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Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-72677
2,750,000 Shares
[INFORMATICA LOGO -- Caption: POWERING THE INTELLIGENT ENTERPRISE]
INFORMATICA CORPORATION
Common Stock
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Prior to this offering, there has been no public market for our common
stock. Our common stock has been approved for listing on The Nasdaq Stock
Market's National Market under the symbol "INFA."
The underwriters have an option to purchase a maximum of 250,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS INFORMATICA
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Per Share............................................ $16.00 $1.12 $14.88
Total................................................ $44,000,000 $3,080,000 $40,920,000
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Delivery of the shares of common stock will be made on or about May 4,
1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
BANCBOSTON ROBERTSON STEPHENS
SOUNDVIEW TECHNOLOGY GROUP
FAC/EQUITIES
Prospectus dated April 28, 1999.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 3
Risk Factors......................... 5
Use of Proceeds...................... 15
Dividend Policy...................... 15
Capitalization....................... 15
Dilution............................. 17
Selected Consolidated Financial
Data............................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 32
Management........................... 48
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Certain Transactions................. 57
Principal Stockholders............... 59
Description of Capital Stock......... 61
Shares Eligible For Future Sale...... 64
Underwriting......................... 66
Notice to Canadian Residents......... 68
Legal Matters........................ 69
Experts.............................. 69
Additional Information............... 69
Index to Consolidated Financial
Statements......................... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
Informatica(R) and PowerMart(R) are our registered trademarks.
Additionally, PowerCenter(TM), PowerConnect(TM), PowerPlugs(TM) and
PowerPartner(TM) are our trademarks. This prospectus contains other product
names and trade names and trademarks of Informatica and of other organizations.
UNTIL MAY 23, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
The following summary highlights information that we present more fully in
the rest of this prospectus. Unless otherwise indicated, the information in this
prospectus reflects the conversion of all outstanding shares of preferred stock
effective automatically upon the closing of this offering and assumes no
exercise of the underwriters' over-allotment option.
INFORMATICA CORPORATION
We are a leading provider of software solutions that help large companies
deploy, manage, maintain and grow systems that enable more effective business
decision making.
As companies have made significant investments over the past few decades in
applications and infrastructure that automate basic business processes, they
have amassed volumes of data stored in underlying databases. We expect that
continued growth in e-business and Internet applications will generate
ever-increasing amounts of data. As a result, the challenge is no longer how to
capture information effectively, but rather how to consolidate, distill and
channel that information to those business managers, decision-makers, customers
and suppliers who can leverage business insight gained from that information to
drive revenue growth and profitability.
We believe this demand for business insight is driving growth in the market
for software products that allow decision-makers to extract data from their
computer systems, and creating an emerging market for analytic applications. By
themselves, however, these products and applications cannot access historical,
consolidated data located in multiple transaction data systems throughout a
company's enterprise. To take full advantage of these analytic resources,
companies need scalable software products that can help them efficiently deploy
and manage a wide range of business intelligence and analytic applications. They
need a software solution that will allow them to gain better insight into
business trends and to make more accurate and informed business decisions.
We provide a highly adaptable, functionally rich software solution for
deploying, managing and maintaining systems that enable more effective business
decision making. These systems can help companies gain competitive advantage
through analysis of customer and heterogeneous transactional data. Our software
products help streamline and simplify the deployment, management and maintenance
of these systems by providing a packaged, off-the-shelf solution. Our core
software product is PowerCenter, our enterprise data integration hub, which
automates the process of retrieving, organizing and consolidating data from
multiple transaction data systems. Our other key product is PowerMart, which can
be deployed in conjunction with PowerCenter, for building and managing
line-of-business data marts and analytic applications.
Our strategy is to provide the leading software solution, or platform, on
which analytic applications are deployed. The key elements of our strategy
include expanding our position as a leading independent software vendor,
targeting enterprise deployments within existing customer sites, leveraging the
installed base of enterprise resource planning applications, expanding strategic
partnerships and sales through indirect channels and increasing our
technological lead.
We have more than 350 customers primarily within large, global companies
across a range of industries including financial services, insurance,
manufacturing, health care and telecommunications. We market and sell software
and services through a direct sales force in the United States, the United
Kingdom and Germany, as well as through distributors.
Our principal executive offices are located at 3350 W. Bayshore Road, Palo
Alto, California 94303, and our telephone number is (650) 687-6200. We were
incorporated in California in February 1993 and reincorporated in Delaware in
April 1999.
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THE OFFERING
Common stock offered by Informatica............ 2,750,000 shares
Common stock to be outstanding after this
offering....................................... 14,340,327 shares(1)
Use of proceeds................................ For general corporate
purposes, including working
capital.
Nasdaq National Market symbol.................. INFA
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
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CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues............ $ 2,060 $12,186 $28,895 $ 5,638 $10,337
Total cost of revenues.... 158 2,353 5,125 986 1,852
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Gross profit.............. 1,902 9,833 23,770 4,652 8,485
Loss from operations...... (4,556) (6,985) (8,176) (2,310) (845)
Net loss.................. (4,548) (6,764) (7,915) (2,229) (968)
Pro forma basic and
diluted net loss per
share(2)............... $ (0.71) $ (0.08)
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Shares used in calculation
of pro forma basic and
diluted net loss per
share(1)(2)............ 11,133 11,470
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MARCH 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 6,783 $ 6,783 $46,914
Working capital (deficit).................. (3,122) (3,122) 37,009
Total assets............................... 11,138 11,138 51,269
Long-term obligations, net of current
portion................................. 217 217 217
Redeemable convertible preferred stock..... 17,586 -- --
Total stockholders' equity (deficit)....... (20,299) (2,713) 37,418
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(1) Based on the number of shares of common stock outstanding (on a pro forma
basis to give effect to the conversion of all shares of preferred stock upon
completion of this offering) as of March 31, 1999. Excludes 3,572,413 shares
of common stock issuable upon exercise of options outstanding as of March
31, 1999 having a weighted average exercise price of $5.06 and 1,791,529
additional shares authorized for issuance under our stock plans. See
"Management -- Stock Plans" and Note 4 of Notes to Consolidated Financial
Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net income (loss) per share.
(3) Adjusted to reflect the sale of 2,750,000 shares in this offering at the
initial public offering price of $16.00 per share, less underwriters'
discounts and commissions and estimated offering expenses.
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RISK FACTORS
In addition to the other information contained in this prospectus,
investors should carefully consider the following risk factors in evaluating an
investment in our common stock.
WE CANNOT ASSURE YOU THAT WE WILL EVER BE PROFITABLE BECAUSE WE HAVE OPERATED
OUR BUSINESS FOR ONLY A RELATIVELY LIMITED PERIOD OF TIME
We were incorporated in 1993 and therefore have a limited operating history
upon which investors can evaluate our operations, products and prospects. We
have incurred significant net losses since our inception, and it is possible we
may never achieve profitability. We incurred net losses of $4.5 million, $6.8
million, $7.9 million and $968,000 in 1996, 1997, 1998 and the three months
ended March 31, 1999, respectively. As of March 31, 1999, we had an accumulated
deficit of $20.7 million. In addition, we intend to increase our operating
expenses significantly in 1999; therefore, our operating results will be
adversely affected if revenues do not increase significantly.
THE EXPECTED FLUCTUATION OF OUR QUARTERLY RESULTS COULD CAUSE OUR STOCK PRICE TO
EXPERIENCE SIGNIFICANT FLUCTUATIONS OR DECLINES
Our future quarterly operating results have fluctuated in the past and are
likely to do so in the future. These fluctuations could cause our stock price to
also significantly fluctuate or experience declines. Some of the factors which
could cause our operating results to fluctuate include:
- the size and timing of customer orders, which can be affected by customer
order deferrals in anticipation of future new product introductions or
product enhancements and customer budgeting and purchasing cycles;
- market acceptance of our products;
- the length and variability of our sales cycle for our products;
- introduction or enhancement of our products or our competitors' products
and changes in our or our competitors' pricing policies;
- our ability to develop, introduce and market new products on a timely
basis;
- the mix of our products and services sold and the mix of distribution
channels utilized;
- our success in expanding our sales and marketing programs;
- technological changes in computer systems and environments; and
- general economic conditions, which may affect our customers' capital
investment levels.
Our product revenues are not predictable with any significant degree of
certainty. Historically, we have recognized a substantial portion of our
revenues in the last month of the quarter. If customers cancel or delay orders,
it can have a material adverse impact on our revenues and results of operations
for the quarter. To the extent any such cancellations or delays are for large
orders, this impact will be greater. To the extent that the average size of our
orders increases, customers' cancellations or delays of orders will more likely
have a material adverse impact on our revenues and results of operations.
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Our quarterly product license revenues are difficult to forecast because we
historically have not had a substantial backlog of orders, and therefore
revenues in each quarter are substantially dependent on orders booked and
shipped in that quarter. Our product license revenues are also difficult to
forecast because the market for our products is rapidly evolving, and our sales
cycles, which may last many months, vary substantially from customer to customer
and vary in general due to a number of factors over which we have little or no
control. Nonetheless, our short-term expense levels are relatively fixed and
based, in part, on our expectations of future revenues. The difficulty we have
in predicting our quarterly revenue means revenues shortfalls are likely to
occur at some time, and our inability to adequately reduce short-term expenses
means such shortfalls will affect not only our revenue, but also our overall
business, results of operations and financial conditions.
Due to the uncertainty surrounding our revenues and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. While we achieved significant
quarter-to-quarter revenue growth in 1997 and 1998, you should not take these
recent quarterly results to be indicative of our future performance. We do not
expect to sustain this same rate of sequential quarterly revenue growth in
future periods. Moreover, it is likely that in some future quarter, our
operating results will fall below the expectations of stock analysts and
investors. If this happens, the price of our common stock may fall.
IF THE MARKET IN WHICH WE SELL OUR PRODUCTS AND SERVICES DOES NOT GROW AS WE
ANTICIPATE, IT WILL ADVERSELY AFFECT OUR REVENUES
The market for software solutions that enable more effective business
decision making by helping companies aggregate and utilize data stored
throughout an organization is relatively new and still emerging. Substantially
all of our revenues are attributable to the sale of products and services in
this market. If this market does not grow at the rate we anticipate, our
business, results of operations and financial condition will be adversely
affected. One of the reasons this market might not grow as we anticipate is that
many companies are not yet fully aware of the benefits of using these software
solutions to help make business decisions or the benefits of our specific
product solutions. As a result, we believe large companies to date have deployed
these software solutions to make business decisions on a relatively limited
basis. Although we have devoted and intend to continue to devote significant
resources promoting market awareness of the benefits of these solutions, our
efforts may be unsuccessful or insufficient.
WE EXPECT SEASONAL TRENDS TO CAUSE OUR QUARTERLY REVENUES TO FLUCTUATE
We have experienced, and expect to continue to experience, seasonality with
respect to product license revenues. In recent years, there has been a
relatively greater demand for our products in the fourth quarter than in each of
the first three quarters of the year, particularly the first quarter. As a
result, we have historically experienced relatively higher bookings in the
fourth quarter and relatively lighter bookings in the first quarter. While some
of this effect can be attributed to the rapid growth of revenues in recent
years, we believe that these fluctuations are caused by customer buying patterns
(often influenced by year-end budgetary pressures) and the efforts of our direct
sales force to meet or exceed year-end sales quotas. In addition, European sales
may tend to be relatively lower during the summer months than during other
periods. We expect that seasonal trends will continue for the foreseeable
future. This seasonal impact may increase as we continue to focus our sales
efforts on large corporations.
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BECAUSE WE SELL ONLY TWO MAIN PRODUCTS, IF EITHER DOES NOT ACHIEVE BROAD MARKET
ACCEPTANCE, OUR REVENUES WILL BE ADVERSELY AFFECTED
In 1998, substantially all of our revenues were derived from our
PowerCenter and PowerMart products and related services. We expect revenues
derived from these products to comprise substantially all of our revenues for
the foreseeable future. Even if the emerging software market in which these
products are sold grows substantially, if either of these products does not
achieve market acceptance, our revenues will be adversely affected. Market
acceptance of our products could be materially adversely affected if, among
other things, applications suppliers integrate their products to such a degree
that the utility of the data integration functionality that our products provide
is minimized or rendered unnecessary.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
We believe our future success will depend upon our ability to attract and
retain highly skilled personnel, including Gaurav S. Dhillon, our Chief
Executive Officer, and Diaz H. Nesamoney, our President, and other key members
of management. We currently do not have any key-man life insurance relating to
our key personnel, and these employees are at-will and not subject to employment
contracts. We may not be successful in attracting, assimilating and retaining
key personnel in the future.
As we seek to expand our operations, the hiring of qualified sales and
technical personnel will be difficult due to the limited number of qualified
professionals. Competition for these types of employees is intense. We have in
the past experienced difficulty in recruiting qualified sales and technical
personnel. Failure to attract, assimilate and retain personnel, particularly
sales and technical personnel, would have a material adverse effect on our
business, results of operations and financial condition.
OUR MARKET IS HIGHLY COMPETITIVE
The market for our products is highly competitive, rapidly evolving and
subject to rapidly changing technology. Many of our competitors have longer
operating histories, substantially greater financial, technical, marketing or
other resources, or greater name recognition than we do. Our competitors may be
able to respond more quickly than we can to new or emerging technologies and
changes in customer requirements. Competition could seriously impede our ability
to sell additional products and services on terms favorable to us. Our current
and potential competitors may develop and market new technologies that render
our existing or future products obsolete, unmarketable or less competitive. We
believe we currently compete more on the basis of our products' functionality
than on the basis of price. If our competitors develop products with similar or
superior functionality, we may have difficulty competing on the basis of price.
Our current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with other solution
providers, thereby increasing the ability of their products to address the needs
of our prospective customers. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
channel or strategic partners, thereby limiting our ability to sell products
through these channels. Competitive pressures could reduce our market share or
require us to reduce our prices, either of which could materially and adversely
affect our business, results of operations or financial condition.
We compete principally against providers of decision support, data
warehousing and enterprise application software. Such competitors include Acta
Technology, Inc., Ardent
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Software, Inc., Broadbase Information Systems, Inc., Epiphany Marketing
Software, Evolutionary Technologies, Inc., Information Builders, Inc., PLATINUM
technology, inc. and Sagent Technology, Inc. In addition, we compete or may
compete against database vendors that currently offer, or may develop, products
with functionalities that compete with our solutions. These products typically
operate specifically with these competitors' proprietary databases. Such
competitors include IBM Corporation, Microsoft Corporation and Oracle
Corporation. See "Business -- Competition."
IF WE DO NOT MAINTAIN AND STRENGTHEN OUR RELATIONSHIPS WITH OUR CHANNEL AND
STRATEGIC PARTNERS, OUR ABILITY TO GENERATE REVENUE WILL BE ADVERSELY AFFECTED
We believe that our ability to increase the sales of our products and our
future success will depend in part upon maintaining and strengthening successful
relationships with our current or future partners. In addition to our direct
sales force, we rely on established relationships with a variety of channel
partners, such as systems integrators, resellers and distributors, for
marketing, licensing and support of our products in the United States and
internationally. We also rely on relationships with strategic technology
partners, such as enterprise resource planning providers, for the promotion of
our solutions. In particular, our ability to market our products depends
substantially on our relationships with such significant partners as Cambridge
Technology Partners, KPMG, PeopleSoft, PricewaterhouseCoopers and SAP. In
addition, our channel partners may offer products of several different
companies, including, in some cases, products that compete with our products. We
have limited control, if any, as to whether these strategic partners devote
adequate resources to promoting and selling our products.
We may not be able to maintain our channel or strategic partnerships or
attract sufficient additional channel or strategic partners who are able to
market our products effectively or who are qualified to provide timely and
cost-effective customer support and service. Further, we can give no assurance
that our relationships with our channel and strategic partners will generate
enough revenue to offset the significant resources used to develop these
channels.
THE LENGTHY SALES CYCLE FOR OUR PRODUCTS MAKES OUR REVENUES SUSCEPTIBLE TO
FLUCTUATIONS
Our sales cycle is generally long because the expense, complexity, broad
functionality and company-wide deployment of our products typically require
executive-level approval for investment in our products. In addition, to
successfully sell our products, we frequently must educate our potential
customers about the full benefits of our products, which can require significant
time. Due to these factors, the sales cycle associated with the purchase of our
products is subject to a number of significant risks over which we have little
or no control, including:
- customers' budgetary constraints and internal acceptance review
procedures;
- the timing of budget cycles;
- concerns about the introduction of our or our competitors' new products;
or
- product enhancements and potential downturns in general economic
conditions.
If our sales cycle lengthens unexpectedly, it could adversely affect the timing
of our revenues. Our sales cycle may lengthen as we continue to focus our sales
efforts on large corporations. To the extent that potential customers divert
resources and attention to Year 2000 issues, the sales cycle could be further
lengthened.
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DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS
We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
administrative and operational infrastructure. If we are unable to manage this
growth effectively, our business, results of operations or financial condition
may be materially adversely affected. We increased the number of our employees
from 50 at December 31, 1996, to approximately 200 at March 31, 1999. Our
revenues increased from $2.1 million in 1996 to $28.9 million in 1998. Our
ability to manage our operations and growth effectively requires us to continue
to improve our operational, financial and management controls, reporting systems
and procedures and hiring programs. We may not be able to successfully implement
improvements to our management information and control systems in an efficient
or timely manner and may discover deficiencies in existing systems and controls.
TECHNOLOGICAL ADVANCES AND EVOLVING INDUSTRY STANDARDS COULD ADVERSELY IMPACT
OUR FUTURE PRODUCT SALES
The market for our products is characterized by continuing technological
development, evolving industry standards and changing customer requirements. The
introduction of products by our direct competitors or others embodying new
technologies, the emergence of new industry standards or changes in customer
requirements could render our existing products obsolete, unmarketable or less
competitive. In particular, an industry-wide adoption of uniform open standards
across heterogeneous analytic applications could minimize the importance of the
integration functionality of our products and materially adversely affect the
competitiveness and market acceptance of our products. Our success depends upon
our ability to enhance existing products, to respond to changing customer
requirements and to develop and introduce in a timely manner new products that
keep pace with technological and competitive developments and emerging industry
standards. We have in the past experienced delays in releasing new products and
product enhancements and may experience similar delays in the future. For
example, the upgrade to PowerMart 3.5, which was scheduled to be released in
December 1997, was not shipped until February 1998. As a result, some of our
customers deferred purchasing the PowerMart product until this upgrade was
released. Future delays or problems in the installation or implementation of our
new releases may cause customers to forego purchases of our products and
purchase those of our competitors instead. Failure to develop and introduce new
products, or enhancements to existing products, in a timely manner in response
to changing market conditions or customer requirements, will materially and
adversely affect our business, results of operations and financial condition.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO GREATER INTELLECTUAL PROPERTY,
COLLECTIONS, REGULATORY AND OTHER RISKS
International revenues accounted for 8%, 7% and 13% of our total
consolidated revenues in 1996, 1997 and 1998, respectively. Our international
business is subject to a number of risks, including the following:
- greater difficulty in protecting intellectual property;
- greater difficulty in staffing and managing foreign operations;
- greater risk of uncollectible accounts;
- longer collection cycles;
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- potential unexpected changes in regulatory practices and tariffs;
- potential unexpected changes in tax laws;
- sales seasonality;
- the impact of fluctuating exchange rates between the U.S. dollar and
foreign currencies in markets where we do business; and
- general economic and political conditions in these foreign markets.
It is difficult to predict the extent of the future impact of these
conditions. These factors and other factors could have a material adverse effect
on our future international revenues and consequently on our business, results
of operations and financial condition.
IF OUR PRODUCTS CONTAIN SIGNIFICANT DEFECTS, THESE DEFECTS COULD CAUSE US TO
LOSE REVENUE AND EXPOSE US TO PRODUCT LIABILITY CLAIMS
The software products we offer are inherently complex and, despite
extensive testing and quality control, have in the past and may in the future
contain errors or defects, especially when we first introduce them. These
defects and errors could cause damage to our reputation, loss of revenue,
product returns, order cancellations or lack of market acceptance of our
products. Accordingly, these defects and errors could have a material adverse
effect on our business, results of operations or financial condition. We have in
the past and may in the future need to issue corrective releases of our software
products to fix these defects or errors. For example, we issued corrective
releases to fix problems with our PowerMart 4.0 product released in the first
quarter of 1998. As a result, we had to allocate significant customer support
resources to address these problems.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in our
license agreements may not be effective as a result of existing or future
national, federal, state or local laws or ordinances or unfavorable judicial
decisions. Although we have not experienced any product liability claims to
date, sale and support of our products entails the risk of such claims, which
could be substantial in light of the use of our products in enterprise-wide
applications. If a claimant successfully brings a product liability claim
against us, it could have a material adverse effect on our business, results of
operations or financial condition.
OUR INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. It is possible that our pending patent applications will
not be allowed or that competitors will successfully challenge the validity or
scope of our allowed patent or any future allowed patents. Our patents alone may
not provide us with any significant competitive advantage.
Third parties could copy or otherwise obtain and use our products or
technology without authorization, or develop similar technology independently.
It is difficult for us to police unauthorized use of our products, and, although
we are unable to determine the extent to which piracy of our software products
exists, software piracy is a prevalent problem in our industry in general.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. The protection of our proprietary rights
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may be inadequate and our competitors could independently develop similar
technology, duplicate our products or design around any patents or other
intellectual property rights we hold.
As is common in the software industry, we may from time to time receive
notices from third parties claiming infringement by our products of third-party
patent and other proprietary rights. On April 7, 1999, we were notified by
another company that it is evaluating our products to determine whether our
products infringe its U.S. patent and has requested that we enter into
discussions with them as to whether it is necessary or appropriate for us to
obtain a license. This company has filed litigation against one of our
competitors, alleging infringement of its patent. Third parties, including the
company that has contacted us regarding our products, could claim that our
current or future products infringe their patent or other proprietary rights.
Any claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements, any of which could have a material adverse effect upon our
business, financial condition and operating results. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us, or at
all. Legal action claiming patent infringement could be commenced against us,
and we may not prevail in such litigation given the complex technical issues and
inherent uncertainties in patent litigation. Moreover, the cost of defending
patent litigation could be substantial, regardless of the outcome. In the event
a patent claim against us was successful and we could not obtain a license on
acceptable terms or license a substitute technology or redesign to avoid
infringement, our business, financial condition and operating results would be
materially adversely affected. See "Business -- Intellectual Property and Other
Proprietary Rights."
YEAR 2000 ISSUES COULD NEGATIVELY AFFECT OUR BUSINESS
Many currently installed computer systems are not capable of distinguishing
21(st) century dates from 20(th) century dates. As a result, beginning on
January 1, 2000, computer systems and software used by many companies and
organizations in a wide variety of industries, including technology,
transportation, utilities, finance and telecommunications, will produce
erroneous results or fail unless they have been modified or upgraded to process
date information correctly. Year 2000 compliance efforts may involve significant
time and expense, and uncorrected problems could materially adversely affect our
business, financial condition or operating results. Although we believe the
current versions of our software products are Year 2000 compliant, our products
operate across the enterprise with multiple, heterogeneous third party software
systems. We may therefore face claims based on Year 2000 issues arising from the
integration and operation of our products within an enterprise system. We may
also experience reduced sales of our products as potential customers reduce
their budgets for systems that enable more effective business decisions due to
increased expenditures on their own Year 2000 compliance efforts. In addition,
during the remainder of 1999, our existing or potential customers may choose to
defer new software product purchases until after January 1, 2000 to avoid the
possibility of introducing any new Year 2000 issues. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
CERTAIN EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER INFORMATICA
After this offering, our officers, directors and principal stockholders
(i.e., greater than 5% stockholders) will together control approximately 73% of
our outstanding common stock. As a result, these stockholders, if they act
together, will be able to control the
11
<PAGE> 12
management and affairs of Informatica and all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control of Informatica and might affect the
market price of our common stock.
OUR STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY
Prior to this offering, there has been no public market for shares of our
common stock. An active public trading market may not develop following
completion of this offering or, if developed, may not be sustained. The initial
public offering price of the shares of common stock was determined by
negotiation between us and representatives of the underwriters. This price will
not necessarily reflect the market price of the common stock following this
offering. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The market price for the common stock following this offering will be
affected by a number of factors, including the following:
- the announcement of new products or product enhancements by us or our
competitors;
- quarterly variations in our or our competitors' results of operations;
- changes in earnings estimates or recommendations by securities analysts;
- developments in our industry; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. Such factors and fluctuations,
as well as general economic, political and market conditions, may materially
adversely affect the market price of our common stock.
POTENTIAL SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
14,340,327 shares of common stock (based upon shares outstanding as of March 31,
1999), assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants after March 31, 1999. Of these
shares, the 2,750,000 shares sold in this offering will be freely tradable. The
remaining shares of
12
<PAGE> 13
common stock outstanding after this offering will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
----------------------------- ----------------
<S> <C>
The date of this prospectus............................ 0
90 days after the date of this prospectus.............. 10,000
180 days after the date of this prospectus............. 11,546,327
At various times thereafter upon the expiration of
one-year holding periods............................. 34,000
----------
11,590,327
==========
</TABLE>
OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER
Our basic corporate documents and Delaware law contain provisions that
might enable our management to resist a takeover. These provisions might
discourage, delay or prevent a change in the control of Informatica or a change
in our management. Our amended and restated certificate of incorporation filed
in connection with this offering provides that when we are eligible, we will
have a classified board of directors, with each class of directors subject to
re-election every three years. This classified board when implemented will have
the effect of making it more difficult for third parties to insert their
representatives on our board of directors and gain control of Informatica. These
provisions could also discourage proxy contests and make it more difficult for
you and other stockholders to elect directors and take other corporate actions.
The existence of these provisions could limit the price that investors might be
willing to pay in the future for shares of the common stock. For more
information, see "Description of Capital Stock."
CHANGES IN ACCOUNTING STANDARDS COULD AFFECT THE CALCULATION OF OUR FUTURE
OPERATING RESULTS
Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998 and Statement of Position 98-4 effective March 31,
1998. Based on our interpretation of Statement of Position 97-2 and Statement of
Position 98-4, we believe our current revenue recognition policies and
practices, as discussed in "Management's Discussion and Analysis of Financial
Condition and Result of Operations -- Overview," are consistent with Statement
of Position 97-2 and Statement of Position 98-4. The American Institute of
Certified Public Accountants has also issued Statement of Position 98-9 which
will be effective for us for transactions entered into beginning January 1,
2000. However, full implementation guidelines for this standard have not yet
been issued. Once available, such implementation guidelines could lead to
unanticipated changes in our current revenue recognition policies, which changes
could materially adversely affect our business, financial condition or operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Source of Revenues and Revenue Recognition Policy."
AS A NEW INVESTOR YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value. If the
holders of outstanding options or warrants exercise those options or warrants,
you will incur further dilution. See "Dilution."
13
<PAGE> 14
WE HAVE BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING
We currently have no specific plans for using the proceeds of this
offering. As a consequence, we will have broad discretion to allocate a large
percentage of the proceeds to uses which the stockholders may not deem
desirable. See "Use of Proceeds."
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance, or achievements expressed or implied
by such forward-looking statements. Such factors include, among other things,
those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor anyone else
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus.
14
<PAGE> 15
USE OF PROCEEDS
The net proceeds from the sale of shares of our common stock, at the
initial public offering price of $16.00 per share, are estimated to be
approximately $40.1 million (approximately $43.9 million if the underwriters'
over-allotment option is exercised in full), after deducting underwriters'
discounts and commissions and estimated offering expenses.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for our common stock and to facilitate future
access by Informatica to public equity markets. The net proceeds to Informatica
are expected to be used for general corporate purposes, including working
capital. Pending such uses, the net proceeds of this offering will be invested
in investment grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results and current and anticipated cash needs.
CAPITALIZATION
The following table sets forth the capitalization of Informatica as of
March 31, 1999, on the following three bases:
- on an actual basis;
- on a pro forma basis to give effect to the conversion into common stock
of all outstanding shares of redeemable convertible preferred stock and
the filing of our amended and restated certificate of incorporation to
increase the authorized shares of common stock and to adjust the
authorized shares of preferred stock prior to the closing of this
offering; and
- on a pro forma as adjusted basis to give effect to the sale by us of
2,750,000 shares of our common stock offered hereby at the initial public
offering price of $16.00 per share, less underwriters' discounts and
commissions and estimated offering expenses.
15
<PAGE> 16
This table should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Selected Consolidated Financial Data" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ------------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, including current
portion................................. $ 346 $ 346 $ 346
Redeemable convertible preferred stock, no
par value; 8,170,000 shares authorized,
7,940,000 shares issued and outstanding,
(actual); no shares authorized, issued
and outstanding (pro forma and pro forma
as adjusted)............................ 17,586 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value: none
authorized, issued and outstanding
(actual); 2,000,000 shares
authorized, no shares issued or
outstanding (pro forma and pro forma
as adjusted)......................... -- -- --
Common stock, $0.001 par value:
14,770,000 shares authorized,
3,650,327 shares issued and
outstanding, actual; 100,000,000
shares authorized, 11,590,327 shares
issued and outstanding pro forma;
100,000,000 shares authorized,
14,340,327 shares issued and
outstanding, pro forma as
adjusted(1).......................... 1,140 18,726 58,857
Cumulative foreign currency translation
adjustment........................... (16) (16) (16)
Notes receivable from stockholders...... (40) (40) (40)
Deferred compensation................... (711) (711) (711)
Accumulated deficit..................... (20,672) (20,672) (20,672)
-------- -------- --------
Total stockholders' equity
(deficit).................... (20,299) (2,713) 37,418
-------- -------- --------
Total capitalization............ $ (2,367) $ (2,367) $ 37,764
======== ======== ========
</TABLE>
- -------------------------
(1) The number of shares of common stock outstanding set forth in the table
above excludes the following:
- 3,572,413 shares of common stock issuable upon exercise of options
outstanding as of March 31, 1999 having a weighted average exercise
price of $5.06; and
- 1,791,529 additional shares authorized for issuance under our stock
plans.
16
<PAGE> 17
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. Net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after completion of this offering.
At March 31, 1999, our pro forma net tangible book value was approximately
$(2,713,000) or approximately $(0.23) per share. Pro forma net tangible book
value per share represents the amount of our stockholders' equity divided by
11,590,327 shares of common stock (on a pro forma basis to give effect to the
conversion upon completion of this offering of all shares of redeemable
convertible preferred stock). After giving effect to the sale by us of 2,750,000
shares of common stock offered hereby at the initial public offering price of
$16.00 per share (less underwritings' discounts and commissions and estimated
offering expenses), our pro forma as adjusted net tangible book value as of
March 31, 1999 would have been approximately $37,418,000 or approximately $2.61
per share. This represents an immediate increase in net tangible book value of
$2.84 per share to existing stockholders and an immediate dilution in net
tangible book value of $13.39 per share to the purchasers of common stock in
this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share.............. $16.00
Pro forma net tangible book value per share as
of March 31, 1999............................. $(0.23)
Increase per share attributable to new
investors..................................... 2.84
Pro forma as adjusted net tangible book value per
share after this offering.......................... 2.61
------
Dilution per share to new investors.................. $13.39
======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999,
the differences between the existing stockholders and the purchasers of shares
in this offering (at the initial public offering price of $16.00 per share) with
respect to the number of shares purchased from Informatica, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 11,590,327 80.8% $17,951,000 29.0% $ 1.55
New investors(1).......... 2,750,000 19.2 44,000,000 71.0 $16.00
----------- ----- ----------- -----
Total........... 14,340,327 100.0% $61,951,000 100.0%
=========== ===== =========== =====
</TABLE>
The above computations assume no exercise of options after March 31, 1999.
The number of shares outstanding as of March 31, 1999 excludes 3,572,413 shares
of common stock issuable upon exercise of options outstanding as of March 31,
1999 having a weighted average exercise price of $5.06 per share and 1,791,529
additional shares authorized for issuance under our stock plans. To the extent
that outstanding options are exercised, there will be further dilution to new
investors. See "Capitalization," "Management -- Stock Plans" and Note 4 of Notes
to Consolidated Financial Statements.
17
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data and other operating
information as of and for the years ended December 31, 1994, 1995, 1996, 1997
and 1998, are derived from our Consolidated Financial Statements, which have
been audited by Ernst & Young LLP, independent auditors, except that the
statement of operations data for 1994 is unaudited. The consolidated financial
data as of and for the three months ended March 31, 1998 and 1999 were derived
from unaudited financial statements included elsewhere in this prospectus. We
have prepared this unaudited information on the same basis as the audited
Consolidated Financial Statements and have included all adjustments, consisting
only of normal recurring adjustments that we consider necessary for a fair
presentation of our financial position and operating results for such periods.
When you read this selected consolidated financial data, it is important that
you also read the historical Consolidated Financial Statements and related Notes
included in this prospectus, as well as the section of this prospectus related
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
License............................... $ 11 $ 44 $ 1,843 $10,041 $21,298 $ 4,255 $ 7,114
Service............................... 446 545 217 2,145 7,597 1,383 3,223
------- ------- ------- ------- ------- ------- -------
Total revenues................... 457 589 2,060 12,186 28,895 5,638 10,337
Cost of revenues:
License............................... -- -- 34 190 376 28 142
Service............................... 158 180 124 2,163 4,749 958 1,710
------- ------- ------- ------- ------- ------- -------
Total cost of revenues........... 158 180 158 2,353 5,125 986 1,852
------- ------- ------- ------- ------- ------- -------
Gross profit............................ 299 409 1,902 9,833 23,770 4,652 8,485
Operating expenses:
Research and development.............. 132 641 2,119 3,831 7,075 1,613 2,050
Sales and marketing................... 37 203 3,676 10,951 22,235 4,715 6,448
General and administrative............ 91 89 663 2,036 2,636 634 832
------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 260 933 6,458 16,818 31,946 6,962 9,330
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........... 39 (524) (4,556) (6,985) (8,176) (2,310) (845)
Interest income(expense), net........... 2 6 8 221 261 81 27
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes....... 41 (518) (4,548) (6,764) (7,915) (2,229) (818)
Income tax provision.................... -- -- -- -- -- -- (150)
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $ 41 $ (518) $(4,548) $(6,764) $(7,915) $(2,229) $ (968)
======= ======= ======= ======= ======= ======= =======
Pro forma basic and diluted net loss
per share(1).......................... $ (0.71) $ (0.08)
======= =======
Shares used in calculation of pro forma
basic and diluted net loss per
share(1).............................. 11,133 11,470
======= =======
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 27 $ 906 $ 3,023 $ 8,440 $ 6,059 $ 6,783
Working capital (deficit)............... 48 896 3,218 5,040 (2,304) (3,122)
Total assets............................ 48 1,104 5,056 12,692 10,914 11,138
Long-term obligations, net of current
portion............................... -- -- 270 102 217 217
Redeemable convertible preferred
stock................................. -- 1,472 8,593 17,586 17,586 17,586
Total stockholders' equity (deficit).... 48 (469) (5,011) (11,772) (19,469) (20,299)
</TABLE>
- -------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net loss per share.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and our results of
operations should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this prospectus. This
discussion contains forward-looking statements which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of certain factors, including, but
not limited to, those discussed in "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are a leading provider of software solutions that help companies deploy,
manage, maintain and grow systems that enable more effective business decision
making.
Informatica was founded in February 1993. We initially generated revenues
and cash flow through consulting contracts for data extraction and data
warehousing assignments while our engineering team developed our initial
software product. The first design concept for our PowerMart product was
completed in 1994, and we closed our first equity financing shortly afterwards
in 1995. We shipped the first commercial release of PowerMart in May 1996. With
the initial release and early acceptance of PowerMart, we accelerated the
recruitment of personnel, purchased additional operating assets, commenced
marketing our products and substantially invested in building a direct sales
force and a service and support capability.
In 1997, we invested heavily in expanding our business by growing our
product development team, opening a sales office and incorporating a subsidiary
in the United Kingdom. We also expanded our distribution to include original
equipment manufacturer and reseller channels. In 1998, we shipped the first
commercial release of our PowerCenter product. We also incorporated a subsidiary
in Germany in 1998 to further expand our international sales. Our total
headcount increased from 50 to 121 to 173 at year-end 1996, 1997 and 1998,
respectively. These investments contributed to revenue increases from $2.1
million to $12.2 million to $28.9 million in 1996, 1997 and 1998, respectively,
representing growth of 492% from 1996 to 1997 and 137% from 1997 to 1998.
Operating expenses grew from $6.5 million to $16.8 million to $31.9 million in
1996, 1997 and 1998, respectively. Operating expenses as a percentage of
revenues decreased from 313% to 138% to 111% in 1996, 1997 and 1998,
respectively. Our investments in our sales force and infrastructure described
above contributed to net losses of $4.5 million, $6.8 million and $7.9 million
in 1996, 1997 and 1998, respectively.
We sell through direct sales forces in the United Kingdom and Germany and
also through resellers throughout Europe. International total consolidated
revenues from both our direct sales force and foreign indirect channel partners
accounted for 8%, 7% and 13% of our total consolidated revenues for 1996, 1997
and 1998, respectively. Substantially all of our international sales were in
Europe. Sales outside of North America and Europe to date have been less than 1%
of total consolidated revenues during the last three fiscal years, although we
anticipate expanding outside of these two regions in the future. See "Risk
Factors -- We Face Risks from Our International Operations" and Note 8 of Notes
to Consolidated Financial Statements.
20
<PAGE> 21
SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY
We generate revenues from sales of software licenses and services. Our
license revenues are derived from our PowerMart and PowerCenter software
products and, to a much lesser extent, from our PowerConnect and PowerPlugs
software products. We receive software license revenues from licensing our
products directly to end users and indirectly through resellers and original
equipment manufacturers. We receive service revenues from maintenance contracts
and training and consulting services that we perform for customers that license
our products either directly from us or indirectly through resellers.
We recognize license revenues when a noncancelable license agreement has
been signed, the product has been shipped, the fees are fixed and determinable,
collectibility is probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. Vendor-specific objective
evidence is based on the price charged when an element is sold separately. In
the case of an element not sold separately, the price is established by
authorized management. If an acceptance period is required, we recognize revenue
upon customer acceptance or the expiration of the acceptance period. We also
enter into reseller arrangements that typically provide for sublicense fees
based on a percentage of list price. For direct sales, we recognize revenue upon
shipment to the end user and when collectibility is probable. For sales through
resellers, we recognize revenue upon shipment to the reseller and when
collectibility is probable, or upon cash collections based on credit history
with the reseller. Our agreements with our customers and resellers do not
contain product return rights.
We recognize revenues from services, which consist of fees for ongoing
support and product updates, ratably over the term of the contract, typically
one year. Consulting revenues are primarily related to implementation services
performed on a time-and-materials basis under separate service arrangements
related to the installation of our software products. We recognize revenues from
consulting and training services as the services are performed.
Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998 and Statement of Position 98-4 effective March 31,
1998. Based on our interpretation of Statement of Position 97-2 and Statement of
Position 98-4, we believe our current revenue recognition policies and
practices, as discussed in "Management's Discussion and Analysis of Financial
Condition and Result of Operations -- Overview," are consistent with Statement
of Position 97-2 and Statement of Position 98-4. The American Institute of
Certified Public Accountants has also issued Statement of Position 98-9 which
will be effective for us for transactions entered into beginning January 1,
2000. However, full implementation guidelines for this standard have not yet
been issued. Once available, such implementation guidelines could lead to
unanticipated changes in our current revenue recognition policies, which changes
could materially adversely affect our business, financial condition or operating
results. See "Risk Factors -- Our Operating Results Fluctuate from Quarter to
Quarter" and Note 1 of Notes to Consolidated Financial Statements.
21
<PAGE> 22
The following table presents certain financial data as a percentage of
total revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
License.............. 2% 7% 89% 82% 74% 75% 69%
Service.............. 98 93 11 18 26 25 31
---- ---- ---- ------ ----- ----- -----
Total
revenues...... 100 100 100 100 100 100 100
Cost of revenues:
License.............. -- -- 2 2 1 1 1
Service.............. 35 31 6 18 16 16 17
---- ---- ---- ------ ----- ----- -----
Total cost of
revenues...... 35 31 8 20 17 17 18
---- ---- ---- ------ ----- ----- -----
Gross margin............ 65 69 92 80 83 83 82
Operating expenses:
Research and
development........ 29 109 103 31 25 29 20
Sales and
marketing.......... 8 34 178 90 77 84 62
General and
administrative..... 20 15 32 17 9 11 8
---- ---- ---- ------ ----- ----- -----
Total operating
expenses...... 57 158 313 138 111 124 90
---- ---- ---- ------ ----- ----- -----
Income (loss) from
operations........... 8 (89) (221) (58) (28) (41) (8)
Interest income
(expense), net....... -- 1 -- 2 1 1 --
---- ---- ---- ------ ----- ----- -----
Income (loss) before
income taxes......... 8 (88) (221) (56) (27) (40) (8)
Income tax provision.... -- -- -- -- -- -- (1)
---- ---- ---- ------ ----- ----- -----
Net income (loss)....... 8% (88)% (221)% (56)% (27)% (40)% (9)%
==== ==== ==== ====== ===== ===== =====
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Costs of license revenues,
as a percentage of
license revenues........ 0.0% 0.0% 1.8% 1.9% 1.8% 0.7% 2.0%
Costs of service revenues,
as a percentage of
service revenues........ 35.4% 33.0% 57.1% 100.8% 62.5% 69.3% 53.1%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES
Our total revenues increased from $5.6 million in the three months ended
March 31, 1998 to $10.3 million in the three months ended March 31, 1999,
representing growth of 83%. Our license revenues increased from $4.3 million in
the three months ended March 31, 1998 to $7.1 million in the three months ended
March 31, 1999, representing growth of 67%. These increases were due primarily
to increases in the number of licenses sold and the average transaction size,
reflecting increased acceptance of PowerMart and PowerCenter and expansion of
our direct sales organization and reseller channels. Service revenues increased
from $1.4 million in the three months ended March 31, 1998 to $3.2
22
<PAGE> 23
million in the three months ended March 31, 1999, representing growth of 133%.
These increases were due primarily to an increase in consulting, training and
maintenance fees associated with both the increased number of licenses sold and
the increased average transaction size, along with a larger installed license
base. We expect service revenues will increase as a percentage of total revenues
in future periods to the extent our installed license base grows and as we
continue to provide additional services to our customer base.
COST OF REVENUES
Cost of License Revenues
Our cost of license revenues consists primarily of product packaging,
documentation, production costs and software royalties. Cost of license revenues
was $28,000 and $142,000 in the three months ended March 31, 1998 and the three
months ended March 31, 1999, respectively. The increase in absolute dollar
amount was due primarily to increases in license revenues.
Cost of Service Revenues
Our cost of service revenues is a combination of costs of maintenance,
training and consulting revenues. Our cost of maintenance revenues consists
primarily of costs associated with software upgrades, telephone support services
and on-site visits. Cost of training revenues consists primarily of the costs of
providing training classes and materials, which are provided both off-site and
at our headquarters. Cost of consulting revenues consists primarily of personnel
costs and expenses incurred in providing consulting services at customers'
facilities. Because we believe that providing a high level of support to
customers is a strategic advantage, we have invested significantly in personnel
and infrastructure. Cost of service revenues was $958,000 and $1.7 million in
the three months ended March 31, 1998 and the three months ended March 31, 1999,
respectively, representing 69% and 53% of service revenues. Cost of service
revenues as a percent of service revenues declined in the three months ended
March 31, 1999 due primarily to economies of scale achieved as our revenues and
operations grew. We expect service revenues to increase as a percentage of total
revenues and, as a consequence, our cost of service revenues to increase in
absolute dollars and as a percentage of total revenues.
OPERATING EXPENSES
Research and Development
Our research and development expenses consist primarily of salaries and
other personnel-related expenses and depreciation of computer equipment and
supplies. Research and development expenses increased from $1.6 million in the
three months ended March 31, 1998 to $2.1 million in the three months ended
March 31, 1999. The increase was due primarily to an increase in personnel
costs. Research and development expenses represented 29% and 20% of total
revenues in the three months ended March 31, 1998 and the three months ended
March 31, 1999, respectively. The decrease as a percentage of total revenues was
due primarily to growth in our total revenues. To date, all research and
development costs have been expensed as incurred in accordance with Financial
Accounting Standards Board Statement No. 86. See Note 1 of Notes to Consolidated
Financial Statements. We believe that a significant level of investment for
product research and development is required to remain competitive and,
accordingly, we expect to continue to devote substantial resources to product
research and development such that research and development expenses will
increase in absolute dollars.
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<PAGE> 24
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel costs,
including commissions, as well as costs of public relations, seminars, marketing
programs, lead generation and trade shows. Sales and marketing expenses
increased from $4.7 million in the three months ended March 31, 1998 to $6.4
million in the three months ended March 31, 1999. The increases were due
primarily to the hiring of additional sales and marketing personnel in
connection with the building of our direct, original equipment manufacturer and
reseller channels, and higher sales commissions associated with increased sales
volume. Sales and marketing expenses represented 84% and 62% of total sales in
the three months ended March 31, 1998 and the three months ended March 31, 1999,
respectively. The decline in sales and marketing expenses as a percentage of
total revenues from the quarter ended March 31, 1998 to the quarter ended March
31, 1999 was positively impacted by selling efficiencies resulting from an
increase in the size and number of transactions and growth in follow-on sales to
existing customers, as well as by the allocation of marketing expenses over a
substantially increased revenue base. We expect to continue hiring additional
sales and marketing personnel and to increase promotion and other marketing
expenditures in the future. Accordingly, we expect that sales and marketing
expenses will increase in absolute dollars in future periods.
General and Administrative
Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, legal and general management, as well as
professional expenses, such as legal and accounting. General administrative
expenses increased from $634,000 in the three months ended March 31, 1998 to
$832,000 in the three months ended March 31, 1999, representing 11% and 8% of
our total revenues, respectively. Expenses increased due primarily to increased
staffing necessary to manage and support our growth. The decrease as a
percentage of our total revenues was due primarily to the growth in our total
revenues. We believe that our general and administrative expenses will increase
in absolute dollar amounts as we expand our administrative staff, add
infrastructure and incur additional costs related to being a public company,
such as expenses related to directors' and officers' insurance, investor
relations programs and increased professional fees.
INTEREST INCOME (EXPENSE)
Interest income (expense) represents interest income earned on our cash and
cash equivalents and interest expense on capital equipment leases. From the
three months ended March 31, 1998 to the three months ended March 31, 1999,
interest income decreased from $81,000 to $27,000 as our cash balance decreased.
PROVISION FOR INCOME TAXES
We incurred a net operating loss in the three months ended March 31, 1998
and consequently paid no federal, state or foreign income taxes. In the three
months ended March 31, 1999, we recorded a provision of $150,000 for state and
foreign income taxes.
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<PAGE> 25
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Our total revenues increased from $2.1 million to $12.2 million to $28.9
million in 1996, 1997 and 1998, respectively, representing growth of 492% from
1996 to 1997 and 137% from 1997 to 1998. Our license revenues increased from
$1.8 million to $10.0 million to $21.3 million in 1996, 1997 and 1998,
respectively, representing growth of 445% from 1996 to 1997 and 112% from 1997
to 1998. These increases were due primarily to increases in the number of
licenses sold and the average transaction size, reflecting increased acceptance
of PowerMart and PowerCenter and expansion of our direct sales organization and
reseller channels. Service revenues increased from $217,000 to $2.1 million to
$7.6 million in 1996, 1997 and 1998, respectively, representing growth of 888%
from 1996 to 1997 and 254% from 1997 to 1998. These increases were due primarily
to an increase in consulting, training and maintenance fees associated with both
the increased number of licenses sold and the increased average transaction
size, along with a larger installed license base in each successive year.
Total revenues have been reduced by sales and return allowances of $0,
$241,000 and $886,000 in 1996, 1997 and 1998, respectively. These increases were
due primarily to increases in revenues, the number of customers in our customer
base, and increases in our average transaction size. While our policy is not to
accept sales returns, circumstances can arise in which we accept returns to
preserve customer relationships.
COST OF REVENUES
Cost of License Revenues
Cost of license revenues was $34,000, $190,000 and $376,000 in 1996, 1997
and 1998, respectively. The increase in absolute dollar amount was due primarily
to increases in license revenues.
Cost of Service Revenues
Cost of service revenues was $124,000, $2.2 million and $4.7 million, in
1996, 1997 and 1998, respectively, representing 57%, 101% and 63% of service
revenues. Cost of service revenues increased on a percentage basis from 1996 to
1997 due primarily to the cost of additional consulting personnel hired in 1997
as we built our consulting organization in anticipation of increased demand for
our services. Cost of service revenues as a percent of service revenues declined
in 1998 due primarily to economies of scale achieved as our revenues and
operations grew.
OPERATING EXPENSES
Research and Development
Research and development expenses increased from $2.1 million to $3.8
million to $7.1 million in 1996, 1997 and 1998, respectively. The increase in
each of these periods was due primarily to an increase in personnel costs in
each such period. Research and development expenses represented 103%, 31% and
25% of total revenues in 1996, 1997 and 1998, respectively. The decrease as a
percentage of total revenues was due primarily to growth in our total revenues.
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<PAGE> 26
Sales and Marketing
Sales and marketing expenses increased from $3.7 million to $11.0 million
to $22.2 million in 1996, 1997 and 1998, respectively. The increases reflect the
hiring of additional sales and marketing personnel in connection with the
building of our direct, original equipment manufacturer and reseller channels,
and higher sales commissions associated with increased sales volume. Sales and
marketing expenses represented 178%, 90% and 77% of our total revenues in 1996,
1997 and 1998, respectively. The decrease as a percentage of total revenues was
due primarily to growth in total revenues.
Bad debt expense increased from $21,000 to $420,000 from 1996 to 1997 and
decreased to $300,000 in 1998, representing 1%, 3% and 1% of total revenues in
1996, 1997 and 1998, respectively. Expenses increased in 1996 and 1997 primarily
due to the limited history of our business relationships with our customers as
we began to build our revenues. In 1998, the expense declined in absolute
dollars and as a percentage of revenues due primarily to an increase in repeat
business with existing customers which contributed to more successful collection
efforts.
General and Administrative
General and administrative expenses increased from $663,000 to $2.0 million
to $2.6 million in 1996, 1997 and 1998, respectively, representing 32%, 17% and
9% of our total revenues in 1996, 1997 and 1998, respectively. Expenses
increased in each period due primarily to increased staffing necessary to manage
and support our growth. The decrease as a percentage of our total revenues was
due primarily to the growth in our total revenues.
NET INTEREST INCOME (EXPENSE)
From 1997 to 1998, net interest income increased marginally on an absolute
basis from approximately $221,000 to $261,000, despite the lower year end cash
balance in 1998. This increase was due primarily to our completion of a $9.0
million financing at the end of our second quarter 1997, which resulted in a
higher average cash balance in 1998 than in 1997.
PROVISION FOR INCOME TAXES
We incurred net operating losses in 1996, 1997 and 1998 and consequently
paid no federal, state and foreign income taxes in each of those years.
As of December 31, 1998, we had federal and state net operating loss
carryforwards of approximately $9.8 million and $2.3 million, respectively. We
also had federal and state research and development tax credit carryforwards of
approximately $500,000 and $300,000, respectively. Our net operating loss
carryforwards will expire at various dates beginning in 1999 through 2018, if
not utilized.
As of December 31, 1997 and 1998, we had deferred tax assets of
approximately $4.4 million and $7.8 million, respectively. Our net deferred tax
assets have been fully offset by a valuation allowance. Our net valuation
allowance increased by $2.6 million and $3.4 million during 1997 and 1998,
respectively. Deferred tax assets relate primarily to net operating loss
carryforwards and capitalized research and development costs. See Note 6 of
Notes to Consolidated Financial Statements.
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<PAGE> 27
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth our unaudited quarterly results of
operations data for our nine most recent quarters ended March 31, 1999, as well
as such data expressed as a percentage of our total revenues for the quarters
presented. You should read the following table in conjunction with our
Consolidated Financial Statements and related Notes thereto included elsewhere
in this prospectus. We have prepared this unaudited information on the same
basis as the audited Consolidated Financial Statements. These tables include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating
results for the quarters presented. You should not draw any conclusions about
our future results from the results of operations for any quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
License.................. $ 1,489 $ 2,092 $ 2,672 $ 3,788 $ 4,255 $ 4,741 $ 5,483 $ 6,819 $ 7,114
Service.................. 201 434 592 918 1,383 1,696 2,094 2,424 3,223
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 1,690 2,526 3,264 4,706 5,638 6,437 7,577 9,243 10,337
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License.................. 40 37 42 71 28 179 81 88 142
Service.................. 247 440 635 841 958 1,039 1,211 1,541 1,710
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues........... 287 477 677 912 986 1,218 1,292 1,629 1,852
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 1,403 2,049 2,587 3,794 4,652 5,219 6,285 7,614 8,485
Operating expenses:
Research and
development............ 738 761 896 1,436 1,613 1,676 1,727 2,059 2,050
Sales and marketing...... 1,768 2,293 3,092 3,798 4,715 5,472 5,934 6,114 6,448
General and
administrative......... 357 412 545 722 634 643 625 734 832
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 2,863 3,466 4,533 5,956 6,962 7,791 8,286 8,907 9,330
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations....... (1,460) (1,417) (1,946) (2,162) (2,310) (2,572) (2,001) (1,293) (845)
Interest income (expense),
net...................... 9 33 100 79 81 73 65 42 27
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss before income taxes... (1,451) (1,384) (1,846) (2,083) (2,229) (2,499) (1,936) (1,251) (818)
Income tax provision....... -- -- -- -- -- -- -- -- (150)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................... $(1,451) $(1,384) $(1,846) $(2,083) $(2,229) $(2,499) $(1,936) $(1,251) $ (968)
======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
License.................. 88% 83% 82% 80% 75% 74% 72% 74% 69%
Service.................. 12 17 18 20 25 26 28 26 31
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 100 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License.................. 2 2 1 1 1 3 1 1 1
Service.................. 15 17 20 18 16 16 16 17 17
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues........... 17 19 21 19 17 19 17 18 18
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin............... 83 81 79 81 83 81 83 82 82
Operating expenses:
Research and
development............ 44 30 27 31 29 26 23 22 20
Sales and marketing...... 104 91 95 81 84 85 79 66 62
General and
administrative......... 21 16 17 15 11 10 8 8 8
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 169 137 139 127 124 121 110 96 90
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations....... (86) (56) (60) (46) (41) (40) (27) (14) (8)
Interest income (expense),
net...................... -- 1 3 2 1 1 1 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss before income taxes... (86) (55) (57) (44) (40) (39) (26) (14) (8)
Income tax provision....... -- -- -- -- -- -- -- -- (1)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................... (86)% (55)% (57)% (44)% (40)% (39)% (26)% (14)% (9)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of license revenues, as
a percentage of license
revenues................... 2.7% 1.8% 1.6% 1.9% 0.7% 3.8% 1.5% 1.3% 2.0%
Costs of service revenues, as
a percentage of service
revenues................... 122.9% 101.4% 107.3% 91.6% 69.3% 61.3% 57.8% 63.6% 53.1%
</TABLE>
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The trends discussed in the annual comparisons of operating results from
1996 through 1998 generally apply to the comparison of results of operations for
our nine most recent quarters ended March 31, 1999, adjusted for certain
seasonality we have experienced as discussed below. Our total revenues increased
in every quarter during this period, as did both our license revenues and
service revenues. Our service revenues, as a percentage of total revenues,
increased from 12% in the first quarter of 1997 to 31% in the first quarter of
1999. Maintenance revenues increased as our installed customer base grew, while
consulting revenues increased as we have found it strategically advantageous to
provide more consulting in connection with sales of our software products.
Service revenues as a percentage of total revenues increased on a slightly
accelerated basis in the quarter ended March 31, 1999 due primarily to:
- a substantial increase in service revenues resulting from our success in
hiring additional service personnel; and
- increased maintenance revenues resulting from annual maintenance contract
revenues related to the seasonally higher level of license transactions
entered into in the last quarter of the prior year.
We expect service revenues will increase as a percentage of total revenues
in future periods to the extent our installed license base grows and as we
continue to provide additional services to our customer base. This percentage
may also increase due to our adoption on January 1, 2000 of the Software Revenue
Recognition policy SOP 98-9. Our adoption of this policy may also require us to
defer recognition of some of our revenues in future periods.
During the nine quarters ended March 31, 1999, cost of revenues remained
relatively constant as a percentage of total revenues, although these costs
increased every quarter in absolute dollar terms. We expect service revenues to
increase as a percentage of total revenues and, as a consequence, our cost of
service revenues to increase on an absolute dollar and percentage of total
revenues basis. Operating expenses, in absolute dollar terms, also increased in
every quarter during this period, while operating expenses as a percentage of
total revenues declined due primarily to efficiencies created as our departments
grew to support the revenue growth. The decline in sales and marketing expenses
as a percentage of total revenues, particularly in the three quarters ended
March 31, 1999, was positively impacted by selling efficiencies resulting from
larger transactions and growth in follow-on sales to existing customers, as well
as by the allocation of marketing expenses over a substantially increased
revenue base. In absolute dollar terms, our net loss generally increased during
this period through the second quarter of 1998, then decreased in each of the
three quarters ended March 31, 1999. Although our net loss as a percentage of
total revenues generally decreased from quarter to quarter during this period,
there can be no assurance that this will continue in future periods. Our
quarterly operating results varied widely in the past, and we expect that they
will continue to fluctuate in the future as a result of a number of factors,
many of which are outside our control. See "Risk Factors -- Our Operating
Results Fluctuate from Quarter to Quarter."
We have experienced, and expect to continue to experience, seasonality with
respect to software license revenues. In recent years, there has been a
relatively greater demand for our products in the fourth quarter than in each of
the first three quarters of the year, particularly the first quarter. As a
result, we have historically experienced relatively higher bookings in the
fourth quarter and relatively lighter bookings in the first quarter. While some
of this effect can be attributed to the rapid growth of revenues in recent
years, we
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<PAGE> 29
believe that these fluctuations are caused by customer buying patterns (often
influenced by year-end budgetary pressures) and the efforts of our direct sales
force to meet or exceed year-end sales quotas. In addition, European sales may
tend to be relatively lower during the summer months than during other periods.
We expect that seasonal trends will continue for the foreseeable future. This
seasonal impact may increase as we continue to focus our sales efforts on large
corporations.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date primarily through private sales of
preferred equity securities, totaling $17.6 million and, to a lesser extent,
capital equipment leases. As of March 31, 1999, we had $6.8 million in cash and
cash equivalents.
Our operating activities resulted in net cash outflows of $4.8 million,
$2.8 million and $1.4 million in 1996, 1997 and 1998, respectively. The sources
of cash were primarily increases in accounts payable and accrued liabilities,
increases in accrued compensation and related expenses and increases in deferred
revenue in 1997 and 1998. Uses of cash in operating activities were primarily
due to net operating losses and accounts receivable for 1996, 1997 and 1998.
Our operating activities resulted in a net cash inflow of $861,000 in the
three months ended March 31, 1999. The sources of cash were due primarily to
increases in deferred revenue and decreases in accounts receivable. Uses of cash
in operating activities were due primarily to net operating losses.
Investing activities used cash of $100,000 in 1996, $584,000 in 1997,
$872,000 in 1998 and $81,000 in the three months ended March 31, 1999, due
primarily to the purchase of capital equipment.
Financing activities provided cash of $7.1 million in 1996 and $8.8 million
in 1997 primarily through the issuance of preferred stock and proceeds from the
exercise of stock options, partially offset by payments on capital lease
obligations. Financing activities used cash totaling $97,000 in 1998 and $21,000
in the three months ended March 31, 1999, due primarily to the payments on
capital lease obligations partially offset by proceeds from the exercise of
stock options.
As of December 31, 1998 and March 31, 1999, our principal commitments
consisted of obligations under operating and capital leases. As of December 31,
1998 and March 31, 1999, we had $459,000 and $346,000, respectively, in
outstanding borrowings under capital lease agreements which are payable through
2001. During 1998, we maintained a revolving line of credit which provided for
borrowings of up to $3.0 million based on 80% of eligible accounts receivable.
Borrowings under this line of credit bore interest, payable monthly, at 0.25%
above prime rate. Borrowings were secured by substantially all of our assets,
and the agreement also required us to comply with certain financial covenants.
We chose not to renew this line of credit when it expired in December 1998. See
Notes 2 and 3 of Notes to Consolidated Financial Statements.
Deferred revenues consists primarily of the unrecognized portion of
revenues received under maintenance contracts. As of December 31, 1998, we had
$3.2 million of sales related to shipments to customers and resellers for which
revenue had not been recognized due to collectibility concerns. For
international customers and thinly capitalized resellers and OEM's, revenue is
recognized upon cash collections, and is not recorded on the balance sheet or
income statement until collectibility is no longer determined to be
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<PAGE> 30
uncertain. Capital expenditures were primarily for computer workstations used
for product development, product demonstrations and customer support.
We believe that the net proceeds from this offering, together with our
current cash balances and the cash flows generated by operations and tax
refunds, if any, will be sufficient to satisfy our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
Thereafter, we may require additional funds to support our working capital
requirements, or for other purposes, and may seek to raise such additional funds
through public or private equity financings or from other sources. We may not be
able to obtain adequate or favorable financing at that time. Any financing we
obtain may dilute your ownership interests.
A portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
From time to time, in the ordinary course of business, we may evaluate potential
acquisitions of such businesses, products or technologies. We have no current
plans, agreements or commitments, and are not currently engaged in any
negotiations with respect to any such transaction.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of distinguishing
21(st)century dates from 20(th) century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries (including technology, transportation,
utilities, finance and telecommunications) will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Significant uncertainty exists in the software industry and other
industries concerning the scope and magnitude of problems associated with the
century change. We recognize the need to ensure our operations will not be
adversely affected by Year 2000 software failures.
We have completed our assessment of the potential overall impact of the
impending century change on our business, financial condition and operating
results. Based on our current assessment, we believe the current versions of our
software products are Year 2000 compliant -- that is, they are capable of
adequately distinguishing 21(st)century dates from 20(th) century dates.
However, our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that we cannot adequately
evaluate for Year 2000 compliance. We may face claims based on Year 2000
problems in other companies' products, or based on issues arising from the
integration of multiple products within an overall system. Although we have not
been a party to any litigation or arbitration proceeding involving our products
or services related to Year 2000 compliance issues, we may in the future be
required to defend our products or services in such proceedings or to negotiate
resolutions of claims based on Year 2000 issues. The costs of defending and
resolving Year 2000-related disputes, regardless of the merits of such disputes,
and any liability we have for Year 2000-related damages, including consequential
damages, could materially adversely affect our business, financial condition or
operating results. In addition, we believe that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or upgrade their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software products such as those we offer. To
the extent Year 2000 issues cause a significant delay in, or cancellation of,
decisions to purchase our products or services, our business, financial
condition and operating results would be materially adversely affected.
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<PAGE> 31
We have reviewed our internal management information and other critical
business systems to identify any Year 2000 problems. We also have communicated
with the external vendors that supply us with material software and information
systems and with our significant suppliers to determine their Year 2000
readiness. In the course of these investigations, we have not encountered any
material Year 2000 problems with these third-party products.
We have completed our evaluation of whether the infrastructure and building
systems in our headquarters facility, such as security and sprinkler systems,
and all information technology systems, such as telephony and computer network
systems, are Year 2000 compliant. Our voice-mail system was the only system we
identified as non-compliant, and we expect to replace this system in connection
with other communication systems upgrades that are not related to the Year 2000
problem.
To date, we have not incurred any material costs directly associated with
our Year 2000 compliance efforts, except for compensation expense associated
with our salaried employees who have devoted some of their time to our Year 2000
assessment and remediation efforts. As discussed above, we do not expect the
total cost of Year 2000 problems to be material to our business, financial
condition and operating results. However, during the months prior to the century
change, we will continue to evaluate new versions of our software products, new
software and information systems provided to us by third parties and any new
infrastructure systems that we acquire to determine whether they are Year 2000
compliant. Despite our current assessment, we may not identify and correct all
significant Year 2000 problems on a timely basis. Year 2000 compliance efforts
may involve significant time and expense, and unremediated problems could
materially adversely affect our business, financial condition or operating
results. We currently intend to initiate in the second quarter of 1999
contingency planning to address the risks associated with unremediated Year 2000
problems, which planning we currently anticipate completing by the end of the
third quarter of 1999.
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BUSINESS
INTRODUCTION
We are a leading provider of software solutions that help companies deploy,
manage, maintain and grow systems that enable more effective business decision
making. Companies across a range of industries are seeking to improve their
ability to gain insight into customer, market, financial and competitive trends
by unlocking the volumes of data stored in their enterprise transaction systems.
Our products help streamline and simplify that task by providing a packaged,
off-the-shelf solution -- a critical benefit in a market that has historically
been plagued by technical complexity and system incompatibility. We design,
develop, market and support PowerCenter, PowerMart and related products that are
used by companies to gain competitive advantage through analysis of customer and
other data.
INDUSTRY BACKGROUND
Over the past few decades, organizations have made significant investments
in applications and infrastructure, including packaged mainframe and distributed
application and database software, to automate their basic business processes.
For example, enterprise resource planning applications from vendors such as SAP,
PeopleSoft and others now automate many companies' financial, manufacturing and
human resource functions. New enterprise applications are emerging in the areas
of supply chain automation, e-business and customer self-service. Underlying
these enterprise and Internet-based applications are transaction databases from
vendors, such as IBM, Oracle and Microsoft, that capture and store the
substantial amounts of data sourced from these applications. As the number and
size of transaction databases have grown, so too has the volume of data stored
in these applications. As a result, the challenge is no longer how to capture
information effectively, but how to consolidate, distill and channel it to those
business managers, decision-makers, customers and suppliers who can leverage
this information to drive revenue growth and profitability.
Companies across a range of industries are using applications that enable
more effective business decision making and, thus, gaining greater insight from
their corporate information systems. For example, retailers track customer
buying behavior to respond quickly with new products. Financial services firms
use data to perform risk management and fraud detection. Companies in newly
deregulated industries create new competitive services and find new customers.
E-commerce vendors track site activities and analyze buying patterns. Across
industry, business insight provides decision-makers with greater power to make
more informed business decisions. In today's increasingly decentralized
enterprises, getting the right information to the desktops of employees quickly
and efficiently is key to gaining greater competitive advantage.
Numerous new and established vendors are responding to this need for
business insight with wide-ranging product offerings. For example, a large
market exists for desktop, pc-based software for information access and analysis
and for tools to build and manage the underlying data marts and data warehouses.
This is the custom-built analytic applications market. Moreover, a new market
for "packaged analytic applications" -- often tied closely to specific
enterprise resource planning systems -- is forming quickly. These analytic
applications are typically pre-packaged, off-the-shelf software programs
specifically designed to aid in performing sophisticated business analysis. Some
enterprise resource
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planning vendors have introduced new suites of analytic applications to build
upon their existing enterprise resource planning transaction systems. According
to International Data Corporation, the combined market for analytic applications
(both packaged and custom built) and the tools to build, manage and access the
underlying data warehouses and data marts is estimated to reach $11.8 billion by
2002.
While existing software tools and applications are helping companies access
data directly from specific transactional systems, by themselves they have
several key limitations:
- they do not provide access to standardized, consolidated historical data;
- they cannot interoperate within an enterprise deployment without
specialized programming; and
- they cannot access all critical data sources within an enterprise.
To take full advantage of their analytic resources, companies need a
software solution to support decision-makers that will integrate data, tools and
analytic applications across the entire organization. Such a software platform
should:
- provide comprehensive capabilities for data integration -- and
user-specific data customization -- in a flexible, distributed
architecture;
- broaden access to a wider range of information sources;
- maintain compatibility among the increasing types and numbers of software
tools and applications; and
- support rapid growth and change, in user numbers as well as in
application initiatives.
With such a platform in place, decision-makers will be able to gain better
insight into business trends and will be able to make more accurate and informed
business decisions.
INFORMATICA'S SOLUTION
We provide a highly adaptable, functionally rich software solution, or
platform, for deploying, managing and maintaining systems that enable more
effective business decision making. At the center of this platform is our
enterprise data integration hub, which automates the process of retrieving,
organizing and consolidating data from multiple systems. This data is then made
available to end users throughout the enterprise. Our platform is comprised of
this enterprise data integration "hub," as well as any number of "spokes," or
data marts and analytic applications, that permit users to customize data to
suit their precise analytic needs.
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[POWERCENTER GRAPHIC]
Our PowerCenter and PowerMart software products provide a highly adaptable,
functionally rich solution, or platform, for deploying, managing and maintaining
systems that enable more effective business decision making. Our platform
supports a wide range of analytic applications, including customer relationship
management, key performance indicators and financial forecasting, among others.
We believe our solution offers the following key benefits:
Automation of Enterprise Data Integration
Traditionally, deploying and managing systems that enable more effective
business decision making frequently requires extensive custom program
development and consulting. In contrast, we deliver a packaged, off-the-shelf
solution that automates key processes for system deployment and management,
including the steps required for accessing enterprise resource planning and
other transaction systems. We believe this packaged approach significantly
reduces the cost and time associated with deployment and management.
In addition, our packaged solution helps protect our customers' systems
investment by shielding them from changes in their technology environment
related to obsolescence and upgrades in hardware, operating systems, networks
and applications. Over the lifetime of a system deployed using our platform,
these benefits are compounded, because ongoing system modifications can be made
without custom programming and consulting.
Furthermore, we believe our automated approach provides customers with
additional protection from business changes, such as those resulting from
mergers and acquisitions, currency fluctuations and ongoing regulatory change.
Our rules-based software engine makes it easy for customers to modify a system
used to address these changing business dynamics.
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Optimized for Analytic Applications
Analytic applications have unique data content, models, data structures and
other special infrastructure requirements to function at peak performance. Our
solution is designed to optimize and customize data for analytic computing in
ways that software solutions designed for transaction processing cannot. Our
rules-based, parallel-engine architecture executes key infrastructure
tasks -- extracting, transforming and loading the data -- with speed and
efficiency. Further, our automation features, as well as a wide array of rich,
predefined analytic functions, enhance user productivity and deployment speed.
Incremental Deployment; Rapid Return on Investment
Unlike traditional, hand-coded decision support systems that are expensive
and time-intensive to deploy, we believe our solution allows users to achieve a
faster return on investment through incremental, business-unit-size deployments.
These successful deployments can then easily be extended across the enterprise
via the integration hub. Additionally, our products' productivity-enhancing
features and the modular capability of the hub-and-spoke architecture help
companies reduce information technology expenses, retain customers and grow
revenues.
Multi-level Scalability
Our solution addresses decision support scalability on many levels. This
includes scaling from an early-stage, data mart-based analytic application to an
enterprise-wide deployment and addressing the large data volume and high
throughput required for robust analytic computing. Taking advantage of the
distributed, parallel technologies widely available today, our platform is
designed to significantly improve performance by allowing users to bring
multiple clusters of servers to bear on large, complex analytic problems.
Architecture Openness and Extensibility
Our open architecture gives users access to data locked in numerous
transaction systems, and it enables them to address many different types of
analytical requirements. Also, our products permit users to add customized
functions to extend our pre-programmed general-purpose functions to address
specific business problems. These customized functions are then able to take
advantage of all of the capabilities of our platform, including its deployment
flexibility and multi-level scalability.
Deployment Flexibility
Our solution is designed to support a wide range of computing platforms and
applications found in large organizations and to collect data from transaction
sources employing varying combinations of computer hardware and database
software. Our rules-based transformation engine resolves the idiosyncrasies of
different operating systems, hardware and database platforms. In addition, our
high-performance, customized software drivers are designed to leverage the
strengths and mitigate the weaknesses of different vendors' platforms. All of
our products run on UNIX (HP-UX, IBM AIX, Sun Solaris) and Microsoft NT servers,
use Windows 95 and Windows NT clients, and support all major relational
databases, including Oracle, IBM DB2/UDB, Informix, Sybase and Microsoft SQL
Server.
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INFORMATICA'S STRATEGY
Our objective is to provide the leading software solution to help companies
deploy, manage, maintain and grow systems that enable more effective business
decision making. The following are key elements of our strategy:
Expand Position as a Leading Independent Platform Vendor
We believe our position in the industry is unique because of our
vendor-neutral platform design and the ability of our products to access a wide
range of operational data sources. As a result, many leading decision support
tools vendors -- who compete among themselves -- partner with us for critical
infrastructure technology. We intend to enhance and expand this position by
adding new vendor partners in the current decision-support markets for business
intelligence tools and analytic applications and by extending our support for
providers of customer information and e-business applications.
Target Enterprise-wide Deployments Within Existing Customer Sites
We intend to expand the use of our products and services within existing
customer accounts. Today, we have sold our products to more than 350 customers,
primarily large global companies across a range of industries, including
finance, banking, insurance, manufacturing, health care and telecommunications.
A number of these customers, who first used our platform for departmental and
business-unit applications, are now expanding their deployments across the
enterprise. Our strategy is to further penetrate these customer accounts by
converting more departmental deployments into enterprise-wide systems.
Leverage Enterprise Resource Planning Installed Base
Companies have invested heavily in enterprise resource planning
applications. AMR Research estimates that organizations have spent approximately
$39 billion on enterprise resource planning software since 1995. We believe a
sizable opportunity exists to help these customers leverage the large volumes of
transaction data in these systems for analytic computing. Using our platform,
users can consolidate the data from their enterprise resource planning and other
transactional systems for new analytic applications, thus helping them to
achieve the most comprehensive and accurate business analysis.
Expand Strategic Partnerships and Indirect Channels
To accelerate adoption of our products as the standard platform for
analytic applications within large enterprises, we continue to form strategic
relationships with leading enterprise software and analytic application vendors,
as well as with leading resellers and system integrators. We have marketing
programs and sales force partnerships with SAP and PeopleSoft and intend to add
other such partners. We intend to build upon these relationships to penetrate
additional vertical markets and expand into new geographic markets.
Increase Technology Leadership
We intend to continually increase our technological and product leadership
by enhancing our products' core functionality and current high-performance
analytical features. In addition, we intend to extend our products' scalability
to handle ever-increasing
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volumes of data. Further, we will continue to develop our platform to facilitate
and support e-business and other emerging Internet applications.
PRODUCTS AND SERVICES
Our products enable large, global organizations to build the necessary
infrastructure for deploying and managing business intelligence and analytic
applications across the enterprise. These products are designed to reduce the
complexities of deploying and maintaining this infrastructure and to enhance the
quality and performance of information analysis.
Our solution enables enterprises to implement multi-tier decision support
architectures that can be as sophisticated -- or as simple -- as necessary.
Large enterprises can use PowerCenter, for instance, to create a data
integration hub that will synchronize and manage wide-ranging decision support
resources. Other organizations can start small, through PowerMart, by creating
independent line-of-business data warehouses and analytic systems. Then, as
business needs grow and change, they can add the synchronization and
sophisticated management capabilities of PowerCenter.
The following table summarizes the key features and benefits of our
products:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION BENEFIT
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
POWERCENTER An enterprise data integration hub Reduces the complexity of
for deploying and managing scalable implementing solutions that enable
[POWERCENTER LOGO] systems that enable more effective more effective business decision
business decision making making
- Manages consolidation, cleansing - Integrates decision support
and customization of data components and tools
- Enables integration of operational - Creates and enforces consistent
systems and analytic applications data definitions throughout the
- Allows centralized management of architecture
distributed resources - Synchronizes disparate data marts
- Enables optimized performance and and data warehouses
reliability - Re-uses transformation logic and
other important analytical formulas
- -------------------------------------------------------------------------------------------------------
POWERMART An integrated product suite for Enables rapid deployment of data
building and managing marts and analytic applications
[POWERMART LOGO] line-of-business data marts and - Enables faster reporting cycles and
analytic applications more sophisticated business
- Addresses the complete life-cycle analysis to improve return on
for data mart development, production investment
and ongoing management - Enables high ongoing productivity
- Provides a rules-based engine that and ease of maintenance
accelerates data mart and analytic
application deployment
- -------------------------------------------------------------------------------------------------------
POWERCONNECT A mainframe-compatibility bridge that Allows difficult to access legacy
facilitates high-speed access to DB2 data to be more easily and quickly
databases running on IBM MVS and integrated into systems that enable
OS/390 systems more effective business decision
making
- -------------------------------------------------------------------------------------------------------
POWERPLUGS Third-party software programs that Helps maximize investment in other
"plug in" additional functionality to decision support products by enabling
our products through open application tight integration with our
programming interfaces PowerCenter and PowerMart products
- -------------------------------------------------------------------------------------------------------
</TABLE>
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PowerCenter
As part of our solution, PowerCenter serves as an enterprise data
integration hub for deploying and managing scalable decision support systems.
Within PowerCenter, a global repository functions as the central synchronization
point, extracting data from diverse operational sources, including mainframe,
relational database and popular enterprise resource planning applications.
PowerCenter then transforms and distributes that data downstream to data
warehouses and data marts in preparation for end-user analysis. PowerCenter
includes software to design and manage the global repository, to set up data
extraction processes from operational databases and to synchronize data sharing
among distributed analytic applications.
PowerCenter has a number of innovative and essential features that enable
it to function effectively as an enterprise data integration hub. PowerCenter's
robust native mainframe file support allows mainframe database files to be
imported directly into the PowerCenter hub, eliminating the need for, and the
added expense of, additional software. Parallel processing capabilities within
this product allow users to roll-out multiple instances of PowerCenter's
transformation engine to maximize system performance for the most complex data
extractions and transformations. PowerCenter's systems management capabilities
are designed to allow administrators to more efficiently manage, monitor and
control multiple repositories and servers in the network from a central console.
PowerMart
PowerMart is an integrated product suite for building and managing
line-of-business data marts and analytic applications. PowerMart can be used in
conjunction with PowerCenter, or it can be employed to create independent,
standalone data marts and data warehouses. PowerMart features integrated
warehouse-design, repository-design and management components that share a
common, intuitive graphical user interface. Through a variety of software
wizards and other productivity-enhancing tools, PowerMart supports the full
life-cycle for data mart/data warehouse deployment, development, production and
ongoing management.
The PowerMart integrated product suite includes five standard components:
- PowerMart Designer is a powerful, multi-faceted tool for visually
defining mappings and transformations;
- PowerMart Repository is an open metadata store for definitions about
mappings, transformations and other data mart details;
- PowerMart Repository Manager is a facility for managing user activities
and metadata storage in the repository;
- PowerMart Server is a pipelined, multi-threaded server engine that is
able to overlap data extraction, transformation and loading; and
- PowerMart Server Manager is an administrative interface to the PowerMart
Server for configuring data marts and scheduling jobs.
PowerMart includes a number of key features that enable organizations to
implement data marts and analytic applications for a fraction of the cost of a
large, centralized data warehouse. For example, PowerMart gives users the option
of combining disk staging with in-memory server-side caching to fully leverage
system resources and achieve peak
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performance during any stage of data processing. PowerMart also provides a
"Deploy Folder" wizard that guides developers through a step-by-step process for
moving from test to development to full production. In addition, advanced
session management facilities help data warehouse administrators maintain
operational efficiency.
Platform Extensions
We also market and sell two additional software products which extend the
capabilities of PowerCenter and PowerMart. PowerConnect is a mainframe software
bridge that facilitates access to IBM DB2 databases running on IBM MVS and
OS/390 systems. With PowerConnect, organizations get fast, transparent access to
operational data. PowerPlugs are third-party software programs that add
functionality via open application programming interfaces that permit exchange
of metadata and data transformation information.
Pricing Model
We have a server-based pricing model in which PowerCenter and PowerMart are
priced according to the capabilities of the server upon which they will be
running. For example, a customer who installs our product on a 4 CPU Windows NT
machine pays less than a customer who installs our products on a 16 CPU UNIX
machine. Our value-based pricing results in higher license fees from a customer
who installs our products on higher capacity servers.
Technology Differentiators
The following key technologies differentiate our products from other
industry offerings, and we believe they are critical to deploying and managing
systems that enable more effective business decision making:
- METADATA-BASED ARCHITECTURE -- Metadata is "data about data," in that it
describes the business rules and cataloging information needed for the
decision support applications to function. It also enables users to
understand the context and meaning of data that they are analyzing.
Through the global repository, PowerCenter permits synchronization and
sharing of metadata among distributed repositories that are located in
various enterprise departments and are used for different decision
support applications. The global repository employs a system of shared
folders and hotlinked pointers, available to all registered local
repositories, to enable sharing of public metadata and specific data
transformations.
For example, the enterprise customer may define certain key values, such
as "customer" or "revenue," for use throughout all analytic applications.
By keeping these values in shared folders, the system ensures that users
throughout the enterprise will be working with consistent data
definitions. Through the system of hotlinked pointers, shared information
is automatically kept up to date.
Our products also feature open, distributed metadata exchange with other
decision support products, such as back-end data modeling tools, front-end
query and reporting tools and analytic applications. This contributes
greatly to interoperability, quality of analysis and scalability.
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- NATIVE CONNECTIVITY TO OPERATIONAL SOURCES -- We are an industry leader
in source-database access capabilities. Through PowerCenter and
PowerMart, users can access UNIX and Windows NT databases, IBM DB2
databases and leading enterprise resource planning systems. For instance,
PowerCenter extends the effectiveness of SAP Business Information
Warehouse(TM) by giving users access to all non-SAP data throughout their
enterprise. In addition, PowerMart provides a similar capability to users
of PeopleSoft's Enterprise Performance Management suite, giving users
access to both PeopleSoft and non-PeopleSoft operational data.
- CENTRALIZED MANAGEMENT -- Architectures that enable more effective
business decision making require the power of distributed, parallel
servers combined with the convenience of centralized management.
PowerCenter supports multiple parallel servers and provides a single
interface for configuring and monitoring them. Additionally, PowerCenter
provides a single interface for viewing and configuring metadata in the
PowerCenter repository and any local, registered repositories.
- ENGINE-BASED PERFORMANCE -- The heart of our solution is a high-end
performance server, or engine, that automates data movement and
transformation. The server employs advanced techniques, such as parallel,
overlapped operations, to give users the high-performance data throughput
required for enterprise-class implementations. Our platform's
engine-based high performance allows users to construct analytic
applications and perform analyses according to their real business needs,
without having to hand-code transformations or continually modify their
objectives because of technology limitations.
Services
We offer comprehensive professional services in implementation consulting,
as well as in customer support and training. As of March 31, 1999, we employed
41 people worldwide in services related activities.
Our professional services range from designing and deploying architectures
that enable more effective business decision making to data transformation and
performance tuning. Our professional services consultants possess expertise in
databases and operating systems, enterprise resource systems, business process
design and management and major vertical industry issues.
We offer high-quality, timely technical support to customers via phone,
e-mail and the Internet. We also publish a comprehensive web-based journal on
infrastructure issues, with technical detail that expands on existing
documentation and presents implementation options. Additionally, we publish
online versions of manuals, release notes and updates to existing documentation.
We provide a number of customer training programs in the United States and
Europe. Courses cover topics such as designing target data tables, analyzing
operational sources, tuning and troubleshooting and understanding systems used
to support business decision making.
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STRATEGIC PARTNERS
Our partners include industry leaders in enterprise software,
query/analysis applications and systems integration. We pursue a comprehensive
partnership program with major vendors in these areas so that they can provide
complementary products and services to our joint customers with effective
best-of-breed enterprise solutions. Our partnership program is called the
PowerPartner Program, and our strategic partners include:
Enterprise Software Partners
BMC Software
NEON Systems
IBM
PeopleSoft
Microsoft
SAP
Query/Analysis Partners
Brio Technology
Hummingbird Comm.
Business Objects
Hyperion Solutions
Cognos
MicroStrategy
Systems Integration Partners
American Management Systems
Application Consulting Group
Application Partners
Apex Solutions
Archer Decision Sciences
Braun Technology Group
BTG Technology Systems
C3i
Cambridge Technology Partners
Case Logical Data
Clark Information Systems
Client Server Associates
Connect Systems
Core Integration Partners
Cotelligent
CSC Ploenzke
Daman Consulting
Descartes Systems Group
DEC
DMR Consulting
DSS Solution
EDS
Epsilon
Encompass Business Solutions
Ernst & Young
Gamut Technologies
Geac Computers
Grace Technologies
Infocrest Solutions
IPI GrammTech
Knightsbridge Solutions
KnowledgeBase Marketing
KPMG
Lancet Software Development
LGS Group
Logan/Britton
Metamor
Migration Software
NetBase Computing
New Technology Management
Newport Technology Group
NexGen SI
Octet Consulting
Parallogic
Perot Systems
PricewaterhouseCoopers
Profound Solutions
Retail Dynamics Inc.
The Revere Group
REZsolutions
R&Z Software
Saphir
Saturn Business Systems
Siemens Nixdorf
Softmaster
Software House International
Softworks Consulting
Solution Builders
SQLiason
Strategic Technologies
Strategic Information Systems
Sybertech
Sysix Technologies
Talent Software Services
Tessera Enterprise Systems
WebSoft
Xenon
Yaletown Technology
ZYGA
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CUSTOMERS
Our customers represent a wide, cross-industry spectrum of large global
organizations, plus major governmental and educational institutions. A
representative sampling of customers who have purchased at least $100,000 of
software license since January 1996 includes:
Communications
AirTouch Cellular*
AT&T Corp.*
Lucent Technologies/Octel Communications
Pacific Bell Directory
Qualcomm*
Sprint
Tele-Communications, Inc. (TCI)
Telenor*
Government
Bureau of Land Management
State of Texas
U.S. Navy*
US Postal Service
Financial Services
The Capital Group Companies*
Charles Schwab
SG Cowen
First Union National Bank*
GM Acceptance Corp.
Invesco Funds Group
Merrill Lynch*
Oppenheimer Funds*
Providian Financial*
Prudential Insurance*
Salomon Smith Barney
Stein, Roe & Farnham
UBS
High Technology
3Com*
Autodesk*
Automatic Data Processing*
Intel*
LSI Logic*
National Semiconductor
Silicon Graphics*
Western Digital
Internet Software-Service
CompuServe
e.spire
Netscape*
UUNET
Insurance
Abbey National*
Allstate Insurance
The Equitable Companies*
Hartford Insurance*
John Hancock
Liberty Mutual Insurance Companies*
MassMutual*
MetLife Insurance*
Zurich Insurance*
Utilities/Energy
Commonwealth Edison Company
Chevron Corporation
Entergy Services/Entergy Corporation*
KN Energy*
Pacific Gas & Electric*
Philadelphia Power and Light*
Southern Company
Manufacturing/Distribution
ABB*
Avery-Dennison
Boeing
GCI*
General Electric*
Honeywell
Motorola
Thomson Publishing
Toyota USA*
Media/Entertainment/Hospitality
Carlson Wagonlit Travel*
Fox Entertainment Group
Hearst Corporation
Ultramar Diamond Shamrock*
Universal Studios*
Warner Brothers*
Yorkshire Cable
Pharmaceuticals/Health Care
Amgen*
American Home Products Corporation
Blue Cross Blue Shield
Dura Pharmaceuticals
MedData Health
Pharmacia & Upjohn
Zeneca (ICI)
Retail/Consumer Packaged Goods
Campbell Soup
Dial
First Brands
The Gap*
Liz Claiborne
M&M Mars*
Polo Ralph Lauren*
Transportation
BAX Global*
Roadway Express
Ryder
Other
Stanford University
*Over $200,000 since January 1996.
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SELECTED CUSTOMER APPLICATIONS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
CUSTOMER APPLICATION
- -------------------------------------------------------------------------------------
FIRST UNION First Union Direct, a subsidiary of First Union
Corporation -- the nation's sixth largest bank -- receives
more than 2 million calls per week to its customer call
center agents.
First Union realized a need for additional call analysis
and chose our PowerCenter as a platform to build a system
to help enable the company to feed call center customer
data into analytic applications that generate reports on
performance issues and service optimization. The system
allows First Union to enhance its resource allocation
using insight gained from such reports. Our software made
it possible for the system to provide First Union with
intra-day performance data at a far greater level of
detail than was previously possible. In addition, the
system identifies opportunities to realign call routing
priorities between "1-800" calls and calls from the branch
customers so both call types are optimized to provide
better service and shorter wait times. The new system will
also measure and report agent performance by identifying
specific training and feedback opportunities to provide
top level service and to build lasting financial
relationships with customers.
- -------------------------------------------------------------------------------------
CARLSON WAGONLIT Carlson Wagonlit Travel is a world leader in business
travel and expense management, with over 3,000 locations
in 141 countries and more than $11 billion in annual
sales.
Carlson Wagonlit Travel chose our platform to build an
enterprise information delivery system. This system
enables Carlson Wagonlit Travel to mine the large
quantities of data in its transaction systems, and provide
its clients with valuable analysis and reports on travel
spending volumes and patterns. In addition, corporate
travel managers use this information to streamline
processes and policies, often resulting in cost savings.
With the eventual goal of consolidating customer travel
data from around the world for analysis, we are working
with Carlson Wagonlit Travel to help them provide their
travel clients with better service through a wealth of
tailored information.
- -------------------------------------------------------------------------------------
3COM 3Com, one of the largest network solutions companies in
the world and serving over 200 million customers, has over
five transactional systems from which it pulls operational
data into its data center in Santa Clara, CA. In addition,
3Com is currently implementing a powerful enterprise
resource planning solution, R/3 from SAP. 3Com turned to
us to provide a data warehouse platform to enable it to
develop a common data transformation architecture for its
data center and to leverage its new enterprise resource
planning solution.
Currently, PowerCenter has enabled 3Com to build a "24x7"
data warehouse environment that automatically uploads
point-of-sale and channel inventory data from its North
American, Asia Pacific and European operations. 3Com
intends to extend this data warehouse environment to
extract data from additional sources and integrate
business intelligence tools for additional analysis and
reporting.
</TABLE>
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RESEARCH AND DEVELOPMENT
As of March 31, 1999, we employed 48 people in our research and development
organization. This team is responsible for the design, development and release
of our products. The group is organized into four disciplines: development,
quality assurance, documentation and program management. Members from each
discipline, along with a product marketing manager from our marketing
department, form separate product teams that work closely with sales, marketing,
services, customers and prospects to better understand market needs and user
requirements.
When appropriate, we also utilize third-parties to expand the capacity and
technical expertise of our internal research and development team. On occasion,
we have licensed third-party technology. We believe this approach shortens time
to market without compromising competitive position or product quality, and we
plan to continue to draw on third-party resources as needed in the future.
We have a well-defined software development methodology that we believe
enables us to deliver products that satisfy real business needs for the global
market while also meeting commercial quality expectations. Our methodology
involves specifying and reviewing business requirements, functional
requirements, prototypes, technical designs, test plans and documentation plans.
We then perform iterative, scheduled quality assurance of code and
documentation, followed by frequent stabilization of code and documentation. We
test automation definition, instrumentation and execution as well as functions,
components, systems, integration, performance, stress and international and Year
2000 compliance. A key component of our methodology is full product regression
testing before beta or general availability releases and trial deployments in an
internal production environment prior to release, external beta releases and
general availability release. Failure to develop and introduce new products, or
enhancements to existing products, in a timely manner in response to changing
market conditions or customer requirements, may materially adversely affect our
business, results of operations or financial condition.
We emphasize quality assurance throughout the software development
life-cycle. We believe that a strong emphasis placed on analysis and design
early in the project life reduces the number and costs of defects that may be
found in later stages.
SALES, MARKETING AND DISTRIBUTION
We market and sell software and services through a direct sales force in
the United States, the United Kingdom and Germany, as well as through
distributors. As of March 31, 1999, we employed 91 people worldwide in our sales
and marketing organization.
Marketing programs are focused on creating awareness as well as lead
generation and customer references for our products. These programs are targeted
at key executives such as chief executive officers, chief information officers
and presidents of engineering, research and development, sales, service and
marketing. Our marketing personnel engage in a variety of activities, including
positioning our software products and services, conducting public relations
programs, establishing and maintaining relationships with industry analysts and
generating qualified sales leads, among others.
Our sales process consists of several phases: lead generation, initial
contact, lead qualification, needs assessment, enterprise overview, product
demonstration, proposal generation and contract negotiation. Although the
typical sales cycle has been up to 120 days, certain
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sales cycles in the past have lasted substantially longer. In a number of
instances, our relationships with systems integrators and other strategic
partners have reduced sales cycles by generating qualified sales leads, making
initial customer contacts and assessing needs prior to our introduction to the
customer. Also, partners have assisted in the creation of presentations and
demonstrations, which we believe enhances our competitive position.
We distribute our products through system integrators in the United States
and distributors in Europe. Systems integrators typically possess expertise in
vertical markets. They resell our products, bundling them in some cases with
system-wide solutions. In other cases, they influence direct sales of our
products. Distributors sublicense our products and provide service and support
within their territories.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. We have four patent applications pending and one patent
application allowed in the United States. It is possible that our pending
applications will not be allowed or that competitors will successfully challenge
the validity or scope of our allowed patent or any future allowed patents. Our
patents alone may not provide us with any significant competitive advantage.
As part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, distributors and corporate
partners and into license agreements with respect to our software, documentation
and other proprietary information. Despite these precautions, third parties
could copy or otherwise obtain and use our products or technology without
authorization, or develop similar technology independently. It is difficult for
us to police unauthorized use of our products, and, although we are unable to
determine the extent to which piracy of our software products exists, software
piracy is a prevalent problem in our industry in general. Effective protection
of intellectual property rights is unavailable or limited in certain foreign
countries. The protection of our proprietary rights may be inadequate and our
competitors could independently develop similar technology, duplicate our
products or design around any patents or other intellectual property rights we
hold.
As is common in the software industry, we may from time to time receive
notices from third parties claiming infringement by our products of third-party
patent and other proprietary rights. On April 7, 1999, we were notified by
another company that it is evaluating our products to determine whether our
products infringe its U.S. patent and has requested that we enter into
discussions with them as to whether it is necessary or appropriate for us to
obtain a license. This company has filed litigation against one of our
competitors, alleging infringement of its patent. Third parties, including the
company that has contacted us regarding our products, could claim that our
current or future products infringe their patent or other proprietary rights.
Any claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements, any of which could have a material adverse effect upon our
business, financial condition and operating results. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us, or at
all. Legal action claiming patent infringement could be commenced against us,
and we may not prevail in such litigation given the complex technical issues and
inherent uncertainties in patent litigation. Moreover, the cost of defending
patent litigation could be substantial, regardless of the outcome. In the event
a patent claim against us was successful and we
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could not obtain a license on acceptable terms or license a substitute
technology or redesign to avoid infringement, our business, financial condition
and operating results would be materially adversely affected. See
"Business -- Intellectual Property and Other Proprietary Rights."
COMPETITION
The market for our products is highly competitive, rapidly evolving and
subject to rapidly changing technology. We compete principally against providers
of decision support, data warehousing and enterprise application software. Such
competitors include Acta Technology, Inc., Ardent Software, Inc., Broadbase
Information Systems, Inc., Epiphany Marketing Software, Evolutionary
Technologies, Inc., Information Builders, Inc., PLATINUM technology, inc. and
Sagent Technology, Inc. In addition, we compete or may compete against database
vendors that currently offer, or may develop, products with functionalities that
compete with our solutions. These products typically operate specifically with
these competitors' proprietary databases. Such competitors include IBM
Corporation, Microsoft Corporation and Oracle Corporation.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
Competition could seriously impede our ability to sell additional products and
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future products
obsolete, unmarketable or less competitive. We currently compete more on the
basis of our products' functionality than on the basis of price. If our
competitors develop similar or superior functionality, we may have difficulty
competing more substantially on the basis of price. Our current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other solution providers, thereby
increasing the ability of their products to address the needs of our prospective
customers. Our current and potential competitors may establish or strengthen
cooperative relationships with our current or future channel or strategic
partners, thereby limiting our ability to sell products through these channels.
Competitive pressures could reduce our market share or require us to reduce our
prices, either of which could materially and adversely affect our business,
results of operations or financial condition.
We compete on the basis of certain factors, including:
- product performance;
- product features;
- user scalability;
- open architecture;
- ease of use;
- product reliability;
- analytical capabilities;
- time to market;
- customer support; and
- product pricing.
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<PAGE> 47
We believe that we presently compete favorably with respect to each of
these factors. However, the market for our products is still rapidly evolving,
and we may not be able to compete successfully against current and potential
competitors.
EMPLOYEES
As of March 31, 1999, we had a total of 200 employees, including 48 people
in research and development, 91 people in sales and marketing, 41 people in
consulting, customer support and training and 20 people in general and
administrative services. None of our employees is represented by a labor union,
and we consider employee relations to be good.
FACILITIES
Our primary offices are located in approximately 45,000 square feet of
space in Palo Alto, California under a lease expiring on January 31, 2001. We
also lease space for our significant sales and support offices in High Wycombe,
United Kingdom, Munich, Germany, and in the United States in New York,
Pennsylvania, Missouri and the District of Columbia.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning our executive
officers and directors as of March 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Gaurav S. Dhillon............... 33 Chief Executive Officer, Secretary and
Director
Diaz H. Nesamoney............... 34 President and Director
Clive A. Harrison............... 41 Executive Vice President, Worldwide Sales
Craig L. Klosterman............. 44 Chief Financial Officer, Senior Vice President
David W. Pidwell(2)............. 51 Director
A. Brooke Seawell(1)............ 51 Director
Arnold N. Silverman(2).......... 60 Director
Vincent R. Worms(1)............. 46 Director
</TABLE>
- -------------------------
(1) Member of audit committee.
(2) Member of compensation committee.
Mr. Dhillon is one of the founders of Informatica and has been our Chief
Executive Officer, our Secretary and a member of our board of directors since
our inception. Prior to co-founding Informatica in February 1993, Mr. Dhillon
was employed by Sterling Software, a software company, from December 1991 to
November 1992, where his last position was project manager. Prior to that, he
was a Systems Architect with Unisys Corporation. Mr. Dhillon holds a B.S.E.E.
from Punjab University, India.
Mr. Nesamoney is also one of the founders of Informatica and has been a
member of our board of directors and an officer since our inception. He is
currently our President. Prior to co-founding Informatica in February 1993, Mr.
Nesamoney was employed by Unisys Corporation from May 1988 to February 1993,
where his last position was Development Manager. Mr. Nesamoney holds an M.S.C.S.
degree from Birla Institute of Technology & Science.
Mr. Harrison joined us in January 1996 as senior vice president, sales and
became Executive Vice President, Worldwide Sales in January 1999. Mr. Harrison
held sales management responsibility at Oracle Systems from June 1995 to January
1996. From September 1989 to June 1995, he was regional vice president of sales
at Information Resources, an enterprise decision support software company. Mr.
Harrison holds a B.S. degree in operational research and economics from Aston
University in England.
Mr. Klosterman has been our Chief Financial Officer and a Senior Vice
President since August 1998. From February 1993 to August 1998, Mr. Klosterman
worked at Lumisys, a medical products company, and held a number of positions,
including chief operating officer, chief financial officer and executive vice
president. Prior to February 1993, he held executive and financial positions at
Voysys and KLA Instruments. Mr. Klosterman currently serves on the board of
directors of Lumisys. Mr. Klosterman holds a B.S. in mechanical engineering from
the University of Wisconsin and an M.B.A. in Finance from The Wharton School.
48
<PAGE> 49
Mr. Pidwell has been one of our directors since February 1996. From January
1988 to January 1996, Mr. Pidwell was president and chief executive officer of
Rasna Corporation, a software company. Mr. Pidwell is currently a venture
partner with Asset Management Associates and serves on the boards of directors
of a number of private companies. Mr. Pidwell holds a B.S.E.E. in electrical
engineering and a M.S.I.S.E. degree in computer systems engineering from Ohio
University.
Mr. Seawell has been one of our directors since December 1997. From January
1997 to August 1998, Mr. Seawell was executive vice president of NetDynamics, an
Internet applications server company. From March 1991 to January 1997, Mr.
Seawell was senior vice president and chief financial officer of Synopsys. Mr.
Seawell holds a B.A. degree in Economics and an M.B.A. degree in Finance and
Accounting from Stanford University. Mr. Seawell serves on the board of
directors of NVIDIA Corporation, a 3D (three-dimensional) graphics processor
company, and several privately held companies.
Mr. Silverman has been one of our directors and chairman of our board since
September 1995. Mr. Silverman is a managing partner of Discovery Ventures I,
LLC, a venture investment fund and one of our investors. In addition to serving
as a director at Business Objects, a software company, he is on the boards of
directors of a number of private companies. Mr. Silverman holds a B.S.E.E. and
an M.S.E.E. from the University of California at Berkeley and an M.B.A. from
Columbia University.
Mr. Worms has been one of our directors since September 1995. From 1982 to
the present, Mr. Worms has served as co-president of Partech International
Capital Management, a venture capital firm that manages one of our investors.
Mr. Worms holds a M.S. degree in science from the Ecole Polytechnique in Paris,
France and the Massachusetts Institute of Technology. Mr. Worms serves on the
boards of directors of SangStat Medical Corporation and Business Objects, a
software company, in addition to serving on the board of a number of private
companies.
BOARD OF DIRECTORS
We currently have authorized six directors. Currently all directors hold
office until the next annual meeting of stockholders or until their successors
are duly qualified. Our amended and restated certificate of incorporation filed
in connection with this offering provides that as of the first annual meeting of
stockholders where we have at least 800 stockholders, our board of directors
will be divided into three classes, each with staggered three-year terms. As a
result, only one class of directors will be elected at each annual meeting of
our stockholders, with the other classes continuing for the remainder of their
respective three-year terms.
Committees
Our board of directors has an audit committee and a compensation committee.
The audit committee reviews the results and scope of the annual audit and other
services provided by our independent accountants, reviews and evaluates our
internal audit and control functions and monitors transactions between us and
our employees, officers and directors. The compensation committee administers
the 1999 Stock Incentive Plan, 1999 Employee Stock Purchase Plan, 1996 Flexible
Stock Incentive Plan and 1993 Flexible Stock Incentive Plan, and reviews the
compensation and benefits for our executive officers.
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<PAGE> 50
Compensation Committee Interlocks and Insider Participation
Prior to February 1999, the compensation committee was composed of Messrs.
Dhillon, Pidwell and Silverman. This committee is currently composed of Messrs.
Pidwell and Silverman. No interlocking relationship exists between any member of
our board of directors or compensation committee and any member of the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
Compensation
Our non-employee directors are reimbursed for expenses incurred in
connection with attending board and committee meetings but are not compensated
for their services as board members. We have in the past granted directors
options to purchase our common stock pursuant to the terms of our 1993 Flexible
Stock Incentive Plan and 1996 Flexible Stock Incentive Plan. We will also grant
directors options to purchase our common stock pursuant to the terms of our 1999
Stock Incentive Plan or our 1999 Non-Employee Director Stock Incentive Plan. See
"-- Stock Plans."
EXECUTIVE OFFICERS
Our executive officers are elected by, and serve at the discretion of, our
board of directors. There are no family relationships among our directors and
officers.
Compensation
The following table sets forth certain information concerning compensation
of our chief executive officer and each other most highly compensated executive
officers whose aggregate cash compensation exceeded $100,000 during the year
ended December 31, 1998 (collectively, our "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Gaurav S. Dhillon
Chief Executive Officer, Secretary and
Director.................................. $130,000 $ 52,114(1) 100,000
Diaz H. Nesamoney
President and Director....................... 130,000 52,114(1) 100,000
Clive A. Harrison
Executive Vice President, Worldwide Sales.... 140,000 109,942(2) 50,000
</TABLE>
- -------------------------
(1) Excludes bonus amounts of $8,919 earned in 1997 and paid in 1998.
(2) Includes sales commissions earned in 1998 and excludes commissions of
$34,010 and bonus amounts of $9,500, each earned in 1997 and paid in 1998.
50
<PAGE> 51
Option Grants In Fiscal Year 1998
The following table sets forth certain information for each of our Named
Executive Officers concerning stock options granted to them during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR OPTION TERM(4)
OPTIONS GRANTED TO PRICE EXPIRATION ----------------------------
NAME GRANTED(1) EMPLOYEES(2) PER SHARE DATE(3) 5% 10%
---- ---------- ------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gaurav S. Dhillon..... 100,000 6.24% $4.00 02/12/08 $2,206,231 $3,749,988
Diaz H. Nesamoney..... 100,000 6.24 4.00 02/12/08 2,206,231 3,749,988
Clive A. Harrison..... 50,000 3.12 4.00 02/12/08 1,103,116 1,874,994
</TABLE>
- -------------------------
(1) 25% of the options granted vest one year from the date of grant. Thereafter,
the remaining 75% of the options granted vest monthly over the next three
years.
(2) In the last fiscal year, we granted options to employees to purchase an
aggregate of 1,601,803 shares.
(3) Options may terminate before their expiration dates if the optionee's status
as an employee is terminated or upon the optionee's death or disability.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices. The
potential realizable values are calculated by assuming that the initial
public offering price of $16.00 per share was the fair market value of our
common stock at the time of grant, that the common stock 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 the option term
at the appreciated price.
Aggregate Option Exercises In Last Fiscal Year and Year-End Option Values
The following table sets forth certain information concerning exercises of
stock options during the fiscal year ended December 31, 1998 by each of our
Named Executive Officers and the number and value of unexercised options held by
each of our Named Executive Officers on December 31, 1998. No options were
exercised by our Named Executive Officers in 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gaurav S. Dhillon............... 100,000 100,000 $1,575,000 $1,200,000
Diaz H. Nesamoney............... 100,000 100,000 1,575,000 1,200,000
Clive A. Harrison............... 128,541 111,459 2,040,927 1,574,073
</TABLE>
- -------------------------
(1) The value of "in-the-money" stock options represents the positive spread
between the exercise price of stock options and the initial public offering
price per share of $16.00.
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<PAGE> 52
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by the General Corporations Law of the State of
Delaware, as amended. We are also empowered under our bylaws to enter into
indemnification agreements with our directors and officers and to purchase
insurance on behalf of any person whom we are required or permitted to
indemnify. We have entered into indemnification agreements with each of our
directors and executive officers and intend to obtain a policy of directors' and
officers' liability insurance that insures such persons against the cost of
defense, settlement or payment of a judgment under certain circumstances.
We have entered into agreements with our directors and executive officers
regarding indemnification. Under these agreements we are required to indemnify
them against expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred (including expenses of a derivative action) in
connection with an actual, or a threatened, proceeding if any of them may be
made a party because he or she is or was one of our directors or officers. We
are obligated to pay these amounts only if the officer or director acted in good
faith and in a manner that he or she reasonably believed to be in (or not
opposed to) our best interests. With respect to any criminal proceeding, we are
obligated to pay these amounts only if the officer or director had no reasonable
cause to believe his or her conduct was unlawful. The indemnification agreements
also set forth procedures that will apply in the event of a claim for
indemnification thereunder.
In addition, our amended and restated certificate of incorporation filed in
connection with this offering provides that the liability of our directors for
monetary damages shall be eliminated to the fullest extent permissible under the
General Corporation Law of the State of Delaware, as amended. This provision in
our amended and restated certificate of incorporation does not eliminate a
director's duty of care, and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available. Each director will continue to be subject to liability for breach of
the director's duty of loyalty to us, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to our best interests or our
stockholders, for any transaction from which the director derived an improper
personal benefit, for improper transactions between the director and us and for
improper distributions to stockholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have 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.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
52
<PAGE> 53
STOCK PLANS
1993 Flexible Stock Incentive Plan
Our 1993 Flexible Stock Incentive Plan was adopted by our board of
directors in April 1993 and approved by our stockholders in May 1993. The 1993
Flexible Stock Incentive Plan provides for the granting to our employees, and
employees of our subsidiaries, of incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), and
for the granting to employees and independent contractors of nonstatutory stock
options. Our board of directors and our stockholders have authorized a total of
1,500,000 shares of common stock for issuance pursuant to the 1993 Incentive
Plan. As of March 31, 1999, there were options to purchase 455,061 shares
outstanding. No grants were made under this plan after the adoption of the 1996
Flexible Stock Incentive Plan.
1996 Flexible Stock Incentive Plan
Our 1996 Flexible Stock Incentive Plan was adopted by our board of
directors and approved by our stockholders in July 1996. The 1996 Incentive Plan
provides for the granting to our employees, and employees of our subsidiaries,
of incentive stock options within the meaning of Section 422A of the Code, and
for the granting to employees and independent contractors of nonstatutory stock
options. Our board of directors and our stockholders have authorized a total of
3,727,250 shares of common stock for issuance pursuant to the 1996 Incentive
Plan. As of March 31, 1999, there were options to purchase 2,817,352 shares
outstanding. We do not anticipate granting options under this plan after
completion of this offering and adoption of the 1999 Stock Incentive Plan.
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan was adopted by our board of directors in
February 1999 and approved by our stockholders in April 1999. The 1999 Stock
Incentive Plan provides for the granting to employees of incentive stock options
within the meaning of Section 422 of the Code and the granting of nonstatutory
stock options, stock appreciation rights, dividend equivalent rights, restricted
stock, performance units, performance shares, and other equity-based rights to
our employees, directors and consultants. Initially, 650,000 shares of our
common stock are reserved for issuance under the plan. The number of shares
initially reserved will be increased by the number of shares (1) reserved under
our 1996 Flexible Stock Incentive Plan, but not granted as of the date of
completion of this offering, and (2) represented by grants under our 1996
Flexible Stock Incentive Plan which expire, are forfeited or cancelled after
completion of this offering. Commencing January 1, 2000, the number of shares of
stock reserved for issuance under the 1999 Stock Incentive Plan will be
increased annually by a number equal to 5% of the fully-diluted number of shares
of common stock outstanding as of December 31 of the immediately preceding
calendar year or such lesser number as determined by the administrator. However,
the maximum number of shares available for issuance as incentive stock options
shall be increased by the lesser of either 5% of the fully-diluted number of
shares of common stock outstanding on December 31 of the immediately preceding
calendar year, 4,000,000 shares or such lesser number as determined by the
administrator. Where the award agreement permits the exercise or purchase of the
award for a certain period of time following the recipient's termination of
service with us, or the recipient's disability or death, the award will
terminate to the extent not exercised or purchased on the last day of
53
<PAGE> 54
the specified period or the last day of the original term of the award,
whichever occurs first. To date, no awards have been granted under our 1999
Stock Incentive Plan.
With respect to awards granted to our directors or officers, the 1999 Stock
Incentive Plan is administered by our board of directors or a committee
designated by our board of directors constituted to permit such awards to be
exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended, in
accordance with Rule 16b-3 thereunder. With respect to awards granted to other
participants, the 1999 Stock Incentive Plan is administered by our board of
directors or a committee designated by it. In each case, our board of directors
or the committee it designates shall determine the provisions, terms and
conditions of each award, including, but not limited to, the award vesting
schedule, repurchase provisions, rights of first refusal, forfeiture provisions,
form of payment upon settlement of the award, payment contingencies and
satisfaction of any performance criteria. Incentive stock options are not
transferable by the optionee other than by will or the laws of descent or
distribution, and each incentive stock option is exercisable during the lifetime
of the optionee only by such optionee. Other awards shall be transferable to the
extent provided in the agreement evidencing the award. The exercise price of
incentive stock options must be at least equal to the fair market value of our
common stock on the date of grant, and the term of the option must not exceed
ten years. The term of other awards will be determined by the 1999 Stock
Incentive Plan administrator. With respect to an employee who owns stock
possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any incentive stock option must equal at
least 110% of the fair market value of our common stock on the grant date and
the term of the option must not exceed five years. The exercise or purchase
price of other awards will be such price as determined by the administrator. The
consideration to be paid for the shares of our common stock upon exercise or
purchase of an award will be determined by the administrator and may include
cash, check, shares of common stock, a promissory note, or the assignment of
part of the proceeds from the sale of shares acquired upon exercise or purchase
of the award.
In the event a third party acquires us through the purchase of all or
substantially all of our assets, a merger or other business combination, all
unexercised options shall terminate unless assumed by the successor corporation.
Unless terminated sooner, the 1999 Stock Incentive Plan will terminate
automatically in 2009. Our board has the authority to amend, suspend or
terminate the 1999 Stock Incentive Plan subject to stockholder approval of
certain amendments and provided no such action may affect awards previously
granted under the 1999 Stock Incentive Plan.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was approved by our board of
directors in March 1999 and by our stockholders in April 1999, is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Code and
to provide our employees with an opportunity to purchase common stock through
payroll deductions. Initially an aggregate of 400,000 shares of our common stock
are reserved for issuance under the 1999 Employee Stock Purchase Plan and
available for purchase thereunder, subject to adjustment in the event of a stock
split, stock dividend or other similar change in our common stock or our capital
structure. Commencing on January 1, 2000, the number of shares reserved under
this plan will be increased by a number equal to the lesser of 2% of the
fully-diluted number of shares outstanding on such date, 1,600,000 shares, or
such lesser number as determined by the administrator. All of our employees and
the employees of our
54
<PAGE> 55
subsidiaries (including officers) whose customary employment is for more than 5
months in any calendar year and more than 20 hours per week are eligible to
participate in the 1999 Employee Stock Purchase Plan. Employees subject to the
rules or laws of a foreign jurisdiction that prohibit or make impractical the
participation of such individuals in the 1999 Employee Stock Purchase Plan are
not eligible to participate in the 1999 Employee Stock Purchase Plan.
The 1999 Employee Stock Purchase Plan designates offer periods, purchase
periods and exercise dates. Offer periods are generally overlapping periods of
24 months. An offer period will initiate on the effective date of this
Registration Statement and additional offer periods will commence each
subsequent February 1 and August 1. The initial offer period will end on July
15, 2001. Purchase periods are generally six-month periods initially commencing
on the effective date of this offering and ending on January 31, 2000.
Thereafter purchase periods will commence each February 1 and August 1, as
appropriate. The exercise date is the last day of each purchase period.
On the first day of each offer period, a participating employee is granted
purchase rights which are a form of option to be automatically exercised on the
forthcoming exercise dates within the offer period during which deductions are
to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the 1999 Employee Stock
Purchase Plan. When a purchase right is exercised, the participant's withheld
salary is used to purchase shares of our common stock. The price per share at
which shares of common stock are to be purchased under the 1999 Employee Stock
Purchase Plan during any offer period is the lesser of (a) 85% of the fair
market value of our common stock on the date of the grant of the option (the
commencement of the offer period) or (b) 85% of the fair market value of our
common stock on the applicable exercise date. The participant's purchase right
is exercised in this manner on all four exercise dates arising in the offer
period unless, on the first day of any purchase period, the fair market value of
our common stock is lower than the fair market value of the common stock on the
first day of the offer period. If so, the participant's participation in the
original offer period is terminated, and the participant is automatically
enrolled in the new offer period commencing on such day.
Payroll deductions may range from 1% to 10% (in whole percentage
increments) of a participant's regular base pay, including commissions,
overtime, bonuses, annual awards and other incentive payments. Participants may
not make direct cash payments to their accounts. The maximum number of shares of
common stock which any employee may purchase under the 1999 Employee Stock
Purchase Plan during a purchase period is 2,500 shares. Certain additional
limitations on the amount of common stock which may be purchased during any
calendar year are imposed by the Code.
The 1999 Employee Stock Purchase Plan may be administered by either our
board of directors or a committee designated by our board, which will have the
authority to administer the 1999 Employee Stock Purchase Plan and to resolve all
questions relating to its administration.
1999 Non-Employee Director Stock Incentive Plan
Our 1999 Non-Employee Director Stock Incentive Plan was approved by our
board of directors in March 1999 and by our stockholders in April 1999. The
total number of shares available for grant under the 1999 Non-Employee Director
Plan is 250,000 shares of common stock. No awards will be made under this plan
until completion of this offering.
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<PAGE> 56
The purposes of the 1999 Non-Employee Director Plan are to attract and
retain the best available non-employee directors, to provide them additional
incentives and, therefore, to promote the success of our business.
The 1999 Non-Employee Director Plan establishes an automatic option grant
program for the grant of awards to non-employee directors. Under this program,
each non-employee director first elected to our board of directors following the
completion of this offering will automatically be granted an option to acquire
25,000 shares of our common stock at an exercise price per share equal to the
fair market value of our common stock at the date of grant. These options will
vest and become exercisable in four equal installments on each yearly
anniversary of the grant date. Upon the date of each annual stockholders'
meeting, each non-employee director, who has been a member of our board of
directors for at least six months prior to the date of the stockholders'
meeting, will receive automatic annual grants of options to acquire 5,000 shares
of our common stock at an exercise price equal to the fair market value of our
common stock at the date of grant. Such options will vest and become fully
exercisable on the first anniversary of the grant date.
Each automatic option grant will have a term of five years and will be
transferable to the extent provided in the agreement evidencing the option. The
consideration for exercising an option may consist of cash, check, shares of our
common stock, the assignment of part of the proceeds from the sale of shares
acquired upon exercise of the option or any combination thereof.
The 1999 Non-Employee Director Plan is administered by our board of
directors or a committee designated by our board of directors constituted to
permit non-employee director awards to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3 thereunder. The administrator shall
approve forms of award agreements for use under the 1999 Non-Employee Director
Plan, determine the terms and conditions of awards, and construe and interpret
the terms of the plan and awards granted pursuant thereto.
Unless terminated sooner, the 1999 Non-Employee Director Plan will
terminate automatically in 2019. Our board of directors has the authority to
amend, suspend or terminate the 1999 Non-Employee Director Plan subject to
stockholder approval of certain amendments and provided no such action may
affect awards to non-employee directors previously granted under the plan,
unless agreed to by the affected non-employee directors.
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<PAGE> 57
CERTAIN TRANSACTIONS
In March 1996, we sold an aggregate of 1,000,000 shares of our Series B
preferred stock at a price per share of $1.00. In May 1996, investors in the
next equity financing made loans to us aggregating $2,050,000 and purchased
warrants to purchase 205,000 shares of our Series C preferred stock at a price
per share of $2.50. The aggregate purchase price of these warrants was
$2,562.50. In July 1996, we sold an aggregate of 2,440,000 shares of our Series
C preferred stock at a price per share of $2.50. In June 1997, we sold an
aggregate of 2,250,000 shares of our Series D preferred stock at a price per
share of $4.00. Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal number
of shares of common stock, and outstanding warrants for preferred stock will be
exercisable for an equal number of shares of common stock. Listed below are
those stockholders who beneficially own five percent or more of our securities
who participated in such financings.
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES B SERIES C SERIES D UNDERLYING CONSIDERATION
STOCKHOLDER PREFERRED PREFERRED PREFERRED WARRANTS PAID
----------- --------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Partech Entities(1)........ 400,000 560,000 585,000 80,000 $4,141,000
Bay Partners SBIC,
L.P.(2).................. 400,000 560,000 187,500 80,000 2,551,000
Integral Capital
Entities(3).............. 1,000,000 315,000 3,760,000
Weiss, Peck & Greer
Entities(4).............. 1,125,000 4,500,000
Discovery Ventures I,
L.L.C.(5)................ 200,000 280,000 25,000 40,000 1,000,500
The Pidwell Family Living
Trust(6)................. 40,000 12,500 5,000 150,063
</TABLE>
- -------------------------
(1) Includes Partech U.S. Partners III, C.V., Parvest U.S. Partners II, C.V.,
Tradeinvest Limited, Multinvest Limited, C.V., U.S. Growth Fund Partners
C.V., Axa U.S. Growth Fund LLC, Double Black Diamond II LLC and Partech
International Profit Sharing Plan. The consideration paid by Parvest U.S.
Partners II, C.V., Tradeinvest Limited, Multinvest Limited, C.V., Partech
International Profit Sharing Plan and Partech U.S. Partners III, C.V., for
shares of Series C preferred stock in July 1996 included the conversion and
cancellation of short-term, interest free convertible promissory notes,
which notes we issued to each such entity on May 7, 1996, in the principal
amount of $360,000, $42,000, $28,000, $10,000 and $360,000, respectively.
Mr. Worms, one of our directors, is either a general partner, managing
member, attorney-in-fact or trustee of each Partech entity. Mr. Worms
disclaims beneficial ownership of the shares held by each such entity,
except to the extent of his pecuniary interest therein.
(2) The aggregate consideration paid by such entity for shares of Series C
preferred stock in July 1996 included the conversion and cancellation of a
short-term, interest free convertible promissory note, which note we issued
to such entity on May 7, 1996, in the principal amount of $800,000.
(3) Includes Integral Capital Partners III, L.P. and Integral Capital Partners
International III, L.P.
(4) Includes WPG Enterprise Fund, III, L.L.C., Weiss, Peck & Greer Venture
Associates IV, L.L.C. and Weiss, Peck & Greer Venture Associates IV Cayman,
L.P.
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<PAGE> 58
(5) Mr. Silverman, one of our directors, is a manager of Discovery Ventures I,
L.L.C. Mr. Silverman disclaims beneficial ownership of the shares held by
such entity, except to the extent of his pecuniary interest therein. The
aggregate consideration paid by such entity for shares of Series C
preferred stock in July 1996 included the conversion and cancellation of a
short-term, interest free convertible promissory note, which note are
issued to such entity on May 7, 1996, in the principal amount of $400,000.
(6) Mr. Pidwell, one of our directors, is the trustee of The Pidwell Family
Living Trust. The aggregate consideration paid by such entity for shares of
Series C preferred stock in July 1996 included the conversion and
cancellation of a short-term, interest-free convertible promissory note
which note we issued to such entity on May 7, 1996, in the principal amount
of $50,000.
On various occasions during 1998 and the three preceding fiscal years, we
granted the following options to purchase our common stock to the following
officers, directors and stockholders who beneficially own five percent or more
of our securities:
- on March 18, 1997 and February 12, 1998, Mr. Dhillon was granted two
options to purchase 100,000 shares of common stock in each grant, with an
exercise price per share of $0.25 and $4.00, respectively;
- on March 18, 1997 and February 12, 1998, Mr. Nesamoney was granted two
options to purchase 100,000 shares of common stock in each grant, with an
exercise price per share of $0.25 and $4.00, respectively;
- on February 20, 1996, March 18, 1997 and February 12, 1998, Mr. Harrison
was granted options to purchase 150,000, 40,000 and 50,000 shares of
common stock, respectively, with an exercise price per share of $0.10,
$0.25 and $4.00, respectively;
- on August 21, 1998, Mr. Klosterman was granted options to purchase an
aggregate of 225,000 shares of common stock with an exercise price per
share of $6.50;
- on May 22, 1996 and November 23, 1998, Mr. Pidwell, trustee of the
Pidwell Family Living Trust, was personally granted options to purchase
56,250 and 15,000 shares of common stock, respectively, with an exercise
price per share of $0.10 and $7.50, respectively;
- on September 11, 1995, Discovery Ventures I, LLC was assigned an option,
originally granted to Mr. Silverman on the same date, to purchase 56,250
shares of common stock with an exercise price per share of $0.10;
- on September 11, 1995, the Partech Entities were assigned an option,
originally granted to Mr. Worms on the same date, to purchase 56,250
shares of common stock with an exercise price per share of $0.10; and
- on December 10, 1997 and November 23, 1998, Mr. Seawell was granted
options to purchase 35,000 and 15,000 shares of common stock,
respectively, with an exercise price per share of $1.50 and $7.50,
respectively.
We believe that the shares issued in the above described transactions were
sold at the then fair market value and that the terms of all of the above
described transactions were no less favorable than we could have obtained from
unaffiliated third parties.
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of March 31, 1999 as adjusted to
reflect the sale of shares offered hereby (a) each person known by us to own
beneficially more than 5% of the outstanding shares of common stock, (b) each of
our directors, (c) each Named Executive Officer (see "Management -- Executive
Compensation"), and (d) all current executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING PERCENTAGE OF SHARES OUTSTANDING
NUMBER OF OPTIONS -----------------------------------
NAME OF BENEFICIAL OWNER SHARES(1)(2) AND WARRANTS(3) BEFORE OFFERING AFTER OFFERING(4)
------------------------ ------------ ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Partech Entities
50 California Street, Ste. 3200
San Francisco, CA 94111(5)...... 2,581,250 80,000 22.1% 17.9%
Vincent R. Worms(6)............... 2,581,250 80,000 22.1 17.9
Bay Partners SBIC, L.P.
10600 North DeAnza Blvd.
Cupertino, CA 95014(7).......... 2,183,750 80,000 18.7 15.1
Integral Capital Entities
2750 Sand Hill Road
Menlo Park, CA 94025(8)......... 1,315,000 11.3 9.2
Diaz H. Nesamoney(9).............. 1,306,252 131,250 11.1 9.0
Gaurav S. Dhillon................. 1,303,586 131,250 11.1 9.0
Weiss, Peck & Greer Entities
555 California Street, Ste. 3130
San Francisco, CA 94l04(10)..... 1,125,000 -- 9.7 7.8
Discovery Ventures I, LLC
3000 Sand Hill Road, Bldg. 3
#210
Menlo Park, CA 94025(11)........ 1,051,250 40,000 9.0 7.3
Arnold N. Silverman(12)........... 1,051,250 40,000 9.0 7.3
Clive A. Harrison................. 163,958 163,958 1.4 1.1
David W. Pidwell(13).............. 103,203 10,860 * *
A. Brooke Seawell................. 12,395 12,395 * *
All executive officers and
directors as a group (8
persons)........................ 6,521,894 569,713 53.6 43.7
</TABLE>
- -------------------------
* Less than 1% of the outstanding common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of March 31, 1999 are
deemed outstanding. Percentage of beneficial ownership is based upon
11,590,327 shares of common stock outstanding prior to this offering and
14,340,327 shares of common stock outstanding after this offering. To our
knowledge, except as set forth in the footnotes to this table and subject
to applicable community property laws, each person named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name. Except as otherwise indicated, the address of
each of the persons in this table is as follows: c/o Informatica
Corporation, 3350 W. Bayshore Road, Palo Alto, California 94303.
(2) Includes 7,940,000 shares of common stock issuable upon conversion of
shares of Series A preferred stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock on a one-for-one basis which
will occur automatically upon the closing of this offering. Also includes
shares subject to options and warrants exercisable within 60 days of March
31, 1999.
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<PAGE> 60
(3) Represents shares subject to options and warrants exercisable within 60
days of March 31, 1999.
(4) Assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised in full, we will sell an aggregate of
3,000,000 shares of common stock.
(5) Includes 978,880 shares held by Partech U.S. Partners III, C.V., 978,879
shares held by Parvest U. S. Partners II, C.V., 120,112 shares held by
Tradeinvest Limited, 67,928 shares held by Multinvest Limited, C.V.,
200,000 shares held by U.S. Growth Fund Partners, C.V., 100,000 shares held
by Axa U.S. Growth Fund, LLC, 28,125 shares held by Par SF II, LLC, 18,750
shares held by Double Black Diamond II, LLC., and 8,576 shares held by
Partech International Profit Sharing Plan. Mr. Worms, one of our directors,
is either a general partner, managing member, attorney-in-fact or trustee
of each Partech Entity. Mr. Worms disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(6) Represents all of the shares and shares subject to warrants and options
held by the Partech Entities.
(7) Neal Dempsey is a general partner of Bay Management Co. 1995, a general
partner of Bay Partners SBIC, L.P.
(8) Includes 1,063,669 shares held by Integral Capital Partners III, L.P. and
251,331 shares held by Integral Capital Partners International III, L.P. of
which Integral Capital Management III, L.P. is the general partner of
Integral Capital Partners III, L.P. and the investment general partner of
Integral Capital Partners International III, L.P.
(9) Includes 2,666 shares held by Mr. Nesamoney's spouse.
(10) Includes 22,500 shares held by WPG Informational Sciences Entrepreneur
Fund, L.P., 488,959 shares held by WPG Enterprise Fund III, L.L.C., 542,982
shares held by Weiss, Peck & Greer Venture Associates IV, L.L.C. and 70,559
shares held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P.
(11) Mr. Silverman, one of our directors, is a manager of Discovery Ventures I,
LLC. Mr. Silverman disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(12) Includes all of the shares and shares subject to warrants and options held
by Discovery Ventures I, LLC.
(13) Includes 52,500 shares held of record by the Pidwell Family Living Trust
dated June 25, 1987, of which David Pidwell, one or our directors, is
trustee.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue up to
102,000,000 shares, $0.001 par value, to be divided into two classes to be
designated, respectively, "common stock" and "preferred stock." Of such shares
authorized, 100,000,000 shares shall be designated as common stock, and
2,000,000 shares shall be designated as preferred stock.
COMMON STOCK
As of March 31, 1999, there were 11,590,327 shares of common stock
outstanding that were held of record by approximately 119 stockholders (assuming
conversion of all shares of preferred stock outstanding as of March 31, 1999).
There will be 14,340,327 shares of common stock outstanding (assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options) after giving effect to the sale of common stock offered in
this offering. In addition to options to purchase our common stock issued under
the 1993 Flexible Stock Incentive Plan and 1996 Flexible Stock Incentive Plan,
there are outstanding options to purchase a total of 300,000 shares of our
common stock.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Our stockholders
do not have cumulative voting rights in the election of directors. Accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably only
those dividends as may be declared by the board of directors out of funds
legally available therefor, as well as any distributions to the stockholders.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of Informatica, holders of common stock are entitled to share ratably in all
assets of Informatica remaining after we pay our liabilities and distribute the
liquidation preference of any then outstanding preferred stock. Holders of
common stock have no preemptive or other subscription or conversion rights.
There are no redemption or sinking fund provisions applicable to the common
stock.
PREFERRED STOCK
Our board of directors will have the authority, without further action by
the stockholders, to issue up to 2,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof. These rights, preferences and privileges include dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, any or all of which may be greater than the rights
of common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation. In addition, the
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change in control of Informatica. We have no present plan to issue
any shares of preferred stock.
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<PAGE> 62
COMMON STOCK WARRANTS
Upon completion of this offering, we will have eight warrants outstanding
to purchase an aggregate of 205,000 shares of common stock at a price per share
of $2.50. See "Certain Transactions."
REGISTRATION RIGHTS
Pursuant to stock purchase agreements between us and Messrs. Dhillon and
Nesamoney, respectively, they are entitled to rights with respect to the
registration of an aggregate of approximately 2,347,338 shares of common stock.
Pursuant to an investor rights agreement entered into in June 1997 between us
and holders of 2,250,000 shares of our Series A preferred stock, 1,000,000
shares of our Series B preferred stock, 2,440,000 shares of our Series C
preferred stock and 2,250,000 shares of our Series D preferred stock, the
holders of the shares of this preferred stock are entitled to registration
rights regarding shares of common stock issued or issuable upon conversion of
these preferred shares. The registration rights of Messrs. Dhillon and Nesamoney
and the holders of our shares of preferred stock provide that if we propose to
register any securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, they
are entitled to notice and are entitled to include shares of common stock in the
registration. The rights are subject to certain conditions and limitations,
among them the right of the underwriters to limit the number of shares included
in such registration. Messrs. Dhillon and Nesamoney and the holders of our
shares of preferred stock may also require us to file a registration statement
under the Securities Act at our expense with respect to their shares of common
stock issued or issuable upon conversion of the preferred shares held by them,
as applicable. We are required to use our best efforts to effect this
registration, subject to some conditions and limitation. Furthermore, the
holders may require us to file additional registration statements on Form S-3,
subject to some conditions and limitations. See "Certain Transactions."
ANTITAKEOVER EFFECTS OF PROVISIONS OF INFORMATICA'S CHARTER AND BYLAWS
Our amended and restated bylaws provide for our board of directors to be
divided into three classes, with staggered three-year terms, when we become
eligible. When this division is effective, only one class of directors will be
elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year terms. However,
until this classification of our board of directors is effective, and because
our stockholders have no cumulative voting rights, our stockholders representing
a majority of the shares of common stock outstanding will be able to elect all
of the directors. Our amended and restated bylaws also provide that only our
chief executive officer and president may call a special meeting of
stockholders.
The combination of the classification of our board of directors, when
effective, and lack of cumulative voting will make it more difficult for our
existing stockholders to replace our board of directors as well as for another
party to obtain control of Informatica by replacing our board of directors.
Since the board of directors has the power to retain and discharge our officers,
these provisions could also make it more difficult for existing stockholders or
another party to effect a change in management.
These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of Informatica. These
provisions are intended
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<PAGE> 63
to enhance the likelihood of continued stability in the composition of our board
of directors and in the policies furnished them and to discourage certain types
of transactions that may involve an actual or threatened change of control of
Informatica. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for our shares
and, as a consequence, they also may inhibit fluctuations in the market price of
our shares that could result from actual or rumored takeover attempts. Such
provisions may also have the effect of preventing changes in our management.
SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
We are subject to Section 203 of the General Corporation Law of the State
of Delaware, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder, with
the following exceptions:
- 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 holder;
- 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 by persons who are
directors and also officers and 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
- 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
the 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 the following:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- 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;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loss,
advances, guarantees, pledges or other financial benefits by or through
the corporation.
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<PAGE> 64
In general, Section 203 defines interested stockholder as an entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or controlled
by such entity or person.
LISTING
Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "INFA."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust. Its address is 40 Wall Street, New York, NY 10005, and its
telephone number is (212) 936-5100.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 14,340,327 shares of common
stock outstanding based on shares outstanding as of March 31, 1999. Of these
shares, the 2,750,000 shares sold in this offering will be freely transferable
without restriction under the Securities Act, unless they are held by our
"affiliates" as that term is used under the Securities Act and the Regulations
promulgated thereunder.
Of these shares, the remaining 11,590,327 shares were sold by us in
reliance on exemptions from the registration requirements of the Securities Act,
are restricted securities within the meaning of Rule 144 under the Securities
Act and become eligible for sale in the public market as follows:
- beginning 90 days after the effective date, 10,000 shares will become
eligible for sale subject to the provisions of Rules 144 and 701;
- beginning 180 days after the date of this prospectus, 11,546,327
additional shares will become eligible for sale, subject to the
provisions of Rule 144, Rule 144(k) or Rule 701, upon the expiration of
agreements not to sell such shares entered into between the underwriters
and such stockholders; and
- beginning on December 22, 1999, the remaining 34,000 shares will become
eligible for sale, subject to the provisions of Rule 144.
Beginning 180 days after the date of this prospectus, 1,580,355 additional
shares subject to vested options as of the date of completion of this offering
will be available for sale subject to compliance with Rule 701 and upon the
expiration of agreements not to sell such shares entered into between the
underwriters and such stockholders. In addition, 205,000 additional shares
subject to outstanding warrants will be available 180 days after the date of
this prospectus. Any shares subject to lock-up agreements may be released at any
time without notice by the underwriters.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of completion of this
offering, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock (approximately 143,403 shares
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<PAGE> 65
immediately after this offering), or the average weekly trading volume in the
common stock during the four calendar weeks preceding such sale, subject to the
filing of a Form 144 with respect to such sale and certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of Informatica at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above.
Any employee, officer or director of or consultant to Informatica who
purchased his or her shares prior to the date of completion of this offering or
who holds vested options as of that date pursuant to a written compensatory plan
or contract is entitled to rely on the resale provisions of Rule 701, which
permits non-affiliates to sell their Rule 701 shares without having to comply
with the public-information, holding-period, volume-limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding-period restrictions, in each
case commencing 90 days after the date of completion of this offering. However,
we and certain officers, directors and other stockholders have agreed not to
sell or otherwise dispose of any shares of our common stock for the 180-day
period after the date of this prospectus without the prior written consent of
the underwriters. See "Underwriting."
As soon as practicable after the date of completion of this offering, we
intend to file a registration statement on Form S-8 under the Securities Act to
register shares of Common Stock reserved for issuance under the 1993 Flexible
Stock Incentive Plan, 1996 Flexible Stock Incentive Plan, the 1999 Stock
Incentive Plan, and the 1999 Employee Stock Purchase Plan, thus permitting the
resale of such shares by non-affiliates in the public market without restriction
under the Securities Act. Such registration statements will become effective
immediately upon filing.
Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered hereby.
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<PAGE> 66
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated April 28, 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens Inc., SoundView Technology Group, Inc. and First Albany Corporation are
acting as representatives, the following respective numbers of shares of common
stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation...................... 1,174,905
BancBoston Robertson Stephens Inc. ......................... 705,435
SoundView Technology Group, Inc. ........................... 469,471
First Albany Corporation.................................... 108,151
The Chapman Co. ............................................ 48,673
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.............................................. 48,673
Invemed Associates, Inc. ................................... 48,673
Charles Schwab & Co., Inc. ................................. 48,673
SG Cowen Securities Corporation............................. 48,673
U.S. Bancorp Piper Jaffray Inc. ............................ 48,673
---------
Total............................................. 2,750,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 250,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $0.67 per share. The
underwriters and selling group members may allow a discount of $0.10 per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Total
--------------------------------
Without With
Per Share Over-allotment Over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us........................... $1.12 $3,080,000 $3,360,000
Expenses payable by us................. $0.29 $ 788,616 $ 788,616
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
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<PAGE> 67
We and our executive officers, directors and certain other securityholders
of Informatica have agreed that we will not offer, sell, contract to sell,
announce our intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of our common stock
or securities convertible into or exchangeable or exercisable for any of our
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to 220,000 shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act or to contribute to payments which the underwriters may
be required to make in that respect.
Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "INFA."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price was determined by negotiation between
us and the underwriters. The principal factors to be considered in determining
the public offering price include: the information set forth in this prospectus
and otherwise available to the underwriters; the history and the prospects for
the industry in which we will compete; the ability of our management; the
prospects for our future earnings; the present state of our development and our
current financial condition; the general condition of the securities markets at
the time of this offering; and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.
The representatives, may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
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<PAGE> 68
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, that the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
68
<PAGE> 69
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morrison & Foerster LLP, Palo Alto, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1997 and 1998, and for each of the three
years in the period ended December 31, 1998, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to Informatica and the common
stock offered hereby, reference is made to the registration statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the registration statement, each such
statement being qualified by such reference to such exhibit. The registration
statement, including exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the North Western Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, NY 10048, and copies of all or any part thereof may be obtained
from such office after payment of fees prescribed by the Commission. The
Commission maintains a web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
69
<PAGE> 70
INFORMATICA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Informatica Corporation
We have audited the accompanying consolidated balance sheets of Informatica
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Informatica Corporation at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 2, 1999
F-2
<PAGE> 72
INFORMATICA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY (DEFICIT)
------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
-------- -------- ----------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 8,440 $ 6,059 $ 6,783
Accounts receivable, net of allowances of
$600, $1,691 and $1,751 in 1997, 1998 and
1999, respectively....................... 3,133 3,665 2,990
Prepaid expenses and other current assets... 243 552 739
-------- -------- --------
Total current assets................ 11,816 10,276 10,512
Property and equipment, net of accumulated
depreciation and amortization of $530, $367
and $439 in 1997, 1998 and 1999,
respectively................................ 754 512 521
Other assets.................................. 122 126 105
-------- -------- --------
Total assets........................ $ 12,692 $ 10,914 $ 11,138
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.... $ 2,432 $ 4,315 $ 4,065
Accrued compensation and related expenses... 1,545 3,486 3,581
Current portion of capital lease
obligations.............................. 155 242 129
Deferred revenue............................ 2,644 4,537 5,859
-------- -------- --------
Total current liabilities........... 6,776 12,580 13,634
Capital lease obligations, less current
portion..................................... 102 217 217
Commitments
Redeemable convertible preferred stock, no par
value, issuable in series:
8,170,000 shares authorized; 7,940,000
issues and outstanding in 1997 and 1998
(none pro forma) (liquidation
preference -- $17,600)................... 17,586 17,586 17,586 $ --
Stockholders' equity (deficit):
Common stock, no par value; 14,770,000
shares authorized; 2,881,838, 3,426,605
and 3,650,327 shares issued and
outstanding in 1997, 1998 and 1999,
respectively (11,590,327 pro forma)...... 151 289 1,140 18,726
Notes receivable from stockholders.......... (40) (40) (40) (40)
Deferred compensation....................... (83) (33) (711) (711)
Accumulated deficit......................... (11,789) (19,704) (20,672) (20,672)
Accumulated other comprehensive income
(loss)................................... (11) 19 (16) (16)
-------- -------- -------- --------
Total stockholders' equity
(deficit)......................... (11,772) (19,469) (20,299) $ (2,713)
-------- -------- -------- ========
Total liabilities, redeemable
convertible preferred stock and
stockholders' equity (deficit).... $ 12,692 $ 10,914 $ 11,138
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License.............. $ 1,843 $ 10,041 $ 21,298 $ 4,255 $ 7,114
Service.............. 217 2,145 7,597 1,383 3,223
---------- ---------- ---------- ---------- ----------
Total
revenues... 2,060 12,186 28,895 5,638 10,337
Cost of revenues:
License.............. 34 190 376 28 142
Service.............. 124 2,163 4,749 958 1,710
---------- ---------- ---------- ---------- ----------
Total cost of
revenues... 158 2,353 5,125 986 1,852
---------- ---------- ---------- ---------- ----------
Gross profit........... 1,902 9,833 23,770 4,652 8,485
Operating expenses:
Research and
development....... 2,119 3,831 7,075 1,613 2,050
Sales and
marketing......... 3,676 10,951 22,235 4,715 6,448
General and
administrative.... 663 2,036 2,636 634 832
---------- ---------- ---------- ---------- ----------
Total
operating
expenses... 6,458 16,818 31,946 6,962 9,330
---------- ---------- ---------- ---------- ----------
Loss from operations... (4,556) (6,985) (8,176) (2,310) (845)
Interest income
(expense), net....... 8 221 261 81 27
---------- ---------- ---------- ---------- ----------
Loss before income
taxes................ (4,548) (6,764) (7,915) (2,229) (818)
Income tax provision... -- -- -- -- (150)
---------- ---------- ---------- ---------- ----------
Net loss............... $ (4,548) $ (6,764) $ (7,915) $ (2,229) $ (968)
========== ========== ========== ========== ==========
Net loss per share:
Basic and diluted.... $ (1.69) $ (2.44) $ (2.48) $ (0.75) $ (0.27)
========== ========== ========== ========== ==========
Pro forma basic and
diluted........... $ (0.71) $ (0.08)
========== ==========
Shares used in
calculation of net
loss per share:
Basic and diluted.... 2,698 2,769 3,193 2,982 3,530
========== ========== ========== ========== ==========
Pro forma basic and
diluted........... 11,133 11,470
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
------------------- ------------------ FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION
--------- ------- --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995............ 2,250,000 $ 1,472 2,666,260 $ 48 $(40) $ --
Issuance of common stock............... -- -- 28,125 3 -- --
Common stock options exercised......... -- -- 45,625 3 -- --
Issuance of Series B preferred stock,
net of issuance costs................ 1,000,000 993 -- -- -- --
Issuance of Series C preferred stock,
net of issuance costs................ 2,440,000 6,128 -- -- -- --
Net loss............................... -- -- -- -- -- --
--------- ------- --------- ------ ---- -----
BALANCES AT DECEMBER 31, 1996............ 5,690,000 8,593 2,740,010 54 (40) --
Common stock options exercised......... -- -- 141,828 12 -- --
Issuance of Series D preferred stock,
net of issuance costs................ 2,250,000 8,993 -- -- -- --
Foreign currency translation
adjustment........................... -- -- -- -- -- --
Deferred compensation.................. -- -- -- 85 -- (85)
Amortization of deferred
compensation......................... -- -- -- -- -- 2
Net loss............................... -- -- -- -- -- --
--------- ------- --------- ------ ---- -----
BALANCES AT DECEMBER 31, 1997............ 7,940,000 17,586 2,881,838 151 (40) (83)
Common stock options exercised......... -- -- 544,767 138 -- --
Foreign currency translation
adjustment........................... -- -- -- -- -- --
Amortization of deferred
compensation......................... -- -- -- -- -- 50
Net loss............................... -- -- -- -- -- --
--------- ------- --------- ------ ---- -----
BALANCES AT DECEMBER 31, 1998............ 7,940,000 17,586 3,426,605 289 (40) (33)
Common stock options exercised
(unaudited).......................... -- -- 223,722 92 -- --
Foreign currency translation adjustment
(unaudited).......................... -- -- -- -- -- --
Deferred compensation.................. -- -- -- 759 -- (759)
Amortization of deferred compensation
(unaudited).......................... -- -- -- -- -- 81
Net loss (unaudited)................... -- -- -- -- -- --
--------- ------- --------- ------ ---- -----
BALANCES AT MARCH 31, 1999 (UNAUDITED)... 7,940,000 $17,586 3,650,327 $1,140 $(40) $(711)
========= ======= ========= ====== ==== =====
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------
ACCUMULATED
OTHER
COMPREHENSIVE
ACCUMULATED INCOME
DEFICIT (LOSS) TOTAL
----------- ------------- --------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995............ $ (477) $ -- $ (469)
Issuance of common stock............... -- -- 3
Common stock options exercised......... -- -- 3
Issuance of Series B preferred stock,
net of issuance costs................ -- -- --
Issuance of Series C preferred stock,
net of issuance costs................ -- -- --
Net loss............................... (4,548) -- (4,548)
-------- ---- --------
BALANCES AT DECEMBER 31, 1996............ (5,025) -- (5,011)
Common stock options exercised......... -- -- 12
Issuance of Series D preferred stock,
net of issuance costs................ -- -- --
Foreign currency translation
adjustment........................... -- (11) (11)
Deferred compensation.................. -- -- --
Amortization of deferred
compensation......................... -- -- 2
Net loss............................... (6,764) -- (6,764)
-------- ---- --------
BALANCES AT DECEMBER 31, 1997............ (11,789) (11) (11,772)
Common stock options exercised......... -- -- 138
Foreign currency translation
adjustment........................... -- 30 30
Amortization of deferred
compensation......................... -- -- 50
Net loss............................... (7,915) -- (7,915)
-------- ---- --------
BALANCES AT DECEMBER 31, 1998............ (19,704) 19 (19,469)
Common stock options exercised
(unaudited).......................... -- -- 92
Foreign currency translation adjustment
(unaudited).......................... -- (35) (35)
Deferred compensation.................. -- -- --
Amortization of deferred compensation
(unaudited).......................... -- -- 81
Net loss (unaudited)................... (968) -- (968)
-------- ---- --------
BALANCES AT MARCH 31, 1999 (UNAUDITED)... $(20,672) $(16) $(20,299)
======== ==== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................ $(4,548) $(6,764) $(7,915) $(2,229) $ (968)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization......... 133 394 1,551 599 72
Sales and return allowances........... 21 420 300 45 60
Other receivable allowances........... -- 241 886 300 --
Amortization of deferred
compensation........................ -- 2 50 -- 81
Changes in operating assets and
liabilities:
Accounts receivable................. (1,245) (2,510) (1,718) (753) 615
Prepaid expenses and other assets... (154) (180) (313) (132) (166)
Accounts payable and accrued
liabilities....................... 376 2,052 1,883 564 (250)
Accrued compensation and related
expenses.......................... 254 1,194 1,941 84 95
Deferred revenue.................... 322 2,322 1,893 577 1,322
------- ------- ------- ------- ------
Net cash provided by (used in) operating
activities............................ (4,841) (2,829) (1,442) (945) 861
INVESTING ACTIVITIES
Purchase of property and equipment...... (100) (584) (872) (402) (81)
------- ------- ------- ------- ------
Net cash used in investing activities... (100) (584) (872) (402) (81)
FINANCING ACTIVITIES
Proceeds from issuance of preferred
stock................................. 5,071 8,993 -- -- --
Proceeds from issuance of common
stock................................. 6 12 138 20 92
Proceeds from notes payable to
stockholders.......................... 2,050 -- -- -- --
Payments on capital lease obligations... (69) (164) (235) (41) (113)
------- ------- ------- ------- ------
Net cash provided by (used in) financing
activities............................ 7,058 8,841 (97) (21) (21)
------- ------- ------- ------- ------
Effect of foreign currency translation
on cash and cash equivalents.......... -- (11) 30 17 (35)
------- ------- ------- ------- ------
Increase (decrease) in cash and cash
equivalents........................... 2,117 5,417 (2,381) (1,351) 724
Cash and cash equivalents at beginning
of period............................. 906 3,023 8,440 8,440 6,059
------- ------- ------- ------- ------
Cash and cash equivalents at end of
period................................ $ 3,023 $ 8,440 $ 6,059 $ 7,089 $6,783
======= ======= ======= ======= ======
SUPPLEMENTAL DISCLOSURES:
Interest paid......................... $ 41 $ 40 $ 48 $ 7 $ 8
======= ======= ======= ======= ======
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred.... $ 490 $ -- $ 437 $ -- $ --
======= ======= ======= ======= ======
Issuance of warrants to purchase
preferred stock in connection with
bridge financing.................... $ 55 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======
Conversion of notes payable to
stockholders of Series C preferred
stock............................... $ 2,050 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======
Deferred stock compensation related to
options granted..................... $ -- $ 85 $ -- $ -- $ 759
======= ======= ======= ======= ======
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. DESCRIPTION OF THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF THE COMPANY
Informatica Corporation (the "Company") was incorporated in California in
February 1993. The Company operates in one business segment which provides
software solutions that help large companies deploy, manage, maintain and grow
systems that enable more effective business decision making.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The functional currency of the Company's foreign subsidiaries is the local
currency. The Company translates all assets and liabilities to U.S. dollars at
the current exchange rates as of the applicable balance sheet date. Revenue and
expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation for the foreign
subsidiaries' financial statements are reported as a separate component of
stockholders' equity. Net gains and losses resulting from foreign exchange
transactions were not significant during any of the periods presented.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at such date and its
results of operations and cash flows for those periods. Operating results for
the three months ended March 31, 1999 are not necessarily indicative of results
that may be expected for any future periods.
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 amounts reported in the financial statements and
accompanying notes. Changes in these estimates and assumptions may have a
material impact on the financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, which consist of cash and highly liquid
short-term government securities with insignificant interest rate risk and
original maturities of three months or less at date of purchase, are stated at
cost, which approximates fair value.
F-7
<PAGE> 77
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over estimated useful
lives of the related assets, generally three years or less.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" ("FASB
86"), under which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working model. Through March 31, 1999, costs
incurred subsequent to the establishment of technological feasibility have not
been significant and all software development costs have been charged to
research and development expense in the accompanying consolidated statements of
operations.
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company performs
ongoing credit evaluations of its customers, which are primarily located in the
U.S., Europe and Canada, and generally does not require collateral. Allowances
for credit risks and for estimated future returns are provided upon shipment.
Returns to date have not been material. Actual credit losses and returns may
differ from the Company's estimates and such differences could be material to
the financial statements.
REVENUE RECOGNITION
Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"), was
issued in October 1997 by the American Institute of Certified Public Accountants
("AICPA") and was amended by Statement of Position 98-4 ("SOP 98-4"). The
Company adopted SOP 97-2 effective January 1, 1998 and SOP 98-4 effective March
31, 1998. Based on its interpretation of SOP 97-2 and SOP 98-4, the Company
believes its current revenue recognition policies and practices are consistent
with SOP 97-2 and SOP 98-4. Additionally, the AICPA issued SOP 98-9 in December
1998, which provides certain amendments to SOP 97-2, and is effective for
transactions entered into beginning January 1, 2000. Implementation guidelines
for this standard have not yet been issued. Once available, such implementation
guidelines could lead to unanticipated changes in our current revenue
recognition policies, which changes could affect the timing of the Company's
future revenues and earnings.
The Company generates revenues through two sources, software licenses and
services. The Company's license revenues are generated from licensing the
Company's products
F-8
<PAGE> 78
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
directly to end users and indirectly through resellers and original equipment
manufacturers. Service revenues are generated from maintenance contracts and
training and consulting services performed for customers that license the
Company's products directly and indirectly through resellers.
License revenues are recognized when a noncancelable license agreement has
been signed, the product has been shipped, the fees are fixed and determinable,
collectibility is probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. Vendor-specific objective
evidence is based on the price charged when an element is sold separately. In
the case of an element not sold separately, the price is established by
authorized management. If an acceptance period is required, revenue is
recognized upon customer acceptance or the expiration of the acceptance period.
The Company also enters into reseller arrangements that typically provide for
sublicense fees based on a percentage of list price. For direct sales, revenue
is recognized upon shipment to the end user and when collectibility is probable.
For sales through resellers, revenue is recognized upon shipment to the reseller
and when collectibility is probable or upon cash collections based on credit
history with the reseller. The Company's agreements with its customers and
resellers do not contain product return rights.
Revenues from maintenance, which consist of fees for ongoing support and
product updates, are recognized ratably over the term of the contract, typically
one year. Consulting revenues are primarily related to implementation services
performed on a time-and-materials basis under separate service arrangements
related to the installation of the Company's software products. Training
revenues are generated from classes offered both on-site and at customer
locations. Revenues from consulting and training services are recognized as the
services are performed.
Deferred revenue includes deferred maintenance revenue and prepaid training
and consulting fees.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and, accordingly, recognizes no compensation expense for the
stock option grants.
NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities by adding other common stock
equivalents, including stock options, warrants and convertible preferred stock,
in the weighted average number of common shares outstanding for a period, if
dilutive. Potentially dilutive securities have been excluded from the
computation as their effect is antidilutive.
F-9
<PAGE> 79
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
Pro forma net loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding plus the weighted average
number of redeemable convertible preferred shares outstanding as if such shares
had been converted into common stock at the date of issuance.
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- --------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss................ $(4,548) $(6,764) $(7,915) $(2,229) $ (968)
======= ======= ======= ======= =======
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net per loss
share................ 2,698 2,769 3,193 2,982 3,530
======= ======= ======= ======= =======
Basic and diluted net
loss per share....... $ (1.69) $ (2.44) $ (2.48) $ (0.75) $ (0.27)
======= ======= ======= ======= =======
Pro forma:
Net loss................ $(7,915) $ (968)
======= =======
Shares used in computing
basic and diluted net
loss per share (from
above)............... 3,193 3,530
Adjustment to reflect
the effect of the
assumed conversion of
preferred stock from
the date of
issuance............. 7,940 7,940
------- -------
Weighted average shares
of common stock
outstanding used in
computing pro forma
basic and diluted net
loss share........... 11,133 11,470
======= =======
Pro forma basic and
diluted net loss per
share................ $ (0.71) $ (0.08)
======= =======
</TABLE>
If the Company had reported net income, the calculation of diluted earnings
per share (historical and pro forma) would have included the shares used in the
computation of pro forma net loss per share as well as an additional
approximately 619,000, 1,726,000,
F-10
<PAGE> 80
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2,176,000, 2,215,000 and 2,233,000 common equivalent shares related to the
outstanding options and warrants not included in the calculations above
(determined using the treasury stock method at the estimated fair value) for
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999,
respectively.
COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and displaying comprehensive income and its components in the financial
statements. The only item of other comprehensive income (loss) which the Company
currently reports is foreign currency translation adjustments, which are
included in accumulated other comprehensive income (loss) in the consolidated
statements of redeemable convertible preferred stock and stockholders' equity
(deficit).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the use of the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce the
deferred tax assets to the amounts expected to be realized.
2. BANK LINE OF CREDIT
During 1997, the Company entered into a revolving line of credit with a
bank which provided for borrowings of up to $3,000,000 based on 80% of eligible
accounts receivable, as defined. Borrowings under the line of credit bore
interest, payable monthly, at 0.25% above the bank's prime rate. Borrowings were
secured by substantially all of the Company's assets. The agreement also
required the Company to comply with certain financial covenants. The line of
credit expired in December 1998.
3. LEASE OBLIGATIONS
The Company has an equipment financing agreement providing up to $564,000
for the purchase of property and equipment which expired in January 1998. In
February 1998, the Company entered into another equipment financing agreement
with the same lender which increases the line to $1,510,000 for the purchase of
property and equipment. Borrowings under these agreements bear interest at a
rate of 3.07% and 3.19%, respectively, for 36 months. The Company is also
required to choose to either pay a supplemental additional interest portion of
20% of the original purchase price due and payable at the end of the agreement
term or to extend the agreement term for an additional year at a monthly
interest rate of 2.05% of the original purchase amount. As of December 31, 1998,
F-11
<PAGE> 81
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
borrowing under these agreements amounted to $927,000 of which $459,000 was
outstanding.
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of approximately $490,000 and $927,000 of
December 31, 1997 and 1998, respectively. The related amortization is included
with depreciation expense.
The Company leases its office facilities and certain office equipment under
noncancelable lease agreements which require the Company to pay operating costs,
including property taxes, normal maintenance and insurance. Rent expense
amounted to $158,000, $458,000 and $1,552,000 for 1996, 1997 and 1998,
respectively.
Future minimum lease payments under noncancelable operating and capital
leases are summarized as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Years ending December 31:
1999.............................................. $1,890 $262
2000.............................................. 2,141 161
2001.............................................. 177 67
------ ----
Total minimum lease payments........................ $4,208 490
======
Less interest....................................... 31
----
Present value of minimum lease payments............. 459
Less current portion................................ 242
----
$217
====
</TABLE>
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Preferred stock consists of the following by series (in thousands):
<TABLE>
<CAPTION>
SHARES ISSUED
--------------------------------------------
DECEMBER 31, MARCH 31,
AUTHORIZED -------------- ----------- LIQUIDATION
SERIES SHARES 1997 1998 1999 PREFERENCE
------ ---------- ----- ----- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A.................... 2,250 2,250 2,250 2,250 $ 1,500
B.................... 1,000 1,000 1,000 1,000 $ 1,000
C.................... 2,645 2,440 2,440 2,440 $ 6,100
D.................... 2,275 2,250 2,250 2,250 $ 9,000
----- ----- ----- ----- -------
8,170 7,940 7,940 7,940 $17,600
===== ===== ===== ===== =======
</TABLE>
Each share of the Series A, Series B, Series C and Series D preferred stock
is convertible, at the option of the holder, into one share of the Company's
common stock,
F-12
<PAGE> 82
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
subject to certain anti-dilution provisions. The Series A, Series B, Series C
and Series D preferred stock will be automatically converted into common stock
upon completion of an initial public offering of the Company's common stock with
proceeds to the Company of a minimum of $18,000,000 at a minimum offering price
of $9.00 per share of common stock. The holders of preferred stock are entitled
to the number of votes equal to the number of shares of common stock into which
their preferred stock is convertible.
On or at any time after June 3, 2002, upon receipt of written consent as to
the approval of the holders of more than 50% of the then outstanding shares of
the Series A, Series B, Series C and Series D preferred stock, the Company shall
fix a date upon which it shall commence the redemption of the applicable series
of preferred stock. The Company shall redeem from each holder of shares of such
series of preferred stock one-third of the shares of each series of preferred
stock to be redeemed held by each such holder on the redemption commencement
date, an additional one-third of such shares on the first anniversary of the
redemption commencement date, and the remaining such shares on the second
anniversary of the redemption commencement date at a price equal to original
issue price per share, plus all declared but unpaid dividends on such shares.
The holders of the Series A, Series B, Series C, and Series D preferred
stock are entitled to receive noncumulative dividends of $0.0533, $0.0800,
$0.2000 and $0.3200 per share, respectively, when and if declared by the Board
of Directors. These dividends are in preference to any declaration or payment of
any dividend on the common stock of the Company. No such dividends have been
declared.
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of the Series A, Series B, Series C and Series D preferred stock
have a liquidation preference of $0.67, $1.00, $2.50 and $4.00 per share,
respectively, over holders of common stock plus any declared but unpaid
dividends.
BRIDGE FINANCING
In connection with short-term promissory notes in May 1996, the Company
granted warrants to the lenders to purchase up to 205,000 shares of Series C
preferred stock at $2.50 per share. The warrants expire May 1, 2001. The Company
deemed the fair value of the warrants to be $55,000, which was recorded as a
discount on the notes. The fair value was determined using a Black-Scholes
option pricing model with the following assumptions: a risk-free interest rate
of 6.0%, no dividend yield or volatility factor, and an expected life of the
warrant of five years. This discount was amortized to interest expense over the
term of the notes during 1996.
F-13
<PAGE> 83
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
COMMON STOCK
At December 31, 1998, the Company has reserved the following shares of its
common stock for future issuance:
<TABLE>
<S> <C>
Outstanding stock options.......................... 2,994,209
Reserved for future stock option grants............ 193,455
Redeemable convertible preferred stock:
Issued and outstanding........................... 7,940,000
Outstanding warrants (assuming conversion)....... 205,000
----------
11,332,664
==========
</TABLE>
STOCK OPTIONS
Under the Company's 1993 and 1996 Stock Incentive Plans, 4,227,250 shares
of common stock have been reserved for the issuance of incentive stock options
(ISO), non-statutory stock options (NSO), or the sale of common stock to
employees, officers, directors, and consultants. The ISOs may be granted at a
price per share not less than the fair market value on the date of the grant.
The NSOs may be granted at a price per share not less than 85% of the fair
market value at the date of grant. Options granted are exercisable over a
maximum term of ten years from the date of grant and generally vest over a
period of up to four years. In the event optionholders cease to be employed by
the Company, all unvested options are forfeited and all vested options may be
exercised within a 90-day period after termination; under the restricted stock
portion of the plans, the Company also has the right to repurchase at the
original purchase price any unvested shares if the holder is no longer employed
by the Company. At December 31, 1998, no outstanding common shares are subject
to such repurchase rights.
F-14
<PAGE> 84
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
A summary of the Company's stock option activity is set forth below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1995................ 602,625 $ .06
Granted....................................... 966,950 .13
Exercised..................................... (45,625) .08
Canceled...................................... (35,000) .04
--------- ------
Outstanding at December 31, 1996................ 1,488,950 .11
Granted....................................... 1,198,390 .67
Exercised..................................... (141,828) .09
Canceled...................................... (101,350) .34
--------- ------
Outstanding at December 31, 1997................ 2,444,162 .38
Granted....................................... 1,601,803 5.60
Exercised..................................... (544,767) .25
Canceled...................................... (506,989) 1.91
--------- ------
Outstanding at December 31, 1998................ 2,994,209 2.93
Granted (unaudited)........................... 885,750 11.14
Exercised (unaudited)......................... (223,722) 0.41
Canceled (unaudited).......................... (83,824) 5.71
--------- ------
Outstanding at March 31, 1999 (unaudited)....... 3,572,413 $ 5.06
========= ======
Exercisable at December 31, 1998................ 926,674 $ 0.25
========= ======
Exercisable at March 31, 1999 (unaudited)....... 938,900 $ 0.85
========= ======
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE PRICE EXERCISE PRICE
EXERCISE PRICES NUMBER LIFE (YEARS) PER SHARE NUMBER PER SHARE
--------------- --------- ------------ -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$0.01 - $0.01 207,900 4.34 $0.01 207,900 $0.01
$0.10 - $0.10 499,069 6.48 $0.10 311,062 $0.10
$0.25 - $0.30 466,880 8.15 $0.25 313,576 $0.25
$0.45 - $0.75 166,163 7.24 $0.68 48,989 $0.66
$1.50 - $4.00 735,634 9.05 $3.26 42,147 $1.70
$5.50 - $7.50 880,063 9.59 $6.53 3,000 $6.50
$9.00 - $9.00 38,500 9.96 $9.00 -- --
--------- ---- ----- ------- -----
2,994,209 8.23 $2.93 926,674 $0.25
========= =======
</TABLE>
F-15
<PAGE> 85
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
Pro forma information regarding results of operations and net loss per
share is required by FASB Statement No. 123, "Accounting for Stock-Based
Compensation," ("FASB 123") which also requires that the information be
determined as if the Company had accounted for its employee stock options under
the fair value method of FASB 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions: a risk-free interest rate of 6.0%,
6.0% and 5.0% for 1996, 1997 and 1998, respectively, no dividend yield or
volatility factors of the expected market price of the Company's common stock,
and a weighted average expected life of the option of 5 years.
The option valuation models are developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the options. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of FASB 123, the Company's net loss
and pro forma basic and diluted net loss per share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Pro forma net loss (in thousands)........ $(4,555) $(6,792) $(8,230)
======= ======= =======
Pro forma basic and diluted net loss per
share.................................. $ (1.69) $ (2.45) $ (2.58)
======= ======= =======
</TABLE>
The weighted average fair value of options granted, which is the value
assigned to the options under FASB 123, was $0.04, $0.18 and $0.85 for options
granted during the years ended December 31, 1996, 1997 and 1998.
The pro forma impact of options on the net loss for the years ended
December 31, 1996, 1997 and 1998 is not representative of the effects on net
loss for future years, as future years will include the effects of additional
years of stock option grants.
The difference between the exercise price and the value for financial
reporting purposes of the Company's common stock at the grant date of certain
stock options granted in 1997 totaling $85,000 has been recorded as deferred
compensation. The related compensation is being recognized as expense over the
vesting period of the options, generally 4 years.
F-16
<PAGE> 86
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. NOTES RECEIVABLE FROM STOCKHOLDERS
During 1995, certain officers of the Company purchased a total of 400,000
shares of the Company's common stock in exchange for promissory notes. The notes
bear interest at 7.12% per annum, with interest and principal payable on May 5,
2000. The notes are secured by the common shares purchased by these officers.
6. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,550 $ 3,400
Tax credit carryforwards.................................. 400 700
Deferred revenue.......................................... -- 1,100
Reserves and accruals not currently deductible............ 235 2,400
Other..................................................... 255 200
------- -------
Total deferred tax assets................................... 4,440 7,800
Valuation allowance......................................... (4,440) (7,800)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for 1996, 1997 or 1998. FASB
109 provides for the recognition of deferred tax assets if realization of such
assets is more likely than not. Based upon the weight of available evidence,
which includes the Company's historical operating performance and the reported
cumulative net losses in all prior years, the Company has provided a full
valuation allowance against its net deferred tax assets. The valuation allowance
increased by $2,640,000 and $3,360,000 during the years ended December 31, 1997
and 1998, respectively.
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state tax purposes of approximately $9,800,000 and $2,300,000,
respectively. The Company also had federal and state research and development
tax credit carryforwards of approximately $500,000 and $300,000, respectively.
The net operating loss and tax credit carryforwards will expire at various dates
beginning in 1999 through 2018, if not utilized.
Utilization of net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of the net operating loss and
credit carryforwards before utilization.
F-17
<PAGE> 87
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. PROFIT SHARING PLAN
The Company has a profit sharing plan and trust under Section 401(k) of the
Internal Revenue Code which covers substantially all employees. Eligible
employees may contribute amounts to the plan via payroll withholdings, subject
to certain limitations. Contributions by the Company are at the discretion of
the Board of Directors. No discretionary contributions have been made by the
Company to date.
8. MAJOR CUSTOMERS AND REVENUE BY GEOGRAPHIC AREA
No one customer accounted for more than 10% of revenue in 1996, 1997 and
1998. Revenue was derived from customers in the following geographic areas (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------
1996 1997 1998 1999
------ ------- ------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
North America................ $1,890 $11,360 $25,262 $ 8,675
Europe....................... 170 826 3,633 1,662
------ ------- ------- -------
$2,060 $12,186 $28,895 $10,337
====== ======= ======= =======
</TABLE>
9. SUBSEQUENT EVENTS (UNAUDITED)
On February 5, 1999, the Board approved a resolution to increase the number
of shares reserved for issuance under the 1996 Stock Incentive Plan by
1,000,000.
Proposed Public Offering of Common Stock
On February 5, 1999, the Board of Directors authorized the Company to
proceed with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding preferred stock
will automatically convert into common stock. The unaudited pro forma
stockholders' equity (deficit) at March 31, 1999 gives effect to the conversion
of all outstanding shares of redeemable convertible preferred stock at March 31,
1999 into 7,940,000 shares of common stock upon completion of the offering. The
Board also approved, subject to stockholder approval, the amendment of the
Company's Articles of Incorporation, which included, among other things,
reincorporation of the Company in the State of Delaware and a change in the
total number of shares which the Company is authorized to issue to 24,590,000
shares, of which 16,420,000 will be common stock and 8,170,000 will be preferred
stock. Upon completion of the Company's initial public offering of its common
stock, the Company will be authorized to issue up to 102,000,000 shares, $0.001
par value, of which 100,000,000 shares will be designated as common stock and
2,000,000 shares will be designated as preferred stock.
F-18
<PAGE> 88
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
1999 Stock Incentive Plan
On March 23, 1999, the Company's Board of Directors adopted, subject to
stockholder approval, the 1999 Stock Incentive Plan which amends and restates
the Company's existing stock option plan. There are 650,000 shares of common
stock authorized for issuance under the plan. The plan will become effective
upon completion of the Company's initial public offering of its common stock.
1999 Non-Employee Director Stock Incentive Plan
On March 23, 1999, the Company's Board of Directors adopted, subject to
stockholder approval, the 1999 Non-Employee Director Stock Incentive Plan and
reserved an aggregate of 250,000 shares of common stock for grants of stock
options under such plan.
1999 Employee Stock Purchase Plan
On March 23, 1999, the Company's Board of Directors adopted, subject to
stockholder approval, the 1999 Employee Stock Purchase Plan to be effective upon
the completion of the Company's initial public offering of its common stock. The
Company has initially reserved a total of 400,000 shares of common stock for
issuance under the plan. Eligible employees may purchase common stock at 85% of
the lesser of the fair market value of the Company's common stock on the first
day of the applicable two year offering period or the last day of each
applicable six month purchase period.
F-19
<PAGE> 89
APPENDIX -- DESCRIPTION OF GRAPHICS
INFORMATICA PROSPECTUS WRAPPER
DRAFT 3.0
FRONT inside cover
- --------------------------------------------------------------------------------
- - Headlines:
"With 10 times more eyeballs on analysis than on transaction screens,
users' strategic focus will shift from ERP to analysis." --Forrester
Research
- - Main Text:
Informatica's Platform for Analytical Applications
Companies across multiple industries are turning their attention toward
gaining greater insight into customer, market, financial and competitive
trends.
Database applications, both inside and outside the enterprise, capture
billions of bits of transaction data every day - valuable information
that can inform the decision support process. And varieties of software
tools help decision-makers evaluate and act on that information.
To take advantage of the full complement of decision support software
available companies need a software solution, or platform, capable of
integrating their data, tools and analytic applications across the
entire enterprise.
Such a platform should broaden the diversity of information sources; it
should maintain compatibility among the increasing types and numbers of
analytical tools; and it should support rapid growth and change, in user
numbers as well as application initiatives. With such a platform in
place, decision-makers will be able to gain better insight into
business trends, and will be able to make more accurate and informed
business decisions.
For many organizations, the platform of choice has been Informatica's
PowerCenter and PowerMart products.
- POWERCENTER is an enterprise data integration hub that
integrates and unifies the many diverse tools - and the various
user groups - that populate today's enterprises. PowerCenter is
responsible for extracting data from operational sources,
enriching it for decision support, cataloging it for use and
re-use, and delivering it to powerful business intelligence and
analytic applications.
- POWERMART is an integrated software suite for deploying and
managing line-of-business data marts and analytic applications.
PowerMart has extended the state-of-the-art in decision support
by delivering sophisticated design and build capabilities, and
by addressing the complete life cycle for data mart and analytic
application development, production and management. PowerMart
can be deployed alongside PowerCenter, or independently to build
and manage line-of-business applications.
Set forth underneath the text above are the PowerCenter and PowerMart
logos.
<PAGE> 90
4/
INSIDE BACK cover
- --------------------------------------------------------------------------------
- - Headline:
Partnerships that bring a multitude of strengths.
- - Main text:
Informatica's Enterprise Partners represent leading firms in their
industries -- enterprise software, application software and systems
integration.
SAP -- Support for SAP Business Information Warehouse(TM) gives users
seamless access to all of their non-SAP data, bringing them powerful
enterprise-class analytic capabilities.
IBM Business Partner -- Each year, Informatica has enhanced its support
of IBM's DB2 culminating in the recent initiative to deliver scalable
data warehousing solutions to users of IBM's DB2 Universal Database --
the industry's first multimedia, Internet-ready RDBMS.
PEOPLESOFT -- Informatica's Power Center and PowerMart are fully
integrated and certified for use with PeopleSoft's Enterprise Warehouse,
part of the Enterprise Performance Management product line.
BMC SOFTWARE -- Integration with BMC's software moving large database
files adds increased functionality to Informatica's solution for IBM
operational systems.
MICROSOFT -- A 2-year relationship with the manufacturer of SQL
Server--one of the leading database management systems for
Windows NT(R)-- has resulted in tight integration between Microsoft's
and Informatica's products.
HYPERION -- The combination of PowerMart and Hyperion Integration
Server/Essbase provides joint customers a powerful end-to-end solution
for building enterprise applications.
<PAGE> 91
5/
KPMG - Informatica teams with KPMG's data warehousing practice. KPMG uses
Informatica's PowerMart software as the decision support component of its
Performance Executive financial applications suite for the public sector.
CAMBRIDGE TECHNOLOGY PARTNERS - Informatica partners with Cambridge
Technology Partners, who helps customers nationwide design and deploy
decision support systems based on a unique fixed time/fixed cost model.
Set forth above each of the paragraphs listed above are the respective logos
for each of SAP, IBM Business Partner, PeopleSoft, BMC Software, Microsoft,
Hyperion, KPMG and Cambridge Technology Partners.
The text contained on this page is superimposed over the PowerCenter and
PowerMart logos.
<PAGE> 92
[INFORMATICA -- POWERING THE INTELLIGENT ENTERPRISE]
