on the combined company's
business, operating results and financial condition.
A relatively small number of customers have accounted for a significant
percentage of IA's revenues. In fiscal 1996, MasterCard International
Incorporated accounted for 13.6% of total revenues for IA. In fiscal 1997, Tandy
Corporation accounted for 10.3% of total revenues for IA. While no single
customer accounted for more than 10% of total revenues for either IA or IQ in
fiscal 1998, the combined 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. Such customers are expected to vary from period
to period. As a result, the failure by the combined 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 combined
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 combined company's business, operating results and
financial condition.
DEPENDENCE ON SERVICE REVENUES
Each of IA and IQ 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 52.4%, 44.7% and 46.6% of total revenues for IA for fiscal
1996, 1997 and 1998, respectively and represented 28.7%, 30.4% and 38.0% of
total revenues for IQ for fiscal 1996, 1997 and 1998, respectively. Each of IA
and IQ anticipates that service revenues for the combined company will continue
to represent a significant percentage of the combined company's total revenues.
To a large degree, the level of service revenues is dependent upon the ongoing
sales of professional services and the acceptance of maintenance contracts by IA
and IQ's respective growing installed customer bases. If service revenues are
less than anticipated, the combined company's operating results could be
materially adversely affected. The combined 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 combined company will be able to successfully expand its
service organization. In addition, there can be no assurance that the combined
company will be successful in implementing its strategy or that its products
will achieve market acceptance, the failure of which could have a material
adverse effect on its business, operating results and financial condition.
EXPANSION OF INDIRECT CHANNELS
The combined company intends to expand IA's and IQ's relationships with
strategic partners and to increase the proportion of each company's customers
licensed through these indirect channels. IA's indirect channels have accounted
for less than 10% and IQ's indirect channels have accounted for approximately
30% of total revenues to date. There can be no assurance that the combined
company will continue to be represented by any of its indirect channels. Each of
IA and IQ is currently investing, and the combined company intends to
increasingly invest, significant resources to grow this channel, which could
adversely affect the combined company's operating results if the combined
company's efforts do not generate significant license revenues. There can be no
assurance that the combined company will be able to attract strategic partners
that will be able to market the combined 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 combined
company's results of operations. The combined company's ability to achieve
revenue growth in the future will depend in large part on its success in
maintaining and establishing additional relationships with strategic partners.
In addition, if it is successful in selling products through this channel, the
combined company's gross margins will be negatively affected due to the lower
unit prices that the combined company expects to receive when selling through
indirect channels.
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RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During fiscal 1996, 1997 and 1998, IA derived 10.7%, 9.5% and 9.7% of its
total revenues, respectively, and IQ derived 24.7%, 33.1% and 31.6% of its total
revenues, respectively, from sales outside the United States. The combined
company anticipates that for the foreseeable future a significant portion of its
revenues will be derived from sources outside the United States. The combined
company intends to continue to expand IA's and IQ's sales and support operations
outside the United States and to enter additional international markets. In
order to successfully expand international sales, the combined company must
establish additional foreign operations, expand IA's and IQ's 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 combined company is unable to do
so in a timely and cost-effective manner, the combined company's growth, if any,
in international sales will be limited, and the combined company's business,
operating results and financial condition could be materially adversely
affected. The combined 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 combined company's
products are successfully customized, there can be no assurance that the
combined company will be able to maintain or increase international market
demand for its products.
The combined 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 combined company's revenues and costs have been denominated in U.S. dollars.
However, the combined company believes that an increasing portion of the
combined company's revenues and costs will be denominated in foreign currencies.
Although the combined company may from time to time undertake foreign exchange
hedging transactions to cover a portion of its foreign currency transaction
exposure, the combined company does not currently attempt to cover any foreign
currency exposure.
MANAGEMENT OF GROWTH; NEED FOR ADDITIONAL QUALIFIED PERSONNEL
IA 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 July 31, 1998, IA increased its headcount from 75 to 254. Further significant
increases in the number of employees for the combined company are anticipated in
fiscal 1999. For example, the combined 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 combined company's management, operating financial systems and resources.
The combined 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 combined 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
combined company's installed base. The failure of the combined company to manage
its expansion effectively could have a material adverse effect on the combined
company's business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL
The combined company's success will depend to a significant degree upon the
efforts of certain key management, technical support, sales, marketing, customer
support and research and development personnel.
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The loss of key personnel could adversely affect the combined company. The
combined company's 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 combined company will face intense competition for such
personnel, and each of IA and IQ has at times experienced and continues to
experience difficulty in recruiting qualified personnel. In addition, the
complexity of both IA's and IQ's products make it especially difficult to find,
attract and retain such personnel. There can be no assurance that the combined
company will be successful in attracting, assimilating or retaining qualified
personnel in the future. The loss of the services of one or more of the combined
company's key individuals, or the failure to attract and retain additional
qualified personnel, could have a material and adverse effect on the combined
company's business, operating results and financial condition.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT; USE OF
LICENSED TECHNOLOGY
Each of IA and IQ rely primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its respective proprietary technology. For example, IA
licenses its software pursuant to signed license agreements, which impose
certain restrictions on licensees' ability to utilize the software. In addition,
each company seeks to avoid disclosure of its trade secrets, including requiring
those persons with access to such proprietary information to execute
confidentiality agreements with such company and restricting access to that
company's source code. Each company further seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection.
Despite the combined company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the combined company's
products or to obtain and use information that the combined company regards as
proprietary. Policing unauthorized use of each company's products is difficult,
and while each company is unable to determine the extent to which piracy of its
respective software products exists, software piracy can be expected to be a
persistent problem for the combined company. In addition, the laws of many
countries do not protect the combined company's proprietary rights to as great
an extent as do the laws of the United States. There can be no assurance that
the combined company's means of protecting its proprietary rights will be
adequate or that the combined company's competitors will not independently
develop similar technology.
To date, neither IA nor IQ has been notified that its respective products
infringe the proprietary rights of third parties, but there can be no assurance
that third parties will not claim infringement by the combined company with
respect to current or future products. Both IA and IQ expect 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 combined
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 combined company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the combined company or at all, which could have a material
adverse effect upon the combined company's business, operating results and
financial condition.
IQ CLASS ACTION LITIGATION
On October 23, 1997, a complaint was served on IQ and certain of its
executive officers on behalf of purchasers of IQ Common Stock between May 8,
1996 and February 3, 1997 alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 ("Claim"). The Claim alleges that IQ failed to
disclose the risks and liabilities assumed by IQ in connection with the
transition of its sales force from an inside telesales model to an outside
field-based model. IQ believes that the claim is without merit and both IA and
IQ intend for the combined company to vigorously defend the action. Regardless
of the merits of the Claim, however, defending against such Claim could be time
consuming resulting in costly litigation and diverting the combined company's
management's attention and resources. In the event IQ or the combined company is
unsuccessful in defending against the Claim, the combined company's business,
operating results and financial condition would be materially and adversely
affected.
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RISK OF SOFTWARE DEFECTS
Software products as internally complex as those offered by IA and IQ
frequently contain errors or defects, especially when first introduced or when
new versions or enhancements are released. Despite product testing, each of IA
and IQ has in the past released versions of its products with defects and has
discovered software errors in those products after their introduction. Although
neither IA nor IQ has experienced material adverse effects resulting from any
such defects and errors to date, there can be no assurance that, despite testing
by the combined company and by current and potential customers, defects and
errors will not be found in new versions or enhancements after commencement of
commercial shipments resulting in loss of revenues or delay in market
acceptance, which could have a material adverse effect upon the combined
company's business, operating results and financial condition. See "-- Year 2000
Compliance" and "-- Product Liability."
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 two years, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Although IA and IQ believe that their products are
Year 2000 compliant, each company believes that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend a significant portion of their limited information technology
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 combined company, which could
result in a material adverse effect on the combined company's business,
operating results and financial condition. IA uses outside vendors to supply its
most significant data processing software. These vendors have indicated their
products are Year 2000 compliant or will be Year 2000 compliant in the near
future. IA does not currently have any information concerning the Year 2000
compliance status of its or IQ's key suppliers and customers. In the event that
any such key suppliers or customers do not achieve Year 2000 compliance in a
timely manner, or at all, the combined company's business or operations could be
adversely affected.
PRODUCT LIABILITY
Although IA's and IQ's license agreements with their respective customers
typically contain provisions designed to limit each 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. Neither company has experienced any product
liability claims to date. However, the sale and support of the combined
company's products may entail the risks of such claims, which are likely to be
substantial in light of the use of the combined company's products in
business-critical applications. A product liability claim brought against the
combined company could have a material adverse effect on the combined company's
business, operating results and financial condition.
POSSIBLE VOLATILITY OF COMMON STOCK
The market price of IA's Common Stock after the Merger is likely to be
highly volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the combined company's operating results,
announcements of technological innovations, new products or new contracts by the
combined 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, unanticipated events or announcements and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected market prices for 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 combined company. Such litigation
is currently pending against IQ and there can be no assurance that additional
litigation will not occur in the future with respect to the combined company.
Such litigation could result in substantial costs and a
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diversion of management's attention and resources, which could have a material
adverse effect upon the combined company's business, operating results and
financial condition. See "-- IQ Class Action Litigation."
CONTROL OF COMBINED COMPANY BY EXECUTIVE OFFICERS, DIRECTORS AND FIVE PERCENT
STOCKHOLDERS
The executive officers, directors, five percent stockholders of the
combined company and their affiliates in the aggregate will beneficially own
approximately 39.4% of the outstanding IA Common Stock immediately following the
Merger. As a result, these stockholders are able to exercise significant control
over 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 combined company.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
IA's Certificate of Incorporation and Bylaws contain certain provisions
that may have the effect of discouraging, delaying or preventing a change in
control of the combined 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 holders of
at least 80% of the combined 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 IA's 1997 Equity Incentive Plan may also have the
effect of discouraging, delaying or preventing a change in control of the
combined company or unsolicited acquisition proposals. The antitakeover effect
of these provisions may also have an adverse effect on the public trading price
of the IA Common Stock. See "Description of IA Capital Stock" and "Comparison of
Rights of IA Stockholders and IQ Stockholders."
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PROPOSALS AND BOARD RECOMMENDATIONS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by IA and by IQ of proxies to be voted, respectively, at the IA
Special Meeting to be held on September 23, 1998 and the IQ Special Meeting to
be held on September 23, 1998. This Joint Proxy Statement/Prospectus is first
being mailed to stockholders of IA and stockholders of IQ on or about August 24,
1998.
The purpose of the IA Special Meeting is to consider and vote upon the IA
Merger Proposal and to transact such other business as may properly come before
the IA Special Meeting or any adjournments or postponements thereof. The purpose
of the IQ Special Meeting is to consider and vote upon the IQ Merger Proposal
and to transact such other business as may properly come before the IQ Special
Meeting or any adjournments or postponements thereof. At the Effective Time,
Merger Sub will be merged with and into IQ, the separate existence of Merger Sub
will cease, all of the rights, privileges, powers, franchises, properties,
assets, liabilities and obligations of Merger Sub will be vested in IQ and IQ
will become a wholly owned subsidiary of IA. See "The Merger and Related
Transactions."
THE IA BOARD UNANIMOUSLY APPROVED THE MERGER AND THE TRANSACTIONS RELATED
THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST
INTERESTS OF IA AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE IA BOARD
UNANIMOUSLY RECOMMENDS THAT IA STOCKHOLDERS VOTE FOR THE IA MERGER PROPOSAL.
THE IQ BOARD UNANIMOUSLY APPROVED THE MERGER AND THE TRANSACTIONS RELATED
THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST
INTERESTS OF IQ AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE IQ BOARD
UNANIMOUSLY RECOMMENDS THAT IQ STOCKHOLDERS VOTE FOR THE IQ MERGER PROPOSAL.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of IA
under the Securities Act for the offering of IA Common Stock in connection with
the Merger.
VOTING AND PROXIES
DATE, TIME AND PLACE OF IA SPECIAL MEETING AND IQ SPECIAL MEETING
The IA Special Meeting will be held at the Marquette Hotel, 710 Marquette
Avenue, Minneapolis, MN, on September 23, 1998, at 10:00 a.m., local time. The
IQ Special Meeting will be held at the IQ principal executive offices, on
September 23, 1998, at 10:00 a.m., local time.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record of IA Common Stock at the close of business on
August 14, 1998 (the "IA Record Date") are entitled to notice of and to vote at
the IA Special Meeting. On the IA Record Date, there were approximately 175
holders of record of IA Common Stock, and 15,621,931 shares of IA Common Stock
were issued and outstanding. Each share of IA Common Stock is entitled to one
vote per share.
Stockholders of record of IQ Common Stock at the close of business on
August 14, 1998 (the "IQ Record Date") are entitled to notice of and to vote at
the IQ Special Meeting. On the IQ Record Date, there were approximately 200
holders of record of IQ Common Stock, and 4,682,466 shares of IQ Common Stock
were issued and outstanding. Each share of IQ Common Stock is entitled to one
vote per share.
All properly executed proxies given by holders of IA Common Stock or IQ
Common Stock that are not revoked will be voted at the IA Special Meeting or the
IQ Special Meeting, as the case may be, and at any postponements or adjournments
of either such meeting, in accordance with the instructions contained therein.
Proxies containing no instructions regarding a proposal specified in the proxy
will be voted, in the case of the IA Special Meeting, in favor of the IA Merger
Proposal and, in the case of the IQ Special Meeting, in favor of the IQ Merger
Proposal. If any other matters are properly brought before either the IA Special
Meeting or the
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IQ Special Meeting, all proxies will be voted in accordance with the judgment of
the proxy holders. Either the IA Special Meeting or IQ Special Meeting may be
adjourned, and additional proxies solicited, if the vote necessary to approve a
proposal has not been obtained. Any adjournment of either the IA Special Meeting
or IQ Special Meeting will require the affirmative vote of the holders of at
least a majority of the shares represented, whether in person or by proxy, at
such meeting (regardless of whether those shares constitute a quorum).
An IA stockholder or an IQ stockholder who has executed and returned a
proxy may revoke such proxy at any time before it is voted at the IA Special
Meeting or the IQ Special Meeting, as the case may be, by executing and
returning a proxy bearing a later date, by filing written notice of such
revocation with the Secretary of IA or the Secretary of IQ, as appropriate,
which states that such proxy is revoked, or by attending the IA Special Meeting
or the IQ Special Meeting, as the case may be, and voting in person. Notices to
the Secretary of IA should be delivered to Information Advantage, Inc., 7905
Golden Triangle Dr., Eden Prairie, MN 55344, attention Corporate Secretary.
Notices to the Secretary of IQ should be delivered to IQ Software Corporation,
3295 River Exchange Dr., Norcross, GA 30092, attention Corporate Secretary.
IA STOCKHOLDER VOTE REQUIRED
Approval of the issuance of shares of IA Common Stock in connection with
the Merger pursuant to the IA Merger Proposal requires the affirmative vote of a
majority of those shares present in person or represented by proxy and entitled
to vote at the IA Special Meeting.
On the IA Record Date, IA directors, executive officers and their
affiliates beneficially held in the aggregate approximately 50.1% of the
outstanding IA Common Stock. The holders of a majority of the outstanding shares
of IA Common Stock, present in person or by proxy, will constitute a quorum for
the transaction of business at the IA Special Meeting or any adjournment
thereof.
Votes cast by proxy or in person at the IA Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of the IA Merger Proposal. Since the required vote of IA
stockholders is based upon the number of outstanding shares of IA Common Stock,
such abstentions and broker nonvotes will have the effect of a vote against the
IA Merger Proposal.
IQ STOCKHOLDER VOTE REQUIRED
Approval of the IQ Merger Proposal requires the affirmative vote of the
holders of 66 2/3% of the outstanding shares of IQ Common Stock. On the IQ
Record Date, IQ directors, executive officers and their affiliates beneficially
held in the aggregate approximately 11.4% of the outstanding shares of IQ Common
Stock. All directors and executive officers of IQ have executed voting
agreements and irrevocable proxies in favor of IA to vote all shares over which
they exercise voting control FOR the approval of the IQ Merger Proposal. See
"The Merger and Related Transactions -- Voting Agreements." The holders of a
majority of the outstanding shares of IQ Common Stock, present in person or by
proxy, will constitute a quorum for the transaction of business at the IQ
Special Meeting or any adjournment thereof.
Votes cast by proxy or in person at the IQ Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions and broker non-votes as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as unvoted for purposes
of determining the approval of the IQ Merger Proposal. Since the required vote
of IQ stockholders is based upon the number of outstanding shares of IQ Common
Stock, such abstentions and broker non-votes will have the effect of a vote
against the IQ Merger Proposal.
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SOLICITATION OF PROXIES; EXPENSES
IA and IQ will bear their respective costs of solicitation of proxies from
their respective stockholders. Each of IA and IQ will share equally the cost of
printing and filing this Joint Proxy Statement/Prospectus and the Registration
Statement of which it is a part. If the Merger is not completed for certain
reasons, such expenses will be paid as described under the caption "The Merger
Agreement and Related Transactions -- Termination; Termination Fees and
Expenses." In addition to solicitation by mail, the directors, officers and
employees of IA and IQ and stockholders of IA and IQ, respectively, may solicit
proxies from the stockholders of IA and IQ, respectively, by telephone, telegram
or letter or in person for no additional compensation. Brokers, nominees,
fiduciaries and other custodians have been requested by IA and IQ to forward
proxy solicitation materials to the beneficial owners of IA Common Stock and IQ
Common Stock held of record by such custodians. Such custodians will be
reimbursed by IA and IQ for their expenses.
IQ has retained ChaseMellon Shareholder Services for assistance in
connection with the solicitation of proxies for the IQ Special Meeting at a cost
of approximately $4,500 plus reimbursement of out-of-pocket expenses.
NO DISSENTERS' OR APPRAISAL RIGHTS
Holders of IQ Common Stock are not entitled to dissenters' rights under
Section 1302 of the GCC in connection with the Merger because the IQ Common
Stock will be listed on the Nasdaq National Market on the record date for the IQ
Special Meeting and the shares of IA Common Stock to be issued pursuant to the
Merger will be listed on the Nasdaq National Market as of the Effective Time.
Holders of IA Common Stock are not entitled to appraisal rights under Section
262 of the DGCL in connection with the Merger because IA is not a constituent
corporation in the Merger.
THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Plan of Merger provides for the merger of Merger Sub, a newly formed,
wholly owned subsidiary of IA, with and into IQ, with IQ to be the surviving
corporation of the Merger and a wholly owned subsidiary of IA. The discussion of
the Merger in this Joint Proxy Statement/Prospectus and the description of the
principal terms of the Plan of Merger are subject to and qualified in their
entirety by reference to the Plan of Merger which is attached hereto as Appendix
A.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
Beginning in January 1998, representatives of IA and representatives of IQ
had conversations from time to time principally concerning the possibility of a
business partnering arrangement involving the two companies. These conversations
were exploratory in nature and did not progress beyond the preliminary stage.
On May 4, 1998, Larry J. Ford, the Chief Executive Officer of IA, met with
Charles R. Chitty, the Chief Executive Officer of IQ, to formally discuss a
business combination which led to a decision to seriously pursue a business
combination.
On May 7, 1998, IA engaged BancAmerica Robertson Stephens to act as its
financial advisor in connection with a possible transaction.
On May 19, 1998, representatives and advisors of IA and representatives and
advisors of IQ conducted preliminary due diligence discussions, explored
strategic benefits of a merger and held preliminary discussions relating to
valuation and structure of a proposed transaction.
From May 19 through June 5, 1998, the parties continued to negotiate the
terms, valuation and structure of a possible transaction.
On June 1, 1998, the IQ Board authorized the retention of First Albany to
act as its financial advisor in connection with a possible transaction.
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From June 6, 1998 through June 9, 1998, representatives and advisors to IA
conducted their due diligence investigation of IQ and representatives and
advisors to IQ conducted their due diligence investigation of IA.
From June 23, 1998 through June 25, 1998, IA and IQ and their respective
advisors held a series of meetings and discussions regarding the Plan of Merger,
the Stock Option Agreement and related documents, and the financial, legal and
accounting due diligence investigation of the respective companies. During this
period, representatives and advisors of IA and IQ also held several meetings to
discuss the valuation of the Merger.
On June 26, 1998, there was a telephonic meeting of the IQ Board to approve
the Plan of Merger and related transactions. First Albany informed the IQ Board
of its oral opinion (subsequently confirmed in writing) that as of such date the
Exchange Ratio was fair from a financial point of view to IQ, and responded to
various questions raised by members of the IQ Board regarding such opinion. The
IQ Board reviewed a draft of the Plan of Merger, the Stock Option Agreement and
related documents and a partner from Miller & Martin responded to questions
regarding such documents from the IQ Board. After considering the terms of the
proposed transaction and the opinion of First Albany, the IQ Board determined
that the Merger was fair to IQ stockholders and that the proposed Merger was in
the best interests of IQ and its stockholders. The IQ Board then unanimously
approved the Plan of Merger and exhibits thereto, including the Stock Option
Agreement, and the Merger and unanimously resolved to recommend that the
stockholders of IQ vote for the IQ Merger Proposal.
On June 28, 1998, there was a telephonic meeting of the IA Board to approve
the Plan of Merger and related transactions. BancAmerica Robertson Stephens
informed the IA Board of its oral opinion (subsequently confirmed in writing)
that as of such date the Exchange Ratio was fair from a financial point of view
to IA, and responded to various questions raised by members of the IA Board
regarding such opinion. The IA Board reviewed a draft of the Plan of Merger, the
Stock Option Agreement and related documents and a partner from Gunderson
Dettmer responded to questions regarding such documents from the IA Board. After
considering the terms of the proposed transaction and the opinion of BancAmerica
Robertson Stephens, the IA Board determined that the Merger was fair to IA
stockholders and that the proposed Merger was in the best interests of IA and
its stockholders. The IA Board then unanimously approved the Plan of Merger and
exhibits thereto, including the Stock Option Agreement, and the Merger and
unanimously resolved to recommend that the IA stockholders vote for the IA
Merger Proposal.
During the afternoon and evening of June 28, 1998 and the morning and
afternoon of June 29, 1998, following approval of the Plan of Merger and related
matters by the IA Board and the IQ Board, IA and IQ finalized, executed and
delivered the Plan of Merger, the Stock Option Agreement and related documents.
A joint press release announcing the execution of the Plan of Merger and
the terms of the Merger was issued by IA and IQ on the evening of June 29, 1998.
On July 24, 1998, the Plan of Merger was amended to effect certain
technical changes.
REASONS FOR THE MERGER
IA's Reasons for the Merger. In order to expand its product offerings, IA
has examined on occasion various potential alliances, including the proposed
combination with IQ. During its discussions with IQ, IA recognized the
complementary nature of IQ's products, marketing, distribution channels and
technology. In reaching its decision to approve the Plan of Merger and the
Merger, the IA Board consulted with (i) its legal counsel regarding the legal
terms of the transaction and the IA Board's obligations in its consideration of
the proposed transaction, (ii) its financial advisors regarding the financial
aspects of the proposed transaction and the BancAmerica Robertson Stephens
Opinion that the Exchange Ratio pursuant to the Plan of Merger was fair from a
financial point of view to IA and (iii) the management of IA.
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The IA Board concluded that the Merger represented a unique strategic fit
between two companies with similar business strategies and complementary
software offerings and that the Merger was in the best interests of IA and its
stockholders. In reaching this conclusion, the IA Board considered the following
information and factors:
- The combination of IA with IQ will create a combined company with
significantly greater resources, and provide the opportunity to market a
more complete product offering and greater sales and marketing
capabilities than those of IA alone, and may enable the combined company
to compete more effectively with competitors having greater resources and
broader product offerings than IA.
- The combination of IQ's software with IA's software allows IA to enhance
its competitive position as a leader in relational on-line analytical
processing software by allowing it to offer more robust products and
business intelligence products.
- The Merger will provide IA with the opportunity to broaden and diversify
its product offerings with complementary software tools that it currently
does not offer, which may reduce the risk of dependence on individual
products.
- IA believes that the management team of the combined company will have
greater depth and experience than that of IA alone.
- The financial and other terms and conditions of the Plan of Merger and
the related agreements, including the fact that (i) the Merger is
expected to be accounted for as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16 and that no goodwill is
expected to be created as a result of the Merger and (ii) the Merger is
expected to be treated as a tax-free reorganization to IA and its
stockholders.
- IA believes the combination will give it greater access to product
development resources.
- A larger combined customer base and complementary distribution channels
will provide leverage for expanded sales and marketing opportunities for
the combined company.
- The potential for achieving long-term economies of scale, particularly in
the future growth of IA's worldwide operations, that would not have been
as readily achievable by IA alone.
- Information concerning the historical financial performance, business
operations, financial condition and prospects of IQ, including IQ's
periodic reports filed with the SEC and publicly available financial
information regarding IQ such as third-party analysts' reports, analysts'
projections and analysts' comments and historical stock price, volatility
and volume data.
- The oral and written presentations of its financial advisor, BancAmerica
Robertson Stephens, including the opinion of BancAmerica Robertson
Stephens that the Exchange Ratio pursuant to the Plan of Merger was fair
from a financial point of view to IA.
In the course of its deliberations, the IA Board reviewed and considered
the terms and conditions of the Plan of Merger and the presentations by IA's
executive officers. The IA Board also considered, among other matters, (i)
information concerning IA's and IQ's respective businesses, prospects, financial
performance and condition, operations, technology, management and competitive
position, (ii) the historical financial condition, results of operations and
businesses of IA and IQ, (iii) current financial market conditions and
historical market prices, volatility and trading information with respect to IA
Common Stock and IQ Common Stock, (iv) the relationship between the market value
of IA Common Stock to be issued in exchange for each share of IQ Common Stock
and IA's and IQ's per share reported earnings, earnings before interest and
taxes and certain other measures, (v) a comparison of selected recent
acquisition and merger transactions involving high-technology companies, (vi)
the belief that the terms of the Plan of Merger, including the parties'
respective representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable, (vii) the ability of IA to devote
management time and energy to the integration and assimilation of IQ's business
and organization should the Merger be consummated, (viii) the fact that the
Merger is expected to be accounted for as a pooling of interests and that no
goodwill is expected to be created on the
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financial statements of IA as a result thereof, (ix) the impact of the Merger on
IA's and IQ's customers, including the potential loss of revenue that might
result due to uncertainty among customers caused by the Merger, and (x) reports
from management, accounting advisors and legal advisors as to the results of
their due diligence investigation of IQ.
The IA Board also considered a number of potentially negative factors in
its deliberations concerning the Merger, including, but not limited to, (i) the
adverse effects on the operating results of the combined company due to the
expenses expected to be incurred, primarily in the quarter in which the Merger
is consummated, including costs of integrating the businesses of IQ and IA and
transaction expenses arising from the Merger, (ii) the risk that benefits sought
to be achieved in the Merger will not be realized, which may have a material
adverse effect on the combined company's business, operating results and
financial condition, (iii) the risk that the operations of IA and IQ will not be
effectively integrated or that potential synergies expected to result from the
consolidation of the operations of the companies will not occur, and (iv) the
other risks described under "Risk Factors."
The foregoing discussion of the information and factors considered by the
IA Board is not intended to be exhaustive but is believed to include all
material factors considered by the IA Board. In view of the wide variety of
factors considered by the IA Board, the IA Board did not find it practicable to
quantify or otherwise assign relative weights to the specific factors considered
in approving the Plan of Merger and the Merger. However, after taking into
account all of the factors set forth above, the IA Board unanimously determined
that the Plan of Merger and the Merger were in the best interests of IA and its
stockholders and that IA should enter into the Plan of Merger and complete the
Merger. ACCORDINGLY, THE IA BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF IA
VOTE FOR APPROVAL AND ADOPTION OF THE IA MERGER PROPOSAL.
IQ's Reasons for the Merger. In reaching its decision to approve the Plan
of Merger and the Merger, the IQ Board consulted with (i) its legal counsel
regarding the legal terms of the transaction and the IQ Board's obligations in
its consideration of the proposed transaction, (ii) its financial advisors
regarding the financial aspects of the proposed transaction and the fairness of
the Exchange Ratio to IQ's stockholders from a financial point of view and (iii)
the management of IQ.
The IQ Board concluded that the Merger represents a unique strategic fit
between two companies with similar business strategies and complementary
software offerings and that the Merger was in the best interests of IQ and its
stockholders. In reaching this conclusion, the IQ Board considered the following
information and factors:
- The potential for the combined company to provide a broader range of
products, product features and solutions as a result of the Merger,
thereby enhancing the combined company's competitive strength and
increasing its ability to satisfy the requirements of existing and
new customers. IQ and IA operate in a rapidly growing and changing
marketplace, providing comprehensive analysis software that enables
large companies to improve their financial performance by maximizing
the value of information. The Merger would improve IQ's competitive
position as a leader in enterprise reporting software applications
by allowing it to satisfy customer needs through an increasingly
comprehensive set of product offerings, including the combined
strength of IQ's application software and IA's technology.
- The potential benefits from a combination of the management
resources of IQ and IA, including the experience, knowledge and
established customer relationships of senior personnel at both
companies.
- The potential for achieving long-term economies of scale,
particularly in the future growth of IQ's worldwide operations, that
would not have been readily achievable by either company separately.
- The ability of IQ to develop products more quickly and to attract
and retain critical and scarce engineering talent as a result of
having access to both companies' financial, development, personnel
and other resources.
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- The potential for increased revenues by selling into IA's installed
customer base and through its sales force.
- The financial and other significant terms and conditions of the Plan
of Merger and the related agreements, including the fact that (i)
the Merger is expected to be accounted for as a pooling of interests
in accordance with Accounting Principles Board Opinion No. 16 and
that no goodwill is expected to be created as a result of the Merger
and (ii) the Merger is expected to be treated as a tax-free
reorganization to IQ and its stockholders.
- Information concerning the historical financial performance,
business operations, financial condition and prospects of IA,
including IA's periodic reports filed with the SEC and publicly
available financial information regarding IA such as third-party
analysts' reports, analysts' projections and analysts' comments and
historical stock price, volatility and volume data.
- The presentations of its financial advisor, First Albany, including
the opinion of First Albany that, as of June 26, 1998, the Exchange
Ratio was fair from a financial point of view to the holders of IQ
Common Stock.
The IQ Board also considered potentially negative factors relating to the
Merger, including (i) the risk that the benefits sought in the Merger would not
be fully achieved, (ii) the risk that the Merger would not be consummated and
the effect of the public announcement of the Merger on IQ's sales and operating
results, (iii) the impact of the Merger on key customer relationships, (iv) the
charges expected to be incurred in connection with the Merger, including costs
of integrating the business and transaction expenses arising from the Merger,
(v) the difficulty of and risks associated with integrating the combined company
and managing operations in distant geographic locations, (vi) the risks of IQ
suffering employee attrition or of failing to attract key personnel due to
uncertainties associated with the pending Merger and (vii) all of the other
factors listed above under "Risk Factors." The IQ Board concluded that these
factors were outweighed by the potential benefits to be gained by the Merger.
The foregoing discussion of the information and factors considered by the
IQ Board is not intended to be exhaustive but is believed to include all
material factors considered by the IQ Board. In view of the wide variety of
information and factors, both positive and negative, considered by the IQ Board,
the IQ Board did not find it practical to, and did not, quantify or otherwise
assign relative or specific weights to the foregoing factors considered. After
taking into consideration all of the factors set forth above, the IQ Board
unanimously determined that the Plan of Merger and the Merger were in the best
interests of IQ and its stockholders and that IQ should enter into the Plan of
Merger and complete the Merger. ACCORDINGLY, THE IQ BOARD UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS OF IQ VOTE FOR APPROVAL AND ADOPTION OF THE IQ MERGER
PROPOSAL.
OPINION OF IA FINANCIAL ADVISOR
On May 7, 1998, IA and BancAmerica Robertson Stephens executed an
engagement letter (the "BancAmerica Robertson Stephens Engagement Letter")
pursuant to which BancAmerica Robertson Stephens was engaged to render an
opinion as to the fairness of the Exchange Ratio, from a financial point of
view, to IA.
On June 28, 1998, at a meeting of the IA Board held to evaluate the
proposed Merger, BancAmerica Robertson Stephens delivered to the IA Board its
oral opinion, which was subsequently confirmed as a written opinion dated June
28, 1998, that as of June 28, 1998 and based on the matters described therein,
the Exchange Ratio was fair, from a financial point of view, to IA. No
limitations were imposed by the IA Board on BancAmerica Robertson Stephens with
respect to the investigations made or procedures followed by it in furnishing
its opinion. The Exchange Ratio was determined through negotiations between the
managements of IA and IQ. Although BancAmerica Robertson Stephens did assist the
management of IA in those negotiations, it was not asked by, and did not
recommend to, IA that any specific exchange ratio constituted the appropriate
exchange ratio for the Merger. BancAmerica Robertson Stephens also assisted IA's
management in the negotiations leading to an agreement on principal structural
terms of the transaction.
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BancAmerica Robertson Stephens expresses no opinion as to the tax consequences
of the Merger, and BancAmerica Robertson Stephens' opinion as to the fairness of
the Exchange Ratio does not take into account the particular tax status or
position of any stockholder of IA. In furnishing its opinion, BancAmerica
Robertson Stephens was not engaged as an agent or fiduciary of IA's stockholders
or any other third party.
THE FULL TEXT OF THE BANCAMERICA ROBERTSON STEPHENS OPINION, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED
HEREIN BY REFERENCE. STOCKHOLDERS OF IA ARE URGED TO READ THE BANCAMERICA
ROBERTSON STEPHENS OPINION IN ITS ENTIRETY. THE BANCAMERICA ROBERTSON STEPHENS
OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE IA BOARD IN ITS
CONSIDERATION OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
STOCKHOLDERS OF IA AS TO HOW THEY SHOULD VOTE AT THE IA SPECIAL MEETING IN
CONNECTION WITH THE MERGER. THE BANCAMERICA ROBERTSON STEPHENS OPINION DOES NOT
ADDRESS THE RELATIVE MERITS OF THE MERGER AND ANY OTHER TRANSACTIONS OR BUSINESS
STRATEGIES DISCUSSED BY THE IA BOARD AS ALTERNATIVES TO THE PLAN OF MERGER OR
THE UNDERLYING BUSINESS DECISION OF THE IA BOARD TO PROCEED WITH THE MERGER
PROCESS. THE SUMMARY OF THE BANCAMERICA ROBERTSON STEPHENS OPINION SET FORTH IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE BANCAMERICA ROBERTSON STEPHENS OPINION.
In connection with the preparation of the BancAmerica Robertson Stephens
Opinion, BancAmerica Robertson Stephens, among other things, (i) reviewed
financial information with respect to IA and IQ furnished to it by IA and IQ,
including certain internal financial analyses and forecasts prepared by the
managements of IA and IQ, respectively; (ii) reviewed certain publicly available
information concerning IA and IQ, including their respective stock price and
trading histories; (iii) held discussions with the managements of IA and IQ
concerning the businesses, past and current business operations, financial
condition and future prospects of both companies, independently and combined;
(iv) reviewed the financial terms and conditions of the June 26, 1998 draft of
the Plan of Merger; (v) reviewed the exchange-ratio implied by historical stock
prices of the two companies; (vi) reviewed the valuations of publicly traded
companies that were deemed comparable to IQ; (vii) prepared discounted cash flow
analyses of IQ; (viii) compared the financial terms of the Merger set forth in
the June 26, 1998 draft of the Plan of Merger with other transactions that were
deemed relevant; (ix) prepared pro forma merger analyses for the Merger; and (x)
made such other studies and inquiries and reviewed such other data, as it deemed
relevant.
In conducting its review and arriving at its opinion, BancAmerica Robertson
Stephens assumed and relied upon, without independent verification, the
accuracy, completeness and fairness of the information furnished to or otherwise
reviewed by or discussed with it for purposes of rendering its opinion.
BancAmerica Robertson Stephens did not obtain or make or assume responsibility
for obtaining or making any independent evaluation or appraisal of the
properties or assets of IA or IQ, nor has BancAmerica Robertson Stephens been
furnished with any such evaluations or appraisals. BancAmerica Robertson
Stephens did not have access to any non-public information regarding the
stockholder class action litigation against IQ and assumed, with the consent of
IA, that the pending and any future litigation against IQ would not have a
material adverse effect on IQ's business, financial condition, and operating
results. BancAmerica Robertson Stephens received estimates of IA's projected
financial performance that were prepared by the management of IA. BancAmerica
Robertson Stephens also reviewed and discussed with the management of IA
publicly-available projections of analysts regarding the financial performance
of IQ and estimates of IQ's projected financial performance that were prepared
by the management of IQ. With the consent of the IA Board, this information was
used by BancAmerica Robertson Stephens in comparable company, precedent
transaction, exchange ratio and implied premium analysis, discounted cash flow,
relative contribution and pro forma earnings analyses summarized below. With
respect to financial and operating forecasts of IA and IQ provided to
BancAmerica Robertson Stephens by each company, BancAmerica Robertson Stephens
assumed that such forecasts were reasonably prepared in good faith on the basis
of reasonable assumptions, reflecting the best available estimates and judgments
of the respective managements of IA and IQ. BancAmerica Robertson Stephens
assumed that the Merger would be accounted for as a "pooling of interests" under
generally accepted accounting principles. The BancAmerica Robertson Stephens
Opinion is based on the closing trading prices of IA Common Stock and IQ Common
Stock, as of June 26, 1998 and on market, economic and other conditions as they
existed or were disclosed to BancAmerica Robertson Stephens and could be
evaluated as of the date of the BancAmerica Robertson Stephens Opinion and made
available to BancAmerica Robertson Stephens on such date. In
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rendering the BancAmerica Robertson Stephens Opinion, BancAmerica Robertson
Stephens assumed that the Merger would be consummated substantially upon the
terms described in the Plan of Merger without any waiver of any material terms
or conditions by any party thereto. Although developments following the date of
the BancAmerica Robertson Stephens Opinion may affect the opinion, BancAmerica
Robertson Stephens assumed no obligation to update, revise or reaffirm its
opinion. BancAmerica Robertson Stephens expressed no opinion as to the value of
any employee agreements or arrangements entered into in connection with the
Merger.
The following is a summary of the material financial analysis performed by
BancAmerica Robertson Stephens in connection with rendering the BancAmerica
Robertson Stephens Opinion.
Comparable Company Analysis. Using publicly available information,
BancAmerica Robertson Stephens analyzed, among other things, the market values
plus net debt (the "Total Capitalization") and trading multiples of IQ and
selected publicly traded companies that have similar business and operating
profiles, including: IA, Brio Technology, Business Objects, Microstrategy,
Cognos, Adept Technology, Boole & Babbage, Information Management Association,
Landmark Systems, Macneal-Schwendler Corp., Progress Software Corp., Project
Software & Development, Rainbow Technologies, SPSS, Stan Electronics and USCS
International, (collectively, the "Comparable Companies"). From among the
Comparable Companies, BancAmerica Robertson Stephens then selected from the
following companies: IA, Cognos, Business Objects and Brio Technology (the
"Selected Companies"). Multiples compared by BancAmerica Robertson Stephens
included Total Capitalization to estimated revenues for calendar 1998 and 1999
and market capitalization to estimated net income for calendar 1998 and 1999.
All multiples were based on closing stock prices as of June 26, 1998. Applying a
range of multiples for the Selected Companies of estimated calendar years 1998
and 1999, revenues of 1.3x to 3.5x, and 1.0x to 3.0x, respectively, to
corresponding financial data for IQ resulted in an equity reference range for IQ
of approximately $9.93 to $22.86 per share. Applying a range of estimated
calendar years 1998 and 1999 price/earnings multiples for the Selected Companies
of 14.0x to 20.0x and 12.0x to 18.0x, respectively, to corresponding financial
data for IQ resulted in an equity reference range for IQ of approximately $9.20
to $13.80 per share. These equity reference ranges compared to the equity value
implied by the Exchange Ratio of approximately $13.50 per share based on the
closing stock price of IA Common Stock on June 26, 1998.
Precedent Transaction Analysis. Using publicly available information,
BancAmerica Robertson Stephens analyzed the consideration offered plus net debt
assumed (the "Total Consideration") and implied transaction value multiples paid
or proposed to be paid in selected merger or acquisition transactions in the
software industry (the "Comparable Transactions"). BancAmerica Robertson
Stephens compared, among other things, the Total Consideration in such
transaction as a multiple of latest 12 months revenues. Applying a range of
multiples for the Comparable Transactions of latest 12 months revenues of 2.0x
to 4.0x to corresponding financial data for IQ resulted in an equity reference
range for IQ of approximately $13.88 to $24.30 per share, as compared to the
equity value implied by the Exchange Ratio of approximately $13.50 per share
based on the closing stock price of IA Common Stock on June 26, 1998. All
multiples for the Comparable Transactions were based on public information
available at the time of the announcement of such transactions, without taking
into account differing market and other conditions during the period in which
the Comparable Transactions occurred.
No company, transaction or business used in Comparable Company Analysis or
Precedent Transaction Analysis as a comparison is identical to IA, IQ or the
combined company. Accordingly, an analysis of the results of the foregoing is
not entirely mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the acquisition, public trading and other values
of the Comparable Companies, Comparable Transactions or the business segment,
company or transactions to which they are being compared.
Exchange Ratio and Implied Premium Analysis. BancAmerica Robertson Stephens
reviewed and analyzed the historical ratio of the daily per share market closing
prices of IA Common Stock and IQ Common Stock over several time periods, each
ending on June 26, 1998. BancAmerica Robertson Stephens noted that the Exchange
Ratio represents a premium of 56.4% to the average price ratio since IA's
initial public offering, a premium of 56.8% to the average price ratio for the
trailing 90 trading days, a premium of 52.2% to the average price ratio for
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the trailing 60 trading days, a premium of 45.2% to the average price ratio for
the trailing 30 trading days prior to June 26, 1998, and a premium of 22.8% to
the average price ratio on June 26, 1998.
Relative Contribution Analysis. BancAmerica Robertson Stephens analyzed the
respective contributions of IA and IQ to the estimated revenues, gross profit,
EBIT, and net income of the combined company for fiscal years 1999 and 2000.
This analysis indicated that in fiscal year 1999, IA would contribute
approximately 62.1% of revenue, approximately 60.8% of gross profit,
approximately 34.4% of EBIT and approximately 36.6% of net income and IQ would
contribute approximately 37.9% of revenue, approximately 39.2% of gross profit,
approximately 65.6% of EBIT and approximately 63.4% of net income, of the
combined company, and (ii) in fiscal year 2000, IA would contribute
approximately 68.0% of revenue, approximately 66.8% of gross profit,
approximately 61.8% of EBIT and approximately 58.9% of net income, and IQ would
contribute approximately 32.0% of revenue, approximately 33.2% of gross profit,
approximately 38.2% of EBIT and approximately 41.1% of net income, of the
combined company. Based on market capitalizations of IA and IQ as of June 26,
1998, stockholders of IA and IQ would own approximately 67.5% and 32.5%,
respectively, of the combined company, upon consummation of the Merger.
Discounted Cash Flow Analysis. BancAmerica Robertson Stephens performed a
discounted cash flow analysis of the unlevered (before interest expense)
after-tax cash flows of IQ using a range of earnings estimates for IQ for the
fiscal years 1998 through 2003. BancAmerica Robertson Stephens first discounted
the projected, unlevered after-tax cash flows through January 31, 2003 using a
range of discount rates from 18% to 22%. IQ unlevered after-tax cash-flows were
calculated as the after-tax operating earnings of IQ adjusted to add back
non-cash expenses and deduct uses of cash not reflected in the income statement.
BancAmerica Robertson Stephens then added to the present value of the cash flows
the terminal value of IQ in the fiscal year ended January 31, 2003, discounted
back at the same discount rate. The terminal value was computed by multiplying
the projected EBIT for IQ in fiscal 2003 by terminal multiples ranging from
10.0x to 14.0x. The range of terminal multiples selected reflect BancAmerica
Robertson Stephens's judgment as to an appropriate range of multiples at the end
of the referenced period. The discounted cash flow valuation resulted in an
equity reference range of approximately $11.43 to $15.80 per share, as compared
to the equity value implied by the Exchange Ratio of approximately $13.50 per
share based on the closing price of IA Common Stock on June 26, 1998.
Pro Forma Earnings Analysis. BancAmerica Robertson Stephens analyzed
certain pro forma effects resulting from the Merger, including, among other
things, the impact of the Merger on the projected earnings per share ("EPS") of
the combined company for the fiscal years 1998 and 1999. Without taking into
account certain cost savings that the combined company may realize in its
operations, the results of the pro forma earnings analysis suggested that the
Merger could be accretive to the combined company's EPS in the fiscal years 1998
and 1999. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion,
BancAmerica Robertson Stephens considered certain other factors and conducted
certain other comparative analyses, including, among other things, a review of
(i) the history of trading prices and volume for each of IA Common Stock, for
the period from December 17, 1997 to June 26, 1998, and IQ Common Stock for the
period June 26, 1997 to June 26, 1998, and (ii) selected published analysts'
reports on each of IA and IQ, including analysts' estimates as to the earnings
growth potential of IA and IQ.
While the foregoing summary describes certain analyses and factors that
BancAmerica Robertson Stephens deemed material in its presentation to the IA
Board, it is not a comprehensive description of all analyses and factors
considered by BancAmerica Robertson Stephens. The preparation of a fairness
opinion is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. BancAmerica Robertson Stephens
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
evaluation process underlying the BancAmerica Robertson Stephens Opinion.
Several analytical methodologies were employed and no one method of analysis
should be regarded as critical to the overall conclusion reached by
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BancAmerica Robertson Stephens. Each analytical technique has inherent strengths
and weaknesses, and the nature of the available information may further affect
the value of particular techniques. The conclusions reached by BancAmerica
Robertson Stephens are based on all analyses and factors taken as a whole and
also on application of BancAmerica Robertson Stephens' own experience and
judgment. Such conclusions may involve significant elements of subjective
judgment and qualitative analysis. BancAmerica Robertson Stephens therefore
gives no opinion as to the value or merit standing alone of any one or more
parts of the analysis it performed. In performing its analyses, BancAmerica
Robertson Stephens considered general economic, market and financial conditions
and other matters, many of which are beyond the control of IA and IQ. The
analyses performed by BancAmerica Robertson Stephens are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, analyses
relating to the value of a business do not purport to be appraisals or to
reflect the prices at which the business actually may be purchased. Furthermore,
no opinion is being expressed as to the prices at which shares of IA Common
Stock may be traded at any future time.
The BancAmerica Robertson Stephens Engagement Letter provides that, for its
services, BancAmerica Robertson Stephens is entitled to receive, contingent upon
consummation of the Merger, a transaction fee based upon the Aggregate
Transaction Value (as defined in the BancAmerica Robertson Stephens Engagement
Letter). IA has also agreed to reimburse BancAmerica Robertson Stephens for
certain of its out-of-pocket expenses and to indemnify and hold harmless
BancAmerica Robertson Stephens and its affiliates and any person, director,
employee or agent of BancAmerica Robertson Stephens or any of its affiliates, or
any person controlling BancAmerica Robertson Stephens or its affiliates for
certain losses, claims, damages, expenses and liabilities relating to or arising
out of services provided by BancAmerica Robertson Stephens as financial advisor
to IA. The terms of the fee arrangement with BancAmerica Robertson Stephens,
which IA and BancAmerica Robertson Stephens believe are customary in
transactions of this nature, were negotiated at arm's length between IA and
BancAmerica Robertson Stephens, and the IA Board was aware of such fee
arrangements, including the fact that a significant portion of the fees payable
to BancAmerica Robertson Stephens is contingent upon completion of the Merger.
In addition, BancAmerica Robertson Stephens served as lead underwriter on IA's
initial public offering in December 1997 for which it received certain
underwriting commissions.
BancAmerica Robertson Stephens was retained based on BancAmerica Robertson
Stephens' experience as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally, as well as BancAmerica
Robertson Stephens' investment banking relationship and familiarity with IA.
BancAmerica Robertson Stephens is a nationally recognized investment
banking firm. As part of its investment banking business, BancAmerica Robertson
Stephens is frequently engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
other purposes. BancAmerica Robertson Stephens may actively trade the equity
securities of IA and IQ for its own account and for the account of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
OPINION OF IQ'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated June 3, 1998 (the "First Albany
Engagement Letter"), IQ engaged First Albany to act as its exclusive financial
advisor in connection with evaluating an offer from IA to acquire IQ on the
terms and conditions set forth in the Plan of Merger. First Albany is a
nationally recognized firm and, as part of its investment banking activities, is
regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. IQ selected
First Albany as its financial advisor on the basis of its experience and
expertise in transactions similar to the Merger and its reputation as an
investment banker in transactions involving high-technology companies.
At the June 26, 1998 meeting of the IQ Board, First Albany delivered its
oral opinion, confirmed in writing as of June 26, 1998 that the consideration to
be received by IQ's stockholders in the Merger, when
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taken as a whole, is fair to IQ's stockholders from a financial point of view.
The amount of such consideration was determined pursuant to negotiations between
IQ and IA and not pursuant to recommendations of First Albany. No limitations
were imposed by IQ on First Albany with respect to the investigations made or
procedures followed in rendering its opinion.
THE FULL TEXT OF THE FIRST ALBANY OPINION TO THE IQ BOARD, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF REVIEW BY FIRST
ALBANY, IS ATTACHED HERETO AS APPENDIX C, AND IS INCORPORATED HEREIN BY
REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH
THIS PROXY STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF THE FIRST ALBANY
OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. THE FIRST ALBANY OPINION IS ADDRESSED TO THE IQ BOARD ONLY AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY IQ STOCKHOLDERS AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE IQ SPECIAL MEETING. IN FURNISHING ITS OPINION, FIRST ALBANY
DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS
USED IN THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER,
OR THAT ITS OPINION IS A REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF
THE SECURITIES ACT, AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE FIRST
ALBANY OPINION. FIRST ALBANY HAS NOT ASSUMED RESPONSIBILITY FOR PERFORMING THE
LEVEL OF DILIGENCE OR INDEPENDENT VERIFICATION THAT WOULD BE REQUIRED FOR IT TO
RENDER A REPORT OR VALUATION FOR PURPOSES OF THE SECURITIES ACT. ACCORDINGLY,
FIRST ALBANY BELIEVES THAT THE FIRST ALBANY OPINION SHOULD NOT BE ACCORDED THE
DEGREE OF RELIANCE PLACED ON SUCH REPORTS AND VALUATIONS.
First Albany has informed IQ that in arriving at its opinion, First Albany,
among other matters: (i) reviewed certain publicly available financial and other
data with respect to IQ and IA, including the consolidated financial statements
for the years ended January 31, 1998 and 1997, financial statements for the
quarter ended April 30, 1998 for IQ and IA, and certain other relevant financial
and operating data relating to IQ and IA made available to First Albany from
published sources and from the internal records of IQ and IA; (ii) reviewed the
financial terms and conditions of the Plan of the Merger; (iii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, the IQ Common Stock and IA Common Stock; (iv) compared IQ and IA from a
financial point of view with certain other companies in the business
intelligence software industry which it deemed to be relevant; (v) considered
the financial terms, to the extent publicly available, of selected recent
business combinations of business intelligence software companies and the larger
software sector which it deemed to be comparable; (vi) reviewed and discussed
with representatives of the management of IQ and IA certain information of a
business and financial nature regarding IQ and IA furnished to First Albany by
such companies, including financial forecasts and related assumptions of IQ and
IA; and (vii) performed such other analyses and examinations that it deemed
appropriate.
In preparing the First Albany Opinion, First Albany did not assume any
obligation independently to verify the financial and other information reviewed
by it for purposes of its opinion and relied on its accuracy and completeness in
all material respects. With respect to the financial forecasts for IQ and IA
provided to First Albany by their respective managements, First Albany assumed
for purposes of its opinion that the forecasts (including the assumptions
regarding anticipated operational efficiencies) were reasonably prepared on
bases reflecting the best available estimates and judgments by their respective
managements at the time of preparation as to the future financial performance of
the combined company following the Merger, and that they provided First Albany a
reasonable basis upon which First Albany could form its opinion. First Albany
assumed that there had been no material changes in IQ's or IA's assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to First
Albany. First Albany relied on advice of counsel and independent accountants to
IQ as to all legal and financial reporting matters with respect to IQ, the
Merger and the Plan of Merger, including the legal status and financial
reporting of litigation involving IQ. First Albany also assumed that the Merger
will be consummated (i) in a manner that complies in all respects with the
applicable provisions of the Securities Act, the Exchange Act and all other
applicable federal and state statutes, rules and regulations, and (ii) in
accordance with the terms described in the Plan of Merger, without any further
amendments thereto, and without waiver by IQ of any of the conditions to its
obligations thereunder. In addition, First Albany did not make an independent
evaluation, appraisal or physical inspection of any of the assets or liabilities
(contingent or otherwise) of IQ or IA, and was not furnished with any such
appraisals. First Albany assumed, based on advice by IQ, that the Merger will be
recorded as a "pooling of interests" under generally accepted accounting
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principles. Finally, the First Albany Opinion is based on economic, financial
and securities market and other conditions as in effect on, and the information
made available to it as of June 26, 1998.
Set forth below is a brief summary of material analyses presented by First
Albany to the IQ Board on June 26, 1998 and in connection with the First Albany
Opinion.
Comparable Public Company Analysis. Using public and other available
information, First Albany analyzed and compared selected data and ratios for IQ
to the corresponding data and ratios of certain other companies in the software
industry whose securities are publicly traded and which First Albany believes
have operating, market valuation and trading valuations similar to what might be
expected of IQ. These companies included Business Objects S.A., Comshare, Inc.,
Gentia Software plc ADR, Prism Solutions, and Red Brick Systems (collectively,
the "Comparable Companies"). Primary multiples, data and ratios compared by
First Albany included the cash normalized-revenue multiple, which was derived by
subtracting each company's cash balances from its market valuation and dividing
the result by latest twelve month revenues ("LTM"), estimated forward twelve
month ("FTM") revenues and market value as a multiple of estimated 1998 and 1999
calendar year earnings per share ("EPS"). The multiples for IQ were based on the
implied equity value of IQ given the Exchange Ratio and IA's closing stock price
as of June 23, 1998. All multiples for the Comparable Companies were based on
closing stock prices as of June 23, 1998 and, with respect to estimates of
future performance for the Comparable Companies, on analysts reports and other
publicly available information. First Albany relied on revenue multiples since
most of the Comparable Companies do not have positive EPS estimates, which
render a price-to-earnings multiple comparison meaningless. First Albany
observed that IQ is valued at 1.9x LTM revenues verses 1.3x LTM revenues for the
Comparable Companies and 1.6x FTM revenues versus 1.1x FTM revenues for the
Comparable Companies. Applying the average multiple for the Comparable Companies
of LTM revenues of 1.3x to corresponding financial data for IQ resulted in an
equity reference of $9.24 per share. Applying the average multiple for the
Comparable Companies of FTM revenues of 1.1x to corresponding financial data for
IQ resulted in an equity reference of $9.28 per share. These equity references
compared to the equity value implied by the Exchange Ratio of approximately
$13.50 per share based on the closing price of IA Common Stock on June 26, 1998.
Precedent Transaction Analysis. First Albany examined the consideration
paid, to the extent publicly available, in a number of acquisitions of
publicly-traded technology companies. The transactions reviewed for this
analysis included seventeen acquisitions completed or announced between
September 5, 1997 and March 17, 1998. First Albany compared, among other things,
the percentage premiums represented by the consideration paid in such
transactions over the market price for IQ Common Stock at one day prior to
announcement of the transaction. This analysis yielded median premiums of
approximately 28% for such time period for the seventeen transactions involving
companies most comparable to IQ and IA. First Albany observed that the premium
offered for this transaction was 25% or 3% below the median of acquisitions
involving other publicly-traded technology companies over this six month period.
Exchange Ratio Analysis. First Albany reviewed the ratios of the prices of
IQ Common Stock to IA Common Stock over the six month period ended June 19, 1998
and computed the premium over these ratios represented by the Exchange Ratio. On
average, the closing price of IQ Common Stock has been 1.24x that of IA Common
Stock for the six month period ended June 19, 1998. First Albany observed that
the Exchange Ratio, which is 1.96 shares of IA Common Stock for each share of IQ
Common Stock, represents a premium of approximately 60% over the average
exchange ratio.
Discounted Cash Flow Analysis. First Albany performed discounted cash flow
analyses for IQ based on a range of earnings estimates for IQ for the fiscal
years 2000 through 2003. The analyses aggregated (a) the present value of the
projected after tax cash flow (defined as after tax operating earnings of IQ
adjusted to add back non-cash expenses and deduct uses of cash not reflected in
the income statement), through 2003 and (b) the present value of a range of
terminal values for the year 2003.
The terminal multiple for IQ was determined by its current LTM
price-to-earnings multiple of 15x. Such analysis indicated a net present value
of approximately $50.3 million or approximately $10.70 dollars per share of IQ
Common Stock, compared to the $63 million, or $13.50 per share, implied equity
value of IQ given the Exchange Ratio and IA's closing stock price as of June 26,
1998.
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While the foregoing summary describes all analyses and examinations that
First Albany deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually performed by First Albany.
The preparation of a fairness opinion necessarily is not susceptible to partial
analysis or summary description. First Albany believes that such analysis and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses and of the factors considered, without considering all
such analysis and factors, would create an incomplete view of the analyses set
forth in its presentation to the IQ Board. In addition, First Albany may have
given various analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis should not be
taken to be First Albany's view of the actual value of IQ, IA or the combined
company.
In performing its analyses, First Albany made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of IQ or IA. The analyses
performed by First Albany are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of First
Albany's analysis of the fairness of the Merger to IQ's stockholders from a
financial point of view and were provided to the IQ Board in connection with the
delivery of the First Albany Opinion. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or at any time
in the future. First Albany used in certain of its analyses various projections
of future results prepared by the managements of IQ and IA. The projections are
based on numerous variables and assumptions which are inherently unpredictable
and must be considered not certain of occurrence as projected. Accordingly,
actual results could vary significantly from those set forth in such
projections.
As described above, the First Albany Opinion and presentation to the IQ
Board were among the many factors taken into consideration by the IQ Board in
making its determination to approve, and to recommend that its stockholders
approve, the Merger.
Pursuant to the First Albany Engagement Letter dated June 3, 1998, IQ paid
First Albany a retainer fee of $25,000. Upon the distribution to the
stockholders of IQ of this Joint Proxy Statement/Prospectus, IQ will be
obligated to pay First Albany a fee of $175,000. Upon consummation of the
Merger, IQ will become obligated to pay First Albany a fee of $225,000. IQ has
also agreed to reimburse First Albany for its reasonable out-of-pocket expenses
up to $25,000. Pursuant to a separate Indemnification and Contribution
Agreement, IQ has agreed to indemnify First Albany, its affiliates, and their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against certain liabilities, including liabilities under the
federal securities laws.
In the ordinary course of its business, First Albany makes a market in IQ
Common Stock and IA Common Stock. In the course of its market making and other
trading activities, First Albany may from time to time have long or short
positions in and buy, and sell equity securities of, IQ or IA. Other than acting
as IQ's financial advisor in connection with, and having participated in certain
of the negotiations leading to, the Plan of Merger, First Albany has not
provided any investment banking services to IQ. First Albany acted as one of the
three co-managing underwriters of IA's initial public offering of IA Common
Stock in December 1997.
CONVERSION OF IQ SHARES
Upon consummation of the Merger, pursuant to the Plan of Merger, each
issued and outstanding share of IQ Common Stock (other than shares owned by IA
or by IQ or any subsidiary of IQ), will be converted into the right to receive
1.96 shares of IA Common Stock. Based upon the number of outstanding shares of
IA Common Stock and IQ Common Stock as of August 14, 1998, the stockholders of
IQ immediately prior to the consummation of the Merger will own approximately
36.4% (including shares issuable upon the exercise of outstanding options to
purchase shares of IA Common Stock and IQ Common Stock) of the outstanding
shares of IA Common Stock immediately following consummation of the Merger. If
any holder of shares of IQ Common Stock would be entitled to receive a number of
shares of IA Common Stock that includes a
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fraction, then, in lieu of a fractional share, such holder will be entitled to
receive cash in an amount equal to such fractional share of IA Common Stock
multiplied by the average of the last reported sales price of IA Common Stock,
as reported on the Nasdaq National Market, on each of the ten trading days
immediately preceding the Closing Date. Each share of Merger Sub Common Stock
issued and outstanding immediately prior to the Effective Time will be converted
into one share of IQ Common Stock.
As soon as reasonably practicable after the Effective Time, Norwest Bank
Minnesota, National Association (the "Exchange Agent") will mail transmittal
forms and exchange instructions to each holder of record of IQ Common Stock to
be used to surrender and exchange certificates formerly evidencing shares of IQ
Common Stock for certificates evidencing the shares of IA Common Stock to which
such holder has become entitled. After receipt of such transmittal forms, each
holder of certificates formerly representing IQ Common Stock will be able to
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange therefor certificates evidencing the number of whole shares
of IA Common Stock to which such holder is entitled and any cash which may be
payable in lieu of a fractional share of IA Common Stock.
After the Effective Time, each certificate formerly representing IQ Common
Stock, until so surrendered and exchanged, shall be deemed, for all purposes, to
evidence only the right to receive the number of whole shares of the IA Common
Stock that the holder of such certificate is entitled to receive in the Merger
and any cash payment in lieu of a fractional share of the IA Common Stock. The
holder of such unexchanged certificate will not be entitled to receive any
dividends or other distributions payable by the combined company until the
certificate has been exchanged. Subject to applicable laws, following surrender
of such certificates, such dividends and distributions, together with any cash
payment in lieu of a fractional share of the IA Common Stock, will be paid
without interest. IQ STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE A TRANSMITTAL FORM.
REPRESENTATIONS AND WARRANTIES
The Plan of Merger contains various customary representations and
warranties relating to, among other things, (a) due organization, valid
existence, good standing and certain similar corporate matters; (b) capital
structure; (c) authorization, execution, delivery and enforceability of the Plan
of Merger and the consummation of the transactions contemplated by the Plan of
Merger and related matters; (d) no conflicts under charters or by-laws, required
consents or approvals and no violations of any instruments or law; (e) documents
and financial statements filed with the SEC and the accuracy of information
contained therein; (f) undisclosed liabilities; (g) the absence of certain
material adverse events, changes or effects; (h) taxes and tax returns; (i)
properties; (j) intellectual property; (k) agreements, contracts and
commitments; (l) litigation; (m) environmental matters; (n) employee benefits
and plans; (o) compliance with laws; (p) accounting and tax matters relating to
the Merger; (q) the accuracy of information supplied in connection with the
Registration Statement (as defined in the Plan of Merger) and this Joint Proxy
Statement/ Prospectus; (r) labor matters; (s) insurance; (t) the absence of
existing discussions with other parties with respect to IQ; (u) opinions of
financial advisors; (v) insider trading policies and practices of IQ; and (w)
the interim operations of Merger Sub.
CERTAIN COVENANTS
Pursuant to the Plan of Merger, IQ has agreed that, during the period from
the date of the Plan of Merger until the Effective Time, except as otherwise
consented to in writing by IA or as contemplated by the Plan of Merger, it and
each of its subsidiaries will: (a) carry on its business in the ordinary course
in substantially the same manner as previously conducted; (b) pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, and pay
or perform other obligations when due; (c) use reasonable efforts to preserve
intact its present business organization, management team and business
relationships; (d) not accelerate, amend or change the period of exercisability
of options or restricted stock granted under any employee stock plan or
authorize cash payments in exchange for any options granted under any employee
stock plan, except as required pursuant to the stock plan or any related
agreement; (e) not declare or pay any dividends on or make other distributions
in respect of any of its capital stock, not effect certain other changes
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in its capitalization, and not purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with the termination of service; (f) not
issue or sell, or authorize or propose the issuance or sale of, any shares of
its capital stock or securities convertible into shares of its capital stock, or
any subscriptions, rights, warrants or options to acquire or other agreements
obligating it to issue any such shares or other convertible securities, subject
to certain exceptions including the grant of options to purchase less than an
aggregate of 150,000 shares of IQ Common Stock consistent with past practices to
new employees who are not executives of IQ and the issuance of shares upon the
exercise of outstanding stock options; (g) not make any material acquisitions;
(h) not sell, lease, license or otherwise dispose of material properties or
assets outside the ordinary course of business; (i) not increase the
compensation payable to its officers or employees (except for increases to
non-officer employees consistent with past practices), grant additional
severance or termination pay, enter into employment or severance agreements,
enter into any collective bargaining agreement (other than as required by law)
or establish, adopt, enter into or amend any plan for the benefit of its
directors, officers, or employees; (j) not amend its Articles of Incorporation
or Bylaws, except as contemplated by the Plan of Merger; (k) not incur
indebtedness for money borrowed other than pursuant to credit agreements in
effect as of the date of the Plan of Merger; (l) not initiate, compromise or
settle any material litigation or arbitration proceeding (other than as a result
of breach of the Plan of Merger); (m) not modify, amend or terminate any
material contract or waive, release or assign any material claim except in the
ordinary course of business; (n) not make any material tax election other than
in the ordinary course of business and consistent with past practice, and not
change in any material respect its accounting methods, principles or practices
(except as may be required by generally accepted accounting principles). In
addition, IQ shall notify IA promptly following the execution by IQ or any of
its subsidiaries of any agreement providing for the receipt of amounts in excess
of $500,000 or payment of amounts in excess of $50,000.
IA has agreed to promptly notify IQ of any material event or occurrence
whether or not incurred in the ordinary course of business. Pursuant to the Plan
of Merger, each of IA and IQ has agreed to provide each other reasonable access
to their respective representatives, personnel, assets and facilities and to all
books, records, tax returns, work papers and other documents related to the
companies and copies of such.
Pursuant to the Plan of Merger, IA and IQ each agree to use best efforts to
(i) take all appropriate action to consummate the transactions contemplated by
the Plan of Merger as promptly as practical, (ii) obtain any consents, licenses,
permits, waivers, approvals, authorizations or orders from Governmental Entities
(as defined in the Plan of Merger) or other third parties required in connection
with the transactions contemplated by the Plan of Merger and (iii) make all
necessary filings and submissions with respect to the transactions contemplated
by the Plan of Merger under federal, state and foreign securities laws,
antitrust laws and other applicable laws. IA and IQ also agree to use their best
efforts to obtain any governmental clearances or approvals under antitrust law
required for the closing of the Merger, including contesting and resisting
governmental action and having vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order that would prohibit the Merger or
any transactions contemplated by the Plan of Merger. Notwithstanding the
foregoing, neither IA nor IQ is required to take any action that would
reasonably be expected to have a material adverse effect on IA or IQ.
Pursuant to the Plan of Merger, IA and IQ have agreed to execute a Reseller
Agreement with respect to IQ's products. See "-- Reseller Agreement."
NO SOLICITATION
The Plan of Merger provides that IQ will not, directly or indirectly,
through any officer, director, employee, financial advisor, representative,
subsidiary or agent of such party, (i) take any action to solicit, initiate or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of substantial assets, sale of shares of capital stock
(including without limitation by way of a tender offer) or similar transaction
involving IQ or any of its subsidiaries, other than the transactions
contemplated by the Plan of Merger (any of the foregoing inquiries or proposals
being referred to as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person or
entity relating to, any
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Acquisition Proposal, or (iii) agree to or recommend any Acquisition Proposal;
provided, however, that nothing contained in the Plan of Merger shall prevent IQ
or the IQ Board, to the extent the IQ Board determines in good faith, based upon
and consistent with advice received in consultation with outside legal counsel,
that fiduciary duties to stockholders under applicable law so require, from (a)
furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal by such person or entity or recommending an
unsolicited bona fide written Acquisition Proposal to the stockholders of such
party, if and only to the extent that (1) the IQ Board believes in its good
faith reasonable judgment (based upon and consistent with advice received in
consultation with independent financial and legal advisors) that such
Acquisition Proposal is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to be
derived from the Merger and the long-term prospects of IQ and IA as a combined
company, would, if consummated, result in a transaction more favorable over the
long term from a financial point of view than the transaction contemplated by
the Plan of Merger (any such more favorable Acquisition Proposal being referred
to as a "Superior Proposal") and the IQ Board determines in good faith after
consultation with, and based upon and consistent with advice received from,
outside legal counsel that such action is necessary for the IQ Board to comply
with its fiduciary duties to stockholders under applicable law and (2) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, the IQ Board of Directors receives
from such person or entity an executed confidentiality agreement with terms no
less favorable to such party than those contained in the agreement dated June
17, 1998 between IA and IQ, and provided such non-public information has been
previously delivered to the IA Board and IQ advises IA in writing of such
disclosure or negotiations, including the party to whom disclosed or with whom
discussions or negotiations will occur; or (b) complying with Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal.
IQ is required to promptly notify IA (orally and in writing) upon receipt
of any Acquisition Proposal or request for non-public information or access to
its properties, books or records in connection with an Acquisition Proposal.
INTERESTS OF CERTAIN PERSONS
As of the IQ Record Date, directors and executive officers of IQ and their
affiliates beneficially owned an aggregate of 532,104 shares of IQ Common Stock
(excluding 74,750 shares of IQ Common Stock subject to unexercised stock
options). Based on the last reported sales price for IA Common Stock on August
19, 1998 of $6.625, the aggregate dollar value of the shares of IA Common Stock
to be received in the Merger by the executive officers and directors of IQ and
their affiliates (excluding shares subject to stock options) is approximately
$6.9 million.
The directors and executive officers of IQ have agreed to vote all shares
of IQ Common Stock under their control in favor of the IQ Merger Proposal and
have executed voting agreements and granted irrevocable proxies to IA. See
"-- Voting Agreements."
The Plan of Merger provides that Charles R. Chitty, the Chairman of the
Board, President and Chief Executive Officer of IQ shall become a member of the
IA Board following the Effective Time. In addition, Mr. Chitty will enter into a
three year employment and consulting agreement with IA, effective upon the
Effective Time, whereby Mr. Chitty will assume the role of IA's Senior Vice
President of Vertical Applications. See "-- Employment Agreement."
Certain of the stock option agreements held by executive officers of IQ,
provide for the acceleration of existing vesting provisions in the event of a
change of control of IQ such as the Merger. As a result of such provisions,
options to purchase 45,000 additional shares of IQ Common Stock will vest on the
Effective Date. See "-- IQ Stock Option Plans."
Pursuant to the Plan of Merger, IA has agreed that the surviving
corporation shall indemnify each person who was an officer or director of IQ
against certain liabilities. See "-- Director and Officer Indemnification."
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As a result of the foregoing transactions and agreements, certain of the
directors and executive officers of IQ have personal interests in the Merger and
Plan of Merger that are not identical to the interests of IQ stockholders.
VOTING AGREEMENTS
In connection with the Plan of Merger, the IQ directors, executive officers
and their affiliates (the "Voting Agreement Stockholders") have executed Voting
and Irrevocable Proxy Agreements in favor of IA (the "Voting Agreements").
Pursuant to the Voting Agreements, the Voting Agreement Stockholders (who
beneficially own an aggregate of 532,104 outstanding shares of IQ Common Stock
representing approximately 11.4% of the outstanding shares of IQ Common Stock on
the IQ Record Date) have agreed that they will vote all shares of IQ Common
Stock under their control (i) in favor of approval of the Plan of Merger and the
Merger and any matter that could reasonably be expected to facilitate the
Merger, and (ii) against approval of any proposal made in opposition to, or
competition with, consummation of the Merger and against any merger,
consolidation, sale of assets, reorganization or recapitalization, with any
party other than IA and its affiliates and against any liquidation or winding up
of IQ. The Voting Agreement Stockholders have also agreed not to solicit or
encourage any offer from any party concerning the possible disposition of all or
any substantial portion of IQ's business, assets or capital stock and in the
event the IQ Board does not call a stockholder meeting to approve the Merger,
the Voting Agreement Stockholders have agreed to take all action necessary to
call a stockholder meeting to approve the Merger or to approve the Merger by
written consent. In order to effectuate the foregoing, the Voting Agreement
Stockholders have also appointed IA as their irrevocable proxy with respect to
the matters covered by the Voting Agreement. A copy of the form of Voting
Agreement included as an exhibit to the Plan of Merger contained in Appendix A
to this Joint Proxy Statement/Prospectus.
RESALE OF IA COMMON STOCK; AGREEMENTS WITH AFFILIATES
The shares of IA Common Stock to be issued in the Merger have been
registered under the Securities Act and will be freely transferable, subject to
certain limitations on resale described in this Joint Proxy
Statement/Prospectus. As a condition to the obligations of the parties under the
Plan of Merger, IA and IQ have each received agreements from each person or
entity who may be deemed an affiliate (as defined in the Securities Act and the
rules and regulations thereunder) of IA or IQ, pursuant to which such persons
have agreed not to sell, transfer or otherwise dispose of shares of IQ Common
Stock or IA Common Stock for 30 days prior to the Effective Time and until such
time after the Effective Time as IA has publicly released a report including the
combined financial results of IA and IQ for a period of at least 30 days of
combined operations of IA and IQ. Furthermore, pursuant to such agreements, the
affiliates of IQ have agreed to refrain from the sale or transfer of any IA
Common Stock received in connection with the Merger, except in accordance with
the provisions of the Securities Act and the general rules and regulations
thereunder. Copies of the forms of agreements executed by affiliates of IA and
IQ are included as exhibits to the Plan of Merger contained in Appendix A to
this Joint Proxy Statement/Prospectus. See "Risk Factors -- Pooling of
Interests" and "-- Shares Eligible for Public Sale."
RELATED MATTERS AFTER THE MERGER
At the Effective Time, (i) Merger Sub will be merged with and into IQ and
IQ will be the surviving corporation and a wholly-owned subsidiary of IA. The
Articles of Incorporation of Merger Sub, as in effect immediately prior to the
Effective Time, shall become the Articles of Incorporation of IQ at the
Effective Time. The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall become the Bylaws of IQ at the Effective Time.
IQ STOCK OPTION PLANS
At the Effective Time, each outstanding option to purchase shares of IQ
Common Stock (an "IQ Stock Option"), whether vested or unvested, shall be deemed
to constitute an option to acquire, on the same terms and conditions as were
applicable under such IQ Stock Option, the same number of shares of IA Common
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Stock as the holder of such IQ Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time (rounded downward to the nearest whole number) at a
price per share (rounded upward to the nearest whole cent) equal to (x) the
aggregate exercise price for the shares of IQ Common Stock purchasable pursuant
to such IQ Stock Option immediately prior to the Effective Time divided by (y)
the number of whole shares of IA Common Stock deemed purchasable pursuant to
such IQ Stock Option as determined above. As of August 14, 1998, options to
acquire 664,275 shares of IQ Common Stock were outstanding.
Certain of the outstanding stock option agreements held by IQ executive
officers provide for the acceleration of existing vesting provisions in the
event of a change of control of IQ such as the Merger. These options provide for
the purchase of up to 45,000 additional shares of IQ Common Stock at prices
ranging from $6.81 to $12.00.
At the Effective Time, the combined company will assume (i) the IQ Stock
Options and (ii) IQ's Stock Option Plans as in effect as of the date of the Plan
of Merger and all obligations under such plans. Under the Plan of Merger, IA has
agreed to reserve for issuance a sufficient number of shares of IA Common Stock
for delivery under such IQ Stock Plans assumed as described above. As soon as
practicable after the Effective Time, IA shall file a registration statement on
Form S-8, with respect to the shares of IA Common Stock subject to such options
and shall use its best efforts to maintain the effectiveness of such
registration statement for so long as such options remain outstanding.
DIRECTOR AND OFFICER INDEMNIFICATION
The Plan of Merger provides that, from and after the Effective Time, the
surviving corporation shall indemnify and hold harmless each present and former
director and officer of IQ against all costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that IQ would have been permitted under GCC and its
Articles of Incorporation, Bylaws or resolutions of the IQ Board in effect on
the date of the Plan of Merger to indemnify such person and the surviving
corporation shall also be obligated to advance expenses as incurred to the
fullest extent permitted under applicable law, provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification.
EMPLOYMENT AGREEMENT
The Plan of Merger provides that Charles R. Chitty, the Chairman of the
Board, President and Chief Executive Officer of IQ shall become a member of the
Board of Directors of IA following the Effective Time. In addition, pursuant to
the Plan of Merger, IA and Mr. Chitty have entered into an employment agreement,
to be effective upon the Effective Time, governing Mr. Chitty's employment with
IA. Mr. Chitty will serve as IA's Senior Vice President of Vertical
Applications. The term of Mr. Chitty's employment will commence on the date of
the Merger and continue until October 31, 1999. Mr. Chitty has also agreed that
at the end of the term of the employment agreement he will provide two-years of
consulting services commencing November 1, 1999 and continuing until October 31,
2001. Under the agreement Mr. Chitty will receive annual salaries of $225,000,
$235,000 and $175,000 through October 31, 2001. In addition, Mr. Chitty will be
eligible for bonuses, benefits and the grant of a stock option to purchase
20,000 shares of IA Common Stock under the IA 1997 Equity Incentive Plan. For
1998, Mr. Chitty's bonus plan is based upon his pre-existing compensation plan
with IQ. IA may terminate Mr. Chitty's employment for cause without notice and
without any further obligation to Mr. Chitty, and Mr. Chitty may terminate the
agreement if IA materially breaches the agreement. Mr. Chitty's options vest
over five years, provided that vesting of the options shall accelerate if Mr.
Chitty is not nominated to remain as a director of IA during such five-year
period or in the event of a Change of Control (as defined in the Employment
Agreement) of IA. Mr. Chitty has also agreed to execute IA's standard
noncompetition agreement to be applicable for the term of the employment and
consulting agreements.
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RESELLER AGREEMENT
The Plan of Merger provides that before the consummation of the Merger, IA
and IQ shall exercise a Reseller Agreement with respect to certain IQ products.
The Reseller Agreement, dated as of July 8, 1998, provides that IA is a
non-exclusive reseller of certain IQ software and shall pay IQ a license fee
based on sales of IQ software products. Among other things, IA has agreed to use
commercially reasonable efforts to continuously and aggressively market the IQ
software products and to employ, train and maintain adequate personnel to
promote the IQ software products. IQ has agreed among other things, to provide
certain training and sales support to IA and to provide certain maintenance and
support services to licensees of the IQ software products.
CONDITIONS
The respective obligations of IA and IQ to effect the Merger are subject to
the satisfaction of the following conditions: (a) the Plan of Merger and the
Merger shall have been approved and adopted by the affirmative vote of the
holders of a majority of the issued and outstanding shares of IA Common Stock
and 66 2/3% of the issued and outstanding shares of IQ Common Stock; (b) all
governmental authorizations, consents, orders or approvals of, or declarations
or filings with, or expirations of waiting periods, the failure of which to
file, obtain or occur is reasonably likely to have a material adverse effect on
IA or IQ shall have been filed, obtained or occurred; (c) the Registration
Statement (as defined in the Plan of Merger) shall have become effective and
shall not be the subject of a stop order or proceedings seeking a stop order;
(d) no order, executive order, stay, decree, injunction or judgment, or statute,
rule or regulation, shall be in effect that makes the Merger illegal or
otherwise prohibits the consummation of the Merger, or otherwise limits or
restricts IA's conduct or operation of the business of IQ and its subsidiaries
following the Merger in a manner that could reasonably be expected to have a
material adverse effect on the combination of IA and IQ after the Effective
Time; (e) the Merger will qualify for pooling of interests accounting treatment
if closed and consummated in accordance with the Plan of Merger; (see
"-- Accounting Treatment"); and (f) the shares of IA Common Stock to be issued
in the Merger shall have been approved for quotation on the Nasdaq National
Market.
In addition, the obligations of IA and Merger Sub to effect the Merger are
subject to the satisfaction of the following conditions any of which may be
waived in writing by IA: (i) the representations and warranties of IQ set forth
in the Plan of Merger shall be true and correct as of the date of the Plan of
Merger and (except to the extent such representations and warranties speak as of
an earlier date) as of the Closing Date as though made on and as of the Closing
Date, except for changes contemplated by the Plan of Merger and in the case of
representations and warranties that are not qualified as to materiality, where
the failures to be true and correct, individually or in the aggregate, have not
had and are not reasonably likely to have a material adverse effect on IQ or
upon the consummation of the transactions contemplated in the Plan of Merger,
and IA shall have received a certificate signed on behalf of IQ by IQ's chief
executive officer and chief financial officer to such effect; (ii) IQ shall have
performed in all material respects all obligations required to be performed by
it under the Plan of Merger at or prior to the Closing Date, and IA shall have
received a certificate signed on behalf of IQ by IQ's chief executive officer
and chief financial officer to such effect; (iii) each affiliate within the
meaning of Section 145 of the Securities Act of IQ shall have entered into an
Affiliate Agreement with IA pursuant to the Plan of Merger; (iv) IA shall have
received a written legal opinion to the effect that the Merger will be treated
for federal income tax purposes as a Reorganization (see "-- Certain Federal
Income Tax Considerations"); (v) IA shall have received a legal opinion from
IQ's legal counsel substantially in the form attached as an exhibit to the Plan
of Merger with such assumptions, qualifications and exceptions as are customary;
(vi) there shall not have occurred any material adverse change in the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations or prospects of IQ;
(vii) all the directors and executive officers of IQ have delivered an executed
proxy in favor of the Plan of Merger and the Merger; (viii) IQ shall have prior
to the Closing Date, provided IA with a properly executed Foreign Investment in
Real Property Tax Act of 1980 Notification Letter; (ix) Charles R. Chitty shall
have executed and delivered an employment agreement with IA (see "-- Employment
Agreement"); and (x) IQ and IA shall have executed the Reseller Agreement (see
"-- Reseller Agreement").
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In addition, the obligations of IQ to effect the Merger are subject to the
satisfaction of the following conditions any of which may be waived in writing
by IQ: (i) the representations and warranties of IA and Merger Sub in the Plan
of Merger shall be true and correct as of the date of the Plan of Merger and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except for changes contemplated by the Plan of Merger and in the case of
representations and warranties that are not qualified as to materiality, where
the failures to be true and correct, individually or in the aggregate, have not
had and are not reasonably likely to have a material adverse effect on IA or
upon the consummation of the transactions contemplated in the Plan of Merger,
and IQ shall have received a certificate signed on behalf of IA by IA's chief
executive officer and chief financial officer to such effect; (ii) IA shall have
performed in all material respects all obligations required to be performed by
it under the Plan of Merger at or prior to the Closing Date, and IQ shall have
received a certificate signed on behalf of IA by IA's chief executive officer
and chief financial officer to such effect; (iii) each Affiliate of IA shall
have entered into an Affiliate Agreement with IA pursuant to the Plan of Merger;
and (iv) IQ shall have received a written legal opinion to the effect that the
Merger will be treated for federal income tax purposes as a Reorganization (see
"-- Certain Federal Income Tax Considerations"); (v) IQ shall have received a
legal opinion from IA's legal counsel, in substantially the form attached as an
exhibit to the Plan of Merger, with such assumptions, qualifications and
exceptions as are customary; (vi) there shall not have occurred any material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations, results of
operations or prospects of IA; and (vii) the employment agreement with Charles
R. Chitty referenced in the Plan of Merger shall have been executed and
delivered by IA (see "-- Employment Agreement").
TERMINATION; TERMINATION FEES AND EXPENSES
The Plan of Merger may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of IA and IQ:
(a) by mutual written consent of IA and IQ; or
(b) by either IA or IQ if the Merger shall not have been consummated
by November 30, 1998 (the "Outside Date") (provided that the right to
terminate the Plan of Merger under this clause shall not be available to
any party whose failure to fulfill any obligation under the Plan of Merger
has been a significant cause of or resulted in the failure of the Merger to
occur on or before such date); or
(c) by either IA or IQ if a court of competent jurisdiction or other
Governmental Entity (as defined in the Plan of Merger) shall have issued a
nonappealable final order, decree or ruling or taken any other
nonappealable final action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; or
(d) by IA if, at the IQ Special Meeting (including any adjournment or
postponement), the requisite vote of the stockholders of IQ in favor of the
Plan of Merger and the Merger shall not have been obtained; or by IQ if, at
the IA Special Meeting (including any adjournment or postponement), the
requisite vote of the stockholders of IA in favor of the Plan of Merger and
the Merger shall not have been obtained (provided that the right to
terminate the agreement under this provision shall not be available to (i)
IA where the failure to obtain IA stockholder approval shall have been
caused by the action or failure to act of IA and such action or failure to
act constitutes a material breach by IA of the Plan of Merger, or (ii) IQ
where the failure to obtain IQ stockholder approval shall have been caused
by the action or failure to act of IQ and such action or failure to act
constitutes a material breach by IQ of the Plan of Merger); or
(e) by IA, if (i) the IQ Board shall have withdrawn or modified its
recommendation of the Plan of Merger or the Merger; (ii) the IQ Board shall
have recommended to the stockholders of IQ an Alternative Transaction;
(iii) a tender offer or exchange offer for 20% or more of the outstanding
shares of IQ Common Stock is commenced (other than by IA or an affiliate of
IA) and the IQ Board recommends that the stockholders of IQ tender their
shares in such tender or exchange offer; or (iv) for any reason IQ fails to
call and hold the IQ Special Meeting by the Outside Date (provided that
IA's right
46
<PAGE> 60
to terminate the Plan of Merger under such clause (iv) shall not be
available if at such time IQ would be entitled to terminate the Plan of
Merger by reason of a breach by IA of section (f) or (g) hereunder); or
(f) by IQ, if (i) the IA Board shall have withdrawn or modified its
recommendation of the Plan of Merger or the Merger or (ii) for any other
reason IA fails to call and hold the IA Special Meeting by the Outside Date
(provided that IQ's right to terminate the Plan of Merger under such clause
(ii) shall not be available if at such time IA would be entitled to
terminate the Plan of Merger under section(e) or (g) hereunder); or
(g) by IA or IQ, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth in
the Plan of Merger, which breach (i) causes certain IQ conditions (in the
case of a termination by IA) or IA conditions (in the case of a termination
by IQ) not to be satisfied and (ii) shall not have been cured within 20
business days (or prior to November 30, 1998, if earlier) following receipt
by the breaching party of written notice of such breach from the other
party.
In the event of termination of the Plan of Merger by either IA or IQ as
provided above, the Plan of Merger will become void and there will be no
liability or obligation on the part of IA, IQ, Merger Sub or their respective
officers, directors, stockholders or Affiliates, except as provided below with
respect to expense reimbursements and termination fees.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Plan of Merger and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, provided, however, that IA and IQ shall share equally all fees and
expenses, other than accountants' and attorneys' fees, incurred in relation to
printing and filing of this Joint Proxy Statement/Prospectus (including any
related preliminary materials) and the related Registration Statement (including
financial statements and exhibits) and any amendments or supplements.
IQ shall pay IA a termination fee (the "Termination Fee") of $2,240,000 in
immediately available funds within five business days after the termination of
the Plan of Merger by IA under the circumstances described in paragraph (e)
above.
IA shall pay IQ a termination fee in an amount equal to IQ's out-of-pocket
costs (including reasonable attorney and accountant fees) incurred in connection
with the transactions contemplated by the Plan of Merger (but in no event in
excess of $450,000) in immediately available funds within five business days
after the termination of the Plan of Merger by IQ pursuant to paragraph (f)
above.
CLOSING
The Merger will be completed on the date that the Certificate of Merger is
filed with the Office of the Secretary of State of the State of Georgia. The
Effective Time is expected to occur as soon as practicable after the receipt of
the necessary approvals at the IA Special Meeting and the IQ Special Meeting and
satisfaction or waiver of the other conditions precedent to the Merger, as set
forth in the Plan of Merger. It is anticipated that the Closing will occur
promptly after obtaining the necessary approvals at the IA Special Meeting and
the IQ Special Meeting.
AMENDMENT AND WAIVER
The Plan of Merger may be amended at any time by action taken or authorized
by the respective IA and IQ Boards, but after approval by the stockholders of IA
or IQ of the Merger, no amendment shall be made which by law requires further
approval by such stockholders, without such further approval. IA and IQ, by
action taken or authorized by their respective Boards of Directors, may extend
the time for performance of the obligations or other acts of the other parties
to the Plan of Merger, may waive any inaccuracies in the representations or
warranties contained in the Plan of Merger or in any document delivered pursuant
to the Plan of Merger and may waive compliance with any agreements or conditions
contained in the Plan of Merger.
47
<PAGE> 61
STOCK OPTION AGREEMENT
The following is a brief summary of the terms of the Stock Option
Agreement, a copy of which is included as an exhibit to the Plan of Merger and
incorporated herein by reference. This summary is qualified in its entirety by
reference to the Stock Option Agreement.
Pursuant to the Stock Option Agreement, IA has the right (the "Option"),
under the circumstances described below, to acquire up to 930,169 shares of
authorized but unissued IQ Common Stock (the "Option Shares") (or approximately
19.9% of the outstanding IQ Common Stock as of the date of execution of the
Stock Option Agreement prior to giving effect to the exercise of such option),
at the lowest of (i) $11.75 per share, (ii) the average closing price of IQ
Common Stock on the Nasdaq National Market for the five consecutive trading days
beginning on and including the day that the Merger is publicly announced, and
(iii) the average closing price of IQ Common Stock on the Nasdaq National Market
for the five consecutive trading days immediately preceding the public
announcement of an Alternative Transaction involving IQ which gives rise to the
right to exercise the option (the "Option Price"). The Stock Option Agreement
could have the effect of making an acquisition of IQ by a third party more
costly because of the need to acquire in any such transaction the Option Shares,
and could also jeopardize the ability of a third party to acquire IQ in a
transaction accounted for as a pooling of interests.
The Option may be exercised by IA, in whole or in part, at any time or from
time to time after the occurrence of an event which would entitle IA, upon
termination of the Plan of Merger, to payment of the Termination Fee (as
described in "-- Termination; Termination Fees and Expenses" above). IA may
exercise the Option by either (a) paying the Option Price in cash and receiving
the Option Shares or (b) electing, in lieu of the payment of the Option Price
and the receipt of the Option Shares, to receive a cash payment (the "Cash
Exercise Payment") from IQ in the amount of the excess of (i) the higher of the
price paid for the IQ Common Stock in an Alternative Transaction or the then
current market price of the IQ Common Stock over (ii) the Option Price.
Upon exercise by IA of the Option for at least 465,085 shares of IQ Common
Stock, IA shall be entitled to designate one person to be appointed to the IQ
Board, and IQ shall (subject to certain limitations) cause such designee to be
appointed to the IQ Board.
In the event IA exercises the Option in whole or in part, IQ shall have a
right of first refusal with respect to certain sales by IA of the Option Shares
prior to the earlier of the first anniversary of the termination of the Plan of
Merger or the occurrence of a change in control event (as defined in the Stock
Option Agreement) with respect to IQ.
The Stock Option Agreement further provides that if IA desires to sell any
of the Option Shares within two years after the purchase of such shares and such
sale requires the registration of such shares under the Securities Act, IQ shall
be required to prepare and file (subject to certain limitations) a registration
statement under the Securities Act for the purpose of permitting such sale of
shares by IA. IQ shall not be required to have declared effective more than two
such registration statements.
Notwithstanding any other provisions of the Stock Option Agreement, in no
event shall IA's Total Profit (as defined below) exceed $3,200,000. "Total
Profit" means the aggregate amount (before taxes) of the Termination Fee
received by IA, and the net cash amounts received by IA pursuant to the sale of
Option Shares to any unaffiliated party, less the purchase price paid by IA for
such shares.
The Option shall terminate upon the earlier of (i) the Effective Time, (ii)
the date on which IA realizes a Total Profit of $3,200,000, (iii) 180 days after
the termination of the Plan of Merger or (iv) the termination of the Plan of
Merger, in the event the Plan of Merger is terminated by IQ pursuant to
paragraph (g) in "-- Termination; Termination Fees and Expenses"; provided that
if the Option cannot be exercised or the Shares cannot be delivered to IA
because certain conditions have not yet been satisfied, the date referred to in
clause (iii) above shall be extended until 30 days after such impediment to
exercise has been removed.
48
<PAGE> 62
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are applicable to holders of IQ
Common Stock. This discussion is based on currently existing provisions of the
Code, existing Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
IA, IQ or IQ's stockholders as described herein.
IQ stockholders should be aware that this discussion does not deal with all
federal income tax considerations that may be relevant to particular IQ
stockholders in light of their particular circumstances, such as stockholders
who are dealers in securities, who are subject to the alternative minimum tax
provisions of the Code, who are insurance companies or financial institutions,
who are foreign persons or entities, who do not hold their IQ Common Stock as
capital assets, who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions, who hold IQ Common
Stock as part of an integrated investment (including a "straddle") comprised of
shares of IQ Common Stock and one or more other positions, or who have
previously entered into a transaction deemed to result in a constructive sale of
IQ Common Stock under the Code. In addition, the following discussion does not
address the tax consequences of the Merger under foreign, state or local tax
laws, the tax consequences of transactions effectuated prior or subsequent to,
or concurrently with, the Merger (whether or not any such transactions are
undertaken in connection with the Merger), including without limitation any
transaction in which shares of IQ Common Stock are acquired or shares of IA
Common Stock are disposed of, or the tax consequences of the assumption by IA of
outstanding options and subscriptions to acquire IQ Common Stock. ACCORDINGLY,
IQ STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The consummation of the Merger is conditioned upon Gunderson Dettmer and
Miller & Martin delivering opinions (the "Final Tax Opinions") at the Closing to
IA and IQ, respectively, based upon facts and factual representations of IA,
Merger Sub and IQ as of the Closing Date. Assuming the Merger is a
Reorganization, then, subject to certain assumptions, limitations and
qualifications, the Merger should result in the following federal income tax
consequences:
(a) No gain or loss will be recognized by holders of IQ Common Stock
solely upon their receipt in the Merger of IA Common Stock in exchange
therefor (except to the extent of cash received in lieu of a fractional
share of IA Common Stock).
(b) The aggregate tax basis of the IA Common Stock received by IQ
stockholders in the Merger (including any fractional share of IA Common
Stock not actually received) will be the same as the aggregate tax basis of
the IQ Common Stock surrendered in exchange therefor.
(c) The holding period of the IA Common Stock received by each IQ
stockholder in the Merger will include the period for which the IQ Common
Stock surrendered in exchange therefor was considered to be held, provided
that the IQ Common Stock so surrendered is held as a capital asset at the
time of the Merger.
(d) Cash payments received by holders of IQ Common Stock in lieu of a
fractional share will be treated as if such fractional share of IA Common
Stock had been issued in the Merger and then redeemed by the combined
company. An IQ stockholder receiving such cash will recognize gain or loss,
with respect to such payment, measured by the difference (if any) between
the amount of cash received and the basis in such fractional share.
(e) Each of IA, Merger Sub and IQ will be a party to the
Reorganization, and as such will not recognize material amounts of gain or
loss directly as a result of the Merger.
Although IA and IQ will receive the Final Tax Opinions from their
respective counsel that the Merger will be treated as a Reorganization, a
recipient of shares of IA Common Stock could recognize gain to the extent that
such shares were considered to be received in exchange for services or property
(other than solely
49
<PAGE> 63
IQ Common Stock). All or a portion of such gain may be taxable as ordinary
income. Gain could also have to be recognized to the extent that a IQ
stockholder was treated as receiving (directly or indirectly) consideration
other than IA Common Stock in exchange for such stockholder's IQ Common Stock.
The parties will not request a ruling from the Internal Revenue Service
(the "IRS") in connection with the Merger. IQ stockholders should be aware that
neither the Exhibit Tax Opinions nor the Final Tax Opinions bind the IRS and the
IRS is therefore not precluded from successfully asserting a contrary opinion.
In addition, the Final Tax Opinions are subject to certain assumptions,
limitations and qualifications, including but not limited to the truth and
accuracy of certain representations made by IA, IQ and Merger Sub, including
representations in certain certificates to be delivered to counsel by the
respective managements of IA, IQ and Merger Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in IQ stockholders recognizing taxable gain or loss with respect to each
share of IQ Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time, of the IA Common Stock received in exchange therefor. In such event, a
stockholder's aggregate basis in the IA Common Stock so received would equal its
fair market value as of the Effective Time, and the stockholder's holding period
for such stock would begin the day after the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
purposes. Under this method of accounting, the recorded assets and liabilities
of IA and IQ will be carried forward to the combined company at their recorded
amounts, the operating results of the combined company will include the
operating results of IA and IQ for the entire fiscal year in which the
combination occurs, and the reported operating results of the separate companies
for prior periods will be combined and restated as the operating results of the
combined company. Each of the affiliates of IA and IQ has executed a written
agreement to the effect that such person will not transfer shares of common
stock of either IA or IQ during the period beginning 30 days prior to the
Effective Time and ending on the date that IA publishes financial statements,
which reflect 30 days of operations of the combined company (which agreements
relate to the ability of the combined company to account for the Merger as a
pooling of interests). See "-- Resale of IA Common Stock; Agreements with
Affiliates" and "Risk Factors -- Pooling of Interests."
It is a condition to the consummation of the Merger that, among other
things, the Merger qualify as a pooling of interests accounting under Accounting
Principles Board Opinion No. 16.
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<PAGE> 64
INFORMATION ADVANTAGE, INC.
AND
IQ SOFTWARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
have been prepared to give effect to the Merger, using the pooling-of-interests
method of accounting. IA's and IQ's fiscal years end on January 31.
The unaudited pro forma condensed combined balance sheet gives effect to
the Merger as if it had occurred on July 31, 1998 and combines the unaudited
consolidated balance sheet of IA and the unaudited condensed consolidated
balance sheet of IQ as of July 31, 1998.
The unaudited pro forma condensed combined statements of operations give
effect to the Merger as if it occurred as of the beginning of the earliest year
presented. The unaudited pro forma condensed combined statements of operations
for the fiscal years ended January 31, 1996, 1997 and 1998 combine IA's
historical statements of operations for the fiscal years ended January 31, 1996,
1997 and 1998 with IQ's historical statements of operations for the fiscal years
ended January 31, 1996, 1997 and 1998. The unaudited pro forma condensed
combined statements of operations for the six months ended July 31, 1997 and
1998 combine IA's historical unaudited statements of operations for the six
months ended July 31, 1997 and 1998 with IQ's historical unaudited statements of
income for the six months ended July 31, 1997 and 1998.
IA estimates that it will incur transaction costs of approximately $7.1
million associated with the Merger, which will be charged to operations when
incurred. There can be no assurance that the combined company will not incur
additional charges to reflect costs associated with the Merger or that
management will be successful in its efforts to integrate the operations of the
two companies. See "Risk Factors -- Cost of Integration; Transaction Expenses."
The following unaudited pro forma condensed combined financial information
is presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the Merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma condensed combined financial statements
are based upon the respective historical consolidated financial statements of IA
and IQ and should be read in conjunction with the respective historical
consolidated financial statements and notes thereto incorporated by reference in
this Joint Proxy Statement/Prospectus, and do not incorporate, nor do they
assume, any benefits from cost savings or synergies of operations of the
combined company.
51
<PAGE> 65
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF JULY 31, 1998
----------------------------------------------------
PRO FORMA PRO FORMA
IA IQ ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 9,618 $ 7,862 $ -- $ 17,480
Marketable securities.................... 9,434 9,497 -- 18,931
Accounts receivable, net................. 7,988 7,761 -- 15,749
Prepaid expenses and other current
assets................................ 1,370 908 -- 2,278
-------- ---------- ------- --------
Total current assets............. 28,410 26,028 -- 54,438
Furniture and equipment, net............... 2,715 985 -- 3,700
Capitalized software development costs and
purchased software, net.................. -- 1,588 -- 1,588
Goodwill, net.............................. -- 1,352 -- 1,352
Other assets............................... 94 177 -- 271
-------- ---------- ------- --------
$ 31,219 $ 30,130 $ -- $ 61,349
======== ========== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
liabilities........................... $ 271 $ -- $ -- $ 271
Accounts payable and accrued expenses.... 5,471 1,450 7,100 14,021
Deferred revenue......................... 4,348 2,079 -- 6,427
Income taxes............................. -- 515 -- 515
-------- ---------- ------- --------
Total current liabilities........ 10,090 4,044 7,100 21,234
Deferred income taxes and other long-term
liabilities, less current portion........ 166 514 -- 680
Stockholders' equity:
Common stock............................. 156 2 90 248
Additional paid-in capital............... 47,209 13,125 (90) 60,244
Retained earnings (accumulated
deficit).............................. (26,384) 12,447 (7,100) (21,037)
Accumulated other comprehensive income... (18) (2) -- (20)
-------- ---------- ------- --------
Total stockholders' equity....... 20,963 25,572 (7,100) 39,435
-------- ---------- ------- --------
$ 31,219 $ 30,130 $ -- $ 61,349
======== ========== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
52
<PAGE> 66
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
License................................................... $18,268 $23,676 $28,970
Service................................................... 9,229 12,749 21,325
------- ------- -------
Total revenues.................................... 27,497 36,425 50,295
------- ------- -------
Cost of revenues:
License................................................... 1,055 1,446 1,564
Service................................................... 4,593 6,471 10,855
------- ------- -------
Total cost of revenues............................ 5,648 7,917 12,419
------- ------- -------
Gross margin................................................ 21,849 28,508 37,876
------- ------- -------
Operating expenses:
Sales and marketing....................................... 13,928 22,535 28,064
Research and development.................................. 4,816 5,263 7,517
General and administrative................................ 5,662 6,750 6,559
Restructuring charges..................................... 1,282 -- --
Acquired research and development costs................... 3,587 -- 280
------- ------- -------
Total operating expenses.......................... 29,275 34,548 42,420
------- ------- -------
Operating loss.................................... (7,426) (6,040) (4,544)
Other income (expense)............................ 601 398 506
------- ------- -------
Loss before provision for (benefit from) income taxes....... (6,825) (5,642) (4,038)
Provision for (benefit from) income taxes................... (139) 669 506
------- ------- -------
Net loss.................................................... $(6,686) $(6,311) $(4,544)
======= ======= =======
Net loss per common share:
Basic..................................................... $ (0.71) $ (0.63) $ (0.38)
======= ======= =======
Diluted................................................... $ (0.71) $ (0.63) $ (0.38)
======= ======= =======
Weighted average number of common and common equivalent
shares outstanding:
Basic..................................................... 9,414 10,012 12,029
======= ======= =======
Diluted................................................... 9,414 10,012 12,029
======= ======= =======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
53
<PAGE> 67
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. PERIODS PRESENTED
IA's and IQ's fiscal years end on January 31. The unaudited pro forma
condensed combined statements of operations give effect to the Merger as if it
occurred as of the beginning of the earliest period presented. The unaudited pro
forma condensed combined balance sheet gives effect to the Merger as if it had
occurred on July 31, 1998, and is based upon the historical balance sheet data
of IA and IQ as of July 31, 1998.
2. PRO FORMA EARNINGS PER SHARE
The unaudited pro forma combined earnings per share data is based upon the
weighted average number of common and potential common shares outstanding of IA
and IQ for each period using an Exchange Ratio of 1.96 shares of IA Common Stock
for each share of IQ Common Stock.
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There were no material adjustments required to conform the accounting
policies of IA and IQ. Certain amounts have been reclassified to conform to the
pro forma presentation. There are no material intercompany transactions included
in the unaudited pro forma condensed combined financial statements.
4. TRANSACTION COSTS
It is estimated that the combined company will incur charges to operations
related to the Merger currently estimated to be $7.1 million, principally in the
quarter in which the Merger is consummated. These charges include direct
transaction costs, primarily for financial advisory, accounting and legal
services, printing expenses, filing fees and other Merger-related costs. The
estimated charge is reflected in the pro forma balance sheet but is not
reflected in the unaudited pro forma condensed combined statements of
operations. This charge is a preliminary estimate only, and is, therefore,
subject to change. See "Risk Factors -- Cost of Integration; Transaction
Expenses."
5. ISSUANCE OF IA COMMON STOCK
The unaudited pro forma condensed combined financial statements reflect the
issuance of 1.96 shares of IA Common Stock for each share of IQ Common Stock
outstanding. The following table sets forth the pro forma share issuances in
connection with the Merger (shares in thousands):
<TABLE>
<S> <C>
IQ Common Stock outstanding as of July 31, 1998............. 4,682,466
Exchange Ratio.............................................. 1.96 : 1.00
Number of shares of IA Common Stock to be exchanged......... 9,177,633
Number of shares of IA Common Stock outstanding as of July
31, 1998.................................................. 15,621,931
Number of shares of IA Common Stock outstanding after
completion of the Merger.................................. 24,799,564
</TABLE>
Additionally at the Effective Time, all outstanding options to purchase IQ
Common Stock will be exchanged for options to purchase IA Common Stock, based
upon the Exchange Ratio of 1.96. As of July 31, 1998, options to purchase
664,275 shares of IQ Common Stock were outstanding.
54
<PAGE> 68
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. The following selected supplemental unaudited pro forma condensed
combined financial information is presented for illustrative purposes and is not
necessarily indicative of the results of operations that would have actually
been reported had the Merger occurred at the beginning of the periods presented,
nor is it necessarily indicative of the future results of operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Revenues:
License................................................ $12,573 $18,350
Service................................................ 9,660 13,741
------- -------
Total revenues................................. 22,233 32,091
Income (loss) from operations............................ (3,857) 1,960
Net income (loss)........................................ $(3,750) $ 2,041
======= =======
Income (loss) per share:
Basic.................................................. $ (0.37) $ 0.08
======= =======
Diluted................................................ $ (0.37) $ 0.08
======= =======
Shares used to compute income (loss) per share:
Basic.................................................. 10,174 24,694
======= =======
Diluted................................................ 10,174 26,811
======= =======
</TABLE>
55
<PAGE> 69
INFORMATION CONCERNING IA
BUSINESS
OVERVIEW
IA 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. IA'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, IA 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.
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 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. 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 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
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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
IA develops, markets and supports enterprise scalable OLAP software that is
designed to allow large numbers of users to access and analyze large data sets.
IA'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, IA 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 IA 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
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 over-reliance 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.
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Mass Deployment for the Intelligent Enterprise. IA 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, IA 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. IA 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, IA 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
IA's strategy is to establish Information Advantage as the leading provider
of enterprise scalable OLAP software solutions. Key elements of IA's strategy
include:
Extend Technology Leadership. Since inception, IA 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. IA'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. IA 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 IA's customers, three are in production, and five are
currently building, terabyte-sized applications. IA 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
IA to further enhance DecisionSuite's functionality and performance.
Expand Vertical Market Focus. IA 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. IA has developed
significant vertical market expertise through the deployment of software
applications for its customers in these industries. IA 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. IA
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. IA sells its products primarily through direct
sales. IA also uses strategic partners to sell its products in targeted markets.
IA has direct sales offices in 12 states, Canada, the United Kingdom and
Germany, and has established strategic relationships in South Africa,
Netherlands and Japan. IA is presently localizing DecisionSuite for the French
and German markets. IA 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, IA anticipates localizing DecisionSuite for additional
foreign markets in the future.
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Expand Strategic Relationships. IA's strategy is to supplement its direct
sales organization with strategic relationships, including solution development
partners, sales affiliates and marketing partners. IA's solution development
partners, such as DynaMark, VIPS and IBM, have developed industry specific
software applications in which DecisionSuite is embedded. IA sells its products
directly to solution development partners who integrate and sell solutions to
customers. IA 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 IA during the sales and implementation cycles
and provide after-market support. In addition, IA 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 IA's position as the leading provider of enterprise
scalable OLAP software solutions. IA'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. IA'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.
IA's success is dependent upon its customers' successful implementations of its
products. IA 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. IA 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, IA 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 IA's revenues each period is derived from
upgrades and services provided to its installed customer base. IA 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 IA's customers who licensed DecisionSuite, or
entered into or renewed maintenance agreements, during fiscal 1998 and the first
two quarters of fiscal 1999.
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 (Canada)
Neiman-Marcus
Proffitt's Inc.
Quill Corporation
J. Sainsbury PLC (U.K.)
Sears Canada, Inc. (Canada)
Sears Roebuck, & Co.
Shopper's Drug Mart (Canada)
The Southland Corp.
The Stop & Shop Supermarket Company
Superdrug Stores, PLC (U.K.)
SuperValu
Tandy Corporation
Dayton Hudson Corporation, Target
Stores Division
The Sherwin-Williams Company
Tupperware Corporation
Tyson Foods, Inc.
The Warehouse Ltd. (New Zealand)
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
Amerin Guaranty Corporation
Banc One Services Corporation
Chevy Chase Bank, FSB
Chicago Mercantile Exchange
DynaMark, Inc.
Employers Insurance of Wausau
Fidelity Investments
Green Tree Financial Corporation
Honor Technologies, Inc.
Morgan Stanley Asset Management, Inc.
MasterCard International Incorporated
NOVUS Services, Inc.
Strong Capital Management, Inc.
T. Rowe Price Investment
Tamro Oyi (Finland)
Technologies, Inc.
The Bank of Nova Scotia (Canada)
Health Care
Fairview Health Systems
HBS International, Inc.
MCC Behavioral Care
The MedStat Group
Owen Healthcare, Inc.
TheraTx, Inc.
United HealthCare Corporation
VIPS (a division of First Data Corp.)
Insurance
Cigna-Intercorp, Inc.
CNA Insurance
Medical Service Bureau of Idaho/Blue Shield of
Idaho
Liberty Health (Canada)
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
360 degrees Communications Company
Aerial Communications, Inc.
APAC Teleservices, Inc.
BCTel (Canada)
Bell Sygma, Inc. (Canada)
CCC Information Services, Inc.
Market Insights
MCI Communications Corporation
Pacific Bell Communications
Pacific Bell Video Services
PrimeStar Partners, LP
Silicon Graphics Inc.
Government
Inland Revenue (U.K.)
Royal Navy (U.K.)
State of Washington Department of
Social and Health Services
Utah Courts
United States Customs Service
University of California, Berkeley
U.S. Patent and Trademark Office
Manufacturing
Amgen, Inc.
The Goodyear Tire and Rubber Company
Mattel, Inc.
Maytag Appliance Sales Company
Minnesota Mining and Manufacturing Company
Old Dutch Foods, Inc.
Polaroid Corporation
Rockwell International Corporation
Snap-On Tools Company
Other
Acxiom Corporation
The Automobile Association (U.K.)
Cargill, Inc.
Chrysler Corporation
Dana Computer Corporation
Electronic Data Systems Corporation
Excel Corporation
Federal Express Corporation
IBM Consumer Driven Solutions
KPMG Peat Marwick, LLP
MidAmerican Energy
Miller Brewing
Northwest Airlines, Inc.
NTT Data (Japan)
Oshawa Holdings Limited (Canada)
Perseco
Preview Travel, Inc.
The Reader's Digest Association, Inc.
Regie Media Belge S.A. (Netherlands)
TeleCheck Services, Inc.
Telekurs (Switzerland)
The West Group
Union Pacific Railroad Company
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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. IA 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. IA 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. IA 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.
PRODUCTS AND TECHNOLOGY
IA'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
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users over client/server and Internet architectures, and several systems
management, connectivity and database driver modules. IA also offers an advanced
tool kit for the rapid assembly of custom OLAP applications. IA'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. IA designed DecisionSuite's architecture to
be well suited for localization in foreign markets. IA licenses its
DecisionSuite software for a one-time license fee determined on a per server,
per named user, and database size basis.
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, IA'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. IA'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 IA's product.
Report Casting. IA'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
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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. IA'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 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.
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DecisionSuite Connections
DecisionSuite Connections provide connectivity with complementary OLAP and
productivity tools. To date, IA had 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.
SALES AND MARKETING
Sales
IA sells its products in North America and the United Kingdom primarily
through its direct sales and services organizations. IA employs highly skilled
engineers and technically proficient sales persons capable of serving the
sophisticated needs of its customers' information and business management
staffs. IA 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; Paris, France; and Koln, Germany.
To date, a majority of IA's sales have been generated from its direct sales
force. IA intends to supplement its sales efforts by implementing and supporting
its products through a network of solution development partners, sales
affiliates and marketing partners. IA'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.
IA has an ongoing program to recruit major systems integrators and to train
and support them in identifying sales opportunities and implementing IA's
products. IA is working with several of these affiliates to develop additional
applications for targeted markets, such as finance and banking, insurance,
telecommunications and retail. IA offers such sales affiliates discounts on
products and training, a cooperative marketing program, and field level
assistance from IA's direct sales force. IA currently has such a relationship
with Cambridge Technology Group, EDS, Ernst & Young, and KPMG.
IA 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, IA 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
IA's strategic partners customize IA's solutions to fit individual business
needs and develop industry-specific software applications that integrate with
and extend the functionality of IA's products. IA currently has solution
development partnerships with DynaMark, VIPS and IBM.
Marketing
IA is focused on building market awareness and acceptance of IA and its
products as well as on developing strategic partnerships. IA 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. IA's corporate image strategy includes trade shows, as well as analyst
and press tours. IA's direct marketing includes ongoing direct mail efforts to
existing and prospective customers. For prospective customers, IA 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. IA's Web-based marketing is designed to generate new
leads for IA. IA increases product awareness by sponsoring large scale events
and seminars for prospective customers with key industry partners. Finally, IA's
marketing strategy is designed to take advantage of IA's partnership network by
including cooperative marketing programs designed for partners' local markets.
IA's marketing partners include HP, Red Brick, Sun, SPSS and Brio.
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As of July 31, 1998, IA's sales and marketing organization consisted of 93
employees compared to 28, 70 and 82 employees at January 31, 1996, 1997 and
1998, respectively.
CUSTOMER SUPPORT
IA believes that providing superior customer service is critical for
customer success. IA's strategy is to deliver technology and services that
enable its customers to implement OLAP applications quickly. Its focused
experience in designing and implementing decision support applications is a
significant factor in enabling IA to implement this strategy. IA intends to
continue to invest in specialized training of its personnel to provide superior
customer service. Most of IA's customers currently have maintenance agreements
that entitle them to technical support and periodic upgrades. IA also offers
additional training and consulting services on a fee basis.
Maintenance and Technical Support. IA has established a centralized
corporate maintenance and technical service group that is supported by the
consulting and research and development groups. IA 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. IA 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. IA 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 IA's training facility located in
Eden Prairie, Minnesota. End user customer courses are provided at customers'
facilities.
Implementation Services. IA offers a wide range of customer services to
support the implementation requirements of the DecisionSuite line of products
and promote customer self-sufficiency. IA utilizes a proprietary methodology for
implementation support, called DecisionPath. DecisionPath was developed
internally and incorporates IA's extensive implementation experience. Because of
the varying needs of its customers, IA 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. IA 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. IA 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. IA 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 July 31, 1998, IA's services organization consisted of 69 employees
compared to 26, 41 and 65 employees at January 31, 1996, 1997 and 1998,
respectively.
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RESEARCH AND DEVELOPMENT
Research and development has provided the foundation for IA's success in
the marketplace, and IA intends to continue to make substantial investments in
research and development and related activities to maintain and enhance its
product lines. IA 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 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 IA's products.
As of July 31, 1998, IA's research and development organization consisted
of 70 employees compared to 32, 45 and 59 employees at January 31, 1996, 1997
and 1998, respectively. Most of the senior members of IA's research and
development organization have been employed by IA since its inception.
COMPETITION
The market in which IA competes is intensely competitive, highly fragmented
and characterized by rapidly changing technology and evolving standards. IA'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), IA Software, Seagate
(Holos) and SAS; and (iii) vendors of OLAP/relational database software such as
MicroStrategy and Platinum Technology (Prodea). IA 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 IA. 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 IA. 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 IA. IA 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 IA'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 IA's
prospective customers. IA's current or future indirect channel partners may
establish cooperative relationships with current or potential competitors of IA,
thereby limiting IA'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
IA's ability to obtain new licenses, and maintenance and support renewals for
existing licenses, on terms favorable to IA. Further, competitive pressures may
require IA to reduce the price of DecisionSuite, which would materially
adversely affect IA's business, operating results and financial condition. There
can be no assurance that IA will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon IA's business, operating results and financial condition.
IA 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. IA believes it presently competes favorably with respect to
each of these factors. However, IA's market is still evolving and there can be
no assurance that IA will be able to compete
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<PAGE> 80
successfully against current and future competitors, and the failure to do so
successfully will have a material adverse effect upon IA's business, operating
results and financial condition. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY RIGHTS
IA relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary technology. For example, IA licenses its software pursuant to signed
license agreements, which impose certain restrictions on licensees' ability to
utilize the software. In addition, IA seeks to avoid disclosure of its trade
secrets, including requiring those persons with access to IA's proprietary
information to execute confidentiality agreements with IA and restricting access
to IA's source code. IA seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Despite IA's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of IA's products or to obtain
and use information that IA regards as proprietary. Policing unauthorized use of
IA's products is difficult, and while IA 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
IA's proprietary rights to as great an extent as do the laws of the United
States. There can be no assurance that IA's means of protecting its proprietary
rights will be adequate or that IA's competitors will not independently develop
similar technology.
To date, IA has not been notified that IA's products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by IA with respect to current or future
products. IA 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 IA'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 IA to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to IA or at all, which could have a material
adverse effect upon IA's business, operating results and financial condition.
IA provides its products to end users under non-exclusive licenses, which
generally are non-transferable and have a perpetual term. IA generally licenses
its products solely for the customer's internal operations. IA also licenses its
software on an enterprise-wide basis. IA 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. See
"Risk Factors -- Limited Protection of Proprietary Technology; Risks of
Infringement; Use of Licensed Technology."
EMPLOYEES
As of July 31, 1998, IA had a total of 254 employees, of which 221 were
based in the United States, 18 were based in the United Kingdom, 6 were based in
Canada, 1 was based in France and 8 in Germany. Of the total, 93 were engaged in
sales and marketing, 70 were in research and development, 69 were in services,
and 22 were in finance, administration and operations. IA's future performance
depends in significant part upon the continued service of its key technical,
sales and senior management personnel, ten of whom are bound by employment or
severance agreements. None of IA's employees is represented by a labor union. IA
has not experienced any work stoppages and considers its relations with its
employees to be good.
PROPERTIES
IA'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. IA also leases other domestic sales offices throughout the United States,
as well as international offices in Canada, the United Kingdom and Germany. IA
believes that suitable additional or alternative space will be available in the
future on commercially reasonable terms as needed.
LEGAL PROCEEDINGS
IA is not currently subject to any material legal proceeding.
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SELECTED 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 Joint Proxy
Statement/Prospectus. The consolidated statement of operations data for the
fiscal year ended January 31, 1994 and for the six months ended July 31, 1997
and 1998 and the consolidated balance sheet data at January 31, 1994 and 1995
and July 31, 1997 and 1998 are derived from unaudited consolidated financial
statements and in the opinion of IA, 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, 1997 and 1998, and the
consolidated balance sheet data at January 31, 1996, 1997 and 1998 are derived
from the audited Consolidated Financial Statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
JANUARY 31 JULY 31,
-------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License........................ $ 2,704 $ 1,826 $ 2,686 $ 6,491 $ 13,661 $ 5,000 $10,926
Service........................ 1,644 1,991 2,956 5,255 11,929 5,148 8,172
------- ------- -------- -------- -------- -------- -------
Total revenues......... 4,348 3,817 5,642 11,746 25,590 10,148 19,098
------- ------- -------- -------- -------- -------- -------
Cost of revenues:
License........................ 49 72 118 132 185 77 195
Service........................ 2,266 1,636 2,129 3,308 7,455 3,445 4,070
------- ------- -------- -------- -------- -------- -------
Total cost of
revenues............. 2,315 1,708 2,247 3,440 7,640 3,522 4,265
------- ------- -------- -------- -------- -------- -------
Gross margin..................... 2,033 2,109 3,395 8,306 17,950 6,626 14,833
------- ------- -------- -------- -------- -------- -------
Operating expenses:
Sales and marketing............ 1,431 3,406 3,854 11,350 17,072 7,827 10,297
Research and development....... 1,158 2,162 2,089 3,189 5,211 2,373 2,940
General and administrative..... 591 853 1,247 2,147 2,133 1,035 1,335
------- ------- -------- -------- -------- -------- -------
Total operating
expenses............. 3,180 6,421 7,190 16,686 24,416 11,235 14,572
------- ------- -------- -------- -------- -------- -------
Income (loss) from operations.... (1,147) (4,312) (3,795) (8,380) (6,466) (4,609) 261
Other income (expense), net...... (54) (83) 6 (96) (54) (40) 424
------- ------- -------- -------- -------- -------- -------
Income (loss) before provision
for income taxes............... (1,201) (4,395) (3,789) (8,476) $ (6,520) (4,649) 685
Provision for income taxes....... -- -- -- -- -- -- 123
------- ------- -------- -------- -------- -------- -------
Net income (loss)................ $(1,201) $(4,395) $ (3,789) $ (8,476) $ (6,520) $ (4,649) $ 562
======= ======= ======== ======== ======== ======== =======
Net income (loss) per common
share:
Basic.......................... $ (1.20) $ (4.51) $ (3.87) $ (8.32) $ (2.24) $ (4.37) $ 0.04
======= ======= ======== ======== ======== ======== =======
Diluted........................ $ (1.20) $ (4.51) $ (3.87) $ (8.32) $ (2.24) $ (4.37) $ 0.03
======= ======= ======== ======== ======== ======== =======
Weighted average number of common
and common equivalent shares
outstanding:
Basic.......................... 998 975 978 1,019 2,906 1,064 15,535
======= ======= ======== ======== ======== ======== =======
Diluted........................ 998 975 978 1,019 2,906 1,064 17,443
======= ======= ======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF JULY 31,
-------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)...... $ (544) $(2,071) $ 1,097 $ (2,102) $ 17,588 $ 64 $18,320
Total assets................... 1,839 1,599 4,321 5,918 30,916 9,159 31,219
Total liabilities.............. 2,256 3,428 2,791 7,823 10,903 8,542 10,256
Convertible redeemable
preferred stock............. 2,337 5,337 12,487 17,410 -- 24,410 --
Stockholders' equity
(deficit)................... (2,755) (7,165) (10,957) (19,315) 20,013 (23,793) 20,963
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following description of IA's financial condition and results of
operations should be read in conjunction with the information included elsewhere
in this Joint Proxy Statement/Prospectus. This description contains certain
forward-looking statements that involve risks and uncertainties. IA'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 Joint Proxy Statement/Prospectus.
OVERVIEW
IA 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. IA'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, IA 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 IA's revenues have been derived from licenses of
DecisionSuite and related services. IA expects that sales of DecisionSuite and
related services will continue to account for all of IA's revenues for the
foreseeable future. IA'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. IA's service revenues, which have
accounted for approximately one-half of IA's total revenues for the past three
years, include fees for maintenance, training and consulting services. IA
anticipates that service revenues will continue to account for a significant
portion of IA's total revenues.
The American Institute of Certified Public Accountants' has approved
Statement of Position (SOP), SOP 97-2, effective for transactions entered into
after December 15, 1997, which supersedes Statement of Position 91-1, "Software
Revenue Recognition." Management has adopted this new statement and has
determined that its adoption has not had a material effect on the timing of IA's
revenue recognition or cause changes to its revenue recognition policies.
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.
IA 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 11.5%, 12.7% and 9.6% of IA's license
revenues for fiscal 1996, 1997 and 1998 and approximately 22.1% and 11.3% of
IA's license revenues for the six months ended July 31, 1997 and 1998,
respectively. IA intends to expand its strategic relationships, thereby
increasing the revenues generated from indirect channels as a percentage of
total license revenues. IA 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. IA has international sales and support offices in Toronto,
Canada; London, England; and Koln, Germany. To date, most of IA's international
revenues have been derived from the United Kingdom and Canada.
Although IA's personnel related costs are higher in Europe than they are in
the United States, and IA's international operations are subject to economic,
fiscal and monetary policies of foreign governments, to date, these factors have
not had a material effect on IA's results of operations or liquidity. In
addition, because all of
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IA's sales have been denominated in U.S. dollars, IA has been able to minimize
the impact of foreign exchange rate changes. There can be no assurance that IA
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
IA's results of operations or liquidity.
Since inception, IA has made significant strategic investments in building
an infrastructure to support long-term growth. IA has more than tripled its
headcount from 75 at January 31, 1995 to 254 at July 31, 1998, reflecting
personnel increases throughout IA. As a result, although IA's revenues have
increased in each of the last ten quarters, IA has incurred net losses in each
quarter since inception, except the quarters ended April 30 and July 31, 1998,
and had an accumulated deficit of $26.4 million as of July 31, 1998.
IA'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 IA's revenues should
not be considered indicative of future revenue growth rates or operating
results. There can be no assurance that any of IA's business strategies will be
successful or that IA will be able to achieve profitability on a consistent
quarterly or annual basis.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, JULY 31,
--------------------- -------------
1996 1997 1998 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
License.............................. 47.6% 55.3% 53.4% 49.3% 57.2%
Service.............................. 52.4 44.7 46.6 50.7 42.8
----- ----- ----- ----- -----
Total revenues............... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of Revenues:
License........................... 2.1 1.1 0.7 0.8 1.0
Service........................... 37.7 28.2 29.2 33.9 21.3
----- ----- ----- ----- -----
Total cost of revenues....... 39.8 29.3 29.9 34.7 22.3
----- ----- ----- ----- -----
Gross margin........................... 60.2 70.7 70.1 65.3 77.7
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............... 68.3 96.6 66.7 77.1 53.9
Research and development.......... 37.0 27.2 20.4 23.4 15.4
General and administrative........ 22.1 18.3 8.3 10.2 7.0
----- ----- ----- ----- -----
Total operating expenses..... 127.4 142.1 95.4 110.7 76.3
----- ----- ----- ----- -----
Loss from operations......... (67.2) (71.4) (25.3) (45.4) 1.4
----- ----- ----- ----- -----
Interest income (expense), net......... (0.0) (0.8) (0.2) (0.4) 2.2
----- ----- ----- ----- -----
Income (loss) before provision for
income taxes......................... (67.2) (72.2) (25.5) (45.8) 3.6
Provision for income taxes............. 0.0 0.0 0.0 0.0 0.6
----- ----- ----- ----- -----
Net income (loss)...................... (67.2)% (72.2)% (25.5)% (45.8)% 3.0%
===== ===== ===== ===== =====
</TABLE>
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The following table sets forth, for each component of revenues, the gross
margin associated with such component of revenues:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, JULY 31,
-------------------- ------------
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Margin:
License....................................... 95.6% 98.0% 98.6% 98.5% 98.2%
Service....................................... 28.0 37.1 37.5 33.1 50.2
</TABLE>
REVENUES
License. License revenues are recognized upon execution of a license
agreement and shipment of the product if no other significant obligations
remain, if payments are due within six months and collection of the resulting
receivable is probable. License revenues were $2.7 million, $6.5 million and
$13.7 million in fiscal 1996, 1997 and 1998, respectively, representing
increases of 141.7% from fiscal 1996 to fiscal 1997, and 110.5% from fiscal 1997
to fiscal 1998. License revenues increased 118.5%, from $5.0 million to $10.9
million, between the six months ended July 31, 1997 and 1998. The increase in
IA'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 increased, and an increase in sales headcount. To date,
price increases have not had a significant impact on revenues. IA 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, training materials and consulting services. Fees for maintenance,
training, training materials and consulting services are generally 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. Revenues from training materials are recognized upon shipment or
upon provision of the materials to attendees of training classes. Consulting
revenues are recognized when the services are performed. Service revenues were
$3.0 million, $5.3 million and $11.9 million in fiscal 1996, 1997 and 1998,
respectively, representing increases of 77.8% from fiscal 1996 to fiscal 1997,
and 127.0% from fiscal 1997 to fiscal 1998. Service revenues increased 58.7%,
from $5.1 million to $8.2 million, between the six months ended July 31, 1997
and 1998. Service revenues accounted for 52.4%, 44.7% and 46.6% of IA's total
revenues in fiscal 1996, 1997 and 1998, and 50.7% and 42.8% for the six months
ended July 31, 1997 and 1998, respectively. In particular, maintenance revenues
accounted for 22.6%, 26.6% and 35.0% of service revenues in fiscal 1996, 1997
and 1998, and 25.7% and 29.6% of service revenues for the six months ended July
31, 1997 and 1998, respectively. IA anticipates that service revenues will
continue to account for a significant percentage of IA'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 IA'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 10.7%, 9.5%,
and 9.7% of total revenues in fiscal 1996, 1997 and 1998, and 11.6% and 12.1%
for the six months ended July 31, 1997 and 1998, respectively. IA 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,
royalties, product packaging and shipping. Cost of license revenues was
$118,000, $132,000 and $185,000 in fiscal 1996, 1997 and 1998, respectively,
representing 4.4%, 2.0% and 1.4% of license revenues for these years. Cost of
license revenues was $77,000 and $195,000 for the six months ended July 31, 1997
and 1998, respectively, representing 1.5% and 1.8% of license revenues for these
periods. The increase in cost of license revenues as a percentage of
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license revenue between the six months ended July 31, 1997 and 1998 was
primarily due to royalties and increased personnel costs associated with the
packaging and shipping of product.
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 $2.1 million, $3.3 million
and $7.5 million in fiscal 1996, 1997 and 1998, respectively, representing
72.0%, 62.9%, and 62.5% of service revenues for these years. Cost of service
revenues was $3.4 million and $4.1 million for the six months ended July 31,
1997 and 1998, respectively, representing 66.9% and 49.8% of service revenues
for these periods. The decrease in cost of service revenues as a percentage of
service revenues in fiscal 1996, 1997 and 1998, and for the six months ended
July 31, 1997 and 1998, was primarily due to increased productivity from a
significant number of newly hired training, support and consulting personnel,
and improved economies of scale of the technical support center.
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 $3.9 million, $11.4 million and $17.1 million in fiscal
1996, 1997 and 1998, and $7.8 million and $10.3 million for the six months ended
July 31, 1997 and 1998, 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
68.3%, 96.6% and 66.7% of total revenues in fiscal 1996, 1997 and 1998, and
77.1% and 53.9% of total revenues for the six months ended July 31, 1997 and
1998, 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.
IA expects that sales and marketing expenses will continue to increase as
IA 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. IA believes that a
significant level of investment for research and development is required to
remain competitive. Research and development expenses were $2.1 million, $3.2
million and $5.2 million in fiscal 1996, 1997 and 1998, and $2.4 million and
$2.9 million for the six months ended July 31, 1997 and 1998, respectively.
These increases were primarily attributable to additional hiring of research and
development personnel. Research and development expenses represented 37.0%,
27.2% and 20.4% of total revenues in fiscal 1996, 1997 and 1998, and 23.4% and
15.4% of total revenues for the six months ended July 31, 1997 and 1998,
respectively. IA anticipates that it will continue to devote substantial
resources to research and development and that these expenses will increase in
future periods.
General and Administrative. General and administrative expenses were $1.2
million, $2.1 million and $2.1 million in fiscal 1996, 1997 and 1998, and $1.0
million and $1.3 million for the six months ended July 31, 1997 and 1998,
respectively. The increase was predominantly due to increased staffing and, to a
lesser extent, associated expenses necessary to manage and support IA's
increased scale of operations. General and administrative expenses represented
22.1%, 18.3% and 8.3% of total revenues in fiscal 1996, 1997 and 1998, and 10.2%
and 7.0% of total revenues for the six months ended July 31, 1997 and 1998,
respectively. IA believes that its general and administrative expenses will
increase in future periods as a result of an expansion of IA's administrative
staff to support its growing operations.
Interest Income (Expense), Net. Interest income (expense), net, represents
interest earned by IA 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. IA accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." IA has paid no federal or state income taxes
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other than the required minimums in fiscal 1996, 1997 and 1998, or for the six
months ended July 31, 1997 and 1998. At July 31, 1998, IA had approximately
$20.5 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
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. Management
believes the adoption of SFAS No. 130, effective February 1, 1998, has not had a
material effect on IA'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 annual 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 IA's financial statements.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the eight quarters ended July 31, 1998, as well as such data
expressed as a percentage of IA'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 FISCAL YEAR 1999
------------------- ----------------------------------------- -------------------
OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31,
1996 1997 1997 1997 1997 1998 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................................. $ 1,834 $ 1,704 $ 2,138 $ 2,862 $ 4,087 $4,574 $4,967 $ 5,959
Service................................. 1,419 1,627 2,207 2,941 3,266 3,515 4,036 4,136
------- ------- ------- ------- ------- ------ ------ -------
Total revenues.................... 3,253 3,331 4,345 5,803 7,353 8,089 9,003 10,095
------- ------- ------- ------- ------- ------ ------ -------
Cost of revenues:
License................................. 36 38 36 41 30 78 112 83
Service................................. 883 1,048 1,559 1,886 2,055 1,955 2,034 2,036
------- ------- ------- ------- ------- ------ ------ -------
Total cost of revenues............ 919 1,086 1,595 1,927 2,085 2,033 2,146 2,119
------- ------- ------- ------- ------- ------ ------ -------
Gross margin.............................. 2,334 2,245 2,750 3,876 5,268 6,056 6,857 7,976
------- ------- ------- ------- ------- ------ ------ -------
Operating expenses:
Sales and marketing..................... 3,252 3,449 3,674 4,153 4,478 4,767 4,761 5,536
Research and development................ 877 1,045 1,106 1,267 1,544 1,294 1,415 1,525
General and administrative.............. 581 612 485 550 504 594 742 593
------- ------- ------- ------- ------- ------ ------ -------
Total operating expenses.......... 4,710 5,106 5,265 5,970 6,526 6,655 6,918 7,654
------- ------- ------- ------- ------- ------ ------ -------
Loss from operations...................... (2,376) (2,861) (2,515) (2,094) (1,258) (599) (61) 322
Other income (expense), net............... (30) (55) (23) (17) (49) 35 224 200
------- ------- ------- ------- ------- ------ ------ -------
Loss before provision for income taxes.... (2,406) (2,916) (2,538) (2,111) (1,307) (564) 163 522
Provision for income taxes................ 0 0 0 0 0 0 45 78
------- ------- ------- ------- ------- ------ ------ -------
Net Loss.................................. $(2,406) $(2,916) $(2,538) $(2,111) $(1,307) $ (564) $ 118 $ 444
======= ======= ======= ======= ======= ====== ====== =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License................................. 56.4% 51.2% 49.2% 49.3% 55.6% 56.5% 55.2% 59.0%
Service................................. 43.6 48.8 50.8 50.7 44.4 43.5 44.8 41.0
------- ------- ------- ------- ------- ------ ------ -------
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------ ------ -------
Cost of revenues:
License................................. 1.1 1.1 0.8 0.7 0.4 1.0 1.2 0.8
Service................................. 27.2 31.5 35.9 32.5 27.9 24.1 22.6 20.2
------- ------- ------- ------- ------- ------ ------ -------
Total cost of revenues............ 28.3 32.6 36.7 33.2 28.3 25.1 23.8 21.0
------- ------- ------- ------- ------- ------ ------ -------
Gross margin.............................. 71.7 67.4 63.3 66.8 71.7 74.9 76.2 79.0
------- ------- ------- ------- ------- ------ ------ -------
Operating expenses:
Sales and marketing..................... 99.9 103.5 84.5 71.6 60.9 58.9 52.9 54.8
Research and development................ 27.0 31.4 25.5 21.8 21.0 16.0 15.7 15.1
General and administrative.............. 17.9 18.4 11.2 9.5 6.9 7.4 8.3 5.9
------- ------- ------- ------- ------- ------ ------ -------
Total operating expenses.......... 144.8 153.3 121.2 102.9 88.8 82.3 76.9 75.8
------- ------- ------- ------- ------- ------ ------ -------
Loss from operations...................... (73.1) (85.9) (57.9) (36.1) (17.1) (7.4) (0.7) 3.2
Other income (expense), net............... (0.9) (1.7) (0.5) (0.3) (0.7) 0.4 2.5 2.0
------- ------- ------- ------- ------- ------ ------ -------
Loss before provision for income taxes.... (74.0) (87.6) (58.4) (36.4) (17.8) (7.0) 1.8 5.2
Provision for income taxes................ 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.8
------- ------- ------- ------- ------- ------ ------ -------
Net loss.................................. (74.0)% (87.6)% (58.4)% (36.4)% (17.8)% (7.0)% 1.3% 4.4%
======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
IA's limited operating history and the susceptibility of IA's operating
results to significant fluctuations makes the prediction of future operating
results unreliable and IA 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. IA's operating results in any given period
can vary due to factors such as demand for IA's products, the size and
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timing of significant orders and their fulfillment, the number, timing and
significance of product enhancements and new product announcements by IA and its
competitors, changes in pricing policies by IA or its competitors, customer
order deferrals in anticipation of enhancements or new products offered by IA or
its competitors, the ability of IA to develop, introduce and market new and
enhanced versions of its products on a timely basis, changes in IA'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 IA'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 IA's products are offered,
the impact of acquisitions of competitors and indirect channel partners, IA's
ability to control costs and general domestic and international economic and
political conditions. A significant portion of IA's revenues has been, and IA
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 have
caused and are expected to continue to cause material fluctuations in IA's
operating results, particularly on a quarterly basis. A significant portion of
IA's revenues is derived from existing customers. To the extent that such
customers no longer require new licenses, or ongoing support, IA's business,
financial condition and operating results could be materially adversely
affected. IA 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, IA 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.
IA 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 IA's sales cycle, which may last from six
to twelve months or more, varies substantially from customer to customer. IA's
expense level and plans for expansion, including its plan to significantly
increase its research and development efforts, are based in significant part on
IA'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 IA's expenses vary with its revenues. In addition, IA 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.
Based upon all of the factors described above, IA 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, IA
has limited ability to forecast future revenues, and it is likely that in some
future quarter IA'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 IA's business, the price of IA Common
Stock would be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Net cash used in operating activities was $3.6 million, $6.4 million and
$3.4 million in fiscal 1996, 1997 and 1998, respectively. 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.
Net cash used in operating activities was $4.1 million and $2.6 million for
the six months ended July 31, 1997 and 1998, respectively. During the six months
ended July 31, 1997, cash used in operating activities resulted primarily from
net operating losses of $4.6 million and a $583,000 increase in accounts
receivable, partially offset by $524,000 noncash depreciation expense and a
$467,000 increase in accrued expenses.
During the six months ended July 31, 1998, cash used in operating
activities included $2.5 million in additional accounts receivable and a $1.6
million increase in deferred revenue -- both associated with increases in
revenues. Also resulting in a use of cash was an increase of $788,000 in prepaid
expenses and other
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current assets. These uses of cash were partially offset by $562,000 net income,
a $1.3 million increase in accrued expenses and $594,000 noncash depreciation
expense.
Investing Activities
Prior to fiscal 1999, IA's investing activities had consisted primarily of
purchases of property and equipment. Capital expenditures, including those under
capital leases, totaled $335,000, $1.1 million and $1.7 million in fiscal 1996,
1997 and 1998, respectively. Capital leases are used to acquire property and
equipment, primarily computer hardware, for IA's growing employee base. IA
expects that its capital expenditures will continue to increase as IA's employee
base grows.
Net cash used in investing activities during the six months ended July 31,
1997 consisted of $222,000 in purchases of furniture and equipment. Net cash
used in investing activities during the six months ended July 31, 1998 of $10.2
million was composed of $12.4 million for the acquisition of short-term
investments and $730,000 in purchases of furniture and equipment, partially
offset by the maturities of $3.0 million in short-term investments.
Financing Activities
IA's financing activities provided $5.4 million, $6.0 million and $26.1
million in fiscal 1996, 1997 and 1998, respectively.
In fiscal 1997, 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. 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
stockholders, offset by repayments of notes payable to a bank of $435,000 and
principal payments on long-term debt of $217,000.
In fiscal 1998, cash provided by financing activities was comprised
primarily of (i) an initial public offering of 3,834,100 shares (including an
overallotment of 500,100 shares) of IA Common Stock which generated net proceeds
of $19.8 million, (ii) proceeds from the sale of Series D Convertible Redeemable
Preferred Stock of $7.0 million, (iii) proceeds from the exercise of stock
options and stock purchase warrants of $1.1 million, and (iv) proceeds from
borrowings under lines of credit and long-term debt of $2.1 million, offset by
net reduction of debt under credit line borrowings and long-term borrowings of
$3.7 million.
Net cash provided by financing activities during the six months ended July
31, 1997 of $6.6 million was generated principally by $6.9 million from the sale
of preferred stock, partially offset by $400,000 in principal payments on
capital leases. Net cash provided by financing activities during the six months
ended July 31, 1998 consisted of $404,000 in proceeds from the exercise of stock
options and purchase of shares of common stock under IA's employee stock
purchase plan, partially offset by $171,000 in principal payments on capital
leases.
Commitments and Borrowing Capacity
As of July 31, 1998, IA had no material commitments for capital
expenditures.
IA has a revolving credit line of $2.0 million. There were no amounts
outstanding under this facility as of July 31, 1998.
Total borrowings under the revolving credit line are limited generally to
the lesser of 70% of eligible accounts receivable or $2.0 million. IA's line of
credit contains certain financial covenants and restrictions as to various
matters including IA's ability to pay cash dividends and effect mergers or
acquisitions without the bank's prior approval. IA is currently in compliance
with such financial covenants and restrictions. IA has granted a first priority
security interest in substantially all of its assets as security for its
obligations under its
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credit line which expires in September 1998. IA believes that, upon expiration,
this line will be renewed or replaced at similar or more favorable terms.
Use of Proceeds from Initial Public Offering
From the effective date of the Registration Statement on Form S-1 through
July 31, 1998, IA had used approximately $3.3 million of the net proceeds for
the repayment of indebtedness, and $730,000 for the purchase of furniture and
equipment.
IA believes that the net balance of the proceeds from the December 1997
initial public offering and its existing cash, cash equivalents and short-term
investments will be adequate to meet its cash needs for at least the next 12
months. Thereafter, IA 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 IA or will
not be dilutive.
YEAR 2000 COMPLIANCE
IA is currently in the process of evaluating its information technology
infrastructure for Year 2000 compliance. IA plans to develop and implement its
Year 2000 compliance plan in fiscal 1999. IA does not expect the cost to modify
its information technology infrastructure to be Year 2000 compliant to be
material to its consolidated financial condition or results of operations
IA uses outside vendors to supply its most significant data processing
software. These vendors have indicated their products are Year 2000 compliant or
will be Year 2000 compliant in the near future. IA does not currently have any
information concerning the Year 2000 compliance status of its key suppliers and
customers. In the event that any of IA's key suppliers or customers do not
successfully and timely achieve Year 2000 compliance, IA's business or
operations could be adversely affected. IA's Year 2000 compliance plan will
address the Year 2000 compliance status of key suppliers, customers and other
third parties.
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MANAGEMENT
BOARD MEMBERS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of IA as of July 31, 1998. Directors are
elected for staggered terms of three years. Class I directors are elected to
serve until the 2001 Annual Meeting of Stockholders. Class II directors are
elected to serve until the 1999 Annual Meeting of Stockholders. Class III
directors are elected to serve until the 2000 Annual Meeting of Stockholders.
Executive officers are elected by the IA Board to hold office until their
successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry J. Ford(1)........................... 57 President, Chief Executive Officer and
Director
Richard L. Tanler(2)....................... 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............................... 52 Vice President, Engineering
Richard S. Parker.......................... 42 Vice President, Marketing
Robin L. Pederson.......................... 39 Vice President, Worldwide Sales
Rory C. (Butch) Terrien.................... 37 Senior Vice President, Research and
Development
Mary K. Trick.............................. 43 Vice President, Customer Services
Fredric R. (Rick) Boswell(3)(4)............ 55 Director
Ronald E.F. Codd(1)(5)..................... 42 Director
Promod Haque(1)(4)......................... 50 Director
Donald R. Hollis(2)(4)..................... 62 Director
Jay H. Wein(3)(5).......................... 65 Director
William H. Younger, Jr.(2)(5).............. 48 Director
</TABLE>
- ---------------
(1) Class III director.
(2) Class I director.
(3) Class II director.
(4) Member of the Compensation Committee.
(5) Member of the Audit Committee.
Larry J. Ford has been President, Chief Executive Officer and a 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 IA Board and Senior Vice
President, Strategic Planning and Marketing since May 1995. Mr. Tanler is a
founder of IA 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,
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Finance and Chief Financial Officer of MECC from August 1988 to May 1996 and
held various positions at MECC since joining 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.
Richard S. Parker has been Vice President of Marketing since January 1994.
He is a founder of IA 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 IA 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 IA, Mr. Terrien was employed 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 IA 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 IA since August 1997. Mr. Codd has
worked at PeopleSoft, Inc., a software products company, 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 currently serves as a
director of Adept Technology, 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 IA 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.,
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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 IA 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 Bank of
Chicago. Mr. Hollis serves as a director of Deluxe Corporation, Teltrend, Inc.,
Edify, 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 IA 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 IA Board. Between July
1974 and August 1989, Mr. Wein served as Managing Partner of the Minneapolis/St.
Paul office of 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 IA since July 1995. Since
1992, Mr. Younger has been a managing director of Sutter Hill Ventures, LLP, a
venture capital management firm. Mr. Younger currently serves as a director of
COR Therapeutics, Inc., Celeritek, Inc., Oasis 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 IA Board regarding the selection of
independent accountants, reviews the results and scope of audit and other
services provided by IA's independent accountants and reviews and evaluates IA's
audit and control functions.
The Compensation Committee consists of Drs. Boswell and Haque and Mr.
Hollis. The Compensation Committee makes recommendations regarding IA's 1997
Equity Incentive Plan and makes decisions concerning salaries and incentive
compensation for employees and consultants of IA.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from IA for their
services as members of the IA Board, although members are reimbursed for certain
expenses in connection with attendance at the IA Board and Committee meetings.
Messrs. Hollis and Wein also serve as part-time consultants to IA for which they
have been compensated separately. Non-employee Board members are eligible for
option grants pursuant to the provisions of the Automatic Option Grant Program
under IA's 1997 Equity Incentive Plan (the "Plan"). Under the Automatic Option
Grant Program, each individual who first becomes a non-employee Board member
after December 16, 1997; will be granted an option to purchase 8,000 shares of
IA Common Stock on the date such individual joins the IA Board (the "Initial
Grant"). In addition, at each Annual Meeting of Stockholders, each individual
who will continue to serve as a member of the IA Board after such meeting will
receive an additional option to purchase 1,600 shares of IA Common Stock
("Annual Grant"). However, a director will not receive an Annual Grant in the
same calendar year that he received an Initial Grant. the exercise price for
each option granted under the Automatic Option Grant Program will be equal to
the fair market value per share of the Common Stock on the automatic grant date.
Each Initial Grant will become vested and exercisable with respect to 20% of the
option shares on the first anniversary of the date of grant and with respect to
an additional 1/60th of the option shares upon the completion of each month of
service thereafter. Each Annual Grant will become fully vested and exercisable
on the fifth anniversary of the date of grant.
Directors who are also employees of IA are eligible to receive options and
be issued shares of IA Common Stock directly under IA's 1997 Equity Incentive
Plan and are also eligible to participate in IA's 1997 Employee Stock Purchase
Plan.
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<PAGE> 94
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
IA's officers, directors and persons who own more than ten percent of a
registered class of IA's equity securities to file reports of ownership and
changes in ownership with the SEC and to provide IA with copies of all such
reports. To IA's knowledge, based solely on a review of copies of reports filed
with the SEC during fiscal 1998, all applicable Section 16(a) filing
requirements were satisfied, except that one report on Form 4 setting forth the
acquisition of 4,000 shares of IA Common Stock by Ronald E.F. Codd on December
17, 1997 was not filed on a timely basis.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation
paid by IA for services rendered to IA by the Chief Executive Officer and the
four other highest paid executive officers (collectively, the "Named Executive
Officers") during fiscal years 1996, 1997 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------------
ANNUAL AWARDS
COMPENSATION --------------------------
------------------- SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS ($)(1)
- -------------------------------------- ------ -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Larry J. Ford......................... 1996 $133,269 $12,000 490,982 $ 0
President, Chief Executive Officer 1997 175,000 74,100 0 25,000
and
Director 1998 175,000 72,500 92,000 0
Richard L. Tanler..................... 1996 150,000 19,000 134,691 0
Chairman of the Board and 1997 150,000 42,400 0 0
Senior Vice President, Strategic 1998 150,000 35,567 46,000 0
Planning and Marketing
Donald W. Anderson(2)................. 1996 0 0 0 0
Vice President and 1997 19,385 0 80,000 0
Chief Financial Officer 1998 126,000 20,194 0 0
Robin L. Pederson(3).................. 1996 0 0 0 0
Vice President, Worldwide Sales 1997 119,423 56,250 172,000 15,612
1998 150,000 73,916 48,000 0
Mary K. Trick(4)...................... 1996 60,000 8,000 30,000 0
Vice President, Customer Services 1997 120,000 29,375 38,000 0
1998 125,000 34,666 16,000 0
</TABLE>
- ---------------
(1) Consists of moving expenses.
(2) Mr. Anderson's employment commenced on November 25, 1996.
(3) Mr. Pederson's employment commenced on April 18, 1996.
(4) Ms. Trick's employment commenced on July 24, 1995.
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<PAGE> 95
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during fiscal
year 1998 to each of the Named Executive Officers. No stock appreciation rights
("SARs") were granted during such fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------------- ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
NUMBER OF GRANTED TO OPTION TERM($)(4)
SECURITIES UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME OPTIONS GRANTED(1) FISCAL 1998(2) ($/SHARE)(3) DATE 5% 10%
---- --------------------- -------------- -------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Ford........... 92,000 11.8% $1.125 2/05/07 $65,091 $164,952
Richard L. Tanler....... 46,000 5.9 1.125 2/05/07 32,545 82,476
Donald W. Anderson...... 0 0 -- -- -- --
Robin L. Pederson....... 20,000 2.6 3.750 8/07/07 47,167 119,531
28,000 3.6 1.125 2/05/07 19,810 50,203
Mary K. Trick........... 4,000 0.5 1.125 2/05/07 2,830 7,172
12,000 1.5 3.750 8/07/07 28,300 71,718
</TABLE>
- ---------------
(1) Generally, 20% of these options vest on the first anniversary of the date of
grant; and an additional 20% of these options vest on each anniversary of
the date of grant occurring in 1999, 2000, 2001 and 2002. These options have
a ten-year term, subject to earlier termination in the event of the
optionee's cessation of service with IA.
(2) Based on an aggregate of 781,900 shares subject to options granted to
employees of IA under the 1992 Stock Option Plan (the predecessor to the
1997 Equity Incentive Plan).
(3) The exercise price may be paid in cash, in shares of IA Common Stock valued
at fair market value on the exercise date or any other method approved by
the IA 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 Commission and does not
represent IA'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 options to purchase
IA Common Stock exercised by the Named Executive Officers during fiscal year
1998 and the number and value of the unexercised options that are held by the
Named Executive Officers as of the end of fiscal year 1998. No SARs were
exercised by the Named Executive Officers in fiscal year 1998 or were
outstanding at the end of that fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END AT FY-END($)(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- EXERCISE -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Ford.............. 28,000 $147,000 270,657 284,324 $1,420,949 $1,429,701
Richard L. Tanler.......... 0 0 162,670 128,821 856,718 676,310
Donald W. Anderson......... 32,000 168,000 0 48,000 0 252,000
Robin L. Pederson.......... 34,400 180,600 0 185,600 0 921,900
Mary K. Trick.............. 9,200 48,300 19,600 55,200 102,900 258,300
</TABLE>
- ---------------
(1) Value realized is based on the January 30, 1998 closing price of $6.375 per
share of IA Common Stock as listed on the Nasdaq National Market less the
exercise price for such shares.
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<PAGE> 96
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
IA 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; Donald W.
Anderson, Vice President and Chief Financial Officer; Richard S. Parker, Vice
President, Marketing; Robin L. Pederson, Vice President, Worldwide Sales; and
Rory C. (Butch) Terrien, Senior Vice President, Research and Development. IA
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 IA 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 IA.
IA 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 IA. The agreement sets forth Mr. Tanler's compensation level and
eligibility for salary increases, bonuses, benefits and option grants under
stock option plans. Pursuant to the agreement, Mr. Tanler's employment is
voluntary and may be terminated by IA or Mr. Tanler at any time with 30 days
prior written notice, provided however, that if IA 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. IA may immediately terminate Mr. Tanler's employment
for cause upon written notice with no further obligation to Mr. Tanler.
IA 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 IA. The agreement sets forth Mr. Ford's compensation level and
eligibility for salary increases, bonuses, benefits and option grants under
stock option plans. Mr. Ford's employment with IA under the agreement is
voluntary and may be terminated by IA or Mr. Ford at any time with 30 days prior
written notice, provided that if IA terminates Mr. Ford's employment for reasons
other than cause, IA 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 IA" (defined to mean the acquisition by a
person not currently a stockholder of IA of shares of IA Common 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. IA 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 IA of all or substantially all
of its assets and the discontinuance of its business; or (ii) a change in
control of IA (as previously defined) resulting in the termination of Mr. Ford's
employment with IA, a substantial change in the scope of Mr. Ford's employment
responsibilities or job relocation.
IA and Mr. Anderson are parties to a letter agreement executed on November
4, 1996 governing his employment with IA. The agreement sets forth Mr.
Anderson's compensation level and eligibility for salary increases, bonuses,
benefits and option grants under stock option plans. 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 IA, 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 IA
occurs. If the change of ownership occurs within the first two years of Mr.
Anderson's first day of employment with IA, all his unvested options shall
immediately vest.
IA and Mr. Parker are parties to an employment agreement dated June 11,
1992 governing his employment with IA. The agreement sets forth Mr. Parker's
compensation level and eligibility for salary increases, bonuses, benefits and
option grants under stock option plans. Pursuant to the agreement, Mr. Parker's
employment is voluntary and may be terminated by IA or Mr. Parker at any time
with 30 days
83
<PAGE> 97
prior written notice, provided however, that if IA 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. IA may immediately terminate Mr. Parker's employment
for cause upon written notice with no further obligation to Mr. Parker.
IA and Mr. Pederson are parties to a letter agreement dated March 6, 1996
governing his employment with IA. The agreement sets forth Mr. Pederson's
compensation level and eligibility for salary increases, bonuses, benefits and
option grants under stock option plans. Pursuant to the agreement, Mr. Pederson
is entitled to receive, in the event of termination of Mr. Pederson's employment
with IA (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
IA, 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 IA. 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 IA, all his unvested stock options shall immediately vest, up to a
maximum gain to Mr. Pederson of $4.0 million.
IA and Mr. Terrien are parties to an employment agreement dated June 11,
1992 governing his employment with IA. The agreement sets forth Mr. Terrien's
compensation level and eligibility for salary increases, bonuses, benefits and
option grants under stock option plans. Pursuant to the agreement, Mr. Terrien's
employment is voluntary and may be terminated by IA or Mr. Terrien at any time
with 30 days prior written notice, provided, however, that if IA 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. IA may immediately terminate Mr.
Terrien's employment for cause upon written notice to Mr. Terrien.
84
<PAGE> 98
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to IA regarding
beneficial ownership of IA Common Stock as of August 14, 1998, by (i) each
person who is known by IA to own beneficially more than five percent of IA's
Common Stock, (ii) each of IA's directors, (iii) each of the Named Executive
Officers, and (iv) all current executive officers and directors as a group.
Unless otherwise noted, each person identified below has sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(1)(2) OWNED(1)(2)
--------------------------------------- ------------- ------------
<S> <C> <C>
Entities affiliated with Norwest Equity Partners(3)......... 3,188,229 20.4%
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Entities affiliated with St. Paul Venture Capital,
Inc.(4)................................................... 2,472,518 15.8
8500 Normandale Lake Blvd
Suite 1940
Bloomington, MN 55437
Entities affiliated with Sutter Hill Ventures(5)............ 1,256,977 8.0
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Pathfinder Venture Capital Fund III(6)...................... 1,238,056 7.9
Suite 585, One Corporate Center
7300 Metro Blvd
Edina, MN 55439
Entities affiliated with Menlo Ventures(7).................. 983,161 6.3
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Donald W. Anderson.......................................... 52,500 *
Larry J. Ford(8)............................................ 382,804 2.4
Robin L. Pederson(9)........................................ 75,300 *
Richard L. Tanler(10)....................................... 217,331 1.4
Mary K. Trick(11)........................................... 37,700 *
Ronald E.F. Codd(12)........................................ 5,600 *
Fredric R. (Rick) Boswell(4)................................ 2,472,518 15.8
Promod Haque(3)............................................. 3,188,229 20.4
Donald R. Hollis(13)........................................ 44,000 *
Jay H. Wein................................................. 315,359 2.0
William H. Younger, Jr.(5).................................. 1,256,977 8.0
All directors and executive officers as a group (14
persons)(14).............................................. 8,176,218 50.1
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of IA Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
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, Inc., 7905 Golden Triangle Drive,
Eden Prairie, MN 55344-7227. To IA'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. The number of shares beneficially owned includes
shares issuable pursuant to warrants and stock options that are exercisable
within 60 days of August 14, 1998.
(2) Percentage of beneficial ownership is based on 15,621,931 shares
outstanding as of August 14, 1998. 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.
85
<PAGE> 99
(3) Includes 1,930,792 shares held by Norwest Equity Partners IV, a Minnesota
Limited Partnership, and 1,257,437 shares held by Norwest Equity Partners
V, a Minnesota Limited Partnership. Includes 9,384 shares issuable upon the
exercise of a warrant. 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. 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.
(4) Includes 2,163,128 shares held by St. Paul Fire and Marine Insurance
Company and 301,788 shares held by St. Paul Venture Capital IV, L.L.C.
Includes 7,602 shares issuable upon the exercise of a warrant. 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.
(5) Includes 749,393 shares held by Sutter Hill Ventures, a California Limited
Partnership ("Sutter Hill"), 83,097 shares held by Mr. William H. Younger,
Jr. as Trustee of a living trust, and 424,487 shares held of record for 15
other individuals and entities associated with Sutter Hill. Includes 3,699
shares issuable upon the exercise of a warrant. 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.
(6) Includes 3,858 shares issuable upon the exercise of a warrant. Messrs.
Brian P. Johnson, Andrew J. Greenshields, Gary A. Stoltz, Jack Ahrens,
Eugene Fischer and Ms. Barbara L. Santry are the General Partners of
Pathfinder Venture Capital Fund III.
(7) Includes 965,480 shares held by Menlo Ventures VI, L.P. and 14,492 shares
held by Menlo Entrepreneurs Fund VI, L.P. Includes 3,189 shares issuable
upon the exercise of a warrant. Messrs. H. Dubose Montgomery, Thomas H.
Bredt, Douglas C. Carlisle, John W. Jarve, Michael D. Laufer, M.D. and Ms.
Sonja L. Hoel are the General Partners of MV Management VI, L.P., the
General Partner of Menlo Ventures VI, L.P. and Menlo Entrepreneurs Fund VI,
L.P. These individuals disclaim beneficial ownership of the shares held by
Menlo Ventures VI, L.P. and Menlo Entrepreneurs Fund VI, L.P., except to
the extent of their respective pecuniary interests therein.
(8) Includes 344,304 shares issuable upon the exercise of stock options.
(9) Includes 40,400 shares issuable upon the exercise of stock options.
(10) Includes 172,460 shares issuable upon the exercise of stock options.
(11) Includes 28,000 shares issuable upon the exercise of stock options.
(12) Includes 1,600 shares issuable upon the exercise of stock options.
(13) Includes 4,000 shares issuable upon the exercise of stock options.
(14) Includes 701,164 shares issuable upon the exercise of stock options.
86
<PAGE> 100
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to its initial public offering, IA raised capital primarily through
the sale of its Preferred Stock. In June 1995 IA sold 3,010,515 shares of Series
B Convertible Redeemable Preferred Stock at a price of $2.38 per share. In March
1996, IA sold 1,514,837 shares of Series C Convertible Redeemable Preferred
Stock at a price of $3.25 per share. In February 1997 IA 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 IA and persons associated
with them since June 1995.
<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
Donald R. Hollis.......................................... -- -- 40,000
William H. Younger, Jr.(6)................................ 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 Fischer and Ms. Barbara L. Santry are the General Partners of
Pathfinder Venture Capital Fund III.
(4) Includes shares purchased by Sutter Hill, Mr. William H. Younger, Jr. and 15
other individuals and entities associated with Sutter Hill. Mr. Younger is a
General Partner of Sutter Hill.
(5) Includes shares purchased by Menlo Ventures VI, L.P. and Menlo Entrepreneurs
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
the General Partners of MV Management VI, L.P., the General Partner of Menlo
Ventures VI, L.P. and Menlo Entrepreneurs Fund VI, L.P.
(6) Includes shares purchased by Mr. Younger as Trustee of a living trust.
In April 1996, IA loaned $70,000 to Richard L. Tanler, IA's Chairman of the
Board and Senior Vice President, Strategic Planning and Marketing. In connection
with the loan, Mr. Tanler issued a promissory note to IA for $70,000, bearing
interest at the rate of 5.33% per annum, which note is payable 60 days after
demand by IA. As of July 31, 1998, there had been no payments on the loan and
the aggregate indebtedness under the loan was $78,658.
In August 1996, Donald R. Hollis, a director of IA, was granted an option
to purchase 8,000 shares of IA Common Stock at an exercise price of $1.13 per
share in connection with becoming a director. Also in August 1996, Mr. Hollis
received an option to purchase 2,000 shares of IA Common Stock at an exercise
price of $1.13 per share in connection with entering into a consulting agreement
with IA.
In July 1997, in connection with the acceptance of an employment offer,
Mark Furtney, IA's Vice President, Engineering, was granted an option to
purchase 40,000 shares of IA's Common Stock at an exercise price of $2.13 per
share.
87
<PAGE> 101
In August 1997, IA granted Ronald E.F. Codd an option to purchase 8,000
shares of IA Common Stock at an exercise price of $3.75 per share in connection
with becoming a director.
In February 1998, IA granted the following executive officers and directors
options to purchase shares of IA Common Stock in the amounts set forth
below: Donald W. Anderson -- 15,000; Ronald E.F. Codd -- 20,000; Larry J.
Ford -- 86,600; Mark Furtney -- 10,000; Donald R. Hollis -- 20,000; Richard S.
Parker -- 15,000; Robin L. Pederson -- 30,000; Richard L. Tanler -- 43,300; and
Mary K. Trick -- 20,000.
IA also has granted additional options to certain of its executive officers
and made Annual Grants to its directors in connection with the 1998 Annual
Meeting of Stockholders. Such options are described further in "Executive
Compensation."
IA has entered into employment agreements with Messrs. Ford, Tanler,
Anderson, Parker, Pederson and Terrien.
In December 1997, IA and certain holders of its outstanding Preferred Stock
(the "Lenders") entered into a Loan and Warrant Purchase Agreement (the "Loan
Agreement") to provide IA with a source of funds for its working capital
requirements pending completion of its initial public offering. The Loan
Agreement provided IA with a revolving loan commitment of $3.0 million. The Loan
Agreement terminated ten days after the closing of its initial public offering.
IA did not draw down any funds under the Loan Agreement. In consideration of the
revolving loan commitment of the Lenders, IA issued warrants to the Lenders to
purchase an aggregate of 30,000 shares of IA Common Stock at a per share
purchase price of $5.00. Shares purchased upon exercise of the warrants are
entitled to certain registration rights.
IA believes that all of the transactions set forth herein were made on
terms no less favorable to IA than could have been obtained from unaffiliated
third parties. All future transactions, including loans (if any), between IA and
its officers, directors, and principal stockholders and their affiliates will be
approved by a majority of the IA Board, including a majority of the independent
and disinterested Outside Directors, and will be on terms no less favorable to
IA than could be obtained from unaffiliated third parties.
INDEMNIFICATION
IA's 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 DGCL. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
IA's Bylaws provide that IA 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. IA has
entered into indemnification agreements with its officers and directors
containing provisions that may require IA, 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.
88
<PAGE> 102
DESCRIPTION OF IA CAPITAL STOCK
The authorized capital stock of IA consists 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 August 14, 1998, there were 15,621,931 shares of IA Common Stock
outstanding that were held of record by approximately 175 stockholders. The
holders of IA 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 IA Common Stock are entitled
to receive ratably such dividends, if any, as may be declared from time to time
by the IA Board out of funds legally available therefor. In the event of the
liquidation, dissolution, or winding up of IA, the holders of IA 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 IA Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the IA Common Stock. All outstanding shares of IA Common Stock are
fully paid and nonassessable, and the shares of IA Common Stock to be issued in
connection with the Merger will be fully paid and nonassessable.
PREFERRED STOCK
IA's Certificate of Incorporation authorizes 5,000,000 shares of preferred
stock, none of which are currently issued or outstanding. The IA Board 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 IA without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of IA Common Stock. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of IA Common Stock, including the loss of voting control to others. IA
has no current plans to issue shares of preferred stock.
ANTITAKEOVER PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW
IA's Certificate of Incorporation and Bylaws provide that the IA Board 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 IA and may maintain the incumbency of the IA Board, as the
classification of the IA Board generally increases the difficulty of replacing a
majority of the directors. IA's Certificate of Incorporation and Bylaws also
provide that all stockholder actions must be effected at a duly called meeting
and not by a consent in writing. IA's Certificate of Incorporation and Bylaws do
not permit stockholders of IA to call a special meeting of stockholders.
Further, provisions of IA's Certificate of Incorporation and Bylaws provide that
the stockholders may amend certain provisions of IA's Certificate of
Incorporation or Bylaws only with the affirmative vote of 80% of IA's capital
stock. These provisions of IA's Certificate of Incorporation and Bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of IA. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the IA Board and in the policies
formulated by the IA Board and to discourage certain types of transactions that
may involve an actual or threatened changes in the management of the IA and may
have an adverse effect on the public trading price of IA Common Stock. See "Risk
Factors -- Effect of Certain Charter Provisions; Antitakeover Effects of
Certificate of Incorporation, Bylaws, and Delaware Law."
Delaware Antitakeover Statute
IA is subject to Section 203 of the DGCL ("Section 203"), which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder
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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.
COMPARISON OF RIGHTS OF IA STOCKHOLDERS AND IQ STOCKHOLDERS
In connection with the Merger, IQ stockholders will be converting their
shares of IQ Common Stock into shares of IA Common Stock. IA is a Delaware
corporation and IQ is a Georgia corporation and the IA Certificate of
Incorporation (the "IA Certificate") and the IA Bylaws differ from the IQ
Articles of Incorporation (the "IQ Articles") and the IQ Bylaws (the "IQ
Bylaws") in several significant respects. Because of the differences between the
DGCL and the GCC, and the differences in the charter documents, the rights of a
holder of IQ Common Stock differ from the rights of a holder of IA Common Stock.
Below is a summary of some of the important differences between the DGCL
and the GCC and the charter documents of IQ and IA. It is not practical to
summarize all of such differences in this Joint Proxy Statement/Prospectus, and
IQ and IA stockholders are referred to the DGCL, the GCC, and the IA Certificate
and Bylaws and the IQ Articles and Bylaws for more complete information
regarding the differences. Some of the principal differences could materially
affect the rights of stockholders, including the following:
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS; ACTION BY WRITTEN CONSENT
Under the GCC, a special meeting of stockholders may be called by the board
of directors, any person or persons authorized to do so by the articles of
incorporation or bylaws or by one or more stockholders holding 25% or more, or
such greater or lesser amount as may be provided in the articles or bylaws, of
the votes entitled to vote thereon. In addition, the IQ Articles provide that
any actions which may be taken at a meeting of stockholders may be taken without
a meeting if written consent setting forth the action so taken shall be signed
by persons who would be entitled to vote at a meeting of those shares holding
voting power to cast not less than the minimum number of votes that would be
necessary to authorize or take such actions at a meeting at which all shares
entitled to vote were present and voted.
Under the DCGL, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the
certification of incorporation or the bylaws. The IA Certificate and the IA
Bylaws provide that special meetings of stockholders may be called only by the
Chairman of the IA Board
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or by a majority of the IA Board. The IA Certificate provides that any actions
taken by stockholders must be effected at an annual or special meeting and may
not be effected by written consent without a meeting.
BOARDS OF DIRECTORS
The number of directors constituting the IQ Board is currently five. The
directors of IQ are divided into three classes, each class serving for a period
of three years. Approximately one-third of the members of the IQ Board are
elected by the stockholders annually. Vacancies and newly created directorships
may be filled solely by the vote of the remaining directors (even though less
than a quorum remains) provided that any vacancy occurring as a result of
removal of a director by the stockholders as permitted under the GCC and the IQ
Bylaws may only be filled by the stockholders. A member of the IQ Board may be
removed only for cause and only upon a vote of 66 2/3% of the outstanding shares
entitled to vote at a stockholder's meeting with respect to which notice of such
purpose was given.
The number of directors constituting the IA Board is currently eight. The
IA Bylaws provide that the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by the majority of the IA Board,
but shall consist of not more than eleven or less than three directors. The
directors of IA are divided into three classes, each class serving for a period
of three years. Approximately one-third of the members of the IA Board are
elected by the stockholders annually. The DGCL provides that unless otherwise
provided in the certificate of incorporation, vacancies and newly created
directorships may be filled by a majority of the directors then in office
(although less than a quorum remains). The IA Certificate provides that
vacancies and newly created directorships may be filled solely by the vote of
the remaining directors (even though less than a quorum remains). The DGCL
provides that unless the certificate of incorporation provides otherwise, any
director or the entire board of directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors. The IA Certificate provides that a member of the IA Board may be
removed from office at any time, but only for cause and only by the vote of the
holders of at least 80% of the voting power of the then outstanding voting
stock, voting together as a single class.
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS
Under the IQ Articles the IQ directors have no liability to IQ or its
stockholders for monetary damages for breach of duty of care or other duty as a
director to the fullest extent permitted by law; provided however, that
liability is not limited for appropriation, in violation of the director's
duties, of any business opportunity of IQ; for acts or omissions which involve
intentional misconduct or a knowing violation of the law; for certain unlawful
distributions under the GCC; and for any transaction from which the director
derived an improper personal benefit.
Under the IA Certificate, no director will be personally liable to IA or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for any breach of the directors duty of loyalty
to IA or its stockholders; for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; for liability
arising out of certain unlawful dividends or stock repurchases or redemptions
under the DGCL; and for any transaction from which the director derived an
improper personal benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both the GCC and DGCL permit indemnification of directors and officers.
Under the GCC, a Georgia corporation may indemnify an individual who is a party
to a proceeding because he or she is or was a director, against liability
incurred in such proceeding, provided that such individual acted in good faith
and reasonably believed (a) in the case of conduct in his or her official
capacity, that such conduct was in the best interests of the corporation, (b) in
all other cases other than a criminal proceeding, that such conduct was at least
not opposed to the best interests of the corporation, and (c) in the case of a
criminal proceeding, that such individual had no reasonable cause to believe
that such conduct was unlawful. A Georgia corporation may not indemnify a
director under the GCC (i) in connection with a proceeding by or in the right of
the corporation,
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except for reasonable expenses incurred by such director in connection with the
proceeding, provided it is determined that such director met the relevant
standard of conduct set forth above, or (ii) in connection with any proceeding
with respect to conduct for which such director was adjudged liable on the basis
that he or she received an improper personal benefit. Additionally, a Georgia
corporation may, before final disposition of a proceeding, advance funds to pay
for or reimburse the reasonable expenses incurred by a director who is a party
to a proceeding because he or she is a director, provided that such director
delivers to the corporation a written affirmation of his or her good faith
belief that he or she met the relevant standard of conduct or that the
proceeding involves conduct for which such director's liability has been
properly eliminated by action of the corporation, and a written undertaking by
the director to repay any funds advanced if it is ultimately determined that
such director was not entitled to such indemnification. Further, the GCC
requires a corporation to indemnify a director who was wholly successful in the
defense of a proceeding to which he or she was a party as a result of being a
director of the corporation for reasonable expenses.
The GCC also allows a Georgia corporation to indemnify directors made a
party to a proceeding without regard to the above-referenced limitations, if
authorized by the articles of incorporation or a bylaw, contract, or resolution
duly adopted by a vote of the stockholders of the corporation by a majority of
votes entitled to be cast, excluding shares owned or voted under the control of
the director or directors who are not disinterested. Under the IQ Articles, IQ
shall indemnify a director against liability incurred in the proceeding and
shall advance and reimburse expenses incurred in the proceeding, including a
proceeding brought by or in the right of IQ, without regard to limitations
contained elsewhere in the GCC; provided, however, that IQ shall not indemnify a
director for any liability incurred in a proceeding in which the director is
adjudged liable to IQ or is subjected to injunctive relief in favor of IQ for
any appropriation, in violation of the director's duties, of any business
opportunity of IQ; for acts or omissions which involve intentional misconduct or
a knowing violation of the law; for certain unlawful distributions under the
GCC; and for any transaction from which the director derived an improper
personal benefit.
Under the DGCL, a corporation may indemnify its directors, officers,
employees or agents, acting in their capacities as such, for expenses,
judgments, fines and settlement amounts actually and reasonably incurred by them
in connection with any action, suit or proceeding in which they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. In
addition, under the DGCL, with respect to any action by or in the right of the
corporation, a corporation may indemnify any of such persons against expenses
(including attorney's fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Finally, under the DGCL, a corporation must indemnify a director or officer of a
corporation for expenses actually and reasonably incurred in connection with any
action, suit or proceeding as to which such person has been successful on the
merits or otherwise. The IA Bylaws provide that IA 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.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation or unless the provisions of the DGCL discussed
below under "--Business Combination Restrictions" are applicable, a sale or
other disposition of all or substantially all of the corporation's assets, a
merger or consolidation of the corporation with another corporation or a
dissolution of the corporation requires the affirmative vote of the board of
directors (except in certain limited circumstances) plus, with certain
exceptions, the affirmative vote of a majority of the outstanding stock entitled
to vote thereon. The foregoing provisions apply to IA and its stockholders.
Georgia law is similar to Delaware law in that, except as described
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below under "--Business Combination Restrictions," a sale or other disposition
of all or substantially all of the corporation's assets, a merger of the
corporation with or into another corporation, a share exchange involving one or
more classes or series of the corporation's shares or a dissolution of the
corporation must be adopted by the board of directors plus, with certain
exceptions, the affirmative vote of a majority of all shares of stock entitled
to vote thereon. Under the IQ Articles the affirmative vote of 66 2/3% of all
the votes entitled to be cast is necessary to approve and authorize any such
action required to be submitted to stockholders.
CERTAIN BUSINESS COMBINATIONS
Both the GCC and DGCL include business combination statutes which are
generally designed to deter hostile takeovers by protecting minority
shareholders in the second stage of freeze-out mergers. Freeze-out mergers occur
when controlling stockholders prevent minority shareholders from receiving any
direct or indirect financial return from the corporation to persuade them to
liquidate their investment in the corporation on terms favorable to the
controlling stockholders. As defined under the GCC and DGCL, "business
combinations" encompass, among other types of combinations, a merger of a
corporation with any "interested stockholder" or a corporation associated or
affiliated with an "interested stockholder" who was an "interested stockholder"
prior to the transaction. Under Georgia Law, an "Interested Stockholder" is any
person who owns at least ten percent (10%) of the outstanding voting shares or
an affiliate of the corporation owning at least ten percent (10%) of the
outstanding voting shares within the prior two years. Under the GCC, certain
"business combinations" (including a merger, consolidation, asset transfer or
reclassification of equity securities) between a Georgia corporation and an
Interested Stockholder, are prohibited for five years from the time that such
Interested Stockholder becomes an Interested Stockholder unless (i) prior to
such time the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) in the transaction which resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder
became the beneficial owner of at least 90% of the corporation outstanding at
the time the transaction commenced, excluding shares owned by directors and
officers of the corporation, subsidiaries of the corporation, and certain
employee stock plans of the corporation; or (iii) subsequent to becoming an
Interested Stockholder such Interested Stockholder acquires additional shares
and thus becomes the beneficial owner of at least 90% of the outstanding voting
stock of the corporation, excluding shares owned by directors and officers of
the corporation, subsidiaries of the corporation, and certain employee stock
plans of the corporation.
Furthermore, the GCC provides that a business combination must be either
(i) unanimously approved by the continuing directors provided that the
continuing directors constitute at least three members of the board of directors
at the time of such approval; or (ii) recommended by at least two-thirds of the
continuing directors and approved by a majority of the votes entitled to be cast
by holders of voting shares, other than voting shares beneficially owned by the
Interested Stockholder unless, among other conditions, the Georgia corporation's
common stockholders receive a minimum price (as defined in the GCC) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. In general, a
Georgia corporation must specifically elect through its bylaws to be governed by
these provisions. However, because the IQ Bylaws do not currently explicitly
provide so, these GCC provisions do not apply to business combinations with
Interested Stockholders with respect to IQ.
Delaware Law defines an "Interested Stockholder" as (i) any person who is
the direct or indirect beneficial owner of at least fifteen percent (15%) of the
voting power of any class or series of the then outstanding stock of the
corporation or (ii) an affiliate or associate of the corporation and within
three (3) years of the date in question was the direct or indirect owner of at
least fifteen percent (15%) of the voting power of any class or series of the
then outstanding stock of the corporation. Delaware Law prohibits a corporation
from engaging in any business combination with any Interested Stockholder for a
period of three (3) years following the date that such stockholder became an
Interested Stockholder unless (i) the board of directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder; (ii) upon consummation of the transaction
which 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; or (iii) sixty-six and
two-thirds
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percent (66 2/3%) of the voting stock not beneficially owned by the Interested
Stockholder or any affiliate or associate of the Interested Stockholder is cast
in favor of the merger. In general, a Delaware corporation must specifically
elect, through an amendment to its bylaws or certificate of incorporation, not
to be governed by these provisions. IA has not made such an election and
therefore is currently subject to these provisions of the DGCL.
AUTHORIZED PREFERRED STOCK
The IQ Board may authorize the issuance of shares of IQ preferred stock in
series, and by filing articles of amendment which are effective without
stockholder action to establish from time to time the number of shares to be
included in each such series, and to fix and determine the powers, preferences,
limitations and relative rights of the shares of each such series to the fullest
extent permitted under the GCC. The issuance of IQ preferred stock under certain
circumstances may have the effect of discouraging an attempt by a third party to
acquire control of IQ by, for example, authorizing the issuance of a series of
IQ preferred stock with the rights and preferences designed to impede the
proposed transaction, or by making it more difficult for a person who has gained
a substantial equity interest in IQ to obtain control or to exercise control
effectively.
The IA Board may authorize the issuance of IA preferred stock at such
times, for such purposes and for such consideration as it may deem advisable
without further stockholder approval. The issuance of IA preferred stock under
certain circumstances may have the effect of discouraging an attempt by a third
party to acquire control of IA by, for example, authorizing the issuance of a
series of IA preferred stock with the rights and preferences designed to impede
the proposed transaction, or by making it more difficult for a person who has
gained a substantial equity interest in IA to obtain control or to exercise
control effectively.
AMENDMENTS TO THE IQ ARTICLES AND THE IA CERTIFICATE
Under the GCC, significant amendments to a corporation's articles of
incorporation must be approved by the stockholders after being proposed by the
board of directors. Certain amendments to a corporation's articles of
incorporation may be adopted with approval of the board alone. The IQ Articles
additionally require approval of 66 2/3% of the outstanding shares entitled to
vote in order to amend certain provisions of the IQ Articles relating to
authorized capital, limitations on directors' liability, indemnification of
directors, consideration of certain constituencies other than stockholders in
making certain decisions, certain amendments to the IQ Articles and IQ Bylaws,
and approvals of certain mergers, share exchanges and sales of assets.
Under the DGCL, a corporation's certificate of incorporation can be amended
by the affirmative vote of the board of directors and approved by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon, unless the certificate of incorporation requires the vote of a
larger portion of the shares. The IA Certificate requires approval of 80% of the
outstanding shares entitled to vote in order to amend certain provisions of the
IA Certificate relating to the power of the IA Board to establish a rights plan;
adoption, amendment or repeal of certain IA Bylaws; stockholders' rights to
inspect accounts and books of IA; and limitations on a director's personal
liability.
AMENDMENTS TO THE IQ BYLAWS AND THE IA BYLAWS
Under the GCC, a corporation's bylaws may generally be amended or repealed
by the board of directors, subject to the power of the stockholders to amend or
repeal any such change to the bylaws. However, the IQ Articles reserve the power
to amend or repeal the IQ Bylaws or adopt new bylaws to the stockholders,
subject to the affirmative vote of 66 2/3% of all votes entitled to be cast, to
the extent such action would limit the provisions in the IQ Bylaws relating to
management of IQ by the IQ Board, the number and classification of directors,
vacancies on the IQ Board, or removal of directors of the IQ Board.
Under DGCL and the IA Certificate and Bylaws, the IA Bylaws may be amended,
added to, rescinded or repealed at any meeting of the IA Board or of
stockholders where adequate notice was given of such meetings; provided,
however, that the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares shall be required to alter, amend or repeal
those sections of the IA Bylaws regarding special meetings of stockholders; the
establishment of a quorum of stockholders at a stockholders' meeting; voting
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rights of stockholders; notice of stockholder business and nominations; the
prohibition against stockholder action by written consent; the number, tenure
and qualifications of directors; director vacancies and newly created
directorships; meetings of the IA Board; and the amendment and repeal of certain
bylaws.
RIGHTS PLAN
The IA Certificate expressly authorizes the IA Board to create and issue
rights entitling the holders thereof to purchase from IA shares of stock or
other securities of IA. The IA Certificate recognizes 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 IA, to engage in
any transaction which might result in a change of control of IA or to enter into
any agreement, arrangement or understanding with another party to accomplish the
foregoing or for the purpose of acquiring, holding, voting of disposing of any
securities of IA. The times at which and terms upon which such rights are to be
issued will be determined by the IA Board. While the IA Board has not undertaken
to create or issue any rights, such Rights if adopted and issued could have
certain anti-takeover effects.
The IQ Articles contains no such explicit authorization; however the IQ
Board could adopt a rights plan if it determined such a plan were in the best
interests of IQ and its stockholders.
LEGAL MATTERS
Certain legal matters in connection with the IA Common Stock to be issued
in connection with the Merger and certain tax consequences of the Merger will be
passed upon for IA by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Menlo Park, CA. Certain tax consequences of the Merger will be passed upon
for IQ by Miller & Martin LLP, Atlanta, GA. A partner of Miller & Martin LLP
beneficially owns 27,261 shares of IQ Common Stock.
EXPERTS
The financial statements of Information Advantage, Inc. as of January 31,
1997 and 1998 and for each of the three years in the period ended January 31,
1998 included in this Prospectus/Joint Proxy Statement have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of IQ Software Corporation appearing
in IQ Software Corporation's Annual Report (Form 10-K) for the year ended
January 31, 1998, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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INFORMATION ADVANTAGE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 97
Consolidated Financial Statements:
Consolidated Balance Sheet as of January 31, 1997 and
1998................................................... 98
Consolidated Statement of Operations for the Years Ended
January 31, 1996, 1997 and 1998........................... 99
Consolidated Statement of Stockholders' Equity (Deficit)
for the Years Ended
January 31, 1996, 1997 and 1998........................... 100
Consolidated Statement of Cash Flows for the Years Ended
January 31, 1996, 1997 and 1998........................... 101
Notes to Consolidated Financial Statements................ 102
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
INFORMATION ADVANTAGE, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Information Advantage, Inc. and its subsidiaries at January 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 1998, 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/ PricewaterhouseCoopers LLP
--------------------------------------
Minneapolis, Minnesota
February 20, 1998
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INFORMATION ADVANTAGE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 874 $ 22,170
Accounts receivable....................................... 3,215 5,400
Receivable from officer................................... 70 80
Prepaid expenses and other current assets................. 318 582
-------- --------
Total current assets.............................. 4,477 28,232
-------- --------
Furniture and equipment..................................... 1,294 2,579
Other assets................................................ 147 105
-------- --------
$ 5,918 $ 30,916
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion -- long-term debt......................... $ 790 $ 349
Accounts payable.......................................... 580 1,628
Accrued expenses.......................................... 1,838 2,747
Deferred revenue.......................................... 3,371 5,920
-------- --------
Total current liabilities......................... 6,579 10,644
-------- --------
Long-term debt, less current portion........................ 1,244 234
Other long-term liabilities................................. -- 25
-------- --------
Total liabilities................................. 7,823 10,903
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 6 and 8)
Series A convertible redeemable preferred stock, $0.01 par
value..................................................... 5,337 --
Series B convertible redeemable preferred stock, $0.01 par
value..................................................... 7,150 --
Series C convertible redeemable preferred stock, $0.01 par
value..................................................... 4,923 --
Series D convertible redeemable preferred stock, $0.01 par
value..................................................... -- --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 60,000,000 shares
authorized; 1,059,139 and 15,508,097 shares issued and
outstanding, respectively.............................. 11 155
Additional paid-in-capital................................ 1,007 46,806
Cumulative translation adjustments........................ 19 (2)
Accumulated deficit....................................... (20,352) (26,946)
-------- --------
Total stockholders' equity (deficit).............. (19,315) 20,013
-------- --------
$ 5,918 $ 30,916
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
----------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Revenues:
License................................................. $ 2,686 $ 6,491 $ 13,661
Service................................................. 2,956 5,255 11,929
-------- ---------- ----------
Total revenues.................................. 5,642 11,746 25,590
-------- ---------- ----------
Cost of Revenues:
License................................................. 118 132 185
Service................................................. 2,129 3,308 7,455
-------- ---------- ----------
Total cost of revenues.......................... 2,247 3,440 7,640
-------- ---------- ----------
Gross margin.............................................. 3,395 8,306 17,950
-------- ---------- ----------
Operating expenses:
Sales and marketing....................................... 3,854 11,350 17,072
Research and development.................................. 2,089 3,189 5,211
General and administrative................................ 1,247 2,147 2,133
-------- ---------- ----------
Total operating expenses............................. 7,190 16,686 24,416
-------- ---------- ----------
Loss from operations............................ (3,795) (8,380) (6,466)
Other income (expense):
Interest expense........................................ (110) (244) (247)
Interest income......................................... 116 148 193
-------- ---------- ----------
Total other income (expense).................... 6 (96) (54)
-------- ---------- ----------
Net loss.................................................. $ (3,789) $ (8,476) $ (6,520)
======== ========== ==========
Loss per common share:
Basic................................................... $ (3.87) $ (8.32) $ (2.24)
======== ========== ==========
Diluted................................................. $ (3.87) $ (8.32) $ (2.24)
======== ========== ==========
Shares used in computing loss per common share:
Basic................................................... 977,801 1,019,199 2,905,524
======== ========== ==========
Diluted................................................. 977,801 1,019,199 2,905,524
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
99
<PAGE> 113
INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
------------------- PAID-IN TRANSLATION ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT (DEFICIT)
---------- ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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)
Proceeds from initial public
offering, net of offering
costs..................... 3,834,100 38 19,730 -- -- 19,768
Preferred stock converted to
common.................... 9,483,334 95 24,315 -- -- 24,410
Stock options................ 234,636 2 955 -- -- 957
Stock purchase warrants
exercised................. 896,888 9 799 -- -- 808
Translation adjustments...... -- -- -- (21) -- (21)
Net loss..................... -- -- -- -- (6,520) (6,520)
---------- ---- ------- ---- -------- --------
Balance, January 31, 1998...... 15,508,097 $155 $46,806 $ (2) $(26,946) $ 20,013
========== ==== ======= ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
100
<PAGE> 114
INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(3,789) $(8,476) $(6,520)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 193 470 1,466
Interest expense converted to preferred stock.......... 58 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (801) (1,723) (2,195)
Prepaid expenses and other current assets (1) (206) (264)
Accounts payable..................................... 15 161 1,048
Accrued expenses..................................... 27 1,286 909
Deferred revenue..................................... 670 2,101 2,149
Other................................................ (18) (50) 21
------- ------- -------
Net cash used by operating activities............. (3,646) (6,437) (3,386)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture and equipment...................... (32) (592) (1,397)
------- ------- -------
Net cash used by investing activities..................... (32) (592) (1,397)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net................ -- -- 19,768
Proceeds from exercise of stock options................... 4 86 267
Proceeds from exercise of stock purchase warrants......... -- -- 808
Proceeds from sale of convertible redeemable preferred
stock, net of expenses................................. 5,067 4,880 6,926
Proceeds from issuance of notes payable-stockholders...... 1,000 -- --
Borrowings under lines of credit.......................... -- -- 1,685
Repayments on lines of credit............................. (435) -- (1,685)
Proceeds from long-term debt.............................. -- 1,500 400
Principal payments on long-term debt...................... (217) (502) (2,090)
------- ------- -------
Net cash provided by financing activities................. 5,419 5,964 26,079
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 1,741 (1,065) 21,296
Cash and cash equivalents, beginning of period.............. 198 1,939 874
------- ------- -------
Cash and cash equivalents, end of period.................... $ 1,939 $ 874 $22,170
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 132 $ 234 $ 258
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
101
<PAGE> 115
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1. ORGANIZATION AND INITIAL PUBLIC OFFERING
Information Advantage, Inc. ("IA") 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. IA'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. IA also provides a comprehensive
range of related training, consulting and customer support services.
In December 1997, IA completed an initial public offering of its common
stock, which generated $19.8 million net proceeds. A portion of the net proceeds
was used to repay in full IA's lines of credit and subordinated debt. In
addition, concurrent with the offering, IA's convertible preferred stock and
substantially all stock purchase warrants were converted to common stock.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include accounts of IA and
wholly-owned subsidiaries operating in the United Kingdom and Germany. All
significant intercompany accounts and transactions have been eliminated.
REVERSE STOCK SPLIT
On October 8, 1997, the IA Board approved a reverse 1-for-2 1/2 stock split
which became effective on December 3, 1997. The effect of the reverse stock
split has been reflected for all periods presented in the accompanying financial
statements.
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 IA'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 IA's United Kingdom and 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. IA has
not experienced any material transaction gains or losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents consist of cash, money market instruments and
United States Government Treasury Bills having original maturities less than 90
days. Cash and money market instruments are stated at their fair values.
Treasury Bills are considered "held-to-maturity" and are stated at their
amortized cost which approximates fair value. The fair value of all other
financial instruments approximates cost as stated.
102
<PAGE> 116
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The estimated fair values of IA's cash and cash equivalents at January 31
are as follows:
<TABLE>
<CAPTION>
1997 1998
---- -------
<S> <C> <C>
Cash and money market instruments........................... $874 $ 4,667
U.S. government treasury bills.............................. -- 17,503
</TABLE>
REVENUE RECOGNITION AND SIGNIFICANT CUSTOMERS
Revenues derived from software licenses are recognized upon (a) the
execution of a license agreement, (b) delivery of the software product (c)
reasonable assurance of customer acceptance of the software and collectibility
of the receivable, and (d) fulfillment of any other of IA's contract
obligations. For software provided for demonstration or pilot purposes, or where
significant post-delivery obligations exist, revenues are deferred 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. IA'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 IA to credit risk consist
primarily of accounts receivable. IA grants credit to customers in the ordinary
course of business. Different individual customers accounted for approximately
14%, 10% and 6% of revenues during 1996, 1997 and 1998, respectively. As of
January 31, 1998, a single customer accounted for 18% of total accounts
receivable.
Accounts receivable are stated net of the related allowance for doubtful
accounts of $101 and $201 as of January 31, 1997 and 1998, 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.
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
---------------
1997 1998
----- ------
<S> <C> <C>
Equipment cost............................................. $ 927 $1,191
Less: Accumulated amortization............................. (336) (689)
----- ------
$ 591 $ 502
===== ======
</TABLE>
103
<PAGE> 117
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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.
EARNINGS PER SHARE
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. To date, IA has incurred net losses, thus there has
been no impact from common stock warrants and options on weighted average shares
outstanding. Should earnings be generated in future years, the impact of
warrants and options would be dilutive to earnings per share. All earnings per
share amounts for all periods have been presented or restated to conform with
the provisions of SFAS No. 128.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 IA'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 IA's financial statements.
The American Institute of Certified Public Accountants' has approved a new
Statement of Position (SOP), SOP 97-2, effective for transactions entered into
after December 15, 1997, 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 IA's
revenue recognition or cause changes to its revenue recognition policies.
104
<PAGE> 118
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3. FINANCIAL STATEMENT COMPONENTS
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31
------------------
1997 1998
------- -------
<S> <C> <C>
Computer equipment.......................................... $ 1,615 $ 2,518
Furniture and office equipment.............................. 722 1,880
Less: Accumulated depreciation.............................. (1,043) (1,819)
------- -------
$ 1,294 $ 2,579
======= =======
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
----------------
1997 1998
------ ------
<S> <C> <C>
Accrued wages and benefits.................................. $1,294 $2,253
Other accrued expenses...................................... 544 494
------ ------
$1,838 $2,747
====== ======
</TABLE>
NOTE 4. LINES OF CREDIT
IA has a $2.0 million working capital line of credit with a bank which
expires September 2, 1998. 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 (8.5% at January 31, 1998) and are
collateralized by all of IA's assets. No amounts were outstanding under the line
as of January 31, 1997 or 1998. Maximum and average borrowings during fiscal
1998 were $1,715 and $298, respectively. There were no borrowings in fiscal
1997.
Management believes that, upon the September 2, 1998 expiration of the line
of credit, the agreement will be renewed or replaced at similar or more
favorable terms. The line of credit agreement contains certain covenants
pertaining to operating results and certain other financial ratios. IA is
currently in compliance with these covenants.
IA also maintained with a bank a $400 equipment line of credit, which was
collateralized by specific, related assets. The line bore interest at 1.75% over
the bank's prime rate (8.5% at January 31, 1998). During October 1997, IA
borrowed $400 under the line, which was repaid in full and expired in December
1997.
105
<PAGE> 119
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31
---------------
1997 1998
------ -----
<S> <C> <C>
Subordinated note payable; bears interest at 13.5% per
annum: repaid in fiscal 1998.............................. $1,397 $ --
Capital lease obligations; bear interest at 8.0% to 13.5%
per annum; due in varying monthly installments trough
October 2000.............................................. 581 583
Note payable; bears interest at 10% per annum; due in
quarterly installments of $28, plus accrued interest,
through June 1997......................................... 56 --
------ -----
2,034 583
Current portion-long term debt.............................. (790) (349)
------ -----
$1,244 $ 234
====== =====
</TABLE>
Future payments of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
------------------------
<S> <C>
1999........................................................ $385
2000........................................................ 199
2001........................................................ 46
----
630
Less: Amount representing interest.......................... (47)
----
$583
====
</TABLE>
NOTE 6. OPERATING LEASES
IA leases equipment and office space in several facilities under
non-cancelable operating leases which expire on various dates through June 2002.
Rental expense under such leases was $547, $721 and $1,415 for the years ended
January 31, 1996, 1997 and 1998, respectively. Future minimum payments under the
lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
-----------------------
<S> <C>
1999........................................................ $1,266
2000........................................................ 847
2001........................................................ 664
2002........................................................ 571
2003........................................................ 269
2004........................................................ 7
------
$3,624
======
</TABLE>
106
<PAGE> 120
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7. INCOME TAXES
At January 31, 1998, IA had net operating loss carryforwards of
approximately $21 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 IA 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
IA's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of financial reporting......... $ 37 $ --
------- -------
Deferred tax assets:
Net operating loss carryforward........................... 6,284 8,113
Vacation and other accruals............................... 851 1,272
Book depreciation in excess of tax........................ -- 89
Research and development credit carryforward.............. 48 85
Accounts receivable allowance............................. 33 66
Amortization.............................................. 49 --
------- -------
Total deferred tax assets......................... 7,265 9,625
------- -------
Valuation allowance......................................... (7,228) (9,625)
------- -------
Total net deferred income taxes................... $ -- $ --
======= =======
</TABLE>
NOTE 8. CAPITAL STRUCTURE
In prior years, IA had 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 had $0.01 par value. The Preferred Shares were converted upon the
closing of the initial public offering of IA Common Stock.
In September 1997, the IA Board increased the authorized shares of IA 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, IA authorized
5,000,000, $.01 par value preferred shares which became effective subsequent to
the closing of the initial public offering.
WARRANTS
In December 1997, IA and certain holders of its outstanding preferred stock
(the "Lenders") entered into an agreement (the "Loan Agreement") to provide IA
with a $3 million revolving loan commitment. In conjunction with the Loan
Agreement, which expired, unused, 10 days following the closing of the offering,
IA
107
<PAGE> 121
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
granted to the Lenders warrants to purchase a total of 30,000 shares of IA
Common Stock at a purchase price of $5.00 per share. Such warrants expire
December 2002. Using the fair value method prescribed in SFAS No. 123, the fair
value of the warrants was immaterial.
Immediately prior to the offering, IA had outstanding 779,826 stock
purchase warrants at conversion prices ranging from $1.50 to $5.00. Of these,
606,407 warrants were automatically exercised and converted into 429,565 shares
of IA Common Stock upon the closing of the offering.
NOTE 9. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
STOCK OPTION PLANS
IA has a stock incentive plan (the "1992 Stock Option Plan") that reserves
a total of 2,640,000 shares of common stock for issuance of stock options to
employees, officers and directors.
In September 1997, the IA Board adopted the 1997 Equity Incentive Plan (the
"1997 Plan"). The number of shares of IA 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 IA'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 IA Common Stock then
outstanding.
The option price for stock options granted is determined by the IA Board on
the date of grant. Canceled options are available for future grant and unvested
options issued to employees are canceled when their employment with IA
terminates. Generally, options granted to employees vest over a five-year period
and expire ten years after the date of grant.
IA 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 January 31, 1998 approximates $1.1 million. Such
compensation is considered deferred compensation and amortized over the vesting
period of the related options.
IA 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
IA's stock plan been determined based on the minimum value at the grant date for
awards during fiscal 1996, 1997 and 1998 consistent with the provisions of SFAS
No. 123, IA's net losses would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net loss -- as reported............................... $(3,789) $(8,476) $(6,520)
Net loss -- pro forma................................. $(3,830) $(8,595) $(6,724)
Net loss per share -- basic and diluted, as
reported............................................ $ (3.87) $ (8.32) $ (2.24)
Net loss per share -- basic and diluted, pro forma.... $ (3.92) $ (8.43) $ (2.31)
</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 1997 and 1998, respectively; dividend
yield of 0%; risk-free interest rates of 6.4% and 6.2%; and expected lives of
8.5 years. Volatility factors are not applicable to non-public companies.
108
<PAGE> 122
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
A summary of the stock option activity is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE WEIGHTED - AVERAGE
OPTIONS PER SHARE EXERCISE PRICE
--------- --------------- ------------------
<S> <C> <C> <C>
Outstanding at January 31, 1995................. 569,640 $0.875 - $1.125 $1.10
Granted......................................... 767,632 $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................. 1,273,632 $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................. 1,776,652 $0.875 - $1.125 $1.13
Granted......................................... 781,900 $ 1.125 - $5.50 $2.52
Exercised....................................... (234,636) $0.875 - $2.125 $1.14
Canceled........................................ (66,944) $ 1.125 - $4.75 $1.40
--------- --------------- -----
Outstanding at January 31, 1998................. 2,256,972 $ 0.875 - $5.50 $1.59
========= =============== =====
</TABLE>
Stock options exercisable at January 31, 1997 and 1998 were 409,986 and
752,591, respectively. The weighted-average fair value of options granted during
fiscal 1997 and 1998 using the Black-Scholes option-pricing model was $0.46 and
$1.01 per share, respectively.
The following table summarizes information about fixed-price stock options
outstanding at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED-
REMAINING WEIGHTED- AVERAGE
NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE PRICE
- ------------------------------- ----------- ------------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.875 - $1.125 1,850,832 6.9 $1.12 739,471 $1.12
$1.625 - $3.75 280,340 9.5 $3.15 13,120 $1.92
$4.00 - $5.50 125,800 9.8 $5.06 0 $ 0
--------- -------
Totals 2,256,972 752,591
========= =======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In September 1997, the IA Board adopted IA'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 IA Common Stock at 85% of
its fair market value, up to the lesser of 500 shares or 15% of the employee's
compensation. 200,000 shares of common stock have been reserved for issuance
under the Purchase Plan.
NOTE 10. BENEFIT PLAN
IA 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. IA may, at its sole discretion, match up to 6% of employee
contributions. There have been no employer contributions to date. IA also offers
employees of its subsidiaries in the United Kingdom and Germany a defined
contribution plan. IA does not offer other post-retirement or post-employment
benefits.
109
<PAGE> 123
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11. RELATED PARTY TRANSACTION
At January 31, 1997 and 1998, IA has a receivable from an officer in the
amount of $70 and $80, respectively. The receivable bears interest at 5.3%, is
secured by 12,700 shares of IA Common Stock and is due sixty days after demand
by IA.
NOTE 12. SEGMENT AND GEOGRAPHIC AREAS
IA 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 IA's wholly-owned subsidiaries. IA's subsidiaries in the United
Kingdom and Germany sell IA's software products and services in Europe. The
following table presents a summary of operating information and certain balance
sheet information by geographic region:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
Domestic operations................................. $ 5,037 $10,629 $23,115
International operations............................ 605 1,117 2,475
------- ------- -------
Consolidated.......................................... $ 5,642 $11,746 $25,590
======= ======= =======
Net loss:
Domestic operations................................. $(3,437) $(7,495) $(4,795)
International operations............................ (352) (981) (1,725)
------- ------- -------
Consolidated........................................ $(3,789) $(8,476) $(6,520)
======= ======= =======
Identifiable assets:
Domestic operations................................. $ 3,809 $ 4,942 $29,406
International operations............................ 512 976 1,510
------- ------- -------
Consolidated.......................................... $ 4,321 $ 5,918 $30,916
======= ======= =======
</TABLE>
NOTE 13. NON-CASH TRANSACTIONS
During fiscal 1996, 1997, and 1998, IA acquired $303, $486, and $264,
respectively, of fixed assets through capital leases.
During fiscal 1996, $2 million of notes payable -- stockholders was
converted to Series B convertible redeemable preferred stock at $0.95 per share.
During fiscal 1998, 9,483,334 shares of preferred stock and 606,407 stock
purchase warrants were converted in cashless exercises to 9,912,899 shares of IA
Common Stock.
110
<PAGE> 124
INFORMATION ADVANTAGE, INC.
INDEX TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet as of January 31, 1998 (audited),
and July 31, 1998......................................... 112
Consolidated Statement of Operations for the Three and Six
Months Ended July 31, 1997 and 1998....................... 113
Consolidated Statement of Cash Flows for the Six Months
Ended July 31, 1997 and 1998.............................. 114
Notes to Consolidated Financial Statements.................. 115
</TABLE>
111
<PAGE> 125
INFORMATION ADVANTAGE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1998 1998
----------- -----------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 22,170 $ 9,618
Short-term investments.................................... -- 9,434
Accounts receivable....................................... 5,400 7,909
Receivable from officer................................... 80 79
Prepaid expenses and other current assets................. 582 1,370
-------- --------
Total current assets.............................. 28,232 28,410
Furniture and Equipment..................................... 2,579 2,715
Other assets................................................ 105 94
-------- --------
$ 30,916 $ 31,219
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion -- long-term liabilities.................. $ 349 $ 271
Accounts payable.......................................... 1,628 1,391
Accrued expenses.......................................... 2,747 4,080
Deferred revenue.......................................... 5,920 4,348
-------- --------
Total current liabilities......................... 10,644 10,090
Long-term liabilities, less current portion................. 259 166
-------- --------
Total liabilities................................. 10,903 10,256
-------- --------
Stockholders' equity:
Common stock, $0.01 par value; 60,000,000 shares
authorized............................................. 155 156
Additional paid-in capital................................ 46,806 47,209
Accumulated other comprehensive income.................... (2) (18)
Accumulated deficit....................................... (26,946) (26,384)
-------- --------
Total stockholders' equity........................ 20,013 20,963
-------- --------
$ 30,916 $ 31,219
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
112
<PAGE> 126
INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------ ------------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
License......................................... $ 2,862 $ 5,959 $ 5,000 $10,926
Services........................................ 2,941 4,136 5,148 8,172
------- ------- ------- -------
Total revenues.......................... 5,803 10,095 10,148 19,098
------- ------- ------- -------
Cost of revenues:
License......................................... 41 83 77 195
Services........................................ 1,886 2,036 3,445 4,070
------- ------- ------- -------
Total cost of revenues.................. 1,927 2,119 3,522 4,265
------- ------- ------- -------
Gross margin...................................... 3,876 7,976 6,626 14,833
------- ------- ------- -------
Operating expenses:
Sales and marketing............................. 4,153 5,536 7,827 10,297
Research and development........................ 1,267 1,525 2,373 2,940
General and administrative...................... 550 593 1,035 1,335
------- ------- ------- -------
Total operating expenses................ 5,970 7,654 11,235 14,572
------- ------- ------- -------
Income (loss) from operations..................... (2,094) 322 (4,609) 261
Other income (expense):
Interest income................................. 41 208 78 443
Interest expense................................ (58) (8) (118) (19)
------- ------- ------- -------
Total other income (expense)............ (17) 200 (40) 424
------- ------- ------- -------
Income (loss) before provision for income taxes... (2,111) 522 (4,649) 685
Provision for income taxes........................ -- 78 -- 123
Net income (loss)................................. $(2,111) $ 444 (4,649) 562
======= ======= ======= =======
Net income (loss) per share:
Basic........................................... $ (1.98) $ 0.03 $ (4.37) $ 0.04
======= ======= ======= =======
Diluted......................................... $ (1.98) $ 0.03 $ (4.37) $ 0.03
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
113
<PAGE> 127
INFORMATION ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(4,649) $ 562
Adjustments to reconcile net income (loss) to net cash
used by operating activities --
Depreciation and amortization.......................... 524 594
Changes in operating assets and liabilities:
Accounts receivable.................................. (583) (2,508)
Prepaid expenses and other current assets............ (290) (788)
Accounts payable..................................... 47 (237)
Accrued expenses..................................... 467 1,333
Deferred revenue..................................... 341 (1,572)
Other................................................ 17 (4)
------- --------
Net cash used in operating activities....................... (4,126) (2,620)
------- --------
Cash flows from investing activities:
Additions to furniture and equipment...................... (222) (730)
Purchase of investments held-to-maturity.................. -- (12,434)
Maturities of investments held-to-maturity................ -- 3,000
------- --------
Net cash used in investing activities....................... (222) (10,164)
------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options................... 48 43
Proceeds from purchase of shares under Employee Stock
Purchase Plan.......................................... -- 361
Proceeds from sale of convertible redeemable preferred
stock, net of expenses................................. 6,926 --
Principal payments on long-term liabilities............... (400) (171)
------- --------
Net cash provided by financing activities................... 6,574 232
------- --------
Net increase (decrease) in cash and cash equivalents........ 2,226 (12,552)
Cash and cash equivalents, beginning of period.............. 874 22,170
------- --------
Cash and cash equivalents, end of period.................... $ 3,100 $ 9,618
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
114
<PAGE> 128
INFORMATION ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information furnished is unaudited except for the balance
sheet as of January 31, 1998. The unaudited consolidated financial statements as
of and for the three and six months ended July 31, 1997 and 1998 have been
prepared on the same basis as the audited consolidated financial statements for
the year ended January 31, 1998, and include all adjustments, consisting only of
normal recurring accruals, which in the opinion of management are necessary for
the fair presentation of such information for the periods presented.
Certain notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
These financial statements should be read in conjunction with IA's audited
financial statements and notes thereto for the three years ended January 31,
1998, included in IA's annual report on Form 10-K. In addition, the results of
operations for the interim periods presented may not be indicative of results
for the entire year.
2. NEW ACCOUNTING PRONOUNCEMENTS
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. The adoption of
SFAS No. 130, effective February 1, 1998, did not have a material effect on IA's
financial statements. For IA, only cumulative translation adjustments are
included in accumulated other comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
No. 131). SFAS No. 131 is effective for annual 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. IA will adopt SFAS No. 131 effective for its annual report
for the fiscal year ending January 31, 1999. Management believes the adoption of
SFAS No. 131 will not have a material effect on IA's financial statements.
The American Institute of Certified Public Accountants has approved
Statement of Position (SOP), SOP 97-2, effective for transactions entered into
after December 15, 1997, which supersedes Statement of Position 91-1, "Software
Revenue Recognition." Management has adopted this new statement and has
determined that its adoption has not had a material effect on the timing of IA's
revenue recognition or caused changes to its revenue recognition policies.
3. SHORT-TERM INVESTMENTS
Short-term investments consist of United States Government Treasury Bills
having original maturities greater than 90 days. Treasury Bills are considered
"held-to-maturity" and are stated at their amortized cost which approximates
fair value.
115
<PAGE> 129
4. EARNINGS PER SHARE
A reconciliation of the denominators of the basic and diluted earnings per
share computations for the three and six months ended July 31 is presented
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------------- -------------------------
1997 1998 1997 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss)....................... $ (2,111) $ 444 $ (4,649) $ 562
========== =========== ========== ===========
Shares Calculation:
Weighted average basic shares
outstanding........................ 1,067,773 15,555,803 1,064,143 15,535,214
Effect of dilutive securities
Options............................ -- 1,858,763 -- 1,807,410
Warrants........................... -- 100,956 -- 99,924
---------- ----------- ---------- -----------
Total shares used to compute
diluted earnings per
share....................... 1,067,773 17,515,522 1,064,143 17,442,548
========== =========== ========== ===========
Net Income (Loss) per Share:
Basic................................. $ (1.98) $ 0.03 $ (4.37) $ 0.04
========== =========== ========== ===========
Diluted............................... $ (1.98) $ 0.03 $ (4.37) $ 0.03
========== =========== ========== ===========
</TABLE>
116
<PAGE> 130
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INFORMATION ADVANTAGE, INC.,
IQ SOFTWARE CORPORATION
AND
IAC MERGER CORP.
AS OF JUNE 29, 1998
<PAGE> 131
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I THE MERGER
1.1 Effective Time of the Merger................................ A-1
1.2 Closing..................................................... A-1
1.3 Effects of the Merger....................................... A-2
1.4 Director of the Company..................................... A-2
ARTICLE II CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock................................. A-2
2.2 Exchange of Certificates.................................... A-2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
3.1 Organization of Parent and Merger Sub....................... A-5
3.2 Parent Capital Structure.................................... A-5
3.3 Authority; No Conflict; Required Filings and Consents....... A-6
3.4 SEC Filings; Financial Statements........................... A-7
3.5 No Undisclosed Liabilities.................................. A-7
3.6 Absence of Certain Changes or Events........................ A-7
3.7 Taxes....................................................... A-8
3.8 Properties.................................................. A-8
3.9 Intellectual Property....................................... A-8
3.10 Agreements, Contracts and Commitments....................... A-9
3.11 Litigation.................................................. A-9
3.12 Environmental Matters....................................... A-9
3.13 Employee Benefit Plans...................................... A-10
3.14 Compliance With Laws........................................ A-10
3.15 Accounting and Tax Matters.................................. A-10
3.16 Registration Statement; Proxy Statement/Prospectus.......... A-10
3.17 Labor Matters............................................... A-10
3.18 Insurance; Risk Management.................................. A-11
3.19 Opinion of Financial Advisor................................ A-11
3.20 Interim Operations of Merger Sub............................ A-11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization of the Company................................. A-11
4.2 The Company Capital Structure............................... A-12
4.3 Authority; No Conflict; Required Filings and Consents....... A-12
4.4 SEC Filings; Financial Statements........................... A-13
4.5 No Undisclosed Liabilities.................................. A-13
4.6 Absence of Certain Changes or Events........................ A-13
4.7 Taxes....................................................... A-14
4.8 Properties.................................................. A-15
4.9 Intellectual Property....................................... A-15
4.10 Agreements, Contracts and Commitments....................... A-16
4.11 Litigation.................................................. A-16
4.12 Environmental Matters....................................... A-16
4.13 Employee Benefit Plans...................................... A-16
4.14 Compliance With Laws........................................ A-17
</TABLE>
i
<PAGE> 132
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.15 Accounting and Tax Matters.................................. A-17
4.16 Registration Statement; Proxy Statement/Prospectus.......... A-17
4.17 Labor Matters............................................... A-18
4.18 Insurance; Risk Management.................................. A-18
4.19 No Existing Discussions..................................... A-18
4.20 Opinion of Financial Advisor................................ A-18
4.21 Insider Trading Policies and Practices...................... A-18
ARTICLE V COMPANY COVENANTS
5.1 Access and Investigation.................................... A-19
5.2 Operation of the Company's Business......................... A-19
5.3 Irrevocable Proxies......................................... A-20
5.4 Reseller Agreement.......................................... A-20
5.5 Employment Agreement........................................ A-20
ARTICLE VI PARENT AND MERGER SUB COVENANTS
6.1 Access and Investigation.................................... A-20
6.2 Operation of the Parent's Business.......................... A-21
ARTICLE VII ADDITIONAL AGREEMENTS
7.1 Cooperation................................................. A-21
7.2 No Solicitation............................................. A-21
7.3 Proxy Statement/Prospectus; Registration Statement.......... A-22
7.4 Nasdaq Quotation............................................ A-22
7.5 Stockholders' Meetings...................................... A-22
7.6 Legal Conditions to Merger.................................. A-22
7.7 Public Disclosure........................................... A-23
7.8 Tax-Free Reorganization..................................... A-23
7.9 Pooling Accounting.......................................... A-23
7.10 Affiliate Agreements........................................ A-24
7.11 Nasdaq Quotation............................................ A-24
7.12 Stock Plans................................................. A-24
7.13 Brokers or Finders.......................................... A-25
7.14 Letter of the Company's Accountants......................... A-25
7.15 Letter of Parent's Accountants.............................. A-25
7.16 Schedules................................................... A-25
7.17 Indemnification............................................. A-25
ARTICLE VIII CONDITIONS TO MERGER
8.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-26
8.2 Additional Conditions to Obligations of the Company......... A-27
8.3 Additional Conditions to Obligations of Parent and Merger
Sub......................................................... A-27
ARTICLE IX TERMINATION AND AMENDMENT
9.1 Termination................................................. A-28
9.2 Effect of Termination....................................... A-29
9.3 Fees and Expenses........................................... A-29
9.4 Non-Solicitation of Employees............................... A-30
9.5 Amendment................................................... A-30
9.6 Extension; Waiver........................................... A-30
</TABLE>
ii
<PAGE> 133
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE X MISCELLANEOUS
10.1 Nonsurvival of Representations, Warranties and Agreements... A-30
10.2 Notices..................................................... A-30
10.3 Interpretation.............................................. A-31
10.4 Counterparts................................................ A-31
10.5 Entire Agreement; No Third Party Beneficiaries.............. A-31
10.6 Governing Law............................................... A-32
10.7 Assignment.................................................. A-32
</TABLE>
<TABLE>
<S> <C>
Exhibit A -- Stock Option Agreement
Exhibit B -- Form of Voting and Proxy Agreement
Exhibits C-1 and C-2 -- Forms of Affiliate Agreements
Exhibit D -- Form of Legal Opinion from Parent's Counsel
Exhibit E -- Form of Legal Opinion from the Company's Counsel
</TABLE>
iii
<PAGE> 134
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"),
dated as of June 29, 1998, is by and among Information Advantage, Inc., a
Delaware corporation ("Parent"), IQ Software Corporation, a Georgia corporation
(the "Company"), and IAC Merger Corp., a Georgia corporation and a direct,
wholly owned subsidiary of Parent ("Merger Sub").
WHEREAS, the Boards of Directors of the Company and Parent deem it
advisable and in the best interests of each corporation and its respective
stockholders that the Company and Parent combine in order to advance the
long-term business interests of the Company and Parent;
WHEREAS, the Company, Merger Sub and Parent intend to effect a merger (the
"Merger") of Merger Sub with and into the Company in accordance with this
Agreement and the Georgia Business Corporation Code (the "GCC");
WHEREAS, upon the closing of the Merger, Merger Sub will cease to exist and
the Company will become a wholly owned subsidiary of Parent (the Company, from
and after the Merger, is sometimes referred to herein as the "Surviving
Corporation");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent to enter into this Agreement, Parent and
the Company have entered into a Stock Option Agreement dated as of the date of
this Agreement and attached hereto as Exhibit A (the "Stock Option Agreement"),
pursuant to which the Company granted Parent an option to purchase shares of
common stock of the Company under certain circumstances;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests;
WHEREAS, on July 24, 1998 the parties agreed to make certain technical
amendments to this Agreement to correct factual errors in this Agreement; to
restate this Agreement to reflect such changes; and further agreed such amended
and restated agreement would be effective as of June 29, 1998.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, a certificate of merger in such form as is required by the relevant
provisions of the GCC (the "Certificate of Merger") shall be duly prepared,
executed and acknowledged by the Surviving Corporation and thereafter delivered
to the Secretary of State of the State of Georgia, for filing, as provided in
the GCC, as soon as practicable on or after the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Georgia or at
such time thereafter as is provided in the Certificate of Merger (the "Effective
Time").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m., local time, on a date to be specified by the Company and Parent,
which shall be no later than the second business day after satisfaction of the
latest to occur of the conditions set forth in Sections 8.1, 8.2 and 8.3 (the
"Closing Date"), at the offices of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, unless another
date, place or time is agreed to in writing by the Company and Parent.
A-1
<PAGE> 135
1.3 Effects of the Merger. At the Effective Time (i) the separate
existence of Merger Sub shall cease and Merger Sub shall be merged with and into
the Company (Merger Sub and the Company are sometimes referred to together as
the "Constituent Corporations"), (ii) the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation, (iii) the directors and officers of the Surviving Corporation
immediately after the Merger shall be as determined by the Board of Directors of
the Parent and shall serve until their respective successors are elected and
qualified or duly appointed, as the case may be, (iv) all the property, rights,
privileges, powers and franchises and duties of Merger Sub and the Company shall
vest in the Surviving Corporation, and (v) all debts, liabilities and duties of
the Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Director of the Company. At the Effective Time, Parent shall cause
Charles R. Chitty to be named as member of the Board of Directors of Parent;
provided, that if such person is unwilling or unable to serve in such capacity,
his replacement, if any, shall be selected by Parent's Board of Directors as
constituted at the Effective Time.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Company Common Stock or the capital stock of Merger
Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of
the capital stock of Merger Sub shall be converted into and become one
fully paid and nonassessable share of Common Stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All shares
of Common Stock of the Company, par value .00033 per share ("Company Common
Stock"), that are owned by Company or any Subsidiary (as defined in Section
3.1) of the Company shall be canceled and retired and shall cease to exist
and no stock of Parent or other consideration shall be delivered in
exchange therefor. All shares of Company Common Stock owned by Parent shall
be unaffected by the Merger.
(c) Exchange Ratio for Company Common Stock. Subject to Section 2.2,
each issued and outstanding share of Company Common Stock (other than
shares to be canceled in accordance with Section 2.1(b)) shall be converted
into the right to receive 1.96 shares (the "Exchange Ratio") of Common
Stock, $.01 par value, of Parent ("Parent Common Stock"). All such shares
of Company Common Stock, when so converted, shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
shares of Parent Common Stock and any cash in lieu of fractional shares of
Parent Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.2, without
interest.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to
Parent Common Stock or Company Common Stock occurring after the date hereof
and prior to the Effective Time.
2.2 Exchange of Certificates. The procedures for exchanging outstanding
shares of Company Common Stock for Parent Common Stock pursuant to the Merger
are as follows:
(a) Exchange Agent. As of the Effective Time, Parent shall deposit
with a bank or trust company designated by Parent (the "Exchange Agent"),
for the benefit of the holders of shares of the Company Common Stock, for
exchange in accordance with this Section 2.2, through the Exchange Agent,
(i) certificates representing the shares of Parent Common Stock (such
shares of Parent Common Stock,
A-2
<PAGE> 136
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.1 in exchange for outstanding shares of Company Common Stock, and
(ii) cash in an amount sufficient to permit payment of cash in lieu of
fractional shares pursuant to Section 2.2(e).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, but not later than ten business days thereafter, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates") whose
shares were converted pursuant to Section 2.1 into the right to receive
shares of Parent Common Stock (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
the Company and Parent may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock (plus cash in lieu of fractional
shares, if any, of Parent Common Stock as provided in Section 2.2(e)
below). Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock which such
holder has the right to receive pursuant to the provisions of this Article
II and payment in lieu of fractional shares which the holder of such
Certificate has the right to receive pursuant to Section 2.2(e), and the
Certificate so surrendered shall immediately be canceled. In the event of a
transfer of ownership of Company Common Stock which is not registered in
the transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock may be issued to a transferee if
the Certificate representing such the Company Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer or
other applicable taxes have been paid. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the certificate representing shares of Parent Common Stock and cash in lieu
of any fractional shares of Parent Common Stock as contemplated by this
Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Parent Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.2(e) below until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of any cash payable in lieu of a fractional
share of Parent Common Stock to which such holder is entitled pursuant to
Section 2.2(e) below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (including any cash paid pursuant to
subsection (c) or (e) of this Section 2.2) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or
made by the Company on such shares of Company Common Stock in accordance
with the terms of this Agreement (to the extent permitted under Section
5.2) prior to the date hereof and which remain unpaid at the Effective
Time, and
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from and after the Effective Time there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section 2.2.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to exercise any other rights of a
stockholder of Parent. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction
of a share of Parent Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Parent Common Stock multiplied by the average of the last reported sales
prices of Parent Common Stock, as reported on the Nasdaq National Market,
on each of the ten trading days immediately preceding the Closing Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the stockholders of the Company for 180 days
after the Effective Time shall be delivered to Parent, upon demand, and any
stockholders of the Company who have not previously complied with this
Section 2.2 shall thereafter look only to Parent for payment of their claim
for Parent Common Stock, any cash in lieu of fractional shares of Parent
Common Stock and any dividends or distributions with respect to Parent
Common Stock.
(g) No Liability. To the extent permitted by applicable law, neither
Parent nor the Company shall be liable to any holder of shares of Parent
Common Stock or Company Common Stock, as the case may be, for such shares
(or dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(h) Withholding Rights. Each of Parent and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
by the Surviving Corporation or Parent, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation
or Parent, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Parent Common Stock and any
cash in lieu of fractional shares, and unpaid dividends and distributions
on shares of Parent Common Stock deliverable in respect thereof pursuant to
this Agreement.
(j) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as defined in
Section 7.10) of the Company shall not be exchanged until Parent has
received an Affiliate Agreement (as defined in Section 7.10) from such
Affiliate.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that the
statements contained in this Article III are true and correct except as set
forth herein and in the disclosure schedule delivered by Parent to the Company
prior to the execution and delivery of this Agreement (the "Parent Disclosure
Schedule"). The Parent Disclosure Schedule shall be arranged in sections and
paragraphs corresponding to the numbered and lettered sections and paragraphs
contained in this Article III and the disclosure in any section or paragraph
shall qualify other sections and paragraphs in this Article III only to the
extent that it is reasonably apparent from a reading of such disclosure that it
also qualifies or applies to such other sections and paragraphs.
3.1 Organization of Parent and Merger Sub. Each of Parent and its
Subsidiaries (as defined below), including Merger Sub, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Parent Material Adverse Effect (as
defined below). Except as set forth in the Parent SEC Reports (as defined in
Section 3.4) filed prior to the date hereof, neither Parent nor any of its
Subsidiaries directly or indirectly own any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by
Parent and comprising less than five percent (5%) of the outstanding stock of
such company. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (a) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or (b)
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. As used in this Agreement, any reference to a party's "knowledge"
means, with respect to a matter, such party's actual knowledge after due and
diligent inquiry of officers, directors and other employees of such party and
its Subsidiaries reasonably believed to have knowledge of such matter. For
purposes of this Agreement, the term "Parent Material Adverse Effect" means any
effect that is, or would reasonably be expected to be, materially adverse to the
business, properties, financial condition or results of operations of Parent and
its Subsidiaries, taken as a whole; provided, however, that (i) any adverse
change, event or effect that is demonstrated to be primarily caused by the
announcement or pendency of the Merger shall not be taken into account in
determining whether there has been or would be a "Parent Material Adverse
Effect" on or with respect to Parent and its Subsidiaries, taken as a whole, and
(ii) any adverse change in the stock price of Parent as quoted on the Nasdaq
National Market shall not be taken into account in determining whether there has
been or would be a "Parent Material Adverse Effect" on or with respect to Parent
and its Subsidiaries, taken as a whole.
3.2 Parent Capital Structure.
(a) The authorized capital stock of Parent consists of 60,000,000 shares of
Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par
value ("Parent Preferred Stock"). As of April 30, 1998, (i) 15,516,770 shares of
Parent Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) no shares of Parent Common Stock were
held in the treasury of Parent or by Subsidiaries of Parent. Section 3.2 of the
Parent Disclosure Schedule shows the number of shares of Parent Common Stock
reserved for future issuance pursuant to stock options granted and outstanding
as of April 30, 1998 and the plans under which such options were granted
(together with the 1997 Employee Stock Purchase Plan, the "Parent Stock Plans").
No material change in such capitalization has occurred between April 30, 1998
and the date of this Agreement. As of the date of this Agreement, none of the
shares of Parent Preferred Stock are issued and outstanding. All shares of
Parent Common Stock, subject to issuance as
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specified above, are duly authorized and, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Parent Common Stock or the capital
stock of any Subsidiary or to provide funds to or make any material investment
(in the form of a loan, capital contribution or otherwise) in any such
Subsidiary or any other entity other than guarantees of bank obligations of
Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of Parent's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and all such shares
(other than directors' qualifying shares in the case of foreign Subsidiaries)
are owned by Parent or another Subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in Parent's voting
rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 3.2 or as reserved for future
grants of options and issuances of shares of Common Stock under the Parent Stock
Plans, there are no equity securities of any class of Parent or any of its
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except as set forth in
the Parent SEC Reports filed prior to the date hereof or disclosed in Section
3.2 of the Parent Disclosure Schedule, there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
Parent or any of its Subsidiaries are a party or by which it is bound obligating
Parent or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of Parent or any
of its Subsidiaries or obligating Parent or any of its Subsidiaries to grant,
extend, accelerate the vesting of, change the price of, or otherwise amend or
enter into any such option, warrant, equity security, call, right, commitment or
agreement. To the knowledge of Parent, there are no voting trusts, proxies or
other voting agreements or understandings with respect to the shares of capital
stock of Parent.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of Parent and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and in the case of Parent, the Stock
Option Agreement, and to consummate the transactions contemplated by this
Agreement and in the case of Parent, the Stock Option Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement by Parent and Merger Sub and in the case of
Parent, the Stock Option Agreement, have been duly authorized by all necessary
corporate action on the part of each of Parent and Merger Sub (including the
approval of the Merger by Parent as the sole stockholder of Merger Sub), subject
only to the approval of the Merger by Parent's stockholders. This Agreement has
been duly executed and delivered by Parent and Merger Sub, and constitutes the
valid and binding obligations of Parent and Merger Sub, enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles (the
"Bankruptcy and Equity Exception").
(b) The execution and delivery of this Agreement, and in the case of
Parent, the Stock Option Agreement, by Parent and Merger Sub, does not, and the
consummation of the transactions contemplated by this Agreement and the Stock
Option Agreement will not, (i) conflict with, or result in any violation or
breach of, any provision of the Certificate of Incorporation or Bylaws of Parent
or Merger Sub, each as amended to date, (ii) result in any violation of, or
default under or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Parent or any of its Subsidiaries are a party
or by which any of them or any of their properties or assets may be bound, or
(iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or any of its Subsidiaries or any of its or their properties or
assets, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations that are not,
individually or in the aggregate, reasonably likely to have a Parent Material
Adverse Effect.
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(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Parent or any of its Subsidiaries in connection
with the execution and delivery of this Agreement and the Stock Option Agreement
or the consummation of the transactions contemplated hereby or thereby, except
for (i) the filing of the Registration Statement (as defined in Section 3.16
below) with the Securities and Exchange Commission (the "SEC") in accordance
with the Securities Act of 1933, as amended ("Securities Act"), (ii) the filing
of the Certificate of Merger with the Secretary of State of Georgia, (iii) the
filing of the Joint Proxy Statement (as defined in Section 3.16 below) with the
SEC in accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the National Association of Securities Dealers, Inc., and
any clearance thereof by the SEC, (iv) the filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country and (vi) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely to have a Parent Material Adverse Effect.
3.4 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
by Parent with the SEC since December 17, 1997, (collectively, the "Parent SEC
Reports"). The Parent SEC Reports (i) at the time filed or, with respect to
registration statements filed with the SEC under the Securities Act, as of the
effective date thereof, complied in all material respects with the applicable
requirements of the Securities Act, and the Exchange Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Parent SEC Reports or necessary in order to make
the statements in such Parent SEC Reports, in light of the circumstances under
which they were made, not misleading. None of Parent's Subsidiaries are required
to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Parent SEC Reports complied as to form in
all material respects with the applicable published rules and regulations of the
SEC with respect thereto, was prepared in accordance with U.S. generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) and fairly presented the consolidated financial position of Parent and
its Subsidiaries as of the dates and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
unaudited balance sheet of Parent as of April 30, 1998 is referred to herein as
the "Parent Balance Sheet."
3.5 No Undisclosed Liabilities. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof, and except for normal or recurring
liabilities incurred since April 30, 1998 in the ordinary course of business
consistent with past practices, Parent and its Subsidiaries do not have any
liabilities, either accrued, contingent or otherwise (whether or not required to
be reflected in financial statements in accordance with GAAP), and whether due
or to become due, which individually or in the aggregate are reasonably likely
to have a Parent Material Adverse Effect.
3.6 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed prior to the date hereof, during the period commencing
on the date of the Parent Balance Sheet and ending on the date of this
Agreement, the Parent and its Subsidiaries have conducted their businesses only
in the ordinary course and in a manner consistent with past practice and, during
such period, there has not been (i) any change in the financial condition,
results of operations, business or properties of the Parent and its
Subsidiaries, taken as a whole, which has had or could reasonably be expected to
have a Parent Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to the Parent or any of its
Subsidiaries having a Parent Material Adverse Effect; (iii) any material change
by the
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Parent in its accounting methods, principles or practices to which Parent has
not advised Company promptly thereof; or (iv) any revaluation by the Parent of
any of its assets having a Parent Material Adverse Effect.
3.7 Taxes.
(a) All Tax returns, statements, reports, declarations and other forms and
documents (including without limitation estimated Tax returns and reports and
material information returns and reports) required to be filed with any Tax
authority with respect to any Taxable period ending on or before the Closing, by
or on behalf of Parent (collectively, "Tax Returns" and individually a "Tax
Return"), have been or will be completed and filed when due (including any
extensions of such due date) and all amounts shown due on such Tax Returns on or
before the Effective Time (and all other Taxes due and payable on or before the
Effective Time) have been or will be paid on or before such date. The Parent's
consolidated financial statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through April 30, 1998 and
Parent has not and will not incur any Tax liability materially in excess of the
amount reflected on the Parent Balance Sheet with respect to such periods, other
than Taxes incurred in the ordinary course of its business following April 30,
1998, and (ii) properly accrues in accordance with GAAP all material liabilities
for Taxes payable after April 30, 1998 with respect to all transactions and
events occurring on or prior to such date.
(b) For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
and all taxes including, without limitation, (i) any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, value added, net worth, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other person. As used in
this Section 3.7, the term "Parent" means Parent and any entity included in, or
required under GAAP to be included in, any of the Parent consolidated financial
statements.
3.8 Properties.
(a) Neither the Parent nor any of its Subsidiaries own any real property.
(b) All material real property leases of the Parent and its Subsidiaries
are in good standing, valid and effective in accordance with their respective
terms, and neither the Parent nor any of its Subsidiaries are in default under
any of such leases.
3.9 Intellectual Property.
(a) The Parent and its Subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights and mask works, any applications for and registrations
of such patents, trademarks, trade names, service marks, copyrights and mask
works, and all processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are necessary to conduct the business
of the Parent and its Subsidiaries as currently conducted, or planned to be
conducted (the "Parent Intellectual Property Rights").
(b) Neither the Parent nor any of its Subsidiaries are, or will as a result
of the execution and delivery of this Agreement or the performance of the
Parent's obligations under this Agreement or otherwise be, in breach of any
license, sublicense or other agreement relating to the Parent Intellectual
Property Rights, or any licenses, sublicenses and other agreements as to which
the Parent or any of its Subsidiaries are a party and pursuant to which the
Parent or any of its Subsidiaries are authorized to use any third party patents,
trademarks or copyrights, including software that is used in the manufacture of,
incorporated in, or forms a
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part of any product sold by or expected to be sold by the Parent or any of its
Subsidiaries, the breach of which would be reasonably likely to have a Parent
Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by the Parent or any of its Subsidiaries and which are material to the
business of the Parent and its Subsidiaries, taken as a whole, are valid and
subsisting. The Parent (i) has not been sued in any suit, action or proceeding,
or received in writing any claim or notice, which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; and (ii) has
no knowledge that the manufacturing, marketing, licensing or sale of its
products infringes any patent, trademark, service mark, copyright, trade secret
or other proprietary right of any third party.
3.10 Agreements, Contracts and Commitments. The Parent has not breached,
or received in writing any claim or notice that it has breached, any of the
terms or conditions of any agreement, contract or commitment filed as an exhibit
to the Parent SEC Reports ("Parent Material Contracts") in such a manner as,
individually or in the aggregate, are reasonably likely to have a Parent
Material Adverse Effect. Each Parent Material Contract that has not expired by
its terms is in full force and effect.
3.11 Litigation. Except as described in the Parent SEC Reports filed prior
to the date hereof, there is no action, suit or proceeding, claim, arbitration
or investigation against the Parent or any of its Subsidiaries pending or as to
which the Parent or any such Subsidiary has received any written notice of
assertion.
3.12 Environmental Matters
(a) Except as disclosed in the Parent SEC Reports filed prior to the date
hereof and except for such matters that, individually or in the aggregate, are
not reasonably likely to have a Parent Material Adverse Effect: (i) the Parent
and its Subsidiaries have complied with all applicable Environmental Laws; (ii)
the properties currently owned or operated by Parent and its Subsidiaries
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous Substances; (iii) the properties formerly
owned or operated by Parent or any of its Subsidiaries were not contaminated
with Hazardous Substances during the period of ownership or operation by the
Parent or any of its Subsidiaries; (iv) neither the Parent nor any of its
Subsidiaries are subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither the Parent nor any of its
Subsidiaries have been associated with any release or threat of release of any
Hazardous Substance; (vi) neither the Parent nor any of its Subsidiaries have
received any notice, demand, letter, claim or request for information alleging
that the Parent or any of its Subsidiaries may be in violation of or liable
under any Environmental Law; (vii) neither the Parent nor any of its
Subsidiaries are subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or are subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving the Parent or any of its Subsidiaries that
could reasonably be expected to result in any claims, liability, investigations,
costs or restrictions on the ownership, use or transfer of any property of the
Parent pursuant to any Environmental Law.
(b) As used in this Agreement, the term "Environmental Law" means any
federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (i) the
protection, investigation or restoration of the environment, health and safety,
or natural resources, (ii) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (iii) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
(c) As used in this Agreement, the term "Hazardous Substance" means any
substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
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3.13 Employee Benefit Plans.
(a) With respect to the bonus, stock option, profit sharing, 401(k) and
other similar plans and programs ("Parent Employee Plans"), individually and in
the aggregate, no event has occurred and, to the knowledge of Parent, there
exists no condition or set of circumstances in connection with which the Parent
could be subject to any liability under Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code or any other applicable law.
(b) With respect to the Parent Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
that have not been accounted for by reserves, or otherwise properly footnoted in
accordance with GAAP, on the financial statements of the Parent.
3.14 Compliance With Laws. The Parent and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Parent Material Adverse Effect.
3.15 Accounting and Tax Matters. To its knowledge, after consulting with
its independent auditors, neither Parent nor any of its Affiliates (as defined
in Section 7.10) have taken or agreed to take any action which would (i) prevent
Parent from accounting for the business combination to be effected by the Merger
as a pooling of interests or (ii) prevent the Merger from constituting a
transaction qualifying as a reorganization under 368(a) of the Code.
3.16 Registration Statement; Proxy Statement/Prospectus. The information
to be supplied by Parent for inclusion in the registration statement on Form S-4
pursuant to which shares of Parent Common Stock issued in the Merger will be
registered under the Securities Act (the "Registration Statement") shall not at
the time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by Parent for
inclusion in the joint proxy statement/prospectus to be sent to the stockholders
of the Company and Parent in connection with the meeting of Parent's
stockholders (the "Parent Stockholders' Meeting") and the Company's stockholders
(the "Company Stockholders' Meeting") to consider this Agreement and the Merger
(the "Joint Proxy Statement") shall not, on the date the Joint Proxy Statement
is first mailed to stockholders of Parent or the Company, at the time of the
Parent Stockholders' Meeting and the Company Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Parent
Stockholders' Meeting or the Company Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to Parent or any of its Affiliates, officers or directors should be
discovered by Parent which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, Parent
shall promptly inform the Company. Notwithstanding the foregoing, Parent makes
no representation, warranty or covenant with respect to any information supplied
by the Company that is contained in any of the foregoing documents.
3.17 Labor Matters. Neither the Parent nor any of its Subsidiaries are
parties to or otherwise bound by any collective bargaining agreement, contract
or other agreement or understanding with a labor union or labor organization,
nor, as of the date hereof, is the Parent or any of its Subsidiaries the subject
of any material proceeding asserting that the Parent or any of its Subsidiaries
have committed an unfair labor practice or is seeking to compel it to bargain
with any labor union or labor organization nor, as of the date of this
Agreement, is there pending or, to the knowledge of the Parent, threatened, any
material labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving the Parent or any of its Subsidiaries.
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3.18 Insurance; Risk Management. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by the Parent or any of its Subsidiaries
are with reputable insurance carriers, provide full and adequate coverage
(subject to reasonable deductibles, co-insurance and exclusions) for all normal
risks incident to the business of the Parent and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Parent Material Adverse Effect. The steps taken by
the Parent to manage the various risks incident to the business and operations
of the Parent and its Subsidiaries and their respective properties and assets
are at least equivalent to those taken by persons engaged in similar businesses,
except for any failures to take such steps that, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse Effect.
3.19 Opinion of Financial Advisor. The financial advisor of Parent,
BancAmerica Robertson Stephens, has delivered to Parent an opinion dated the
date of this Agreement to the effect that the Exchange Ratio is fair to the
holders of Parent Common Stock from a financial point of view.
3.20 Interim Operations of Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article IV are true and correct except as set forth
herein and in the disclosure schedule delivered by the Company to Parent prior
to the execution and delivery of this Agreement (the "Company Disclosure
Schedule"). The Company Disclosure Schedule shall be arranged in sections and
paragraphs corresponding to the numbered and lettered sections and paragraphs
contained in this Article IV and the disclosure in any section or paragraph
shall qualify other sections and paragraphs in this Article IV only to the
extent that it is reasonably apparent from a reading of such disclosure that it
also qualifies or applies to such other sections and paragraphs.
4.1 Organization of the Company. Each of the Company and its Subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
to own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Company Material Adverse Effect (as
defined below). Except as set forth in the Company SEC Reports (as defined in
Section 4.4) filed prior to the date hereof, neither the Company nor any of its
Subsidiaries directly or indirectly own any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by the
Company and comprising less than five percent (5%) of the outstanding stock of
such company. For purposes of this Agreement, the term "Company Material Adverse
Effect" means any effect that is, or would reasonably be expected to be,
materially adverse to the business, properties, financial condition or results
of operations of the Company and its Subsidiaries, taken as a whole; provided,
however, that (a) any adverse change, event or effect that is demonstrated to be
primarily caused by the announcement or pendency of the Merger shall not be
taken into account in determining whether there has been or would be a "Company
Material Adverse Effect" on or with respect to the Company and its Subsidiaries,
taken as a whole, and (b) any adverse change in the stock price of the Company
as quoted on the Nasdaq National Market shall not be taken into account in
determining whether there has been or would be a "Company Material Adverse
Effect" on or with respect to the Company and its Subsidiaries, taken as a
whole.
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4.2 The Company Capital Structure.
(a) The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, $.00033 par value, and 5,000,000 shares of Preferred
Stock, $.01 par value ("Company Preferred Stock"). As of the date hereof, (i)
4,674,216 shares of Company Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable, and (ii) no shares of
Company Common Stock were held in the treasury of the Company or by Subsidiaries
of the Company. 670,275 shares of Company Common Stock have been reserved for
future issuance pursuant to stock options granted and outstanding as of the date
hereof under the Company stock option plans (the "Company Stock Plans") listed
on Schedule 4.2 of the Company Disclosure Schedule. As of the date of this
Agreement, none of the shares of Company Preferred Stock is issued and
outstanding. All shares of Company Common Stock subject to issuance as specified
above are duly authorized and, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be
validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the capital stock of any Subsidiary or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations of
Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of the Company's Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable and all such
shares (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by the Company or another Subsidiary free and clear of
all security interests, liens, claims, pledges, agreements, limitations in the
Company's voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.2 or as reserved for future
grants of options and issuances of shares of Common Stock under the Company
Stock Plans, there are no equity securities of any class of the Company or any
of its Subsidiaries, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. Except as set
forth in the Company SEC Reports filed prior to the date hereof, in the Stock
Option Agreement or disclosed in Section 4.2 of the Company Disclosure Schedule,
there are no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which the Company or any of its Subsidiaries are
a party or by which they are bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend, accelerate the vesting of, change the price of, or otherwise amend or
enter into any such option, warrant, equity security, call, right, commitment or
agreement. To the knowledge of the Company, there are no voting trusts, proxies
or other voting agreements or understandings with respect to the shares of
capital stock of the Company.
4.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement. The
execution and delivery of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated by this Agreement and the Stock
Option Agreement by the Company have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger by the Company's stockholders under the GCC. This Agreement and the Stock
Option Agreement have been duly executed and delivered by the Company and
constitute the valid and binding obligation of the Company, enforceable in
accordance with their terms, subject to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement and the Stock Option
Agreement by the Company does not, and the consummation of the transactions
contemplated by this Agreement and the Stock Option Agreement will not, (i)
conflict with, or result in any violation or breach of, any provision of the
Certificate of Incorporation or Bylaws of the Company, each as amended to date,
(ii) result in any violation of, or default under or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any material benefit) under, or
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require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which the Company or any of its Subsidiaries are a
party or by which any of them or any of their properties or assets may be bound,
or (iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or any of its or their properties or
assets, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations that are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement and the Stock Option Agreement or the
consummation of the transactions contemplated hereby or thereby, except for (i)
the filing of the Certificate of Merger with the Secretary of State of Georgia,
(ii) the filing of the Joint Proxy Statement with the SEC in accordance with the
Exchange Act and the National Association of Securities Dealers, Inc., and any
clearance thereof by the SEC, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country and (iv)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not be reasonably likely to have a Company
Material Adverse Effect.
4.4 SEC Filings; Financial Statements.
(a) The Company has filed and made available to Parent all forms, reports
and documents required to be filed by the Company with the SEC since December
31, 1996 (collectively, the "Company SEC Reports"). The Company SEC Reports (i)
at the time filed or, with respect to registration statements filed with the SEC
under the Securities Act, as of the effective date thereof, complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such Company SEC
Reports or necessary in order to make the statements in such Company SEC
Reports, in light of the circumstances under which they were made, not
misleading. None of the Company's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Company SEC Reports complied as to form in
all material respects with the applicable published rules and regulations of the
SEC with respect thereto, was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly presented the consolidated
financial position of the Company and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The unaudited balance sheet of the Company dated as of
April 30, 1998 is referred to herein as the "Company Balance Sheet."
4.5 No Undisclosed Liabilities. Except as disclosed in the Company SEC
Reports filed prior to the date hereof, and except for normal or recurring
liabilities incurred since April 30, 1998 in the ordinary course of business
consistent with past practices, the Company and its Subsidiaries do not have any
liabilities, either accrued, contingent or otherwise (whether or not required to
be reflected in financial statements in accordance with GAAP), and whether due
or to become due, which individually or in the aggregate, are reasonably likely
to have a Company Material Adverse Effect.
4.6 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date hereof, during the period commencing
on the date of the Company Balance Sheet and ending on the date of this
Agreement, the Company and its Subsidiaries have conducted their businesses only
in the ordinary course and in a manner consistent with past practice and, during
such period, there has not been (i) any change in the financial condition,
results of operations, business or properties of the Company and its
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Subsidiaries, taken as a whole, which has had or could reasonably be expected to
have a Company Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to the Company or any of its
Subsidiaries having a Company Material Adverse Effect; (iii) any material change
by the Company in its accounting methods, principles or practices to which
Parent has not previously consented in writing; (iv) any revaluation by the
Company of any of its assets having a Company Material Adverse Effect; or (v)
any other action or event that would have required the consent of Parent
pursuant to Section 5.2 of this Agreement had such action or event occurred
after the date of this Agreement and that, in the case of this clause (v),
individually or in the aggregate, has had or is reasonably likely to have a
Company Material Adverse Effect.
4.7 Taxes.
(a) All Tax returns, statements, reports, declarations and other forms and
documents (including without limitation estimated Tax returns and reports and
material information returns and reports) required to be filed with any Tax
authority with respect to any Taxable period ending on or before the Closing, by
or on behalf of Company (collectively, "Tax Returns" and individually a "Tax
Return"), have been or will be completed and filed when due (including any
extensions of such due date) and all amounts shown due on such Tax Returns on or
before the Effective Time (and all other Taxes due and payable on or before the
Effective Time) have been or will be paid on or before such date. The Company's
consolidated financial statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through April 30, 1998 and
Company has not and will not incur any Tax liability materially in excess of the
amount reflected on the Company Balance Sheet with respect to such periods,
other than Taxes incurred in the ordinary course of its business following April
30, 1998, and (ii) properly accrues in accordance with GAAP all material
liabilities for Taxes payable after April 30, 1998 with respect to all
transactions and events occurring on or prior to such date. All information set
forth in the notes to the Company consolidated financial statements relating to
Tax matters is true, complete and accurate in all material respects. No material
Tax liability since April 30, 1998 has been incurred by Company other than in
the ordinary course of business and adequate provision has been made by Company
for all Taxes since that date in accordance with GAAP on at least a quarterly
basis.
(b) Company has previously provided or made available, or will provide or
make available, to Parent true and correct copies of all income, franchise, and
sales Tax Returns, and, as reasonably requested by Parent, prior to or following
the date hereof, presently existing information statements and reports. Company
has withheld and paid to the applicable financial institution or Tax authority
all amounts required to be withheld. No Tax Returns filed with respect to
Taxable years of Company through the Taxable year ended January 31, 1994 in the
case of the United States have been examined, and such Taxable years are now
closed. Company (or any member of any affiliated or combined group of which
Company has been a member) has not granted any extension or waiver of the
limitation period applicable to any Tax Returns that is still in effect. There
is no material claim, audit, action, suit, proceeding, or (to the knowledge of
Company) investigation now pending or (to the knowledge of Company) threatened
against or with respect to Company in respect of any Tax or assessment. No
notice of deficiency or similar document of any Tax authority has been received
by Company, and there are no liabilities for Taxes (including liabilities for
interest, additions to Tax and penalties thereon and related expenses) with
respect to the issues that have been raised (and are currently pending) by any
Tax authority that could, if determined adversely to Company, materially and
adversely affect the liability of Company for Taxes. There are no liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
Company. Company is in full compliance with all the terms and conditions of any
Tax exemptions or other Tax-sharing agreement or order of a foreign government
and the consummation of the Merger will not have any adverse effect on the
continued validity and effectiveness of any such Tax exemption or other
Tax-sharing agreement or order. Neither Company nor any person on behalf of
Company has entered into or will enter into any agreement or consent pursuant to
the collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income tax law) apply to any disposition of any asset owned by
Company. None of the assets of Company is property that Company is required to
treat as being owned by any other person pursuant to the so-called "safe harbor
lease" provisions of former Section 168(f)(8) of the Code. None of the assets of
Company directly or
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indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code. None of the assets of Company is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. Company has not made and will
not make a deemed dividend election under Treas. Reg. Section 1.1502-32(f)(2) or
a consent dividend election under Section 565 of the Code. Company has never
been a party to any transaction intended to qualify under Section 355 of the
Internal Revenue Code or any corresponding provision of state law. Company has
not participated in (and will not participate in) an international boycott
within the meaning of Section 999 of the Code. Company does not have and has not
had a permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States of America and
such foreign country and Company has not engaged in a trade or business within
any foreign country. Company has never elected to be treated as an S-corporation
under Section 1362 of the Code or any corresponding provision of federal or
state law. All material elections with respect to Company's Taxes made during
the fiscal years ending, January, 31, 1995, 1996, 1997 and 1998 (if filed) are
reflected on the Company Tax Returns for such periods, copies of which have been
provided or made available to Parent. After the date of this Agreement, no
material election with respect to Taxes will be made without the prior written
consent of Parent, which consent will not be unreasonably withheld or delayed.
Company is not party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes. Company is not currently and never has been subject to the reporting
requirements of Section 6038A of the Code. There is no agreement, contract or
arrangement to which Company is a party that could, individually or
collectively, result in the payment of any amount that would not be deductible
by reason of Sections 280G (as determined without regard to Section 280G(b)(4),
162 (other than 162(a)) or 404 of the Code. Company is not a party to or bound
by any Tax indemnity, Tax sharing or Tax allocation agreement (whether written
or unwritten or arising under operation of federal law as a result of being a
member of a group filing consolidated Tax returns, under operation of certain
state laws as a result of being a member of a unitary group, or under comparable
laws of other states or foreign jurisdictions) which includes a party other than
Company nor does Company owe any amount under any such Agreement. Company has
previously provided or made available to Parent true and correct copies of all
income, franchise, and sales Tax Returns, and, as reasonably requested by
Parent, prior to or following the date hereof, presently existing information
statements and reports. Company is not, and has not been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Other than by reason of the Merger, Company has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(c) As used in this Section 4.7, the term "Company" means Company and any
entity included in, or required under GAAP to be included in, any of the Company
consolidated financial statements.
4.8 Properties.
(a) Neither the Company nor any of its Subsidiaries own any real property.
(b) All material real property leases of the Company and its Subsidiaries
are in good standing, valid and effective in accordance with their respective
terms, and neither the Company nor any of its Subsidiaries are in default under
any of such leases.
4.9 Intellectual Property.
(a) The Company and its Subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights and mask works, any applications for and registrations
of such patents, trademarks, trade names, service marks, copyrights and mask
works, and all processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are necessary to conduct the business
of the Company and its Subsidiaries as currently conducted, or planned to be
conducted (the "Company Intellectual Property Rights").
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(b) Neither the Company nor any of its Subsidiaries are, or will as a
result of the execution and delivery of this Agreement or the performance of the
Company's obligations under this Agreement or otherwise be, in breach of any
license, sublicense or other agreement relating to the Company Intellectual
Property Rights, or any licenses, sublicenses and other agreements as to which
the Company or any of its Subsidiaries are a party and pursuant to which the
Company or any of its Subsidiaries are authorized to use any third party
patents, trademarks or copyrights ("Company Third Party Intellectual Property
Rights"), including software that is used in the manufacture of, incorporated
in, or forms a part of any product sold by or expected to be sold by the Company
or any of its Subsidiaries, the breach of which would be reasonably likely to
have a Company Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by the Company or any of its Subsidiaries and which are material to the
business of the Company and its Subsidiaries, taken as a whole, are valid and
subsisting. The Company (i) has not been sued in any suit, action or proceeding,
or received in writing any claim or notice, which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; and (ii) has
no knowledge that the manufacturing, marketing, licensing or sale of its
products infringes any patent, trademark, service mark, copyright, trade secret
or other proprietary right of any third party.
4.10 Agreements, Contracts and Commitments. The Company has not breached,
or received in writing any claim or notice that it has breached, any of the
terms or conditions of any agreement, contract or commitment filed as an exhibit
to the Company SEC Reports ("Company Material Contracts") in such a manner as,
individually or in the aggregate, are reasonably likely to have a Company
Material Adverse Effect. Each Company Material Contract that has not expired by
its terms is in full force and effect.
4.11 Litigation. Except as described in the Company SEC Reports filed
prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against the Company or any of its Subsidiaries
pending or as to which the Company or any such Subsidiary has received any
written notice of assertion.
4.12 Environmental Matters.
Except as disclosed in the Company SEC Reports filed prior to the date
hereof and except for such matters that, individually or in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect: (i) the Company
and its Subsidiaries have complied with all applicable Environmental Laws; (ii)
the properties currently owned or operated by Company and its Subsidiaries
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous Substances; (iii) the properties formerly
owned or operated by Company or any of its Subsidiaries were not contaminated
with Hazardous Substances during the period of ownership or operation by the
Company or any of its Subsidiaries; (iv) neither the Company nor any of its
Subsidiaries are subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither the Company nor any of
its Subsidiaries have been associated with any release or threat of release of
any Hazardous Substance; (vi) neither the Company nor any of its Subsidiaries
have received any notice, demand, letter, claim or request for information
alleging that the Company or any of its Subsidiaries may be in violation of or
liable under any Environmental Law; (vii) neither the Company nor any of its
Subsidiaries are subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or are subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving the Company or any of its Subsidiaries
that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use or transfer of any
property of the Company pursuant to any Environmental Law.
4.13 Employee Benefit Plans.
(a) The Company has listed in Section 4.13 of the Company Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of ERISA and all
bonus, stock option, restricted stock, stock appreciation right, phantom stock,
executive compensation, profit-sharing, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar employee
benefit plans, programs, policies,
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perquisites, arrangements (written or otherwise) and all unexpired offer
letters, employment agreements, severance agreements, written or otherwise, for
the benefit of, or relating to, any current or former employee of the Company or
any trade or business (whether or not incorporated) (an "ERISA Affiliate") which
under Section 414 of the Code is aggregated with the Company, or any Subsidiary
of the Company (collectively, the "Company Employee Plans").
(b) With respect to each Company Employee Plan, the Company has made
available to Parent, a true and correct copy of (i) the most recent annual
report (Form 5500), if any, filed with the IRS, (ii) such Company Employee Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
Company Employee Plan, (iv) the most recent actuarial report or valuation
relating to a Company Employee Plan subject to Title IV of ERISA, (v) the most
updated summary plan description for employee benefit plans defined in Section
3(3) of ERISA, including any summaries of material modifications and (vi) with
respect to each Company Employee Plan that is intended to qualify under section
401(a) of the Code, the most recent determination letter concerning such plan's
qualification under section 401(a) of the Code, as issued by the Internal
Revenue Service, and any subsequent determination letter application.
(c) With respect to the Company Employee Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of Company, there exists
no condition or set of circumstances in connection with which the Company could
be subject to any liability under ERISA, the Code or any other applicable law.
(d) With respect to the Company Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
that have not been accounted for by reserves, or otherwise properly footnoted in
accordance with GAAP, on the financial statements of the Company.
(e) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, and except as provided for in this Agreement, neither the
Company nor any of its Subsidiaries are a party to any oral or written (i)
agreement with any officer or other key employee of the Company or any of its
Subsidiaries, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
of the nature contemplated by this Agreement, (ii) agreement with any officer of
the Company providing any term of employment or compensation guarantee extending
for a period longer than one year from the date hereof or for the payment of
compensation in excess of $100,000 per annum, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(f) Except as provided for in this Agreement, neither the Company nor any
of its Subsidiaries are a party to any contract, plan or arrangement (written or
otherwise) covering any employee or former employee of the Company or any of its
Subsidiaries that, individually or collectively, could give rise to the payment
of any amount that would not be deductible pursuant to the terms of Section 280G
of the Code.
4.14 Compliance With Laws. The Company and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Company Material Adverse Effect.
4.15 Accounting and Tax Matters. To its knowledge, after consulting with
its independent auditors, neither the Company nor any of its Affiliates have
taken or agreed to take any action which would (i) prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling of interests or (ii) prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
4.16 Registration Statement; Proxy Statement/Prospectus. The information
to be supplied by the Company for inclusion in the Registration Statement shall
not at the time the Registration Statement is
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declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated in the Registration
Statement or necessary in order to make the statements in the Registration
Statement, in light of the circumstances under which they were made, not
misleading. The information supplied by the Company for inclusion in the Joint
Proxy Statement shall not, on the date the Joint Proxy Statement is first mailed
to stockholders of the Company or Parent, at the time of the Company
Stockholders' Meeting and the Parent Stockholders' Meeting and at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders' Meeting or the Parent Stockholders' Meetings which has
become false or misleading. If at any time prior to the Effective Time any event
relating to the Company or any of its Affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, the Company
shall promptly inform Parent. Notwithstanding the foregoing, the Company makes
no representation, warranty or covenant with respect to any information supplied
by Parent that is contained in any of the foregoing documents.
4.17 Labor Matters. Neither the Company nor any of its Subsidiaries are
parties to or otherwise bound by any collective bargaining agreement, contract
or other agreement or understanding with a labor union or labor organization,
nor, as of the date hereof, is the Company or any of its Subsidiaries the
subject of any material proceeding asserting that the Company or any of its
Subsidiaries have committed an unfair labor practice or is seeking to compel it
to bargain with any labor union or labor organization nor, as of the date of
this Agreement, is there pending or, to the knowledge of the Company,
threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving the Company or any of its Subsidiaries.
4.18 Insurance; Risk Management. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by the Company or any of its Subsidiaries
are with reputable insurance carriers, provide full and adequate coverage
(subject to reasonable deductibles, co-insurance and exclusions) for all normal
risks incident to the business of the Company and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect. The steps taken by
the Company to manage the various risks incident to the business and operations
of the Company and its Subsidiaries and their respective properties and assets
are at least equivalent to those taken by persons engaged in similar businesses,
except for any failures to take such steps that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
4.19 No Existing Discussions. As of the date hereof, the Company is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal.
4.20 Opinion of Financial Advisor. The financial advisor of the Company,
First Albany Corporation, has delivered to the Board of Directors of the Company
an opinion dated the date of this Agreement to the effect that the Exchange
Ratio is fair, as of the date of the Agreement, to the stockholders of the
Company from a financial point of view.
4.21 Insider Trading Policies and Practices. Section 4.21 to the Company
Disclosure Schedule sets forth a copy of the Company's insider trading policy as
in effect on the date hereof. The Company and, to the knowledge of the Company,
each of its directors, officers and employees who are subject to such policy
have complied in all material respects with the terms of such policy.
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ARTICLE V
COMPANY COVENANTS
5.1 Access and Investigation. During the period from the date of this
Agreement through the earlier of the Effective Time or termination of this
Agreement, the Company shall, and shall cause its Subsidiaries to; (a) provide
Parent and Parent's representatives with reasonable access to the Company's and
its Subsidiaries' representatives, personnel, assets and facilities and to all
books, records, Tax Returns, work papers and other documents and information
relating to the Company and its Subsidiaries and (b) provide Parent and Parent's
representatives with such copies of the books, records, Tax Returns, work papers
and other documents and information relating to the Company and its Subsidiaries
as Parent may reasonably request.
5.2 Operation of the Company's Business. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees as to itself and its
Subsidiaries (except to the extent expressly contemplated by this Agreement or
the Disclosure Schedules or that Parent shall otherwise consent in writing), to
carry on its and its Subsidiaries' business in the usual, regular and ordinary
course in substantially the same manner as previously conducted, to pay and to
cause its Subsidiaries to pay debts and Taxes when due subject to good faith
disputes over such debts or Taxes, to pay or perform its and its Subsidiaries'
other obligations when due, and, to the extent consistent with such business,
use all reasonable efforts (and in any event efforts no less favorable than
those consistent with past practices and policies) to preserve intact its and
its Subsidiaries' present business organizations, to use its reasonable best
efforts to keep available the services of its present officers and key employees
and to use its reasonable best efforts to preserve its and its Subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees and
others having business dealings with it or its Subsidiaries to the end that its
and its Subsidiaries' goodwill and ongoing business shall be unimpaired at the
Effective Time. The Company shall promptly notify Parent of any material event
or occurrence whether or not incurred in the ordinary course of business. Except
as expressly contemplated by this Agreement, the Company hereafter shall not
(and shall not permit any of its Subsidiaries to), without the written consent
of Parent:
(a) Accelerate, amend or change the period of exercisability of
options or restricted stock granted under any of the Company's or any of
its Subsidiaries' employee stock plans or authorize cash payments in
exchange for any options granted under any of such plans except as required
by the terms of such plans or any related agreements in effect as of the
date of this Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to such party;
(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the grant of options to purchase less than an
aggregate of 150,000 shares of Company Common Stock consistent with past
practices to new employees who are not executives of the Company and
provided, further that up to 25,000 of such 150,000 shares may be issued to
existing employees of the Company without consent in accordance with the
provisions of this Section 5.2, (ii) the issuance of shares of Company
Common Stock, pursuant to the exercise of options outstanding prior to the
date of this Agreement, or (iii) the issuance of shares of Company Common
Stock, pursuant to the Stock Option Agreement;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets (other than inventory and other
items in the ordinary course of business);
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(e) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for software licenses in the ordinary course
of business;
(f) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees or officers in the ordinary course of business
consistent with past practice, (ii) grant any severance or termination pay
to, or enter into any employment or severance agreements with, any
employees or officers, except in the ordinary course of business with
respect to employees who are not officers, (iii) enter into any collective
bargaining agreement (other than as required by law or extensions to
existing agreements in the ordinary course of business), (iv) establish,
adopt, enter into or amend any bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) Amend or propose to amend its charter or bylaws, except as
contemplated by this Agreement;
(h) Incur any indebtedness for borrowed money other than pursuant to
credit agreements in effect as of the date hereof;
(i) Initiate, compromise or settle any material litigation or
arbitration proceeding (other than as a result of a breach of this
Agreement or the transactions contemplated herein) (Parent shall not
unreasonably withhold its consent to any such initiation, compromise or
settlement);
(j) Except in the ordinary course of business, modify, amend or
terminate any Company Material Contract or waive, release or assign any
material rights;
(k) Make any material Tax election other than in the ordinary course
of business and consistent with past practice, change any material Tax
election, adopt any Tax accounting method other than in the ordinary course
of business and consistent with past practice, change any Tax accounting
method, enter into any closing agreement, settle any Tax claim or
assessment or consent to any Tax claim or assessment or change in any
material respect its accounting methods, principles or practices, except
insofar as may be required by an applicable change in GAAP; or
(l) Take, or agree in writing or otherwise to take, any of the actions
described in paragraphs (a) through (k) above.
In addition, the Company shall notify Parent promptly following the
execution by the Company or any of its Subsidiaries of any agreement providing
for the receipt of amounts in excess of $500,000 or payment of amounts in excess
of $50,000.
5.3 Irrevocable Proxies. Each of the parties listed on Schedule 5.3 has
delivered an executed form of Voting and Proxy Agreement in favor of Parent in
the form attached hereto as Exhibit B-1 (each, a "Proxy").
5.4 Reseller Agreement. Company and Parent shall execute a Reseller
Agreement (the "Reseller Agreement") with respect to the Company's products
which is mutually acceptable to the parties, on or before July 13, 1998.
5.5 Employment Agreement. Parent and Charles R. Chitty have executed an
employment agreement which is mutually acceptable to the parties, on or before
July 13, 1998.
ARTICLE VI
PARENT AND MERGER SUB COVENANTS
6.1 Access and Investigation. During the period from the date of this
Agreement through the earlier of the Effective Time or termination of this
Agreement, the Parent shall, and shall cause its Subsidiaries to; (a) provide
Company and Company's representatives with reasonable access to the Parent and
its Subsidiaries' representatives, personnel, assets and facilities and to all
books, records, Tax Returns, work papers and other documents and information
relating to the Parent and its Subsidiaries and (b) provide Company and
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Company's representatives with such copies of the books, records, Tax Returns,
work papers and other documents and information relating to the Parent and its
Subsidiaries as Company may reasonably request.
6.2 Operation of the Parent's Business. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Parent agrees to promptly notify Company of
any material event or occurrence whether or not incurred in the ordinary course
of business.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of the Company and Parent shall confer on
a regular and frequent basis with one or more representatives of the other party
to report on the general status of ongoing operations and shall promptly provide
the other party or its counsel with copies of all filings made by such party
with any Governmental Entity in connection with this Agreement, the Merger and
the transactions contemplated hereby and thereby.
7.2 No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, financial advisor, representative, Subsidiary or agent of
such party (i) take any action to solicit, initiate or encourage any inquiries
or proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction involving the
Company or any of its Subsidiaries, other than the transactions contemplated by
this Agreement (any of the foregoing inquiries or proposals being referred to in
this Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person or
entity relating to, any Acquisition Proposal, or (iii) agree to or recommend any
Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent the Company, or its Board of Directors, to the extent
such Board of Directors determines, in good faith, based upon and consistent
with advice received in consultation with outside legal counsel, that such Board
of Directors' fiduciary duties under applicable law require it to do so, from
(A) furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal by such person or entity or recommending an
unsolicited bona fide written Acquisition Proposal by such person or entity to
the stockholders of the Company, if and only to the extent that (1) the Board of
Directors of the Company believes in its good faith reasonable judgment (based
upon and consistent with advice received in consultation with independent
financial and legal advisors) that such Acquisition Proposal is reasonably
capable of being completed on the terms proposed and, after taking into account
the strategic benefits anticipated to be derived from the Merger and the
long-term prospects of Parent and the Company as a combined company, would, if
consummated, result in a transaction more favorable over the long term from a
financial point of view than the transaction contemplated by this Agreement (any
such more favorable Acquisition Proposal being referred to in this Agreement as
a "Superior Proposal") and the Board of Directors of the Company determines in
good faith after consultation with, and based upon and consistent with advice
received from, outside legal counsel that such action is necessary for such
Board of Directors to comply with its fiduciary duties to stockholders under
applicable law and (2) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, such
Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party than those
contained in the Non-Disclosure Agreement dated June 17, 1998 between Parent and
the Company (the "Confidentiality Agreement"), such non-public information has
been previously delivered to the Board of Directors of Parent and the Company
advises the Parent hereto in writing of such disclosure or negotiations,
including the party to whom disclosed or with whom discussions or negotiations
will occur; or (B) complying with Rules 14d-9 and 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal.
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(b) The Company shall notify Parent immediately after receipt by the
Company (or their advisors) of any Acquisition Proposal or any request for
non-public information in connection with an Acquisition Proposal or for access
to the properties, books or records of such party or any of its Subsidiaries by
any person or entity that informs such party that it is considering making, or
has made, an Acquisition Proposal. Such notice shall be made orally and in
writing and shall indicate in reasonable detail the identity of the offeror and
the terms and conditions of such proposal, inquiry or contact. Such party shall
continue to keep the other party hereto informed, on a current basis, of the
status of any such discussions or negotiations and the terms being discussed or
negotiated.
7.3 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this Agreement, the
Company and Parent shall prepare and file with the SEC the Joint Proxy
Statement, and Parent shall prepare and file with the SEC the Registration
Statement, in which the Joint Proxy Statement will be included as a prospectus,
provided that Parent may delay the filing of the Registration Statement until
approval of the Joint Proxy Statement by the SEC. The Company and Parent shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon after such filing as practical; provided, however, that Parent
shall have no obligation to agree to account for the Merger as a "purchase" in
order to cause the Registration Statement to become effective. The Joint Proxy
Statement, and any amendment or supplement thereto, shall include the
recommendation of the Board of Directors of Parent and the recommendation of the
Board of Directors of the Company in favor of this Agreement and the Merger;
provided that the Board of Directors of either party may withdraw such
recommendation if such Board of Directors believes in its good faith reasonable
judgment, based upon and consistent with advice received in consultation with
outside legal counsel, that the withdrawal of such recommendation is necessary
for such Board of Directors to comply with its fiduciary duties under applicable
law.
(b) The Company and Parent shall make all necessary filings with respect to
the Merger under the Securities Act, the Exchange Act, applicable state blue sky
laws and the rules and regulations thereunder.
7.4 Nasdaq Quotation. Each of the Company and Parent agrees to continue
the quotation of Company Common Stock and Parent Common Stock on the Nasdaq
National Market during the term of this Agreement so that appraisal rights will
not be available to stockholders of Parent or the Company.
7.5 Stockholders' Meetings.
(a) Parent and the Company shall each call a meeting of its respective
stockholders to be held as promptly as practicable for the purpose of voting, in
each case, upon this Agreement and the Merger. Subject to Sections 7.2 and 7.3,
Parent and the Company will, through their respective Boards of Directors,
recommend to their respective stockholders approval of such matters and will
coordinate and cooperate with respect to the timing of such meetings and shall
use their best efforts to hold such meetings on the same day and as soon as
practicable after the date hereof and shall not postpone or adjourn (other than
for the absence of a quorum) their respective stockholders' meetings without the
consent of the other party. Subject to Sections 7.2 and 7.3, each party shall
use all reasonable efforts to solicit from stockholders of such party proxies in
favor of such matters.
(b) Parent may also submit additional proposals to its stockholders at the
Parent Stockholders' Meeting, separate from the proposals referred to in Section
7.5(a). The approval by Parent's stockholders of such additional proposals shall
not be a condition to the closing of the Merger under this Agreement.
7.6 Legal Conditions to Merger.
(a) Subject to Sections 7.2 and 7.3, Parent and the Company shall each use
their best efforts to (i) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary and proper under applicable
law to consummate and make effective the transactions contemplated hereby as
promptly as practicable, (ii) obtain from any Governmental Entity any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by Parent or the Company or any of their Subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the
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consummation of the transactions contemplated hereby, including, without
limitation, the Merger, and (iii) as promptly as practicable, make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement and the Merger required under (A) the Securities Act and the
Exchange Act, and any other applicable federal or state securities laws and (B)
any applicable law. Parent and the Company shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing and,
if requested, to accept all reasonable additions, deletions or changes suggested
in connection therewith. Parent and the Company shall use their best efforts to
furnish to each other all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable law
(including all information required to be included in the Joint Proxy Statement
and the Registration Statement) in connection with the transactions contemplated
by this Agreement.
(b) The Company and Parent agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective best efforts to obtain
any government clearances or approvals required for Closing under any Federal,
state or foreign law, regulation, rule, order or decree designed to prohibit,
restrict or regulate actions for the purpose or effect of monopolization or
restraint of trade (collectively, "Antitrust Laws"), to respond to any
government requests for information under any Antitrust Law, and to contest and
resist any action, including any legislative, administrative or judicial action,
and to have vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order (whether temporary, preliminary or permanent) (an
"Order") that restricts, prevents or prohibits the consummation of the Merger or
any other transactions contemplated by this Agreement under any Antitrust Law.
The parties hereto will consult and cooperate with one another, and consider in
good faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of any party hereto in connection with
proceedings under or relating to any Antitrust Law. In the event of a challenge
to the transactions contemplated by this Agreement pursuant to any Antitrust
laws, Parent and the Company shall use their best efforts to defeat such
challenge, including by institution and defense of litigation, or to settle such
challenge on terms that permit the consummation of the Merger; provided,
however, that nothing herein shall require either party to agree to divest or
hold separate any portion of its business, product line or assets or otherwise
take action that could reasonably be expected to have a Parent Material Adverse
Effect, a Company Material Adverse Effect or an effect to Parent combined with
the Surviving Corporation after the Effective Time comparable to either a Parent
Material Adverse Effect or a Company Material Adverse Effect. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Constituent Corporations, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
(c) Each of Parent and Company shall give (or shall cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause their
respective Subsidiaries to use, their best efforts to obtain any third party
consents related to or required in connection with the Merger that are (i)
necessary to consummate the transactions contemplated hereby, (ii) disclosed or
required to be disclosed in the Parent Disclosure Schedule or the Company
Disclosure Schedule, as the case may be, or (iii) required to prevent a Parent
Material Adverse Effect or a Company Material Adverse Effect from occurring
prior to or after the Effective Time.
7.7 Public Disclosure. The Company and Parent shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement with
any national securities exchange or by the National Association of Securities
Dealers, Inc.
7.8 Tax-Free Reorganization. The Company and Parent shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
7.9 Pooling Accounting. From and after the date hereof and until the
Effective Time, Parent and the Company shall each use its best efforts to cause
the business combination to be effected by the Merger to be
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accounted for as a pooling of interests and to take such action as may be
reasonably necessary to permit such treatment. Each of Parent and the Company
shall use its best efforts to cause its respective Affiliates not to take any
action that would adversely affect the ability of Parent to account for the
business combination to be effected by the Merger as a pooling of interests.
7.10 Affiliate Agreements. Upon the execution of this Agreement, the
Company and Parent will provide each other with a list of those persons who are,
in the Company's or Parent's respective reasonable judgment, "affiliates" of the
Company or Parent, respectively, within the meaning of Rule 145 promulgated
under the Securities Act ("Rule 145") (each such person who is an "affiliate" of
the Company or Parent within the meaning of Rule 145 is referred to as an
"Affiliate"). The Company and Parent shall provide each other with such
information and documents as Parent or the Company shall reasonably request for
purposes of reviewing such list and shall notify the other party in writing
regarding any change in the identity of its Affiliates prior to the Closing
Date. Parent and the Company shall each use its best efforts to deliver or cause
to be delivered to each within thirty days of the date hereof (and in any case
prior to the Effective Time) from each of its Affiliates, an executed Affiliate
Agreement, in form attached hereto as Exhibit C-1, in the case of Affiliates of
the Company, and in the form attached hereto as Exhibit C-2, in the case of
Affiliates of Parent (each, an "Affiliate Agreement"). Parent shall be entitled
to place appropriate legends on the certificates evidencing any Parent Common
Stock to be received by such Affiliates of the Company pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Common Stock, consistent with the terms of the
Affiliate Agreements (provided that such legends or stop transfer instructions
shall be removed, two years after the Effective Date, upon the request of any
stockholder that is not then an Affiliate of Parent).
7.11 Nasdaq Quotation. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
7.12 Stock Plans.
(a) At the Effective Time, each outstanding option to purchase shares of
Company Common Stock (a "Company Stock Option") under the Company Stock Plans,
whether vested or unvested, shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Company Stock
Option, the same number of shares of Parent Common Stock as the holder of such
Company Stock Option would have been entitled to receive pursuant to the Merger
had such holder exercised such option in full immediately prior to the Effective
Time (rounded downward to the nearest whole number), at a price per share
(rounded upward to the nearest whole cent) equal to (y) the aggregate exercise
price for the shares of Company Common Stock purchasable pursuant to such
Company Stock Option immediately prior to the Effective Time divided by (z) the
number of full shares of Parent Common Stock deemed purchasable pursuant to such
Company Stock Option in accordance with the foregoing.
(b) As soon as practicable after the Effective Time, Parent shall deliver
to the participants in Company Stock Plans appropriate notice setting forth such
participants' rights pursuant thereto and the grants made pursuant to Company
Stock Plans shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section 7.12 after giving effect to the
Merger).
(c) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, Parent shall assume the Company Stock Plans, with
the result that all obligations of the Company under the Company Stock Plans,
including with respect to Company Stock Options outstanding at the Effective
Time under each Company Stock Plan, shall be obligations of Parent following the
Effective Time. Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery under
Company Stock Plans assumed in accordance with this Section 7.12. As soon as
practicable after the Effective Time, Parent shall file a registration statement
on Form S-8 (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Parent Common Stock subject to
such options, and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
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(d) The Board of Directors of the Company shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of the Company Stock Plans and the instruments evidencing the Company
Stock Options, to provide for the conversion of the Company Stock Options into
options to acquire Parent Common Stock in accordance with this Section 7.12, and
that no consent of the holders of the Company Stock Options is required in
connection with such conversion.
7.13 Brokers or Finders. Each of the Company and Parent represents, as to
itself, its Subsidiaries and its Affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except BancAmerica
Robertson Stephens, whose fees and expenses will be paid by Parent in accordance
with Parent's agreement with such firm, and First Albany Corporation, whose fees
and expenses will be paid by the Company in accordance with the Company's
agreements with such firm (a copy of which have been delivered by the Company to
Parent prior to the date of this Agreement). Each of the Company and Parent
agrees to indemnify and hold the other harmless from and against any and all
claims, liabilities or obligations with respect to any such fees, commissions or
expenses asserted by any person on the basis of any act or statement alleged to
have been made by such party or any of its Affiliates.
7.14 Letter of the Company's Accountants. The Company shall use all
reasonable efforts to cause to be delivered to Parent and the Company a letter
of Ernst & Young LLP, the Company's independent auditors, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Parent, in form reasonably satisfactory to
Parent and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement.
7.15 Letter of Parent's Accountants. Parent shall use all reasonable
efforts to cause to be delivered to the Company and Parent a letter of
PricewaterhouseCoopers LLP, Parent's independent auditors, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to the Company, in form reasonably satisfactory
to the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
7.16 Schedules. From time to time prior to the Closing Date, each of
Parent and the Company will promptly supplement or amend the Parent or the
Company Disclosure Schedules, as the case may be, with respect to any matter
hereafter arising that, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in the Parent
or the Company Disclosure Schedules, as the case may be, or that is necessary to
correct any information in the Parent or the Company Disclosure Schedules, as
the case may be, or in any representation and warranty of each of Parent and the
Company that has been rendered inaccurate thereby. For purposes of determining
the accuracy of the respective representations and warranties contained in
Articles III and IV, and in order to determine the fulfillment of the conditions
set forth in Article VIII, the Parent or the Company Disclosure Schedules, as
the case may be, shall be deemed to include only that information contained
therein on the date of this Agreement and shall be deemed to exclude any
information contained in any subsequent supplement or amendment thereto unless
such changes reflect actions taken in compliance with the provisions of Articles
V, VI and VIII hereof.
7.17 Indemnification.
(a) From and after the Effective Time, Parent agrees that it will cause the
Surviving Corporation to, indemnify and hold harmless each present and former
director and officer of the Company (the "Indemnified Parties"), against any
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company would have been permitted under GCC
and its certificate of incorporation, bylaws or resolutions of the Board of
Directors of the Company in effect on the date hereof to indemnify such
Indemnified Party (and the Surviving Corporation shall also
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advance expenses as incurred to the fullest extent permitted under applicable
law, provided the Indemnified Party to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification).
(b) The provisions of this Section 7.17 are intended to be in addition to
the rights otherwise available to the current officers and directors of the
Company by law, charter, statute, bylaw, resolution of the Board of Directors of
the Company or agreement, and shall operate for the benefit of, and shall be
enforceable by, each of the Indemnified Parties, their heirs and their
representatives.
ARTICLE VIII
CONDITIONS TO MERGER
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of 66 2/3%
of the issued and outstanding shares of Company Common Stock (the "Required
Company Stockholder Approval") and by the affirmative vote of the holders
of a majority of the issued and outstanding shares of Parent Common Stock
(the "Required Parent Stockholder Approval.")
(b) Approvals. Other than the filing provided for by Section 1.1, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure of which to file, obtain or occur is
reasonably likely to have a Company Material Adverse Effect or a Parent
Material Adverse Effect shall have been filed, been obtained or occurred.
(c) Registration Statement. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Joint Proxy Statement, shall have been initiated or
threatened by the SEC.
(d) No Injunctions. No Governmental Entity or federal, state or
foreign court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction (each an "Order") or statute, rule, regulation which
is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger or otherwise limiting or
restricting Parent's conduct or operation of the business of the Company
and its Subsidiaries following the Merger in a manner that could reasonably
be expected to have an affect on Parent combined with the Surviving
Corporation after the Effective Time comparable to either a Parent Material
Adverse Effect or a Company Material Adverse Effect.
(e) Pooling Letters. Parent shall have received a letter from Ernst &
Young LLP and a letter from PricewaterhouseCoopers LLP, each addressed to
Parent, each regarding such firm's concurrence with management's
conclusions, as to the appropriateness of the pooling of interests
accounting, under Accounting Principles Board Opinion No. 16 for the
Merger, if closed and consummated in accordance with this Agreement, it
being agreed that the Company and Parent shall each provide reasonable
cooperation to Ernst & Young LLP and PricewaterhouseCoopers LLP, to enable
them to issue such letters.
(f) Nasdaq. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq National
Market.
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8.2 Additional Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived in writing exclusively by the
Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth in this Agreement shall be true and
correct as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except (i) for
changes contemplated by this Agreement and (ii) in the case of
representations and warranties that are not qualified as to materiality,
where the failures to be true and correct, individually or in the
aggregate, have not had and are not reasonably likely to have a Parent
Material Adverse Effect or a material adverse effect upon the consummation
of the transactions contemplated hereby; and the Company shall have
received a certificate signed on behalf of Parent by the chief executive
officer and the chief financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date; and the Company shall have received a certificate signed on
behalf of Parent by the chief executive officer and the chief financial
officer of Parent to such effect.
(c) Affiliates Agreement. Each Affiliate of Parent shall have entered
into an Affiliate Agreement with Parent in accordance with Section 7.10 of
this Agreement.
(d) Legal Opinion. The Company shall have received a legal opinion
from Parent's legal counsel, in substantially the form attached hereto as
Exhibit D with such assumptions, qualifications and exceptions as are
customary.
(e) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Parent and its
Subsidiaries, taken as a whole.
(f) Tax Opinion. The Company shall have received a written opinion
from Miller & Martin LLP, counsel to the Company, to the effect that the
Merger will be treated for Federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code, and such
opinion shall not have been withdrawn.
(g) Employment Agreement. The employment agreement referenced in
Section 5.5 of this Agreement shall have been executed and delivered by
Parent.
8.3 Additional Conditions to Obligations of Parent and Merger Sub. The
obligation of Parent to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived in writing exclusively
by Parent and Merger Sub:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations
speak as of an earlier date) as of the Closing Date as though made on and
as of the Closing Date, except (i) for changes contemplated by this
Agreement and (ii) in the case of representations and warranties that are
not qualified as to materiality, where the failures to be true and correct,
individually or in the aggregate, have not had and are not reasonably
likely to have a Company Material Adverse Effect or a material adverse
effect upon the consummation of the transactions contemplated hereby; and
Parent shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the Company
to such effect.
(b) Performance of Obligations of The Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to
such effect.
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(c) Affiliates Agreements. Each Affiliate of the Company and Parent
shall have entered into an Affiliate Agreement with the Company and Parent
in accordance with Section 7.10 of this Agreement.
(d) Legal Opinion. The Parent shall have received a legal opinion from
Company's legal counsel substantially in the form attached hereto as
Exhibit E with such assumptions, qualifications and exceptions as are
customary.
(e) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole.
(f) Tax Opinion. Parent shall have received the opinion of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to Parent, to
the effect that the Merger will be treated for Federal income tax purposes
as a tax-free reorganization within the meaning of Section 368(a) of the
Code, and such opinion shall not have been withdrawn.
(g) Proxies. Each party identified in Schedule 5.3 hereto shall have
delivered an executed Proxy in favor of Parent in accordance with Section
5.3 of this Agreement.
(h) FIRPTA. Company shall, prior to the Closing Date, provide Parent
with a properly executed Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA") Notification Letter, in form and substance satisfactory to
Parent, which states that shares of capital stock of Company do not
constitute "United States real property interests" under Section 897(c) of
the Code, for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3). In addition, simultaneously with
delivery of such Notification Letter, Company shall have provided to
Parent, as agent for Company, a form of notice to the Internal Revenue
Service in accordance with the requirements of Treasury Regulation Section
1.897-2(h)(2) along with written authorization for Parent to deliver such
notice form to the Internal Revenue Service on behalf of Company upon the
Closing of the Merger.
(i) Employment Agreement. The employment agreement referenced in
Section 5.5 of this Agreement shall have been executed and delivered by
Charles R. Chitty.
(j) Reseller Agreement. The parties shall have executed the Reseller
Agreement on or before July 13, 1998.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time (with respect to Sections 9.1(b) through 9.1(g), by written
notice by the terminating party to the other party), whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of Parent or the Company:
(a) by mutual written consent of the Company and Parent; or
(b) by either the Company or Parent if the Merger shall not have been
consummated by November 30, 1998 (the "Outside Date") (provided that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been a significant cause of or resulted in the failure of the
Merger to occur on or before such date); or
(c) by either the Company or Parent if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other nonappealable final
action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or
(d) by either Parent or Company, if at the Company Stockholders'
Meeting or the Parent Stockholders' Meeting (including any adjournment or
postponement) the final vote of the Stockholders
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shall have been taken and, in respect of Company, the Required Company
Stockholder Approval shall not have been obtained or, in respect of Parent,
the Required Parent Stockholder Approval shall not have been obtained
(provided that the right to terminate this Agreement under this Section
9.1(d) shall not be available to (i) Parent where the failure to obtain
Parent Stockholder Approval shall have been caused by the action or failure
to act of the Parent and such action or failure to act constitutes a
material breach by Parent of this Agreement, or (ii) the Company where the
failure to obtain Company Stockholder Approval shall have been caused by
the action or failure to act of the Company and such action or failure to
act constitutes a material breach by the Company of this Agreement. A
material breach by a party of Sections 7.3 or 7.5 hereof will constitute a
material breach hereunder; or
(e) by Parent, if (i) the Board of Directors of the Company shall have
withdrawn or modified its recommendation of this Agreement or the Merger;
(ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company an Alternative Transaction; (iii) a tender
offer or exchange offer for 20% or more of the outstanding shares of
Company Common Stock is commenced (other than by Parent or an Affiliate of
Parent) and the Board of Directors of the Company recommends that the
stockholders of the Company tender their shares in such tender offer or
exchange offer; or (iv) for any other reason the Company fails to call and
hold the Company Stockholders' Meeting by the Outside Date (provided that
Parent's right to terminate this Agreement under such clause (iv) shall not
be available if at such time the Company would be entitled to terminate
this Agreement under Sections 9.1(f) or (g); or
(f) by the Company, if (i) the Board of Directors of the Parent shall
have withdrawn or modified its recommendation of this Agreement or the
Merger, or (ii) for any other reason the Parent fails to call and hold the
Parent Stockholders' Meeting by the Outside Date (provided that Company's
right to terminate this Agreement under such clause (ii) shall not be
available if at such time the Parent would be entitled to terminate this
Agreement under Section 9.1(e) or (g)).
(g) by the Company or Parent, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (i) causes the conditions
set forth in Section 8.2(a) or (b) (in the case of termination by the
Company) or 8.3(a) or (b) (in the case of termination by Parent) not to be
satisfied, and (ii) shall not have been cured within 20 business days (or
prior to the Outside Date, if earlier) following receipt by the breaching
party of written notice of such breach from the other party.
9.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 9.1, this Agreement shall immediately become void and
there shall be no liability or obligation on the part of the Company, Parent,
Merger Sub or their respective officers, directors, stockholders or Affiliates;
provided, however that, (a) except as set forth in (b) below, no such
termination shall limit liability for any willful breach of this Agreement, (b)
the sole remedy for any termination of this Agreement pursuant to Section 9.1(e)
or (f) shall be the fee payment provided in Section 9.3(b) or 9.3(c), as the
case may be and (c) the provisions of Sections 9.3 and 9.4 of this Agreement,
the Stock Option Agreement and the Confidentiality Agreement shall remain in
full force and effect and survive any termination of this Agreement.
9.3 Fees and Expenses.
(a) Except as set forth in this Section 9.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Parent and the Company shall share equally
all fees and expenses, other than accountants' and attorneys' fees, incurred in
relation to the printing and filing of the Joint Proxy Statement (including any
related preliminary materials) and the Registration Statement (including
financial statements and exhibits) and any amendments or supplements.
(b) The Company shall pay Parent a termination fee of $2,240,000 in
immediately available funds within five business days after the termination of
this Agreement by Parent pursuant to Section 9.1(e).
(c) The Parent shall pay the Company a termination fee in an amount equal
to the Company's out-of-pocket costs (including reasonable attorney and
accountant fees) incurred in connection with the transactions
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contemplated by this Agreement (but in no event in excess of $450,000) in
immediately available funds within five business days after the termination of
this Agreement by Company pursuant to Section 9.1(f).
(d) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than Parent
or its respective affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of Company Common Stock, as the case may be, pursuant to a
tender offer or exchange offer or otherwise, (ii) a merger or other business
combination involving the Company pursuant to which any Third Party acquires
more than 20% of the outstanding equity securities of the Company or the entity
surviving such merger or business combination, (iii) any other transaction
pursuant to which any Third Party acquires control of assets (including for this
purpose the outstanding equity securities of Subsidiaries of the Company, and
the entity surviving any merger or business combination including any of them)
of the Company having a fair market value (as determined by the Board of
Directors of the Company or Parent, as the case may be, in good faith) equal to
more than 20% of the fair market value of all the assets of the Company and its
Subsidiaries, taken as a whole, immediately prior to such transaction, or (iv)
any public announcement by a Third Party of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
9.4 Non-Solicitation of Employees. For a period of two years from the date
of this Agreement, Parent and Company will, and each will cause its Subsidiaries
not to, directly or indirectly, solicit or employ in any capacity any employee
of the other party or of its Subsidiaries or any person who had been an employee
of the other within three months of such solicitation or employment.
9.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of Parent or of the Company, but, after any such approval,
no amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
9.6 Extension; Waiver. At any time prior to the Effective Time, including
after approvals of the stockholders of the Company or Parent, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE X
MISCELLANEOUS
10.1 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Sections 1.4, 2.1, 2.2, 7.14,
Article X, and the agreements of the Affiliates delivered pursuant to Section
7.10. The Confidentiality Agreement shall survive the execution and delivery of
this Agreement.
10.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return
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receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to the Company, to:
IQ Software Corporation
3295 River Exchange Drive
Suite 550
Norcross, GA 30092
Attn: Chief Executive Officer
Telecopy: (770) 448-4088
with a copy to:
Miller & Martin LLP
100 Galleria Parkway, N.W. Suite 1200
Atlanta, GA 30339
Attn: Ugo F. Ippolito, Esq.
Telecopy: (770) 850-6550
(a) if to Parent or Merger Sub, to
Information Advantage, Inc.
7905 Golden Triangle Drive
Eden Prairie, MN 55344-7227
Telecopy: (612) 833-3701
Attn: Chief Executive Officer
with a copy to:
Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attn: Jay K. Hachigian, Esq.
Telecopy: (650) 321-2800
10.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to June
29, 1998.
10.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 7.12 is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder;
provided that the Confidentiality Agreement shall remain in full force and
effect until the Effective Time. Each party hereto agrees that, except for the
representations and warranties contained in this Agreement, neither Parent nor
the Company makes any other representations or warranties,
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and each hereby disclaims any other representations and warranties made by
itself or any of its officers, directors, employees, agents, financial and legal
advisors or other representatives, with respect to the execution and delivery of
this Agreement or the transactions contemplated hereby, notwithstanding the
delivery or disclosure to the other or the other's representatives of any
documentation or other information with respect to any one or more of the
foregoing.
10.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
10.7 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the Company, Merger Sub and Parent have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
INFORMATION ADVANTAGE, INC.
/s/ LARRY J. FORD
--------------------------------------
By: Larry J. Ford
Its: President and Chief Executive
Officer
IAC MERGER CORP.
/s/ LARRY J. FORD
--------------------------------------
By: Larry J. Ford
Its: President and Chief Executive
Officer
IQ SOFTWARE CORPORATION
/s/ CHARLES R. CHITTY
--------------------------------------
By: Charles R. Chitty
Its: Chairman, President and Chief
Executive Officer
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EXHIBIT A
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated June 29, 1998 (this "Agreement"), is by
and between IQ SOFTWARE CORPORATION, a Georgia corporation (the "Grantor") and
INFORMATION ADVANTAGE, INC. a Delaware corporation (the "Grantee").
WHEREAS, the Grantee, the Grantor and IAC Merger Corp., a Georgia
corporation and a wholly owned subsidiary of the Grantee ("Merger Sub"), are
entering into an Agreement and Plan of Merger, dated the date hereof (the
"Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of Merger Sub with and into the Grantee;
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, the Grantee has requested that the Grantor grant to the Grantee an
option to purchase 930,169 shares of Common Stock, par value $0.00033 per share,
of the Grantor (the "Common Stock"), upon the terms and subject to the
conditions hereof; and
WHEREAS, in order to induce the Grantee to enter into the Merger Agreement,
the Grantor is willing to grant the Grantee the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Payment of Spread.
(a) Contemporaneously herewith the Grantee, Merger Sub and the Grantor are
entering into the Merger Agreement. Subject to the other terms and conditions
set forth herein, the Grantor hereby grants to the Grantee an irrevocable option
(the "Option") to purchase up to 930,169 shares of Common Stock (the "Shares")
at a cash purchase price equal to the lowest of (i) $11.75 per Share, (ii) the
average closing price of the Common Stock on the Nasdaq National Market for the
five consecutive trading days beginning on and including the day that the Merger
is publicly announced, or (iii) the average closing price of the Common Stock on
the Nasdaq National Market for the five consecutive trading days immediately
preceding the public announcement of an Alternative Transaction (as defined in
the Merger Agreement) involving Grantor giving rise to the right to exercise
this Option pursuant to Section 2 below (the "Purchase Price"). The Option may
be exercised by the Grantee, in whole or in part, at any time, or from time to
time, following the occurrence of one of the events set forth in Section 2(b)
hereof and prior to the termination of the Option in accordance with the terms
of this Agreement.
(b) In the event the Grantee wishes to exercise the Option, the Grantee
shall send a written notice to the Grantor (the "Stock Exercise Notice")
specifying a date not later than 10 business days and not earlier than the next
business day following the date such notice is given for the closing of such
purchase. In the event of any change in the number of issued and outstanding
shares of Common Stock by reason of any stock dividend, stock split, split-up,
recapitalization, merger or other change in the corporate or capital structure
of the Grantor, the number of Shares subject to this Option and the purchase
price per Share shall be appropriately adjusted to restore to the Grantee its
rights hereunder, including its right to purchase Shares representing 19.9% of
the capital stock of the Grantor entitled to vote generally for the election of
the directors of the Grantor which is issued and outstanding immediately prior
to the exercise of the Option at an aggregate purchase price equal to the
Purchase Price multiplied by 930,169.
(c) If at any time the Option is then exercisable pursuant to the terms of
Section 1(a) hereof, the Grantee may elect, in lieu of exercising the Option to
purchase Shares provided in Section 1(a) hereof, to send a written notice to the
Grantor (the "Cash Exercise Notice") specifying a date not later than 20
business days and not earlier than 10 business days following the date such
notice is given on which date the Grantor shall pay to the Grantee an amount in
cash equal to the Spread (as hereinafter defined) multiplied by all or such
portion of the Shares subject to the Option as Grantee shall specify. As used
herein "Spread" shall mean the excess, if any, over the Purchase Price of the
higher of (x) if applicable, the highest price per share of
Exhibit A-1
<PAGE> 168
Common Stock (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by any person in an Alternative Transaction (as defined in
the Merger Agreement) (the "Alternative Purchase Price") or (y) the closing
price of the shares of Common Stock on the Nasdaq National Market on the last
trading day immediately prior to the date of the Cash Exercise Notice (the
"Closing Price"). If the Alternative Purchase Price includes any property other
than cash, the Alternative Purchase Price shall be the sum of (i) the fixed cash
amount, if any, included in the Alternative Purchase Price plus (ii) the fair
market value of such other property. If such other property consists of
securities with an existing public trading market, the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending five days prior to the date of the Cash Exercise Notice
shall be deemed to equal the fair market value of such property. If such other
property consists of something other than cash or securities with an existing
public trading market and, as of the payment date for the Spread, agreement on
the value of such other property has not been reached, the Alternative Purchase
Price shall be deemed to equal the Closing Price. Upon exercise of its right to
receive cash pursuant to this Section 1(c), the obligations of the Grantor to
deliver Shares pursuant to Section 3 shall be terminated with respect to such
number of Shares for which the Grantee shall have elected to be paid the Spread.
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option or the Spread upon exercise of the Grantor's
rights under Section 1(c) above is subject only to the conditions that:
(a) No preliminary or permanent injunction or other order issued by any
federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Shares shall be in effect; and
(b) A proposal for an Alternative Transaction involving Grantor shall have
been made prior to the date the Merger Agreement is terminated pursuant to the
terms thereof (the "Merger Termination Date") and one or more of the following
events shall have occurred on or after the date of the making of such proposal:
(1) the requisite vote of the stockholders of Grantor in favor of the Merger
shall not have been obtained at the Company Stockholders' Meeting (as such terms
are defined in the Merger Agreement) or any adjournment or postponement thereof;
(2) the Board of Directors of Grantor shall have withdrawn or modified its
recommendation of the Merger Agreement or the Merger; (3) the Board of Directors
of Grantor shall have recommended to the stockholders of Grantor an Alternative
Transaction (as defined in the Merger Agreement); (4) a tender offer or exchange
offer for 20% or more of the outstanding shares of Grantor Common Stock shall
have been commenced (other than by Grantee or an affiliate of Grantee) and the
Board of Directors of Grantor shall have recommended that the stockholders of
Grantor tender their shares in such tender or exchange offer; or (5) for any
reason Grantor shall have failed to call and hold the Company Stockholders'
Meeting (as defined in the Merger Agreement) by the Outside Date (as defined in
the Merger Agreement).
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by the
Grantee in its Stock Exercise Notice or Cash Exercise Notice, as the case may
be, at 10:00 A.M., local time, at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park,
California or, if the conditions set forth in Section 2(a) have not then been
satisfied, on the second business day following the satisfaction of such
conditions, or at such other time and place as the parties hereto may agree (the
"Closing Date"). On the Closing Date, (i) in the event of a closing pursuant to
Section 1(b) hereof, the Grantor will deliver to the Grantee a certificate or
certificates, duly endorsed (or accompanied by duly executed stock powers),
representing the Shares in the denominations designated by the Grantee in its
Stock Exercise Notice and the Grantee will purchase such Shares from the Grantor
at the price per Share equal to the Purchase Price or (ii) in the event of a
closing pursuant to Section 1(c) hereof, the Grantor will deliver to the Grantee
cash in an amount determined pursuant to Section 1(c) hereof. Any payment made
by the Grantee to the Grantor, or by the Grantor to the Grantee, pursuant to
this Agreement shall be made by wire transfer of immediately available federal
funds to a bank designated by the party receiving such funds.
Exhibit A-2
<PAGE> 169
(b) The certificates representing the Shares may bear an appropriate legend
relating to the fact that such Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Grantee that (a) the Grantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia and has the requisite corporate power and authority to enter into and
perform this Agreement; (b) the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Grantor and this Agreement
has been duly executed and delivered by a duly authorized officer of the Grantor
and constitutes a valid and binding obligation of the Grantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; (c)
the Grantor has taken all necessary corporate action to authorize and reserve
the Shares issuable upon exercise of the Option and the Shares, when issued and
delivered by the Grantor upon exercise of the Option, will be duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights; (d)
the execution and delivery of this Agreement by the Grantor and the consummation
by it of the transactions contemplated hereby do not require the consent,
waiver, approval or authorization of or any filing with any person or public
authority and will not violate, result in a breach of or the acceleration of any
obligation under, or constitute a default under, any provision of any charter or
by-law, indenture, mortgage, lien, lease, agreement, contract, instrument,
order, law, rule, regulation, judgment, ordinance, decree or restriction by
which the Grantor or any of its subsidiaries or any of their respective
properties or assets is bound; and (e) no "fair price", "moratorium", "control
share acquisition" or other form of antitakeover statute or regulation is or
shall be applicable to the acquisition of Shares pursuant to this Agreement.
5. Representations and Warranties of the Grantee. The Grantee represents
and warrants to the Grantor that (a) the execution and delivery of this
Agreement by the Grantee and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Grantee and this Agreement has been duly executed and
delivered by a duly authorized officer of the Grantee and will constitute a
valid and binding obligation of Grantee; and (b) the Grantee is acquiring the
Option and, if and when it exercises the Option, will be acquiring the Shares
issuable upon the exercise thereof for its own account and not with a view to
distribution or resale in any manner which would be in violation of the
Securities Act.
6. Listing of Shares; Governmental Consents; Directorship.
(a) Subject to applicable law and the rules and regulations of the Nasdaq
National Market, the Grantor will promptly file an application to list the
Shares on the Nasdaq National Market and will use its best efforts to obtain
approval of such listing; provided, however, that if the Grantor is unable to
effect such listing on the Nasdaq National Market by the Closing Date, the
Grantor will nevertheless be obligated to deliver the Shares upon the Closing
Date. Each of the parties hereto will use its best efforts to obtain consents of
all third parties and governmental authorities, if any, necessary to the
consummation of the transactions contemplated.
(b) Upon exercise by the Grantee of the Option, in whole or in part, for at
least 465,085 Shares (as adjusted for stock splits, stock dividends,
recapitalizations, mergers or other changes in the corporate or capital
structure of Grantor) the Grantee shall be entitled to designate one person to
be appointed to the Board of Directors of the Grantor. Within five business days
of the giving of notice by the Grantee to the Grantor of the name of such
designee, the Grantor, subject to the fiduciary obligations of the Board of
Directors of the Grantor, shall cause such designee to be appointed to the Board
of Directors of the Grantor. Thereafter, subject to the further provisions
hereof, the Grantor's nominating committee (or any other committee exercising a
similar function) shall recommend to the Board of Directors of the Grantor that
such person designated by the Grantee be included in the slate of nominees
recommended by the Board of Directors to the stockholders for election as
directors at each annual meeting of stockholders of the Grantor. In the event
that the designee of the Grantee shall cease to serve as a director for any
reason, the Grantee shall give notice to the Grantor of the name of a designee
to fill such vacancy in accordance with the second and third sentences of this
Section 6(b). If any such person has been designated by the Grantee and not
approved by the Board of
Exhibit A-3
<PAGE> 170
Directors, the Grantee shall be permitted to designate a substitute designee for
such person in accordance with this Section 6(b). Notwithstanding the foregoing,
the Grantor shall not be required to nominate the designee of the Grantee, and
shall be entitled to request and receive the resignation of any designee of the
Grantee then serving on the Board of Directors of the Grantor, at any time that
the Grantee then beneficially owns less than 465,085 shares of Common Stock (as
adjusted for stock splits, stock dividends, recapitalizations, mergers or other
changes in the corporate or capital structure of Grantor). The Grantee and the
Grantor agree to take such steps as may be necessary to give effect to this
Section 6(b) in a manner consistent with applicable law.
7. Registration Rights.
(a) In the event that the Grantee shall desire to sell any of the Shares
within two years after the purchase of such Shares pursuant hereto, and such
sale requires, in the opinion of counsel to the Grantee, which opinion shall be
reasonably satisfactory to the Grantor and its counsel, registration of such
Shares under the Securities Act, the Grantor will cooperate with the Grantee and
any underwriters in registering such Shares for resale, including, without
limitation, promptly filing a registration statement that complies with the
requirements of applicable federal and state securities laws and entering into
an underwriting agreement with such underwriters upon such terms and conditions
as are customarily contained in underwriting agreements with respect to
secondary distributions; provided that the Grantor shall not be required to have
declared effective more than two registration statements hereunder and shall be
entitled to delay the filing or effectiveness of any registration statement for
up to 90 days if the offering would, in the judgment of the Board of Directors
of the Grantor, require premature disclosure of any material corporate
development or otherwise interfere with or adversely affect any pending or
proposed offering of securities of the Grantor or any other material transaction
involving the Grantor.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 7, the Grantor agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as the Grantee may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 90 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested. The Grantor shall
bear the cost of the registration, including, but not limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel and accountants for the Grantor, except that the Grantee shall pay the
fees and disbursements of its counsel, the underwriting fees and selling
commissions applicable to the shares of Common Stock sold by the Grantee. The
Grantor shall indemnify and hold harmless Grantee, its affiliates and its
officers and directors from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any statements contained
in, omissions or alleged omissions from, each registration statement filed
pursuant to this paragraph; provided, however, that this provision does not
apply to any loss, liability, claim, damage or expense to the extent it arises
out of any untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Grantor by the Grantee, its affiliates
and its officers expressly for use in any registration statement (or any
amendment thereto) or any preliminary prospectus filed pursuant to this
paragraph. The Grantor shall also indemnify and hold harmless each underwriter
and each person who controls any underwriter within the meaning of either the
Securities Act or the Securities Exchange Act of 1934 against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any statements contained in, omissions or alleged omissions from, each
registration statement filed pursuant to this paragraph; provided, however, that
this provision does not apply to any loss, liability, claim, damage or expense
to the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Grantor by the
underwriters expressly for use in any registration statement (or any amendment
thereto) or any preliminary prospectus filed pursuant to this paragraph.
8. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
Exhibit A-4
<PAGE> 171
9. Specific Performance. The Grantor acknowledges that if the Grantor fails
to perform any of its obligations under this Agreement immediate and irreparable
harm or injury would be caused to the Grantee for which money damages would not
be an adequate remedy. In such event, the Grantor agrees that the Grantee shall
have the right, in addition to any other rights it may have, to specific
performance of this Agreement. Accordingly, if the Grantee should institute an
action or proceeding seeking specific enforcement of the provisions hereof, the
Grantor hereby waives the claim or defense that the Grantee has an adequate
remedy at law and hereby agrees not to assert in any such action or proceeding
the claim or defense that such a remedy at law exists. The Grantor further
agrees to waive any requirements for the securing or posting of any bond in
connection with obtaining any such equitable relief.
10. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or delivered
by certified mail, return receipt requested, or if sent by facsimile
transmission, upon receipt of oral confirmation that such transmission has been
received, to the person at the address set forth below, or such other address as
may be designated in writing hereafter, in the same manner, by such person:
If to the Grantee:
Information Advantage, Inc.
7905 Golden Triangle Drive
Eden Prairie, MN 55344-7227
Telecopy: ((612) 833-3701
Attn: Chief Executive Officer
With a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attn: Jay K Hachigian, Esq.
Telecopy: (650) 321-2800
If to the Grantor:
IQ Software Corporation
3295 River Exchange Drive
Suite 550
Norcross, GA 30092
Attn: Chief Executive Officer
Telecopy: (770) 448-4088
With a copy to:
Miller & Martin, LLP
100 Galleria Parkway, N.W. Suite 1200
Atlanta, GA 30339
Attn: Ugo F. Ippolito, Esq.
Telecopy: (770) 850-6550
11. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successors in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the Grantor or the Grantee, or their successors or assigns, any rights or
remedies under or by reason of this Agreement.
12. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
Exhibit A-5
<PAGE> 172
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but may be changed only by an agreement in
writing signed by the party against whom any waiver, change, amendment,
modification or discharge may be sought.
13. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto, except that the Grantee may assign its rights and obligations
hereunder to any of its direct or indirect wholly owned subsidiaries, but no
such transfer shall relieve the Grantee of its obligations hereunder if such
transferee does not perform such obligations.
14. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
17. Termination. The right to exercise the Option granted pursuant to this
Agreement shall terminate at the earlier of (i) the Effective Time (as defined
in the Merger Agreement), (ii) the date on which Grantee actually realizes a
Total Profit (as defined herein) of $3.2 million, (iii) 180 days after the
Merger Termination Date (the "Option Termination Date") or (iv) the Merger
Termination Date, in the event the Merger Agreement is terminated by the Grantor
pursuant to Section 9.1(g) thereof; provided that if the Option cannot be
exercised or the Shares cannot be delivered to Grantee upon such exercise
because the conditions set forth in Section 2(a) hereof have not yet been
satisfied, the Option Termination Date shall be extended until thirty days after
such impediment to exercise has been removed. All representations and warranties
contained in this Agreement shall survive delivery of and payment for the
Shares.
18. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
19. Public Announcement. The Grantee will consult with the Grantor and the
Grantor will consult with the Grantee before issuing any press release with
respect to the initial announcement of this Agreement, the Option or the
transactions contemplated hereby and neither party shall issue any such press
release prior to such consultation except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or by the National Association of Securities Dealers, Inc.
20. Right of First Refusal. If a Change in Control Event (as defined in
Section 20(e) below) has not then already occurred, and the Grantee, at any time
prior to the first anniversary of the Merger Termination Date, seeks to sell all
or any part of the Shares (i) in a transaction registered under the Securities
Act (other than in a registered public offering in which the underwriters are
instructed to achieve a broad public distribution) or (ii) in a transaction not
required to be registered under the Securities Act (other than in a transfer by
operation of law upon consummation of a merger), it shall give the Grantor (or a
designee of the Grantor) the opportunity, in the following manner, to purchase
such Shares:
(a) The Grantee shall give notice to the Grantor in writing of its intent
to sell Shares (a "Disposition Notice"), specifying the number of Shares to be
sold, the price and, if applicable, the material terms of any agreement relating
thereto. For purposes of this Section 20, if the Disposition Notice is given
with respect to the sale of the Shares pursuant to a tender or exchange offer,
it shall be assumed that all Shares tendered will be accepted for payment. The
Disposition Notice may be given at any time, including prior to the giving of
any Stock Exercise Notice.
(b) The Grantor or its designee shall have the right, exercisable by
written notice given to the Grantee within five business days after receipt of a
Disposition Notice (or, if applicable, in the case of a proposed sale
Exhibit A-6
<PAGE> 173
pursuant to a tender or exchange offer for shares of Common Stock, by written
notice given to the Grantee at least two business days prior to the then
announced expiration date of such tender or exchange offer (the "Expiration
Date") if such Disposition Notice was given at least four business days prior to
such Expiration Date), to purchase all, but not less than all, of the Shares
specified in the Disposition Notice at the price set forth in the Disposition
Notice. If the purchase price specified in the Disposition Notice includes any
property other than cash, the purchase price to be paid by the Grantor shall be
an amount of cash equal to the sum of (i) the cash included in the purchase
price plus (ii) the fair market value of such other property at the date of the
Disposition Notice. If such other property consists of securities with an
existing public trading market, the average of the last sales prices for such
securities on the five trading days ending five days prior to the date of the
Disposition Notice shall be used as the fair market value of such property. If
such other property consists of something other than cash or securities with an
existing public trading market and at the time of the closing referred to in
paragraph (c) below, agreement on the value of such other property has not been
reached, the average of the closing prices for the Grantor's Common Stock on the
five trading days ending five days prior to the date of the Disposition Notice
shall be used as the per share purchase price; provided, however, that promptly
after the closing, the Grantee and the Grantor or its designee, as the case may
be, shall settle any additional amounts to be paid or returned as a result of
the determination of fair market value of such other property made by a
nationally recognized investment banking firm selected by the Grantor and
approved by the Grantee within 30 days of the closing. Such determination shall
be final and binding on all parties hereto. If, at the time of the purchase of
any Shares by the Grantor (or its designee) pursuant to this Section 20, a
tender or exchange offer is outstanding, then the Grantor (or its designee)
shall agree at the time of such purchase to promptly pay to Grantee from time to
time such additional amounts, if any, so that the consideration received by
Grantee with respect to each Share shall be equal to the highest price paid for
a share of Common Stock pursuant to such tender or exchange, or pursuant to any
other tender or exchange offer outstanding at any time such tender or exchange
offer is outstanding.
(c) If the Grantor exercises its right of first refusal hereunder, the
closing of the purchase of the Shares with respect to which such right has been
exercised shall take place within five business days after the notice of such
exercise (or, if applicable, in the case of a tender or exchange offer, no later
than one business day prior to the expiration date of the offer if written
notice was given within the time set forth in the parenthetical in the first
sentence of paragraph (b) above); provided, however, that at any time prior to
the closing of the purchase of Shares hereunder, the Grantee may determine not
to sell the Shares and revoke the Disposition Notice and by so doing, cancel the
Grantor's right of first refusal with respect to the disposition in question.
The Grantor (or its designee) shall pay for the Shares in immediately available
funds.
(d) If the Grantor does not exercise its right of first refusal hereunder
within the time specified for such exercise, the Grantee shall be free for 120
days following the expiration of such time for exercise to sell or enter into an
agreement to sell the Shares specified in the Disposition Notice, at the price
specified in the Disposition Notice or any price in excess thereof and otherwise
on substantially the same terms set forth in the Disposition Notice; provided,
that if such sale is not consummated within such 120-day period, then the
provisions of this Section 20 will again apply to the sale of such Shares.
(e) For purposes of the Agreement, a "Change in Control Event" shall be
deemed to have occurred if (i) any person has a acquired beneficial ownership of
more than 50% (excluding the Shares) of the outstanding shares of Common Stock
or (ii) the Grantor shall have entered into an agreement, including without
limitation an agreement in principle, providing for a merger or other business
combination involving the Grantor or the acquisition of 20% or more of the
assets of the Grantor and its subsidiaries, taken as a whole.
21. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as defined in Section 21(b) below) exceed $3.2
million and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) deliver to the Grantor for cancellation Shares
previously purchased by Grantee, (ii) pay cash or other consideration to the
Grantor or (iii) undertake any combination
Exhibit A-7
<PAGE> 174
thereof, so that Grantee's Total Profit shall not exceed $3.2 million after
taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following (i) the amount of cash, if any, received by
Grantee pursuant to Section 9.3(b) of the Merger Agreement, and (ii) (x) the net
cash amounts received by Grantee pursuant to the sale of Shares (or any other
securities into which such Shares are converted or exchanged) to any
unaffiliated party, less (y) the Grantee's purchase price for such Shares.
IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
INFORMATION ADVANTAGE, INC.
/s/ LARRY J. FORD
--------------------------------------
By: Larry J. Ford
Its: President and Chief Executive
Officer
IQ SOFTWARE CORPORATION
/s/ CHARLES R. CHITTY
--------------------------------------
By: Charles R. Chitty
Its: Chairman, President and Chief
Executive Officer
Exhibit A-8
<PAGE> 175
EXHIBIT B
NOTICE: THE PROXY PROVIDED HEREUNDER IS IRREVOCABLE FOR ITS TERM
VOTING AND IRREVOCABLE PROXY AGREEMENT
THIS VOTING AND PROXY AGREEMENT ("Agreement") is made and entered into as
of June 29, 1998 between INFORMATION ADVANTAGE, INC., a Delaware corporation
("Parent"), and the undersigned shareholder (the "Shareholder") of IQ SOFTWARE
CORPORATION, a Georgia corporation (the "Company").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company
and IAC Merger Corp, a Georgia corporation and wholly-owned subsidiary of Parent
("Merger Sub"), have entered into an Agreement and Plan of Merger, dated June
29, 1998 (the "Merger Agreement"), which provides for the merger (the "Merger")
of Merger Sub with and into the Company, the cancellation of each outstanding
share of the Company's common stock.
B. As a condition to its willingness to enter into the Merger Agreement,
Parent has requested that the Shareholder agree to certain matters regarding the
retention and voting of the Shares (as defined in Section 1.1 below) in
connection with the Merger.
The parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Shareholder agrees not to transfer,
sell, exchange, pledge or otherwise dispose of or encumber (in each case,
other than as a result of death or to affiliates; provided such affiliate
agrees to be subject to the covenants, obligations and conditions set forth
in this Agreement) any shares of capital stock of the Company owned or
beneficially held by him (the "Shares"), or any New Shares (as defined in
Section 1.2 below), or to make any offer or agreement relating thereto, at
any time prior to the Expiration Date. As used herein, the term "Expiration
Date" shall mean the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and provisions
of the Merger Agreement and (ii) the date on which the Merger Agreement
shall be terminated in accordance with Article 9 thereof.
1.2 Additional Purchases. The Shareholder agrees that any shares of
capital stock of the Company that the Shareholder shall purchase or with
respect to which the Shareholder shall otherwise acquire beneficial
ownership after the execution of this Agreement and prior to the Expiration
Date ("New Shares") shall be subject to the terms and conditions of this
Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares and Grant Proxy. At every meeting of the
shareholders of the Company called with respect to any of the following, and on
every action or approval by written consent of the shareholders of the Company
with respect to any of the following, the Shareholder agrees to vote the Shares
and any New Shares (i) in favor of approval of the Merger Agreement and the
Merger and any matter that could reasonably be expected to facilitate the
Merger, and (ii) against approval of any proposal made in opposition to or
competition with consummation of the Merger and against any merger,
consolidation, sale of assets, reorganization or recapitalization, with any
party other than with Parent and its affiliates and against any liquidation or
winding up of the Company (each of the foregoing is hereinafter referred to as
an "Opposing Proposal"). The Shareholder further agrees that the Shareholder
shall not, directly or indirectly, solicit or encourage any offer from any party
concerning the possible disposition of all or any substantial portion of the
Company's business, assets or capital stock. In the event the Company's board of
directors does not call a shareholder meeting to approve the Merger, the
Shareholder agrees to take all action necessary to call a shareholder meeting to
approve the Merger or to approve the Merger by written consent. In order to
Exhibit B-1
<PAGE> 176
effectuate the foregoing, the Shareholder does hereby constitute and appoint
Parent, or any nominee of Parent, with full power of substitution, from the date
hereof to the Expiration Date, as its true and lawful proxy, for and in its
name, place and stead, including the right to sign its name (as shareholder) to
any consent, certificate or other document relating to the Company that the laws
of the State of Georgia may permit or require, to cause the Shares and any New
Shares to be voted in the manner contemplated by this Section 2. The parties and
proxies named above shall not exercise this proxy on any other matter except as
provided above. THE PARTIES ACKNOWLEDGE THAT THE PROXY PROVIDED FOR HERE IS
IRREVOCABLE AND COUPLED WITH AN INTEREST.
3. Representations, Warranties and Covenants of the Shareholder. The
Shareholder represents, warrants and covenants to Parent as follows:
3.1 Ownership of Shares. The Shareholder (together with such
Shareholder's spouse, if applicable) (i) is the sole beneficial and record
owner and holder of the Shares, which at the date hereof and at all times
up until the Expiration Date, will be free and clear of any liens, claims,
options, charges, security interests, equities, options, warrants, rights
to purchase (including, without limitation, restrictions on rights of
disposition other than those imposed by applicable securities laws), third
party rights of any nature or other encumbrances, and (ii) does not own any
shares of capital stock of the Company other than the Shares (excluding
shares as to which Shareholder currently disclaims beneficial ownership).
3.2 Authority; Due Execution. The Shareholder has full power and
authority to make, enter into and carry out the terms of this Agreement.
The Shareholder has duly executed and delivered this Agreement and
(assuming the due authorization, execution and delivery of this Agreement
by Parent) this Agreement constitutes a valid and binding obligation of the
Shareholder.
3.3 No Proxy Solicitations. The Shareholder will not, and will not
permit any entity under such Shareholder's control to (i) solicit proxies
or become a "participant" in a "solicitation," as such terms are defined in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to an Opposing Proposal or otherwise
encourage or assist any party in taking or planning any action that would
compete with, restrain or otherwise serve to interfere with or inhibit the
timely consummation of the Merger in accordance with the terms of the
Merger Agreement; (ii) initiate a shareholder's vote or action by consent
of the Company shareholders with respect to an Opposing Proposal; or (iii)
become a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to any voting securities of the Company with
respect to an Opposing Proposal. This provision shall not in any manner
limit the Company's ability through its officers and directors to take
action consistent with the provisions of Section 7.2 of the Merger
Agreement.
4. Representations, Warranties and Covenants of Parent. Parent represents,
warrants and covenants to the Shareholder as follows:
4.1 Due Authorization. This Agreement has been authorized by all
necessary corporate action on the part of Parent and has been duly executed
by a duly authorized officer of Parent.
4.2 Validity; No Conflict. This Agreement constitutes the legal,
valid and binding obligation of Parent. Neither the execution of this
Agreement by Parent nor the consummation of the transactions contemplated
hereby will result in a breach or violation of the terms of any agreement
by which Parent is bound or by any decree, judgment, order, law or
regulation now in effect of any court or other governmental body applicable
to Parent.
5. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
6. Miscellaneous.
6.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
Exhibit B-2
<PAGE> 177
6.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may
be assigned by either of the parties without prior written consent of the
other. This Agreement is intended to bind Shareholder as a shareholder of
the Company only with respect to the specific matters set forth herein.
6.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by the parties hereto.
6.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or
agreements of the Shareholder set forth herein. Therefore, it is agreed
that, in addition to any other remedies that may be available to Parent
upon any such violation, Parent shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or by
any other means available to Parent at law or in equity.
6.5 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with, the internal laws of the State of Delaware as
such laws are applied to contracts entered into and to be performed
entirely within Delaware.
6.6 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties
with respect to such subject matter.
6.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
6.8 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
[Signature Page Follows.]
Exhibit B-3
<PAGE> 178
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
INFORMATION ADVANTAGE, INC.
--------------------------------------
By: Larry J. Ford
Its: President and Chief Executive
Officer
SHAREHOLDER
By:
Name of Shareholder:
Name of Signatory (if different from
name
of Shareholder):
Title of Signatory
(if applicable):
Number of shares beneficially owned by Shareholder subject to this
Agreement:
Common Stock
------------------------
Exhibit B-4
<PAGE> 179
EXHIBIT C-1
COMPANY AFFILIATE AGREEMENT
AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (the "Affiliates Agreement") is entered into as
of , 1998 between INFORMATION ADVANTAGE, INC., a Delaware
corporation ("Parent"), and the undersigned securityholder (the
"Securityholder") of IQ SOFTWARE CORPORATION, a Georgia corporation (the
"Company").
RECITALS
A. The Company, Parent and IAC Merger Corp, a Georgia corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), have entered into an Agreement
and Plan of Merger dated June 29, 1998 (the "Merger Agreement"), pursuant to
which Merger Sub will be merged into the Company (the "Merger"), and the Company
will become a wholly owned subsidiary of Parent.
B. Upon the consummation of the Merger and in connection therewith, the
undersigned Securityholder will become the owner of shares of Common Stock of
Parent (the "Parent Shares").
C. The parties to the Merger Agreement intend to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code") and intend to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Code.
D. The parties to the Merger Agreement intend to cause the Merger to be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement and in this
Affiliates Agreement, it is hereby agreed as follows:
1. The undersigned Securityholder hereby agrees that:
(a) The undersigned Securityholder may be deemed to be (but does not
hereby admit to be) an "affiliate" of the Company within the meaning of Rule 145
under the Securities Act of 1933, as amended (the "Securities Act"), and
Accounting Series Release No. 130, as amended, of the Securities and Exchange
Commission (the "SEC") ("Release No. 130").
(b) The undersigned Securityholder will not sell, exchange, transfer,
pledge, dispose of or otherwise reduce the undersigned Securityholder's risk
relative to the Parent Shares or any part thereof until such time after the
Effective Time of the Merger as financial results covering at least thirty (30)
days of the combined operations of Parent and the Company after the Effective
Time of the Merger have been, within the meaning of said Release No. 130, filed
by Parent with the SEC or published by Parent in an Annual Report on Form 10-K,
a Quarterly Report on Form 10-Q, a Current Report on Form 8-K, a quarterly
earnings report, a press release or other public issuance that includes combined
sales and income of the Company and Parent. Parent agrees to make such filing or
publication as soon as practicable. The undersigned will not, during the thirty
(30) day period prior to the Effective Time of the Merger as determined in
Parent's reasonable discretion, sell, exchange, transfer, pledge, dispose of or
otherwise reduce the undersigned Securityholder's risk relative to the Parent
Shares or any part thereof (including any disposition, within such period, of
Securityholder's shares of the Company's Common Stock).
(c) Except with respect to the exchange of the Company Common Stock for
Parent Common Stock pursuant to the Merger, the undersigned has no current plan
or intent to engage in any sale of any Company capital stock (whether or not
acquired pursuant to the exercise of a stock option) on, or prior to, the
Merger. The undersigned shall immediately notify Parent and the Company in
writing via facsimile of any sale of Company capital stock by the undersigned
on, or prior to, the Merger.
Exhibit C-1-1
<PAGE> 180
(d) Subject to paragraphs (b) and (c) of this Section 1, the undersigned
Securityholder agrees not to offer, sell, exchange, transfer, pledge or
otherwise dispose of any of the Parent Shares unless at that time either:
(i) such transaction is permitted pursuant to the provisions of Rule
145(d) under the Securities Act;
(ii) counsel representing the undersigned Securityholder, reasonably
satisfactory to Parent, shall have advised Parent in a written opinion letter
reasonably satisfactory to Parent and Parent's counsel and upon which Parent and
its counsel may rely, that no registration under the Securities Act is required
in connection with the proposed sale, transfer or other disposition;
(iii) a registration statement under the Securities Act covering the
Parent Shares proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus, is filed with the SEC and made
effective under the Securities Act; or
(iv) an authorized representative of the SEC shall have rendered
written advice to the undersigned Securityholder (sought by the undersigned
Securityholder or counsel to the undersigned Securityholder, with a copy thereof
and of all other related communications delivered to Parent) to the effect that
the SEC will take no action, or that the staff of the SEC will not recommend
that the SEC take action, with respect to the proposed offer, sale, exchange,
transfer, pledge or other disposition if consummated.
(e) All certificates representing the Parent Shares deliverable to the
undersigned Securityholder pursuant to the Merger Agreement and in connection
with the Merger and any certificates subsequently issued with respect thereto or
in substitution therefor shall, unless one or more of the alternative conditions
set forth in the subparagraphs of paragraph (d) of this Section 1 shall have
occurred, bear a legend substantially as follows:
"The shares represented by this certificate may not be offered, sold,
exchanged, transferred, pledged or otherwise disposed of except in
accordance with the requirements of the Securities Act of 1933, as
amended, and the other conditions specified in that certain
Affiliates Agreement dated , 1998, a copy of
which Affiliates Agreement may be inspected by the holder of this
certificate at the offices of Parent, or Parent will furnish, without
charge, a copy thereof to the holder of this certificate upon written
request therefor."
Parent, at its discretion, may cause stop transfer orders to be placed with its
transfer agent with respect to the certificates for the Parent Shares but not as
to the certificates for any part of the Parent Shares as to which said legend is
no longer appropriate when one or more of the alternative conditions set forth
in the subparagraphs of paragraph (d) of this Section 1 shall have occurred.
(f) The undersigned Securityholder will observe and comply with the
Securities Act and the general rules and regulations thereunder, as now in
effect and as from time to time amended and including those hereafter enacted or
promulgated, in connection with any offer, sale, exchange, transfer, pledge or
other disposition of the Parent Shares or any part thereof.
2. Reports. From and after the Effective Time of the Merger and for so long
as necessary in order to permit the undersigned Securityholder to sell the
Parent Shares pursuant to Rule 145 and, to the extent applicable, Rule 144 under
the Securities Act, Parent will file on a timely basis all reports required to
be filed by it pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, referred to in paragraph (c)(1) of Rule 144 under the Securities Act (or,
if applicable, Parent will make publicly available the information regarding
itself referred to in paragraph (c)(2) of Rule 144), in order to permit the
undersigned Securityholder to sell, pursuant to the terms and conditions of Rule
145 and the applicable provisions of Rule 144, the Parent Shares.
3. Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Affiliates Agreement shall be effective unless in
writing.
Exhibit C-1-2
<PAGE> 181
4. Notices. All notices, requests, demands or other communications that are
required or may be given pursuant to the terms of this Affiliates Agreement
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed by registered or certified mail, postage prepaid, as follows:
(a) If to the Securityholder, at the address set forth below the
Securityholder's signature at the end hereof.
(b) If to Parent:
Information Advantage, Inc.
7905 Golden Triangle Drive
Suite 190
Prairie Eden, MN 55344
Attention: Chief Executive Officer
Fax: (612) 833-3701
Tel: (612) 833-3700
with a copy to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Attention: Jay K. Hachigian, Esq.
Fax: (650) 321-2800
Tel: (650) 321-2400
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
5. Counterparts. For the convenience of the parties hereto, this Affiliates
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.
6. Successors and Assigns. This Affiliates Agreement shall be enforceable
by, and shall inure to the benefit of and be binding upon, the parties hereto
and their respective successors and assigns. As used herein, the term
"successors and assigns" shall mean, where the context so permits, heirs,
executors, administrators, trustees and successor trustees, and personal and
other representatives.
7. Governing Law. This Affiliates Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Delaware, without regard to the conflicts of law provisions thereof.
8. Effectiveness; Severability. This Affiliates Agreement shall become
effective at the Effective Time of the Merger. If a court of competent
jurisdiction determines that any provision of this Affiliates Agreement is
unenforceable or enforceable only if limited in time and/or scope, this
Affiliates Agreement shall continue in full force and effect with such provision
stricken or so limited.
9. Effect of Headings. The section headings herein are for convenience only
and shall not effect the construction or interpretation of this Affiliates
Agreement.
10. Definitions. All capitalized terms used herein shall have the meaning
defined in the Merger Agreement, unless otherwise defined herein.
Exhibit C-1-3
<PAGE> 182
IN WITNESS WHEREOF, the parties have caused this Affiliates Agreement to be
executed as of the date first above written.
INFORMATION ADVANTAGE, INC. SECURITYHOLDER
By:
- ----------------------------------- --------------------------------------
(Signature)
--------------------------------------
(Print Name)
--------------------------------------
--------------------------------------
--------------------------------------
(Address)
Exhibit C-1-4
<PAGE> 183
EXHIBIT C-2
PARENT AFFILIATE AGREEMENT
AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (the "Affiliates Agreement") is entered into as
of , 1998 between INFORMATION ADVANTAGE, INC., a Delaware corporation
("Parent"), and the undersigned securityholder (the "Securityholder") of Parent.
RECITALS
A. IQ Software Corporation, a Georgia corporation (the "Company"), Parent
and IAC Merger Corp, a Georgia corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), have entered into an Agreement and Plan of Merger dated
June 29, 1998 (the "Merger Agreement"), pursuant to which Merger Sub will be
merged into the Company (the "Merger"), and the Company will become a wholly
owned subsidiary of Parent.
B. The parties to the Merger Agreement intend to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code") and intend to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Code.
C. The parties to the Merger Agreement intend to cause the Merger to be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement and in this
Affiliates Agreement, the undersigned Securityholder hereby agrees that:
1. Pooling Requirements. The undersigned Securityholder will not sell,
exchange, transfer, pledge, dispose of or otherwise reduce the undersigned
Securityholder's risk relative to any Parent capital stock until such time after
the Effective Time of the Merger as financial results covering at least thirty
(30) days of the combined operations of Parent and the Company after the
Effective Time of the Merger have been, within the meaning of said Release No.
130, filed by Parent with the SEC or published by Parent in an Annual Report on
Form 10-K, a Quarterly Report on Form 10-Q, a Current Report on Form 8-K, a
quarterly earnings report, a press release or other public issuance that
includes combined sales and income of the Company and Parent. Parent agrees to
make such filing or publication as soon as practicable. The undersigned will
not, during the thirty (30) day period prior to the Effective Time of the Merger
as determined in Parent's reasonable discretion, sell, exchange, transfer,
pledge, dispose of or otherwise reduce the undersigned Securityholder's risk
relative to any Parent capital stock.
2. Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Affiliates Agreement shall be effective unless in
writing.
3. Notices All notices, requests, demands or other communications that are
required or may be given pursuant to the terms of this Affiliates Agreement
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed by registered or certified mail, postage prepaid, as follows:
If to the Securityholder, at the address set forth below the
Securityholder's signature at the end hereof.
If to Parent:
Information Advantage, Inc.
7905 Golden Triangle Drive
Suite 190
Prairie Eden, MN 55344
Attention: Chief Executive Officer
Tel: (612) 833-3700
Fax: (612) 833-3701
Exhibit C-2-1
<PAGE> 184
with a copy to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Attention: Jay K. Hachigian, Esq.
Fax: (650) 321-2800
Tel: (650) 321-2400
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
4. Counterparts. For the convenience of the parties hereto, this Affiliates
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.
5. Successors and Assigns. This Affiliates Agreement shall be enforceable
by, and shall inure to the benefit of and be binding upon, the parties hereto
and their respective successors and assigns. As used herein, the term
"successors and assigns" shall mean, where the context so permits, heirs,
executors, administrators, trustees and successor trustees, and personal and
other representatives.
6. Governing Law. This Affiliates Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Delaware, without regard to the conflicts of law provisions thereof.
7. Effectiveness; Severability. This Affiliates Agreement shall become
effective at the Effective Time of the Merger. If a court of competent
jurisdiction determines that any provision of this Affiliates Agreement is
unenforceable or enforceable only if limited in time and/or scope, this
Affiliates Agreement shall continue in full force and effect with such provision
stricken or so limited.
8. Effect of Headings. The section headings herein are for convenience only
and shall not effect the construction or interpretation of this Affiliates
Agreement.
9. Definitions. All capitalized terms used herein shall have the meaning
defined in the Merger Agreement, unless otherwise defined herein.
IN WITNESS WHEREOF, the parties have caused this Affiliates Agreement to be
executed as of the date first above written.
INFORMATION ADVANTAGE, INC. SECURITYHOLDER
By:
- ----------------------------------- --------------------------------------
(Signature)
--------------------------------------
(Print Name)
--------------------------------------
--------------------------------------
--------------------------------------
(Address)
Exhibit C-2-2
<PAGE> 185
EXHIBIT D
1. Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Georgia. Parent and Merger Sub have the corporate power and authority
to own, operate or lease their respective properties and assets and to conduct
their respective businesses as presently conducted.
2. Parent and Merger Sub each have the requisite corporate power and
authority to execute, deliver and perform their respective obligations under the
Agreement and Plan of Merger and to consummate the transactions contemplated
thereby. The Agreement and Plan of Merger to which each of Parent and Merger Sub
is a party has been duly and validly authorized by all necessary corporate
action on the part of Parent and Merger Sub, and duly executed and delivered by
an authorized officer of Parent and Merger Sub. The Agreement and Plan of Merger
is a legally valid and binding obligation of Parent and Merger Sub, enforceable
against Parent and Merger Sub in accordance with its terms.
3. The shares of Parent Common Stock to be issued to the shareholders of
the Company in exchange for the outstanding capital stock of the Company
pursuant to the terms of the Agreement and Plan of Merger have been duly
authorized, and when issued and delivered in accordance with the terms of the
Agreement and Plan of Merger, will be validly issued, fully paid and
nonassessable.
4. The execution, delivery, performance and compliance with the terms of
the Agreement and Plan of Merger and the consummation of the transactions
contemplated thereby do not (i) to our knowledge, violate any provision of any
federal securities laws, or the General Corporation Law of the State of Delaware
applicable to Parent or Merger Sub, (ii) result in any violation of any
judgment, order or decree known to us and applicable to Parent or Merger Sub,
(iii) violate any provision of Parent's Certificate of Incorporation or Bylaws,
or (iv) violate any provision of Merger Sub's Articles of Incorporation or
Bylaws.
5. We are not aware that there is any action, proceeding or governmental
investigation pending against Parent or Merger Sub which (i) questions the
validity of the Agreement and Plan of Merger, or the right of Parent and Merger
Sub to enter into the Agreement and Plan of Merger, or (ii) if determined
adversely would have a material adverse effect on Parent or Merger Sub.
6. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality, whether
domestic or foreign, is required by or with respect to Parent or Merger Sub in
connection with the execution and delivery of the Agreement and Plan of Merger
or the consummation of the transactions contemplated thereby, except for the
filing of the Certificate of Merger with the Secretary of State of the State of
Georgia.
Exhibit D-1
<PAGE> 186
EXHIBIT E
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia. The Company has the
corporate power and authority to own, operate or lease their respective
properties and assets and to conduct their respective businesses as presently
conducted. The Company is duly qualified to do business and is in good standing
in each jurisdiction in which the failure to be so qualified and in good
standing would have a Company Material Adverse Effect.
2. The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreement and Plan of Merger and
the Stock Option Agreement and to consummate the transactions contemplated
thereby. The Agreement and Plan of Merger and the Stock Option Agreement to
which the Company is a party have been duly and validly authorized by all
necessary corporate action on the part of the Company, and duly executed and
delivered by an authorized officer of the Company. The Agreement and Plan of
Merger and the Stock Option Agreement are legally valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms.
3. The execution, delivery, performance and compliance with the terms of
the Agreement and Plan of Merger and the Stock Option Agreement and the
consummation of the transactions contemplated thereby do not (i) to our
knowledge, violate any provision of any federal securities laws, or Georgia law,
rule or regulation applicable to the Company, (ii) result in any violation of
any judgment, order or decree known to us and applicable to the Company, (iii)
violate any provision of the Company's Certificate of Incorporation or Bylaws,
or (iv) violate or conflict with any material contract or other agreement to
which the Company is a party.
4. We are not aware that there is any action, proceeding or governmental
investigation pending against the Company which (i) questions the validity of
the Agreement and Plan of Merger or the Stock Option Agreement, or the right of
the Company to enter into the Agreement and Plan of Merger and the Stock Option
Agreement, or (ii) if determined adversely would have a material adverse effect
on the Company.
5. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality, whether
domestic or foreign, is required by or with respect to the Company in connection
with the execution and delivery of the Agreement and Plan of Merger and the
Stock Option Agreement or the consummation of the transactions contemplated
thereby, except for the filing of the Certificate of Merger with the Secretary
of State of the State of Georgia.
6. The stockholders of the Company do not, pursuant to the Georgia Business
Corporation Code or other Georgia law, rule or regulation, have any ability to
exercise dissenter's rights in connection with the Merger or other transactions
contemplated by the Agreement and Plan of Merger.
Exhibit E-1
<PAGE> 187
APPENDIX B
WRITTEN OPINION OF BANCAMERICA ROBERTSON STEPHENS
June 28, 1998
Board of Directors
Information Advantage, Inc.
7905 Golden Triangle Drive
Eden Prairie, MN 55344-7227
Members of the Board:
You have asked our opinion with respect to the fairness to Information
Advantage, Inc. ("IACO"), from a financial point of view, as of the date hereof,
of the Exchange Ratio (as defined below), in the proposed merger of IQ Software
Corp. ("IQSW") with and into a wholly owned subsidiary of IACO ("Merger Sub")
pursuant to the draft Agreement and Plan of Merger (the "Agreement") that we
have reviewed, by and among IACO, IQSW and Merger Sub. As more specifically set
forth in the Agreement, and subject to the terms thereof, Merger Sub will merge
(the "Merger") with and into IQSW, and each issued and outstanding share of
common stock, par value $0.00033 per share ("IQSW Common Stock"), of IQSW will
be converted into the right to receive 1.96 shares (the "Exchange Ratio") of
common stock, par value $.01 per share ("IACO Common Stock"), of IACO. The
Merger is intended to qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and to be
accounted for as a "pooling of interests." The terms and conditions of the
Merger are set out more fully in the Agreement.
For purposes of this opinion we have: (i) reviewed certain financial
information with respect to IQSW and IACO furnished to us by IACO and IQSW,
including certain internal financial analyses and forecasts prepared by the
management of IQSW; (ii) reviewed certain publicly available information
relating to IACO and IQSW, including their respective stock price and trading
histories; (iii) held discussions with the managements of IACO and IQSW
concerning the businesses, past and current business operations, financial
condition and future prospects of both companies, independently and combined;
(iv) reviewed the financial terms and conditions set forth in the Agreement; (v)
reviewed the trading prices of securities of certain publicly traded companies
that we deemed comparable to IQSW; (vi) prepared discounted cash flow analyses
of IQSW; (vii) compared the financial terms of the Transaction with other
transactions that we deemed relevant; and (viii) made such other studies and
inquiries, and reviewed such other data, as we deemed relevant. We did not have
access to any non-public information regarding the shareholder class action
litigation concerning the alleged failure of IQSW to disclose the risks and
liabilities assumed by the Company in connection with the transition of its
sales force from an inside telesales model to an outside field-based model, and
BARS has assumed, with IACO's consent, that the pending and any future
litigation against IQSW would not have a material effect on IQSW.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed any responsibility for verifying any of such
information. Furthermore, we did not obtain any independent appraisal of the
properties, assets or liabilities (contingent or otherwise) of IACO or IQSW or
of any of their subsidiaries, nor were we furnished with any such evaluations or
appraisals. With respect to the financial and operating forecasts (and the
assumptions and bases thereof) of IACO and IQSW that we have reviewed, we have
assumed that such forecasts have been reasonably prepared in good faith on the
basis of reasonable assumptions, reflect the best available estimates and
judgments of IACO's management, and that such projections and forecasts will be
realized in the amounts and in the time periods currently estimated by the
management of IACO. Further, we have assumed that the historical financial
statements of IACO and IQSW that we have reviewed have been prepared in
accordance with U.S. generally accepted accounting principles. We have also
assumed that the Transaction will be consummated upon the terms set forth in the
Agreement without material alteration thereof and that the Transaction will
B-1
<PAGE> 188
qualify for the tax and accounting treatment described above. We have relied as
to all legal matters relevant to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this
opinion and that we disclaim any undertaking or obligation to advise any person
of any change in any fact or matter affecting this opinion which may come or be
brought to our attention after the date of this opinion. Our opinion is limited
to the fairness, from a financial point of view to IACO of the Exchange Ratio.
We do not express any opinion as to the value of any employee agreements or
arrangements entered into in connection with the Agreement or the Merger, nor do
we express any opinion as to the price at which the shares of common stock of
IACO that are to be issued pursuant to the Merger will be traded in the future.
Our opinion does not address the relative merits of the Merger and the other
business strategies that the Board of Directors of IACO has considered or may be
considering, nor does it address the Board's business decision to proceed with
the Merger process.
Our opinion is directed to the Board of Directors of IACO and is not
intended to be and does not constitute a recommendation to any stockholder of
IACO as to how such shareholder should vote on the Merger. This opinion may be
included in a proxy or registration statement of IACO distributed in connection
with the Merger, provided that this opinion is reproduced therein in full and
any description of, or reference to, this opinion therein is in a form and
substance acceptable to us and our legal counsel. Except as provided in the
previous sentence, this opinion shall not be reproduced, summarized, described
or referred to, or furnished to any party, without our prior written consent.
In the ordinary course of business, we may actively trade the securities of
IACO and IQSW for our own account or for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have acted as financial advisor to IACO in connection with the Merger, for
which a portion of our fee is due and payable contingent upon the closing of the
Merger. We have also led-managed an underwriting conducted by IACO within the
last 12 months.
Based upon and subject to the foregoing considerations, it is our opinion,
that, as of the date hereof, the Exchange Ratio is fair to IACO from a financial
point of view.
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
B-2
<PAGE> 189
APPENDIX C
WRITTEN OPINION OF FIRST ALBANY CORP.
June 26, 1998
Board of Directors
IQ Software Corporation
3295 River Exchange Drive
Suite 550
Norcross, GA 30092-4220
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of IQ Software Corporation (the "Company") of the
merger (the "Merger") with and into Information Advantage, Inc. ("IACO"), which
will be the surviving entity, pursuant to an Agreement and Plan of Merger
between the Company and IACO (the "Agreement"). Pursuant to the Merger and as
more fully described in the Agreement, each issued and outstanding share of
Company Common Stock shall be converted into the right to receive 1.96 shares of
IACO Common Stock.
First Albany Corporation ("First Albany"), as a customary part of its
investment banking business, is engaged on a regular basis in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and valuations for corporate,
estate and other purposes. We regularly publish research reports regarding
various industry sectors.
In connection with and in preparation for rendering this opinion, we have
reviewed, analyzed and relied upon certain information bearing upon the
financial and operating condition of the Company and IACO, including: the
Agreement; publicly available financial statements and related information of
the Company and IACO, as of and for the fiscal years ended January 31, 1998,
1997, and 1996 and the quarter ended April 30, 1998; publicly available
information concerning the historical prices at which the common stock of the
Company and IACO have been transferred; and other financial information
concerning the business and operations of the Company and IACO made available to
us from the published sources and from the Company and IACO, including certain
internal financial and operating budgets, analyses and forecasts of the Company
and IACO prepared by their respective managements. We have also discussed with
members of the senior management of the Company and IACO the past and current
business operations, financial condition and future prospects of the Company and
IACO, as well as other matters believed to be relevant to our analysis. Further,
we considered such other information, financial studies, analyses and
investigations, and financial, economic and market criteria which we deemed
relevant to our analysis including, to the extent publicly available, the
financial terms of comparable transactions. We have also compared the Company
and IACO from a financial point of view with certain other companies in the
business intelligence industry which we have deemed to be relevant. Our opinion
is based on market, economic and other conditions as they exist and can be
evaluated by us on the date hereof.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us by the Company or IACO, or otherwise publicly
available, and have assumed that there have been no material changes in the
Company's or IACO's business operations, financial condition or prospects since
the respective dates of such information. With respect to the financial
forecasts for the Company and IACO provided to us by their respective senior
managements, upon their advice and with your consent, we have assumed for the
purposes of our opinion that the forecasts have been reasonably prepared on
basis reflecting the best available estimates and judgments of their respective
managements at the time of preparation as to future financial performance of the
Company and IACO, and that they provide a reasonable basis upon which we can
form our opinion. We have relied on advice of counsel to the Company as to all
legal matters with respect to the Company, the Merger and the
C-1
<PAGE> 190
Agreement, including the legal status of litigation involving the Company. We
have not independently verified this information, nor have we had such
information verified. For the purposes of rendering this opinion, we have not
conducted a physical inspection of any of the assets, properties or facilities
of the Company or IACO, nor have we made or obtained any independent evaluation
or appraisals of any such assets, properties or facilities. Further, you have
informed us and we have assumed that the Merger will be accounted for on a
pooling of interests basis under generally accepted accounting principles.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Agreement, without any
further amendments thereto, and without waiver by the Company of any of the
conditions to its obligations thereunder. We have also assumed that the Merger
will be consummating in a matter that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended, and all other applicable
federal and state statutes, rules and regulations.
We have not been asked to consider, and this opinion does not address, the
relative merits of the Merger as compared to any alternative business strategy
that may exist for the Company. Our opinion has been prepared solely for the
benefit of the Board of Directors of the Company for use in its consideration of
the Merger and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote on the Merger. This opinion may
not be used or referred to by the Company, or quoted or disclosed to any person
in any manner, without our prior written consent which is hereby given to the
inclusion of this opinion in the Joint Proxy Statement/Prospectus to be filed
with the Securities and Exchange Commission in connection with the Merger. In
furnishing this opinion, we do not admit that we are experts within the meaning
of the term "experts" as used in the Securities Act and the rules and
regulations promulgated thereunder, nor to we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
In connection with the Merger, we are acting as financial advisor to the
Company and, in connection with that service, will receive a financial advisory
fee that is conditioned on the successful completion of the Merger. We will also
receive a fee for rendering this opinion. We have acted as a market maker for
the Company's common stock and for IACO's common stock and have otherwise
engaged in transactions in the Company's common stock and in IACO's common stock
for our own account and for the accounts of our clients. Accordingly, at any
time, we may have a long or short position in such securities.
We may, from time to time, have a long or short position in, and buy or
sell, the Company's common stock for our own account and for the accounts of our
customers.
Based upon and subject to the foregoing, it is our opinion that the
consideration to be received by the stockholders of the Company pursuant to the
Merger is fair to such stockholders from a financial point of view, as the date
hereof.
Very truly yours,
FIRST ALBANY CORPORATION
C-2
<PAGE> 191
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
In accordance with the DGCL, the Registrant's Restated Certificate of
Incorporation contains a provision to limit the personal liability of the
directors of the Registrant for violations of their fiduciary duty. This
provision eliminates each director's liability to the Registrant or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Article IX of the Registrant's Restated Certificate of Incorporation and
Article VII, Section 6 of Registrant's Amended and Restated Bylaws provide for
indemnification of the officers and directors of the Registrant to the fullest
extent permitted by applicable law.
The Registrant has entered into indemnification agreements with each
director and executive officer which provide indemnification to such directors
and executive officers under certain circumstances for acts or omissions which
may not be covered by directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
2.1 -- Amended and Restated Agreement and Plan of Merger dated as
of June 29, 1998 among IQ Software Corporation, the
Registrant and IAC Merger Corp. (included as Appendix A to
the Joint Proxy Statement/Prospectus included in Part I of
this Registration Statement).
3.1* -- Restated Certificate of Incorporation of the Registrant,
amended to date.
3.2* -- Amended and Restated Bylaws of the Registrant.
4.1* -- Specimen Common Stock certificate.
5.1 -- Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
8.1 -- Tax Opinion of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP.
8.2 -- Tax Opinion of Miller & Martin, LLP.
</TABLE>
II-1
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
10.1* -- Form of Indemnification Agreement.
10.2* -- 1992 Stock Option Plan, as amended.
10.3* -- 1997 Equity Incentive Plan, as amended.
10.4* -- 1997 Employee Stock Purchase Plan, as amended.
10.5* -- Employment Agreement between IA and Larry J. Ford, dated
April 19, 1995.
10.6* -- Amendment to the Employment Agreement between IA and Larry
J. Ford, dated May 23, 1995.
10.7* -- Amended and Restated Employment Agreement between IA and
Richard L. Tanler, dated June 11, 1992.
10.8* -- Promissory Note between IA and Richard Tanler, dated April
11, 1996.
10.9* -- Employment Agreement between IA and Richard S. Parker, dated
June 11, 1992.
10.10* -- Employment Agreement between IA and Rory C. (Butch) Terrien,
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 IA and
Silicon Valley Bank, dated September 3, 1997.
10.14* -- Subordinated Loan and Security Agreement between IA and
Comdisco, Inc., dated April 12, 1996.
10.15* -- Severance Agreement between IA and Larry J. Ford, dated
November 10, 1997.
10.16* -- Form of Severance Agreement between IA 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** -- Loan and Warrant Purchase Agreement between IA and certain
holders of Preferred Stock, dated December 4, 1997.
10.18 -- Employment Agreement between IA and Charles R. Chitty.
10.19 -- Form of Reseller Agreement between IA and IQ, dated July 8,
1998.
21.1* -- Subsidiaries of the Registrant.
23.1 -- Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (Reference is made to Exhibit 5.1).
23.2 -- Consent of PricewaterhouseCoopers LLP.
23.3 -- Consent of Ernst & Young LLP.
23.4 -- Consent of BancAmerica Robertson Stephens LLP(Reference is
made to Exhibit 99.3).
23.5 -- Consent of First Albany Corporation (Reference is made to
Exhibit 99.4).
24.1 -- Power of Attorney (included on page II-4).
99.1 -- Form of Registrant's Proxy Card.
99.2 -- Form of IQ's Proxy Card.
99.3 -- Opinion of BancAmerica Robertson Stephens LLP. Incorporated
dated as of June 28, 1998 (included as Appendix B to the
Joint Proxy Statement/Prospectus included in Part I of this
Registration Statement).
99.4 -- Opinion of First Albany Corporation dated as of June 26,
1998 (included as Appendix C to the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement).
</TABLE>
- ---------------
* Incorporated by reference to such exhibit as filed in the Registrant's
Registration Statement on Form S-1, filed on October 10, 1997 (File No.
000-23475), as amended.
** Incorporated by reference to such exhibit as filed in the Registrant's Annual
Report on Form 10-K, filed on April 22, 1998
(b) Financial Statement Schedules
Not Applicable
II-2
<PAGE> 193
ITEM 22. UNDERTAKINGS
Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
Registrant undertakes that every prospectus (i) that is filed pursuant to
the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise, 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 Registrant of expenses
incurred or paid by a director, officer or controlling person of 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, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-3
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Eden
Prairie, State of Minnesota, on August 21, 1998.
INFORMATION ADVANTAGE, INC.
By: /s/ LARRY J. FORD
------------------------------------
Larry J. Ford
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual 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 on Form S-4, 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
confirmed all that said attorneys-in-fact and agents, or any of them, or his
substitute, 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:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ LARRY J. FORD President, Chief Executive August 21, 1998
- ------------------------------------------------ Officer and Director
Larry J. Ford (Principal Executive Officer)
/s/ DONALD W. ANDERSON Chief Financial Officer and Vice August 21, 1998
- ------------------------------------------------ President (Principal Financial
Donald W. Anderson and Accounting Officer)
/s/ RICHARD L. TANLER Chairman of the Board of August 21, 1998
- ------------------------------------------------ Directors and Senior Vice
Richard L. Tanler President, Strategic Planning
and Marketing
Director August , 1998
- ------------------------------------------------
Fredric R. Boswell
/s/ RONALD E.F. CODD Director August 21, 1998
- ------------------------------------------------
Ronald E.F. Codd
/s/ PROMOD HAQUE Director August 21, 1998
- ------------------------------------------------
Promod Haque
/s/ DONALD R. HOLLIS Director August 21, 1998
- ------------------------------------------------
Donald R. Hollis
/s/ JAY H. WEIN Director August 21, 1998
- ------------------------------------------------
Jay H. Wein
/s/ WILLIAM H. YOUNGER, JR. Director August 21, 1998
- ------------------------------------------------
William H. Younger, Jr.
</TABLE>
II-4
<PAGE> 195
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C> <C>
2.1 -- Amended and Restated Agreement and Plan of Merger dated as
of June 29, 1998 among IQ Software Corporation, the
Registrant and IAC Merger Corp. (included as Appendix A to
the Joint Proxy Statement/Prospectus included in Part I of
this Registration Statement).
3.1* -- Restated Certificate of Incorporation of the Registrant,
amended to date.
3.2* -- Amended and Restated Bylaws of the Registrant.
4.1* -- Specimen Common Stock certificate.
5.1 -- Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
8.1 -- Tax Opinion of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP.
8.2 -- Tax Opinion of Miller & Martin, LLP.
10.1* -- Form of Indemnification Agreement.
10.2* -- 1992 Stock Option Plan, as amended.
10.3* -- 1997 Equity Incentive Plan, as amended.
10.4* -- 1997 Employee Stock Purchase Plan, as amended.
10.5* -- Employment Agreement between IA and Larry J. Ford, dated
April 19, 1995.
10.6* -- Amendment to the Employment Agreement between IA and Larry
J. Ford, dated May 23, 1995.
10.7* -- Amended and Restated Employment Agreement between IA and
Richard L. Tanler, dated June 11, 1992.
10.8* -- Promissory Note between IA and Richard Tanler, dated April
11, 1996.
10.9* -- Employment Agreement between IA and Richard S. Parker, dated
June 11, 1992.
10.10* -- Employment Agreement between IA and Rory C. (Butch) Terrien,
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 IA and
Silicon Valley Bank, dated September 3, 1997.
10.14* -- Subordinated Loan and Security Agreement between IA and
Comdisco, Inc., dated April 12, 1996.
10.15* -- Severance Agreement between IA and Larry J. Ford, dated
November 10, 1997.
10.16* -- Form of Severance Agreement between IA 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** -- Loan and Warrant Purchase Agreement between IA and certain
holders of Preferred Stock, dated December 4, 1997.
10.18 -- Employment Agreement between IA and Charles R. Chitty.
10.19 -- Form of Reseller Agreement between IA and IQ, dated July 8,
1998.
21.1* -- Subsidiaries of the Registrant.
23.1 -- Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (Reference is made to Exhibit 5.1).
23.2 -- Consent of PricewaterhouseCoopers LLP.
23.3 -- Consent of Ernst & Young LLP.
23.4 -- Consent of BancAmerica Robertson Stephens LLP(Reference is
made to Exhibit 99.3).
23.5 -- Consent of First Albany Corporation (Reference is made to
Exhibit 99.4).
</TABLE>
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C> <C>
24.1 -- Power of Attorney (included on page II-4).
99.1 -- Form of Registrant's Proxy Card.
99.2 -- Form of IQ's Proxy Card.
99.3 -- Opinion of BancAmerica Robertson Stephens LLP. Incorporated
dated as of June 28, 1998 (included as Appendix B to the
Joint Proxy Statement/Prospectus included in Part I of this
Registration Statement).
99.4 -- Opinion of First Albany Corporation dated as of June 26,
1998 (included as Appendix C to the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement).
</TABLE>
- ---------------
* Incorporated by reference to such exhibit as filed in the Registrant's
Registration Statement on Form S-1, filed on October 10, 1997 (File No.
000-23475), as amended.
** Incorporated by reference to such exhibit as filed in the Registrant's Annual
Report on Form 10-K, filed on April 22, 1998
<PAGE> 1
[GUNDERSON DETTMER LETTERHEAD]
August 21, 1998
Information Advantage, Inc.
7905 Golden Triangle Drive
Eden Prairie, MN 55344
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 as filed by
Information Advantage, Inc. (the "Company") with the Securities and Exchange
Commission on August 21, 1998, as thereafter amended or supplemented (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of shares of the Company's Common Stock (the
"Shares") to be issued to the stockholders of IQ Software Corporation ("IQ") in
connection with the merger of a wholly owned subsidiary of the Company with and
into IQ. As your legal counsel, 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 conclusion 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, 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> 1
EXHIBIT 8.1
________, 1998
Information Advantage, Inc.
7905 Golden Triangle Drive
Eden Prairie, MN 55344
Ladies and Gentlemen:
This opinion is being delivered to you for the purpose of satisfying
Section 6.1(c) of the Amended and Restated Agreement and Plan of Merger, dated
as of June 29, 1998 (the "Merger Agreement") among Information Advantage, Inc.,
a Delaware corporation ("IA"), its wholly-owned subsidiary, IAC Merger Corp., a
Delaware corporation ("Merger Sub"), and IQ Software Corporation, a Georgia
corporation ("IQ"). Pursuant to the Merger Agreement, Merger Sub will merge with
and into IQ (the "Merger"), and IQ will become a wholly-owned subsidiary of IA.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to IA in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined and are
relying (or will rely) upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all schedules and exhibits thereto):
1. The Merger Agreement (including Exhibits);
2. Representations made to us by IQ in a letter of even date;
3. Representations made to us by IA and Merger Sub in a letter of even
date;
5. The Securities and Exchange Commission Registration Statement on Form
S-4 and related Exhibits thereto relating to the Merger Agreement; and
6. Such other instruments and documents related to the formation,
organization and operation of IA, IQ and Merger Sub or to the consummation of
the Merger and the transactions contemplated thereby as we have deemed necessary
or appropriate.
In connection with rendering this opinion, we have assumed that:
<PAGE> 2
Information Advantage, Inc.
_______, 1998
Page 2
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof.
2. Any representation or statement made "to the knowledge of" or otherwise
similarly qualified is correct without such qualification and all statements and
representations, whether or not qualified, will remain true through the
Effective Time. As to all matters in which a person or entity making a
representation has represented that such person or entity either is not a party
to, does not have, or is not aware of any plan, intention, understanding or
agreement to take an action, there is in fact no plan, intention, understanding
or agreement and such action will not be taken.
3. The Merger will be consummated pursuant to the Merger Agreement and will
be effective under the laws of the state of Delaware and Georgia.
4. No IQ shareholder has guaranteed or will guarantee any IQ indebtedness
outstanding during the period immediately prior to the Merger, and at all
relevant times, including as of the Effective Time of the Merger, (i) no
outstanding indebtedness of IQ, IA or Merger Sub has or will represent equity
for tax purposes; (ii) no outstanding equity of IQ, IA or Merger Sub has or will
represent indebtedness for tax purposes; and (iii) no outstanding security,
instrument, agreement or arrangement that provides for, contains, or represents
either a right to acquire IQ stock or to share in the appreciation thereof
constitutes or will constitute "stock" for purposes of Section 368(c) of the
Code.
5. Counsel for IQ, Miller & Martin LLP, has, pursuant to Section 6.1(c) of
the Agreement, delivered an opinion to the effect that, for federal income tax
purposes, the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code.
6. Following the Merger, IQ will hold "substantially all" of its and Merger
Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the Code and
the regulations promulgated thereunder and will continue its historic business
or use a significant portion of its historic assets in a business.
7. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. ss.1.368-1(c) with respect to
the Merger) are funded directly or indirectly by a party other than the
incurring party, such expenses will be within the guidelines established in
Revenue Ruling 73-54, 1973-1 C.B. 187; any expenses paid on behalf of IQ
shareholders will not exceed one percent (1%) of the total consideration that
will be issued in the Merger to IQ shareholders in exchange for their shares of
IQ.
<PAGE> 3
Information Advantage, Inc.
_______, 1998
Page 3
8. IQ, IA and Merger Sub will report the Merger on their respective U.S.
federal income tax returns in a manner consistent with the opinion set forth
below and will comply with all reporting obligations set forth in the Code and
the Treasury Regulation promulgated thereunder.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the
provisions of the Merger Agreement (and without any waiver, breach or amendment
of any provisions thereof), for federal income tax purposes the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger). We express no opinion regarding the tax
consequences of the Merger to shareholders of IQ that are subject special tax
rules, and we express no opinion regarding the tax consequences of the Merger
arising in connection with the ownership of options or warrants for IQ stock.
3. No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
<PAGE> 4
Information Advantage, Inc.
_______, 1998
Page 4
not true and accurate through the Effective Time and at all relevant times
thereafter. In the event any one of the statements, representations, warranties
or assumptions upon which we have relied to issue this opinion is incorrect, our
opinion might be adversely affected and may not be relied upon.
4. This opinion has been delivered to you solely for purposes of satisfying
Section 6.1(c) of the Merger Agreement; it may not be relied upon for any other
purpose (including, without limitation, satisfying any conditions in the
Agreement) or by any other person or entity, and may not be made available to
any other person or entity without our prior written consent.
Very truly yours,
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
<PAGE> 1
EXHIBIT 8.2
_______, 1998
IQ SOFTWARE CORPORATION
3295 River Exchange Drive
Suite 550
Norcross, GA 30092
Attention: Board of Directors
Re: Tax Opinion for the Merger Transaction Involving IQ Software
Corporation, Information Advantage, Inc. and IAC Merger Corp.
Ladies and Gentlemen:
We have been requested to render this opinion concerning certain
matters of U.S. federal income tax law in connection with the proposed merger
(the "MERGER") involving IQ Software Corporation, a corporation organized and
existing under the laws of the State of Georgia ("IQ"), Information Advantage,
Inc., a corporation organized under the laws of the State of Delaware ("IA"),
and IAC Merger Corp., a new corporation organized and existing under the laws of
the State of Georgia as a wholly owned subsidiary of IA ("NEWCO").
The Merger is structured as a statutory merger of Newco with and
into IQ, with IQ surviving the merger and becoming a wholly-owned subsidiary of
IA, all pursuant to the applicable corporate laws of the States of Georgia and
Delaware in accordance with the Amended and Restated Agreement and Plan of
Merger by and among IQ, IA and Newco, dated as of June 29, 1998, and exhibits
thereto (collectively, the "MERGER AGREEMENT"). Except as otherwise indicated,
capitalized terms used herein have the meanings set forth in the Merger
Agreement. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "CODE").
We have acted as legal counsel to IQ in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have examined
and are relying upon (without any independent investigation or review thereof)
the truth and accuracy, at all relevant times, of the
<PAGE> 2
statements, covenants, representations and warranties contained in the following
documents (including all schedules and exhibits thereto):
(1) The Merger Agreement;
(2) An Officer's Tax Certificate of IQ dated ____ __, 1998,
signed by an authorized officer of IQ and delivered to us from IQ and
incorporated herein by reference; and
(3) An Officer's Tax Certificate of IA and Newco dated ____ __,
1998, signed by an authorized officer of each of IA and Newco and
delivered to us from IA and Newco and incorporated herein by reference.
In addition, we have reviewed such other instruments and
documents related to the formation, organization and operation of IQ, IA and
Newco or the consummation of the Merger and the transactions contemplated
thereby as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or
obtained representations and are relying thereon (without any independent
investigation or review thereof) that:
(1) Original documents (including signature) are authentic;
documents submitted to us as copies conform to the original documents,
and there has been (or will be by the Effective Time of the Merger) due
execution and delivery of all documents where due execution and delivery
are prerequisites to the effectiveness thereof;
(2) All participants in the Merger possess adequate legal
capacity;
(3) Any representation or statement referred to above made "to
the knowledge of" or "to the belief of" or otherwise similarly qualified
is correct without such qualification, and all statements and
representations, whether or not qualified are true and will remain true
through the Effective Date;
(4) The Merger will be consummated pursuant to the Merger
Agreement and will be effective under the laws of the states of Georgia
and Delaware;
(5) IA has no plan or intention directly or indirectly (through
one or more related parties) to reacquire any of its voting common stock
issued in the Merger. For these purposes, "RELATED PARTIES" include
corporations that are members of the same affiliated group as defined in
Section 1504 of the Code (determined without regard to Section 1504(b)
of the Code), or two corporations if the first corporation purchases the
stock of the second corporation in a transaction which would be treated
as a distribution in redemption of the stock of the first corporation
under Section 304(a)(2) of the Code
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<PAGE> 3
(determined without regard to Treas. Reg. Section 1.1502-80(b)). In
addition, a corporation will be treated as related to another
corporation if such relationship exists immediately before or
immediately after the acquisition of the stock involved. Moreover, a
corporation, other than IQ or a person related to IQ, will be treated as
related to IA if the relationship is created in connection with the
Merger.
(6) Following the Merger, IQ will hold "substantially all" of its
and Newco's assets within the meaning of Section 368(a)(2)(E)(i) of the
Code and the Treasury Regulations promulgated thereunder and will
continue its historic business or use a significant portion of its
historic business assets in a business;
(7) To the extent any expenses relating to the Merger (or the
"plan of reorganization" within the meaning of Treas. Reg. Section
1.368-1(c) with respect to the Merger) are funded directly or indirectly
by a party other than the incurring party, such expenses will be within
the guidelines established in Revenue Ruling 73-54, 1973-1 C.B.
187;
(8) No IQ stockholder has guaranteed or will guarantee any IQ
indebtedness outstanding during the period immediately prior to the
Merger, and at all relevant times prior to and including the Effective
Date: (i) no outstanding indebtedness of IQ, IA, or Newco has
represented or will represent equity for tax purposes; (ii) no
outstanding equity of IQ, IA, or Newco has represented or will represent
indebtedness for tax purposes; and (iii) no outstanding security,
instrument, agreement or arrangement that provides for, contains, or
represents either a right to acquire IQ capital stock (or to share in
the appreciation thereof) constitutes or will constitute "stock" for
purposes of Section 368(c) of the Code;
(9) None of IQ, IA or Newco is, or will be at the time of the
Merger, an investment company as defined in Section 368(a)(2)(F) of the
Code; and
(10) IQ, IA and Newco will report the Merger on their respective
U.S. federal income tax returns in a manner consistent with the opinion
set forth below and will comply with all reporting obligations set forth
in the Code and the Treasury Regulations promulgated thereunder.
In addition to the above, our opinion is conditioned on the
delivery of an opinion of counsel, substantially identical to this opinion, to
IA from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP and that
such opinion will not be withdrawn prior to the Effective Date.
Based on the foregoing documents, materials, assumptions and
information, and subject to the qualifications and assumptions set forth herein,
we are of the opinion that, if the Merger is consummated in accordance with the
provisions of the Merger Agreement (and
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<PAGE> 4
without any waiver, breach of amendment of any of the provisions thereof), the
Merger will be a "reorganization" for federal income tax purposes within the
meaning of Section 368(a) of the Code.
Our opinion set forth above is based on the existing provisions
of the Code, Treasury Regulations (including Temporary Treasury Regulations)
promulgated under the Code, published Revenue Rulings, Revenue Procedures and
other announcements of the Internal Revenue Service (the "SERVICE") and existing
court decisions, any of which could be changed at any time. Any such changes
might be retroactive with respect to transactions entered into prior to the date
of such changes and could significantly modify the opinion set forth above.
Nevertheless, we undertake no responsibility to advise you of any subsequent
developments in the application, operation or interpretation of the U.S. federal
income tax laws.
Our opinion concerning certain of the U.S. federal tax
consequences of the Merger is limited to the specific U.S. federal tax
consequences presented above. No opinion is expressed as to any transaction
other than the Merger, including any transaction undertaken in connection with
the Merger. In addition, this opinion does not address any estate, gift, state,
local or foreign tax consequences that may result from the Merger. In
particular, we express no opinion regarding: (i) the amount, existence, or
availability after the Merger, of any of the U.S. federal income tax attributes
of IQ, IA or Newco; (ii) any transaction in which IQ common stock is acquired or
IA common stock is disposed of other than pursuant to the Merger; (iii) the
potential application of the "disqualifying disposition" rules of Section 421 of
the Code to dispositions of IQ common stock; (iv) the effects of the Merger and
IA's assumption of outstanding options to acquire IQ stock on the holders of
such options under any IQ employee stock option or stock purchase plan,
respectively; (v) the effects of the Merger on any IQ stock acquired by the
holder subject to the provision of Section 83(a) of the Code; (vi) the effects
of the Merger on any payment which is or may be subject to the provisions of
Section 280G of the Code; (vii) the application of the collapsible corporation
provisions of Section 341 of the Code to IQ, IA or Newco as a result of the
Merger; (viii) the application of the alternative minimum tax provisions
contained in the Code; (ix) the effects of the Merger on any IQ stock acquired
or held as part of a "straddle," "conversion transaction," "hedging
transaction," or other risk reduction transaction; and (x) any special tax
consequences applicable to insurance companies, securities dealers, financial
institutions, tax-exempt organizations or foreign persons.
No ruling has been or will be requested from the Service
concerning the U.S. federal income tax consequences of the Merger. In reviewing
this opinion, you should be aware that the opinion set forth above represents
our conclusions regarding the application of existing U.S. federal income tax
law to the instant transaction. If the facts vary from those relied upon
(including if any representations, covenant, warranty or assumption upon which
we have relied is inaccurate, incomplete, breached or ineffective), our opinion
contained herein could be inapplicable. You should be aware that an opinion of
counsel represents only counsel's best legal judgment, and has no binding effect
or official status of any kind, and that no assurance can be
4
<PAGE> 5
given that contrary positions may not be taken by the Service or that a court
considering the issues would not hold otherwise.
This opinion is being delivered solely for the purpose of
satisfying the condition set forth in Section 8.2(f) of the Merger Agreement.
This opinion may not otherwise be relied upon or utilized for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity, without our prior written consent.
We hereby consent to the reference to us under the heading "The
Merger -- Certain Federal Income Tax Consequences" in the Proxy
Statement-Prospectus pertaining to the Merger and to the filing of this opinion
as an exhibit to the related Registration Statement on Form S-4 filed with the
Securities and Exchange Commission. In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MILLER & MARTIN LLP
5
<PAGE> 1
EMPLOYMENT AGREEMENT OF
CHARLES R. CHITTY
Parties: Information Advantage, Inc. ("IA") and Charles R. Chitty
("Chitty")
Duties: Responsible for Company transition and integration issues and
responsible for ERP business unit.
Title: Senior Vice President of Vertical Applications
Other Duties: Director of IA upon Merger
Term: Employment -- Merger through 10/31/99
Consulting/Non-Compete -- 11/1/99 through 11/1/01
Compensation:
Upon Merger Through 10/31/98
----------------------------
The following compensation is consistent with the compensation payable by
IQ for fiscal 1999 with respect to the first three quarters regular bonus
pursuant to the action of the Compensation Committee of the IQ Board of
Directors dated June 9, 1998.
Base Salary: $225,000 per annum
Revenue Bonus: Upon the attainment of annual revenue run rate for either
the trailing three (3) month period or the trailing six (6) month period
from the end of the applicable fiscal quarter, Chitty is to receive a
quarterly bonus set opposite the revenue run rate below:
<TABLE>
<CAPTION>
Annual Revenue Run Rate
1999 Fiscal ------------------------------ Quarterly Revenue
Quarter Ended Last 3 Months Last 6 Months Bonus Growth Rate
- ------------- ------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
October 31, 1998 30.4 million 28.6 million $40,000* 19%
October 31, 1998 30.4 million 28.6 million $22,500** --
</TABLE>
- ---------------------
* Less quarterly bonus amounts paid for achieving revenue targets paid by IQ
under existing plan for fiscal 1999. If Chitty achieves 80% of either run
rate target, but less than 100% of both, only this bonus will be allocated
on a straight line basis with zero bonus at 80% and full bonus at 100%.
** The bonus earned only if IQ attains 100% of either run rate target for the
fiscal quarter ended October 31, 1998.
<PAGE> 2
The term "Annual Revenue Run Rate" shall be the product of all
revenues for the applicable three months of the Corporation
times 4 or the product of the revenues for the applicable six
months of the Corporation times 2, as the case may be.
Over Achievement Bonus:
In addition, there shall be a further bonus of $20,000 if the
revenue growth for the six (6) month period ending 10/31/99
exceeds the revenue growth rate for the comparable six month
period during fiscal 1998 by 2% (i.e., 21%).
EPS Bonus: Attainment of earnings per share for the period 2/1/98 -
10/31/98 in excess of $0.38 earns an EPS Bonus of $18,750
Other: An additional bonus will be paid on 10/31/98 in the amount
of $43,750.
All bonuses shall be paid on or before the last day of the
month after the bonus is earned.
11/1/98 through 10/31/99
------------------------
Base Salary: $235,000 per annum
Revenue Bonus: 11/1/98-10/31/99 0.4% of IQ's total revenues
11/1/98-10/31/99 5.0% of ERP business total revenues
(currently IQ's SAP & IA's BAA business)
All bonuses shall be paid on or before the last day of the
month after the bonus is earned.
11/1/99 through 10/31/00
------------------------
Consulting/Non-Compete: $225,000 payable monthly in advance
Maximum consulting of 16 hours of consulting services per calendar month.
11/1/00 through 10/31/01
------------------------
Consulting/Non-Compete: $175,000 payable monthly in advance
Maximum consulting of 8 hours of consulting services per calendar month.
Stock Options: Upon the Merger, Chitty to be granted a non-qualified stock
option for 20,000 shares of IA Common Stock at the market
price on date of
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<PAGE> 3
merger. The stock options shall vest over the periods of the
engagement of Chitty as a director, officer, employee and/or
consultant. Vesting shall be over a five-year period, with a
minimum of three years vesting. The stock option period is ten
years. The option shall fully vest if IA does not nominate
Chitty to remain on the Board for the five year period
vesting.
Other Employee Benefit Programs:
Chitty shall be entitled to participate in all employee
benefit plans and other fringe benefits on the same basis as
other executive officers of IA while an employee of IA and
medical and dental programs only, through the first year of
the consulting period.
Termination: By IA for cause
By Chitty for material breach by IA
Change in Control:
Stock Options fully vest.
Covenant Not to Compete:
Limited to business intelligence software business in the
United States. Term of covenant is co-extensive with term of
employment and consulting services. The terms will be the
standard Company terms.
Death: Payments (including bonuses) continue for six months after
death, unless IA policy or insurance provides for a longer
period.
Disputes: Arbitration pursuant to the Commercial Rules of Arbitration of
the American Arbitration Association, Atlanta, Georgia.
Governing Law: Georgia.
Indemnification of Directors and Officers:
To the maximum extent permitted under applicable law
Binding Effect: While it is the intention of the parties to enter into a more
comprehensive employment/consulting agreement incorporating
the terms and conditions set forth above, it is the agreement
of the parties that this document constitute a binding
agreement of the parties until superseded or otherwise amended
in writing.
3
<PAGE> 4
/s/ Charles R. Chitty
-----------------------------------------
Charles R. Chitty
INFORMATION ADVANTAGE, INC.
By: /s/ Larry J. Ford
-------------------------------------
Larry J. Ford
President and Chief Executive Officer
4
<PAGE> 1
EXHIBIT 10.19
IQ SOFTWARE CORPORATION
RESELLER AGREEMENT
This Reseller Agreement ("Agreement") is entered into as of this 8th day
of July, 1998 between IQ Software Corporation ("IQSC") and the Reseller
("Reseller"), identified on the last page of this Agreement.
WHEREAS, IQSC has developed and has the right to market certain decision
support software, and
WHEREAS, the Reseller desires the non-exclusive right to market certain
IQSC software to its customers and prospective customers;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
(a) "Software" shall mean the software programs (object code) described
in Schedule A. In the event IQSC ceases to market any program listed on
Schedule A, it may, upon thirty (30) days prior written notice to Reseller,
remove such Software from the list of software programs described in Schedule
A. Software shall mean the most current version of the Software released by
IQSC in its sole discretion at the time the license is granted, including
modifications and improvements thereof, but shall not include software programs
which are marketed by IQSC as new or different software programs from the
software programs listed on Schedule A.
(b) "Documents" shall mean operating manuals and other guides released
by IQSC for use by end users of the Software.
2. APPOINTMENT.
(a) IQSC hereby appoints the Reseller as a non-exclusive reseller of
the Software, subject to the terms and conditions of this Agreement and
Reseller accepts such appointment.
(b) IQSC will license a reasonable number of copies of the Software to
the Reseller at no charge for its own internal use, including for demonstration
purposes.
(c) The appointment contained herein does not constitute a grant of any
specific territory or geographic area. IQSC reserves the right to market and
solicit sales directly and indirectly through dealers and distributors, and
through any other channel of distribution at any time and from time to time, as
it determines in its sole judgment, and Reseller will not be entitled
1
<PAGE> 2
to any commission, discount or any other compensation with respect to or on
account of such sales.
(d) Reseller will determine the price at which it sells the Software to
the end-users. Any price list of IQSC are suggestions only and Reseller may
charge different prices without obligation or liability to or approval of IQSC.
(e) Reseller shall use commercially reasonable efforts to continuously
and aggressively market the Software, effectively demonstrate, deliver and
install the Software and instruct customers regarding the proper and efficient
installation and use thereof provided that IQSC agrees to provide the Reseller
with sales and marketing information applicable to the Software and shall
furnish to the Reseller reasonable quantities of the specifications, fact
sheets, product descriptions and other promotional literature pertaining to the
Software.
(f) The Reseller agrees to employ, train and maintain at all times an
adequate staff of sales and support personnel to effectively promote the
Software provided that IQSC provides to the Reseller two (2) training classes
pertaining to the Software from time to time at locations to be mutually agreed
upon. Reseller agrees to reimburse IQSC for reasonable travel expenses of IQSC
personnel.
(g) All activities of the Reseller pursuant to its obligations under this
Agreement shall be undertaken at the sole cost and expense of the Reseller.
(h) The Reseller shall prepare and submit to IQSC monthly marketing and
sales reports within fifteen (15) days after the end of each calendar month in
such form and with such information as IQSC may reasonably request from time to
time.
(i) The Reseller shall obtain orders on contracts designated by IQSC,
which orders are not valid or binding until accepted by IQSC in its reasonable
discretion. A contract accepted by IQSC shall hereafter be referred to as an
"Accepted Contract." The Reseller shall make no commitments, written or oral,
regarding the Software or the terms and conditions of the license thereof that
are not specifically set forth in the IQSC's then standard license agreement
("License Agreement") or as specifically authorized in writing by IQSC.
(j) The Reseller agrees to indemnify and hold harmless IQSC from any loss
or damages claimed by reason of or arising out of any alleged agreement,
representation or undertaking made to the licensee of the Software by the
Reseller or its officers, employees or agents not contained in the License
Agreement or specifically authorized in writing by IQSC. IQSC will give the
Reseller prompt written notice of any such claim or loss.
3. MAINTENANCE AND SUPPORT.
(a) IQSC agrees to provide maintenance and support services to the
licensees of the Software as herein provided at its then published rate, as
such may be modified from time to time,
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<PAGE> 3
as long as IQSC generally provides support for such Software to others. IQSC
will enter into support and maintenance agreements directly with such licensee
upon such terms and conditions as mutually agreed upon by IQSC and the
licensee. The Reseller is not authorized to market IQSC's maintenance and
support services, but may advise a potential licensee of the availability of
such services.
(b) IQSC shall use reasonable efforts to make prompt delivery of the
Software sold pursuant to an Accepted Orders placed by the Reseller, but IQSC
shall not be liable for any delay in delivery or error in filling any order for
any reason whatsoever.
4. LICENSE FEE.
(a) Reseller shall pay IQSC for the right to grant sublicenses of the
Software to end-users as hereinabove set forth in the amounts set forth in
Schedule B. Each sublicense of a copy of the Software constitutes a single
sublicense/license for determining the amounts payable hereunder.
(b) The Software will be furnished by IQSC to the Reseller only in
machine readable (object code) form on diskettes or other appropriate media.
5. PAYMENTS.
(a) A sublicense of the Software is granted, for purposes of determining
the license fees payable, at the time a copy of Software is delivered to the
sublicensee/end-user. Payment of all license fees for Software licensed
hereunder in a calendar month shall be due and payable within fifteen (15) days
after the last day of said calendar month.
(b) Charges for copies of Documents as set forth in Schedule B shall be
invoiced by IQSC and shall be payable by Reseller within thirty (30) days after
the date of invoice from IQSC. Reseller shall be responsible for invoicing and
collections from sublicensees of the Software.
(c) Reseller shall be liable to IQSC for any sales, user or other similar
tax payable arising out of the sale, license or lease of the Software to
Reseller or its end-users. It shall be Reseller's responsibility to provide
IQSC with any sales tax exemption certificate.
(d) In the event of a default in any payment hereunder, IQSC may
thereafter request payment of such fees and charges in advance of delivery of
the Software to the Reseller or to its agents or to the sublicensee.
6. TERM.
This Agreement shall continue for an initial term of six (6) months from
the date hereof and shall be automatically renewed for additional periods of
six (6) months each thereafter unless terminated as of the end of any year upon
sixty (60) days prior written notice by a party to the
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<PAGE> 4
other. Written notice shall be deemed given upon delivery to the address set
forth below to the attention of person so designated if notice is given by
facsimile transmission (with written confirmation by registered or certified
mail), private carrier or hand delivery or five (5) days after being mailed if
notice is by certified mail, postage prepaid, return receipt requested.
Termination of this Agreement does not terminate the rights which have accrued
as of the date of termination hereunder or the obligations under paragraphs 7,
9, 10, 12 and 17.
7. TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) During the term of this Agreement and at all times thereafter, the
recipient ("Recipient") of any trade secrets or other intellectual property or
confidential information (collectively "Information") of the other party or of
its customers or suppliers ("Owner") agrees not to use or disclose to others,
without prior written consent of the Owner, any Information of the Owner
obtained by the Recipient hereunder, except to use such Information as is
necessary in the course of performing its obligations hereunder.
(b) Upon termination of the term of this Agreement, Recipient shall not
retain or take any document, data, program code, technical data, manuals, or
other documents and instruments (collectively "Documents") of the Owner obtained
by Recipient, or any reproductions thereof, in whole or in part. All Documents
and all copies thereof shall be surrendered to the Owner at any time upon
request of the Owner and/or upon the termination of the term of this Agreement
and upon the request of the Owner all Information on any other media, including
computer memory, shall be destroyed and Recipient shall so certify in writing
upon request by the Owner.
(c) Recipient agrees at all times to hold the Information in confidence and
shall not disclose the Information, in whole or in part, and shall not use the
Information, in whole or in part, except as herein permitted or as otherwise
agreed in writing. In addition, the Recipient agrees to disclose the Information
only with, and transmit the Information only to, its employees who need to know
the Information in order to perform the Recipient's undertaking as provided
herein and who have agreed to be bound by an agreement to maintain the
confidentiality thereof and to use the Information only as herein provided.
(d) Recipient recognizes and acknowledges the competitive value and the
confidential nature of the Information and the damages that could result to the
Owner if the Information is disclosed to or used by any unauthorized third
party. Recipient agrees to take reasonable security precautions to prevent the
unauthorized use by and disclosure to any person or entity of the Information,
except those permitted herein, and shall take reasonable security precautions to
prevent any employee who has access to the Information for using or disclosing
the Information, except as herein permitted. Recipient shall use not less than
the same degree of care to prevent unauthorized use and/or disclosure of the
Information which the Recipient applies with respect to its own trade secrets
and confidential information of like importance, which shall be not less than
what a prudent business person would employ to safeguard its own Information of
like importance from unauthorized use or disclosure.
4
<PAGE> 5
(e) "Trade Secrets" shall mean Information which constitutes a Trade
Secret within the meaning of Section 10-1-761(4) of the Georgia Trade Secrets
Act of 1990 ("Act").
(f) "Confidential Information" shall mean all information and data which
is protectible as a legal form of property and all nonpublic information that
the owner or others designate as being a "Trade Secret", "Proprietary" or
"Confidential" or other similar designations or which, under the circumstances
surrounding disclosure, ought to be treated as Confidential Information.
Confidential Information shall not include any Information which constitutes a
Trade Secret within the meaning of the Act.
(g) Recipient shall provide the Owner with written notice of any
unauthorized disclosure or use of the Information promptly upon Recipient
becoming aware thereof.
(h) The parties agree that the limitations herein on disclosure and the
use of Confidential Information of the Owner shall be for a period of five (5)
years from the date of its disclosure, subject to the earlier termination as
provided in subparagraph (i). Trade Secrets shall be kept confidential at all
times hereafter subject to the earlier termination as provided in subparagraph
(i).
(i) Information shall not include Information upon the occurrence of any
of the following events: (i) the information becomes publicly known through no
wrongful act of Registrant; (ii) the information is lawfully received by
Recipient from a third party without a similar restriction regarding
confidentiality and without a breach of this Agreement or (iii) the information
is independently developed by Recipient.
8. INDEPENDENT CONTRACTORS.
It is agreed that the relationship between the parties is that of
independent contractors and nothing contained in this Agreement shall be
construed or implied to create the relationship of partners, joint venturers,
agent and principal, employer and employee or any other relationship other than
that of independent contractors. At no time shall either party make any
commitment or incur any charges or expenses for or in the name of the other
party.
9. PUBLICITY.
The parties shall not make disparaging remarks to others about the other
party or the Software. During the term of this Agreement, the Reseller is
permitted to publicly state that it is a Reseller of the Software.
10. NON-SOLICITATIONS OF EMPLOYEES.
Each party agrees that, during the term of this Agreement and for a period
of twelve (12) months following termination hereof for any reason, neither
party will, directly or indirectly, solicit or in any manner encourage
employees of the other party to leave his/her employ for an
5
<PAGE> 6
engagement in any capacity by the party or by another person or offer or urge,
suggest or cause others that they offer to employ in any capacity any employee
of the other party.
11. AMENDMENT.
This Amendment may be amended by the parties from time to time only by a
written agreement duly executed by the parties hereto, except that IQSC may
amend the definition of the term "Software" to include additional software by
sending written notice to the Reseller, upon which event the term "Software"
shall automatically be modified to include such additional software.
12. INFRINGEMENT.
IQSC represents that it has sufficient right, title and interest in the
Software to grant the licenses contained in this Agreement. IQSC agrees to
defend at its expense any suit against Reseller based upon a claim that does
not have sufficient right, title, and interest in the Software to grant the
license contained in this Agreement, or that the Software infringe(s) any
patent or copyright, and to pay the amount of any settlement or the costs and
damages finally awarded after appeal, if any, in such suit, provided that (1)
IQSC is notified promptly in writing of any notice of claim or threatened or
actual suit and is given complete authority for the defense of such claim, and
(2) at IQSC's request, IQSC is given assistance and information for the defense
of the same.
Following written notice of a claim or of a threatened or actual suit,
IQSC may at its expense, without obligation to do so, procure for Reseller the
right to continue to market, use and have others use the alleged infringing
Software or, without obligation to do so, may replace or modify the Software to
make it non-infringing. If IQSC elects to replace or modify the Software, such
replacement shall meet substantially the same specifications of the Software as
provided in the documents.
13. EARLY TERMINATION.
Notwithstanding any other provision of this Agreement, this Agreement
may be terminated by IQSC or Reseller, prior to the expiration of the term of
the appointment set forth in paragraph 6, upon a material default by the other
party which is not corrected within thirty (30) days of receipt of notice of
such termination. A material default shall include, but shall not be limited
to, the unauthorized disclosure of Information of the other party, the
unauthorized copying of the Software or Documents by Reseller or Reseller
providing copies of the Software to others in violation of the terms of this
Agreement.
14. TRADEMARKS.
Reseller acknowledges that the trademarks and trade names heretofore and
hereafter used by IQSC in connection with the Software (collectively
"Trademarks") are the exclusive property of IQSC. Reseller may use the
Trademarks only in accordance with guidelines provided by IQSC
6
<PAGE> 7
to Reseller from time to time during the term of this Agreement; provided that
Reseller shall not use the Trademarks in any manner likely to confuse, mislead
or deceive the public or be injurious or inimical to the best interests of
IQSC. IQSC, for any reason, may at any time upon written notice to Reseller
terminate any right granted to Reseller to use any Trademark.
14. ASSIGNMENT.
Neither this Agreement, or any rights hereunder, may be assigned by
Reseller and any attempt to assign this Agreement or any rights hereunder
without prior written approval by IQSC shall automatically terminate this
Agreement. The parties agree that this Agreement is in the nature of a personal
service agreement and its continuation is conditional upon Reseller being owned
in the same manner as owned on the date of this Agreement. IQSC may terminate
this Agreement upon ten (10) days prior written notice if a change in control
of Reseller has occurred without the prior written approval of IQSC. Reseller
shall promptly notify IQSC of all changes in the ownership of Reseller. IQSC
may assign and transfer this Agreement or its rights hereunder to any
affiliated IQSC and to the successor of its business. Subject to the above, this
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of any party hereto.
16. WAIVERS.
No waiver of any provision of this Agreement shall be effective unless in
writing and executed by the party waving the right. Failure to promptly demand
compliance or performance shall not constitute a waiver of a party's right
hereunder.
17. MISCELLANEOUS.
(a) Reseller shall make no representations regarding any Software or
IQSC to any potential customer or licensee and acknowledges that Reseller has
no authority to do so.
(b) In no event shall either party be liable to the other party for any
indirect, incidental, special, punitive or consequential damages, including but
not limited to, loss of profits or revenue, however incurred, even if such
party has been advised of the possibility of such damages.
(c) This Agreement sets forth the entire agreement and understanding of
the parties with respect to the subject matters hereof. The parties acknowledge
that there are no warranties or representations, including regarding the
Software, not specifically set forth herein.
(d) Each party represents to the other that this Agreement constitutes a
valid and binding obligation of such party and is enforceable against such
party in accordance with its terms. If any provision of this Agreement shall be
held by a court to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect. Without waiving a party's
claim or breach of representation, if any provision of this Agreement in any
way contravenes any law, the parties hereto agree to revise such provisions in
such a manner as to meet the requirements of law and as nearly as possible to
reflect the original intention of the parties.
7
<PAGE> 8
(e) This Agreement shall be construed and governed by the laws of the
State of Georgia (without giving effect to the principles of conflict of laws).
18. ACCOUNT REGISTRATION
Prior to beginning a sales effort into any prospect or customer account,
Reseller agrees to "register" sales opportunity with IQSC. The purpose of this
registration is to confirm that the specific opportunity with the specific
department or division of the prospect or customer is not currently on IQSC's
active prospect list. The registration request must include the company name,
address, primary contact, department or division and a brief description of the
sales opportunity. Within forty-eight (48) hours of the receipt of account
registration request, Reseller will be notified of the acceptance or rejection
of the account request. If the specific opportunity with the specific
department or division is currently on IQSC's active prospect list then
Reseller's registration request will be denied and IQSC shall have no
obligations to the Reseller (including payment of compensation) under the
terms of this agreement. If the specific opportunity with the specific
department or division is not on IQSC's active prospect list, then it will be
registered to Reseller for a period of six (6) months. If Reseller does not
sell IQSC Software products into the registered opportunity within the six (6)
month period, the opportunity is subject to be reassigned.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
IQ SOFTWARE CORPORATION RESELLER: INFORMATION ADVANTAGE
By: /s/ CLARENCE R. CHITTY By: /s/ DONALD W. ANDERSON
------------------------------- -------------------------------------
Name: Clarence R. Chitty Name: Donald W. Anderson
----------------------------- -----------------------------------
Title: Pres/CEO Title: Vice President & CFO
---------------------------- ----------------------------------
Notices: Notices:
3295 River Exchange Drive Address: 7905 Golden Triangle Drive
Suite 550 --------------------------------
Norcross, Georgia 30092 Eden Prairie, MN. 55344-7227
Attention: President -----------------------------------------
-----------------------------------------
Attention: Don Anderson
------------------------------
8
<PAGE> 9
SCHEDULE A
IQSC Software
Paragraph 1(a)
Name
IQ/Objects
Administrator Edition
Reporting Edition
Query Edition
Personal Edition
IQ/SmartServer
IQ/Vision
IQ/VisionServer
IQ/WebPak
IQ/Objects Administrator Edition: Includes the IQ/Objects Knowledgebase Manager
which allows database administrators to configure, define and maintain access
to multiple data sources. It also includes everything found in the Reporting
Edition and Personal Edition, and can submit jobs to IQ/SmartServer.
IQ/Objects Reporting Edition: Provides both the Interactive QuickQuery tools
and powerful FreeForm tools to create queries, reports, charts, and crosstabs.
It also includes everything found in the Query Edition and Personal Edition,
and can submit jobs to IQ/SmartServer.
IQ/Objects Query Edition: Provides the complete IQ/Objects QuickQuery tool set
for creating queries. It does not include the FreeForm tool set. However users
of this edition can use documents created with FreeForm tools by other users.
They can submit these documents for viewing, printing, or exporting query
results, but cannot modify these documents. It also includes everything found
in the Personal Edition, and can submit jobs to IQ/SmartServer.
IQ/Objects Personal Edition: Provides the ability for users to submit queries
for already-defined documents and view, print, export and save the results, but
cannot modify these documents. Personal Edition includes a DDE Interface and a
rich command line file option set, and can submit jobs to IQ/SmartServer.
IQ/SmartServer: IQ/SmartServer resides on either a Windows NT server, or HP-UX,
IBM AIX, or Sun SOLARIS server. IQ/Objects users can off-load time-consuming or
repetitive queries and reports to IQ/SmartServer. Users can schedule these
processes to run at off-peak hours and direct IQ/SmartServer to send the final
report to a variety of formats. One of the supported output options is HTML.
HTML reports can be directed automatically to Internet/Intranet web servers for
viewing and printing via industry-standard web browsers.
IQ/Vision: IQ/Vision is an OLAP analysis tool providing users with the ability
to analyze summarized data in a multidimensional format. Without any
programming the user can drill up and down along hierarchies, pivot x-and-y
axis, nest dimensions, and perform what-if analysis. Additionally the user can
save different views or ""slices" of data and provide a ""briefing book" format
to other IQ/Vision users.
IQ/VisionServer: IQ/VisionServer includes all of the functionality of
IQ/SmartServer and supports the same server platforms. It also provides data
access, dimension definition and the scheduling facilities to automate the OLAP
date staging process including the creation of multidimensional data sets.
IQ/WebPak: IQ/WebPak includes applets and controls which allows users from
within their browsers to manage reporting jobs and view results in the same rich
format as the client/server products. It also includes facilities to control
database logon when running reports dynamically from a Web browser
9
<PAGE> 10
SCHEDULE B
License fees shall be paid to IQSC according to the following schedule:
I. Sales to Existing Reseller Customer (no IQSC Sales Force Involvement)
Per copy license fees for Licensor Products will be computed at 50% of IQ List
Price for Products listed below.
II. Sales to New Customers (Utilizing IQSC Sales Force)
In all sales in which the IQSC sales force is utilized in a joint sales effort
to a new customer, 100% of the license fees related to the Software listed
below will be payable directly to IQSC. In such cases, Reseller shall be
entitled to a finder's fee equal to 50% of total license fees related to the
Software. Said fee shall be payable to Reseller upon receipt of payment for
license fees by IQSC.
<TABLE>
IQSC Sales List
---------------
<S> <C>
Per Copy
License Fees
IQ/ Objects
Personal Edition $250
Query Edition $495
Reporting Edition $895
Administrator Edition $995
IQ/Vision
User Edition $795
IQ/SmartServer
UNIX/NT $12,500 Single Processor NT or Machine Class 3-8
$17,500 Qual Processor NT or Machine Class 9-11
$25,000 Qual Processor NT or Machine Class 12-14
$37,500 Machine Class 15-17
IQ/Vision Server
UNIX/NT $20,000 Single Processor NT or Machine Class 3-8
$27,500 Qual Processor NT or Machine Class 9-11
$35,000 Qual Processor NT or Machine Class 12-14
$50,000 Machine Class 15-17
</TABLE>
NOTE: In the event that a large licensing agreement involves unusual pricing
then IQSC and Reseller will negotiate in good faith a different royalty split.
10
<PAGE> 11
Machine Classifications
The attached document "IQ SmartServer--Machine Classification List" contains the
machine classes referenced above. Appropriate classifications for machines not
listed must be obtained from IQSC before sublicensing the Software.
MACHINE CLASSIFICATION LIST
HEWLETT-PACKARD
Workstations(A)
3 705, 710 720, 730, 750
Servers(B)
5 705
6 807S, F10, E25
7 710, 817S, 822S, F20, E35
8 715, H20, B45, D200
9 720, 827S, 842S, F30, E55, D210,
K-100
10 725, 730, 743, 837S, G30, H30, I30
11 735, 847S, 852S, G40, H40, I40,
D250(1AP), D350 (1AP), I200 (1-2APs) K-200 (1-2APs)
12 750, 755, 857S, 860S, 865S, G50,
H50, I50, D250 (2APs), D350 (2APs),
J210 (1-2APs) K-200 (3-4APs),
K-400 (1-2APs)
13 857S, 890 (1-2APs), T500 (1-4 APs),
G60, H60, I60, K-400 (3-4APs)
14 877S, 870S-300/400, 890 (3-4APs),
T500 (5-8SAPs), G70, H70, I70
15 887, T500 (9-12APs)
16 897, T500 (13+APs)
12 D270
13 D370
11 K210 (1-2 APs)
12 K210 (3-4 APs)
12 K220 (1-2 APs)
13 K220 (3-4 APs)
12 K250 (1-2 APs)
13 K250 (3-4 APs)
13 K260 (1-2 APs)
14 K260 (3-4 APs)
12 K410 (1-2 APs)
13 K410 (3-4 APs)
12 K420 (1-2 APs)
13 K420 (3-4 APs)
13 K450 (1-2 APs)
14 K450 (3-4 APs)
14 K460 (1-2 APs)
15 K460 (3-4 APs)
IBM RS6000
Workstations (A)
3 POWERstation 22X, 23X, 24X, 25X
Servers (B)
5 POWERserver/station 22X, 23X
6 POWERserver/station 320H, 24X, 25X
7 POWERserver/station 340, 340H, 350,
355, C10, C20, E20
8 POWERserver/station 36X, 37X, 520H,
53X, 380, 390, 3AT, 3BT, F30, E30
9 POWERserver/station 550, 550E, 50L,
G30, (1-2APs)
10 POWERserver/station 560, 560F, 570,
G30 (3-4APs)
11 POWERserver/station 580, 58H, 590,
59H, R10, J30 (2APs)
12 POWERserver 950, J30 (4APs)
13 POWERserver 960, 970, J30 (6APs)
14 POWERserver 980, 990, 980B, R24,
J30 (8APs)
6 43P-100
6 43P-120
6 43P-133
10 F40
8 39H
10 G40 (1-2 APs)
11 G40 (3-4 APs)
11 591
12 J40 (2 APs)
13 J40 (4 APs)
14 J40 (6 APs)
15 J40 (8 APs)
13 R20, R21
14 R24
11 R30 (2 APs)
11
<PAGE> 12
12 R30 (4 APs)
13 R30 (6 APs)
14 R30 (8 APs)
12 R40 (2 APs)
13 R40 (4 APs)
14 R40 (6 APs)
15 R40 (8 APs)
SUN MICROSYSTEMS
Workstations (A)
3 SPARCstation 2, IPC, IPX, ELC
Servers (B)
8 SPARCserver 360
11 SPARCserver 630, 650, 660
12 SPARCserver 670, 690
6 SPARCserver 10 Model 20
7 SPARCserver 10 Model 30
8 SPARCserver 10 Model 40, 41
9 SPARCserver 10 Model 51, 52, 402
10 SPARCserver 10 Model 54, 502, 512
7 SPARCclassic Server
8 SPARCserver 5 Model 70, 85
9 SPARCserver 20 Model 50, 51, 61, 71
10 SPARCserver 20 Model 502, 612
11 SPARCserver 20 Model 514
10 SPARCserver 1000c (2CPUs)
11 SPARCserver 1000c (4CPUs)
12 SPARCserver 1000c (8CPUs)
11 SPARCcluster 1 (4CPUs)
12 SPARCcluster 1 (8CPUs)
13 SPARCcluster 1 (12CPUs)
14 SPARCcluster 1 (16CPUs)
12 SPARCcenter 2000 (4CPUs)
13 SPARCcenter 2000 (8CPUs)
14 SPARCcenter 2000 (9-16CPUs)
15 SPARCcenter 2000 (17-20CPUs)
8 Sun Ultra Enterprise 1 Model 140
8 Sun Ultra Enterprise 1 Model 170
9 Sun Ultra Enterprise 1 Model 170E
10 Sun Ultra Enterprise 2
9 Sun Ultra Enterprise 150
11 Sun Ultra Enterprise 3000 (1-3 APs)
12 Sun Ultra Enterprise 3000 (4-6 APs)
13 Sun Ultra Enterprise 4000 (1-7 APs)
14 Sun Ultra Enterprise 4000 (8-14 APs)
13 Sun Ultra Enterprise 5000 (1-7 APs)
14 Sun Ultra Enterprise 5000 (8-14 APs)
15 Sun Ultra Enterprise 6000 (1-10 APs)
16 Sun Ultra Enterprise 6000 (11-20 APs)
17 Sun Ultra Enterprise 6000 (21-30 APs)
NT SERVERS
5 NT with 1 Processor
10 NT with 2 Processors
12 NT with 4 Processors
(A) A workstation is a single user Unix machine connected via a network to a
server machine.
(B) A server is (1) a machine supporting terminals connected via asynchronous
connections and/or (2) a server is a machine that services one or more users on
workstations.
12
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Information Advantage, Inc. of our report
dated February 20, 1998 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 19, 1998
<PAGE> 1
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, No. 333_______) and related Prospectus of
Information Advantage, Inc., dated August 21, 1998 and to the incorporation by
reference therein of our report dated February 20, 1998, with respect to the
consolidated financial statements and schedule of IQ Software Corporation
included in its Annual Report (Form 10-K) for the year ended January 31, 1998,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Atlanta, Georgia
August 20, 1998
<PAGE> 1
PROXY PROXY
INFORMATION ADVANTAGE, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Larry J. Ford and Donald W. Anderson, and
each of them singly, with full power of substitution, as proxies to vote all
shares of Common Stock of Information Advantage, Inc., a Delaware corporation
(the "Company"), which the undersigned is entitled to vote at the Special
Meeting of Stockholders to be held at the Marquette Hotel, 710 Marquette Avenue,
Minneapolis, MN on September 23, 1998 at 10:00 a.m., local time, and any
postponements or adjournments thereof. The proxies are being directed to vote as
specified on the reverse side hereof or, if no specification is made, FOR the
merger proposal and in accordance with their discretion on such other matters
that may properly come before the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER PROPOSAL
[X] Please mark your vote as in this example
Approval of the issuance of shares of Company Common Stock, par value $.01
per share, pursuant to the terms of an Agreement and Plan of Merger
("Agreement") dated June 29, 1998, by and among the Company, IQ Software
Corporation, a Georgia corporation ("IQ") and IAC Merger Corp., a Georgia
corporation and a wholly owned subsidiary of the Company ("Merger Sub")
FOR
------ AGAINST
------ ABSTAIN
------
(Continued and to be signed on reverse side)
<PAGE> 2
(Continued from other side)
In their discretion, the proxies may vote on any other matters that may properly
come before the Meeting or any postponement or adjournment thereof.
This proxy, when properly
executed, will be voted in the
manner directed herein by the
undersigned stockholder(s). If no
direction is given, the proxy will
be voted FOR approval of the
Agreement. Attendance of the
undersigned at the Meeting or at
any adjournment thereof will not
be deemed to revoke this proxy
unless the undersigned shall
revoke this proxy in writing or
shall deliver a subsequently dated
proxy to the Secretary of the
Company or shall vote in person at
the Meeting.
PLEASE FILL IN DATE, SIGN AND
RETURN THIS PROXY IN THE ENCLOSED
POST-PAID RETURN ENVELOPE.
Date:
----------------------------------,
1998
----------------------------------
(Signature)
----------------------------------
(Signature)
NOTE: PLEASE SIGN EXACTLY AS NAME
APPEARS HEREIN. IF THE STOCK
IS REGISTERED IN THE NAMES
OF TWO OR MORE PERSONS, EACH
SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES,
GUARANTORS, ATTORNEYS AND
CORPORATE OFFICERS SHOULD
ADD THEIR TITLES.
<PAGE> 1
PROXY PROXY
IQ SOFTWARE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles R. Chitty and J. Kent Elmer, and each of
them singly, with full power of substitution, as proxies to vote all shares of
Common Stock of IQ Software Corporation, a Georgia corporation (the "Company"),
which the undersigned is entitled to vote at the Special Meeting of Stockholders
to be held at the Company's principal executive offices located at 3295 River
Exchange, Suite 550, Norcross, GA on September 23, 1998 at 10:00 a.m., local
time, and any postponements or adjournments thereof. The proxies are being
directed to vote as specified on the reverse side hereof or, if no specification
is made, FOR the merger proposal and in accordance with their discretion on such
other matters that may properly come before the Meeting.
The Board of Directors recommends a vote FOR the approval of the Plan of Merger.
(Continued and to be signed on reverse side)
<PAGE> 2
/X/ Please mark your
vote as in this
example
FOR AGAINST ABSTAIN
Approval of an Agreement and Plan of Merger (the / / / / / /
"Agreement") dated June 29, 1998, by and among the
Company, Information Advantage, Inc., a Delaware
corporation ("IA"), and IAC Merger Corp., a Georgia
corporation and a wholly owned subsidiary of IA
("Merger Sub").
In their discretion, the proxies may vote on any other matters that may properly
come before the Meeting or any postponement or adjournment thereof.
This proxy, when properly executed, will
be voted in the manner directed herein by
the undersigned stockholder(s). If no
direction is given, the proxy will be
voted FOR approval of the Agreement.
Attendance of the undersigned at the
Meeting or at any adjournment thereof
will not be deemed to revoke this proxy
unless the undersigned shall revoke this
proxy in writing or shall deliver a
subsequently dated proxy to the Secretary
of the Company or shall vote in person at
the Meeting.
PLEASE FILL IN DATE, SIGN AND RETURN THIS
PROXY IN THE ENCLOSED POST-PAID RETURN
ENVELOPE.
SIGNATURE(S)_________________________________________ DATE _______________, 1998
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREIN. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARANTORS, ATTORNEYS AND CORPORATE OFFICERS
SHOULD ADD THEIR TITLES.
