<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 0-13022
INTELLICORP, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-2756073
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1975 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040-2216
(Address of principal executive offices)
(Zip Code)
(415) 965-5500
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Outstanding as of
Class April 30, 1997
----- --------------
Common stock,
$.001 par value 12,913,447 shares
This document is comprised of 14 pages.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets..............................3
Condensed Consolidated Statements of Operations....................4
Condensed Consolidated Statements of Cash Flows....................5
Notes to Condensed Consolidated Financial Statements.............6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................11
SIGNATURE........................................................................12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
(In thousands) 1997 1996(1)
--------- --------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,542 $ 3,142
Short-term investments -- 982
Accounts receivable, net 3,279 2,217
Other current assets 182 214
-------- --------
Total current assets 10,003 6,555
Property and equipment, net 364 286
Capitalized software, net 237 284
Other assets 209 276
-------- --------
Total $ 10,813 $ 7,401
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 845 $ 935
Accrued compensation 614 570
Other current liabilities 1,298 1,453
Deferred revenues 764 746
-------- --------
Total current liabilities 3,521 3,704
Convertible notes 1,600 1,600
Stockholders' equity:
Preferred stock and warrants issuable -- 2,932
Preferred stock 7,224 --
Common stock 43,763 42,275
Accumulated deficit (45,295) (43,110)
-------- --------
Total stockholders' equity 5,692 2,097
-------- --------
Total $ 10,813 $ 7,401
======== ========
</TABLE>
(1) The consolidated balance sheet at June 30, 1996, has been derived from
the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE> 4
INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(In thousands, except ----------------------- -----------------------
per share amounts) 1997 1996 1997 1996
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software $ 1,864 $ 675 $ 4,301 $ 2,186
Contract services 1,126 550 3,202 4,065
Other services 394 438 1,147 2,176
-------- -------- -------- --------
Total revenues 3,384 1,663 8,650 8,427
-------- -------- -------- --------
Costs and expenses:
Cost of revenues:
Software 277 162 844 766
Contract services 552 572 1,824 2,102
Other services 140 105 419 433
Research and development 993 905 2,639 2,635
Marketing, general, and
administrative 1,727 1,313 4,824 4,701
Corporate restructuring costs -- -- -- 414
-------- -------- -------- --------
Total costs and expenses 3,689 3,057 10,550 11,051
-------- -------- -------- --------
Loss from operations (305) (1,394) (1,900) (2,624)
Other income (expense), net (42) 42 (35) 95
-------- -------- -------- --------
Loss before provision
for income taxes (347) (1,352) (1,935) (2,529)
Provision for income taxes 36 33 97 49
-------- -------- -------- --------
Net loss $ (383) $ (1,385) $ (2,032) $ (2,578)
======== ======== ======== ========
Net loss per share $ (0.03) $ (0.11) $ (0.17) $ (0.21)
======== ======== ======== ========
Weighted average common
shares outstanding 12,809 12,213 12,546 12,178
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
March 31,
Increase (decrease) in cash and ---------------------
cash equivalents (in thousands) 1997 1996
------- -------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,032) $(2,578)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation & amortization 409 511
Issue costs for preferred stock and warrants (39) --
Issuance of common stock in lieu of interest payment 119 --
Changes in assets and liabilities:
Accounts receivable (1,062) 3,276
Other current assets 32 (83)
Other assets 4 109
Accounts payable (90) (155)
Accrued compensation 44 (333)
Other current liabilities (155) 2
Deferred revenues 18 (644)
------- -------
Net cash provided by (used in) operating activities (2,752) 105
------- -------
Cash flows from investing activities:
Property and equipment purchases (287) (181)
Capitalization of software development (91) (100)
Maturities of short-term investments 982 --
------- -------
Net cash provided by (used in) investing activities 604 (281)
------- -------
Cash flows from financing activities -
Cash collected from sale of preferred stock 5,000 --
Cash collected from sale of common stock 548 138
------- -------
Net cash provided by financing activities 5,548 138
------- -------
Increase (decrease) in cash and cash equivalents 3,400 (38)
Cash and cash equivalents, beginning of period 3,142 2,493
------- -------
Cash and cash equivalents, end of period $ 6,542 $ 2,455
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION. The accompanying condensed consolidated financial
statements should be read in conjunction with the Company's financial statements
for the fiscal year ended June 30, 1996, included in the Company's Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission. In the opinion
of management, the interim statements reflect all adjustments (consisting of
normal recurring entries) which are necessary for a fair presentation of the
results of the interim periods presented. The interim results are not
necessarily indicative of the results for the full year. Certain prior year
revenues and associated costs have been reclassified to conform to the current
year's presentation.
2. NET LOSS PER COMMON SHARE. Net loss per common share is computed by dividing
net loss by the weighted average number of common stock outstanding. Common
stock equivalents are excluded as their effect would be antidilutive. For the
three and nine month periods ended March 31, 1997, the net loss has been
adjusted to reflect the issuance of preferred stock dividends.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. The impact
is expected to result in no change to loss per share for the three and nine
month periods ended March 31, 1997 and March 31, 1996.
3. SIGNIFICANT CUSTOMERS. A related party accounted for 18% ($608,000) and 18%
($1,596,000), respectively, of the total revenues for the three and nine month
periods ended March 31, 1997. One other commercial customer accounted for 13%
($448,000) and 8% ($694,000) of total revenues for the three and nine months
ended March 31, 1997. GTE accounted for 0% ($2,000) and 38% ($3,177,000) of
total revenues for the three and nine months ended March 31, 1996, respectively.
4. ACCOUNTS RECEIVABLE. In September 1995, the Company sold to a financial
institution, without recourse, receivables in the amount of $1,915,935. The net
proceeds are reported as providing operating cash flows in the Condensed
Consolidated Statement of Cash Flows for the nine months ended March 31, 1996.
5. INCOME TAXES. The Company's provision for income taxes of $97,000 and $49,000
for the nine months ended March 31, 1997 and March 31, 1996, respectively, is
attributable to foreign withholding taxes.
6. CORPORATE RESTRUCTURING COSTS. The Company recorded a $414,000 pre-tax
restructuring expense in the first quarter of fiscal 1996. The restructuring was
undertaken to increase the Company's focus on live business modeling tools for
the Microsoft Windows(R) platform and in support of commercially popular
purchased software systems. In conjunction with the restructuring, the Company
implemented an across the board reduction in force of approximately 30%. The
program was completed in fiscal 1996.
7. CONVERTIBLE NOTES. In April 1996, the Company issued $3,400,000 of seven-year
unsecured senior convertible notes. Interest only is payable semi-annually in
October and April at 10% per annum (except for the first payment which was due
and paid January 1997). Interest payments for the first two years are payable,
at the Company's option, in cash or in common stock valued at 90% of the 20 day
average bid price preceding the payment due date.
On June 27, 1996, the noteholders agreed to exchange notes totaling
$1,800,000 for preferred stock and warrants (see note 8). On December 30, 1996,
the Company issued 65,981
6
<PAGE> 7
shares of common stock in lieu of a $119,507 payment of interest covering the
first semi-annual payment period.
The remaining $1,600,000 of debt is due and payable on April 30, 2003 and
is convertible at any time, at the option of the noteholders, into shares of the
Company's common stock at a conversion price of $1.55 per share. The Company has
reserved 1,032,258 shares of common stock for issuance upon conversion of these
notes. The Company has the right to prepay all or a portion of the principal
amount outstanding at any time following April 30, 1999. The notes were issued
in a private placement, and the Company registered the resale of the common
stock that is issuable upon conversion of the notes or as payment of interest on
the notes.
8. PREFERRED STOCK. On June 27, 1996, the Company agreed to issue 580,645 shares
of Series A Preferred Stock and warrants to purchase 720,000 shares of common
stock at $3.50 per share in exchange for the conversion of $1,800,000 of the
convertible notes. Such preferred shares and warrants were valued at $2,932,000,
net of issue costs. Each share of the preferred stock is convertible into two
common shares, subject to adjustments, and carries 10% mandatory cumulative
dividends. The dividends for the first two years are payable, at the Company's
option, in cash or in common stock valued at 90% of the 20 day average bid price
preceding the payment due date. On January 31, 1997, the Company issued 34,305
shares of common stock for payment of dividends covering the first semi-annual
payment period. The cumulative dividends as of March 31, 1997 were approximately
$75,000.
The warrants are exercisable immediately, and expire in 2006. The Company
can redeem the warrants anytime after five years, if the common stock trades at
or above $6.00 per share, by paying a redemption price of $0.01 per warrant
share.
The preferred stock and warrants were issued in August 1996. The common
shares issuable on conversion of preferred stock, the exercise of warrants or
payment of dividends were registered for resale on December 23, 1996.
On March 19, 1997, the Company issued 5,000 shares of 8% convertible
Series B Preferred Stock at $1,000 per share. Each share is convertible into 500
shares of common stock, subject to adjustments, at $2.00 per share. The
dividends for the first year are payable at the Company's option in cash or
common stock valued at 90% of the 20 day average bid price preceding the
distribution due date. The cumulative dividends as of March 31, 1997 were
approximately $14,000.
9. COMMON STOCK. On December 30,1996 the Company issued 307,692 shares of common
stock to an existing stockholder at $1.625 per share.
10. RELATED PARTY TRANSACTIONS. On August 8, 1996, SAP AG purchased from
Informix Corporation 1,736,263 shares of common stock of the Company. This total
represents all the Company shares previously held by Informix Corporation and,
following the purchase, SAP AG holds approximately 14% of the outstanding common
stock of the Company.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other than statements of historical fact, the statements made in this report on
Form 10-QSB are, and are hereby identified as, forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to risks
associated with, competitors' product introductions, market price competition
and market acceptance of the Company's products, as well as, those discussed in
"Results of Operations" and "Liquidity and Capital Resources" below and in "Risk
Factors" in the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1996 and the Company's Registration Statement on Form S-3 dated
December 23, 1996 filed with the Securities and Exchange Commission.
In particular, it is important to note that achievement of revenue goals is
affected by numerous factors beyond the Company's control. Historical results of
the Company may not be indicative of future operating results.
RESULTS OF OPERATIONS
The Company's total revenue is derived from three sources: software licenses,
contract services and other services including product support and training.
Total revenues were $3,384,000 and $8,650,000, respectively, for the three and
nine months ending March 31, 1997, compared to $1,663,000 and $8,427,000,
respectively, for the same periods in the prior year. This represents an
increase of 103% and 3%, respectively, for the three and nine month periods
ended March 31, 1997.
The geographic breakdown of revenue is as follows:
<TABLE>
<CAPTION>
Three months ended % Nine months ended %
(In thousands) March 31, Change March 31, Change
--------- ------ --------- ------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
North America $2,322 $ 867 168% $5,610 $5,960 (6%)
Europe 759 398 91% 1,962 1,287 52%
Pacific Rim/Latin America 303 398 (24%) 1,078 1,180 (9%)
------ ------ ---- ------ ------ ---
Total revenue $3,384 $1,663 103% $8,650 $8,427 3%
</TABLE>
The geographic revenue as a percentage of revenue is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
--------- ---------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America 69% 52% 65% 71%
Europe 22% 24% 23% 15%
Pacific/Latin America 9% 24% 12% 14%
</TABLE>
Software revenues for the three and nine month periods ended March 31,
1997, respectively, increased 176% and 97% compared to the same periods in the
prior year. Both the three and nine month increases are largely due to the
Company's newest product, LiveModel(TM): SAP(TM) R/3(TM) Edition released on the
Microsoft Windows platform in June 1996. LiveModel: SAP R/3 Edition represented
93% and 88% of software revenues for the three and nine month periods ended
March 31, 1997.
PowerModel(TM) (formerly known as Kappa) revenues represented 5% and 8% of
software revenues for the three and nine month periods ended March 31, 1997
compared to 28% and 41% of software revenue in the same periods a year ago.
Other LiveModel(TM) (formerly known as Object Management Workbench) revenues
represented 0% and 1% of software revenues in the three and nine month periods
ended March 31, 1997 compared to 11% and 30% for the same prior year periods.
The remainder of software revenues is from Kappa-PC(R) and Lisp-based KEE(R)
products
8
<PAGE> 9
which represent 1% and 3% of software revenues for the three and nine months
ended March 31, 1997 compared to 16% and 15% for the same periods in the prior
year.
Contract services revenues for the three and nine month periods ended March
31, 1997, increased 104% and decreased 21% compared to the same periods a year
ago. The increase for the quarter ended March 31, 1997 is primarily due to
$733,000 (65%) of total consulting revenue related to LiveModel: SAP R/3
Edition. The decrease for the nine months ended March 31, 1997 is primarily due
to close-out payments under the terminated GTE development agreement of
$2,261,000 related to contract services received in the first quarter of fiscal
1996. The Company expects to perform additional contract services in the future.
However, because a majority of such services are performed on a short-term
basis, the ultimate trend for this category of revenue and the timing of the
services are difficult to predict.
Other services revenue, which consists primarily of training and product
support, decreased 10% and 47% during the three and nine months ended March 31,
1997, compared to the same periods a year ago. The decrease is mainly due to
product support revenues from the GTE licenses recognized in fiscal 1996 while
no related revenues were received in fiscal 1997.
Gross margin, as a percentage of total revenues for the three and nine
months ended March 31, 1997, was 71% and 64% compared to 50% and 61% in the same
periods in the prior year. Software margins were 85% and 80% for the three and
nine months ended March 31, 1997, compared to 76% and 65% for same prior year
periods. The increase in software margins was due to increased sales volume on a
relatively fixed cost base. Contract services margins were 51% and 43% for the
three and nine months ended March 31, 1997, compared to (4%) and 48% for the
same periods in the prior year. The significant increase in contract services
margins for the three months ended March 31, 1997 is due to unusual negative
gross margin in the prior year period which resulted from costs associated with
the canceled GTE contract, while the decrease in the nine months ended March 31,
1997 is primarily due to the GTE consulting agreement close-out payment in the
first quarter of fiscal 1996. Other service margins were 64% and 63% for the
three and nine months ended March 31, 1997, compared to 76% and 80% in the same
periods in the prior year. The nine month decrease in margins is attributable to
a final GTE support payment received in second quarter of fiscal 1996.
Research and development (R&D) expenses increased $88,000 (10%) and $4,000
(0%) during the three and nine months ended March 31, 1997 from the same prior
year periods. $91,000 of software development costs were capitalized in the nine
months ended March 31, 1997, while $100,000 software development costs were
capitalized in the same prior year period. R&D expenses, as a percentage of
total revenues for the three and nine months ended March 31, 1997, were 29% and
31% compared to 54% and 31% in the same prior year periods.
Marketing, general and administrative expenses increased $414,000 (32%) and
$123,000 (3%) during the three and nine months, respectively, ended March 31,
1997, compared to the prior year periods. The increase is primarily due to
recruiting fees associated with the change in sales force related to the new
product line and higher sales costs associated with higher sales volume.
During the quarter ended September 30, 1995, the Company recorded a
$414,000 pre-tax restructuring expense. The restructuring program was undertaken
to increase the Company's focus on live business modeling tools for the
Microsoft Windows(R) platform and in support of commercially popular purchased
software systems. The program was completed in fiscal 1996.
Other income and expense, net, which includes interest income and expense,
for the three and nine months ended March 31, 1997 decreased $84,000 and
$130,000 compared with the same periods in the prior year primarily due to lower
interest income due to lower cash balances, unfavorable foreign currency
exchange rate fluctuations and interest expense related to the convertible
notes.
The provision for income taxes of $97,000 and $49,000 for the nine months
ended March 31, 1997, and March 31, 1996, respectively, represents foreign
withholding taxes incurred. No income tax benefit was recorded for the nine
months ended March 31, 1997 and March 31, 1996 since the Company incurred a net
operating loss. For the nine month period ended March 31, 1997, the Company
reported a net loss of $2,032,000 ($0.17 per share), compared to a net loss of
$2,578,000 ($0.21 per share) for the nine months ended March 31,1996.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, cash, cash equivalents and short-term investments were
$6,542,000 compared to $4,124,000 at June 30, 1996. $2,752,000 of cash was used
in operations during the nine month period ended March 31, 1997, compared to
cash generated of $105,000 in the same period in the prior year. This decrease
resulted primarily from a combination of the sale of receivable balances in the
first quarter of fiscal 1996 and lower cash receipts from customers as a result
of lower revenues in the first quarter of fiscal 1997. Excluding the sale of
short-term investments, cash used in investing activities was $378,000 mainly
due to fixed asset purchases. Cash provided by financing activities was
$5,548,000 due to the issuance of Series B Preferred Stock for $5,000,000 (see
below) and the issuance of 307,692 shares of common stock offset by a decrease
in stock purchases by employees during the nine months ended March 31, 1997.
In April 1996, the Company issued $3,400,000 of seven-year senior
convertible notes which are due on April 30, 2003. Interest only is payable
semi-annually in October and April at 10% per annum (except the first payment
which is due January 1997). Interest payments for the first two years are
payable, at the Company's option, in cash or in common stock valued at 90% of
the 20 day average bid price preceding the payment due date. On December 30,
1996, the Company issued 65,981 shares of common stock in lieu of a $119,507
payment of interest.
In June 1996, the Company agreed to issue 580,645 shares of preferred stock
and warrants to purchase 720,000 shares of common stock at $3.50 per share in
exchange for $1,800,000 of the convertible debt. The preferred stock is
convertible into common shares on a one-for-two basis, subject to adjustments
for dilutive events, and carries 10% cumulative dividends. On January 31, 1997,
the Company issued 34,305 shares of common stock for payment of dividends
covering the first semi-annual payment period. The cumulative dividends as of
March 31, 1997 were approximately $75,000.
In March 1997, the Company issued 5,000 shares of 8% convertible Series B
Preferred Stock at $1,000 per share. Each share is convertible into 500 shares
of common stock, subject to adjustments, at $2.00 per share. The dividends for
the first year are payable at the Company's option in cash or common stock
valued at 90% of the 20 day average bid price preceding the distribution due
date. The cumulative dividends as of March 31, 1997 were approximately $14,000.
The Company believes its cash and cash equivalents at March 31, 1997,
combined with expected cash flow from future operations will be adequate to fund
its operations for the foreseeable future. However, the Company may, from time
to time, seek to raise additional capital through debt or equity financing to
take advantage of market opportunities, or through collaborative or other
arrangements with strategic partners. There can be no assurance, however, that
the Company will be able to raise additional capital on favorable terms, if at
all.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10-RR - Series B Preferred Stock Purchase Agreement.
11.1 - Statement Regarding Computation of Net Loss Per Share.
27 - Financial Data Schedule.
b) Reports on Form 8-K
No reports have been filed for the quarter ended March 31,
1997.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTELLICORP, INC.
/s/ Kenneth A. Czaja
----------------------------
Kenneth A. Czaja
Chief Financial Officer
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description Numbered Page
--- ----------- -------------
<S> <C> <C>
10-RR Series B Preferred Stock
Purchase Agreement
11.1 Statement Regarding
Computation of Net Loss Per
Share
27 Financial Data Schedule
</TABLE>
13
<PAGE> 1
EXHIBIT 10-RR
INTELLICORP, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT ("Purchase Agreement")
is made and entered into this 19th day of March, 1997 by and between
INTELLICORP, INC., a Delaware corporation (the "Company"), and the Purchasers
listed in Schedule 1.1 attached hereto (the "Purchasers" and individually, a
"Purchaser").
R E C I T A L S:
A. The Board of Directors of the Company has adopted the Certificate
Designation, Preferences and Rights of the Series B Preferred Stock (the
"Certificate of Designation") in the form attached hereto as Exhibit 1 which
establishes the rights, preferences and privileges of the Company's $0.001 par
value Series B Preferred Stock (the "Series B Preferred Stock").
B. The Company desires to issue 5,000 shares of Series B
Preferred Stock which are the subject of this Purchase Agreement; and
C. The Purchasers desire to acquire 5,000 shares of Series B
Preferred Stock on the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, IT IS AGREED as follows:
1. Issue of Preferred Stock. Subject to the terms and conditions
hereof, the Company has authorized the issue of:
1.1 5,000 shares of Series B Preferred Stock of the Company
(the "Shares") for delivery to the Purchasers in the amounts set forth in
Schedule 1.1 attached hereto against payment to the Company by each Purchaser of
the amount set forth in Schedule 1.1 by wire transfer in same day or next day
funds.
1.2 Up to 2,500,000 shares of Common Stock (which number may
be adjusted as provided in the Certificate of Designation) upon conversion of
the Shares in accordance with the terms of the Certificate of Designation and
approximately 161,616 shares of Common Stock which may be issued as dividends on
the Shares through April 30, 1998 (the "Dividend Shares").
1.3 A convertible subordinated note due March 19, 2004 (the
"Note") which, at the option of the Company, may be exchanged for the Shares at
any time following the effective date of this Purchase Agreement. If issued, the
Note shall have the terms as described in Section 6 of this Purchase Agreement.
<PAGE> 2
2. Representations and Warranties of the Company. The Company
represents and warrants that:
2.1 It is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware, and duly qualified to do
business and in good standing as a foreign corporation in the State of
California, with full power and authority, corporate and otherwise, to enter
into and perform this Agreement, to borrow hereunder, and to make, execute and
deliver the various instruments and documents provided for herein.
2.2 The execution, delivery and performance by the Company of
this Purchase Agreement, and the making, execution and delivery by the Company
of the instruments contemplated hereby, have been duly authorized by all
necessary corporate action and will not violate any provision of law, court
order or decree, or of its Certificate of Incorporation or Bylaws, or result in
the breach of or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to any agreement or instrument,to which it is a party, or by which it or its
property may be bound or affected. This Agreement is a valid and binding
obligation of the Company, enforceable in accordance with its terms.
2.3 The Shares, the Dividend Shares, and the shares of Common
Stock initially issuable upon conversion of the Shares and the Note have been
duly authorized and at all times prior to such conversion will have been duly
reserved for issuance upon such conversion and, when issued, will be validly
issued, fully paid and nonassessable.
2.4 The authorized capital of the Company is 20,000,000 shares
of Common Stock, $.001 par value per share and 2,000,000 shares of preferred
stock, $.001 par value, of which approximately 12,823,865 shares of Common Stock
and 580,645 shares of Series A Preferred Stock are issued and outstanding,
respectively. There are no shares of preferred stock reserved for issuance,
except as set forth herein. There are no shares of Common Stock reserved for
issuance for options, warrants or conversion of convertible securities, except
as set forth on Schedule 2.4 hereto.
2.5 Except as set forth on Schedule 2.5 hereto, (a) there are
no material law suits or proceedings pending, or, to the Company's knowledge,
threatened against or affecting the Company and (b) there are no material
proceedings before any governmental commission, bureau or other administrative
agency pending, or, to the Company's knowledge, threatened against the Company.
2.6 Any and all licenses and approvals required by the Company
for the conduct of its business have been obtained from the federal, state or
local authorities concerned, all of which are in good standing, except where the
failure to receive such licenses or approvals would not, individually or in the
aggregate, have a material adverse effect on the financial condition,
operations, business, assets or properties of the Company.
2.7 The minute books of the Company have been properly kept
and reflect all transactions entered into by the Company which require
submission to or action by the stockholders or directors of the Company.
-2-
<PAGE> 3
2.8 No governmental permit, consent, approval or authorization
(other than as required by any applicable state securities law) is required in
connection with (i) the execution and delivery of this Purchase Agreement by the
Company or (ii) the offer, sale, issuance and delivery of the Shares
contemplated hereby by the Company; provided that, all representations made to
the Company by the Purchasers in this Purchase Agreement and in any other
document or instrument delivered in connection herewith are assumed for purposes
of this representation and warranty to be accurate and complete.
2.9 Included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996 are the consolidated balance sheets of the
Company at June 30, 1996 and June 30, 1995, and the consolidated statements of
operations, cash flows and stockholders equity for the year ended June 30, 1996
with the report thereon of Ernst & Young LLP, independent auditors.
2.10 None of the Company's reports and filings with the
Securities and Exchange Commission ("SEC") when filed contained a misstatement
of a material fact or omitted to state a material fact necessary to make the
statements contained therein, in the light of the circumstances in which they
were made or omitted, not misleading.
2.11 The Company's Common Stock is traded on Nasdaq Small Cap
Market, the shares issuable upon conversion of the Shares and the Dividend
Shares shall be listed or approved for listing upon official notice of issuance
by Nasdaq prior to issuance. Except as set forth on Schedule 2.11, to the
knowledge of the Company, there have been no notices of any delisting or
delisting procedures threatened or contemplated by Nasdaq.
3. Representations of Purchaser. This Purchase Agreement is made with
each Purchaser by the Company in reliance upon such Purchaser's representations
to the Company, which by such Purchaser's acceptance hereof, such Purchaser
confirms, that (a) Purchaser is acquiring the Shares for its own account and not
for the beneficial interest of any other person, and not with a view to the
distribution thereof, and that Purchaser will not distribute, sell or otherwise
dispose of the Shares, or the Note, if exchanged for the Shares, or any of the
shares of Common Stock of the Company issuable upon conversion of the Shares or
the Note, except as permitted under the Securities Act of 1933, as amended (the
"Act"), the General Rules and Regulations thereunder, and all applicable State
"Blue Sky" laws; (b) Purchaser's financial circumstances are such as to permit
Purchaser to make this investment without having a present intention or need to
liquidate its investment; (c) Purchaser severally confirms further that it has
been advised that none of the Shares, the Note, if exchanged for the Shares, or
the Common Stock issuable upon the conversion thereof have been registered under
the Act, and that, accordingly, such Shares, shares of Common Stock and the Note
will be what is commonly known as "restricted securities," and are not freely
transferrable by Purchaser except pursuant to an exemption from registration
under the Act, such as Rule 144, the substance of which has been explained to
Purchaser or upon registration of the Common Stock under the Act; (d) Purchaser
is an "accredited investor" as that term is defined in SEC Regulation D, (e)
Purchaser is knowledgeable about the software industry and the Company's
products and has had the opportunity to discuss with Company management the
Company and its products, prospects, results of operation and financial
condition and to have access to any and all information regarding the Company
-3-
<PAGE> 4
that Purchaser deems necessary to its decision to purchase the Shares, and (f)
that the following legends shall be placed on the Certificates evidencing the
Shares (and, on the Note and any shares of Common Stock is issuable upon
conversion of the Shares and the Note):
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, PURSUANT TO SECTION 4(2) OF SAID ACT AND NOT WITH A
VIEW TO OR IN CONNECTION WITH THE DISTRIBUTION THEREOF. NEITHER THESE
SECURITIES NOR THE SECURITIES ISSUED UPON CONVERSION HEREOF MAY BE
OFFERED FOR SALE OR SOLD OR OTHERWISE DISPOSED OF EXCEPT UPON
COMPLIANCE WITH SAID ACT."
4. Transfer by the Purchasers. None of the Shares to be purchased by
the Purchasers, the Note, if issued, the shares of Common Stock issuable upon
conversion thereof or the Dividend Shares, nor any interest therein, shall be
sold, transferred, assigned, or otherwise disposed of, unless the Company shall
previously have received an opinion of counsel knowledgeable in federal
securities law, to the effect that registration under the Act is not required in
connection with such disposition pursuant to the Act, provided, however, that
the Common Stock issuable upon conversion of the Shares may be sold if such sale
is registered under the Act.
5. Registration.
(a) Registration. Within 90 days following the execution of
this Agreement the Company shall prepare and file with the Commission a
registration statement on Form S-3 sufficient to permit the public offering and
sale by the Purchasers of the Common Stock into which the Shares may, from time
to time, be convertible and the Dividend Shares through the facilities of all
appropriate securities exchanges and the over-the-counter market, and will use
its best efforts through its officers, directors, auditors and counsel to cause
such registration statement to become effective as promptly as practicable. Any
registration statement which becomes effective pursuant to the provisions of
this paragraph, shall be kept effective by the Company for so long as any
Purchaser owns any of the Shares, or any shares of Common Stock or Notes of the
Company which it receives upon conversion of the Shares. The Company, at its
sole expense, will also take such actions as shall permit the Shares of Common
Stock to be sold in all states which a Purchaser requests.
(b) Terms of Registrations. The foregoing rights and
duties shall be subject to the following terms and conditions:
(i) The Company shall bear all of the costs of
any registration statement, including all "blue sky" fees and expenses.
(ii) The Company will use its best efforts to
cause such registration statement to become effective under the Act.
-4-
<PAGE> 5
5.2 In connection with any registration pursuant to Section
5.1, the Company will (i) use its best efforts to permit a lawful distribution
by Purchasers in the manner specified by Purchasers; (ii) use its best efforts
to qualify or otherwise "blue sky" the proposed offering by Purchasers in such
states as the Purchasers shall reasonably request; provided, however, that
nothing herein contained shall require the Company to qualify as a foreign
corporation in a jurisdiction in which it is not presently qualified or to
become licensed as a securities broker or dealer in any jurisdiction; (iii)
provide Purchasers with a reasonable number of registration statements and
prospectuses (including amendments and revisions) requested by Purchasers; and
(iv) use its best efforts to have such prospectuses meet the requirements of
Section 10(a) of the Securities Act of 1933, as amended.
5.3 The Company's obligations under this Section 5 are
conditioned upon its being furnished by each Purchaser with descriptions of such
Purchaser's Common Stock to be covered in the requested registration statement,
the proposed method of distribution, and such other relevant information as may
be required.
5.4 In connection with any registration statement pursuant to
this Section 5, Purchasers shall indemnify and hold harmless the Company and
each person (if any) who controls the Company within the meaning of Section 15
of the Act from and against all losses, claims, damages and liabilities to which
the Company or any of them may be subject, actually or allegedly caused by any
untrue or allegedly untrue statement of a material fact contained in any such
registration statement or related prospectus or actually or allegedly caused by
an omission to state therein a material fact actually or allegedly required to
be stated therein or necessary to make the statements therein not misleading,
which statement or omission shall have been made in reliance upon and in
conformity with written information furnished to the Company by Purchasers or on
Purchaser's behalf specifically for use in connection with such registration
statement. Reciprocally, the Company hereby agrees to indemnify and hold
harmless Purchasers, any broker or other person who may be deemed an underwriter
for a Purchaser and each person (if any) who controls a Purchaser or Purchaser's
underwriter within the meaning of Section 14 of the Act, from and against all
losses, claims, damages and liabilities to which such parties or any of them may
be subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by any omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
statement or omission shall have been made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of a Purchaser
specifically for use in connection with such registration statement.
(a) Subject to subsection (b) below, the
foregoing indemnity shall include reimbursements for any reasonable legal or
other expenses incurred by the indemnified party or any director, officer or
controlling person, as defined above, in connection with investigating or
defending any such loss.
(b) Promptly after receipt by an indemnified
party under this Section 5.4 of notice of commencement of any action, the
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 5.4, notify
-5-
<PAGE> 6
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability to any
indemnified party except to the extent that the failure to so notify such party
adversely affected the indemnifying party. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the latter will be entitled to participate therein, and to
the extent desired, jointly, with any other indemnifying party similarly
notified, assume the defense and control the settlement thereof, with counsel
satisfactory to such indemnified party. After notice from the indemnifying party
to such indemnified party as to its election so to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party under this
Section 5.4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than reasonable
cost of investigation.
(c) The Company and Purchasers each have the
right to make a reasonable investigation of the information contained in any
registration statement covered by this Section 5 to confirm its accuracy,
subject, however, to the obligation of the party making such investigation to
keep in confidence any information derived until such time as the information is
filed with the SEC.
5.5 To the extent transfers of the Shares, Common Stock, the
Dividend Shares or the Note are permitted pursuant to Section 4 hereof,
Purchaser may transfer, assign or otherwise dispose of its rights under this
Section 5, as a whole or in part, but no such action by Purchaser shall increase
or otherwise affect the nature or extent of the Company's obligations provided
in this Section.
6. The Note. The Note, if issued by the Company, shall have the same
financial and other terms as the Series B Preferred Stock issued hereunder;
provided, however, that the notes delivered by the Company under the Seven-Year
Senior Convertible Note Purchase Agreement dated April 19, 1996 among the
Company and certain purchasers listed on Exhibit A thereto (the "Senior Notes")
represent senior indebtedness of the Company, and any Note issued hereunder
shall be junior and subordinated to any outstanding Senior Notes.
7. Board Representation.
The Purchasers and any successor will have the right to
designate one nominee, reasonably acceptable to the Board of Directors of the
Corporation, which nominee is not to be unreasonably refused by the Board of
Directors, for election, at its option, as a member of the Board of Directors of
the Company, and the Company will use its best efforts to cause such nominee to
be elected and continued in office as a director of the Company until 75 percent
of the Shares, or the Common Stock received upon conversion of the Shares has
been sold, or 75 percent of the entire principal of the Note, if issued, has
been paid. Following the election of such nominee as a director, such person
shall receive no more or less compensation than is paid to other non-officer
directors of the Company for attendance at meetings of the Board of Directors of
the Company and shall be entitled to receive reimbursement for all reasonable
costs incurred in attending such meetings including, but not limited to, food,
lodging and transportation. The Company agrees to indemnify and hold such
director harmless, to the maximum extent permitted by the Corporation's Restated
-6-
<PAGE> 7
Certificate of Incorporation or state law, against any and all, claims, actions,
awards and judgments arising out of his service as a director and, in the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, to include such director as an insured under
such policy. The rights and benefits of such indemnification and the benefits of
such insurance shall, to the extent possible, extend to the Purchaser insofar as
it may be or may be alleged to be responsible for such director.
8. Covenants of the Company. The Company agrees that, while any
Shares or Note issued hereunder remain outstanding in the name of the Purchaser,
it will do the following:
8.1 The Company will not incur any debt from a financial
institution which is senior to the investment represented by the Shares, or the
Note, if issued ("Senior Debt"), which, together with the Senior Notes, exceeds
in the aggregate $5,000,000 without the written consent of Purchaser. In
addition, the Company will not incur any debt which is subordinated to the
Senior Debt, but which is senior to the investment represented by the Shares, or
the Note, if issued, without the written consent of Purchaser.
8.2 The Company will not sell, lease or convey all or
substantially all of its assets or shares of capital stock without the written
consent of Purchaser.
8.3 As soon as is practicable after the end of each month, but
in no event later than 45 days after month end, the Company will provide the
Purchasers with monthly financial results as currently prepared for internal use
by Company management and will provide to the Purchaser's nominee for director
all budgets prepared for and delivered to the Company's Board of Directors. In
connection with the delivery of such financials results and budgets, the
Purchasers acknowledge that such information is material non public information
of the Company and while in possession of such Information each Purchaser agrees
it will not engage in any transactions in violation of the federal securities
laws.
9. Due Diligence Expenses. The Company shall pay the Purchasers
a nonrefundable due diligence expense fee of $7,500.
10. Notices. Any notice or demand required or desired to be given
to or served upon the Company or Purchaser in connection herewith shall be in
writing and deemed to have been sufficiently given or served for all purposes
when delivered in person or when deposited in the United States mails, certified
or registered, postage prepaid, if to the Company, addressed or delivered as
follows:
If to the Company:
IntelliCorp, Inc.
1975 El Camino Real West
Mountain View, CA 94040-2216
Attention: President
-7-
<PAGE> 8
If to Purchaser: at the address set forth on Schedule 1.1
attached hereto, or, if any other address shall at any time be designated by the
Company or by Purchaser in writing in conformance with the provisions hereof, to
such other address.
11. Parties in Interest. All the terms and provisions of this
Purchase Agreement shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
12. Governing Law. This Purchase Agreement shall be construed in
accordance with and governed by the laws of the State of California.
13. Section and other Headings. Section and other headings herein are
for reference purposes only, and shall not be used in any way to govern, limit,
modify, construe or otherwise affect this Agreement.
14. Counterparts. This Purchase Agreement may be executed with
Purchasers in one or more counterparts, each of which shall be deemed an
original, but all of which together shall be deemed but one and the same
instrument.
15. Amendment. This Purchase Agreement may be amended by written
agreement of the Company and the holders of the 75% of the then outstanding
Shares with respect to the matters referred to herein. Any such amendment,
waiver or consent shall be binding upon the parties hereto.
-8-
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed and delivered on
the date first above written by the duly authorized representative of the
Company.
COMPANY: INTELLICORP, INC.
By: /s/ KENNETH H. HAAS
-------------------------------
Kenneth H. Haas
President
Address: 1975 El Camino Real West
Mountain View, CA 94040-2216
PURCHASER DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ ARTHUR W. BERRY
-------------------------------
Arthur W. Berry
Managing Director
Address: Mercantile Safe Deposit
& Trust Company
2 Hopkins Plaza
Baltimore, MD 21201
Attn: Isabelle Corbett
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLANS OF
ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ ARTHUR W. BERRY
-------------------------------
Arthur W. Berry
Managing Director
Address: State Street Bank & Trust Company
One Enterprise Drive
Solomon Ward Building, 4A
North Quincy, MA 02171
-9-
<PAGE> 10
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLANS OF ICI
AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ ARTHUR W. BERRY
-------------------------------
Arthur W. Berry
Managing Director
Address: State Street Bank & Trust Company
One Enterprise Drive
Solomon Ward Building, 4A
North Quincy, MA 02171
-10-
<PAGE> 11
EXHIBIT 1
CERTIFICATE OF DESIGNATION
-11-
<PAGE> 12
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES B PREFERRED STOCK
OF
INTELLICORP, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
INTELLICORP, INC., a corporation (the "Corporation") organized and
existing under the General Corporation Law of the State of Delaware (the
"DGCL"), in accordance with the provisions of Section 103 thereof, HEREBY
CERTIFIES:
That, pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Corporation, the Board of Directors,
on March 14, 1997, adopted the following resolution creating a series of 5,000
shares of Preferred Stock designated as Series B Preferred Stock.
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions
of its Certificate of Incorporation and Section 151 of the DGCL,
a series of Preferred Stick of the Corporation be and it hereby
is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as
follows:
1. Designation and Amount. The shares of such series shall be
designated as "Series B Preferred Stock, par value $.001 per share" (the
"Series B Preferred Stock"), and the number of shares constituting such series
shall be 5,000.
2. Dividend Rights.
2.1 Priority. Subject and junior to the rights of the
Series A Preferred Stock, the holders of the Series B Preferred Stock shall be
entitled to receive, in preference and priority to payment of any dividends on
any other outstanding shares of the Corporation, when and as declared by the
Board of Directors out of any funds legally available therefor, dividends on
each outstanding share of Series B Preferred Stock, payable quarterly on each
July 31, October 31, January 31 and April 30, beginning on July 31, 1997. Such
dividends on the Series B Preferred Stock shall be at a rate of 8% per annum
($80.00 per share annually, as pro rated for each dividend payment period,
including the Initial Dividend Payment period), unless a dividend is paid at a
higher rate (determined on an as-if-converted to Common Stock basis) on any
outstanding shares of the Corporation other than the Series A Preferred Stock,
in which event the dividends on the Series B Preferred Stock shall be paid at
such higher rate (determined on an as-if-converted to Common Stock basis). The
right to such dividends on the Series B Preferred Stock shall be cumulative.
Except for dividends paid on the Series A Preferred Stock, no dividends shall
be paid on any other
<PAGE> 13
outstanding shares of the Corporation while any dividend on shares of Series B
Preferred Stock are not paid for the current period and for any prior period,
and dividends shall begin to accrue and be cumulative on outstanding shares of
Series B Preferred Stock from the date of issuance of such shares. Accumulated
but unpaid dividends shall not bear interest. Dividends paid on shares of Series
B Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares of Series B Preferred Stock at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of Series B Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be no more than 30 days prior to the date fixed for the payment thereof.
Dividends, if paid, or if declared and set apart for payment, must be paid on,
or declared and set apart for payment on, all outstanding shares of Series B
Preferred Stock contemporaneously. Except for dividends paid on the Series A
Preferred Stock, no outstanding shares of the Corporation shall receive any
dividend at a rate which is greater than the rate at which dividends are paid
in respect of the Series B Preferred Stock (based on the number of shares of
Common Stock into which the Series B Preferred Stock is convertible on the
date of dividend). If any dividend is not paid on a dividend payment date, the
holders of the Series B Preferred Stock shall be entitled, at their election,
to have the dividend, when paid, paid in cash or in Common Stock of the
Corporation, valued at 90% of the lowest closing bid price of the Corporation's
Common Stock on the Nasdaq Stock Market for any 20 consecutive trading days
commencing on five trading days preceding the dividend payment date through the
date the dividend is paid, but in no event less than $0.775 bid price per share
of Common Stock, as equitably adjusted to reflect any stock splits, stock
dividends, stock combinations or the like.
2.2 Payment. Dividends shall be paid by forwarding a check, postage
prepaid, to the address of each holder (or, in the case of joint holders, to the
address of any such holder) of Series B Preferred Stock as shown on the books
of the Corporation, or to such other address as such holder specifies for such
purpose by written notice to the Corporation. The forwarding of such check
shall satisfy all obligations of the Corporation with respect to such
dividends, unless such check is not paid. For all dividend payments through
April 30, 1998, the Corporation, at its option, may elect to pay the dividends
in Common Stock of the Corporation, valued at 90% of the average closing bid
price of the Corporation's Common Stock on the Nasdaq Stock Market for the 20
trading days preceding the dividend payment date so long as such Common Stock
is, on the dividend payment date, registered with the United States Securities
and Exchange Commission (the "Commission") for resale by the holder. If the
Corporation elects to pay the first dividend payment in Common Stock, it shall
notify the holders of Series B Preferred Stock on or before July 31, 1997. If
such Common Stock is not registered with the Commission for resale on or before
July 31, 1997, the holders of Series B Preferred Stock shall be entitled to
elect to have such dividend paid in cash or in Common Stock of the
Corporation, valued as set forth in Paragraph 2.1 above.
3. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or not, the holders of Series B
Preferred Stock shall be entitled to receive, subject and junior to the rights
of the holders of the Series A Preferred Stock and before any amount shall be
paid to holders of Common Stock, an amount per share equal to $1,000.00 (as
adjusted for stock splits, combinations or similar events and
-2-
<PAGE> 14
hereafter referred to as "Original Issue Price") plus all accumulated and unpaid
dividends, if any (the "Liquidation Amount"). If, upon the occurrence of a
liquidation, dissolution or winding up, the assets and surplus funds distributed
among the holders of Series B Preferred Stock shall be insufficient to permit
the payment to such holders of the full preferential amount, then subject to any
prior payment to the holders of the Series A Preferred Stock, such assets and
surplus funds of the Corporation as are legally available for distribution shall
be distributed ratably among the holders of Series B Preferred Stock. If, upon
the occurrence of a liquidation, dissolution or winding up, after the payment
to the holders of Series B Preferred Stock of the preferential amount, assets or
surplus funds remain in the Corporation, the holders of Common Stock shall be
entitled to receive ratably all such remaining assets and surplus funds.
4. Redemption. At any time on 30 days written notice given after
April 30, 2000, at its option, the Corporation will have the right to redeem the
Series B Preferred Stock by paying in cash the Liquidation Amount. The Series B
Preferred Stock may also be redeemed under the circumstances described in
Section 6, "Change in Control" below.
5. Voting Rights. Except as specifically provided below, the Series
B Preferred Stock shall have no voting rights. If the Corporation does not
declare and pay eight quarterly dividend payments, then the holders of Series B
Preferred Stock shall have the right to vote with the holders of Common Stock as
one class on all matters submitted to the shareholders for a vote as follows:
(i) the holders of Series B Preferred Stock shall have one vote for each full
share of Common Stock into which their respective shares of Series B Preferred
Stock are convertible on the record date for the vote; and (ii) the holders of
Common Stock shall have one vote per share of Common Stock.
6. Change in Control. If, prior to conversion or redemption in
full of the Series B Preferred Stock, the Corporation shall consolidate with or
merge with another corporation or engage in a similar transaction and the
stockholders of this Corporation immediately prior to such merger or
consolidation own less than 50% of the outstanding securities of the surviving
corporation, or the Corporation shall sell all or substantially all or its
assets for a consideration (apart from the assumption of obligations) consisting
principally of securities or there occurs a purchase of 50% or more of the
Common Stock of the Corporation by a person or group of related persons pursuant
to a tender offer or otherwise (any such event, a "change in control"), the
holders of the Series B Preferred Stock will thereafter be entitled to receive,
upon the conversion thereof, the securities or property to which a holder of the
number of shares of Common Stock then issuable upon the conversion of such
Series B Preferred Stock would have been entitled upon such change in control,
and, the Corporation shall take such steps in connection with such change in
control, as may be necessary to assure that the Series B Preferred Stock (or new
preferred stock issued by the succeeding company with exactly the same terms as
the Series B Preferred Stock) shall remain in effect and that the provisions of
the Series B Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter issuable
upon the conversion of the Series B Preferred Stock. In addition, in the event
of a change in control, the Conversion Price (as defined in Section 7) shall
become the lower of the Conversion Price in effect immediately prior to such
change in control (as adjusted pursuant to the provisions of Section 7.3) or the
price per share paid in the transaction
-3-
<PAGE> 15
resulting in the change in control; provided, that if such change of control
would reduce the Conversion Price to the price per share paid in the change of
control, then the Corporation shall have the right on at least five days notice
prior to the change in control, during which time the Series B Preferred Stock
shall not be convertible, to redeem the Series B Preferred Stock by paying the
Liquidation Amount; provided, further, that if the price per share paid in the
change in control is equal to two times the then Conversion Price, the
Corporation shall have the right, on at least 30 days notice prior to the change
in control, during which period the Series B Preferred Stock shall remain
convertible, to redeem the Series B Preferred Stock by paying the Liquidation
Amount.
7. Conversion to Common Stock. The Series B Preferred Stock shall
be convertible into Common Stock of the Corporation as follows:
7.1 Right to Convert; Initial Conversion Price. Each holder
of the Series B Preferred Stock will have the right at its option, at any time
and from time to time, except as provided in Section 6 in connection with a
change in control which would reduce the Conversion Price to the price per share
paid in the change in control, prior to redemption in full of the Series B
Preferred Stock, to convert any or all of such Series B Preferred Stock
(including any accumulated and unpaid dividends, whether or not declared) into
fully-paid and non-assessable shares of the Corporation's Common Stock $.001 par
value per share, at the conversion price as hereafter provided.
7.2 Mechanics of Conversion.
7.2.1 To convert Series B Preferred Stock, in whole or
in part as provided herein at the holder's election, a holder of Series B
Preferred Stock shall give written notice to the Corporation (by means of first
class U.S. mail or by facsimile addressed to the attention of the President) of
his intention to convert, stating the number of shares of Series B Preferred
Stock and the amount of any accumulated and unpaid dividends that is to be
converted and the name and address of each person in whose name a share or
shares of Common Stock issuable upon such conversion is to be registered, such
conversion to be effective on receipt of the notice of conversion.
7.2.2 As promptly as practical after the giving of
notice to convert as herein provided, and the surrender of the certificates
representing the shares of Series B Preferred Stock converted, the Corporation
shall: (i) pay the holder (to the extent not converted as provided above) the
amount of accrued and unpaid dividends on Series B Preferred Stock to the date
on which such conversion is made, either in cash or by means of shares of Common
Stock as set forth above; and (ii) deliver or cause to be delivered at its
office or agency maintained for that purpose to or upon written order of the
holder of the Series B Preferred Stock certificates representing the number of
fully paid and nonassessable shares of Common Stock of the Corporation into
which the Series B Preferred Stock is converted and, in the event of partial
conversion, certificates representing the unconverted shares of Series B
Preferred Stock, dated as of the date the Series B Preferred Stock is converted
in part, and in all other respects identical to the Series B Preferred Stock
converted.
-4-
<PAGE> 16
7.2.3 The total number of shares of Common Stock into which a
share of Series B Preferred Stock may be converted initially will be determined
by dividing the Original Issue Price of $1,000.00 by the conversion price. The
conversion price shall initially be $2.00 in lawful money of the United States
of America and shall be adjusted as provided in Paragraph 7.4 hereof, and as
provided below (hereinafter called the "Conversion Price"). In the case of
accumulated and unpaid dividends, the total number of shares of Common Stock
into which such accumulated and unpaid dividends may be converted shall be
determined by dividing the dollar amount of the accumulated and unpaid dividends
to be converted by the value of the Common Stock determined in accordance with
Paragraph 2.1 above, with, for this purpose, the date of conversion being the
"date the dividend is paid" referred to in the final sentence of Paragraph 2.1.
7.3 Reserved Shares.
7.3.1 The Corporation covenants and agrees that it has
reserved and shall at all times reserve and keep available out of its authorized
but unissued Common Stock, solely for the purpose of issuing such shares upon
the conversion of the Series B Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all Series B Preferred Stock
outstanding. The Corporation covenants and agrees that the shares of its Common
Stock delivered: (i) upon conversion of the Series B Preferred Stock; (ii) in
payment of dividends; and (iii) on conversion of any accumulated and unpaid
dividends shall, at the time of delivery of the certificates for such shares of
Common Stock, be validly issued and outstanding and fully paid and nonassessable
shares of Common Stock. The Corporation further covenants and agrees that it
will pay when due and payable any and all Federal and state original issue taxes
which may be payable in respect of the issue of the Series B Preferred Stock or
any shares of Common Stock upon the conversion of Series B Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the transfer and delivery of Series B
Preferred Stock, all such tax being payable by the holder of such Series B
Preferred Stock at the time of surrender.
7.3.2 Each person in whose name any certificate for shares of
Common Stock is issuable upon the conversion of Series B Preferred Stock or any
accumulated and unpaid dividends shall for all purposes be deemed to have become
the holder of record of the Common Stock represented thereby on the date upon
which notice of conversion was given in accordance with Paragraph 7.2,
notwithstanding that the date of such notice is a date upon which the stock
transfer books of the Corporation are then closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the holder of the Series B Preferred Stock.
7.4 Adjustments to Conversion Price.
7.4.1 In case the Corporation shall, at any time or from time
to time after the date of issuance of the Series B Preferred Stock, issue any
additional shares of Common Stock (or any security convertible into shares of
Common Stock or any rights or options to purchase shares of Common Stock) for a
consideration per share less than the Conversion Price in effect immediately
prior to the issuance of such additional shares or
-5-
<PAGE> 17
without consideration, then, and thereafter successively upon each such
issuance, the Conversion Price in effect immediately prior to the issuance of
such additional shares shall forthwith be reduced to a price determined by
dividing:
(a) An amount equal to the sum of: (i) the number of
shares of Common Stock outstanding immediately prior to such issuance multiplied
by the then existing Conversion Price; plus (ii) the consideration, if any,
received by the Corporation upon such issuance, by
(b) The total number of shares of Common Stock
outstanding immediately after the issuance of such additional shares.
7.4.2 The Corporation shall not be required to make any
adjustment of the Conversion Price in accordance with Section 7.4.1 if the
amount of such adjustment shall be less than $.01, but in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment of the Conversion Price which, together with all adjustments thereof
so carried forward, shall amount to not less than $.01.
7.4.3 For the purpose of adjustments under Section 7.4.1, the
following provisions shall also be applicable:
(a) In the case of the issuance of additional shares
of Common Stock for cash, the consideration received by the Corporation therefor
shall be deemed to be the cash proceeds received for such shares without
deducting any commissions or other expenses paid or incurred by the Corporation
for any underwriting of, or otherwise in connection with, the issuance of such
shares.
(b) In case of the issuance (otherwise than upon
conversion of Series B Preferred Stock) of additional shares of Common Stock for
a consideration other than cash or a consideration a part of which shall be
other than cash, the amount of the consideration shall be determined in good
faith by the Board of Directors of the Corporation.
(c) In the case of the issuance by the Corporation
after the date of issuance of the Series B Preferred Stock, of any security that
is convertible into shares of Common Stock or any rights or options to purchase
shares of Common Stock: (i) the Corporation shall be deemed to have issued the
maximum number of shares of Common Stock deliverable upon the exercise of such
rights or options or upon conversion of such securities; and (ii) the
consideration therefor shall be deemed to be the sum of (x) the consideration
received by the Corporation for such convertible securities or for such other
rights or options as the case may be, without deducting therefrom any expenses
or commissions incurred or paid by the Corporation for any underwriting or
issuance of such convertible security or right or option, plus (y) the
consideration or adjustment payment to be received by the Corporation in
connection with such conversion, plus (z) the minimum price at which shares of
Common Stock are to be delivered upon the exercise of such rights or options,
or, if no minimum price is specified and such shares are to be delivered at the
option price related to the market value of the subject shares, an option price
bearing the
-6-
<PAGE> 18
same relation to the market value of the subject shares at the time such rights
or options were granted; provided, that as to such options such further
adjustment as shall be necessary on the basis of the actual option price at the
time of exercise shall be made at such time if the actual option price is less
than the aforesaid assumed option price.
(d) For the purpose hereof, any additional shares of
Common Stock issued as a stock dividend shall be deemed to have been issued for
no consideration.
(e) The number of shares of Common Stock at any time
outstanding shall include: (i) all outstanding common stock of the Corporation;
and (ii) the aggregate number of shares deliverable in respect of the
convertible securities, rights and options referred to in this Section 7.4;
provided, that to the extent that any such options, warrants or conversion
privileges are not exercised, such shares shall be deemed to be outstanding only
until the expiration dates of the rights, options or conversion privilege or the
prior cancellation thereof. Notwithstanding the foregoing, there shall not be
taken into account, for the purpose of any computation made pursuant to Section
7.4, whether for the determination of the number of shares of Common Stock
issued or outstanding on or prior to any date, or otherwise: (i) any options,
warrants or rights to purchase shares of Common Stock of the Corporation in
existence on the date of issuance of the Series B Preferred Stock; (ii) options
to purchase up to 750,000 shares of Common Stock if the exercise price thereof
is at least $1.00 per share; (iii) any options granted to directors of the
Corporation pursuant to the automatic grants of the Nonemployee Director Plan,
as currently in effect, where the exercise price has been discounted to reflect
forgiven director fees; or (iv) any shares of Common Stock issued upon the
exercise of any such options, warrants or conversion rights.
7.4.4 If at any time or from time to time the Corporation
shall by subdivision, consolidation or reclassification of shares, or otherwise,
change as a whole, the outstanding shares of Common Stock into a different
number or class of shares, the shares issuable: (i) upon conversion of the
Series B Preferred Stock; (ii) in payment of dividends; and (iii) on conversion
of any accumulated and unpaid dividends, and the Conversion Price per share,
shall be proportionately and correspondingly adjusted.
7.4.5 In case the Corporation shall declare a dividend upon
the Common Stock payable otherwise than out of earnings or earned surplus and
otherwise than in Common Stock, the Conversion Price in effect immediately prior
to the declaration of such dividend shall be reduced by an amount equal, in the
case of a dividend in cash, to the amount thereof payable per share of the
Common Stock, or in the case of any other dividend, to the fair value thereof
per share of the Common Stock as determined, in good faith, by the Board of
Directors of the Corporation. For the purposes of the foregoing, a dividend
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as determined in good faith by the
Board of Directors of the Corporation. Such reductions shall take effect as of
the date as of which the holders of Common Stock of record are entitled to such
dividend.
-7-
<PAGE> 19
7.4.6 Irrespective of any adjustments or changes in the
Conversion Price or the number of shares of Common Stock actually issuable: (i)
on conversion of the Series B Preferred Stock; (ii) in payment of dividends; and
(iii) on conversion of any accumulated and unpaid dividends, the Series B
Preferred Stock shall continue to express the Conversion Price per share and the
number of shares issuable thereunder as expressed in Series B Preferred Stock
when initially issued.
7.4.7 The Corporation shall give notice to the holders of
Series B Preferred Stock of any change in the Conversion Price of the Series B
Preferred Stock and any change in the number of shares of Common Stock issuable
in payment of dividends and on conversion of any accumulated and unpaid
dividends, and the method of calculation thereof. The Corporation shall give the
holder of Series B Preferred Stock advance notice of any cash dividends, rights
offerings and other transactions directly for the benefit of holders of Common
Stock of the Corporation.
8. Exchange. The Series B Preferred Stock shall be exchangeable
into convertible subordinated notes of the Corporation due March 19, 2004 (the
"Notes") as follows:
8.1 Option to Exchange. The Series B Preferred Stock shall
be exchangeable, in whole but not in part, at the option of the Corporation, for
Notes at any time after the original issuance of the shares of Series B
Preferred Stock. The Corporation will mail to each record holder of the Series B
Preferred Stock written notice of its intent to exchange the Series B Preferred
Stock for the Notes no less than 30 nor more than 60 days prior to the date of
the exchange (the "Exchange Date"). The notice shall specify the effective date
of the exchange, the manner for surrender of the Series B Preferred Stock, and
that dividends shall cease to accrue on the Exchange Date.
8.2 Effect on Preferred Stock. If the Corporation has
caused the Series B Preferred Stock to be exchanged for Notes and has complied
with the other provisions of this Section 8, then notwithstanding that any
certificates for shares of Series B Preferred Stock have not been surrendered
for exchange, on the Exchange Date dividends shall cease to accrue on the Series
B Preferred Stock and at the close of business on the Exchange Date the holders
of the Series B Preferred Stock shall cease to be stockholders with respect to
the Series B Preferred Stock and shall have no interest in other claims against
the Corporation by virtue thereof and shall have no voting or other rights with
respect to the Series B Preferred Stock, except the right to receive the Notes
issuable upon such exchange and the right to accumulated and unpaid dividends,
without interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares evidenced thereby shall no
longer be deemed outstanding for any purpose.
8.3 Conversion Prior to Exchange. Notwithstanding the
foregoing, if notice has been given pursuant to this Section 8, and any holder
of shares of Series B Preferred Stock shall, prior to the close of business on
the Exchange Date, give written notice to the Corporation pursuant to Section 7
of the conversion of any or all of the shares held by the holder (accompanied by
a certificate or certificates for such shares, duly endorsed or assigned to the
Corporation), then the exchange shall not become effective as to
-8-
<PAGE> 20
the shares to be converted and the conversion shall become effective as provided
in Section 7.
8.4 Delivery. The Notes will be delivered to the persons
entitled thereto upon surrender to the Corporation of the certificates for
shares of Series B Preferred Stock being exchanged therefor.
IN WITNESS WHEREOF, IntelliCorp, Inc. has caused this
Certificate to be signed by Kenneth H. Haas, its President, on this 18th day of
March, 1997.
INTELLICORP, INC.
/s/ KENNETH H. HAAS
-------------------
Kenneth H. Haas
President
-9-
<PAGE> 1
EXHIBIT 11.1
INTELLICORP, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(In thousands, except --------- ---------
per share amounts) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary and Fully Diluted:
Total weighted average common
shares outstanding 12,809 12,213 12,546 12,178
========= ======== ======== ========
Loss per share:
Net loss $ (383) $ (1,385) $ (2,032) $ (2,578)
Preferred stock dividend
requirement (59) -- (148) --
--------- -------- -------- --------
Net loss available to
common stockholders $ (442) $ (1,385) $ (2,180) $ (2,578)
========= ======== ======== ========
Net loss per share $ (0.03) $ (0.11) $ (0.17) $ (0.21)
========= ======== ======== ========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 6,542
<SECURITIES> 0
<RECEIVABLES> 3,279
<ALLOWANCES> 329
<INVENTORY> 0
<CURRENT-ASSETS> 10,003
<PP&E> 364
<DEPRECIATION> 7,935
<TOTAL-ASSETS> 10,813
<CURRENT-LIABILITIES> 3,521
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 5,679
<TOTAL-LIABILITY-AND-EQUITY> 10,813
<SALES> 4,301
<TOTAL-REVENUES> 8,650
<CGS> 844
<TOTAL-COSTS> 10,550
<OTHER-EXPENSES> 35
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> (1,935)
<INCOME-TAX> 97
<INCOME-CONTINUING> (2,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,032)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
