<PAGE>
As filed with the Securities and Exchange Commission on April 25, 2000
Registration No. 333-95813
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
INVENTA TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<CAPTION>
Delaware 7371 77-0217480
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
255 Shoreline Drive, Suite 200
Redwood Shores, CA 94065
(650) 413-1100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
David A. Lavanty
President and Chief Executive Officer
Inventa Technologies, Inc. 255 Shoreline Drive, Suite 200 Redwood Shores, CA
94065 (650) 413-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<CAPTION>
Michael J. O'Donnell Richard Capelouto
<S> <C>
Richard L. Picheny Daniel Clivner
Wilson Sonsini Goodrich & Rosati Simpson Thacher & Bartlett
Professional Corporation 3373 Hillview Avenue, Suite 250
650 Page Mill Road Palo Alto, CA 94304
Palo Alto, CA 94304 (650) 251-5000
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated April 25, 2000
PROSPECTUS
3,500,000 Shares
[Inventa Logo]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. No public market
currently exists for our shares.
We have applied to list the shares on the Nasdaq National Market under the
symbol "INVA." We anticipate the initial public offering price to be between
$10.00 and $12.00 per share.
Investing in our shares involves risks. Risk Factors begin on page 6.
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discount..................................... $ $
Proceeds to Inventa....................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 525,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers
First Union Securities, Inc.
Friedman Billings Ramsey
, 2000
<PAGE>
ARTWORK AND DIAGRAMS
Front Cover: Inventa Logo
Inside Front Cover: Inventa Logo
Front Gatefold: a diagram using three dimensional geometric shapes
(cylinders, cubes and spheres), and three dimensional free-form shapes
(clouds) to depict electronic commerce between an Inventa client, and their
trading partners (customers and suppliers)
Back Cover: Inventa Logo
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 41
Certain Relationships and Related Transactions............................. 51
Principal Stockholders..................................................... 52
Description of Capital Stock............................................... 54
Shares Eligible for Future Sale............................................ 58
Underwriting............................................................... 60
Legal Matters.............................................................. 63
Experts.................................................................... 63
Additional Information..................................................... 63
Index to Financial Statements.............................................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
Investors should rely only on the information contained in this prospectus.
Inventa and the underwriters have not authorized anyone to provide any
different or additional information. This prospectus is not an offer to sell
or a solicitation of an offer to buy our common stock in any jurisdiction
where it is unlawful. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock. This preliminary
prospectus is subject to completion prior to this offering.
The Inventa name is a registered trademark of Inventa Technologies, Inc. In
addition, Inventa has filed for trademark registration of the Inventa logo,
"LightSpeed," "i2K," "eSales" and "eCare." This prospectus also includes
trademarks and tradenames of other parties.
Until , 2000, all dealers selling shares of our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus. Except as otherwise indicated, the information in this prospectus
assumes that the over-allotment option granted to the underwriters is not
exercised and that all shares of our outstanding preferred stock are converted
into our common stock.
Inventa Technologies, Inc.
Our Business
We are a leading Internet professional services firm helping businesses to
use the Internet to engage in electronic commerce activities with other
businesses in order to improve their productivity and expand their online
offerings. We principally create and support:
. Electronic markets that allow businesses to interact over the Internet
with their trading partners, conduct commerce electronically and process
business transactions in real time
. Electronic customer relationship management systems that enable
businesses to use the Internet to manage their relationships with
business customers and other trading partners
Since 1995, we have focused exclusively on engagements that enable our
clients to utilize the Internet to conduct electronic commerce with other
businesses. We believe that our early focus on business-to-business electronic
commerce engagements, our experience with business processes and our
methodologies for approaching these engagements enable us to rapidly and
efficiently implement advanced Internet systems for our clients. In 1999, our
clients included Automatic Data Processing, Inc., Amkor Technology, Inc.,
Cadence Design Systems, Inc., Citigroup, Inc., Crane Co., ePolicy.com, Fujitsu
PC Corporation, GoTo.com, Inc., Pure Markets Corporation, Shaman
Botanicals.com, Siemens Corporation, SMART Modular Technologies, Inc., Sun
Microsystems, Inc. and Trade Pacific Investments Limited, or tradepac.com.
Examples of some of our recent engagements include:
. GoTo.com--we designed an electronic customer relationship management
system that allows our client and its customers to track the progress of
customer care. Among other features, the system allows users to access
answers to frequently asked questions in real time
. Pure Markets--we created an electronic market for commercial leasing
transactions that provides for online bidding, execution of leasing
transactions and automation of routine business processes
. tradepac.com--we designed an electronic market for inventory liquidation
that provides for online bidding and that matches buyers worldwide with
sellers from the Asia-Pacific region
Our Solution
We deliver our services through teams of talented professionals with
extensive experience in business process analysis, project management and
software engineering. Using our proprietary LightSpeed delivery model and i2K
architectural framework, our professionals are able to quickly design and
engineer Internet-based electronic commerce applications that are integrated
with our clients' existing internal systems. Our approach allows us to quickly
deliver, with predictable fees and project schedules, complex systems that are
capable of being rapidly expanded and extended to handle large numbers of
transactions and connections to trading partners' systems.
We engineer our e-commerce systems to facilitate:
. integration of complex Internet and legacy technologies with multiple
business processes within a company and with its trading partners'
systems
. integration of multiple databases to allow the flow of information in
multiple directions
. real-time access by trading partners from a variety of technology
platforms
. flexibility in accommodating the variety of contractual relationships,
processes and payment methods that exist between businesses
1
<PAGE>
Our experience and expertise have allowed us to offer two products in the
form of packaged service offerings, eCare and eSales. eCare is our Internet-
based customer support service offering developed to enable our clients to
provide high-quality customer service and improve their customer retention.
eSales is our packaged service offering developed to help clients generate
revenue through Internet-based channels. Each of our packaged service offerings
addresses predetermined business functions and is implemented using a
combination of commercially available software and the collective knowledge of
our professionals. We believe that our packaged service offerings allow us to
leverage our extensive experience, reduce our project risk and speed the time
in which our clients reach the market.
Our Market Opportunity
Businesses are increasingly using electronic commerce to interact with other
businesses. This enhances their competitive positions by improving operating
efficiencies, strengthening their relationships with trading partners and
enabling them to identify and capitalize on business opportunities. Developing
and supporting business-to-business electronic commerce systems requires
substantial expertise with respect to, among other matters:
. design of new business processes and systems that integrate with
existing operations
. selection of appropriate Internet technologies
. management of a fast-paced implementation process
Many businesses lack this expertise. As a result, an increasing number of
businesses from start-up ventures to large corporations engage Internet
professional services firms like ours to help them design, implement and
integrate their electronic commerce systems. International Data Corporation
estimates that the market for Internet professional services will grow from
$7.8 billion in 1998 to $78.6 billion in 2003, representing a 59% compound
annual growth rate.
Our Strategy
Our strategy is to enhance our position and reputation as a leading provider
of Internet professional services for businesses to interact electronically
with other businesses. The key elements of our growth strategy are to:
. maintain our exclusive focus on engagements that enable our business
clients to utilize the Internet to engage in electronic commerce with
other businesses
. maintain our technology leadership by pursuing highly complex
engagements
. continue to offer packaged services such as eCare and eSales and
introduce new packaged services that target other business processes
. hire, train and retain skilled professionals and maintain a culture that
fosters innovation
. leverage our reputation for client satisfaction and innovation to
attract new engagements from both new and existing clients
Recent Developments
Our revenues for the quarter ended March 31, 2000, totaled $9.3 million,
including $813,000 of revenues attributable to XTEND-Tech, Inc., which we
acquired in January 2000. Excluding revenues attributable to XTEND-Tech, our
revenues were $8.4 million as compared with $1.8 million for the quarter ended
March 31, 1999, and $5.6 million for the quarter ended December 31, 1999. This
represents an increase of 364% over revenues for the quarter ended March 31,
1999, and 51% over revenues for the quarter ended December 31, 1999. We
attribute our revenue growth primarily to an increase in the volume of services
delivered to new clients. Project personnel expenses increased to $5.5 million
compared to $1.2 million for the quarter ended March 31, 1999, and $3.4 million
for the quarter ended December 31, 1999. This increase was primarily due to an
increase in headcount of project personnel to 174, compared to 47 as of March
31, 1999, and 112 as of December 31, 1999. Our loss from operations increased
to $5.4 million compared to $1.8 million for the
2
<PAGE>
quarter ended March 31, 1999, and $4.1 million for the quarter ended December
31, 1999. This increase was primarily due to a $1.6 million charge related to
the acquisition of XTEND-Tech, and amortization expense related to deferred
stock-based compensation. Other factors contributing to our loss from
operations included our continued investments in hiring project personnel, and
sales, marketing and administrative personnel, as well as investments in office
facilities and related infrastructure. Our loss from operations (excluding
depreciation, deferred stock-based compensation, and amortization of
intangibles related to the acquisition of XTEND-Tech) increased to $2.3 million
compared to $1.5 million for the quarter ended March 31, 1999, and decreased
from $3.1 million for the quarter ended December 31, 1999. During the quarter
ended March 31, 2000, we began 18 new client engagements.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Inventa.. 3,500,000 shares
Common stock outstanding after
this offering................... 25,196,929 shares
Use of proceeds.................. General corporate purposes, including
reducing outstanding debt of approximately
$4.0 million; increasing our recruiting
capabilities; expanding our sales and
marketing capabilities; increasing our brand
awareness; investing in our internal systems
and processes; opening new offices; and
pursuing selected strategic investments or
acquisitions.
Proposed Nasdaq National Market
symbol.......................... "INVA"
</TABLE>
At our request, the underwriters have reserved up to 12% of the common stock
offered in this prospectus for sale at the initial public offering price to our
directors, prior investors and other persons associated with Inventa.
Common stock outstanding after this offering:
. is based on the number of shares outstanding as of February 29, 2000
. assumes the conversion of all outstanding shares of series A, B, C and D
preferred stock into an aggregate of 14,615,511 shares of common stock,
which will automatically occur at the completion of this offering
. includes 293,255 shares of common stock to be issued to holders of series
D preferred stock in a private placement to be made contemporaneously
with this offering at the initial offering price less the underwriting
discount
. includes 290,000 shares issuable at the completion of this offering in
connection with an employment agreement
. excludes 3,993,653 shares of common stock issuable upon the exercise of
stock options outstanding at February 29, 2000, at a weighted average
exercise price of $1.81 per share
. excludes 713,184 shares of common stock reserved for future grant under
our stock option plans
. excludes 160,000 shares of common stock issuable upon the exercise of
warrants outstanding at February 29, 2000, at an exercise price of $2.50
per share
Additional Information
We were incorporated in California in 1988 as Inventa Corporation. We
reincorporated in Delaware on March 23, 2000, as Inventa Technologies, Inc. Our
principal executive offices are located at 255 Shoreline Drive, Suite 200,
Redwood Shores, CA 94065, and our telephone number is (650) 413-1100. We
maintain a site on the World Wide Web at www.inventa.com. The reference to our
web address does not constitute incorporation by reference of the information
contained at that site. The information found on our site is not part of this
prospectus and should not be relied upon when making a decision to invest in
our common stock.
4
<PAGE>
Summary Consolidated Financial Data
The following table summarizes the consolidated statement of operations and
consolidated balance sheet data for our business. For a more detailed
explanation of this financial data, see "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements located elsewhere in this
prospectus.
The unaudited pro forma consolidated balance sheet data reflects the
following assumptions:
. issuance of 1,350,000 shares of our common stock with a fair value of
$14.9 million in connection with the acquisition of XTEND-Tech, Inc.,
which had an effective date of January 1, 2000
. acquisition of assets and liabilities of XTEND-Tech. See details in our
consolidated financial statements located elsewhere in this prospectus.
. receipt of approximately $22.2 million from the issuance of 3,000,000
shares of series D mandatorily redeemable convertible preferred stock on
January 19, 2000, at $7.41 per share
. conversion of 1,000,000 shares of our series A convertible preferred
stock and 13,615,511 shares of our series B, C and D mandatorily
redeemable convertible preferred stock into 14,615,511 shares of our
common stock upon the completion of this offering
See Note 1 of the notes to our consolidated financial statements for a
description of the methods we used to compute our weighted average shares and
basic and diluted net loss per share and pro forma basic and diluted net loss
per share.
The unaudited pro forma, as adjusted, consolidated balance sheet data gives
effect to the sale of the shares offered by us at an assumed initial public
offering price of $11.00 per share, the midpoint of the anticipated range, and
the application of the net proceeds as described in "Use of Proceeds," after
deducting the estimated underwriting discount and estimated offering expenses.
In addition, the unaudited pro forma, as adjusted, balance sheet data gives
effect to the sale of 293,255 shares of common stock to be issued to holders of
series D preferred stock in a private placement to be made contemporaneously
with this offering and the application of the net proceeds of $3.0 million.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands, except
per share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues........................................... $ 5,196 $ 8,016 $ 13,520
Loss from operations............................... (2,795) (1,692) (10,906)
Net loss........................................... (2,964) (1,658) (15,788)
Net loss per share:
Basic and diluted................................ $ (0.65) $ (0.36) $ (3.36)
======= ======= ========
Weighted average shares.......................... 4,557 4,659 4,698
Pro forma net loss per share (unaudited):
Basic and diluted................................ -- -- $ (0.76)
========
Weighted average shares.......................... -- -- 14,447
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 3,244 $25,617 $58,862
Working capital............................... (1,842) 20,438 57,683
Total assets.................................. 9,222 40,928 74,173
Long-term borrowings and capital lease
obligations, net of current portion.......... 454 562 562
Mandatorily redeemable convertible preferred
stock........................................ 18,132 -- --
Total stockholders' equity (deficit).......... (18,138) 30,973 68,218
</TABLE>
5
<PAGE>
RISK FACTORS
Investing in shares of our common stock involves risks. You should carefully
consider the risks described below and other information in this prospectus
before making an investment decision. If any of the following risks actually
occur, our business, financial condition, results of operations and reputation
could be harmed. As a result, the trading price of our common stock may
decline, and you may lose all or part of your investment.
Risks Related to Our Business
We may have difficulty managing our growth, which could damage our ability to
retain clients and become profitable
Our growth has placed significant demands on our management and other
resources. Our revenues for the year ended December 31, 1999, increased
approximately 69% from the year ended December 31, 1998. Our staff increased
from 57 full-time employees at December 31, 1998, to 245 at February 29, 2000.
Our future success will depend on our ability to manage our growth, including:
. continuing to train, motivate, manage and retain our existing employees
and to attract and assimilate new employees
. maintaining project quality
. maintaining high rates of employee utilization
. accurately estimating time and resources required to complete engagements
. developing and improving our operational, financial, accounting and other
internal systems and controls
. improving our business development capabilities
If we are unable to manage our growth, our ability to retain clients and
become profitable could be damaged.
We have a history of operating losses, and we may never achieve significant or
sustained profitability
We reported an operating loss of $10.9 million and a net loss of $15.8
million for the year ended December 31, 1999. We anticipate incurring losses in
2000 and 2001 as well. As we strive to grow our business, we expect to spend
significant funds for general corporate purposes, including working capital,
marketing, recruiting and hiring additional personnel, upgrading our
infrastructure and expanding into new geographic markets. Although our revenues
have increased in recent periods, we may not sustain these growth rates. To the
extent that our revenues do not increase at a rate commensurate with these
costs and expenditures, our results of operations and our stock's performance
could be harmed. In particular, we expect that our plan for increases in
expenses and capital expenditures over the next year will result in higher
operating losses. If we achieve profitability in the future, it may or may not
be sustainable.
If we do not retain our key management personnel and professionals or if we
fail to recruit additional professionals, our ability to serve existing and new
clients would be impaired
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable management and
professionals. This dependence is particularly important to our business
because we believe personal relationships are critical to obtaining and
maintaining a cohesive culture. In 1999, 8.7% of our professional staff and
14.5% of our non-professional staff, which includes management and support
staff, left us. If a significant number of our senior management personnel or
professionals leave, we may be unable to complete or retain existing
engagements or bid for new projects. In addition, if any of these key employees
joins a competitor or forms a competing company, some of our clients might
choose to use the services of that competitor or new company instead of our
own.
6
<PAGE>
Even if we retain our current employees, we must continually recruit and
train talented professionals in order for our business to grow. There is
currently a shortage of qualified professionals in the Internet professional
services field, and this shortage is likely to continue. Furthermore, there is
significant competition for employees with the skills required to perform the
services we offer. We may not be able to attract a sufficient number of
qualified employees in the future, and we may not be successful in motivating
and retaining the employees we do attract. If we cannot attract, motivate and
retain qualified management and professionals, our ability to provide our
services to new and existing clients will be impaired.
Our management team has limited experience working together, which could affect
their ability to function effectively as a team
We have employed our president and chief executive officer only since
January 1999. Five of our other officers, including our chief financial
officer, have joined us within the past 12 months. Therefore, there has been
little or no opportunity to evaluate the effectiveness of our executive
management team. The failure of our executive management to function
effectively as a team may hurt our ability to manage our business and growth,
obtain and execute client engagements, maintain a cohesive culture and compete
effectively.
We depend heavily on a limited number of clients. The loss of a principal
client or a reduction in the work we perform for any particular client could
harm our reputation and reduce our revenues
We derive a significant portion of our revenue from a limited number of
clients. In 1999, our five largest clients accounted for approximately 75% of
our revenues, with ADP and ePolicy.com each accounting for over 10% of our
revenues. Our clients retain us on an engagement-by-engagement basis, rather
than under long-term contracts. Our contracts typically provide that our
clients can terminate the contracts without penalty. There is a risk that once
we complete an engagement, these principal clients may not retain us for
additional work in the future. Any cancellation, deferral or reduction in work
performed for one of these principal clients or a number of smaller clients
could harm our reputation and reduce our revenues.
Our business may be harmed by cost overruns and penalties associated with
fixed-price, fixed-time contracts if we fail to accurately estimate the time
and resources necessary for the performance of our services
For the year ended December 31, 1999, approximately 88% of our revenues was
derived from fixed-price, fixed-time contracts. We expect that most of our
future revenues will continue to be derived from fixed-price, fixed-time
contracts. Less than 10% of our contracts provide for financial penalties if we
do not meet specified deadlines. To date, we have not had to pay any of these
penalties. To mitigate losses from fixed-price, fixed-time contracts, we must,
among other things:
. accurately estimate the resources required to perform these contracts
. complete our clients' projects on a timely basis
. effectively manage our clients' expectations
. complete projects within budget and to our clients' satisfaction
If we do not successfully manage these project risks, we could be exposed to
cost overruns and penalties. If this occurs in connection with a large project
or a sufficient number of projects, we may suffer lower gross margins and
delays in recognizing revenues, and our financial condition, results of
operations and reputation could be harmed.
Quarterly fluctuations in our revenues and earnings could affect the market
price of our common stock
Our quarterly revenues and earnings have varied in the past and may vary
significantly. This fluctuation may cause our operating results to be below the
expectations of securities analysts and investors, and the price of our stock
may fall. Factors that could cause quarterly fluctuations include:
. the number, size and scope of client engagements commenced or completed
during a quarter
7
<PAGE>
. professional staff utilization rates
. unanticipated project terminations, delays or deferrals
. the accuracy of our estimates of resources required to complete ongoing
projects
. the contractual terms and degree of completion of projects in which we
are engaged
A large percentage of our expenses, particularly employee compensation and
rent, are fixed in advance of any particular quarter. In addition, we may incur
unanticipated expenses relating to increased utilization of subcontractors. Any
decline in revenues or earnings, unanticipated project termination or delay, or
greater than expected costs for any quarter could harm our results of
operations and result in a decline in the market price of our common stock,
even if not reflective of any long-term problems with our business.
Competition from larger, more established competitors with greater financial
resources and from new competitors could result in price reductions and reduced
revenues and loss of current and future clients
The Internet professional services market is intensely competitive. We
expect competition to continue and intensify, which could result in price
reductions, reduced revenues and the loss of current and future clients. Our
competitors fall into six major categories:
. Internet professional services firms
. information technology consulting and systems integration firms
. services divisions of computer hardware and software vendors
. web design firms
. information technology strategy consulting firms
. in-house information technology departments of our current and potential
clients
Many of our competitors have longer operating histories and client
relationships, greater resources, larger client bases and greater brand or name
recognition than we have. Our competitors may be able to respond more quickly
to technological developments and changes in clients' needs. This ability of
our competitors may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives.
Further, there are low barriers to entry into our industry segment. We do
not own any technologies that preclude or inhibit potential competitors from
entering our industry. Since the potential market opportunity is large, while
costs to develop and provide Internet professional services are relatively low,
we expect to continue to face additional competition from new competitors.
If we do not keep pace with technological changes, industry standards and
client preferences, our reputation could be harmed, and we could lose clients,
which would reduce our revenues
Our success will depend in part on our ability to develop information
technology solutions that keep pace with continuing changes in Internet
technology, evolving industry standards and changing client preferences. We may
not be successful in addressing these developments on a timely basis, or at
all. Our failure to respond quickly and cost-effectively to new developments
could harm our reputation and cause us to lose current and potential business
opportunities, resulting in reduced revenues.
In particular, we have derived a significant portion of our revenues from
projects based primarily on:
. open systems technologies
. multi-tier software architectures
. Internet-based architectures
8
<PAGE>
These areas are continuing to develop and are subject to rapid change. Any
factors impeding the acceptance of information technology systems using
Internet-based architectures could reduce our revenues and impair our results
of operations, especially if we are unable to develop skills and replacement
technologies for these types of information technology systems.
We may face intellectual property claims that could result in substantial costs
or limit our ability to use intellectual property in the future
It is possible that other parties may assert infringement claims against us
in the future or claim that we have violated their intellectual property
rights. While we know of no basis for any claims of this type, authorship of
intellectual property rights can be difficult to verify. Competitors could
assert, for example, that former employees of theirs whom we have hired have
misappropriated their proprietary information for our benefit. A successful
infringement claim against us could damage us in the following ways:
. we may be liable for damages and litigation costs, including attorneys'
fees
. we may be prohibited from further use of the intellectual property in
dispute
. we may have to license the intellectual property, incurring licensing
fees
. we may have to develop a non-infringing alternative, which could be
costly and delay projects
. we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property
Regardless of the outcome, an infringement claim could result in substantial
costs, diversion of resources and management attention, clients' termination of
project engagements and harm to our financial condition and reputation.
If we are not able to resell or reuse intellectual property developed for
specific clients, our ability to provide our services efficiently would be
impaired
Our LightSpeed delivery model and i2K architectural model, as well as our
knowledge management system, known as Inside Inventa, depend heavily on using
information and techniques learned and developed during prior engagements.
Moreover, a portion of our business involves the development of software
applications for specific client engagements. Our clients generally retain
ownership of client-specific software, although we retain rights to some of the
applications, processes and other intellectual property developed in connection
with client engagements. Some clients have prohibited us from marketing the
applications developed for them, or similar applications, for specified periods
or to specified types of potential clients. Our clients may demand similar or
other restrictions in the future, and disputes may arise that affect our
ability to resell or reuse such applications, processes and other intellectual
property. These disputes could damage our relationships with our clients and
divert our management's attention. A successful suit that prevents us from
reusing information and techniques would also impair our ability to provide our
services efficiently.
If we are unable to maintain our reputation and expand our name recognition, we
may have difficulty in attracting new clients and retaining current clients and
professionals
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining our clients and
professional staff. We also believe that the importance of reputation and name
recognition will increase due to the growing number of Internet professional
services firms. If our reputation is damaged or if potential clients are not
familiar with us or the services we provide, we may become less competitive or
lose our market position. Promotion and enhancement of our name will depend
largely on our success in continuing to provide effective Internet technology
solutions. If clients do not perceive our solutions to be effective or of high
quality, our brand name and reputation will suffer. In addition, if solutions
we provide have defects, critical business functions of our clients may fail,
and we could suffer adverse publicity as well as economic liability.
9
<PAGE>
If we fail to secure written contracts, our ability to collect fees, protect
our intellectual property and protect ourselves from liability to others could
be impaired
We attempt to protect ourselves by entering into written contracts with our
clients covering the terms and contingencies of a project engagement. In most
of our engagements, we begin work for clients on the basis of a limited
statement of work or a verbal agreement before a detailed written contract can
be finalized. To the extent that we fail to have detailed written contracts in
place, our ability to collect fees, recognize revenues, protect our
intellectual property and protect ourselves from liability to others may be
impaired.
We may need additional capital in the future, which may not be available to us.
The raising of any additional capital may dilute your ownership in us
In the future, we may need to raise additional funds through public or
private debt or equity financings to take advantage of expansion or acquisition
opportunities, develop new solutions or compete effectively in the marketplace.
Any additional capital raised through the sale of equity or equity-linked
debt securities would dilute your ownership percentage in us. Those securities
could also have rights, preferences or privileges senior to those of your
common stock. Furthermore, we may not be able to obtain additional financing
when needed or on terms favorable to us or our stockholders. If additional
financing is not available on favorable terms, or at all, this may limit our
ability to develop or enhance our services, take advantage of business
opportunities or respond to competitive pressures.
Risks Related to Our Industry
Our business may suffer if growth in the use of the Internet declines
Because Internet technologies are central to many of our solutions, our
business depends upon continued growth in the use of the Internet by our
clients, prospective clients and their suppliers and other trading partners.
Capacity constraints caused by growth in Internet usage may, unless resolved,
impede further growth in Internet use. Factors that may affect Internet usage
or electronic commerce adoption include:
. actual or perceived lack of security of information
. congestion of Internet traffic or other usage delays
. inconsistent quality of service
. increases in costs of accessing the Internet
. adverse government regulation
. uncertainty regarding intellectual property ownership
. reluctance of companies to adopt new business methods
. costs associated with the obsolescence of existing infrastructure
. lack of economic viability of the electronic commerce model
Our success will depend on market acceptance of our industry
Widespread market acceptance of the outsourcing of the design, development
and maintenance of Internet-based applications to Internet professional
services firms like ours is uncertain. Many of our potential clients may
ultimately decide to perform these services in-house. In-house personnel may
have better access to both key client decision-makers and the information
required to prepare proposals for such solutions. If independent providers of
Internet professional services prove to be unreliable, ineffective or too
expensive, or if software
10
<PAGE>
companies develop tools that are sufficiently user-friendly and cost-effective,
companies may instead choose to design, develop or maintain their Internet-
based applications internally. Our revenues will decline if the market for our
services does not continue to develop or develops more slowly than we expect,
or if the market does not accept our services.
Government regulation and legal uncertainties relating to the Internet could
decrease demand for our services, increase our operating costs or otherwise
harm our business
Increased regulation of the Internet or taxation of electronic commerce
might slow the growth in use of the Internet, which could decrease demand for
our services, increase our cost of doing business or otherwise harm our
business. Congress, federal regulatory agencies and the states have recently
passed legislation or taken other actions regulating certain aspects of the
Internet, including:
. online content . liability for third-party activities
. interaction with children . transmission of sexually explicit
materials
. copyright infringement . defamation
. user privacy . consumer protection
. taxation . jurisdiction
. access charges
In addition, federal, state and local governmental organizations as well as
foreign governments are considering other legislative and regulatory proposals
that would regulate these and other aspects of the Internet. We do not know how
courts will interpret laws governing the Internet or the extent to which they
will apply existing laws to the Internet. Therefore, we are not certain how
existing or future laws governing the Internet or applied to the Internet will
affect our business.
Risks Related to our Common Stock
If the market price of our common stock fluctuates significantly, you may not
be able to sell our shares at or above the initial public offering price, and
therefore, you may suffer a loss on your investment
The initial public offering price will be determined through negotiation
between us and representatives of the underwriters and may not be indicative of
the market price for our common stock after this offering.
The market price of our common stock could fluctuate significantly as a
result of:
. our susceptibility to quarterly variations in our operating results,
which may cause us to fail to meet analysts' or investors' expectations
. changes in financial estimates by the analysts following our stock
. earnings and other announcements by, and changes in investors'
evaluations of, Internet professional services firms
. economic and stock market conditions specific to Internet professional
services firms
. changes in business or regulatory conditions affecting information
technology services
. announcements or implementation by us or our competitors of technological
innovations or new products or services
. trading volume of our common stock
The securities of many companies have experienced significant price and
volume fluctuations in recent years, often unrelated to the companies'
operating performance. Specifically, market prices for securities of
11
<PAGE>
Internet-related and technology companies have frequently reached elevated
levels, often following their initial public offerings. These levels, if
attained in the future, may not be sustainable and may not bear any
relationship to these companies' operating performances. If the market price of
our common stock reaches an elevated level following this offering, it may
significantly and rapidly decline. In the past, following periods of volatility
in the market price of a company's securities, stockholders have often
instituted securities class action litigation against the company. If we were
to become involved in securities litigation, it could cause a substantial loss
and divert resources and the attention of senior management from our business.
Because an active trading market for our common stock may not develop after
this offering, it may be difficult for you to sell your shares
There is currently no trading market for our common stock. Accordingly, an
active public trading market may not develop or be sustained after this
offering. If an active and liquid trading market does not develop, you may have
difficulty selling your shares.
The sale or availability for sale of substantial amounts of our common stock
could cause our stock price to decline
Sales of substantial amounts of our common stock in the public market after
the completion of this offering or the public perception that these sales could
occur could cause a decline in the market price of our common stock and could
impair our future ability to raise capital through offerings of our common
stock. There will be 25,196,929 shares of common stock outstanding immediately
after this offering including those shares issued upon conversion of the
convertible securities, shares issued in the contemporaneous private placement,
and those shares issuable at the close of this offering under an employment
agreement, or 25,721,929 shares if the underwriters exercise their over-
allotment option in full. The 3,500,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless held by our "affiliates" as that term is defined in Rule
144 under the Securities Act. The remaining shares are "restricted securities,"
and will become eligible for sale in the public market at various times after
180 days after the date of this prospectus, subject to the limitations and
other conditions of Rule 144 under the Securities Act.
In connection with this offering, we, our executive officers and directors
and 21 of our stockholders and their affiliates have agreed, except in limited
circumstances, not to sell the 20,533,342 shares of common stock owned by them
for 180 days after completion of this offering without the consent of Lehman
Brothers Inc. These shares, however, may be released from these restrictions by
Lehman Brothers Inc. at any time. We cannot predict what effect, if any, market
sales of shares held by principal stockholders or any other stockholder or the
availability of these shares for future sale will have on the market price of
our common stock.
A number of our stockholders are parties to an agreement with us that
provides these stockholders with the right to require us to register the sale
of shares owned by them. These rights cover approximately 16,238,238 shares,
representing 64% of our common stock outstanding after this offering and will
also cover any shares obtained by these stockholders from time to time.
Registration of these shares of our common stock would permit the sale of these
shares without regard to the restrictions of Rule 144 and Rule 144(k).
Concentration of ownership of our common stock may limit your ability to
influence corporate matters
Immediately following this offering, our executive officers and directors,
or entities controlled by them, will own approximately 77% of the outstanding
shares of our common stock.
If our significant stockholders choose to act or vote together on corporate
matters, they will have the power to control the approval of any action
requiring the approval of our stockholders, including any mergers,
acquisitions, sales of all of our assets or amendments to our certificate of
incorporation. In addition, without the
12
<PAGE>
consent of these stockholders, we could be prevented from entering into
transactions that could be beneficial to us. Also, third parties could be
discouraged from making a tender offer or bid to acquire our company at a price
per share that is above the then-prevailing market price.
The net proceeds of this offering may be allocated in ways with which you and
other stockholders may not agree
Our management will have significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific purpose, investment or transaction, you cannot determine at
this time the value or propriety of our management's application of the
proceeds on our behalf and you and other stockholders may not agree with our
management's decisions.
Investors in this offering will experience immediate and substantial dilution
and will pay a higher price for our common stock than paid by our existing
stockholders
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$8.58 per share, representing the difference between our book value per share
as of December 31, 1999, after giving effect to this offering and the initial
public offering price. In addition, you may experience further dilution to the
extent that shares of our common stock are issued upon the exercise of stock
options or under our employee stock purchase plan. All of the shares issuable
upon the exercise of currently outstanding stock options will be issued at a
purchase price less than the public offering price per share in this offering.
Antitakeover provisions of Delaware's General Corporation Law and our
certificate of incorporation could delay or deter a change in control
Amendments to our certificate of incorporation and our bylaws, as well as
various provisions of the Delaware General Corporation Law, may make it more
difficult to effect a change in control of our company. The existence of these
provisions may adversely affect the price of our common stock, discourage third
parties from making a bid for us or reduce any premiums paid to our
stockholders for their common stock. For example, our certificate of
incorporation authorizes our board of directors to issue up to 14,779,511
shares of blank check preferred stock and to attach special rights and
preferences to this preferred stock. The issuance of this preferred stock may
make it more difficult for a third party to acquire control of us. Our
certificate of incorporation also provides for the division of our board of
directors into three classes as nearly equal in size as possible with staggered
three-year terms. This classification of the board of directors could have the
effect of making it more difficult for a third party to acquire our company or
of discouraging a third party from acquiring control of us.
Forward-looking statements contained in this prospectus may not be realized
This prospectus contains forward-looking statements that involve risk and
uncertainties. These forward-looking statements relate to, among other things,
our competition, strength of business model, strategy, plans and timing of the
introduction of new services, plans for entering into strategic relationships
and making acquisitions, and other expectations, intentions and plans contained
in this prospectus that are not historical facts.
When used in this prospectus, the words "expects," "anticipates," "intends,"
"plans," "may," "believes," "seeks," "estimates" and similar expressions
generally identify forward-looking statements. These statements reflect our
current expectations. They are subject to a number of risks and uncertainties,
including but not limited to, changes in technology and changes in the Internet
professional services market. In light of the many risks and uncertainties
surrounding the Internet professional services market, the forward-looking
statements contained in this prospectus may not be realized.
13
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the offering will be
approximately $34.2 million at an assumed initial public offering price of
$11.00 per share, the mid-point of the anticipated range, and approximately
$39.6 million if the underwriters exercise the over-allotment option in full,
in each case, after deducting the estimated underwriting discount and estimated
offering expenses payable by us.
We intend to use the net proceeds of the offering primarily for general
corporate purposes, including:
. reducing outstanding debt of approximately $4.0 million, which is due
November 30, 2000, and bears interest at the prime rate plus 2.00%
(currently 10.75%). The proceeds of this loan were used to pay off our
equipment lease line with a balance of $375,000. The remaining proceeds
are being used to fund working capital and to purchase equipment.
. increasing our recruiting capabilities
. expanding our sales and marketing capabilities
. increasing our brand awareness
. investing in our internal systems and processes
. opening new offices
In addition, we may use the proceeds to make selected strategic investments
or acquisitions. We cannot specify with certainty all or particular allocations
of the use of proceeds from this offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends, and we do not anticipate
paying cash dividends in the foreseeable future. We currently intend to retain
future earnings, if any, to finance operations and the expansion of our
business. Any future determination to pay dividends will be at the sole
discretion of our board of directors and will depend upon our financial
condition, operating results, capital requirements and other factors our board
of directors deems relevant. In addition, our current lines of credit
facilities restrict our ability to declare and pay any dividends without the
prior consent of our lenders.
14
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization and our unaudited
pro forma and unaudited pro forma, as adjusted, capitalization as of December
31, 1999. You should read this information in conjunction with our consolidated
financial statements and the related notes to those consolidated financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term borrowings and capital lease
obligations, current portion.................. $ 192 $ 241 $ 241
======== ======== =======
Long-term borrowings and capital lease
obligations, net of current portion........... 454 562 562
-------- -------- -------
Mandatorily redeemable convertible preferred
stock:
Series B, $0.001 par value; 2,560,000 shares
authorized; 2,560,000 shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... 4,373 -- --
Series C, $0.001 par value; 8,219,511 shares
authorized; 8,055,511 shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... 13,759 -- --
Series D, $0.001 par value; 3,000,000 shares
authorized; no shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... -- -- --
-------- -------- -------
18,132 -- --
-------- -------- -------
Series A convertible preferred stock, $0.001
par value; 1,000,000 shares authorized;
1,000,000 shares issued and outstanding,
actual; no shares issued and outstanding,
pro forma and pro forma, as adjusted........ 1 -- --
Common stock, $0.001 par value; 25,000,000
shares authorized; 4,759,402 shares issued
and outstanding, actual; 20,724,913 shares
issued and outstanding, pro forma and
24,518,168 shares issued and outstanding pro
forma, as adjusted.......................... 5 20 24
Additional paid-in capital................... 1,861 67,829 105,070
Deferred stock-based compensation............ (4,662) (10,733) (10,733)
Accumulated deficit.......................... (15,343) (26,143) (26,143)
-------- -------- -------
Total stockholders' equity (deficit)....... (18,138) 30,973 68,218
-------- -------- -------
Total capitalization..................... $ 640 $ 31,776 $69,021
======== ======== =======
</TABLE>
The foregoing table excludes the following shares at December 31, 1999:
. 3,492,000 shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $0.42 per share
. 1,474,000 shares of common stock available for future grant as of
December 31, 1999
For a description of the assumptions underlying the unaudited pro forma and
unaudited pro forma, as adjusted, data, see "Summary Consolidated Financial
Data."
15
<PAGE>
DILUTION
On a pro forma basis after giving effect to the conversion of 11,615,511
outstanding shares of series A, B, and C preferred stock, the issuance and
subsequent conversion of 3,000,000 shares of series D preferred stock at $7.41
per share, the issuance of 1,350,000 shares of common stock in connection with
the acquisition of XTEND-Tech, and the acquisition of the net tangible assets
of XTEND-Tech, our pro forma net tangible book value as of December 31, 1999,
was $22.2 million or $1.07 per share of common stock. Pro forma net tangible
book value per share represents the amount of our total tangible assets reduced
by the amount of our total liabilities and divided by the total number of
shares of common stock outstanding. After giving effect to the sale of
3,500,000 shares of common stock offered by this prospectus at an assumed
initial public offering price of $11.00 per share and receipt of the estimated
net proceeds from the sale, and the sale of 293,255 shares at $10.23 per share
in connection with our contemporaneous private placement and receipt of the
estimated net proceeds of $3.0 million from the sale, our pro forma net
tangible book value as of December 31, 1999, would have been approximately
$59.4 million or $2.42 per share. This represents an immediate increase in net
tangible book value of $1.35 per share to existing stockholders and an
immediate dilution of $8.58 per share to the new investors. If the initial
public offering price is higher or lower, the dilution to new investors will
be, respectively, greater or less. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $11.00
------
Pro forma net tangible book value per share as of December 31,
1999......................................................... $1.07
Increase per share attributable to new investors.............. $1.35
-----
Pro forma net tangible book value per share after this
offering..................................................... $ 2.42
------
Net tangible book value dilution per share to new investors... $ 8.58
======
</TABLE>
The following table sets forth as of December 31, 1999, assuming the pro
forma effects described above, the difference between the number of shares of
common stock purchased from us, the total consideration and the average price
per share paid by the existing stockholders and by the new investors at an
assumed initial public offering price of $11.00 per share for shares purchased
in this offering, before deducting the estimated underwriting discounts and
estimated offering expenses and $10.23 for shares purchased in the
contemporaneous private placement:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 20,724,913 85.0% $36,021,925 46.0% $ 1.74
New investors............... 3,793,255 15.0 41,500,000 54.0 $10.94
---------- ----- ----------- -----
Total..................... 24,518,168 100.0% $77,521,925 100.0%
========== ===== =========== =====
</TABLE>
This table assumes that the underwriters do not exercise their over-
allotment option. If the underwriters' over-allotment option is exercised in
full, the pro forma, as adjusted net tangible book value per share after giving
effect to this offering would be $2.60 per share. After deducting underwriting
discounts and commissions and estimated transaction expenses, the increase in
the net tangible book value per share to existing stockholders would be $2.59
and the dilution to new public investors would be $8.41 per share.
This table also assumes that no options or warrants have been or are
exercised after December 31, 1999. As of December 31, 1999, there were
outstanding options to purchase an aggregate of 3,492,000 shares of common
stock at a weighted average exercise price of $0.42 per share, excluding
warrants to purchase 160,000 shares of series C preferred stock at $2.50 per
share. If all such options and warrants had been exercised on December 31,
1999, and the underwriters' over-allotment option is exercised in full, our net
tangible book value on that date would have been $66.7 million or $2.33 per
share, the increase in net tangible book value attributable to new investors
would have been $1.26 per share, and the dilution in net tangible book value to
new investors would have been $8.67 per share.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1997, 1998 and 1999, and the consolidated balance
sheet data at December 31, 1997, 1998 and 1999, are derived from the audited
consolidated financial statements included elsewhere in this prospectus. The
selected consolidated statement of operations data for the year ended
December 31, 1996, and the consolidated balance sheet data at December 31,
1996, are derived from our audited consolidated financial statements not
included in this prospectus. The selected consolidated statement of operations
data for the year ended December 31, 1995, and the consolidated balance sheet
data at December 31, 1995, are derived from our unaudited consolidated
financial statements that include, in our opinion, all adjustments, consisting
of only normal recurring adjustments, necessary for fair presentation of the
financial condition at that date and results of operations for such period. The
historical results presented below are not necessarily indicative of the
results to be expected for any future period. The selected consolidated
financial data should be read in conjunction with our consolidated financial
statements and the related notes to those consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" located elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- ------- --------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues....................... $2,416 $5,032 $ 5,196 $ 8,016 $ 13,520
Operating expenses:
Project personnel............. 1,185 2,635 2,677 2,799 8,610
Sales and marketing........... 72 135 1,671 1,838 4,230
General and administrative.... 951 2,123 3,456 4,519 9,434
Depreciation.................. 149 131 187 252 562
Amortization of deferred
stock-based compensation..... -- -- -- 50 1,590
Non-recurring expenses on
closing of foreign
operations................... -- -- -- 250 --
------ ------ ------- ------- --------
Total operating expenses..... 2,357 5,024 7,991 9,708 24,426
------ ------ ------- ------- --------
Income (loss) from operations.. 59 8 (2,795) (1,692) (10,906)
Other income (expense), net.... (16) (51) (79) 36 (5)
------ ------ ------- ------- --------
Income (loss) before income
taxes......................... 43 (43) (2,874) (1,656) (10,911)
Income tax benefit (expense)... (16) 14 (90) (2) (15)
------ ------ ------- ------- --------
Net income (loss).............. 27 (29) (2,964) (1,658) (10,926)
Accretion of mandatorily
redeemable convertible
preferred stock to redemption
value......................... -- -- -- -- (4,862)
------ ------ ------- ------- --------
Net income (loss) attributable
to common stockholders........ $ 27 $ (29) $(2,964) $(1,658) $(15,788)
====== ====== ======= ======= ========
Net income (loss) per share:
Basic and diluted............. $ 0.01 $(0.01) $ (0.65) $ (0.36) $ (3.36)
====== ====== ======= ======= ========
Weighted average shares....... 4,529 4,541 4,557 4,659 4,698
Pro forma net loss per share
(unaudited):
Basic and diluted............. -- -- -- -- $ (0.76)
========
Weighted average shares....... -- -- -- -- 14,447
========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- ------- --------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....... $ 68 $ 48 $ 671 $ 4,783 $ 3,244
Working capital................. 387 317 429 3,802 (1,842)
Total assets.................... 954 1,878 1,822 6,295 9,222
Long-term borrowings and capital
lease obligations, net of
current portion................ 37 70 192 373 454
Mandatorily redeemable
convertible preferred stock.... -- -- 3,200 8,270 18,132
Total stockholders' equity
(deficit)...................... 627 600 (2,496) (4,125) (18,138)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data," our consolidated financial statements and the
related notes to those consolidated financial statements located elsewhere in
this prospectus. In addition to historical information, this discussion
contains forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by such forward-
looking information due to competitive factors, risks associated with our
expansion plans and other factors discussed under "Risk Factors" and elsewhere
in this prospectus.
Overview
Revenues. Our revenues are substantially derived from fixed-price, fixed-
time contracts. Revenues earned under fixed-price, fixed-time projects are
recognized on the percentage-of-completion method based on the ratio of actual
costs incurred to total estimated costs. We recognize revenues on our other
projects on a time and materials basis. Revenues exclude reimbursable expenses
charged to clients.
Approximately 88% of our revenues for the year ended December 31, 1999, was
derived from fixed-price, fixed-time arrangements. We expect the percentage of
our revenues derived from fixed-price, fixed-time projects to decrease through
our wider use of a time and materials approach as our revenues grow and our
client base diversifies. Due to the highly complex and innovative nature of the
Internet based applications we are developing for our clients, we expect our
clients to more frequently select the time and materials approach for the
initial phases of their projects. We prefer this approach for the initial
phases of our engagements, which include defining functionality, determining
the scope of the project and developing a project plan, because the time and
materials approach affords greater flexibility.
Due to our use of fixed-price, fixed-time contracts, our operating results
may be harmed by inaccurate estimates of costs and time required to complete
projects. Therefore, we closely monitor project progress through a series of
processes designed to help estimate cost and time to completion, including a
detailed review at the end of each project stage to determine project
percentage of completion. We typically invoice for an advance payment from our
clients upon contract signing, with additional billings upon our attainment of
project milestones. This practice of invoicing in advance of revenue
recognition in combination with significant new projects in the fourth quarter
of 1999 have resulted in an increase in the current year's receivables, as a
percentage of revenues, as compared to prior years. Deferred revenues consist
primarily of payments received in advance of services rendered. We recognize
those payments as revenues upon performance of services.
Cost Structure. Project personnel expenses consist primarily of payroll,
associated taxes, employee benefits, any third-party fees and net travel costs
incurred in the delivery of our services. Sales and marketing expenses consist
primarily of personnel costs and commissions as well as the costs associated
with the development and maintenance of our marketing materials and programs.
General and administrative expenses consist primarily of the costs associated
with operations management, finance, human resources, information systems,
facilities and other administrative support for project personnel.
We regularly review the fees we charge for our services, our employee
compensation and our overhead costs in an effort to remain competitive within
our industry. In addition, we monitor the progress of our projects with our
clients' senior management. Monitoring the costs and progress associated with
each project is aided by our intranet-based project management systems. We
manage the activities of our service delivery personnel by closely monitoring
project schedules and staffing requirements for new projects. Most of our
client projects can, and may in the future, be terminated by our clients
without penalty. However, our contracts generally provide that we will be
compensated based on the percentage of work completed relative to the fixed
price of the engagement. Termination of a client project could require us to
maintain underutilized employees, resulting in a higher than expected number of
inactive professionals. We maintain a sufficient number of senior professionals
to oversee existing and anticipated client projects and participate in our
sales efforts to engage new client projects.
19
<PAGE>
Variability of Operating Results. Our operating results have fluctuated from
quarter to quarter and may continue to fluctuate in the future. These
fluctuations may be significant. We may not always forecast accurately the
frequency and duration of our projects. We incur expenses, which are mainly
fixed expenses, based on our expectations concerning the costs of our future
projects. We may not be able to reduce our spending in a timely manner to
compensate for any shortfall in our projected revenues. In the event of such a
shortfall, our expenses as a percentage of our revenues would increase. Our
quarterly operating results may not meet the expectations of analysts or
investors. This may cause a decline in the market price of our common stock.
Recent Net Losses. Our net loss was $10.9 million for the year ended
December 31, 1999, compared to $1.7 million for the year ended December 31,
1998. We primarily attribute our increased net losses to higher project
personnel expenses, sales and marketing expenses and general and administrative
expenses. The overall increase in expenses was primarily attributable to costs
incurred to expand or increase the number of project personnel as well as
significant investment in office facilities and related infrastructure
management and administrative personnel and sales and marketing.
Recent Events. In January 2000, we acquired the business of XTEND-Tech, a
30-employee information technology consulting organization serving Global 1000
companies. This acquisition will expand the breadth of our service offerings
and contribute to our future revenue growth. XTEND-Tech has a cost structure
that is similar to ours. We issued 1,350,000 shares of our common stock in
connection with this acquisition with an estimated fair value of approximately
$14.9 million. This consideration consisted of a combination of the purchase
price paid for the outstanding common stock of XTEND-Tech and consideration to
certain employee stockholders of XTEND-Tech for continued employment with us.
The acquisition was accounted for using the purchase method of accounting. The
total amount of the consideration treated as purchase price for this
acquisition was approximately $8.8 million and was allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values at the acquisition date. The amortization of the
intangible assets will occur over the estimated periods to be benefited. In
connection with this acquisition we signed restricted stock agreements with
employee-stockholders of XTEND-Tech as consideration for continued employment.
The fair value of the unvested shares, which relate to these restricted stock
agreements, amounting to $6.1 million, has been recorded as deferred stock-
based compensation, which will be amortized over the three-year vesting period
of the restricted stock.
20
<PAGE>
Results of Operations
The following table sets forth, as a percentage of revenues, our
consolidated statement of operations for the years ended December 31, 1997,
1998 and 1999.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues............................................... 100% 100% 100%
Operating expenses:
Project personnel..................................... 51 35 63
Sales and marketing................................... 32 23 31
General and administrative............................ 67 56 70
Depreciation.......................................... 3 3 4
Amortization of deferred stock-based compensation..... -- 1 12
Non-recurring expenses on closing of foreign
operations........................................... -- 3 --
--- --- ---
Total operating expenses............................. 153 121 180
--- --- ---
Income (loss) from operations.......................... (53) (21) (80)
Other income (expense), net............................ (2) -- --
--- --- ---
Income (loss) before income taxes...................... (55) (21) (80)
Income tax benefit (expense)........................... (2) -- --
--- --- ---
Net income (loss)...................................... (57)% (21)% (80)%
=== === ===
</TABLE>
1999 Compared to 1998
Revenues. Our revenues increased 69% to $13.5 million for the year ended
December 31, 1999, compared to $8.0 million for the year ended December 31,
1998. We attribute our revenue growth primarily to an increase in the volume of
services delivered to new clients. We will continue to focus our efforts on new
client capture and expect this trend to continue. In 1999, our five largest
clients accounted for approximately 75% of our revenues. In 1998, our five
largest clients accounted for approximately 85% of our revenues. Compared to
the fourth quarter of 1998, the decline in revenues in the first quarter of
1999 can be attributed to a delay by a major client in its transition from its
legacy business systems. The decline in the second quarter of 1999 can be
attributed to the loss of a major client.
Project Personnel Expenses. Project personnel expenses increased $5.8
million, or 208%, to $8.6 million for the year ended December 31, 1999, from
$2.8 million for the year ended December 31, 1998. The increase was primarily
attributable to the hiring of additional project personnel to accommodate
current and anticipated increases in demand for our services. This increase in
project personnel resulted in a decline in utilization levels to approximately
60% in 1999, from an average of approximately 76% in 1998. Headcount for
project personnel as of December 31, 1999, was 112 compared to 36 as of
December 31, 1998. As a percentage of revenues, project personnel expenses were
63% for the year ended December 31, 1999, and 35% for the year ended December
31, 1998.
Sales and Marketing Expenses. Sales and marketing expenses increased $2.4
million, or 130%, to $4.2 million for the year ended December 31, 1999, from
$1.8 million for the year ended December 31, 1998. The increase was due to our
investment in our sales and marketing programs. Headcount for sales and
marketing personnel increased to 15 at December 31, 1999, from 8 at December
31, 1998. As a percentage of revenues, sales and marketing expenses were 31%
for the year ended December 31, 1999, and 23% for the year ended December 31,
1998.
21
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased $4.9 million, or 108%, to $9.4 million for the year ended December
31, 1999, from $4.5 million for the year ended December 31, 1998. Office rent
expenses increased to $828,000 for the year ended December 31, 1999, from
$214,000 for the year ended December 31, 1998. Headcount for managerial and
administrative personnel increased to 39 as of December 31, 1999, from 13 as of
December 31, 1998. The increases in office rent expenses accounted for 12% of
the overall increase. In addition, personnel expenses accounted for 68% of this
increase. As a percentage of revenues, general and administrative expenses were
70% for the year ended December 31, 1999, and 56% for the year ended December
31, 1998.
Depreciation. Depreciation expense increased $311,000, or 124%, to $562,000
for the year ended December 31, 1999, from $251,000 for the year ended December
31, 1998. The increase was attributable to capital expenditures for new
equipment and leasehold improvements.
Amortization of Deferred Stock-based Compensation. We recorded $1.6 million
in amortization of deferred stock-based compensation expense for the year ended
December 31, 1999. This expense represented the amortization of the difference
between the deemed fair value of the underlying options at the time of grant
and their exercise price.
Other Income (Expense), Net. Other expense was $5,000 for the year ended
December 31, 1999, compared to income of $36,000 for the year ended December
31, 1998. The variance was primarily due to an increase in interest expense.
The average aggregate balance outstanding on our line of credit and term loan
was $1.2 million during the year ended December 31, 1999, as compared to
$172,000 during the year ended December 31, 1998. Interest expense under these
facilities was $106,000 for the year ended December 31, 1999, and $56,000 for
the year ended December 31, 1998.
Income Tax Expense. We incurred income tax expense of $15,000 for the year
ended December 31, 1999, and $2,000 for the year ended December 31, 1998. As of
December 31, 1999, we had approximately $13.0 million of federal net operating
loss carryforwards and approximately $11.0 million of state net operating loss
carryforwards available to offset future taxable income. The federal net
operating loss carryforwards will expire between 2011 and 2019, and the state
net operating loss carryforwards will expire between 2004 and 2006, if not
utilized.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited upon a cumulative
stock ownership change of more than 50% over a three-year period. Any unused
annual limitation may be carried forward to future years for the balance of the
net operating loss carryforward period.
1998 Compared to 1997
Revenues. Our revenues increased 53% to $8.0 million for the year ended
December 31, 1998, compared to $5.2 million for the year ended December 31,
1997. We attribute approximately 35% of our revenue growth to an increase in
the volume of services delivered to new clients and approximately 65% to
additional projects for existing clients. In 1998, our five largest clients
accounted for approximately 85% of our revenues. In 1997, our five largest
clients accounted for approximately 55% of our revenues.
Project Personnel Expenses. Project personnel expenses increased by
$122,000, or 5%, to $2.8 million for the year ended December 31, 1998, from
$2.7 million for the year ended December 31, 1997. The increase was
attributable to the hiring of additional project personnel during the second
half of 1998. As a percentage of revenues, project personnel expenses declined
to 35% for the year ended December 31, 1998, compared to 51% for the year ended
December 31, 1997. The decrease in project personnel expenses in 1998 as a
percentage of revenues was the result of our delay of hiring additional
personnel until the second half of 1998, which resulted in a higher utilization
rate and a slower growth of expenses relative to the growth in revenues.
22
<PAGE>
Sales and Marketing Expenses. Sales and marketing expenses increased by
$167,000, or 10%, to $1.8 million for the year ended December 31, 1998, from
$1.7 million for the year ended December 31, 1997. The increase in these
expenses was primarily attributable to the hiring of business development and
marketing personnel, increased public relations activities and the
implementation of new and continuation of our existing marketing programs.
Headcount for sales and marketing personnel increased to eight at December 31,
1998, from five at December 31, 1997. As a percentage of revenues, sales and
marketing expenses were 23% for the year ended December 31, 1998, and 32% for
the year ended December 31, 1997.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 31%, to $4.5 million for the year ended December 31,
1998, from $3.5 million for the year ended December 31, 1997. The increase was
primarily attributable to expenses incurred to accommodate our current and
anticipated growth, including the expansion of our office facilities and the
increased cost of management and administrative personnel and other general
operating expenses in the areas of accounting, human resources and general
operations. Office rent expenses increased to $214,000 for the year ended
December 31, 1998, from $157,000 for the year ended December 31, 1997.
Headcount for management and administrative personnel increased to 12 at
December 31, 1998, from six at December 31, 1997. As a percentage of revenues,
general and administrative expenses were 56% for the year ended December 31,
1998, and 67% for the year ended December 31, 1997. Also, reflected in the
results for the quarter ended December 31, 1998, was a reduction in costs
associated with a decrease in hiring activity, an adjustment to the incentive
compensation accrual, based on a revision of management's estimate of the
required level, and savings associated with a reduction in professional
services expenses.
Depreciation. Depreciation increased by $64,000 to $251,000 for the year
ended December 31, 1998, from $187,000 for the year ended December 31, 1997.
The increase was related to increased investments in furniture and equipment.
Amortization of Deferred Stock-based Compensation. We recorded $50,000 in
amortization of deferred stock-based compensation expense for the year ended
December 31, 1998. This expense represented the amortization of the difference
between the deemed fair value of the underlying options at the date of grant
and their exercise price.
Non-Recurring Expenses on Closing of Foreign Operations. In November 1998,
we announced our intention to close our operations in Malaysia. In conjunction
with this announcement, we recorded a reserve of $250,000 for anticipated
liquidation costs of our Malaysian subsidiary. This amount consisted of
$157,000 for the write-down from the liquidation of the assets, $47,000 for
remaining trade obligations and $46,000 for legal and other professional
services to be provided during the liquidation process. Operations ceased
during 1998, and all employee severance related costs were incurred prior to
December 31, 1998. During 1999, the liquidation of the assets and settlement of
the obligations was completed. As of December 31, 1999, $41,000 remains accrued
to cover a pending claim from a former customer of the Malaysian subsidiary. We
anticipate that this claim will be settled during 2000.
Other Income (Expense), Net. Other income increased by $115,000 to $36,000
for the year ended December 31, 1998, from an expense of $79,000 for the year
ended December 31, 1997. The increase was primarily attributable to increased
interest income and a decrease in interest expense related to borrowings under
our revolving line of credit and capital lease obligations. Interest expense
was $56,000 for the year ended December 31, 1998, and $83,000 for the year
ended December 31, 1997.
Income Tax Expense. We incurred a $2,000 income tax expense for the year
ended December 31, 1998, as compared with $90,000 for the year ended December
31, 1997. As of December 31, 1998, we had approximately $3.0 million of federal
net operating loss carryforwards and $2.0 million of state net operating loss
carryforwards available to offset future taxable income.
23
<PAGE>
Quarterly Operating Results
The following table sets forth a summary of our unaudited quarterly
consolidated operating results for each of our eight most recently ended fiscal
quarters. We have derived this information from our unaudited quarterly
financial statements, which in our opinion, have been prepared on a basis
consistent with our audited consolidated financial statements contained
elsewhere in this prospectus and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation in accordance
with generally accepted accounting principles when read in conjunction with our
consolidated financial statements and the related notes included elsewhere in
this prospectus. Our quarterly consolidated operating results are not
necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands, unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $1,681 $2,040 $2,280 $2,015 $ 1,818 $ 1,907 $ 4,199 $ 5,596
Operating expenses:
Project personnel...... 611 655 739 794 1,168 1,561 2,531 3,350
Sales and marketing.... 425 575 518 320 798 706 1,056 1,670
General and
administrative........ 1,134 1,212 1,266 907 1,380 2,001 2,346 3,707
Depreciation........... 52 59 63 78 84 118 164 196
Amortization of
deferred stock-based
compensation.......... -- -- -- 50 179 225 432 754
Non-recurring expense
on closing of foreign
operations............ -- -- -- 250 -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Total operating
expenses............ 2,222 2,501 2,586 2,399 3,609 4,611 6,529 9,677
------ ------ ------ ------ ------- ------- ------- -------
Loss from operations.... (541) (461) (306) (384) (1,791) (2,704) (2,330) (4,081)
Other income (expense),
net.................... (15) 4 21 26 17 (7) 4 (19)
------ ------ ------ ------ ------- ------- ------- -------
Loss before income
taxes.................. (556) (457) (285) (358) (1,774) (2,711) (2,326) (4,100)
Income tax expense...... -- -- -- (2) (5) (5) (5) --
------ ------ ------ ------ ------- ------- ------- -------
Net loss................ $ (556) $ (457) $ (285) $ (360) $(1,779) $(2,716) $(2,331) $(4,100)
====== ====== ====== ====== ======= ======= ======= =======
As a Percentage of
Revenue:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Project personnel...... 36 32 32 40 64 82 60 60
Sales and marketing.... 25 28 23 16 44 37 25 30
General and
administrative........ 68 59 56 45 76 105 56 66
Depreciation........... 3 3 3 4 5 6 4 3
Amortization of
deferred stock-based
compensation.......... -- -- -- 2 10 12 10 13
Non-recurring expense
on closing of foreign
operations............ -- -- -- 12 -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Total operating
expenses............ 132 122 114 119 199 242 155 172
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations............. (32) (22) (14) (19) (99) (142) (55) (72)
Other income (expense),
net.................... (1) -- 1 1 1 -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before
income taxes .......... (33) (22) (13) (18) (98) (142) (55) (72)
Income tax benefit
(expense).............. -- -- -- -- -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)....... (33)% (22)% (13)% (18)% (98)% (142)% (55)% (72)%
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
24
<PAGE>
Liquidity and Capital Resources
Since 1997, we have financed our operations primarily from sales of
preferred stock and borrowings under a line of credit and a term loan from a
commercial bank. As of December 31, 1999, we have raised approximately $17.7
million, net of offering expenses, $13.7 million through the sale of our
preferred stock and $4.0 million from a term loan. At December 31, 1999, we had
approximately $3.2 million in cash and cash equivalents.
Net cash used in operating activities was $2.2 million for the year ended
December 31, 1997, $340,000 for the year ended December 31, 1998, and $8.7
million for the year ended December 31, 1999. Cash used in operating activities
in each of these periods was primarily the result of net losses, adjusted for
non-cash items primarily related to depreciation, increases in accounts
receivable and fees and unbilled revenues resulting from increased sales
revenue in the fourth quarter, partially offset by increases in accounts
payable and accrued expenses resulting from increased operating expenses
associated with the sales revenue growth. The losses during 1999 resulted in
negative working capital of $1.9 million for the period ending December 31,
1999, versus positive working capital of $429,000 and $3.8 million,
respectively, for the periods ending December 31, 1997, and December 31, 1998.
Net cash used in investing activities was $50,000 for the year ended
December 31, 1997, $460,000 for the year ended December 31, 1998, and $1.3
million for the year ended December 31, 1999. Cash used in investing activities
in each period consisted primarily of purchases of furniture and equipment.
Net cash provided by financing activities was $2.9 million for the year
ended December 31, 1997, $4.9 million for the year ended December 31, 1998, and
$8.4 million for the year ended December 31, 1999. In 1997 and 1998, the cash
provided by our financing activities was primarily from the sale of our
preferred stock. For the year ended December 31, 1999, the cash provided from
our financing activities was primarily from the sale of our preferred stock and
borrowings under a term loan and equipment leases.
As of December 31, 1999, our principal commitments consisted of obligations
under a term loan and under equipment leases, which funded our purchases of
furniture and equipment. Our equipment leasing arrangements consist primarily
of us paying rental fees to third-party leasing providers at interest rates
between 11.00% and 13.00%. Borrowings under the term loan bear interest at the
prime rate plus 2.00% (10.75% currently), with accrued interest paid monthly,
and are due at November 30, 2000. As of December 31, 1999, we borrowed $4.0
million, the entire amount available under the term loan. We have $2.0 million
available under a revolving line of credit. Borrowing under the line of credit
is limited to the lesser of 80% of the amount of eligible accounts receivable
or $2.0 million and bears interest at the prime rate plus 2.00% (10.75%
currently). We have never borrowed under the line of credit. Although we have
no material commitments for capital expenditures, we anticipate an increase in
our capital expenditures consistent with anticipated growth in our operations,
infrastructure and personnel.
Subsequent to December 31, 1999, we issued 3,000,000 shares of series D
preferred stock in a private placement for gross proceeds of approximately
$22.2 million. The difference between the deemed fair value of the Series D
preferred stock of $11.00, the mid-point of the range of share prices
anticipated for this offering, and the price per share of $7.41 was considered
to be a beneficial conversion feature analogous to a dividend to the preferred
stockholders. The value of the beneficial conversion feature of $10.8 million
will be recognized in fiscal 2000 as a non-cash charge to net loss attributable
to common stockholders. In February 2000, we entered into two letters of credit
for approximately $2.8 million and $198,000 to secure lease deposits to expand
into two new office facilities. These letters of credit expire in February
2001, and are secured by certificates of deposit in the same amounts.
We believe that the net proceeds from this offering, combined with the
proceeds of the series D private placement, the proceeds of the private
placement to be closed contemporaneously with this offering, current
25
<PAGE>
cash balances and borrowing capacity under our credit facilities will be
sufficient to fund our requirements for working capital and capital
expenditures for at least the next twelve months. Thereafter, we may sell
additional equity or debt securities or seek additional credit facilities.
Sales of additional equity or convertible debt securities would result in
additional dilution to our stockholders. We may need to raise additional funds
sooner in order to support expansion, develop new or enhanced services, respond
to competitive pressures, acquire complementary businesses or technologies or
take advantage of unanticipated opportunities. Our future liquidity and capital
requirements will depend upon numerous factors, including the success of our
existing and new service offerings and competing technological and market
developments. Additional financing, if any, may not be available on
satisfactory terms.
Disclosure About Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
available funds for investment and on the increase or decrease in the amount of
interest expense we must pay with respect to our various outstanding debt
instruments. The risk associated with fluctuating interest expense is limited,
however, to the exposure related to those debt instruments and credit
facilities that are tied to variable market rates. We do not plan to use
derivative financial instruments in our investment portfolio. We plan to ensure
the safety and preservation of our invested principal funds by limiting default
risks, market risk and reinvestment risk. We plan to mitigate default risk by
investing in high-credit quality securities.
All of our revenues are realized currently in U.S. dollars and are from
customers primarily in the United States. Therefore, we do not believe that we
currently have any significant direct foreign currency exchange rate risk.
26
<PAGE>
BUSINESS
Overview
We are a leading Internet professional services firm providing strategy,
technology, implementation and support services solutions to large corporations
and emerging Internet businesses that engage in e-commerce with other
businesses. We focus on helping our clients conceive and implement e-markets
and electronic customer relationship management systems. E-markets are
electronic marketplaces that enable businesses to collaborate with trading
partners, conduct e-commerce, manage distribution relationships and enhance
business partnerships. Electronic customer relationship management is an
Internet-based approach to coordinating a company's customer relationships
across communications channels, business functions and trading partners.
We believe our capabilities are well-suited to developing the extremely
complex, highly integrated systems required for effective business-to-business
e-commerce solutions. Our professionals create scalable, reliable and
integrated business systems using our proprietary LightSpeed delivery model and
i2K architectural framework. We provide our services through our staff of 168
professionals, who have an average of ten years experience in business process
analysis, technology architecture, project management and software engineering.
Industry Background
The Internet enables millions of businesses and consumers to share
information and conduct commerce electronically. Businesses initially used
their Internet sites primarily for advertising and promotional purposes. As
Internet usage increased, businesses realized the Internet could also be used
as an effective medium for directly targeting consumers, improving
communications with customers and generating business-to-consumer e-commerce
transactions. Forrester Research, Inc. estimates that the total value of goods
exchanged in the United States business-to-consumer e-commerce market will
exceed $100 billion by 2003. Driven by the scale and scope of this rapidly
emerging business opportunity, businesses began to develop increasingly
complex, higher transaction volume consumer-oriented websites.
While business-to-consumer e-commerce was evolving, companies also began to
use Internet technology to streamline their internal operations and
electronically integrate select internal processes with other businesses,
including their suppliers, distributors and key business customers. Today,
businesses are using Internet technologies to improve their competitive
positions by increasing operating efficiencies, strengthening their trading
partner relationships and identifying and capitalizing on emerging business
opportunities by developing various Internet-based business models. Forrester
Research, Inc. estimates that the total value of goods exchanged in the United
States business-to-business e-commerce market will increase from $43.1 billion
in 1998 to $2.7 trillion in 2004, representing a 99% six-year compound annual
growth rate.
An important emerging Internet-based business model is the electronic
market. Electronic markets provide Internet-based trading hubs where multiple
buyers and sellers communicate and conduct electronic commerce. The creation of
these e-markets enables innovative methods for trading between business
partners, including auctions, reverse auctions, aggregation, inventory
liquidation and on-line negotiation. These electronic markets provide
unprecedented global opportunities for businesses to exchange information and
execute transactions with the efficiency, cost effectiveness and global reach
provided by Internet technologies, while supporting individual contractual
relationships between trading partners. Examples of these e-markets include
autoExchange.com, ePolicy.com, Pure Markets, tradepac.com and VerticalNet.
Businesses are rapidly developing e-markets and other business-to-business
e-commerce systems in order to fully realize the market opportunity. Business-
to-business e-commerce systems are engineered to facilitate:
. significant increases in the value and complexity of data and
transactions processed
. improved performance and response times to support real-time access by
trading partners from a variety of technology platforms
27
<PAGE>
. improved reliability, accuracy and security for transactions
. high degrees of integration between legacy applications, networks and
technology platforms within a company as well as across diverse
businesses
. the execution of a broad variety of processes and payment methods that
exist between trading partners
These business-to-business systems are highly complex and often involve a
greater number of steps per transaction and more processes than business-to-
consumer systems, creating a longer, more intricate commerce chain and
resulting in a more complex delivery infrastructure. Some of the typical
differences between business-to-consumer and business-to-business e-commerce
are highlighted below:
<TABLE>
<CAPTION>
Characteristic Business-to-Consumer Business-to-Business
-------------- ---------------------------- -------------------------------------
<S> <C> <C>
Users and
Participants .One-to-many .Many-to-many
.Individuals .Fragmented buyers, suppliers,
partners and distributors
- -------------------------------------------------------------------------------------
Products and
Services .Standardized, mass market .Higher degrees of customization
.Convenient .Complex configuration
.Price points: $100s-$1000s .Price points: $1000s-millions
.Mission critical
.Highly time-sensitive
- -------------------------------------------------------------------------------------
Delivery and
Fulfillment .Credit card payment .Credit/financing key issues
.Straightforward fulfillment .Intricate synchronization
.Multi-stage shipping
.Customs, tariffs and inspections
- -------------------------------------------------------------------------------------
Infrastructure .Supplier-side systems only .Real-time, customized front-end
.Tight back-office integration
.Security and bandwidth for heavy
volumes
- -------------------------------------------------------------------------------------
Outcome
Objective .Building brand .Enabling commerce between businesses
</TABLE>
Developing and supporting business-to-business e-commerce systems requires
substantial expertise in designing new business processes that integrate with
existing operations, selecting and implementing the appropriate Internet
technologies and managing the implementation process to meet the time-to-market
needs characteristic of today's competitive business environment. There is a
limited supply of high-quality, experienced Internet services professionals,
and demand for these professionals is increasing rapidly. This makes it
increasingly difficult for companies seeking to internally implement business-
to-business e-commerce solutions to hire, develop and retain these
professionals. As a result, an increasing number of businesses, from start-ups
to Fortune 1000 companies, engage third-party Internet professional services
firms to help them design and implement business-to-business e-commerce
systems.
The demand for these and related Internet and e-commerce services is
projected to grow dramatically. International Data Corporation estimates that
this market will grow from approximately $7.8 billion in 1998 to $78.6 billion
in 2003, representing a 59% compound annual growth rate.
28
<PAGE>
We believe there are only a few Internet professional services firms with an
exclusive focus on business-to-business e-commerce engagements. Additionally,
we believe that in order to be successful in this market, Internet professional
services firms must possess an integrated model of business-to-business-
oriented process analysis, substantial software engineering expertise, strong
technology architecture and integration skills, and effective client and
project management capabilities.
Our Solution
We are a leading Internet professional services firm. We provide business-
to-business e-commerce systems solutions to large corporations and emerging
Internet businesses and focus on building and supporting complex e-markets and
electronic customer relationship management solutions.
The key elements of our solution are:
Early and Exclusive Business-to-Business e-Commerce Focus. We have delivered
business-to-business software applications for our clients since 1995. We
provide our services through teams of talented professionals with extensive
experience in business process analysis, project management and software
engineering. We believe our early vision and business-to-business experience
enables us to rapidly and efficiently architect and implement Internet
solutions.
Proprietary LightSpeed Delivery Model. LightSpeed, our proprietary
collection of operating principles, methods and frameworks, is an Internet-
based model for governing the way we interact with our clients, including how
we define, price, staff and manage our projects. We believe the successful
application of LightSpeed in our engagements enables us to more accurately
forecast project schedules and costs. LightSpeed also allows us to better
manage project risk and to identify, capture and reuse valuable Internet
frameworks, designs, processes and techniques that we have developed while
working on prior engagements.
Proprietary i2K Architectural Model. i2K is a collection of principles,
methods and frameworks we have created to guide development of complex
e-commerce systems. Using i2K we help our clients to develop e-markets and
electronic customer relationship management systems that leverage and integrate
information between their Internet-based and legacy systems and those of their
trading partners. We believe the successful design and implementation of
projects using our i2K model result in secure, reliable systems and a highly
extendable architectural platform.
Packaging of Services. Based on our extensive experience in business-to-
business e-markets and electronic customer relationship management solutions,
we have developed modular solutions tailored for discrete business processes.
Our packaged service offerings are comprised of three major elements: pre-
defined business functions, proven business practices and pre-defined
technology architecture. We believe packaging our services in this manner
reduces our project risk, increases our operating margins, improves our sales
force's productivity, speeds time-to-market for our clients and differentiates
us from our competition.
Integrated End-to-End Implementation Capabilities. We believe we provide the
complete range of capabilities required to deliver comprehensive business-to-
business e-commerce solutions to our clients. Our core competencies range from
business process analysis and technology architecture to Internet application
development and post-launch managed web services.
We believe our breadth of capabilities enables us to engineer and deliver
complete electronic markets and electronic customer relationship management
solutions for a fixed price and within fixed timeframes.
Knowledge Management and Transfer. We collect, store and organize
information we acquire from interaction with our clients in order to enhance
our existing base of technology and business process expertise. Inside Inventa,
our corporate intranet, is a secure integrated knowledge management repository
that facilitates
29
<PAGE>
the dissemination of this intellectual capital across our organization. In
addition, eTrack, our internal Internet-based project management system,
enables us to capture, monitor and manage information for project scheduling;
project status review; document and deliverable distribution to our
professionals and our clients; and detailed information on the resources
required to achieve specific tasks on a project. We believe this expanding base
of readily accessible knowledge enables us to meet our clients' ever-increasing
expectations for our performance, improves our ability to forecast the
estimated time and resources required to complete our client engagements and
increases the reusability of our intellectual capital, thereby reducing risks
to us and our clients.
Our Strategy
Our objective is to enhance our position and reputation as a leading
provider of Internet professional services in the context of business-to-
business e-commerce. The key elements of our growth strategy are to:
Maintain Our Exclusive Business-to-Business e-Commerce Focus. We intend to
maintain our exclusive focus on business-to-business e-commerce. We believe
this segment of the market is the most strategic to our clients, is the fastest
growing segment of the e-commerce market and is best aligned with our core
competencies. Currently, we target two major business-to-business e-commerce
practice areas:
. e-markets, where we engineer and support business-to-business electronic
markets that facilitate the timely exchange of information and goods
between trading partners
. electronic customer relationship management, where we deliver solutions
for a broad range of business-to-business customer interaction processes,
including sales, marketing and customer support
We also intend to expand our service offerings by developing additional
practices to cover the full range of business-to-business e-commerce processes
and relationships in which our clients and prospective clients are likely to
engage, including electronic partner relationship management and electronic
supply chain management.
Maintain Our Technology Leadership. We believe that our clients choose to
work with us because of our reputation for technology leadership and for
successfully solving some of the most challenging business-to-business e-
commerce problems with leading-edge Internet technologies. We believe working
on complex assignments will make us more attractive to high-quality
professionals, who enlarge our technology skill set and knowledge base. We
intend to maintain our technology leadership by:
. pursuing complex engagements that allow us to refine and advance our
business-to-business e-commerce capabilities
. researching emerging technologies for their relevance and applicability
to our clients' business strategies
. refining and enhancing our proprietary i2K architectural model to take
advantage of advances in Internet technology
. deepening our current partner relationships and establishing new
partnerships to maintain our status as an early adopter of emerging
technologies and skill sets
. enhancing our knowledge management infrastructure to improve the breadth,
depth and quality of access to technology-related information by our
professionals
Continue to Package Our Services. We intend to continue to package our
services. We believe packaging our services:
. permits faster and more predictable project implementations resulting in
higher operating margins
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<PAGE>
. facilitates marketing our services and solutions to prospective clients
. demonstrates our thought leadership and competencies
. improves training for our professional staff and increases sales force
productivity
. differentiates us from our competitors
We intend to expand our packaged service offerings beyond our current eSales
and eCare products by leveraging knowledge and experience from our engagements,
continuing to refine and enhance our LightSpeed delivery model and identifying
and establishing the partner relationships relevant to effective packaging of
our services.
Recruit and Retain Highly-Skilled Professionals. We intend to continue to
hire, train and retain individuals who are highly skilled in the engineering of
complex Internet systems and business processes . To provide an environment
conducive to recruitment and retention, we have created a corporate culture
that emphasizes balance between one's professional and personal life,
challenging work assignments, broad equity ownership, promotion from within,
opportunities for advanced training and direct involvement in growing our
business.
Further, we have designed our LightSpeed delivery model to be a key employee
recruiting and retention tool by:
. encouraging direct client contact at all levels of our project teams
. basing our teams at our facilities to reduce professionals' travel time
. conducting our engagements using small, highly-specialized project teams
We will continue to expand our in-house recruiting staff and to invest in
initiatives focused on direct and Internet-based recruitment, employee referral
programs and on-campus recruiting. In addition, we intend to expand the
geographic reach of our recruitment efforts and to advertise and promote our
brand to generate awareness of our company among potential employees in
relevant markets.
Expand Existing and Establish New Client Relationships. We believe our track
record of successful engagements has resulted in strong relationships with our
clients. As a result, our clients often request that we expand the scope and
complexity of our engagements. This reinforces our growing reputation as an
innovative provider of business-to-business e-commerce solutions. We intend to
leverage our reputation for client satisfaction and innovation to attract new
engagements with our existing clients and to capture new clients through
referral-driven sales.
In addition, we intend to engage new clients by continuing to:
. expand our direct sales force in our current geographic markets
. invest in promotional activities designed to improve brand awareness and
provide sales leads
. establish new strategic business and technology alliances
. expand geographically, both within the United States and internationally
Our Services
We have developed a broad range of capabilities in designing and
implementing business-to-business e-commerce systems and applications for our
clients, from integrating demand-side Internet applications with front- and
back-office systems to supply-side Internet applications for servicing trading
partners. Our capabilities include:
. competitive assessment of our clients' Internet strategies and
capabilities
31
<PAGE>
. business process analysis
. application portfolio definition and functionality prioritization
. requirements definition and concept prototyping
. technology architecture design and engineering
. custom Internet application development
. e-commerce software implementation
. systems integration
. enterprise application integration (within and between businesses)
. applications management and enhancement
. service productization
We leverage these skill sets and our substantial expertise in two major
business-to-business e-commerce practice areas, e-markets and electronic
customer relationship management, as described below:
Electronic Markets. We engineer and support business-to-business
marketplaces that are highly scalable and extendable to accommodate the rapid
growth that well-designed and well-marketed business-to-business systems are
likely to experience.
Electronic Customer Relationship Management. We design and engineer
Internet-based systems and applications for a broad range of business-to-
business customer interaction processes, including sales, marketing, customer
support, distribution and fulfillment.
These service offerings are comprehensive, scalable, extendable and secure,
thereby helping our clients ensure the quality and integrity of their
relationships with their business customers and other trading partners.
Although each of our solutions is uniquely engineered and customized to meet
the expectations of each of our clients, we design them using standard Internet
technologies and commercially available software to accelerate project delivery
and ease system maintenance.
We deliver our solutions using the following service models:
LightSpeed Delivery Model. LightSpeed is our proprietary Internet-based
model for governing the way we deliver solutions to our clients. Using
LightSpeed, we usually complete entire projects for our clients in five to six
months.
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<PAGE>
LightSpeed is composed of four distinct stages:
<TABLE>
<C> <S>
Innovate Our professionals work closely with our clients' senior
executives to conduct a strategic assessment of their
competitive positioning in the Internet marketplace and
create a business and technology roadmap for the development
of a business-to-business solution. We then arrive at a
shared vision of our clients' business-to-business
initiative and explore potential software applications,
identify architectural issues and highlight potential
obstacles to success. Finally, we deliver an agreed-upon
business-to-business e-commerce roadmap for the development
of a solution.
- -------------------------------------------------------------------------------
Blueprint We work with our clients to define and prioritize the scope,
functionality and business processes for their projects.
Using intensive workshops, storyboarding and prototyping
techniques, we deliver functional requirements, an
application prototype, architecture and technology
recommendations and a detailed plan for the LightSpeed
Create and Launch stage.
- -------------------------------------------------------------------------------
Create and Launch We develop a detailed engineering design and create a
comprehensive quality assurance plan. We then implement our
solution in a series of progressively more functional
releases. With this approach, we deliver a production-
quality release with meaningful, business-relevant
functionality usually within ten weeks. The entire Create
and Launch stage typically takes between 16 and 24 weeks and
may include two or three releases.
- -------------------------------------------------------------------------------
Enhance We help our clients evaluate an individual project's success
before embarking on the next project or major phase. We
refine our most recent implementation and enhance the
application in response to changes in user requirements. We
also offer our clients opportunities to expand their
implementations with application enhancement and database
consulting services.
</TABLE>
i2K Architectural Model. i2K is our proprietary collection of principles,
methods and frameworks for business-to-business e-commerce solutions. It
provides a schematic for developing electronic markets and electronic customer
relationship management systems that are scalable, adaptable, integrated with
our clients' Internet-based and legacy systems and extendable outside their
enterprises to their trading partners' systems. We believe each of our clients'
competitive advantage is directly related to how quickly and how well they
leverage and integrate information within their Internet-based and legacy
systems and with those of their trading partners. Accessing and combining this
information in meaningful ways is essential to leveraging the potential of the
Internet.
Packaged Service Offerings. We have combined our LightSpeed delivery model,
our i2K architectural model, commercially available software and the collective
knowledge of our professionals into packaged service offerings for specific
business processes. We currently have targeted two critical business processes
with these Internet offerings, sales through our eSales offering and customer
care through our eCare offering. With eSales and eCare, we can quickly assess
and analyze our clients' businesses and recommend a portfolio of applications,
develop an implementation strategy, define system requirements, design the
technology architecture, and then prototype, engineer and enhance the
solutions. Using eSales and eCare, we can rapidly deliver what we have
determined to be the most common functionality for business-to-business
customer relationship management processes.
Upon implementation of eSales or eCare, our clients' and their trading
partners' sales or customer service representatives have access to a broad
variety of capabilities to facilitate interaction with, and satisfy the needs
of, their business customers. Some of the more common functionalities include:
. customer profiling
. sales or customer service workflow or process management
33
<PAGE>
. sales or customer service case management
. custom database-driven views of customers, products, suppliers and orders
. e-mail messaging
. sales and customer care management reporting
. integration with call center operations
eSales enables our clients to generate revenue through Internet-based sales
channels; satisfy and retain customers through online order and sales
management; and streamline the purchasing process for their business
customers.
eCare enables our clients to ensure consistent, high-quality customer
interaction; retain customers through personalized and responsive service;
reduce overhead and call center volume; and capture customer data.
Clients
The following is a list of our clients that generated more than $100,000 in
services revenue during 1999:
ADP
GoTo.com
Amkor Technology
Pure Markets
Cadence Design Systems
Shaman Botanicals.com
Citigroup
Siemens
Crane Co.
SMART Modular Technologies
ePolicy.com
Sun Microsystems
Fujitsu
tradepac.com
In 1999, our five largest clients represented 75% of our revenues,
including ADP and ePolicy.com, each of which represented more than 10% of our
revenues.
In addition, we began engagements for the following additional clients
since the beginning of the fourth quarter of 1999:
Charles Schwab & Co., Inc.
Portera Systems
Grainger.com (a subsidiary of W.W. Grainger, Inc.)
Utility.com, Inc.
Moai Technologies, Inc.
Vastera Inc.
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<PAGE>
Case Studies
<TABLE>
<C> <S>
The Problem
ADP ADP recognized an opportunity to enhance and extend its service offerings
to small business customers after seeing an increasing number of small
businesses obtaining Internet access. In addition, their market was
changing as new competitors arrived with other offerings. In order for
ADP to compete, sustain its leadership position and protect its brand, it
needed to deliver a digital offering for its customers. ADP believed the
new offering should provide its customers a payroll choice model, improve
the level and quality of customer service, and increase customer
convenience and control. ADP required that the system provide unlimited
access to its customers for entering payroll data and reduce the number
of errors entered into payroll databases. Bringing the service to market
quickly was critical, as was seamless integration with legacy payroll
systems, application of complex payroll and taxation issues and security.
- -------------------------------------------------------------------------------
Our Solution: Electronic Customer Relationship Management System
Our solution, EasyPayNet, is an easy to use, fully functional Web-based
payroll system that accesses ADP's wide range of services, including
federal, state and local tax filing, direct deposit and 401(k) services.
Moreover, access is available 24 hours a day, seven days a week through a
secure global network. In the Innovate stage, our business analysts
identified and prioritized the functional requirements for providing
payroll services over the Internet to ADP customers. We provided ADP with
insights and options on how to leverage Internet technologies to provide
functionality to their customers that it could not with its existing
systems. We prioritized the resulting functionality for progressive
releases of the solution and described the expected customer experience
in each one of these releases. In the Blueprint stage, our architects
defined the requirements for the first release, identified and selected
the architectural and technology components and developed an application
prototype. We selected Oracle's Relational DBMS as the database on NT
servers, integrated with legacy data from an IBM AS/-400 using Oracle
replication services. We created custom application services adapters for
replication from the AS/-400 platform. We then selected Active Software's
ActiveWeb technology on a Microsoft IIS WebServer for application
services. We created a user experience base using a combination of custom
HTML and Java Servelets. In the Create and Launch stage, we completed the
technical design of the application and data models and identified legacy
system integration requirements. We developed, tested and deployed the
first release of the application and then delivered a production support
environment that includes application support and maintenance services.
Since the first release, we have implemented incremental enhancements,
installing changes based on customer feedback. In addition, we have
improved the level and quality of the infrastructure, optimized
application performance and created a framework for enabling the
integration of ADP's trading partners. The project was delivered in time
to meet ADP's expectations for sustaining its competitive position and
expanding its offerings via a digital channel.
- -------------------------------------------------------------------------------
The Benefits
The increased flexibility that EasyPayNet provides meets the unique needs
of ADP's small business customers and increases ADP's competitiveness by
streamlining operations on the Internet. In addition to satisfying its
current customers, ADP is selling the service to a new market of
customers it could not previously serve. As a by-product of the solution,
ADP re-evaluated all its existing business processes and expects to
derive infrastructure efficiencies.
</TABLE>
35
<PAGE>
<TABLE>
<C> <S>
The Problem
Cadence Design Cadence Design Systems is the leading vendor of engineering
Systems design software. Its Customer Support organization realized
it lacked value-added support services for its clients, a
result of its inability to access an enterprise-wide profile
of important customer information. Cadence needed an
effective, seamless and transparent integration of key
supply chain databases. Cadence wanted a single system to
provide all the services it required. Cadence wanted to
leverage its nonintegrated legacy information sources,
rather than engineer a completely new solution.
- -------------------------------------------------------------------------------
Our Solution: Electronic Customer Relationship Management
System
Our Innovate stage with Cadence enabled evaluation of the
strengths and weaknesses of its existing service model and
resulted in an initial architecture that met expectations
for integration of the heterogeneous legacy systems. In our
Blueprint Stage, our architects developed requirements for a
global customer entitlement system and the framework for
data mining, extracting and integrating from the legacy
customer service systems. Cadence was presented a discovery
document with implementation and architectural roadmaps and
a functionality prioritization matrix. In our Create and
Launch Stage, our engineers developed the global customer
entitlement system using NetDynamics Application Server as
the core, Oracle as the back-end database server, Sun
Solaris as the implementation platform, and completely
customized the integration solution in HTML and Java. The
application also used Oracle's Data Replication services.
Our engineers developed several adapters to integrate
Cadence's legacy systems, with order processing
applications, the Scopus Call Tracking System and their
online technical support system. The entire project was
completed in 16 weeks.
- -------------------------------------------------------------------------------
The Benefits
The system now presents a global and accurate view of
customer service entitlements by customer and product.
Customer Service representatives are making better decisions
and customers are experiencing less frustration. Cadence
expects to earn additional revenue, to reduce its case load
</TABLE> and to experience cost savings of approximately $720,000
annually.
36
<PAGE>
<TABLE>
<C> <S>
The Problem
ePolicy.com Cal-Surance, Inc., a leading insurance broker based in Southern
California, wanted to find a more effective and efficient way to
sell and service commercial insurance for small businesses and
professionals.
- -------------------------------------------------------------------------------
Our Solution: Electronic Market
In our Innovate Stage, our analysts developed an Internet
strategy, competitive analysis and solution portfolio for Cal-
Surance. Our business analysts identified that the opportunity
space for real-time online quoting and purchasing of insurance
was tightly connected to the concept of progressive disclosure of
information and the simplification of the quoting process. In our
Blueprint Stage, our architects prioritized the application
portfolio into three distinct development phases: customer,
partner and internal interaction. Our engineers also designed the
application framework: Microsoft Commerce Server on NT for the
core, Oracle for the back-end database server, Sun Solaris for
the application platform, TideStone's NT spreadsheet/matrix
quoting engine, Active Server Pages for the presentation layer,
Microsoft COM for back-end integration, CyberSource for debit and
credit card payments and custom engineered adapters for legacy
claims systems. Our architects proceeded to complete the customer
facing system blueprint phase in three weeks, producing a
functional requirements document, concept prototype, detailed
project plan and a fixed-price, fixed-time guaranteed proposal.
In our Create and Launch Stage, our engineers were required to
perform significant customization on the components in order to
meet the specifications and requirements defined in the
blueprint. Two releases covered the seven life cycle customer
states: prospecting, buying, insured, renewing, maintaining,
canceling and formerly insured. The site's functionality was
defined in three weeks. In three months, the first release was
uploaded for testing and review, and the second release followed
six weeks later.
- -------------------------------------------------------------------------------
The Benefits
Our solution enables the offering of a broader set of products
through a new digital channel. The electronic market was
eventually spun off into a new company, ePolicy.com, a business-
to-business Internet company that is creating a new way for
</TABLE> professionals and small business to purchase insurance.
37
<PAGE>
<TABLE>
<C> <S>
The Problem
Pure Markets The equipment leasing industry has multiple layers of
intermediaries and complex product offerings, creating an
inefficient market. This inefficiency results in lost
opportunities and higher costs. Pure Markets wanted to
create an electronic market to enable lessees and lessors to
conduct leasing transactions more efficiently and
effectively.
- -------------------------------------------------------------------------------
Our Solution: Electronic Market
Their electronic market, Pure Markets.com, empowers lessees
to easily and quickly structure their lease finance request,
to solicit bids from a greater number of lessors and to
identify and select the optimal bid (on features and cost)
through PureMarket's intelligent bid comparator. Lessors
benefit by expanding the breadth of their market, being able
to target transactions attractive to them, reducing
origination costs, and increasing the share of leasing as a
finance option. In the Innovate stage, we defined the
technical capability needed to transform Pure Markets'
vision into a business reality. We helped Pure Markets
define its requirements and presented it with an
implementable technology architecture. In the Blueprint
Stage, we conducted extensive interviews with Pure Markets'
employees to define and document the variety of leasing
structures our solution would have to accommodate, and to
develop processes, user interface, application functionality
and data management services that comprised the leasing
electronic market. This stage required substantial
interaction between our project team and Pure Markets'
representatives due to the complexity of the user
interfaces. At the conclusion of the Blueprint Stage, we
delivered a comprehensive functional specification, a
functionality prioritization matrix and a schedule for
release delivery. In the Create and Launch stage, we used
Oracle as the database system on a Sun Solaris platform,
ColdFusion as the application server on an NT platform and
completed the presentation layer in a combination of HTML,
Java and ColdFusion applets. Our rapid and thorough
Blueprint Stage greatly facilitated Pure Markets'
development of this highly complex application.
- -------------------------------------------------------------------------------
The Benefits
Pure Markets benefited by being able to achieve a rapid
time-to-market for an electronic market, a new channel that
brings together lessees and lessors on the Internet. Lessees
now have the opportunity to easily request bids from a
larger population of lessors and to compare bids using a
normalizing analytical tool, thereby enabling faster,
</TABLE> simpler and more effective decisions. Lessors have access to
a much larger market, with greater targeting precision and
lower origination costs.
Employees
As of February 29, 2000, we had 245 employees. Of these employees, 168 were
consulting and services delivery professionals, and 77 were personnel
performing marketing, sales, human resources, finance, accounting, legal,
internal information systems and administrative functions, including 11
executives and 20 sales and marketing personnel. None of our employees is
represented by a labor union, and we consider our employee relations to be
excellent.
Competition
The market for Internet professional services is intensely competitive. We
believe the principal competitive factors in our industry are reputation and
client satisfaction, the experience and skill levels of professionals, advanced
technical architecture and project management expertise, ability to predict
project cost and manage
38
<PAGE>
resource scheduling and ability to recruit and retain professionals. While we
primarily use the fixed-price, fixed-time pricing model, most of our
competitors use both fixed-price and time and materials pricing models for
their projects. We are not aware of a trend toward either pricing model.
Our competition falls into the following categories:
. Internet professional services firms (such as Lante, Proxicom, Sapient,
Scient, US Interactive and Viant)
. information technology consulting and systems integration firms (such as
Andersen Consulting, Cambridge Technology Partners and EDS)
. services divisions of computer hardware and software vendors (such as IBM
and Oracle)
. web design firms (such as Modem Media. Poppe Tyson and Razorfish)
. information technology strategy consulting firms (such as @McKinsey,
Diamond Technology Partners and Mainspring)
. in-house information technology departments of our current and potential
clients
Future competitors may offer services that provide significant performance,
price, creative or other advantages over those offered by us. Therefore, we
expect to face additional competition from new competitors.
Alliances
We leverage our marketing and sales efforts through alliances with a number
of vendors of Internet technology. Our partners include Active Software, Art
Technology Group, BroadVision, Exodus Communications, Extricity Software,
Hewlett-Packard, Microsoft, Moai Technologies, Selectica, Silknet Software,
webMethods and Vitria. These partners may recommend our services to their
clients, provide us sales leads, deliver training for our professionals and
enable us to obtain advance access to their technologies.
Sales and Marketing
Our sales efforts are targeted at corporate clients who are investing
significant resources in their business-to-business e-commerce strategies. Our
sales force generates leads through a combination of direct mail, targeted
events with industry thought leaders and cooperative marketing with our
alliance partners. We have sales offices in the metropolitan areas of San
Francisco, New York, Chicago and Washington, D.C.
To augment our sales effort we also have a separate marketing department
focused on two key objectives:
. building brand recognition at a national level to drive business growth
and support our recruiting efforts
. developing and cultivating leads for our sales force
To achieve these objectives, we engage in market research, public relations
and advertising, participate in trade shows and conduct seminars. In addition,
we employ a communication strategy based on standards for our logo, corporate
identity, website and marketing materials.
Our most significant recent marketing initiative occurred in January 2000,
when we committed $300,000 to become the leading sponsor of the Inventa
Everest Environmental Expedition. This expedition involves the most
comprehensive clean-up of debris from the high camps of Mount Everest planned
to date.
Intellectual Property Rights
Our proprietary knowledge base and the other intellectual property rights
that we develop for our clients are an integral part of our business. Our
clients generally retain ownership of custom work product and we
39
<PAGE>
retain a royalty-free license to use some or all of the applications, processes
and intellectual property developed in connection with customer projects. This
information is accessible on our knowledge base only to our employees via our
secure corporate intranet.
Development of Our Business
We were incorporated in California in 1988 as Inventa Corporation. From 1988
to 1994, we were a client-server technology-based, system services firm. We
formed our Malaysian subsidiary in 1994 to serve the Asian markets. During
1995, we began to focus on Internet applications for business and in 1996 began
to focus exclusively on Internet business applications. We established our New
York area office in 1997. We decided to close our Malaysian subsidiary in 1998,
as a result of the Asian economic crisis, which prevented us from successfully
developing our business in that region. During 1999, we established offices in
the Chicago and Washington, D.C. areas. We reincorporated in Delaware in March
2000.
Facilities
Our principal executive offices are located in approximately 45,000 square
feet of leased office space in Redwood Shores, California. The lease for this
office space is for a term of seven years and expires in May 2007. We also have
offices in the metropolitan areas of New York, New York, Washington, D.C. and
Chicago, Illinois. We lease all of our facilities and consider these facilities
to be adequate for our needs for the foreseeable future.
Legal Proceedings
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and other key employees are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
------------------------------------ --- -----------------------------------
<C> <C> <S>
Ashok Santhanam..................... 46 Chairman of the Board of Directors
and Founder
David A. Lavanty.................... 39 President, Chief Executive Officer
and Director
Michael B. Shahbazian............... 52 Senior Vice President and Chief
Financial Officer
Richard M. Cerwonka................. 48 Senior Vice President
Carol C. Halliday................... 53 Senior Vice President
Anthony H. Moretto.................. 51 Senior Vice President
Elizabeth Campbell.................. 39 Vice President of Human Resources
Michael Makishima................... 38 Vice President of Finance
Tobias Younis....................... 50 Vice President of Marketing
Robert J. Kudis..................... 34 Vice President and General Manager,
Central Region
Edward F. Leppert................... 39 Vice President and General Manager,
Northeast Region
Srikantan Moorthy................... 37 General Manager, Southeast Region
Michael Bealmear.................... 51 Director
Todd Dagres......................... 39 Director
Robert Ducommun..................... 48 Director
Frank Pinto......................... 46 Director
Jon Q. Reynolds, Jr................. 32 Director
</TABLE>
Ashok Santhanam is our founder and has served as the Chairman of our Board
of Directors since January 1999. From our inception to January 1999, Mr.
Santhanam was our President and Chief Executive Officer. Prior to founding
Inventa, Mr. Santhanam was the founder and President of Ventura Data Systems
Pvt. Ltd., an information technology services firm based in Bangalore, India.
Before establishing Ventura, Mr. Santhanam held various technical and
management positions at Gould Inc., a publicly held technology company,
including Director of Operations in the Recording Systems Division from 1983 to
1986. Mr. Santhanam holds a Bachelor of Technology degree from the Indian
Institute of Technology in Madras, India and an MBA from Harvard Business
School.
David A. Lavanty has served as our President and Chief Executive Officer
since January 1999. From June 1998 to December 1998, he served as Senior Vice
President, Worldwide Consulting for Siebel Systems, Inc., an enterprise
relationship management application software company. From March 1995 to April
1998, Mr. Lavanty held several positions at Sybase, Inc., a software company,
including Vice President and General Manager, Professional Services for the
Americas and Vice President, Southeast and Federal Professional Services. Prior
to Sybase, Mr. Lavanty held positions as Vice President of Consulting Services
at Oracle Corporation, a software company, and Senior Vice President at PRC
Realty Systems, a systems integration company. Mr. Lavanty received a BS from
the University of Akron and an MBA from Marymount University.
Michael B. Shahbazian has served as our Senior Vice President and Chief
Financial Officer since February 2000. From April 1999 to January 2000, he was
Senior Vice President and Chief Financial Officer of Walker Interactive
Systems, Inc., a software applications and services company. From June 1979 to
April 1999, Mr. Shahbazian held a variety of positions with Amdahl Corporation,
a computer hardware and services company, including Vice President and
Treasurer, Director of Business Information Systems, European Director of
Finance and Director of Financial Planning and Analysis. Mr. Shahbazian holds a
BS degree from California State University at Fresno and an MBA from the
University of Southern California.
Richard M. Cerwonka has served as a Senior Vice President since January
2000. From May 1999 to January 2000, he was President and Chief Executive
Officer of XTEND-Tech. From November 1998 to May
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<PAGE>
1999, Mr. Cerwonka was Area Vice President, Southeast for the Enterprise
Solutions Division of Sybase. From April 1998 to November 1998, he served as
the Area Vice President, Southeast Professional Services for Sybase. From July
1995 to April 1998, Mr. Cerwonka was a Practice Director, Professional Services
for Sybase. From January 1980 to July 1995, he held a variety of positions at
Sea-Land Service, Inc., a global transportation company, including Director of
Equipment Engineering, Director of Information Technology and Director of
Terminal Operations.
Carol C. Halliday has served as a Senior Vice President since January 2000.
From April 1999 to January 2000, she was our Vice President and General Manager
of the Western Region. From October 1991 to April 1999, Ms. Halliday held a
variety of positions at Sybase, including Area Vice President, West
Professional Services, Vice President, Strategic Solutions Division and
Practice Director, Rocky Mountain Professional Services. Prior to Sybase, she
served as Director of Distributed Application Development for Fidelity
Investments, a financial services company.
Anthony H. Moretto has served as a Senior Vice President since April 1999.
From April 1993 to April 1999, Mr. Moretto held a variety of positions at
Sybase, including Vice President and General Manager, Professional Services,
Area Vice President, Southeast Professional Services and Practice Manager,
Professional Services. Prior to Sybase, he served as a Senior Managing
Consultant for Oracle, Branch Manager for Cap Gemini America, a systems
integration company, and Director, Commercial Systems Integration for Martin
Marietta Data Systems, a systems integration company. Mr. Moretto holds a BBA
from the Wharton School at the University of Pennsylvania.
Elizabeth Campbell has served as Vice President of Human Resources since
September 1999. She was our Director of Human Resources from August 1998 to
September 1999. From December 1996 to July 1998, Ms. Campbell was President of
Search Worldwide, a technology human resources consulting company she founded.
From May 1993 to November 1996, Ms. Campbell was Director of Corporate Human
Resources for Informix Software, a relational database software company.
Michael Makishima has served as Vice President of Finance since December
1999. He was our Controller from July 1997 to December 1999. From March 1989 to
December 1996, Mr. Makishima held several positions at Liant Software
Corporation, a software company, including General Manager of Liant Software
Services, Director of Manufacturing, Director of Corporate Finance and Vice
President of Finance and Administration of Ryan McFarland Corporation, a
subsidiary of Liant.
Tobias Younis has served as Vice President of Marketing since November 1999.
From August 1997 to November 1999, Mr. Younis served as Vice President for META
Group, an information technology research company. From June 1994 to August
1997, Mr. Younis was a Director of Enterprise Systems Consulting for Sybase.
From January 1992 to June 1994, Mr. Younis was founder and President for
Marcomm Associates, a marketing consulting company. Prior to Marcomm, Mr.
Younis served as Vice President of Special Marketing Operations at Oracle
Corporation.
Robert J. Kudis has served as Vice President and General Manager of the
Central Region since May 1999. From January 1997 to May 1999, Mr. Kudis served
as Vice President of Consulting, U.S. Central Region, for the Baan Company, an
enterprise resource software company. From May 1987 to January 1997, Mr. Kudis
was a consultant for Ernst & Young, a public accounting firm. Mr. Kudis holds a
BBA in Information Systems from the University of Wisconsin.
Edward F. Leppert has served as Vice President and General Manager of the
Northeast Region since October 1999. He served as our Vice President and
Managing Director of the Eastern Region from January 1999 to September 1999,
and as our Managing Director of the Eastern Region from November 1997 to
January 1999. From March 1996 to November 1997, Mr. Leppert served as Director
of Operations and General Manager for Cambridge Technology Partners, a systems
integration company. From September 1991 to March
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1996, Mr. Leppert served as Associate Director, Information Management for
Bristol-Myers Squibb Company, a consumer products manufacturing company. Prior
to Bristol-Myers Squibb, Mr. Leppert served as a Senior Manager for Andersen
Consulting, a consulting firm. Mr. Leppert holds a BS degree in systems
planning and management from the Stevens Institute of Technology.
Srikantan Moorthy has served as General Manager of the Southeast Region
since November 1999. Mr. Moorthy served as our Director of Operations from May
1996 to November 1999, as a Practice Director from January 1996 to April 1996,
as a Consulting Practice Manager from August 1994 to January 1996 and as
Technical Staff Manager from August 1993 to August 1994. Mr. Moorthy joined us
as a Principal Software Engineer in January 1993. Mr. Moorthy has a Bachelor of
Engineering degree from Bangalore University, India.
Michael Bealmear has served as a Director since September 1998. Mr. Bealmear
is President and Chief Executive Officer of Spear Technologies, Inc., a
privately held software company. Prior to Spear, he was Executive Vice
President at Cadence Design Systems and Senior Vice President of Worldwide
Services at Sybase. Mr. Bealmear also is a director of several privately owned
companies. Mr. Bealmear has a BS in Electrical Engineering from the University
of Texas and an MS in Mathematics and Computer Science from Rice University.
Todd Dagres has served as a Director since February 1997. Mr. Dagres is a
General Partner with Battery Ventures, a venture capital firm. Mr. Dagres is a
director of Akamai Technologies, an Internet content distribution firm; Qtera
Technologies, a telecommunications equipment provider; Edgix, an internet
content delivery firm; Predictive Networks, a developer of Internet profiling
and content delivery systems; Convergent Networks, a data and voice equipment
company; Equipe Communications, a network equipment firm; River Delta Networks,
a networking solutions company; and InformationView Solutions, a provider of
network cost management solutions. Mr. Dagres is also an Adjunct Professor at
the Sloan School of Management of the Massachusetts Institute of Technology. He
has an MS in Economics from Trinity College and an MBA from Boston University.
Robert Ducommun has served as a Director since June 1994. Mr. Ducommun is a
director of Ducommun Incorporated, a publicly held company that provides
products and services to the aerospace industry, and a director of several
private companies. He has been a private investor in and advisor to emerging
companies since 1992. He was Executive Vice President and Chief Financial
Officer of Aviva Sports, a sports toy marketing company, and chief financial
officer of Microsource, Inc., a manufacturer of microwave components. Mr.
Ducommun has a BA degree from Stanford University and an MBA from Harvard
Business School.
Frank Pinto has served as a Director since May 1998. Mr. Pinto is a Partner
with Boston Millennia Partners, a venture capital firm. He manages Boston
Millennia Partners' investments in Knowledge Impact, a customer relationship
management training firm and in InfoLibria, an Internet infrastructure
solutions firm, and is a director of Quality Packaging Systems, a
pharmaceutical services company. Mr. Pinto holds a BA degree in Economics and
Environmental Studies from Middlebury College and an MBA from the Amos Tuck
School at Dartmouth College.
Jon Q. Reynolds, Jr. has served as a Director since October 1998. He is a
General Partner of Technology Crossover Ventures, a venture capital firm. He
also serves as a director of several private companies. Mr. Reynolds received
an AB degree in Geography from Dartmouth College and an MBA from Columbia
Business School.
Board of Directors
Our board of directors is currently comprised of seven directors. Our
amended and restated bylaws authorize not less than five directors and not more
than seven directors.
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Board Committees
Our board of directors has a compensation committee and an audit committee.
The Compensation Committee is comprised of Jon Q. Reynolds, Jr., its chairman,
Todd Dagres and Frank Pinto. The Compensation Committee is responsible for the
administration of all salary and incentive compensation plans for our officers,
including bonuses and options granted under our option plans.
The Audit Committee is comprised of Robert Ducommun, its chairman, Michael
Bealmear and Frank Pinto. The Audit Committee is responsible for assuring the
integrity of our financial control, audit and reporting functions. It reviews
with our management and our independent accountants the effectiveness of our
financial controls, accounting and reporting practices and procedures. In
addition, the Audit Committee reviews the qualifications of our independent
accountants, makes recommendations to the board of directors regarding the
selection of our auditors and reviews the scope, fees and results of activities
related to audit and non-audit services.
Compensation Committee Interlocks and Insider Participation
Our board of directors did not have a compensation committee until May 1998.
From May 1998 to December 1999, the Compensation Committee was comprised of
Ashok Santhanam, Todd Dagres and Frank Pinto. In December 1999, Jon Q.
Reynolds, Jr. replaced Ashok Santhanam on this committee. During the year ended
December 31, 1999, the Compensation Committee met four times. Prior to May
1998, determinations regarding the compensation of our officers were made by
our board of directors.
Director Compensation
We do not pay fees to directors who are employees for serving on our board
of directors. Directors who are not employees are paid $10,000 per year for
service on our board and $1,500 for each committee meeting they attend, and
they are reimbursed for all reasonable expenses incurred by them in attending
board and committee meetings. Non-employee directors are granted options to
acquire 30,000 shares of our common stock upon their initial appointment to our
board. Upon reelection, they receive additional grants of options to acquire
15,000 shares if elected for a three-year term, 10,000 shares if elected for a
two-year term and 5,000 shares if elected for a one-year term. Directors who
are employees are eligible to receive options under our 1993 Stock Option Plan
and 2000 Stock Plan.
Executive Compensation
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and our four other most highly compensated executive
officers for the year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Underlying
Name and Principal Position(s) Salary Bonus Options
- ----------------------------------------------- -------- -------- ------------
<S> <C> <C> <C>
Ashok Santhanam, Chairman of the Board and
Founder....................................... $175,000 $ 30,000 --
David A. Lavanty, President and Chief Executive
Officer....................................... 250,000 100,000 100,000
Anthony H. Moretto, Senior Vice President...... 147,051 62,500 240,000
Carol C. Halliday, Senior Vice President....... 126,923 30,093 175,000
Michael Makishima, Vice President of Finance... 124,583 36,300 55,000
</TABLE>
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The following table sets forth information with respect to stock options
granted during the year ended December 31, 1999, to our Chief Executive Officer
and our four other most highly compensated executive officers in 1999:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(2)
--------------------------------------------- ---------------------
Number of Percent of Weighted
Shares Total Options Average
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(1) Fiscal Year per share Date 5% 10%
- ------------------------ ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ashok Santhanam......... -- -- -- -- -- --
David A. Lavanty........ 100,000 4.0%(3) $ 0.45 8/01/09 $1,505,565 $2,323,791
Anthony H. Moretto...... 240,000 10.0%(4) 0.20 8/01/09 3,695,847 5,686,684
Carol C. Halliday....... 175,000 7.0%(5) 0.20 8/01/09 2,694,544 4,146,084
Michael Makishima....... 55,000 2.0%(6) 0.73 11/23/09 803,607 1,240,644
</TABLE>
- --------
(1) All options were granted under our 1993 Plan. Options granted under the
plan vest over a four-year period with 25% vesting at the first anniversary
date of the grant date and the remaining shares vesting in equal monthly
installments over the next 36 months. The board retains sole discretion to
modify the terms, including the price, of outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date of offer to their expiration date based
upon an initial public offering price of $10.00 per share. These
assumptions are not intended to forecast future appreciation of our stock
price. The potential realizable value computation does not take into
account federal or state income tax consequences of option exercises or
sales of appreciated stock.
(3) Excludes options to purchase 865,000 shares of common stock at an exercise
price of $0.15 per share granted to Mr. Lavanty on December 31, 1998, and
an additional 290,000 shares of common stock to be purchased at a purchase
price of $6.50 per share effective on the date of this offering.
(4) Of the 240,000 options to purchase our common stock granted to Mr. Moretto,
200,000 options granted on June 30, 1999, have an exercise price of $0.15
per share, and the other 40,000 options granted on August 1, 1999, have an
exercise price of $0.45 per share.
(5) Of the 175,000 options to purchase our common stock granted to Ms.
Halliday, 145,000 options granted on June 30, 1999, have an exercise price
of $0.15 per share, and the other 30,000 options granted on August 1, 1999,
have an exercise price of $0.45 per share.
(6) Excludes options to purchase 30,000 shares of our common stock at an
exercise price of $0.15 granted to Mr. Makishima on August 20, 1997. Of the
total grant of 55,000 options to Mr. Makishima, 15,000 options granted on
January 31, 1999, have an exercise price of $0.15 per share, 15,000 options
granted on August 1, 1999, have an exercise price of $0.45 per share, and
25,000 options granted on November 23, 1999, have an exercise price of
$1.25 per share.
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The following table sets forth information regarding exercised stock options
during the year ended December 31, 1999, and unexercised options held as of
December 31, 1999, by our Chief Executive Officer and our four other most
highly compensated executive officers in 1999:
Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired December 31, 1999 December 31, 1999(1)
On Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ashok Santhanam......... -- -- -- -- -- --
David A. Lavanty........ -- -- 216,250 748,750 $1,373,187 $4,724,562
Anthony H. Moretto...... -- -- 50,000 190,000 317,500 1,194,500
Carol C. Halliday....... -- -- -- 175,000 -- --
Michael Makishima....... -- -- 18,749 66,251 119,056 388,693
</TABLE>
- --------
(1) Calculated on the basis of the fair value of the underlying securities of
$6.50 per share as of December 31, 1999, minus the per share exercise
price, multiplied by the number of shares underlying the option.
Employment Agreements
Ashok Santhanam. We entered into an employment agreement dated May 11, 1998,
with Mr. Santhanam, our founder and Chairman of the Board of Directors. The
term of the agreement shall continue unless we or Mr. Santhanam elects to
terminate the agreement. The employment agreement provides for an annual base
salary of $160,000, to be reviewed annually, and an annual maximum bonus of
$90,000, subject to annual review, payable at the discretion of our board of
directors. Effective January 1, 1999, our board of directors increased
Mr. Santhanam's annual base salary to $175,000. The employment agreement also
provides that, in the event of his termination without cause, we will pay
Mr. Santhanam his accrued compensation to the date of termination and continue
his car lease payments, maintain his health, welfare and retirement benefits,
and provide severance compensation equal to his base salary and bonus for 12
months after his termination date. In addition, any options granted to Mr.
Santhanam would continue to vest during the 12 months following his termination
date. The agreement also provides that Mr. Santhanam will not engage in a
competitive business activity for one year following termination in the event
of his termination without cause, and for two years following termination if he
resigns or is terminated for cause. The agreement further provides that
Mr. Santhanam will not solicit our employees or our clients with respect to a
competitive business activity for two years following his termination for any
reason.
David A. Lavanty. We entered into an employment agreement dated December 31,
1998, with Mr. Lavanty, our President and Chief Executive Officer. The initial
term of three years will automatically be renewed for successive one-year terms
unless we or Mr. Lavanty elects to terminate the agreement at least 30 days
before the end of a term. The employment agreement provides for an annual base
salary of $250,000 and an annual bonus payable at the discretion of our board
of directors. The employment agreement also provides that in the event of his
termination without cause, we will pay Mr. Lavanty severance compensation equal
to his base compensation and maintain his health and retirement benefits for 12
months after his termination date. In addition, any options granted to Mr.
Lavanty will continue to vest during the 12 months following his termination
date and shall vest in full upon a change of control. The agreement also
provides that Mr. Lavanty will not engage in a competitive business activity
for one year following termination in the event of his termination for any
reason. The agreement further provides that Mr. Lavanty will not solicit our
employees or our clients with respect to a competitive business activity for
one year following his termination for any reason. The agreement provides for
the grant of options to Mr. Lavanty to purchase up to 865,000 shares of common
stock subject to vesting over a four-year period, 25% of which vested on
signing and the balance of which will vest in 36 equal monthly installments
beginning on the first anniversary date of the
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signing of the agreement. Finally, the agreement provides for the purchase by
Mr. Lavanty of up to 290,000 shares of common stock at a purchase price of
$6.50 per share upon completion of this offering.
Michael B. Shahbazian. We entered into an employment agreement dated
February 2, 2000, with Mr. Shahbazian, our Senior Vice President and Chief
Financial Officer, which provides for an annual base salary of $190,000 and a
quarterly performance bonus. The employment agreement also provides that if we
terminate Mr. Shahbazian without cause or within six months following a change
of control, we will (1) continue to pay Mr. Shahbazian his base compensation
and benefits for six months and (2) permit Mr. Shahbazian's unvested options to
continue to vest for six months. The agreement provides for the grant of
options to Mr. Shahbazian to acquire 225,000 shares of common stock, subject to
vesting over four years.
Anthony H. Moretto. We entered into an employment agreement dated March 17,
1999, with Mr. Moretto, a Senior Vice President, which provides for an annual
base salary of $200,000 and a quarterly performance bonus. The employment
agreement also provides that we will pay Mr. Moretto an amount equal to his
base compensation for six months if we terminate Mr. Moretto without cause. In
addition, the employment agreement provides that upon termination without cause
or within six months following a change of control, we will (1) continue to pay
Mr. Moretto his base compensation for 12 months and (2) permit Mr. Morretto's
unvested options to continue to vest for 12 months. The agreement provides for
the grant of options to Mr. Moretto to purchase 200,000 shares of common stock,
subject to vesting over a four-year period, 25% of which vested immediately
upon the execution of the agreement and the balance of which will vest in 36
equal installments beginning on the first anniversary of his employment. Fifty-
percent of Mr. Moretto's unvested options will vest upon the occurrence of a
change of control within his first two years of employment with us. Finally, we
paid a one-time signing bonus to Mr. Moretto of $25,000.
Tobias Younis. We entered into an employment agreement dated October 29,
1999, with Mr. Younis, our Vice President of Marketing, which provides for an
annual base salary of $185,000 and a quarterly performance bonus. The
employment agreement also provides that if we terminate Mr. Younis without
cause or within six months following a change of control, we will (1) continue
to pay Mr. Younis his base compensation for six months and (2) permit Mr.
Younis' unvested options to continue to vest for six months. The agreement
provided for the grant of options to Mr. Younis to acquire 200,000 shares of
common stock, subject to vesting over four years.
Carol C. Halliday. We entered into an employment agreement dated March 12,
1999, with Ms. Halliday, a Senior Vice President, which provides for an annual
base salary of $180,000 and a quarterly performance bonus. The employment
agreement also provides that if we terminate Ms. Halliday without cause, we
will continue to pay Ms. Halliday her base compensation for three months. The
agreement provides for the grant of options to Ms. Halliday to acquire 145,000
shares of common stock, subject to vesting over four years.
Robert J. Kudis. We entered into an employment agreement dated March 30,
1999, with Mr. Kudis, our Vice President and General Manager of Central Region
Operations, which provides for an annual base salary of $175,000 and a
quarterly performance bonus. The employment agreement also provides that if we
terminate Mr. Kudis without cause, we will continue to pay Mr. Kudis his base
compensation for three months. In addition, the agreement provides that if we
terminate Mr. Kudis without cause or within six months following a change of
control, we will (1) continue to pay Mr. Kudis his base compensation for six
months and (2) permit Mr. Kudis' unvested options to continue to vest for six
months. The agreement provides for the grant of options to Mr. Kudis to acquire
90,000 shares of common stock, subject to vesting over four years. Fifty-
percent of Mr. Kudis' unvested options will vest upon the occurrence of a
change of control within his first two years of employment.
Other employment agreements. We entered into employment agreements with
Edward F. Leppert, Michael Makishima, Elizabeth Campbell and Srikantan Moorthy,
which provide for severance payments equal to six months' salary and options
that will continue to vest for six months following termination upon (1) a
change of control and termination without cause or (2) a change of control and
a relocation of the employee beyond a 30-mile radius from their office
locations.
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Employee Benefit Plans
1993 Stock Option Plan. Our 1993 Stock Option Plan provides for the issuance
to employees, directors and consultants of incentive stock options and non-
qualified stock options to purchase up to a total of 5,355,000 shares of our
common stock. Our board of directors or a committee designated by our board of
directors may serve as administrator of the 1993 Plan. As of February 29, 2000,
options issued under the 1993 Plan to purchase a total of 3,993,653 shares of
common stock at a weighted average exercise price of $1.81 were outstanding, of
which options to purchase 203,603 shares at a weighted average exercise price
of $0.15 were fully vested. As of February 29, 2000, we had 713,184 shares of
common stock available for future grant under this plan.
The terms of options granted under the 1993 Plan are as determined by the
administrator, subject to the following:
. the option price per share for any incentive stock option or non-
qualified stock option may not be less than the fair value and 85% of the
fair value, respectively, of the common stock on the date of the grant
. if an incentive stock option or non-qualified stock option is granted to
a person who owns more than 10% of the total combined voting power of all
our classes of stock, the exercise price shall be not less than 110% of
the fair value of the common stock on the date of the grant
. the term of each stock option may not exceed ten years, and in the case
of a person who owns more than 10% of the total combined voting power of
all our classes of stock, the term of each stock option may not exceed
five years
. payment for the exercise of an option may be in cash or in shares of
common stock already owned by the option holder for more than six months
and which have a fair value equal to the exercise price of the option, by
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to us the amount required to
pay the exercise price, or by delivery of an irrevocable subscription
agreement that irrevocably obligates the option holder to pay the
aggregate exercise price not more than 12 months after the date of
delivery of the subscription agreement
The administrator has the power to determine the terms of the options
granted, including the exercise price. The board of directors may amend,
suspend or discontinue the 1993 Plan at any time, provided that any board
action may not affect any rights with respect to options previously granted
under the 1993 Plan.
Options granted under the 1993 Plan are not transferable other than by will
or by the laws of descent or distribution, and each option may be exercised
during the lifetime of the optionee only by the optionee. Options granted under
the 1993 Plan must generally be exercised within three months of the optionee's
separation of service from us, but in no event later than the expiration of the
term of the option.
Our 1993 Plan provides that in the event of our merger with or into another
corporation or a sale of substantially all of our assets, each option or right
shall be assumed or an equivalent option or right substituted by the successor
corporation. If the outstanding options or rights are not assumed or
substituted, the option or stock purchase right will immediately fully vest and
become exercisable. The 1993 Plan also provides that in the event of our
proposed dissolution or liquidation, our board of directors will notify
optionees at least 15 days prior to the proposed action and that the options
will terminate immediately prior to the completion of the proposed action.
2000 Stock Plan. Our 2000 Stock Plan was approved by our board of directors
in February 2000. As of March 1, 2000, we had reserved a total of 7,000,000
shares of our common stock for issuance under the 2000 Stock Plan of which
7,000,000 shares were available for issuance. Beginning in the year ending
December 31, 2001, we will increase the plan annually by an amount equal to the
lesser of 1,500,000 shares or 5% of the outstanding shares on the determination
date set by our board of directors, or a lesser amount determined by our board
of directors. The 2000 Stock Plan provides for the granting to our employees of
incentive stock options within the meaning of Section 422 of the United States
tax code, and for the granting to employees, including officers and directors,
non-employee directors and consultants, of non-statutory stock options and
stock purchase rights. Unless terminated sooner, the 2000 Stock Plan will
terminate automatically in 2010.
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Our 2000 Stock Plan is administered by our board of directors. Our board of
directors determines the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the vesting and the form of consideration payable upon
exercise. In addition, the board of directors has the authority to amend,
suspend or terminate the 2000 Stock Plan, provided that no board action may
affect any share of common stock previously issued and sold or any option
previously granted and then outstanding under the 2000 Stock Plan. Our board of
directors has the exclusive authority to interpret and apply the provisions of
the 2000 Stock Plan.
Options and stock purchase rights granted under our 2000 Stock Plan are not
generally transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 2000 Stock Plan must generally be exercised within
three months of the end of the optionee's status as our employee or consultant
or within twelve months after his or her termination by death or disability,
but in no event later than the expiration of the option's ten year term. In the
case of stock purchase rights, unless the board of directors determines
otherwise, the agreement evidencing the grant shall provide that we have a
repurchase option exercisable upon the voluntary or involuntary termination of
his or her employment for any reason, including death or disability. In this
event, the purchase price per share will be equal to the original price and may
be paid by cancellation of his or her outstanding indebtedness to us, if any.
Our repurchase option shall lapse at a rate determined by the board of
directors. The exercise price of any incentive stock options granted under the
2000 Stock Plan and any non-statutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
United States tax code must be at least equal to the fair value of our common
stock on the date of grant. With respect to any participant 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 granted must
equal at least 110% of the fair value on the grant date, and the term of this
incentive stock option must not exceed five years. The term of all other
options granted under the 2000 Stock Plan may not exceed ten years.
Our 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, each option
or right shall be assumed or an equivalent option or right substituted by the
successor corporation. If the outstanding options or rights are not assumed or
substituted, the option or stock purchase right will immediately fully vest and
become exercisable.
2000 Employee Stock Purchase Plan Our 2000 Employee Stock Purchase Plan was
adopted by our board of directors in March 2000. A total of 500,000 shares of
common stock have been reserved for issuance under our 2000 Employee Stock
Purchase Plan, plus, beginning in the year ending December 31, 2001, we will
increase the plan annually by an amount equal to the lesser of 600,000 shares,
or 2.0% of the outstanding shares on the determination date set by our board of
directors, or a lesser amount determined by our board of directors.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the United States tax code, contains consecutive six month
offering and purchase periods. The offering periods generally start on the
first trading day on or after May 1 and ends on November 1 of each year, except
for the first offering period, which commences on the first trading day on or
after the effective date of this offering and ends on the last trading day on
or before April 30, 2003.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, any employee who immediately after grant
owns 5% or more of the total combined voting power of all classes of our
capital stock, or whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of stock for
each calendar year may not be granted an option to purchase stock under this
plan. The 2000 Employee Stock Purchase Plan permits participants to purchase
common stock through payroll deductions of up to 10% of the participant's
compensation. Compensation is defined as the participant's base straight time
gross earnings and commissions but is exclusive of payments for overtime, shift
premium
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payments, incentive compensation, incentive payments, bonuses and other
compensation. The maximum number of shares a participant may purchase during a
single purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 Employee Stock Purchase Plan is generally 85% of the
lower of the fair value of the common stock at the beginning of the offering
period or at the end of the purchase period. Participants may end their
participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
Rights granted under the 2000 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan. The 2000 Employee Stock
Purchase Plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all our assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened and a new
exercise date will be set. The 2000 Employee Stock Purchase Plan will terminate
automatically in 2010, unless terminated earlier. Our board of directors has
the authority to amend or terminate the purchase plan, except that no board
action may adversely affect any outstanding rights to purchase stock under the
2000 Employee Stock Purchase Plan. Our board of directors has the exclusive
authority to interpret and apply the provisions of the 2000 Employee Stock
Purchase Plan.
401(k) Plan. We have a 401(k) savings plan that provides a tax-qualified
employee savings plan for our eligible employees. An employee may elect to
reduce his or her current annual compensation on a pre-tax basis and to have
the amount of the reduction contributed to the 401(k) savings plan. Subject to
the restrictions imposed by the United States tax code on highly compensated
employees, an employee may generally defer up to 25% of his or her pre-tax
earnings or the statutorily prescribed limit, which was $10,000 in calendar
year 1999. Our 401(k) savings plan is intended to qualify under Section 401(k)
of the United States tax code so that contributions by our employees to our
401(k) savings plan and income earned on plan contributions are not taxable to
employees until withdrawn from the 401(k) savings plan. The 401(k) savings plan
permits, but does not require, additional matching contributions by us on
behalf of all participants in the 401(k) savings plan.
Life Insurance Program. We maintain a $2 million key man life insurance
policy on Ashok Santhanam, our Chairman of the Board of Directors, payable to
us in the event of Mr. Santhanam's death. We also maintain a $1 million key man
life insurance policy on David A. Lavanty, our President and Chief Executive
Officer, payable to us in the event of Mr. Lavanty's death.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 8, 1994, we sold an aggregate of 400,000 shares of series A
preferred stock at a price of $1.00 per share. We issued 400,000 shares of our
series A preferred stock pursuant to a two-for-one stock split declared in
January 1997. All share numbers reflect the stock split. On February 14, 1997,
we sold an aggregate of 2,560,000 shares of series B preferred stock at a price
of $1.25 per share. On May 11, 1998, and May 28, 1999, we sold an aggregate of
8,055,511 shares of series C preferred stock at a price of $1.25 per share. On
January 19, 2000, we sold an aggregate of 3,000,000 shares of series D
preferred stock at a price of $7.41 per share. Listed below are the directors,
executive officers, stockholders and their affiliates that beneficially own 5%
or more of our securities.
<TABLE>
<CAPTION>
Shares of Shares of Shares of Shares of
Shares of Series A Series B Series C Series D
Common Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock Stock
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
5% Stockholder entity
affiliated with us
Ashok Santhanam(1)......... 4,500,000 -- -- -- --
Other 5% stockholders
Boston Millennia Partners
Limited Partnership(2).... -- -- -- 3,152,000 425,371
Entities affiliated with
Technology Crossover
Ventures(3)............... -- -- -- 3,152,000 425,371
Battery Ventures III,
L.P.(4)................... -- -- 2,286,363 1,576,000 62,672
</TABLE>
- --------
(1) Ashok Santhanam, the Chairman of our Board of Directors, and his wife
Revathi Santhanam are trustees of the Santhanam Family Trust, which holds
3,500,000 shares of common stock. Two irrevocable trusts each hold 500,000
shares of common stock for the benefit of their children. Mr. Santhanam and
Mrs. Santhanam each disclaim any beneficial interest in the shares held by
these irrevocable trusts.
(2) Frank Pinto, one of our directors, is a Partner of Boston Millennia
Partners Limited Partnership. Mr. Pinto disclaims beneficial ownership of
the securities held by this entity except to the extent of his pecuniary
interest therein.
(3) Includes shares purchased by TCV II, V.O.F., Technology Crossover Ventures
II, L.P., TCV II (Q), L.P., TCV II Strategic Partners, L.P., and Technology
Crossover Ventures II, C.V. Mr. Reynolds, one of our directors, is a Member
of Technology Crossover Management II, L.L.C., which is the General Partner
of each of these funds. Mr. Reynolds disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
(4) Mr. Dagres, one of our directors, is a General Partner of Battery Ventures.
Mr. Dagres disclaims beneficial ownership of the securities held by this
entity except for his proportional interest in the entity.
Mr. Santhanam is a director and a 50% shareholder of Challenger Systems,
Inc., an entity to which we paid $590,000 in 1997 and $485,000 in 1998 for
software programming services.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 29, 2000, as adjusted to reflect
the sale of common stock in this offering, by:
. each person known to us to own beneficially more than 5% of our common
stock
. our Chief Executive Officer and each of our four other most highly
compensated executive officers in 1999
. each of our directors
. all of our executive officers and directors as a group
Except as otherwise noted, the address of each person listed in the table is
c/o Inventa Technologies, Inc., 255 Shoreline Drive, Suite 200, Redwood Shores,
California 94065. The table includes all shares of common stock issuable within
60 days of February 29, 2000, upon the exercise of options and warrants
beneficially owned by the indicated stockholders on that date based on options
and warrants outstanding as of February 29, 2000. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares. To
our knowledge, except under applicable community property laws or as otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on 21,113,674 shares of
common stock outstanding as of February 29, 2000, in each case together with
applicable options and warrants for that stockholder. Shares of common stock
issuable upon the exercise of options and warrants beneficially owned are
deemed outstanding for the purpose of computing the percentage of ownership of
the person holding those options and warrants, but are not deemed outstanding
for computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Shares Shares to be
Beneficially Owned Beneficially Owned
Prior to Offering After Offering(9)
------------------ ----------------------
Beneficial Owner Number Percent Number Percent
- ------------------------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Boston Millennia Partners Limited
Partnership(1)..................... 3,577,371 16.9% 3,793,109(10) 15.1%
Frank Pinto(1)...................... 3,577,371 16.9 3,793,109(10) 15.1
Entities associated with Technology
Crossover Ventures(2).............. 3,577,371 16.9 3,722,826(11) 14.8
Jon Q. Reynolds, Jr.(2)............. 3,577,371 16.9 3,722,826(11) 14.8
Battery Ventures III, L.P.(3)....... 3,925,035 18.6 3,997,762(12) 15.9
Todd Dagres(3)...................... 3,925,035 18.6 3,997,762(12) 15.9
Ashok Santhanam(4).................. 4,500,000 21.3 4,500,000 17.9
David A. Lavanty(5)................. 288,333 1.4 578,333(13) 2.3
Anthony H. Moretto(6)............... 50,000 * 50,000 *
Carol C. Halliday................... -- * -- *
Michael Makishima(7)................ 24,896 * 24,896 *
Robert Ducommun(8).................. 560,200 2.7 560,200 2.2
Michael Bealmear.................... 40,000 * 40,000 *
All executive officers and directors
as a group (ten persons)........... 16,543,206 77.1 17,267,126 68.5
</TABLE>
- --------
*Represents less than one percent of the total.
(1) Principal address is 30 Rowes Wharf, Suite 330, Boston, Massachusetts
02110. Includes shares held by Boston Millennia Associates I Partnership
and various individuals. Mr. Pinto, one of our directors, is a Partner of
Boston Millennia Partners Limited Partnership and Boston Millennia
Associates I Partnership. Although he shares voting and investment control
over shares held by these entities, Mr. Pinto disclaims beneficial
ownership of the shares held by these entities except to the extent of his
pecuniary interest therein.
52
<PAGE>
(2) Consists of 55,592 shares held by TCV II, V.O.F., 1,711,320 shares held by
Technology Crossover Ventures II, L.P., 1,315,687 shares held by TCV II
(Q), L.P., 233,488 shares held by TCV II Strategic Partners, L.P. and
261,284 shares held by Technology Crossover Ventures II, C.V. Mr.
Reynolds, one of our directors, is a Member of Technology Crossover
Management II, L.L.C., which is the General Partner of each of these
funds. Although Mr. Reynolds shares voting and investment control over
these shares held by these entities, he disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein. The
address for each of these persons and entities is c/o Technology Crossover
Ventures, 575 High Street, Suite 400, Palo Alto, California 94301.
(3) Principal address is 20 William Street, Wellesley, Massachusetts 01282.
Mr. Dagres, one of our directors, is a General Partner of Battery
Ventures. Although Mr. Dagres shares voting and investment control over
shares held by this entity, he disclaims beneficial ownership of the
shares held by this entity except to the extent of his proportional
interest in the entity.
(4) Mr. Santhanam, the Chairman of our Board of Directors, and his wife
Revathi Santhanam are trustees of the Santhanam Family Trust, which holds
3,500,000 shares. Two irrevocable trusts each hold 500,000 shares for the
benefit of Mr. Santhanam's two minor children. Mr. and Mrs. Santhanam
disclaim beneficial ownership of the shares held by these irrevocable
trusts.
(5) Mr. Lavanty is our President and Chief Executive Officer. Excludes 576,677
shares issuable upon exercise of options.
(6) Excludes 190,000 shares issuable upon exercise of options.
(7) Excludes 70,104 shares issuable upon exercise of options.
(8) Principal address is 1155 Park Avenue, New York, New York 10128. Mr.
Ducommun, one of our directors, is the Trustee of the Palmer G. and
Charles E. Ducommun Charitable Annuity Trust, which holds 241,700 shares.
Mr. Ducommun, his sister, Electra D. de Peyster, and the Ducommun and
Gross family foundations are the principal beneficiaries of the trust. Ms.
de Peyster is also a shareholder of ours.
(9) Includes 3,500,000 shares to be issued in this offering, 293,255 shares to
be issued in the contemporaneous private placement and 290,000 shares to
be issued to David Lavanty upon closing of this offering.
(10) Includes 70,283 shares to be issued in the contemperaneous provide
placement and 145,455 shares expected to be issued in this offering.
(11) Includes 145,455 shares expected to be issued in this offering.
(12) Includes 72,727 shares that may be issued to Battery Ventures in this
offering.
(13) Includes 290,000 shares to be issued to David Lavanty upon closing of this
offering.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation authorizes the
issuance of up to 70,000,000 shares of common stock, par value $0.001 per
share, and 10,000,000 shares of preferred stock, par value $0.001 per share,
the rights and preferences of which may be established from time to time by our
board of directors. As of February 29, 2000, there were outstanding 6,498,163
shares of common stock, and 14,615,511 shares of preferred stock, which are
convertible into 14,615,511 shares of common stock upon the completion of this
offering, were issued and outstanding. As of February 29, 2000, we had 70
holders of record of our common stock and 30 holders of record of our preferred
stock.
Common Stock
Each holder of our common stock is entitled to one vote for each share held
of record on all matters to be voted upon by the stockholders. There are no
cumulative voting rights. Subject to the preferences of preferred stock issued
after the sale of the common stock in this offering, holders of common stock
are entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up, holders of common
stock would be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights, and there
are no redemption or sinking fund provisions applicable to the common stock.
All outstanding shares of common stock, the shares of common stock to be issued
upon conversion of the outstanding preferred stock, the shares of common stock
to be issued in the contemporaneous private placement and the shares of common
stock offered by us in this offering, when issued and paid for, will be fully
paid and nonassessable. The rights, preferences and privileges of the holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock that we may designate in
the future.
Preferred Stock
Upon the completion of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 10,000,000 million
shares of preferred stock, par value $0.001 per share, in one or more series,
with each series to have rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the board of directors. The rights of
the holders of common stock will be subject to, and may be adversely affected
by, the rights of holders of any series of preferred stock that may be issued
in the future. Any issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, a
majority of our outstanding voting stock. We currently have no plans to issue
any shares of preferred stock.
Warrants
As of February 29, 2000, we had outstanding warrants to purchase 160,000
shares of series C preferred stock at an exercise price of $2.50 per share.
These warrants are exercisable for 160,000 shares of common stock upon the
completion of this offering. Each warrant has a net exercise provision under
which the holder may, in lieu of payment of the exercise price in cash,
surrender the warrant and receive a net amount of shares, based on the fair
value of our stock at the time of the exercise of the warrant, after deducting
the aggregate exercise price. The warrants for 160,000 shares of series C
preferred stock will expire on November 30, 2004.
54
<PAGE>
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
. breach of their duty of loyalty to the corporation or its stockholders
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
. unlawful payments of dividends or unlawful stock repurchases or
redemptions
. any transaction from which the director derived an improper personal
benefit
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we will indemnify our directors, officers, employees
and other agents to the fullest extent permitted by Delaware law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit such indemnification.
We have obtained directors and officers' insurance providing indemnification
for all of our directors and officers. Prior to the completion of this
offering, we will enter into agreements to indemnify our directors and
executive officers, in addition to the indemnification provided for in our
bylaws. These agreements, among other things, will indemnify our directors and
executive officers for certain expenses, including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, out of such person's services as a director, officer, employee,
agent or fiduciary of ours, any subsidiary of ours or any other company or
enterprise to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
At present, there is no litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.
Registration Rights
The holders of 14,615,511 shares of preferred stock and 1,350,000 shares of
common stock issued in connection with the acquisition of XTEND-Tech have been
granted rights to require us to register their shares under the Securities Act
provided under the terms of an investors' registration rights agreement between
the holders of our securities and us. Beginning as soon as practicable after
January 1, 2000, holders of at least 50% of the covered securities may require
on up to two occasions that we register for public resale all or a lesser
amount of their securities. We need not register these shares if the requested
registration would occur after we have effected two registrations, or if the
requested registration would occur within 180 days following the effective date
of any Form S-1 registration statement we have filed. Also, we may defer the
registration of the shares for up to 90 days if, in the good faith judgment of
the board of directors, it would be seriously detrimental to our stockholders
and us for the registration statement to be filed.
In addition, holders of our securities who are parties to the agreement may
require on up to four occasions, but only once in any 12-month period that we
register their shares for public resale on a Form S-3 registration statement;
provided that
. we are eligible to use Form S-3 and the value of the securities to be
included is at least $500,000
55
<PAGE>
. the request for Form S-3 registration does not occur within 180 days
following the effective date of any registration statement registering
shares of common stock
. the request for Form S-3 registration does not occur within 180 days
following the effective date of a registration statement registering
securities required to be registered by the holders of at least 50% of
the outstanding securities
We are not required to maintain the effectiveness of any Form S-3 for more
than 180 days from the effective date of the Form S-3. In view of market
conditions, we may reduce the number of securities to be registered on Form S-3
to not less than 50% of the shares the holders of registrable securities have
requested to be registered. Furthermore, in the event we elect to register any
of our shares of common stock for the purposes of effecting any public offering
other than our initial public offering, the holders of securities who are
parties to the agreement are entitled to include their shares of common stock
in the registration, but in view of market conditions, we may reduce the number
of shares proposed to be registered. All expenses in connection with any
registration will be borne by us.
Antitakeover Provisions
The provisions of our amended and restated certificate of incorporation and
bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control
of us. Such provisions could limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions allow us to
issue preferred stock without any vote or further action by the stockholders,
eliminate the right of stockholders to act by written consent without a meeting
and eliminate cumulative voting in the election of directors. These provisions
may make it more difficult for stockholders to delay or prevent a change in
control of us.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years following the date the
person became an interested stockholder, unless:
. the board of directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Our amended and restated certificate of incorporation provides that, upon
the completion of this offering, the board of directors will be divided into
three classes of directors with each class serving a staggered three-year term.
The classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us and may maintain the incumbency of the board of directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of the directors. Our amended and restated certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting, and our bylaws eliminate the right of stockholders to call
special meetings of stockholders. The authorization of undesignated preferred
stock makes it possible for the board of
56
<PAGE>
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of us. These
provisions may have the effect of deferring hostile takeovers or delaying
changes in control of our management. The amendment of any of these provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is First Union
National Bank.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market
following this offering could cause the prevailing market price of our common
stock to fall and impede our ability to raise equity capital at a time and on
terms favorable to us.
Upon completion of this offering, we will have outstanding an aggregate of
25,196,929 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after February 29, 2000. Of these outstanding shares, the 3,500,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act. The
remaining 21,696,929 shares of common stock outstanding upon completion of the
offering and held by existing stockholders will be "restricted securities" as
that term is defined in Rule 144 under the Securities Act. Restricted shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which rules are summarized below, or another exemption.
Sales of the restricted shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of our common
stock. We, our executive officers and directors and stockholders who hold of
more than 100,000 shares of our common stock have entered into contractual
lock-up agreements, providing that they will not offer, sell, contract to sell
or grant any option to purchase or otherwise dispose of shares of common stock
owned by them or that could be purchased by them through the exercise of
options or warrants for a period of 180 days after the date of this prospectus
without the prior written consent of Lehman Brothers Inc. The shares that we
expect to issue to three of our stockholders and their related individuals and
entities in our reserved share program will be subject to the 180-day lock-up
agreements. If these shareholders do not elect to purchase some or all of the
shares that may be issued to them under the Company's reserved share program,
the shares not purchased by them may not be subject to lock-up agreements. As a
condition to acquiring shares in our reserved share program, our participating
employees will be required to enter into similar lock-up agreements for a
period of 90 days from the date of this prospectus. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701, additional shares will be
eligible for sale beginning 181 days after the effective date of the offering,
subject in some cases to volume limitations.
Eligibility of Restricted Shares for Sale in the Public Market
<TABLE>
<S> <C>
At the Effective Date.................................... None
90 Days After Effective Date............................. 25,800 Shares
180 Days after Effective Date............................ 21,867,783 Shares
More Than 180 Days After Effective Date.................. 4,346,436 Shares
</TABLE>
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our affiliates, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 251,969 shares immediately after the offering
. the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale and who has beneficially owned for
at least two years the restricted shares proposed to be sold, including the
holding period of any prior owner except an
58
<PAGE>
affiliate, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 permits resales of shares issued prior to the date
the issuer becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, pursuant to compensatory stock or option plans or
contracts commencing 90 days after the issuer becomes subject to the reporting
requirements of the Exchange Act, in reliance upon Rule 144 but without
compliance with the holding period requirements and other restrictions. In
addition, the Commission has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options, including exercises after the date the issuer becomes so
subject. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 91 days
after the date of this prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements.
We, our executive officers and directors and stockholders who hold more than
100,000 shares of our stock have agreed not to sell or otherwise dispose of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, or enter into any swap or similar agreement that
transfers, in whole or in part, the economic risk of ownership of the common
stock, for a period of 180 days after the date of this prospectus, without the
prior written consent of Lehman Brothers Inc., subject to limited exceptions.
We intend to file a registration statement under the Securities Act covering
the shares of common stock subject to outstanding options or reserved for
issuance under the 1993 Plan. This registration statement is expected to be
filed within 90 days of effectiveness of the registration statement covering
the shares of common stock in this offering and will automatically become
effective upon filing. Accordingly, shares registered under that registration
statement will, subject to Rule 144 volume limitations applicable to affiliates
and the expiration of a 180-day lock-up period, be available for sale in the
open market, except to the extent that the shares are subject to our vesting
restrictions or the contractual restrictions described above.
59
<PAGE>
UNDERWRITING
Pursuant to the terms of an underwriting agreement, which is filed as an
exhibit to the registration statement relating to this prospectus, the
underwriters of the offering named below, for whom Lehman Brothers Inc., First
Union Securities, Inc. and Friedman, Billings, Ramsey & Co., Inc. are acting as
representatives, have each agreed to purchase from us the respective number of
shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Underwriters shares
------------ ---------
<S> <C>
Lehman Brothers Inc..............................................
First Union Securities, Inc......................................
Friedman, Billings, Ramsey & Co., Inc. ..........................
Fidelity Capital Markets, a division of National Financial
Services Corporation............................................
---
Total..........................................................
===
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock that the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and that we deliver
to the underwriters customary closing documents.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 525,000 additional shares described below.
<TABLE>
<CAPTION>
Paid by Us No Exercise Full Exercise
---------- ----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the initial public
offering price set forth on the cover page of this prospectus, and to dealers,
who may include the underwriters, at the initial public offering price less a
selling concession not in excess of $ per share. The underwriters may
allow, and the dealers may reallow, a concession not in excess of $ per
share to brokers and dealers. After the offering, the underwriters may change
the offering price and other selling terms.
60
<PAGE>
We have granted to the underwriters an option to purchase up to an aggregate
of 525,000 additional shares of common stock, exercisable solely to cover over-
allotments, if any, at the initial public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table, and we will be obligated under the over-allotment option to
sell the shares of common stock to the underwriters.
We, our executive officers and directors and stockholders who hold more than
100,000 shares of our stock have agreed not to directly or indirectly do any of
the following, whether any transaction described in clause (1) or (2) below is
to be settled by delivery of common stock or other securities, in cash or
otherwise, in each case without the prior written consent of Lehman Brothers
Inc. on behalf of the underwriters, for a period of 180 days after the date of
this prospectus:
(1) offer, sell or otherwise dispose of, or enter into any transaction or
arrangement that is designed or could be expected to, result in the
disposition or purchase by any person at any time in the future of, any
shares of common stock or securities convertible into or exchangeable
for common stock or substantially similar securities, other than any of
the following:
. the common stock sold under this prospectus
. shares of common stock we issue under employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or under currently
outstanding options, warrants or rights
(2) sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant
of options under option plans existing on the date hereof
Prior to the offering, there has been no public market for the shares of our
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and
capital structure, estimates of our business potential and earnings prospects,
an overall assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "INVA."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1,560,000.
Until the distribution of the common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase shares of common stock. As an exception to these rules,
the representatives are permitted to engage in transactions that stabilize the
price of the common stock. These transactions may consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
stock.
61
<PAGE>
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed five percent of the total number of
shares of common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it was to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters make any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
At our request, the underwriters have reserved up to 12% of the shares of
the common stock offered by this prospectus for sale to our directors, prior
investors and other persons associated with Inventa at the initial public
offering price set forth on the cover page of this prospectus. These persons
must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares. Approximately 87% of these reserved shares, but in no event
more than the number of shares determined by dividing $4 million by the initial
public offering price, have been reserved for and are expected to be issued to
parties to a letter agreement dated May 11, 1998, between the Company and those
parties, each of whom purchased shares of the series C preferred stock.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as a selling group member in this offering and will be
facilitating a portion of the electronic distribution of information through
the Internet, their intranet and other proprietary electronic technology.
fbr.com, a division of FBR Investments Services, Inc., which is an affiliate
of Friedman, Billings, Ramsey & Co., Inc., will be facilitating a portion of
the Internet distribution for this offering. Friedman, Billings, Ramsey & Co.,
Inc. has agreed to allocate a limited number of shares to fbr.com for sale to
its online brokerage account holders. An electronic prospectus is available on
the website maintained by fbr.com. Other than the prospectus in electronic
format, the information on the fbr.com website relating to this offering is not
a part of this prospectus and should not be relied upon by prospective
investors.
The representatives and their affiliates may in the future provide
investment banking, financial advisory and other services to us for which these
representatives may receive customary fees and commissions.
62
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. The
underwriters in this offering are represented by Simpson Thacher & Bartlett,
New York, New York.
EXPERTS
The financial statements as of December 31, 1997, 1998 and 1999 and for the
three years in the period ended December 31, 1999 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission. This prospectus, which forms a part of the registration
statement, does not contain all of the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and our exhibits. With respect to references made in
this prospectus to any contract or other document of ours, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement at the Securities and Exchange
Commission's public reference room at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and
Exchange Commission's regional offices in Chicago, Illinois and New York, New
York. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Our
Securities and Exchange Commission filings and the registration statement can
also be reviewed by accessing the Securities and Exchange Commission's Internet
site at http://www.sec.gov.
63
<PAGE>
INVENTA TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVENTA CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Operations and Comprehensive Losses............ F-4
Consolidated Statement of Stockholders' Equity (Deficit)................. F-5
Consolidated Statement of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Overview................................................................. F-21
Unaudited Pro Forma Combined Balance Sheet............................... F-22
Unaudited Pro Forma Combined Statement of Operations..................... F-23
Notes to Pro Forma Combined Financial Information........................ F-24
XTEND-TECH, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-25
Balance Sheet............................................................ F-26
Statement of Operations.................................................. F-27
Statement of Cash Flows.................................................. F-28
Notes to Financial Statements............................................ F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Inventa Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive losses, of
stockholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of Inventa Technologies, Inc. and its
subsidiary (the "Company") at December 31, 1997, 1998 and 1999, and the results
of its operations and its cash flows for the years ended December 31, 1997,
1998 and 1999, in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
F-2
<PAGE>
INVENTA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
-------------------------- December 31,
1997 1998 1999 1999
------- ------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......... $ 671 $ 4,783 $ 3,244
Accounts receivable, net........... 622 637 2,013
Prepaid expenses and other current
assets............................ 37 142 1,675
------- ------- --------
Total current assets.............. 1,330 5,562 6,932
Property and equipment, net.......... 451 661 2,002
Other assets......................... 41 72 288
------- ------- --------
$ 1,822 $ 6,295 $ 9,222
======= ======= ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
---------------------------------
Current liabilities:
Borrowings......................... $ 300 $ -- $ 4,000
Accounts payable................... 164 523 1,409
Accrued expenses................... 326 1,125 2,690
Deferred revenue................... -- -- 483
Capital lease obligations.......... 111 112 192
------- ------- --------
Total current liabilities......... 901 1,760 8,774
Borrowings, long-term................ -- 300 --
Capital lease obligations, long-
term................................ 192 73 454
Deferred tax liabilities, long-term.. 25 17 --
------- ------- --------
1,118 2,150 9,228
------- ------- --------
Mandatorily redeemable convertible
preferred stock:
Series B mandatorily redeemable
convertible preferred stock;
$0.001 par value; 2,560,000 shares
authorized, issued and
outstanding....................... 3,200 3,200 4,373 $ --
Series C mandatorily redeemable
convertible preferred stock;
$0.001 par value; 8,220,000 shares
authorized; 0, 4,056,000 and
8,056,000 shares issued and
outstanding, respectively......... -- 5,070 13,759 --
------- ------- -------- --------
3,200 8,270 18,132 --
Commitments and contingencies (Note
6)
Stockholders' deficit:
Series A convertible preferred
stock; $0.001 par value; 1,000,000
shares authorized, issued and
outstanding....................... 1 1 1 --
Common stock; $0.001 par value;
25,000,000 shares authorized;
4,642,000, 4,682,000 and 4,759,000
shares issued and outstanding,
respectively; 16,375,000
(unaudited) shares issued and
outstanding, pro forma............ 5 5 5 16
Additional paid-in capital........... 368 1,357 1,861 19,983
Deferred stock-based compensation.... -- (978) (4,662) (4,662)
Accumulated comprehensive loss....... (111) (93) -- --
Accumulated deficit.................. (2,759) (4,417) (15,343) (15,343)
------- ------- -------- --------
Total stockholders' deficit....... (2,496) (4,125) (18,138) $ (6)
------- ------- -------- ========
$ 1,822 $ 6,295 $ 9,222
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INVENTA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSSES
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Revenues..................................... $ 5,196 $ 8,016 $ 13,520
--------- --------- ----------
Operating expenses:
Project personnel (exclusive of deferred
stock-based compensation of $621 in
1999)..................................... 2,677 2,799 8,610
Sales and marketing (exclusive of deferred
stock-based compensation of $359 in
1999)..................................... 1,671 1,838 4,230
General and administrative (exclusive of
deferred stock-based compensation of $610
in 1999).................................. 3,456 4,519 9,434
Depreciation............................... 187 252 562
Amortization of deferred stock-based
compensation.............................. -- 50 1,590
Non-recurring expenses on closing of
foreign operations........................ -- 250 --
--------- --------- ----------
Total operating expenses................. 7,991 9,708 24,426
--------- --------- ----------
Loss from operations......................... (2,795) (1,692) (10,906)
Interest and other income.................... 4 92 101
Interest expense............................. (83) (56) (106)
--------- --------- ----------
Loss before income taxes..................... (2,874) (1,656) (10,911)
Income tax expense........................... (90) (2) (15)
--------- --------- ----------
Net loss..................................... (2,964) (1,658) (10,926)
Accretion of mandatorily redeemable
convertible preferred stock to redemption
value....................................... -- -- (4,862)
--------- --------- ----------
Net loss attributable to common
stockholders................................ $ (2,964) $ (1,658) $ (15,788)
Other comprehensive losses:
Foreign currency translation adjustment.... (112) 18 --
--------- --------- ----------
Comprehensive loss........................... $ (3,076) $ (1,640) $ (15,788)
========= ========= ==========
Net loss per share:
Basic and diluted.......................... $ (0.65) $ (0.36) $ (3.36)
========= ========= ==========
Weighted average shares.................... 4,556,893 4,658,735 4,698,483
========= ========= ==========
Pro forma net loss per share (unaudited):
Basic and diluted.......................... $ (0.76)
==========
Weighted average shares.................... 14,447,327
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INVENTA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Series A
Convertible Retained Total
Preferred Stock Common Stock Additional Deferred Accumulated Earnings/ Stockholders'
----------------- ------------- Paid-in Stock-Based Comprehensive (Accumulated Equity
Shares Amount Shares Amount Capital Compensation Losses Deficit) (Deficit)
-------- ------- ------ ------ ---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 800 $ 1 4,543 $ 5 $ 388 $ -- $ 1 $ 205 $ 600
Stock issuance costs.... -- -- -- -- (25) -- -- -- (25)
Exercise of common stock
options................ -- -- 99 -- 5 -- -- -- 5
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (112) -- (112)
Net loss................ -- -- -- -- -- -- -- (2,964) (2,964)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31,
1997................... 800 1 4,642 5 368 -- (111) (2,759) (2,496)
Stock issuance costs.... -- -- -- -- (42) -- -- -- (42)
Exercise of common stock
options................ -- -- 40 -- 3 -- -- -- 3
Deferred stock-based
compensation........... -- -- -- -- 1,028 (1,028) -- -- --
Amortization of stock-
based compensation..... -- -- -- -- -- 50 -- -- 50
Foreign currency
translation
adjustment............. -- -- -- -- -- -- 18 -- 18
Net loss................ -- -- -- -- -- -- -- (1,658) (1,658)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31,
1998................... 800 1 4,682 5 1,357 (978) (93) (4,417) (4,125)
Stock issuance costs.... -- -- -- -- (16) -- -- -- (16)
Exercise of Series A
convertible preferred
stock warrants......... 200 -- -- -- 100 -- -- -- 100
Exercise of common stock
options................ -- -- 77 -- 8 -- -- -- 8
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (4,862) -- -- -- (4,862)
Deferred stock-based
compensation, net of
cancellations.......... -- -- -- -- 5,274 (5,274) -- -- --
Amortization of stock-
based compensation..... -- -- -- -- -- 1,590 -- -- 1,590
Write off of accumulated
foreign currency
translation
adjustment............. 93 93
Net loss................ -- -- -- -- -- -- -- (10,926) (10,926)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31, $
1999................... 1,000 $ 1 4,759 $ 5 $ 1,861 $(4,662) -- $(15,343) $(18,138)
======== ======= ===== ==== ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INVENTA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(2,964) $(1,658) $(10,926)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts................ 258 (49) --
Depreciation................................... 192 252 562
Deferred income taxes.......................... 99 -- --
Amortization of deferred stock-based
compensation.................................. -- 50 1,590
Changes in operating assets and liabilities:
Accounts receivable.......................... 250 78 (1,376)
Prepaid expenses and other assets............ 51 (121) (1,533)
Accounts payable............................. (151) 345 886
Accrued expenses............................. 14 797 1,658
Deferred revenue............................. -- -- 483
Income taxes payable......................... 1 (26) --
Deferred tax liabilities..................... 1 (8) (17)
------- ------- --------
Net cash used in operating activities...... (2,249) (340) (8,673)
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............... (50) (460) (1,261)
------- ------- --------
Net cash used in investing activities...... (50) (460) (1,261)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net of issuance
costs........................................... 3,175 5,027 4,984
Proceeds from exercise of warrants............... -- -- 100
Proceeds from issuance of common stock........... 5 3 8
Proceeds from borrowings......................... -- 300 4,092
Repayment of borrowings.......................... (165) (300) (392)
Repayment of capital lease obligations........... (93) (118) (397)
------- ------- --------
Net cash provided by financing activities.. 2,922 4,912 8,395
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 623 4,112 (1,539)
Cash and cash equivalents, beginning of year....... 48 671 4,783
------- ------- --------
Cash and cash equivalents, end of year............. $ 671 $ 4,783 $ 3,244
======= ======= ========
Supplemental cash flow information:
Cash paid for the period:
Interest....................................... $ 77 $ 56 $ 106
======= ======= ========
Taxes.......................................... $ 49 $ -- $ --
======= ======= ========
Supplemental non-cash investing and financing
activity:
Property and equipment acquired under capital
lease........................................... $ 285 $ -- $ 678
======= ======= ========
Write-off of accumulated foreign currency
translation adjustment against accrued liquidation
costs............................................. $ -- $ -- $ 93
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Inventa Corporation (the "Company") was incorporated in California on
October 26, 1988. The Company reincorporated in Delaware as Inventa
Technologies, Inc. on March 23, 2000 (unaudited). The Company provides Internet
professional services including business-to-business e-commerce solutions to
companies located primarily in the United States. The Company architects,
engineers, integrates and supports complex business to business electronic
markets and electronic customer relationship management systems. E-markets are
electronic marketplaces that enable businesses to collaborate with trading
partners, conduct e-commerce, manage distribution relationships and enhance
business partnerships. Electronic customer relationship management is an
Internet based approach to coordinating a company's customer relationships
across communications channels, business functions and trading partners.
Basis of Presentation
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly owned foreign subsidiary, ICG Systems
SDN. BHD, located in Malaysia through December 31, 1998. All intercompany
accounts between the Company and its wholly owned subsidiary have been
eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from professional services which are
generally provided to clients on either a fixed-price or a time and materials
basis. Revenue from fixed-price engagements is recognized using the percentage
of completion method (based on the ratio of costs incurred to the total
estimated project costs). Revenue from time and materials engagements is
recognized as services are rendered. Payments received in advance of services
rendered are recorded as deferred revenue. The Company reports revenue net of
reimbursable expenses which are billed to and collected from clients.
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such
losses become probable and can be reasonably estimated. To date, such losses
have not been significant.
Client billings are generated upon achievement of milestones defined in the
engagement contracts. At December 31, 1997, 1998 and 1999, the Company had
$33,000, $32,000 and $1,183,000 in unbilled accounts receivable relating to
revenue recognized but not billed due to timing of milestone achievement.
Unbilled accounts receivable is included in prepaid expenses and other current
assets on the consolidated balance sheet.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
F-7
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risks
Financial instruments that potentially subject the Company to a
concentration credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company limits its exposure to credit loss by placing
its cash and cash equivalents with high quality financial institutions. The
Company's accounts receivable are derived from revenue earned from clients
located in the United States. The Company performs ongoing credit evaluations
of its clients and maintains an allowance for potential credit losses based
upon the expected collectability of accounts receivable.
The following table summarizes the revenues from clients in excess of 10% of
total revenues:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Company A................................................... 3% 52% 35%
Company B................................................... -- -- 21%
Company C................................................... 17% 8% 6%
Company D................................................... 18% 16% 3%
Company E................................................... 18% 5% --
Company F................................................... 15% -- --
</TABLE>
At December 31, 1997, Company E and F accounted for 15% and 17% of total
accounts receivable, respectively. At December 31, 1998, Company A and D
accounted for 38% and 27% of total accounts receivable, respectively. At
December 31, 1999, Company A and B accounted for 26% and 25% of total accounts
receivable, respectively.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, short-term borrowings and accounts payable are carried at
cost, which approximates their fair value because of the short-term maturity of
these instruments. The carrying value of the Company's capital leases
approximate fair value because the implicit rates for these leases approximates
prevailing market rates. The fair value of long-term borrowings are estimated
based on current interest rates available to the Company for debt instruments
with similar terms, degrees of risk, and remaining maturities. The carrying
values of these obligations approximate their fair values.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets,
generally ranging from three to five years. Equipment acquired under capital
leases is amortized on a straight-line basis over the term of the lease or
estimated useful lives, whichever is shorter. Leasehold improvements are
amortized over the shorter of the term of the lease or the life of the asset.
Long-lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of" ("SFAS No. 121"). SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets. In that
event, a loss is recognized based on the amount by which the carrying value
F-8
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exceeds the fair value of the long-lived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the
cost of disposal. No losses from impairment have been recognized in the
financial statements.
Advertising
Advertising is expensed as incurred. Advertising and public relations
expenses for the years ended December 31, 1997, 1998 and 1999, totaled $91,000,
$230,000 and $386,000, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees," ("APB No. 25") and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25, compensation
expense is recognized based on the difference, if any, on the date of grant
between the fair value of the Company's stock and the amount an employee must
pay to acquire the stock. The compensation expense is recognized over the
periods the employee performs the related services, generally the vesting
period of four years, consistent with the multiple option method described in
FASB Interpretation No. 28 ("FIN 28"). Use of this method resulted in
amortization of the deferred compensation at a rate of approximately 60%, 25%,
12%, and 3% over the respective four year period.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or
Services" which require that such equity instruments are recorded at their fair
value on the measurement date, which is typically the date of grant.
Pro Forma Stockholders' Equity (Unaudited)
Effective upon the closing of this offering, the outstanding shares of
Series A Convertible Preferred Stock, Series B and Series C Mandatorily
Redeemable Convertible Preferred Stock will automatically convert into
approximately 1,000,000, 2,560,000 and 8,056,000 shares, respectively, of
Common Stock. The pro forma effects of these transactions are unaudited and
have been reflected in the accompanying pro forma Stockholders' Equity at
December 31, 1999.
Net Loss Per Share
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS "No. 128") and SEC
Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the provisions of SFAS
No. 128 and SAB No. 98, basic net loss per share is computed by dividing the
net loss available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common and potential common shares outstanding during the
period, if their effect is dilutive. Potential common shares are comprised of
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and upon the conversion of Convertible Preferred Stock.
F-9
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated, (in thousands, except share and per share
data):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Historical:
Numerator:
Net loss.................................... $ (2,964) $ (1,658) $ (10,926)
Accretion of series B and C mandatorily
redeemable convertible preferred stock..... -- -- (4,862)
--------- --------- ---------
Net loss attributable to common
stockholders............................... $ (2,964) $ (1,658) $ (15,788)
========= ========= =========
Denominator:
Weighted average shares..................... 4,556,893 4,658,735 4,698,483
========= ========= =========
Net loss per share:
Basic and diluted........................... $ (0.65) $ (0.36) $ (3.36)
========= ========= =========
</TABLE>
The following table sets forth potential common stock that are not included
in the diluted net loss per share calculation above because to do so would be
antidilutive for the period indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Effect of potential common stock:
Series A convertible preferred stock.......... 800,000 800,000 1,000,000
Series B mandatorily redeemable convertible
preferred stock.............................. 2,560,000 2,560,000 2,560,000
Series C mandatorily redeemable convertible
preferred stock.............................. -- 4,055,511 8,055,511
Convertible preferred stock warrants.......... 200,000 200,000 160,000
Employee stock options........................ 425,000 1,496,000 3,492,000
--------- --------- ----------
3,985,000 9,111,511 15,267,511
========= ========= ==========
</TABLE>
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the conversion of the Company's Series A, Series B and Series C
Convertible Preferred Stock into shares of the Company's Common Stock effective
upon the closing of the Company's initial public offering, as if such
conversion occurred on January 1, 1999, or at the date of original issuance, if
later. The resulting pro forma adjustment includes (i) an increase in the
weighted average shares used to compute the basic net loss per share by
9,748,844 shares and (ii) a decrease in the net loss attributable to common
stockholders for the accretion of mandatorily redeemable convertible preferred
stock of $4,862,000. The calculation of diluted net loss per share excludes
potential shares of common stock as the effect of their inclusion would be
antidilutive. Pro forma potential common stock consists of incremental shares
of common stock issuable upon the exercise of stock options.
Foreign Currency Translation Policy
The functional currency of ICG Systems SDN. BHD. is the local currency.
Assets and liabilities are translated at exchange rates prevailing at the
balance sheet dates. Revenues, costs and expenses are translated into United
States dollars at average exchange rates for the period. Gains and losses
resulting from translation are accumulated as a component of stockholders'
equity.
F-10
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are accounted for using an asset and liability approach.
Deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. In
addition, deferred tax assets are recorded for the future benefit of utilizing
net operating loss and research and development credit carryforwards. A
valuation allowance is provided against deferred tax assets unless it is more
likely than not that they will be realized, either through the generation of
future taxable income or through carryback potential.
Comprehensive Income
The Company follows the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources.
Segment Information
The Company follows the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). The Company identifies its operating segments
based on business activities, management responsibility and geographical
location. During the periods presented the Company operated in a single
business segment.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivatives and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value and will be effective as
of June 15, 2000. The adoption of SFAS No. 133 is not expected to have a
material effect on the Company's results of operations, financial condition or
cash flows.
NOTE 2--BALANCE SHEET COMPONENTS (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable................................. $ 955 $ 945 $2,187
Less: Allowance for doubtful accounts............... (333) (308) (174)
----- ------ ------
$ 622 $ 637 $2,013
===== ====== ======
Property and equipment, net:
Furniture and fixtures.............................. $ 144 $ 218 $ 495
Equipment........................................... 702 1,051 2,166
Leasehold improvements.............................. 47 76 407
----- ------ ------
893 1,345 3,068
Less: Accumulated depreciation ....................... (442) (684) (1,066)
----- ------ ------
$ 451 $ 661 $2,002
===== ====== ======
</TABLE>
F-11
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment includes $456,000 of equipment under capital leases
at December 31, 1997 and 1998 and $999,000 at December 31, 1999. Accumulated
depreciation of assets under capital leases totaled $179,000, $234,000 and $
337,000 at December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998 1999
---- ------ ------
<S> <C> <C> <C>
Accrued expenses:
Payroll and related expenses........................... $180 $ 510 $1,896
General and administrative expenses.................... 119 614 770
Income taxes payable................................... 27 1 7
Other.................................................. -- -- 17
---- ------ ------
$326 $1,125 $2,690
==== ====== ======
</TABLE>
NOTE 3--RELATED PARTY TRANSACTIONS:
During 1997 and 1998, the Company obtained contract services from an entity
in which the Chairman, who was the Company's former President, has a
significant investment. The Company paid approximately $590,000 during 1997 and
$485,000 during 1998, which was estimated to approximate the fair market value,
for the services. This relationship was mutually terminated in October 1998.
NOTE 4--INCOME TAXES:
The provision for income taxes consists of the following, (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.................................................. $ (3) $ -- $ 13
State and local.......................................... 1 2 2
Other.................................................... 29 -- --
---- ---- ----
27 2 15
---- ---- ----
Deferred:
Federal.................................................. 53 -- --
State and local.......................................... 10 -- --
---- ---- ----
63 -- --
---- ---- ----
$ 90 $ 2 $ 15
==== ==== ====
</TABLE>
F-12
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities consist of the following, (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $ 1,102 $ 1,274 $ 5,088
Accruals and other reserves................... 53 341 316
Fixed assets.................................. -- 107 92
------- ------- -------
Total gross deferred tax assets................. 1,155 1,722 5,496
Less: Valuation allowance....................... (1,155) (1,722) (5,496)
------- ------- -------
-- -- --
------- ------- -------
Deferred tax liabilities:
Fixed assets.................................. (25) (17) --
------- ------- -------
$ (25) $ (17) --
======= ======= =======
</TABLE>
The Company has incurred losses for the years ended December 31, 1997, 1998
and 1999. Management believes that, based on the history of such losses and
projected near-term future losses, the weight of available evidence indicates
that it is more likely than not that the Company will not be able to realize
its deferred tax assets and thus a full valuation reserve has been recorded at
December 31, 1997, 1998 and 1999.
As of December 31, 1999, the Company had approximately $13.0 million of
federal net operating loss carryforwards and approximately $11.0 million of
state net operating loss carryforwards available to offset future taxable
income. The federal net operating loss carryforwards will expire between 2011
and 2019 and the state net operating loss carryforwards will expire between
2004 and 2006, if not utilized.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership
change of more than 50% over a three-year period, as defined. Any unused annual
limitation may be carried forward to future years for the balance of the net
operating loss carryforward period.
NOTE 5--BORROWINGS:
Line of Credit
During November 1999, the Company terminated a line of credit with Silicon
Valley Bank. The line of credit provided for borrowings of up to $1,000,000
which were secured by the Company's assets. The line of credit charged interest
at a rate of 9.00% per annum. Under the line of credit, the Company was
required to maintain certain financial ratios as stipulated in the agreement.
Equipment Lease Line
During November 1999, the Company paid in full the balance outstanding under
an equipment lease financing line with Silicon Valley Bank. The equipment lease
line provides for borrowings of up to $600,000 which are secured by the
Company's assets. The Company's ability to draw on the financing line expires
on June 22, 2000. The lease line bears interest at a rate of 9.75% per annum.
Under the line of credit, the Company is required to maintain certain financial
covenants.
F-13
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan Agreement
On November 17, 1999, the Company entered into a loan agreement with a
financial institution. This agreement provides for borrowings of up to
$4,000,000 under a term loan and $2,000,000 under a revolving line of credit.
Borrowing under the term loan bears interest at prime rate plus 2.00% (10.75%
currently) with accrued interest paid monthly and is due at November 30, 2000.
Borrowing under the line of credit is limited to the lesser of 80% of the
amount of the eligible accounts receivable or $2,000,000, and bears interest at
prime rate plus 2.00% (10.75% currently). The Company borrowed the entire
$4,000,000 available under the term loan on the date of the agreement. Assets
of the Company, including cash and cash equivalents, accounts receivable and
property and equipment, are pledged as collateral for borrowings under this
agreement.
In connection with such debt financing, the Company issued warrants to
purchase 160,000 shares of Series C Mandatorily Redeemable Preferred Stock at
$2.50 per share, which expire in November 2004. The value of the warrants was
determined using the Black-Scholes valuation model. The expense amounting to
$118,000 will be recognized as additional interest expense over the term of the
borrowing arrangement. The warrants became exercisable upon the closing of the
loan agreement.
NOTE 6--COMMITMENTS AND CONTINGENCIES:
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect in the financial position or results of
operations of the company.
Lease Commitments
The Company leases office space, equipment and an automobile under
noncancelable operating and capital leases. Rent expense under the operating
leases was approximately $157,000, $214,000 and $828,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Future minimum lease payments under the capital and noncancelable operating
leases at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31, Leases Leases
------------------------ ------- ---------
(in thousands)
<S> <C> <C>
2000...................................................... $ 262 $ 976
2001...................................................... 224 508
2002...................................................... 169 196
2003...................................................... 96 116
2004...................................................... 27 --
------- -------
778 $ 1,796
=======
Less: Amounts representing interest....................... (132)
-------
Present value of minimum capital lease payments........... 646
Less: Current portion..................................... (192)
-------
Capital lease obligations, long-term...................... $ 454
=======
</TABLE>
F-14
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employment Agreements
The Company has entered into employment agreements with certain officers of
the Company. Some employment agreements also provide for severance in the event
the individual is terminated without cause.
NOTE 7--CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1999, consists of the following
(in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Redemption
Series Authorized Outstanding Amount Amount
------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
A.............................. 1,000 1,000 $ 500 $ --
B.............................. 2,560 2,560 3,200 28,160
C.............................. 8,220 8,056 10,070 88,616
------ ------ ------- --------
11,780 11,616 $13,770 $116,776
====== ====== ======= ========
</TABLE>
The holders of Convertible Preferred Stock have the following rights and
preferences:
Voting
Each share of Series A, Series B and Series C has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock.
Dividends
Holders of Series A, Series B and Series C are entitled to receive
noncumulative dividends as declared by the Board of Directors at a rate of
$0.03, $0.075 and $0.10 per share, respectively, per annum prior to any
dividends being paid to holders of Common Stock. After payment of such
dividends, declared dividends shall be paid to the holders of Common Stock and
Convertible Preferred Stock in such amounts as they would be entitled to
receive if their shares had been converted into shares of Common Stock. No
dividends were declared by the Board from inception through December 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including merger or sale of substantially all assets, the Series A, Series B
and Series C shareholders are entitled to receive with each series of
Convertible Preferred Stock, on a pro rata basis, a distribution of $0.50,
$1.25 and $1.25 per share, respectively, plus any unpaid but declared dividends
prior to and in preference to any distribution to the holders of Common Stock.
After the payment has been made to the holders of Series A, Series B and Series
C, the holders of Common Stock are entitled to receive $0.40 per share. The
remaining assets, if any, shall be distributed ratably among the holders of the
Common Stock, Series A, Series B and Series C shareholders.
Redemption
The holders of Series C have the right to require the Company to redeem the
then outstanding shares beginning on or after March 31, 2004 in three equal
annual installments which is the fair value of the Series C at the time of
redemption plus unpaid dividends. The holders of Series B have the right to
require the Company to redeem the then outstanding shares any time after March
2004 in three annual installments for a redemption price, which is the fair
value of the Series B at the time of redemption plus unpaid dividends. Fair
values shall
F-15
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
be determined by the Board of Directors but if it is unacceptable to the
holders of the Series C or Series B, then it shall be determined by an
independent investment banking firm. The Series A has no redemption privileges.
As the future redemption prices of the Series B and Series C shares are
variable in amount, the difference between the Series B and Series C carrying
values and their estimated future redemption value are being accreted ratably
as a charge to additional paid-in capital. The estimated future redemption
value of $11.00 as of December 31, 1999 is based on the mid-point of the range
of share prices anticipated for the proposed initial public offering of the
Company's stock.
During the years ended December 31, 1997 and 1998, the carrying value of
both the Series B and Series C approximated their estimated future redemption
price and as such no accretion charges were recorded. During the year ended
December 31, 1999, the Company recorded accretion charges of $4.1 million.
Conversion
Each share of Series A, Series B and Series C is convertible at the option
of the holder into one share of Common Stock. The conversion ratio of Series B
into Common Stock is subject to certain adjustments to prevent dilution. Series
A, Series B and Series C automatically convert into Common Stock upon the
completion of an underwritten public offering with gross proceeds of at least
$5,000,000, $10,000,000 and $10,000,000 and a public offering price of not less
than $1.75, $4.00 and $4.00 per share, respectively.
Warrants
In connection with the issuance of Series A, each holder was granted a
warrant to purchase one share of preferred stock for every four shares of
Series A owned at an exercise price per share of $0.50. The warrants expire at
the earlier of December 31, 1999, the date of the Company's initial public
offering of securities, or the date of acquisition of the Company. The value of
the warrants at the time of their issuance was not material to the consolidated
financial statements.
During December 1999, warrants for an aggregate of 200,000 shares of Series
A Convertible Preferred Stock were exercised. Gross proceeds from the exercise
were $100,000.
NOTE 8--COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 25,000,000 shares of Common Stock.
At December 31, 1999, the Company had reserved the following number of
shares of Common Stock for future issuance (in thousands):
<TABLE>
<S> <C>
Series A Convertible Preferred Stock.................................. 1,000
Series B Mandatorily Redeemable Convertible Preferred Stock........... 2,560
Series C Mandatorily Redeemable Convertible Preferred Stock........... 8,220
Options under Stock Option Plan....................................... 1,474
------
13,254
======
</TABLE>
NOTE 9--STOCK OPTION PLAN:
In 1993, the Board of Directors and shareholders adopted the 1993 Stock
Option Plan (the "1993 Plan") which provides for granting of incentive stock
options ("ISO's") and nonqualified stock options ("NSO's") for shares of Common
Stock to employees, directors and consultants of the Company. In accordance
with the 1993
F-16
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plan, the stated exercise price shall not be less than 100% and 85% of the
estimated fair market value of the Common Stock as determined by the Board of
Directors on the date of grant for ISO's and NSO's, respectively. Stock options
granted to a person owning more than 10% of the combined voting power of all
classes of stock of the Company must be issued at 110% of the fair market value
of the stock on the date of grant. The 1993 Plan provides that the options
shall be exercisable over a period not to exceed ten years and shall generally
vest 25% one year after the date of grant and thereafter vest in equal monthly
installments over the remaining 36 months.
The following tables summarize stock option plan activity under the 1993
Plan (in thousands except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 483 $0.05 425 $0.10 1,496 $0.14
Granted................. 330 0.15 1,259 0.15 2,398 0.58
Exercised............... (99) 0.05 (41) 0.07 (76) 0.11
Canceled................ (289) 0.09 (147) 0.09 (326) 0.35
---- ----- -----
Outstanding at end of
period................. 425 $0.10 1,496 $0.14 3,492 $0.42
==== ===== =====
Options exercisable at
end of period.......... -- 348 487
==== ===== =====
Weighted average fair
value of options
granted during the
period................. $1.13 $1.13 $2.91
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
December 31, 1999 at December 31, 1999
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Average
Exercise Options Contractual Exercise Number Exercise
Prices Outstanding Life Price Outstanding Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.050................ 47 5.0 years $0.05 43 $0.05
$0.150................ 2,005 9.0 years 0.15 444 0.15
$0.450................ 599 9.5 years 0.45 -- --
$0.625................ 148 9.6 years 0.63 -- --
$1.000................ 192 9.8 years 1.00 -- --
$1.250................ 501 9.9 years 1.25 -- --
----- ---
3,492 9.2 years $0.42 487 $0.14
===== ===
</TABLE>
F-17
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based Compensation
In connection with certain stock option grants during the year ended
December 31, 1999 the Company recorded unearned stock-based compensation
totaling $5,274,000 for the difference between the exercise price of the stock
options and the deemed fair value of the Company's stock at the date of the
grant. Stock-based compensation amortization recognized during the year ended
December 31, 1999 totaled $1,590,000. If the stock-based compensation for the
year ended December 31, 1999 had been allocated across the relevant functional
expense categories within operating expenses, it would be allocated as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Project personnel............................................... $ 621
Sales and marketing............................................. 359
General and administrative...................................... 610
------
$1,590
======
</TABLE>
Fair Value Disclosures
The Company has adopted the disclosure only provision of SFAS No. 123. Had
compensation cost been determined for options issued based on the fair value of
the options at the grant date for awards in 1997 and 1998 consistent with
provisions of SFAS No. 123, the Company's net loss would have been increased to
the pro forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported.................................... $(2,964) $(1,658) $(15,788)
======= ======= =========
Pro forma...................................... $(3,045) $(1,865) $ (15,890)
======= ======= =========
Net loss per share--basic and diluted as
reported........................................ $ (0.65) $ (0.36) $ (3.36)
======= ======= =========
Net loss per share--basic and diluted pro forma.. $ (0.67) $ (0.40) $ (3.38)
======= ======= =========
</TABLE>
The Company calculated the fair value of each option on the date of grant
using the Black-Scholes pricing model with the following assumptions used for
grants during the applicable period: annual dividend yield of 0%, risk-free
annual interest rates of 4.47% to 6.31% for options granted during the period
from January 1, 1997 through December 31, 1999 and a weighted average expected
option term of five years.
NOTE 10--EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, and as amended on January 1, 1998, the Company
adopted the Inventa Corporation Retirement Savings Plan (the "Plan") which
qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code.
All full-time employees who are at least 21 years old are eligible to
participate in the Plan. Participants may contribute up to maximum allowed
under the law of their earnings to the Plan. A discretionary matching amount
may be made by the Company. The Company made matching contributions for the
years ended December 31, 1997, 1998 and 1999 of $21,000, $30,000 and $96,000,
respectively.
F-18
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--MALAYSIAN OPERATIONS:
In November 1998, the Company announced a formal plan to close its
operations in Malaysia and focus its effort in the United States. Accordingly,
in February 1999, the Company engaged the services of a third party to assist
in the orderly liquidation of the Malaysian subsidiary. In conjunction with
this announcement, the Company made a provision of $250,000 in the consolidated
financial statements for costs to be incurred in connection with the
liquidation of the Malaysian subsidiary. This amount consisted of $157,000 for
the write-down from the liquidation of the assets, $47,000 for remaining trade
obligations, and $46,000 for legal and other professional services to be
provided during the liquidation process. Operations ceased during 1998 and all
employee severance related costs were incurred prior to December 31, 1998.
During 1999, the liquidation of the assets and settlement of the obligations
was completed. As of December 31, 1999, $41,000 remains accrued to cover a
pending claim from a former customer of the Malaysian subsidiary. The Company
anticipates that this claim will be settled during 2000.
NOTE 12--SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment (as defined by SFAS No.
131) providing consulting and systems integration services.
The following is a summary of service revenue by geographic area (in
thousands):
<TABLE>
<CAPTION>
Years Ended December
31,
---------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Malaysia............................................... $ 748 $ 521 $ --
United States.......................................... 4,448 7,495 13,520
------ ------ -------
$5,196 $8,016 $13,520
====== ====== =======
</TABLE>
NOTE 13--SUBSEQUENT EVENTS:
Series D Mandatorily Redeemable Preferred Stock
On January 19, 2000, 3,000,000 shares of Series D Mandatorily Redeemable
Preferred Stock were issued at a price of $7.41 per share for gross proceeds of
approximately $22.2 million. The difference between the deemed fair value of
the series D preferred stock of $11.00 and the price per share of $7.41 was
considered to be a beneficial conversion feature analogous to a dividend to the
preferred stockholders as prescribed under the provisions of EITF 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios. Due to the conversion rights, the
deemed fair value of the Series D preferred stock was based on the mid-point of
the range of share prices anticipated for the proposed initial public offering
of the Company's common stock. The value of the beneficial conversion feature
of $10.8 million was recognized immediately as a charge to net loss
attributable to common stockholders at the date of issuance as the preferred
stockholders have the right to immediately convert their preferred shares at
their option.
Acquisition
Effective January 26, 2000, the Company acquired all the outstanding shares
of common stock of XTEND-Tech, Inc., a provider of information technology
consulting services. Total consideration paid in connection with this
acquisition was 1,350,000 shares of the Company's common stock with a value of
$14,850,000. The deemed fair value of the Company's common stock on the date
the merger agreement was
F-19
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
signed was $11.00 per share. The deemed fair value of the common stock was
based on the mid-point of the range of share prices anticipated for the
proposed initial public offering. The consideration consisted of a combination
of the purchase price paid for the outstanding common stock of XTEND-Tech and
consideration to certain employee stockholders of XTEND-Tech for continued
employment with the Company.
The acquisition will be accounted for using the purchase method of
accounting. The amount of the consideration treated as purchase price for this
acquisition was approximately $8,779,000. The purchase price was allocated to
the tangible and intangible assets acquired and liabilities assumed based upon
their respective fair values at the acquisition date. The purchase price
consisted of 798,052 shares of the Company's common stock. The estimated
allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Tangible assets.................................................. $ 775,000
Intangible assets
Workforce...................................................... 5,100,000
Covenants not to compete....................................... 1,000,000
Goodwill....................................................... 2,631,000
Liabilities...................................................... (727,000)
----------
$8,779,000
==========
</TABLE>
The amortization of the intangible assets will occur over the estimated
periods to be benefited. The estimated weighted average period to be benefitted
from the intangible assets for the workforce, covenants not to compete and the
residual goodwill, created as a result of the acquisition of XTEND-Tech, Inc.
is approximately three years.
Additionally, the Company signed restricted stock agreements with certain
employee stockholders of XTEND-Tech, Inc. as consideration for continued
employment. Under these agreements, the stockholders receive 849,150 shares of
the Company's common stock with a fair value of approximately $9,341,000 at the
effective date of the stock purchase agreement. Under the restricted stock
agreement, 297,202 shares vest immediately and therefore constitute part of the
purchase price of the tangible and intangible assets of XTEND-Tech, Inc. The
remaining 551,948 shares are subject to the Company's right to repurchase upon
termination of employment for $0.01 per share. Twenty three percent of these
restricted shares vest and are released from the Company's repurchase right on
the first anniversary of the effective date of the agreement. The remaining
shares vest and are released from the Company's repurchase right evenly over
the two years following the first anniversary. The fair value of the unvested
shares, amounting to $6,071,000 has been recorded as deferred stock-based
compensation which will be amortized over the three year vesting period of the
restricted stock as described above in accordance with FASB Interpretation No.
28.
Letter of Credit
In February 2000, the Company entered into two letters of credit for
approximately $2.8 million and $198,000 to secure lease deposits to expand into
two new office facilities. The letters of credit expire February 2001 and are
collateralized by certificates of deposit in the same amounts.
Reincorporation (unaudited)
On March 23, 2000, the Company reincorporated in Delaware as Inventa
Technologies, Inc.
F-20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
In January 2000, Inventa Technologies, Inc. ("Inventa") entered into a stock
acquisition agreement to acquire all outstanding shares of XTEND-Tech, Inc.
("XTEND-Tech"). Total consideration for the shares of XTEND-Tech was
$14,850,000 consisting of 1,350,000 shares of common stock. The unaudited pro
forma combined balance sheet is based on the individual balance sheets of
Inventa and XTEND-Tech appearing elsewhere in this prospectus and has been
prepared to reflect the acquisition of the common stock of XTEND-Tech by
Inventa as of December 31, 1999. The unaudited pro forma combined statements of
operations are based on individual historical results of operations of Inventa
and XTEND-Tech for the year ended December 31, 1999, after giving effect to the
acquisition of XTEND-Tech as if it had occurred on January 1, 1999.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto of
Inventa and XTEND-Tech. The unaudited pro forma combined financial statements
are presented for illustrative purposes only and are not necessarily indicative
of results of operations that would have actually occurred had the acquisition
of XTEND-Tech by Inventa been effected on the dates assumed.
F-21
<PAGE>
INVENTA TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Inventa XTEND-Tech Adjustments Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents....... $ 3,244 $173 $ -- $ 3,417
Accounts receivable, net........ 2,013 504 -- 2,517
Prepaid expenses and other
current assets................. 1,675 22 -- 1,697
-------- ---- ------- --------
Total current assets.......... 6,932 699 -- 7,631
Property and equipment, net...... 2,002 76 -- 2,078
Other assets..................... 288 -- -- 288
Intangible assets................ -- -- 6,100 (1) 6,100
Goodwill......................... -- -- 2,631 (1) 2,631
-------- ---- ------- --------
$ 9,222 $775 $ 8,731 $ 18,728
======== ==== ======= ========
LIABILITIES, MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Borrowings...................... $ 4,000 $ 30 $ -- $ 4,030
Accounts payable................ 1,409 65 -- 1,474
Advances from related party..... -- 326 -- 326
Accrued expenses................ 2,687 159 -- 2,846
Deferred revenue................ 483 -- -- 483
Income taxes payable............ 3 20 -- 23
Capital lease obligations ...... 192 19 -- 211
-------- ---- ------- --------
Total current liabilities..... 8,774 619 -- 9,393
Capital lease obligations, long-
term............................ 454 48 -- 502
Borrowings, long-term............ -- 60 -- 60
-------- ---- ------- --------
9,228 727 -- 9,955
-------- ---- ------- --------
Mandatorily redeemable
convertible preferred stock:
Series B mandatorily redeemable
convertible preferred stock;
$0.001 par value; 2,560,000
shares authorized, issued and
outstanding ................... 4,929 -- -- 4,929
Series C mandatorily redeemable
convertible preferred stock;
$0.001 par value; 8,220,000
shares authorized; 8,056,000
shares issued and
outstanding.................... 13,203 -- -- 13,203
-------- ---- ------- --------
18,132 -- -- 18,132
Stockholders' equity (deficit):
Series A convertible preferred
stock; $0.001 par value;
1,000,000 shares authorized,
issued and outstanding......... 1 -- -- 1
Common stock; $0.001 par value;
25,000,000 shares authorized;
4,759,000 shares issued and
outstanding .................. 5 -- 1 (2) 6
Additional paid-in capital....... 1,861 -- 14,849 (2) 16,710
Deferred stock-based
compensation.................... (4,662) -- (6,071)(3) (10,733)
Accumulated comprehensive loss... -- -- -- --
Retained earnings (accumulated
deficit)........................ (15,343) 48 (48)(8) (15,343)
-------- ---- ------- --------
Total stockholders' equity
(deficit).................... (18,138) 48 8,731 (9,359)
-------- ---- ------- --------
$ 9,222 $775 $ 8,731 $ 18,728
======== ==== ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-22
<PAGE>
INVENTA TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Inventa XTEND-Tech Adjustments Pro Forma
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $ 13,520 $1,951 $ (317)(6) $ 15,154
--------- ------ ------- ---------
Operating expenses:
Project personnel
(exclusive of deferred
stock-based compensation
of $2,056, pro forma)..... 8,610 1,167 (317)(6) 9,460
Sales and marketing
(exclusive of deferred
stock-based compensation
of $1,793, pro forma)..... 4,230 410 -- 4,640
General and administrative
(exclusive of deferred
stock based compensation
of $1,088, pro forma)..... 9,434 293 -- 9,727
Depreciation............... 562 9 -- 571
Amortization of
intangibles............... -- -- 2,910 (5) 2,910
Amortization of deferred
stock-based compensation.. 1,590 -- 3,347 (4) 4,937
--------- ------ ------- ---------
Total operating
expenses................ 24,426 1,879 5,940 32,245
--------- ------ ------- ---------
Income (loss) from
operations.................. (10,906) 72 (6,257) (17,091)
Interest and other income.... 101 -- -- 101
Interest expense............. (106) (4) -- (110)
--------- ------ ------- ---------
Income (loss) before income
taxes....................... (10,911) 68 (6,257) (17,100)
Income tax expense........... (15) (20) -- (35)
--------- ------ ------- ---------
Net income (loss)............ (10,926) 48 (6,257) (17,135)
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value............ (4,862) -- -- (4,862)
--------- ------ ------- ---------
Net income (loss)
attributable to common
stockholders................ $ (15,788) $ 48 $(6,257) $ (21,997)
========= ====== ======= =========
Net loss per share:
Basic and diluted.......... $ (3.36) $ (4.00)(7)
========= =========
Weighted average shares.... 4,698,483 798,052 5,496,535 (7)
========= ======= =========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-23
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(Continued)
(1) Reflects the preliminary allocation of the purchase price to the intangible
assets and goodwill acquired in the XTEND-Tech acquisition. The preliminary
allocation has resulted in intangible assets, including assembled workforce
estimated at approximately $5,100,000, covenants not to compete, estimated
at approximately $1,000,000 and estimated goodwill of approximately
$2,631,000, which are being amortized over their weighted average life of
three years.
The total estimated purchase price for the XTEND-Tech acquisition has been
allocated on a preliminary basis to assets and liabilities based on
management's best estimates of their fair value with the excess costs over
the net assets acquired allocated to intangible assets and goodwill. This
allocation is subject to change pending a final analysis of the value of the
assets acquired and, liabilities assumed, upon closure of the acquisition.
The impact of such changes could be material.
(2) Reflects the issuance of 1,350,000 shares of Inventa Common Stock with a
fair value of $14,850,000 in connection with the XTEND-Tech acquisition.
(3) Reflects the unearned compensation recorded for restricted stock issued in
connection with the purchase of XTEND-Tech. Of the 1,350,000 shares issued,
798,052 shares with a fair value of $8,779,000 were immediately vested and
as such represent the purchase price. The remaining 551,948 shares which
were issued to XTEND-Tech employee stockholders are subject to the
Company's right to repurchase the shares upon the termination of employment
with Inventa. The fair value of these restricted shares in the amount of
$6,071,000 has been recorded as unearned deferred compensation and will be
amortized over the vesting period of the restricted shares.
(4) Reflects the amortization of the unearned deferred stock-based compensation
referred to in Note 3 above.
(5) Reflects the amortization of the intangible assets and goodwill referred to
in Note 1 above.
(6) Represents elimination of intercompany transactions with XTEND-Tech.
(7) Pro forma net loss reflects the impact of the adjustments above. Basic and
diluted net loss per share (pro forma) is computed using the weighted-
average number of shares of common stock outstanding after the issuance of
Inventa common stock in connection with the XTEND-Tech acquisition,
assuming such stock was issued on January 1, 1999 and excluding the 551,948
shares subject to repurchase.
(8) Reflects elimination of XTEND-Tech stockholders' equity.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
XTEND-Tech, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of XTEND-Tech, Inc. (the "Company") at December 31, 1999,
and the results of its operations for the period from inception (January 29,
1999) to December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 audit. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 11, 2000
F-25
<PAGE>
XTEND-TECH, INC.
BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................................... $173,098
Accounts receivable, net............................................ 503,674
Prepaid expenses.................................................... 22,418
--------
Total current assets............................................... 699,190
Property and equipment, net.......................................... 75,641
--------
$774,831
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................................... $ 64,747
Advances from related party......................................... 326,435
Accrued taxes....................................................... 19,700
Accrued bonuses..................................................... 108,000
Other accrued liabilities........................................... 51,266
Capital lease obligations .......................................... 18,552
Borrowings, current portion of long-term............................ 30,000
--------
Total current liabilities.......................................... 618,700
Capital lease obligations, long-term................................. 47,954
Borrowings, long-term................................................ 60,000
--------
726,654
--------
Stockholders' equity:
Common stock; no par value; 100,000 shares authorized, issued and
outstanding........................................................ --
Retained earnings................................................... 48,177
--------
Total stockholders' equity......................................... 48,177
--------
$774,831
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
XTEND-TECH, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 29, 1999) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Revenues:
Revenues from third parties....................................... $1,165,192
Revenues from related parties..................................... 785,805
----------
1,950,997
----------
Operating expenses:
Project personnel................................................. 1,166,800
Sales and marketing............................................... 409,700
General and administrative ....................................... 293,148
Depreciation ..................................................... 9,331
----------
Total operating expenses........................................ 1,878,979
----------
Income from operations.............................................. 72,018
Interest expense.................................................... (3,941)
----------
Income before income taxes.......................................... 68,077
Income tax expense ................................................. (19,900)
----------
Net income.......................................................... $ 48,177
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
XTEND-TECH, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 29, 1999) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income........................................................ $ 48,177
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ................................................... 9,331
Changes in operating assets and liabilities:
Accounts receivable........................................... (503,674)
Prepaid expenses.............................................. (22,418)
Accounts payable.............................................. 64,747
Advances from related party................................... 326,435
Accrued taxes................................................. 19,700
Accrued bonuses............................................... 108,000
Other accrued liabilities..................................... 51,266
---------
Net cash provided by operating activities................... 101,564
---------
Cash flows from investing activities:
Purchase of property and equipment................................ (10,732)
---------
Net cash used in investing activities....................... (10,732)
---------
Cash flows from financing activities:
Repayment of capital lease obligations............................ (7,734)
Long term borrowings.............................................. 90,000
---------
Net cash provided by financing activities................... 82,266
---------
Net increase in cash and cash equivalents........................... 173,098
Cash and cash equivalents, beginning of period...................... --
---------
Cash and cash equivalents, end of period............................ $ 173,098
=========
Supplemental non-cash investing and financing activity:
Property and equipment acquired under capital lease .............. $ 74,240
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
XTEND-Tech, Inc. (the "Company") was incorporated in the state of New Jersey
on January 29, 1999. The Company is an information technology consulting
organization providing clients with technology expertise in all phases of
systems engineering and most software development methodologies for the major
industries in the United States.
The Company operations have initially been focused on the New Jersey, New
York, Pennsylvania and Delaware areas, with two offices in New Jersey.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Changes in
such estimates could affect reported amounts in future periods.
Financial Instruments
The Company's financial instruments including cash and cash equivalents,
accounts receivable, and accounts payable are carried at cost, which
approximates their fair value because of the short-term maturity of these
instruments. The carrying value of the Company's capital leases and the long
term borrowings approximate fair value because the implicit rates approximate
prevailing market rates.
Accounts Receivable
Bad debts are provided on the allowance method based on management's
evaluation of outstanding accounts receivable. No provision for bad debts was
considered necessary by management at December 31, 1999.
Property and Equipment
Property and equipment, primarily computer hardware, are stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over the useful lives of the assets. Computer hardware is depreciated
over four years. Maintenance and repairs are charged to expense when incurred,
and the cost of additions and improvements is capitalized.
Revenue Recognition
Revenues are derived from sales of the Company's consulting services to end-
users. Revenue is recognized on a time and material basis when services are
provided.
Income Taxes
The accrual basis of accounting is used for income tax reporting purposes. A
provision of $19,900 was recorded for federal and state income taxes as of
December 31, 1999. The Company, with the consent of its shareholders, has
elected to be taxed as a "C" Corporation for federal and state income tax
purposes.
The Company utilizes the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences by applying enacted
F-29
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period when the change in tax rates is
enacted.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Concentrations
of credit risk with respect to trade receivables are limited based on
management's evaluation of the relationship with the Company's clients. The
Company's four largest customers accounted for approximately 77% of revenues
for the period from inception (January 29, 1999) to December 31, 1999. IDCS,
Inc. (Note 2) accounted for 40% of revenues during the same period. At December
31, 1999, these four customers accounted for approximately 43% of accounts
receivable. These balances were subsequently collected.
NOTE 2--RELATED PARTY TRANSACTIONS:
Since its incorporation in January 1999, the Company's activities have been
financed on a needs basis through a prepayment note, payable to Intermodal
Database Communication Systems, Inc. ("IDCS"), a related party that owns 14.25%
of the Company. Through this prepayment note, the Company agrees to pay IDCS
the remaining prepayment principal sum that may be due to IDCS at any time upon
IDCS's request. In the event the Company refuses to repay any amount due within
3 days notice of demand, these amounts would accrue interest at a prime rate
plus 5.00%. The total advances from IDCS during the period ended December 31,
1999 amounted to $1,105,000. As of December 31, 1999, the outstanding balance
on these advances amounted to $326,435.
The Company has also entered into a capital lease agreement (Note 7) with
Selecto Flash, Inc., a related party which is represented on the Company's
Board of Directors.
NOTE 3--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following as of December 31, 1999:
<TABLE>
<S> <C>
Computer equipment.................................................. $10,092
Computer equipment under capital lease.............................. 74,240
Furniture and fixtures.............................................. 640
-------
84,972
Less: Accumulated depreciation...................................... (9,331)
-------
$75,641
=======
</TABLE>
NOTE 4--EMPLOYEE BENEFIT PLAN:
The Company participates in a self directed 401(k) Plan (the Plan), covering
all employees, which qualifies under Section 401(k) of the Internal Revenue
Code. The Plan allows eligible employees to make tax deferred contributions of
up to 15% of their compensation, subject to the legal maximum amount. The
Company does not match employees' contributions. Loans to participants are
permitted in an amount not to exceed the lesser of one-half of the
participant's non-forfeitable interest under the Plan or $50,000.
The Company also provides its employees with health, long-term disability
and life insurance programs, for which the Company fully pays the premiums,
except for the life insurance covered only up to $50,000 by the Company.
Expenses incurred for health and life insurance amounted to $81,071 and $3,704,
respectively, for the period from inception (January 29, 1999) to December 31,
1999.
F-30
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--BORROWINGS
On December 30, 1999, the Company signed a collateralized promissory note of
$90,000 with Valley National Bank. The promissory note is to be paid in 36
equal monthly installments of $2,500 and interest is calculated on the basis of
actual days elapsed over a 360-day year at prime plus 1.50%. The promissory
note is collateralized by all property, including all accounts receivable,
goods, inventory, merchandise, machinery, equipment, fixtures, instruments and
general intangibles, and all cash and non-cash proceeds therefrom. The proceeds
from the promissory note are to be used to finance the purchase of office
equipment for a new office location.
NOTE 6--STOCKHOLDERS' EQUITY:
At December 31, 1999, the capital stock of the Company consists of 100,000
shares of common stock, with no par value, that are authorized, issued and
outstanding.
NOTE 7--COMMITMENTS:
The Company entered into two operating leases for computer equipment with
Selecto Flash, Inc. and Dell Financial Services and also for a phone system
with Unistar leasing. The Company has leased, under a six-month operating
lease, office space in New Jersey since November 1999. The aggregate future
minimum lease payments, under the Company's leases are approximately as
follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31, leases leases
- ------------------------ ------- ---------
<S> <C> <C>
2000......................................................... $26,389 $20,087
2001......................................................... 23,883 12,389
2002......................................................... 21,380 11,311
2003......................................................... 11,494 --
2004......................................................... -- --
------- -------
Total payments............................................. $83,146 $43,787
=======
Less: Amounts representing interest.......................... (16,640)
-------
Present value of minimum capital lease payments.............. 66,506
Less: Current portion........................................ 18,552
-------
Capital lease obligations, long-term......................... $47,954
=======
</TABLE>
NOTE 7--SUBSEQUENT EVENTS:
Stock Purchase Agreement
Effective January 26, 1999, the shareholders of the Company sold all
outstanding shares of the Company's common stock to Inventa Corporation in
exchange for shares of Inventa Corporation common stock.
F-31
<PAGE>
3,500,000 Shares
[INVENTA LOGO]
Common Stock
-------------------
PROSPECTUS
, 2000
-------------------
Lehman Brothers
First Union Securities, Inc.
Friedman Billings Ramsey
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to
be Paid
----------
<S> <C>
Registration fee............................................... $ 15,840
NASD filing fee................................................ 6,500
Nasdaq National Market......................................... 95,000
Blue sky qualification fees and expenses....................... 10,000
Printing and engraving expenses................................ 250,000
Legal fees and expenses........................................ 400,000
Accounting fees and expenses................................... 400,000
Director and officer liability insurance....................... 300,000
Transfer agent and registrar fees.............................. 25,000
Miscellaneous expenses......................................... 57,660
----------
Total ......................................................... $1,560,000
==========
</TABLE>
- --------
Item 14. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's certificate of
incorporation and bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees that would require the Registrant,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). The Registrant also intends to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreements to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Except as otherwise noted, we have issued and sold the following securities
within the last three years and through February 29, 2000:
On February 14, 1997, we sold an aggregate of 2,560,000 shares of our series
B preferred stock at a price of $1.25 per share to five investors and their
affiliates.
On May 11, 1998, and May 28, 1999, we sold an aggregate of 8,055,511 shares
of our series C preferred stock at a price of $1.25 per share to seven
investors and their affiliates.
On January 19, 2000, we sold an aggregate of 3,000,000 shares of our series
D preferred stock at a price of $7.41 per share to seven investors and their
affiliates.
On January 26, 2000, we issued 1,350,000 shares of common stock to 11
individuals and one institutional investor in connection with our acquisition
of XTEND-Tech. These issuances were deemed to be exempt from registration under
the Securities Act in reliance upon Section 4(2) of the Securities Act, as
transactions by an issuer not involving any public offering.
We issued 200,000 shares of our series A preferred stock, at an exercise
price per share of $0.50, pursuant to the exercise of warrants issued in
connection with our original issuance of our series A preferred stock.
We issued a warrant to acquire 160,000 of series C preferred stock, at an
exercise price of $2.50 per share, in connection with our borrowing of
$4,000,000 under a term loan.
We issued 2,271,000 shares of common stock and 400,000 shares of our series
A preferred stock pursuant to a two-for-one stock split declared on January 29,
1997.
Since our inception, we have granted options to purchase 5,586,220 shares of
our common stock to employees, directors and consultants under our 1993 Plan at
exercise prices ranging from $0.05 to $6.50 per share. Of the 5,586,220 options
granted, 3,993,653 remain outstanding, 648,163 shares of common stock have been
purchased pursuant to exercises of stock options and options to acquire
944,404 shares have been cancelled and are available for grant under our 1993
Plan.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment purposes only and not
with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the securities issued in such transactions.
All recipients either received adequate information about us or had access,
through their employment or other relationships with us, to adequate
information about us.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement (incorporated by reference to Exhibit
1.1 filed as an exhibit to Amendment No. 4).
2.1** Agreement and Plan of Reorganization among the Registrant, XTEND-Tech,
Inc. and the shareholders of XTEND-Tech, Inc. dated January 26, 2000
(incorporated by reference to Exhibit 2.1 filed as an exhibit to
Amendment No. 3).
3.1** Form of Amended and Restated Certificate of Incorporation of
Registrant prior to completion of this offering (incorporated by
reference to Exhibit 3.1 filed as an exhibit to Amendment No. 3).
3.2** Form of Amended and Restated Certificate of Incorporation of
Registrant to be effective upon completion of this offering
(incorporated by reference to Exhibit 3.2 filed as an exhibit to
Amendment No. 4).
3.3** Amended and Restated Bylaws of Registrant prior to completion of this
offering (incorporated by reference to Exhibit 3.3 filed as an
exhibit to Amendment No. 1).
3.4** Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering (incorporated by reference to Exhibit 3.4
filed as an exhibit to Amendment No. 3).
4.1** Form of Registrant's Common Stock Certificate (incorporated by
reference to Exhibit 4.1 filed as an exhibit to Amendment No. 4).
4.2** Amended and Restated Registration Rights Agreement, between the
Registrant and the parties named therein (incorporated by reference
to Exhibit 4.2 filed as an exhibit to Amendment No. 3).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1** Series A Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.1 filed as an exhibit to Amendment No. 3).
10.2** Series B Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.2 filed as an exhibit to Amendment No. 3).
10.3** Series C Preferred Stock Purchase Agreement dated May 11, 1998
(incorporated by reference to Exhibit 10.3 filed as an exhibit to
Amendment No. 3).
10.4** Series D Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.4 filed as an exhibit to Amendment No. 3).
10.5** Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000 (incorporated by
reference to Exhibit 10.5 filed as an exhibit to Amendment No. 1).
10.6** Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation
(incorporated by reference to Exhibit 10.6 filed as an exhibit to
Amendment No. 1).
10.7** 1993 Stock Option Plan (incorporated by reference to Exhibit 10.7
filed as an exhibit to Amendment No. 1).
10.8** Form of Stock Option Agreement (incorporated by reference to Exhibit
10.8 filed as an exhibit to Amendment No. 1).
10.9** 2000 Stock Plan and Related form of Stock Option Agreement
(incorporated by reference to Exhibit 10.9 filed as an exhibit to
Amendment No. 3).
10.10** Employee Stock Purchase Plan. (incorporated by reference to Exhibit
10.10 filed as an exhibit to Amendment No. 3)
10.11** 401(K) Plan (incorporated by reference to Exhibit 10.10 filed as an
exhibit to Amendment No. 1).
10.12** Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto (incorporated by reference to Exhibit 10.11
filed as an exhibit to Amendment No. 1).
10.13** Loan and Security Agreement between the Registrant and Greyrock
Capital, a division of Banc of America Finance Corporation, dated
November 17, 1999, and related Security Agreement in copyrighted
works (incorporated by reference to Exhibit 10.12 filed as an exhibit
to Amendment No. 1).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.14** Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees
(incorporated by reference to Exhibit 10.13 filed as an exhibit to
Amendment No. 1).
10.15** Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998 (incorporated by reference to Exhibit 10.14 filed
as an exhibit to Amendment No. 1).
10.16** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1998 (incorporated by reference to Exhibit
10.10 filed as an exhibit to the Form S-1).
10.17** Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000 (incorporated by reference to
Exhibit 10.16 filed as an exhibit to Amendment No. 1).
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999 (incorporated by reference to Exhibit
10.14 filed as an exhibit to the Form S-1).
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999 (incorporated by reference to Exhibit
10.11 filed as an exhibit to the Form S-1).
10.20** Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell, dated August 5, 1998 (incorporated by reference to Exhibit
10.20 filed as an exhibit to Amendment No. 1).
10.21** Employment Letter Agreement between the Registrant and Michael
Makishima, dated July 14, 1997 (incorporated by reference to Exhibit
10.21 filed as an exhibit to Amendment No. 1).
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999 (incorporated by reference to Exhibit 10.12
filed as an exhibit to the Form S-1).
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999 (incorporated by reference to Exhibit
10.13 filed as an exhibit to the Form S-1).
10.24** Employment Letter Agreement between the Registrant and Edward F.
Leppert, dated October 27, 1997 (incorporated by reference to Exhibit
10.24 filed as an exhibit to Amendment No. 1).
10.25** Severance Agreement between the Registrant and Ashok Santhanam, dated
January 10, 1998 (incorporated by reference to Exhibit 10.16 filed as
an exhibit to the Form S-1).
10.26** Severance Agreement between the Registrant and Elizabeth J. Campbell,
dated July 14, 1999 (incorporated by reference to Exhibit 10.26 filed
as an exhibit to Amendment No. 1).
10.27** Severance Agreement between the Registrant and Michael Makishima,
dated January 13, 1998 (incorporated by reference to Exhibit 10.18
filed as an exhibit to the Form S-1).
10.28** Severance Agreement between the Registrant and Edward F. Leppert,
dated January 13, 1998 (incorporated by reference to Exhibit 10.17
filed as an exhibit to the Form S-1).
10.29** Severance Agreement between the Registrant and Srikantan Moorthy,
dated January 10, 1998 (incorporated by reference to Exhibit 10.19
filed as an exhibit to the Form S-1).
10.30** Lease Agreement, dated February 1, 2000 between National Rural
Utilities Cooperative Finance Corporation and the Registrant and the
related Letter of Credit (incorporated by reference to Exhibit 10.30
filed as an exhibit to Amendment No. 2).
10.31** Lease Agreement, dated February 2, 2000, between Shorebreeze
Associates, LLC and the Registrant and the related Letter of Credit
(incorporated by reference to Exhibit 10.31 filed as an exhibit to
Amendment No. 2).
10.32** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and the Registrant and Sega Corporation, and amendments
thereto (incorporated by reference to Exhibit 10.6 filed as an
exhibit to the Form S-1).
10.33** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and the Registrant (incorporated by
reference to Exhibit 10.7 filed as an exhibit to the form S-1).
10.34** Sublease Agreement, dated March 29, 1999, between Sega of America and
the Registrant (incorporated by reference to Exhibit 10.5 filed as an
exhibit to the Form S-1).
10.35** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and the Registrant (incorporated by reference to Exhibit 10.8
filed as an exhibit to the Form S-1).
10.36** Letter Agreement, dated May 11, 1998, regarding the Directed Share
Program between the Registrant and the parties named therein
(incorporated by reference to Exhibit 10.36 filed as an exhibit to
Amendment No. 3).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.37** Letter Agreement, dated January 14, 2000, regarding the private
placement of Common Stock between the Registrant and the parties
named therein (incorporated by reference to Exhibit 10.37 filed as an
exhibit to Amendment No. 3).
10.38** Letter Agreement, dated as of January 28, 2000, between the Registrant
and the parties named therein (incorporated by reference to Exhibit
10.38 filed as an exhibit to Amendment No. 3).
10.39** Form of Stock Restriction Agreement entered into by
shareholder/employees of XTEND-Tech (incorporated by reference to
Exhibit 10.39 filed as an exhibit to Amendment No. 3).
10.40** Series C Stock Purchase Agreement dated May 28, 1999 (incorporated by
reference to Exhibit 10.40 filed as an exhibit to Amendment No. 4).
21** Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 filed as an exhibit to Amendment No. 1).
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney (see signature page) (incorporated by reference to
Exhibit 24.1 filed as an exhibit to the Form S-1).
24.2** Power of Attorney (incorporated by reference to Exhibit 24.2 filed as
an exhibit to Amendment No. 3).
27.1** Financial Data Schedule (incorporated by reference to Exhibit 27.1
filed as an exhibit to Amendment No. 2).
</TABLE>
- --------
** Previously filed.
(b) Financial Statement Schedules.
Valuation and Qualifying Accounts (see page S-2)
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Redwood Shores, California, on the 25th day of April 2000.
INVENTA TECHNOLOGIES, INC.
/s/ Ashok Santhanam
By: _________________________________
Ashok Santhanam Chairman of the
Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
* President and Chief Executive April 25, 2000
_____________________________________ Officer, and Director
David A. Lavanty (Principal Executive Officer)
* Senior Vice President and Chief April 25, 2000
_____________________________________ Financial Officer (Principal
Michael B. Shahbazian Financial Officer)
* Vice President of Finance April 25, 2000
_____________________________________ (Principal Accounting Officer)
Michael Makishima
/s/ Ashok Santhanam Director April 25, 2000
_____________________________________
Ashok Santhanam
* Director April 25, 2000
_____________________________________
Michael Bealmear
* Director April 25, 2000
_____________________________________
Todd Dagres
* Director April 25, 2000
_____________________________________
Robert Ducommun
* Director April 25, 2000
_____________________________________
Frank Pinto
* Director April 25, 2000
_____________________________________
Jon Q. Reynolds, Jr.
</TABLE>
/s/ Ashok Santhanam
*By: ___________________________
Ashok Santhanam
Attorney-in-fact
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Inventa Technologies, Inc.,
Our audits of the financial statements referred to in our report dated
February 11, 2000 appearing in this Amendment No. 3 to Registration Statement
(No. 333-95813) on Form S-1 also included an audit of the Financial Statement
Schedule listed in the index of this Form S-1. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
S-1
<PAGE>
INVENTA TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance
at the Charged to Deductions Balance at
Allowance for doubtful beginning of costs and the end of
accounts the period and expenses write-offs the period
- ---------------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31,
1997................... 75 258 -- 333
Year ended December 31,
1998................... 333 49 74 308
Year ended December 31,
1999................... 308 -- 134* 174
</TABLE>
- --------
* primarily relates to the liquidation of the assets of the former Malaysian
subsidiary
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement (incorporated by reference to Exhibit
1.1 filed as an exhibit to Amendment No. 4).
2.1** Agreement and Plan of Reorganization among the Registrant, XTEND-Tech,
Inc. and the shareholders of XTEND-Tech, Inc. dated January 26, 2000
(incorporated by reference to Exhibit 2.1 filed as an exhibit to
Amendment No. 3).
3.1** Form of Amended and Restated Certificate of Incorporation of
Registrant prior to completion of this offering (incorporated by
reference to Exhibit 3.1 filed as an exhibit to Amendment No. 3).
3.2** Form of Amended and Restated Certificate of Incorporation of
Registrant to be effective upon completion of this offering
(incorporated by reference to Exhibit 3.2 filed as an exhibit to
Amendment No. 4).
3.3** Amended and Restated Bylaws of Registrant prior to completion of this
offering (incorporated by reference to Exhibit 3.3 filed as an
exhibit to Amendment No. 1).
3.4** Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering (incorporated by reference to Exhibit 3.4
filed as an exhibit to Amendment No. 3).
4.1** Form of Registrant's Common Stock Certificate (incorporated by
reference to Exhibit 4.1 filed as an exhibit to Amendment No. 4).
4.2** Amended and Restated Registration Rights Agreement, between the
Registrant and the parties named therein (incorporated by reference
to Exhibit 4.2 filed as an exhibit to Amendment No. 3).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1** Series A Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.1 filed as an exhibit to Amendment No. 3).
10.2** Series B Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.2 filed as an exhibit to Amendment No. 3).
10.3** Series C Preferred Stock Purchase Agreement dated May 11, 1998
(incorporated by reference to Exhibit 10.3 filed as an exhibit to
Amendment No. 3).
10.4** Series D Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.4 filed as an exhibit to Amendment No. 3).
10.5** Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000 (incorporated by
reference to Exhibit 10.5 filed as an exhibit to Amendment No. 1).
10.6** Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation
(incorporated by reference to Exhibit 10.6 filed as an exhibit to
Amendment No. 1).
10.7** 1993 Stock Option Plan (incorporated by reference to Exhibit 10.7
filed as an exhibit to Amendment No. 1).
10.8** Form of Stock Option Agreement (incorporated by reference to Exhibit
10.8 filed as an exhibit to Amendment No. 1).
10.9** 2000 Stock Plan and Related form of Stock Option Agreement
(incorporated by reference to Exhibit 10.9 filed as an exhibit to
Amendment No. 3).
10.10** Employee Stock Purchase Plan. (incorporated by reference to Exhibit
10.10 filed as an exhibit to Amendment No. 3)
10.11** 401(K) Plan (incorporated by reference to Exhibit 10.10 filed as an
exhibit to Amendment No. 1).
10.12** Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto (incorporated by reference to Exhibit 10.11
filed as an exhibit to Amendment No. 1).
10.13** Loan and Security Agreement between the Registrant and Greyrock
Capital, a division of Banc of America Finance Corporation, dated
November 17, 1999, and related Security Agreement in copyrighted
works (incorporated by reference to Exhibit 10.12 filed as an exhibit
to Amendment No. 1).
10.14** Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees
(incorporated by reference to Exhibit 10.13 filed as an exhibit to
Amendment No. 1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.15** Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998 (incorporated by reference to Exhibit 10.14 filed
as an exhibit to Amendment No. 1).
10.16** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1998 (incorporated by reference to Exhibit
10.10 filed as an exhibit to the Form S-1).
10.17** Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000 (incorporated by reference to
Exhibit 10.16 filed as an exhibit to Amendment No. 1).
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999 (incorporated by reference to Exhibit
10.14 filed as an exhibit to the Form S-1).
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999 (incorporated by reference to Exhibit
10.11 filed as an exhibit to the Form S-1).
10.20** Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell, dated August 5, 1998 (incorporated by reference to Exhibit
10.20 filed as an exhibit to Amendment No. 1).
10.21** Employment Letter Agreement between the Registrant and Michael
Makishima, dated July 14, 1997 (incorporated by reference to Exhibit
10.21 filed as an exhibit to Amendment No. 1).
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999 (incorporated by reference to Exhibit 10.12
filed as an exhibit to the Form S-1).
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999 (incorporated by reference to Exhibit
10.13 filed as an exhibit to the Form S-1).
10.24** Employment Letter Agreement between the Registrant and Edward F.
Leppert, dated October 27, 1997 (incorporated by reference to Exhibit
10.24 filed as an exhibit to Amendment No. 1).
10.25** Severance Agreement between the Registrant and Ashok Santhanam, dated
January 10, 1998 (incorporated by reference to Exhibit 10.16 filed as
an exhibit to the Form S-1).
10.26** Severance Agreement between the Registrant and Elizabeth J. Campbell,
dated July 14, 1999 (incorporated by reference to Exhibit 10.26 filed
as an exhibit to Amendment No. 1).
10.27** Severance Agreement between the Registrant and Michael Makishima,
dated January 13, 1998 (incorporated by reference to Exhibit 10.18
filed as an exhibit to the Form S-1).
10.28** Severance Agreement between the Registrant and Edward F. Leppert,
dated January 13, 1998 (incorporated by reference to Exhibit 10.17
filed as an exhibit to the Form S-1).
10.29** Severance Agreement between the Registrant and Srikantan Moorthy,
dated January 10, 1998 (incorporated by reference to Exhibit 10.19
filed as an exhibit to the Form S-1).
10.30** Lease Agreement, dated February 1, 2000 between National Rural
Utilities Cooperative Finance Corporation and the Registrant and the
related Letter of Credit (incorporated by reference to Exhibit 10.30
filed as an exhibit to Amendment No. 2).
10.31** Lease Agreement, dated February 2, 2000, between Shorebreeze
Associates, LLC and the Registrant and the related Letter of Credit
(incorporated by reference to Exhibit 10.31 filed as an exhibit to
Amendment No. 2).
10.32** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and the Registrant and Sega Corporation, and amendments
thereto (incorporated by reference to Exhibit 10.6 filed as an
exhibit to the Form S-1).
10.33** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and the Registrant (incorporated by
reference to Exhibit 10.7 filed as an exhibit to the form S-1).
10.34** Sublease Agreement, dated March 29, 1999, between Sega of America and
the Registrant (incorporated by reference to Exhibit 10.5 filed as an
exhibit to the Form S-1).
10.35** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and the Registrant (incorporated by reference to Exhibit 10.8
filed as an exhibit to the Form S-1).
10.36** Letter Agreement, dated May 11, 1998, regarding the Directed Share
Program between the Registrant and the parties named therein
(incorporated by reference to Exhibit 10.36 filed as an exhibit to
Amendment No. 3).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.37** Letter Agreement, dated January 14, 2000, regarding the private
placement of Common Stock between the Registrant and the parties
named therein (incorporated by reference to Exhibit 10.37 filed as an
exhibit to Amendment No. 3).
10.38** Letter Agreement, dated as of January 28, 2000, between the Registrant
and the parties named therein (incorporated by reference to Exhibit
10.38 filed as an exhibit to Amendment No. 3).
10.39** Form of Stock Restriction Agreement entered into by
shareholder/employees of XTEND-Tech (incorporated by reference to
Exhibit 10.39 filed as an exhibit to Amendment No. 3).
10.40** Series C Stock Purchase Agreement dated May 28, 1999 (incorporated by
reference to Exhibit 10.40 filed as an exhibit to Amendment No. 4).
21** Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 filed as an exhibit to Amendment No. 1).
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney (see signature page) (incorporated by reference to
Exhibit 24.1 filed as an exhibit to the Form S-1).
24.2** Power of Attorney (incorporated by reference to Exhibit 24.2 filed as
an exhibit to Amendment No. 3).
27.1** Financial Data Schedule (incorporated by reference to Exhibit 27.1
filed as an exhibit to Amendment No. 2).
</TABLE>
- --------
** Previously filed.
<PAGE>
April 25, 2000 Exhibit 5.1
-----------
Inventa Technologies, Inc.
255 Shoreline Drive, Suite 200
Redwood Shores, CA 94065
Re: Inventa Technologies, Inc. Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission (the "Commission") on January 31, 2000
(Registration No. 333-95813), as amended (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of up to 4,025,000 shares of your Common Stock (the "Shares). The
Shares, which include up to 525,000 shares of Common Stock issuable pursuant to
an over-allotment option granted to the underwriters (the "Underwriters"), are
to be sold to the Underwriters as described in the Registration Statement for
sale to the public. As your legal counsel in connection with this transaction,
we have examined the proceedings proposed to be taken by you in connection with
the issuance and sale of the Shares.
Based on the foregoing, it is our opinion that the Shares, when issued and
sold in the manner described in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We are members of the bar of the State of California only and express no
opinion as to any matter relating to the laws of any jurisdiction other than the
laws of the States of California and Delaware, and the federal laws of the
United States. We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the prospectus constituting a
part thereof, which has been approved by us, as such may be further amended or
supplemented, or incorporated by reference in any Registration Statement
relating to the prospectus filed pursuant to Rule 462(b) of the Act.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
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Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement (No. 333-95813)
on Form S-1 of our reports dated February 11, 2000 relating to the consolidated
financial statements and financial statement schedules for Inventa
Technologies, Inc., and February 11, 2000 relating to the financial statements
of XTEND-Tech, Inc. which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
April 25, 2000
