<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1996
REGISTRATION NO. 333-143
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INFORMIX CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3011736
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
4100 BOHANNON DRIVE, MENLO PARK, CALIFORNIA 94025
(415) 926-6300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
DAVID H. STANLEY
VICE PRESIDENT, LEGAL AND CORPORATE SERVICES, GENERAL COUNSEL AND SECRETARY
INFORMIX CORPORATION
4100 BOHANNON DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 926-6300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
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<S> <C>
Douglas H. Collom Kenneth L. Guernsey
Martin W. Korman Isobel A. Jones
Michael G. Taylor Karyn R. Smith
Roger E. George Cooley Godward Castro Huddleson &
Wilson Sonsini Goodrich & Rosati Tatum
Professional Corporation One Maritime Plaza, 20th Floor
650 Page Mill Road San Francisco, CA 94111
Palo Alto, California 94304 (415) 693-2000
(415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON CONSUMMATION OF THE MERGER DESCRIBED HEREIN.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMIX CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
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<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
(Information about the Transaction)
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page; Cross-Reference Sheet; Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary; Risk Factors; Selected Historical and Selected
Pro Forma Financial Data; Comparative Per Share Data;
Approval of the Merger and Related Transactions;
Informix; Illustra; Financial Statements
4. Terms of the Transaction.......................... Summary; Approval of the Merger and Related
Transactions; Comparison of Capital Stock
5. Pro Forma Financial Information................... Selected Historical and Unaudited Pro Forma Financial
Data
6. Material Contacts with the Company Being
Acquired......................................... Approval of the Merger and Related Transactions
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... *
8. Interests of Named Experts and Counsel............ Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
(Information about the Registrant)
10. Information with Respect to S-3 Registrants....... *
11. Incorporation of Certain Information by
Reference........................................ *
12. Information with Respect to S-2 or S-3
Registrants...................................... *
13. Incorporation of Certain Information by
Reference........................................ *
14. Information with Respect to Registrants Other Than
S-2 or S-3 Registrants........................... Summary; Risk Factors; Approval of the Merger and
Related Transactions; Informix; Financial Statements
(Information about the Company being Acquired)
15. Information with Respect to S-3 Companies......... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
16. Information with Respect to S-2 or S-3
Companies........................................ *
<C> <S> <C>
17. Information with Respect to Companies other than
S-2 or S-3 Companies............................. Summary; Risk Factors; Approval of the Merger and
Related Transactions; Illustra; Financial Statements
(Voting and Management Information)
18. Information if Proxies, Consents or Authorizations
Are to be Solicited.............................. Summary; Introduction; Illustra Meeting; Approval of the
Merger and Related Transactions; Informix; Illustra
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited or in an Exchange
Offer............................................ *
</TABLE>
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*Not Applicable.
<PAGE>
[LOGO]
ILLUSTRA
February 8, 1996
Dear Stockholder:
A Special Meeting of Stockholders of Illustra Information Technologies, Inc.
("Illustra") will be held on Friday, February 16, 1996 at 9:00 a.m., local time,
at Illustra's offices located at 1111 Broadway, Suite 2000, Oakland, California.
At this Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Reorganization, dated as of
December 20, 1995 (the "Merger Agreement"), among Illustra, Informix Corporation
("Informix") and its wholly-owned subsidiary, Informix Delaware, Inc. ("Merger
Sub"), providing for the merger of Illustra with Merger Sub (the "Merger"), as
described in the Notice of Special Meeting of Stockholders mailed to the
stockholders of Illustra on January 27, 1996 and the accompanying
Prospectus/Proxy Statement.
As a result of the Merger, all outstanding shares of Illustra Common Stock
and Illustra Preferred Stock will be converted into shares of Informix Common
Stock and all outstanding options and warrants to acquire Illustra Common Stock
or Illustra Preferred Stock will become options and warrants to acquire Informix
Common Stock. The number of shares of Informix Common Stock to be issued in the
Merger in exchange for the outstanding shares of Illustra Common Stock and
Preferred Stock will depend upon the capitalization of Illustra at the time of
the Merger and will not exceed 15,000,000 shares. Upon completion of the Merger,
Illustra will be a wholly-owned subsidiary of Informix.
Illustra's Board of Directors has unanimously approved the Merger Agreement
and the transactions contemplated thereby and has determined that the Merger is
fair and in the best interests of Illustra and its stockholders. After careful
consideration, the Board of Directors unanimously recommends a vote in favor of
approval and adoption of the Merger Agreement. If the Merger is approved and
consummated, you will receive detailed information on how to transmit your
Illustra share certificates to obtain your shares of Informix Common Stock
representing the Merger consideration. Please read the Prospectus/Proxy
Statement prior to voting.
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY CARD AND RETURN IT IN THE ENCLOSED PREPAID ENVELOPE. You
may revoke your proxy at any time before it has been voted, and if you attend
the meeting you may vote in person even if you have previously returned your
proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ Richard H. Williams
Richard H. Williams
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
[LOGO]
PROSPECTUS/PROXY STATEMENT
15,000,000 SHARES
INFORMIX COMMON STOCK
This Prospectus/Proxy Statement constitutes the Prospectus of Informix
Corporation, a Delaware corporation ("Informix"), with respect to up to
15,000,000 shares of its Common Stock, $.01 par value ("Informix Common Stock"),
to be issued in connection with the proposed merger (the "Merger") of Informix
Delaware, Inc., a Delaware corporation and a wholly-owned subsidiary of Informix
("Merger Sub"), with and into Illustra Information Technologies, Inc., a
Delaware corporation ("Illustra"), pursuant to the terms set forth in the
Agreement and Plan of Reorganization, dated as of December 20, 1995 (the "Merger
Agreement"), among Informix, Merger Sub and Illustra. The Common Stock of
Illustra is herein referred to as "Illustra Common Stock," and the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock of Illustra are collectively herein referred to as "Illustra
Preferred Stock." As a result of the Merger, all outstanding shares of Illustra
Common Stock and Illustra Preferred Stock (collectively, "Illustra Capital
Stock") will be converted into a number of shares of Informix Common Stock, all
outstanding options or warrants to acquire shares of Illustra Common Stock will
become options or warrants to acquire a number of shares of Informix Common
Stock, and all outstanding warrants to acquire shares of Illustra Preferred
Stock will become warrants to acquire a number of shares of Informix Common
Stock. The number of shares of Informix Common Stock to be issued for each share
of Illustra Common Stock exchanged in the Merger will depend upon the
capitalization of Illustra at the Effective Time (defined herein). Assuming all
shares of Illustra Preferred Stock are converted into shares of Illustra Common
Stock prior to the Effective Time, and further assuming that the capitalization
of Illustra at the Effective Time is in all respects identical to the
capitalization of Illustra at January 2, 1996 (although there can be no
assurance as to the foregoing), each share of Illustra Common Stock exchanged in
the Merger will be converted into the right to receive approximately 0.77184 of
a share of Informix Common Stock. See "Approval of the Merger and Related
Transactions -- Manner and Basis of Converting Shares." In connection with the
Merger, 10% of the shares of Informix Common Stock otherwise issuable to holders
of Illustra Capital Stock by virtue of the Merger (the "Escrow Shares") will be
placed into escrow and held as security for losses incurred by Informix in the
event of certain breaches by Illustra of the covenants, representations or
warranties contained in the Merger Agreement. See "Approval of the Merger and
Related Transactions -- Escrow Fund." Holders of Illustra Capital Stock who do
not vote in favor of the Merger may, under certain circumstances and by
following prescribed statutory procedures, receive cash for their shares. See
"Approval of the Merger and Related Transactions -- Appraisal Rights and
Dissenters' Rights."
This Prospectus/Proxy Statement also constitutes the Proxy Statement of
Illustra with respect to the Special Meeting of Stockholders of Illustra
scheduled to be held on February 16, 1996 (the "Illustra Meeting").
This Prospectus/Proxy Statement and the accompanying form of proxy are first
being mailed to the stockholders of Illustra on or about February 8, 1996.
SEE "RISK FACTORS" AT PAGE 14 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY ILLUSTRA STOCKHOLDERS IN EVALUATING THE PROPOSAL TO BE VOTED ON AT
THE ILLUSTRA MEETING AND THE ACQUISITION OF THE SECURITIES OFFERED HEREBY.
NEITHER THIS TRANSACTION NOR THE SECURITIES OF INFORMIX OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
<PAGE>
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS FEBRUARY 7, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
SUMMARY.................................................................................................... 2
The Companies............................................................................................ 2
Special Meeting of Stockholders of Illustra.............................................................. 2
The Merger............................................................................................... 2
Selected Historical and Selected Pro Forma Combined Financial Data....................................... 10
Comparative Per Share Data............................................................................... 12
RISK FACTORS............................................................................................... 14
INTRODUCTION............................................................................................... 19
ILLUSTRA MEETING........................................................................................... 19
Date, Time and Place of Illustra Meeting................................................................. 19
Purpose.................................................................................................. 19
Record Date and Outstanding Shares....................................................................... 19
Vote Required; Quorum.................................................................................... 19
Voting of Proxies........................................................................................ 20
Solicitation of Proxies; Expenses........................................................................ 20
Appraisal and Dissenters' Rights......................................................................... 20
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............................................................ 21
Informix's Reasons For the Merger........................................................................ 21
Illustra's Reasons For the Merger........................................................................ 21
Material Contacts........................................................................................ 22
Recommendation of Illustra Board......................................................................... 23
Effective Time........................................................................................... 23
Manner and Basis of Converting Shares.................................................................... 23
Stock Ownership Following the Merger..................................................................... 26
Escrow Fund.............................................................................................. 26
Legal Structure of the Merger............................................................................ 27
Conduct of Illustra's Business Prior to the Merger....................................................... 27
No Solicitation.......................................................................................... 28
Expenses; Fees........................................................................................... 29
Conditions to the Merger................................................................................. 29
Termination of Merger Agreement.......................................................................... 30
Voting Agreements........................................................................................ 31
Certain Benefits to Illustra Management and Employees.................................................... 31
Non-Competition Agreements............................................................................... 31
Affiliate Agreements..................................................................................... 32
Certain Federal Income Tax Considerations................................................................ 32
Governmental and Regulatory Approvals.................................................................... 34
Accounting Treatment..................................................................................... 34
Appraisal and Dissenters' Rights......................................................................... 34
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.......................................................... 38
INFORMIX BUSINESS.......................................................................................... 46
INFORMIX MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 53
INFORMIX MANAGEMENT AND EXECUTIVE COMPENSATION............................................................. 66
INFORMIX STOCK INFORMATION................................................................................. 73
</TABLE>
i
<PAGE>
<TABLE>
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PAGE
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ILLUSTRA BUSINESS.......................................................................................... 75
<S> <C>
ILLUSTRA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 80
ILLUSTRA MANAGEMENT AND EXECUTIVE COMPENSATION............................................................. 83
ILLUSTRA STOCKHOLDERS...................................................................................... 86
APPLICABILITY OF CALIFORNIA LAW TO ILLUSTRA................................................................ 89
COMPARISON OF CAPITAL STOCK................................................................................ 89
Description of Informix Capital Stock.................................................................... 89
Description of Illustra Capital Stock.................................................................... 90
COMPARISON OF RIGHTS OF HOLDERS OF INFORMIX COMMON STOCK AND
HOLDERS OF ILLUSTRA CAPITAL STOCK........................................................................ 92
EXPERTS.................................................................................................... 92
LEGAL MATTERS.............................................................................................. 92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF INFORMIX AND ILLUSTRA........................................ F-1
ANNEX A -- Agreement and Plan of Reorganization, dated as of December 20, 1995, among Informix Corporation,
Informix Delaware, Inc. and Illustra Information Technologies, Inc.............................. A-1
ANNEX B -- Section 262 of the Delaware General Corporation Law............................................. B-1
ANNEX C -- Chapter 13 of the California General Corporation Law............................................ C-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Informix is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Seven World Trade Center, New York, New York 10048, and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of such
material may be obtained by mail from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Informix Common Stock is quoted on the Nasdaq National Market ("Nasdaq"),
and such reports, proxy statements and other information can also be inspected
at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006.
Informix has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus/Proxy Statement does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information, reference is hereby made to the Registration Statement. Copies of
the Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the offices of the SEC, or obtained at prescribed
rates from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE MATTERS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY INFORMIX OR ILLUSTRA. NEITHER THE DELIVERY
HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS/PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
OFFERED BY THIS PROSPECTUS/PROXY STATEMENT WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
------------------------
TRADEMARKS
This Prospectus/Proxy Statement contains trademarks of Informix and Illustra
and may contain certain other trademarks.
------------------------
FORWARD-LOOKING STATEMENTS
This Prospectus/Proxy Statement contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below.
Reference is made to the particular discussions set forth under "Informix
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Illustra Management's Discussion and Analysis of Financial
Condition and Results of Operations." In connection with forward-looking
statements which appear in these disclosures, stockholders of Illustra should
carefully review the factors set forth in this Prospectus/Proxy Statement under
"Risk Factors -- Uncertainties Relating to Integration of Operations," "--
Potential Dilutive Effect to Stockholders," "-- Dependence on Acceptance of
Object-Relational Technology," "-- Fluctuations in Quarterly Results," "--
Volatility of Informix Stock Prices," "-- Competition," "-- International
Operations," and "-- Management of Growth."
1
<PAGE>
SUMMARY
THE FOLLOWING CONTAINS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS/ PROXY STATEMENT. THIS SUMMARY DOES NOT CONTAIN A COMPLETE
STATEMENT OF ALL MATERIAL ELEMENTS OF THE PROPOSALS TO BE VOTED ON AND IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS/PROXY STATEMENT AND IN THE INFORMATION AND DOCUMENTS ANNEXED
HERETO.
THE COMPANIES
INFORMIX CORPORATION. Informix designs, develops, manufactures, markets and
supports distributed relational database management systems, object-oriented,
graphical- and character-based application development tools and graphical
data-access tools for delivering information to most significant desktop
platforms. In addition to software products, Informix offers training,
consulting and maintenance to its customers. Unless the context requires
otherwise, the term "Informix" refers to Informix Corporation and its
subsidiaries.
Informix was initially incorporated in California in 1980 and was
reincorporated in Delaware in 1986. Informix maintains its executive offices at
4100 Bohannon Drive, Menlo Park, California 94025, and its telephone number is
(415) 926-6300.
INFORMIX DELAWARE, INC. Merger Sub is a corporation recently organized by
Informix for the purpose of effecting the Merger. It has no material assets and
has not engaged in any activities except in connection with the Merger. Merger
Sub's executive offices are located at 4100 Bohannon Drive, Menlo Park,
California 94025, and its telephone number is (415) 926-6300.
ILLUSTRA INFORMATION TECHNOLOGIES, INC. Illustra develops, produces,
markets and supports object-relational database systems and software tools. It
also provides consulting, training and maintenance services. Illustra develops
its systems software and tools at its development center in Oakland, California.
Its products are sold through multiple channels of distribution.
Illustra was incorporated in Delaware in 1992. Illustra's principal
executive offices are located at 1111 Broadway, Suite 2000, Oakland, California
94607, and its telephone number is (510) 652-8000.
SPECIAL MEETING OF STOCKHOLDERS OF ILLUSTRA
TIME, DATE, PLACE AND PURPOSE. A Special Meeting of Stockholders of
Illustra will be held at Illustra's offices located at 1111 Broadway, Suite
2000, Oakland, California 94607 on Friday, February 16, 1996 at 9:00 a.m., local
time (the "Illustra Meeting"). The purpose of the Illustra Meeting is to approve
and adopt the Merger Agreement and approve the Merger.
RECORD DATE AND VOTE REQUIRED. Only Illustra stockholders of record at the
close of business on January 2, 1996 (the "Illustra Record Date") are entitled
to notice of and to vote at the Illustra Meeting. Under Delaware law and the
charter documents of Illustra, approval and adoption of the Merger Agreement and
approval of the Merger requires the affirmative vote of (i) holders of a
majority of the outstanding shares of Illustra Common Stock and Illustra
Preferred Stock, voting together as a single class, and (ii) holders of a
majority of the outstanding shares of Illustra Preferred Stock, voting
separately as a single class.
As of the Illustra Record Date, there were 85 stockholders of record of
Illustra Common Stock and 38 stockholders of record of Illustra Preferred Stock.
On January 27, 1996, a notice meeting the requirements of Delaware law was
mailed to all Illustra stockholders of record as of the Illustra Record Date.
THE MERGER
TERMS OF THE MERGER. At the Effective Time (as defined below), Illustra
will become a wholly-owned subsidiary of Informix. Informix intends to combine
the operations of the two corporations as soon as practicable following the
closing of the Merger. As a result of the Merger, the maximum number of shares
of Informix Common Stock to be issued (including Informix Common Stock to be
2
<PAGE>
reserved for issuance upon exercise of any of Illustra's options and warrants to
be assumed by Informix) in exchange for the acquisition by Informix of all
outstanding Illustra Capital Stock and all unexpired and unexercised options and
warrants to acquire Illustra Capital Stock will be 15,000,000. No adjustment
will be made in the number of shares of Informix Common Stock issued in the
Merger as a result of any cash proceeds received by Illustra from the date of
execution of the Merger Agreement to the Effective Time pursuant to the exercise
of options or warrants to acquire Illustra Capital Stock.
Subject to the terms and conditions of the Merger Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
Merger Sub, Illustra or the holder of any shares of Illustra Capital Stock, the
following will occur:
CONVERSION OF ILLUSTRA COMMON STOCK. Each share of Illustra Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
shares held by a holder who has exercised and perfected appraisal or dissenters'
rights for such shares, as the case may be, in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL") or the
California General Corporation Law (the "CGCL") and who has not withdrawn or
lost such rights ("Dissenting Shares")) will be canceled and extinguished and be
converted automatically into the right to receive that number of shares of
Informix Common Stock equal to the Common Exchange Ratio (as defined below),
upon surrender of the certificate representing such share of Illustra Common
Stock in the manner provided in a letter of transmittal to be sent to each
record holder of Illustra Capital Stock promptly following the Effective Time (a
"Letter of Transmittal"), including, with respect to each whole share of
Informix Common Stock to be received, the right to receive one preferred share
purchase right (a "Right") under Informix's Amended and Restated Preferred
Shares Rights Agreement dated as of September 12, 1991 and amended and restated
as of May 15, 1992 and July 25, 1995, and in any case, subject to the escrow
provisions of the Merger Agreement described under the section entitled
"Approval of the Merger and Related Transactions -- Escrow Fund" below.
The "Common Exchange Ratio" will depend on the capitalization of Illustra at
the Effective Time. Assuming that all shares of Illustra Preferred Stock are
converted to shares of Illustra Common Stock prior to the Effective Time, and
further assuming that the capitalization of Illustra at the Effective Time is in
all other respects identical to the capitalization of Illustra at January 2,
1996 (although there can be no assurance as to the foregoing), the Common
Exchange Ratio will be 0.77184 of a share of Informix Common Stock for each
share of Illustra Common Stock. For a more detailed discussion of the
calculation of the Common Exchange Ratio, see "Approval of the Merger and
Related Transactions -- Manner and Basis of Converting Shares" below. The Common
Exchange Ratio and the exchange ratios relating to shares of Illustra Preferred
Stock will be adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Informix Common Stock or Illustra Capital Stock),
reorganization, recapitalization or other like change with respect to Informix
Common Stock or Illustra Capital Stock occurring after the date of execution of
the Merger Agreement and prior to the Effective Time.
CONVERSION OF ILLUSTRA PREFERRED STOCK. Each share of Series A Preferred
Stock of Illustra ("Series A Preferred"), Series B Preferred Stock of Illustra
("Series B Preferred"), Series C Preferred Stock of Illustra ("Series C
Preferred") and Series D Preferred Stock of Illustra ("Series D Preferred")
issued and outstanding immediately prior to the Effective Time (other than any
shares of Illustra Preferred Stock that are converted into shares of Illustra
Common Stock immediately prior to the Effective Time and any Dissenting Shares)
will be canceled and extinguished and be converted automatically into the right
to receive 0.03728, 0.05825, 0.08738 and 0.11650 of a share of Informix Common
Stock, respectively, upon surrender of the certificate representing such share
of Illustra Preferred Stock in the manner provided in the Letter of Transmittal,
including, with respect to each whole share of Informix Common Stock to be
received, one Right, and in any case, subject to the escrow provisions of the
Merger Agreement described under the section entitled "Approval of the Merger
and Related Transactions -- Escrow Fund" below.
3
<PAGE>
Holders of Illustra Preferred Stock should note that the number of shares of
Informix Common Stock which they will be entitled to receive in respect of each
share of Illustra Preferred Stock held by them by virtue of the Merger will be
significantly greater if such shares of Illustra Preferred Stock are converted
into shares of Illustra Common Stock prior to the Effective Time. The holder of
all of Illustra's Series C Preferred Stock has already executed and delivered to
Illustra a notice indicating its irrevocable election to convert its shares of
Series C Preferred Stock into Illustra Common Stock immediately prior to the
Effective Time. Holders of a sufficient number of shares of Illustra Preferred
Stock to cause the automatic conversion of all other shares of Illustra
Preferred Stock into shares of Illustra Common Stock have entered into Voting
Agreements (collectively, the "Voting Agreements") with Informix, which provide
for their irrevocable election to vote in favor of such conversion immediately
prior to the Effective Time. See "Approval of the Merger and Related
Transactions -- Voting Agreements."
STOCK OPTIONS. At the Effective Time, each outstanding option to purchase
shares of Illustra Common Stock (each an "Illustra Option") under Illustra's
1992 Equity Incentive Plan (the "Option Plan"), or otherwise, whether vested or
unvested, will be, in connection with the Merger, assumed by Informix. Each
Illustra Option so assumed by Informix under the Merger Agreement will continue
to have, and be subject to, the same terms and conditions set forth in the
Option Plan and/or as provided in the respective option agreements governing
such Illustra Option immediately prior to the Effective Time, except that (i)
such Illustra Option will be exercisable for that number of whole shares of
Informix Common Stock equal to the product of the number of shares of Illustra
Common Stock that were issuable upon exercise of such Illustra Option
immediately prior to the Effective Time multiplied by the Common Exchange Ratio,
rounded down (in the case of Illustra Options granted under the Option Plan) to
the nearest whole number of shares of Informix Common Stock and (ii) the per
share exercise price for the shares of Informix Common Stock issuable upon
exercise of such assumed Illustra Option will be equal to the quotient
determined by dividing the exercise price per share of Illustra Common Stock at
which such Illustra Option was exercisable immediately prior to the Effective
Time by the Common Exchange Ratio, rounded up to the nearest whole cent. It is
the intention of Informix and Illustra that the Illustra Options assumed by
Informix qualify following the Effective Time as incentive stock options under
the Internal Revenue Code of 1986, as amended (the "Code"), to the extent the
Illustra Options qualified as incentive stock options immediately prior to the
Effective Time.
In connection with the Merger, the Illustra Common Stock subject to an early
exercise stock purchase agreement under the Option Plan will be exchanged for
Informix Common Stock at the Common Exchange Ratio, and the shares of Informix
Common Stock so received shall continue to be subject to the same repurchase
right in favor of the surviving corporation, which the surviving corporation may
assign to Informix. The number of shares of Informix Common Stock subject to
repurchase from time to time after the Merger and the repurchase price per share
shall be appropriately adjusted to reflect the exchange of Illustra Common Stock
for Informix Common Stock.
WARRANTS. Each warrant to purchase shares of Illustra Preferred Stock
outstanding at the Effective Time will be, in connection with the Merger,
assumed by Informix. Each warrant so assumed by Informix under the Merger
Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the warrant agreement governing such warrant immediately
prior to the Effective Time, except that each such warrant will, following the
Effective Time, be exercisable only for shares of Informix Common Stock, in such
number, and at such exercise price as is determined by applying the appropriate
exchange ratio in accordance with the terms of the applicable warrant agreement.
No fractional shares will be issued by Informix in the Merger. Each
stockholder of Illustra otherwise entitled to a fractional share (after
aggregating all fractional shares of such stockholder) will receive an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
4
<PAGE>
fraction multiplied by (ii) the average closing price of a share of Informix
Common Stock for the five most recent days that Informix Common Stock has traded
ending on the trading day immediately prior to the Effective Time, as reported
on the Nasdaq National Market ("Nasdaq").
EFFECTIVE TIME OF THE MERGER. The Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of State of Delaware (the
"Effective Time"). Assuming all conditions to the Merger are met or waived prior
thereto, it is anticipated that the Effective Time will be on or about February
16, 1996.
FORM S-8 REGISTRATION STATEMENT. No later than ten business days after the
Effective Time, Informix will file a registration statement on Form S-8 under
the Securities Act covering the shares of Informix Common Stock issuable upon
exercise of certain Illustra Options to be assumed by Informix at the Effective
Time. See "Approval of the Merger and Related Transactions -- Manner and Basis
of Converting Shares -- Stock Options."
STOCK OWNERSHIP FOLLOWING THE MERGER. Based upon the capitalization of
Illustra as of the close of business on January 2, 1996, and assuming that (i)
all shares of Illustra Preferred Stock are converted into Illustra Common Stock
prior to the Effective Time, (ii) all warrants to acquire Illustra Preferred
Stock are exercised prior to the Effective Time, and (iii) no holder of Illustra
Capital Stock exercises appraisal or dissenters' rights (the "Exchange Ratio
Assumptions"), an aggregate of approximately 12,315,000 shares of Informix
Common Stock will be issued to Illustra stockholders in the Merger and Informix
will assume options exercisable for up to an additional approximately 2,685,000
shares of Informix Common Stock. Based upon the number of shares of Informix
Common Stock issued and outstanding as of December 31, 1995, and after giving
effect to the issuance of Informix Common Stock as described in the previous
sentence, the former holders of Illustra Capital Stock would hold, and have
voting power with respect to, approximately 8.3% of Informix's total issued and
outstanding shares, and holders of former Illustra Options would hold options
exercisable for approximately 1.8% of Informix's total issued and outstanding
shares (assuming the exercise of only such options). The foregoing numbers of
shares and percentages are subject to change in the event that the
capitalization of Illustra changes subsequent to January 2, 1996 and prior to
the Effective Time, and there can be no assurance as to the actual
capitalization of Illustra at the Effective Time.
ESCROW FUND. In connection with the Merger, at the Effective Time, 10% of
the shares of Informix Common Stock issuable to holders of Illustra Capital
Stock by virtue of the Merger (the "Escrow Shares") will be registered in the
name of and deposited with First Trust of California, as escrow agent (the
"Escrow Agent"), such deposit to constitute the escrow fund (the "Escrow Fund").
The Escrow Shares shall be contributed to the Escrow Fund on behalf of each
holder of Illustra Capital Stock at the Effective Time in proportion to the
aggregate number of shares of Informix Common Stock such holder would otherwise
receive by virtue of the Merger (10% of the shares otherwise deliverable to each
holder of Illustra Capital Stock). No portion of the Escrow Fund will be
contributed in respect of any options or warrants to acquire shares of Illustra
Capital Stock. The Escrow Shares will be held in escrow as security for any
losses that Informix incurs or reasonably anticipates incurring by reason of
breaches by Illustra of covenants, representations or warranties contained in
the Merger Agreement. Illustra stockholders will have voting rights with respect
to the Escrow Shares while in escrow. Except in limited circumstances, Informix
may not receive any shares from the Escrow Fund unless and until losses in
excess of $500,000 have been suffered, in which case Informix may recover from
the Escrow Fund an amount of Escrow Shares with a value equal to the total of
its losses in excess of $500,000. For the purpose of compensating Informix for
its losses, the Escrow Shares shall be valued at the average of the closing
prices of Informix Common Stock for the five consecutive trading days ending two
days prior to the closing date of the Merger. Subject to resolution of
unsatisfied claims of Informix, the Escrow Fund shall terminate upon the earlier
of (i) twelve months following the closing date of the Merger and (ii) the
issuance of Informix's audited financial statements for the fiscal year ending
December 31, 1996.
5
<PAGE>
BY APPROVING THE MERGER AGREEMENT, ILLUSTRA STOCKHOLDERS WILL BE DEEMED TO
HAVE CONSENTED TO THE APPOINTMENT OF GARY J. MORGENTHALER, AN AFFILIATE OF
MORGENTHALER VENTURE PARTNERS III, WHICH IS A STOCKHOLDER OF ILLUSTRA, TO ACT AS
THE SECURITYHOLDER AGENT ON BEHALF OF ILLUSTRA'S STOCKHOLDERS TO DELIVER SHARES
HELD IN ESCROW TO INFORMIX IN SATISFACTION OF CLAIMS BROUGHT BY INFORMIX, TO
OBJECT TO SUCH DELIVERIES, TO AGREE TO, TO NEGOTIATE AND TO ENTER INTO
SETTLEMENTS AND COMPROMISES WITH RESPECT TO SUCH CLAIMS, AND TO TAKE CERTAIN
OTHER ACTION ON BEHALF OF ILLUSTRA'S STOCKHOLDERS, ALL AS MORE FULLY DESCRIBED
IN ARTICLE VII OF THE MERGER AGREEMENT. SEE ARTICLE VII OF THE MERGER AGREEMENT
FOR A MORE DETAILED EXPLANATION OF THE ESCROW FUND AND RIGHTS WITH RESPECT
THERETO.
MARKET PRICE DATA. Informix Common Stock has been traded on Nasdaq under
the symbol "IFMX" since Informix's initial public offering in September 1986. On
December 20, 1995, the last trading day before the announcement by Informix and
Illustra that they had signed the Merger Agreement, the closing price of
Informix Common Stock as reported on Nasdaq was $25.75 per share. Following the
Merger, Informix Common Stock will continue to be traded on Nasdaq under the
symbol "IFMX." On February 5, 1996, the closing price of Informix Common Stock
as reported on Nasdaq was $30.63. There can be no assurance as to the actual
price of Informix Common Stock prior to, at or at any time following the
Effective Time of the Merger. See "Risk Factors" and "Informix -- Informix Stock
Information."
No established trading market exists for Illustra Capital Stock.
REASONS FOR THE MERGER. In the discussions that led to the signing of the
Merger Agreement, Informix and Illustra each identified a number of potential
benefits resulting from the Merger. Informix believes that the integration of
Illustra's object-relational database technology will give the combined
companies a significant time-to-market advantage over other database vendors in
providing support for complex data, such as audio, video, text and
three-dimensional graphics, in a high performance scalable environment. The
Illustra Board identified a number of potential benefits which would accrue to
Illustra and its stockholders as a result of the Merger, including potential
functionality and time-to-market advantages resulting from the combination of
the two companies' technologies, the potential benefit to Illustra of direct
access to Informix's customer base, the increased marketing, financial and
personnel resources to be made available to Illustra as a result of the Merger
and the liquidity that will be available to holders of Illustra Capital Stock as
a result of the Merger. See "Approval of the Merger and Related Transactions --
Informix's Reasons for the Merger" and "-- Illustra's Reasons for the Merger."
RECOMMENDATION OF ILLUSTRA BOARD OF DIRECTORS. The Board of Directors of
Illustra (the "Illustra Board") has unanimously approved the Merger Agreement
and believes that the Merger is fair to, and in the best interests of, Illustra
and its stockholders. See "Approval of the Merger and Related Transactions --
Material Contacts."
The Illustra Board did not seek a fairness opinion in connection with the
Merger. Rather, the Board relied on its own financial expertise to examine from
a financial point of view the fairness of the Merger and the Merger
consideration to be received by Illustra's stockholders in the Merger. See
"Approval of the Merger and Related Transactions -- Illustra's Reasons for the
Merger" and "-- Material Contacts."
CONDUCT OF THE COMBINED COMPANIES FOLLOWING THE MERGER. Informix intends to
combine the operations of Informix and Illustra as soon as practicable following
the closing of the Merger. See "Approval of the Merger and Related Transactions
- -- Legal Structure of the Merger."
EXCHANGE OF ILLUSTRA STOCK CERTIFICATES. At or promptly after the Effective
Time, Informix, acting through The First National Bank of Boston as its exchange
agent (the "Exchange Agent"), will deliver to each Illustra stockholder of
record a letter of transmittal with instructions to be used by such stockholder
in surrendering certificates which, prior to the Merger, represented shares of
Illustra
6
<PAGE>
Capital Stock. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF ILLUSTRA
CAPITAL STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT. At the Effective Time, each then outstanding option to purchase
Illustra Common Stock, whether vested or unvested, and warrant to purchase
Illustra Preferred Stock will be assumed by Informix without any action on the
part of the holder thereof. OPTION AND WARRANT AGREEMENTS NEED NOT BE
SURRENDERED. See "Approval of the Merger and Related Transactions -- Manner and
Basis of Converting Shares."
CONDITIONS TO THE MERGER. Consummation of the Merger is subject to the
satisfaction of various conditions, including approval of the Merger by the
requisite vote of the stockholders of Illustra and the receipt by Informix and
Illustra of certain letters from their respective independent accountants
regarding the ability of Informix to account for the Merger as a pooling of
interests. See "Approval of the Merger and Related Transactions -- Voting
Agreements." The ability of Informix to account for the Merger as a pooling of
interests depends in part on there being no exercise of appraisal or dissenters'
rights under applicable law as to greater than a certain number of shares of
Illustra Capital Stock. If appraisal or dissenters' rights are exercised as to a
greater number of shares, then in the absence of a waiver from Informix
regarding the failure to meet that condition, the Merger would not close.
Consummation of the Merger is also subject to the satisfaction of the
following conditions: the Registration Statement filed with the SEC relating to
the issuance of shares of Informix Common Stock in connection with the Merger
shall be effective and such shares shall be authorized for listing on Nasdaq; no
injunction, court order, or other legal restraint preventing consummation of the
Merger shall be in effect; Informix and Illustra shall have received from their
respective independent accountants letters reaffirming the accountants'
concurrence with management that the Merger may be accounted for as a pooling of
interests; and Informix and Illustra shall have received opinions from their
respective legal counsel to the effect that the Merger will qualify as a
"reorganization" within the meaning of the Internal Revenue Code. In addition,
the obligations of Illustra to consummate the Merger are subject to the
following conditions, unless waived by Illustra: the representations and
warranties of Informix and Merger Sub contained in the Merger Agreement shall be
accurate except where any breach or breaches did not have or would not
reasonably be expected to have a material adverse effect on Informix; Informix
and Merger Sub shall have performed in all material respects the covenants
required by the Merger Agreement; and Illustra shall have received a legal
opinion from counsel to Informix. In addition, the obligations of Informix to
consummate the Merger are subject to the following conditions, unless waived by
Informix: the representations and warranties of Illustra contained in the Merger
Agreement shall be accurate except where any breach or breaches did not have or
would not reasonably be expected to have a material adverse effect on Illustra
or Informix; Illustra shall have performed in all material respects the
covenants required by the Merger Agreement; and Informix shall have received a
legal opinion from counsel to Illustra. See "Approval of the Merger and Related
Transactions -- Conditions to the Merger."
VOTING AGREEMENTS. Each of Accel IV L.P. and affiliated entities,
Morgenthaler Venture Partners III, Oak Investment Partners IV and an affiliated
entity, Bruce Golden, Paula B. Hawthorn, Harvey C. Jones, Stephen G. Maysonave,
Michael R. Stonebraker, Michael C. Ubell and Richard H. Williams (who own an
aggregate of 2,537,300 shares of Illustra Common Stock and 7,483,503 shares of
Illustra Preferred Stock representing approximately 58.7% and 66.4%,
respectively, of the votes entitled to be cast by holders of shares of Illustra
Common Stock and Illustra Preferred Stock issued and outstanding as of January
2, 1996) has entered into a Voting Agreement (collectively, the "Voting
Agreements") with Informix. Each of the foregoing individuals and entities has
been identified by Illustra as an "affiliate" (as that term is defined for
purposes of Rule 145 promulgated under the Securities Act) of Illustra. Pursuant
to the Voting Agreements, which are irrevocable, each of the foregoing Illustra
stockholders has agreed to vote in favor of approval and adoption of the Merger
Agreement and approval of the Merger. The vote in accordance with the Voting
Agreements of the
7
<PAGE>
shares of Illustra Common Stock and Illustra Preferred Stock subject to the
Voting Agreements will be adequate to approve the Merger Agreement and the
Merger by Illustra stockholders. See "Approval of the Merger and Related
Transactions -- Voting Agreements."
TERMINATION; FEES; EXPENSES. The Merger Agreement may be terminated under
certain circumstances, including, without limitation, by mutual written consent
of Informix and Illustra and by either Informix or Illustra if the other party
commits certain breaches of any representation, warranty or covenant contained
in the Merger Agreement or if the Merger is not consummated on or before May 15,
1996.
If the Merger Agreement is terminated by Informix as a result of certain
breaches of the Merger Agreement on the part of Illustra, other than as a result
of a knowing or willful breach by Illustra, then, within two business days
following such termination by Informix, Illustra has agreed to pay to Informix
the sum of $12 million as liquidated damages for the breach giving rise to such
termination. Nothing in the Merger Agreement, however, limits the liability of
Illustra for any knowing or willful breaches of the Merger Agreement on the part
of Illustra.
If the Merger Agreement is terminated by Illustra as a result of certain
breaches of the Merger Agreement on the part of Informix, other than as a result
of a knowing or willful breach by Informix, then, within two business days
following such termination by Illustra, Informix has agreed to pay to Illustra
the sum of $12 million as liquidated damages for the breach giving rise to such
termination. Nothing in the Merger Agreement, however, limits the liability of
Informix for any knowing or willful breaches of the Merger Agreement on the part
of Informix.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. The Merger is intended to
qualify as a reorganization under Section 368(a) of the Code, in which case no
gain or loss should generally be recognized by the holders of shares of Illustra
Capital Stock on the exchange of their shares of Illustra Capital Stock for
shares of Informix Common Stock. Receipt of an opinion from each company's tax
counsel that the Merger will constitute a reorganization under Section 368(a) is
a condition to the Merger, which is nonwaivable. HOWEVER, ALL ILLUSTRA
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. See "Approval of the
Merger and Related Transactions -- Certain Federal Income Tax Considerations."
ACCOUNTING TREATMENT. The Merger is intended to qualify as a pooling of
interests for financial reporting purposes in accordance with generally accepted
accounting principles. Consummation of the Merger is conditioned upon receipt at
the closing of the Merger by Informix and Illustra of letters from Ernst & Young
LLP, Informix's independent auditors, and KPMG Peat Marwick LLP, Illustra's
independent auditors, reaffirming those firms' concurrence with Informix
management's and Illustra management's conclusions, respectively, as to the
appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if consummated in accordance with
the Merger Agreement. See "Approval of the Merger and Related Transactions --
Accounting Treatment."
AFFILIATE AGREEMENTS. The persons identified by Illustra as "affiliates"
(as that term is defined for purposes of Rule 145 promulgated under the
Securities Act) of Illustra have entered into agreements restricting sales,
dispositions or other transactions reducing their risk of investment in respect
of the shares of Illustra Capital Stock held by them prior to the Merger and the
shares of Informix Common Stock received by them in the Merger, subject to a de
minimis exception, so as to comply with the requirements of applicable federal
securities and tax laws and to help ensure that the Merger will be treated as a
pooling of interests for accounting and financial reporting purposes. The
persons identified by Informix as affiliates of Informix have entered into
agreements with respect to Informix Common Stock held by them in order to help
ensure that the Merger will be treated as a pooling of interests for accounting
and financial reporting purposes. See "Approval of the Merger and Related
Transactions -- Conditions to the Merger" and "-- Affiliate Agreements."
APPRAISAL AND DISSENTERS' RIGHTS. Stockholders of Illustra who do not vote
in favor of the Merger may, under certain circumstances and by following
procedures prescribed by the DGCL,
8
<PAGE>
exercise appraisal rights and receive cash for their shares of Illustra Capital
Stock. Alternatively, although Illustra is a Delaware corporation and is
therefore subject to Delaware law, the CGCL provides that Illustra may be
subject to California law with respect to dissenters' rights. Accordingly,
pursuant to Chapter 13 of the CGCL, stockholders of Illustra who do not vote in
favor of the Merger and who comply with the other requirements of the CGCL, will
have a right to demand payment for, and appraisal of the "fair value" of, their
shares. Although the dissenting stockholder may choose to proceed under either
state's statute, a dissenting stockholder of Illustra must follow the
appropriate procedures under either Delaware or California law or suffer the
termination or waiver of such rights. See "Approval of the Merger and Related
Transactions -- Appraisal and Dissenters' Rights" and "Applicability of
California Law to Illustra."
REGULATORY MATTERS. Informix and Illustra are aware of no governmental or
regulatory approvals required for consummation of the Merger, other than
compliance with the federal securities laws and applicable securities laws of
the various states. See "Approval of the Merger and Related Transactions --
Governmental and Regulatory Approvals."
9
<PAGE>
SELECTED HISTORICAL AND SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following selected historical financial information of Informix and
Illustra has been derived from their respective historical consolidated
financial statements and should be read in conjunction with the consolidated
financial statements and the notes thereto included herein. Informix's unaudited
historical financial statement data as of and for the nine months ended October
1, 1995 and October 2, 1994 and Illustra's unaudited historical financial
statement data as of and for the six months ended December 31, 1995 and 1994
have been prepared on the same basis as the historical information derived from
audited financial statements and, in the opinion of Informix's and Illustra's
management, respectively, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position and results of operations for such periods. The unaudited Selected Pro
Forma Combined Financial Data are derived from the unaudited Pro Forma Combined
Condensed Financial Statements, appearing elsewhere herein, which give effect to
the Merger as a pooling of interests, and should be read in conjunction with
such pro forma statements and the notes thereto. For the pro forma combined
statement of income data, Informix's historical results for the nine months
ended October 1, 1995 and October 2, 1994 and the years ended December 31, 1994
and 1993 have been combined with Illustra's historical results for the nine
months ended September 30, 1995 and 1994, the twelve months ended December 31,
1994 and the period from July 31, 1992 (inception) to June 30, 1993,
respectively, to reflect the Merger as if it had occurred at the beginning of
the earliest period presented. Since Illustra's inception date was during its
fiscal year ended June 30, 1993, the unaudited pro forma combined statement of
income data for the year ended December 31, 1992 are the same as Informix's
historical results for such period. No cash dividends have been declared or paid
on Informix Common Stock or Illustra Common or Preferred Stock.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated as of the beginning of
the earliest period presented, nor necessarily indicative of the future
operating results or financial position of the combined companies.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED AS OF OR FOR THE
------------------------ YEAR ENDED DECEMBER 31,
OCTOBER 1, OCTOBER 2, -----------------------------------------------------
INFORMIX 1995 1994 1994 1993 1992 (1) 1991 1990
- ---------------------------------- ----------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues.................... $ 491,915 $ 318,629 $ 468,697 $ 352,915 $ 283,594 $ 179,811 $ 146,107
Net income (loss)............... 66,499 42,360 66,196 56,115 47,782 12,610 (23,123)
Net income (loss) per share
(2)............................ 0.48 0.32 0.49 0.42 0.38 0.10 (0.23)
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Total assets.................... $ 594,146 $ 375,590 $ 444,410 $ 326,633 $ 231,459 $ 132,924 $ 109,534
Long-term obligations........... 1,330 398 522 451 1,797 25,383 30,062
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
---------------------------- YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------------------
ILLUSTRA 1995 1994 1995 1994 1993 (4)
- ------------------------------------------------------ ------------- ------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 4,521 $ 745 $ 1,458 $ 822 $ 200
Net loss............................................ (7,364) (3,957) (9,925) (5,462) (1,440)
Pro forma net loss per share (3).................... (0.50) (0.35) (0.83) (0.87) (0.46)
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Total assets........................................ $ 8,930 $ 5,135 $ 11,132 $ 7,143 $ 1,368
Long-term obligations............................... 1,533 370 578 487 --
Redeemable preferred stock.......................... -- 1,900 1,900 -- --
</TABLE>
- ------------------------------
(1) In 1991, Informix was selected to provide the database component of a
decision-support system for the Army National Guard and Army Reserves. In
1992, Informix received $26.8 million for license fees and support as part
of this Reserve Component Automation System (RCAS) contract and recorded
$21.8 million as license revenue and incurred $3.2 million in operating
expenses in 1992. The remaining $5.0 million of service revenue is being
recognized over the support period.
(2) Share and per share information applicable to prior periods has been
restated to reflect a two-for-one stock split (effected in the form of a
stock dividend) which was effective June 26, 1995.
(3) Reflects the conversion of the Illustra Preferred Stock to Illustra Common
Stock on an "as if converted" basis from the time of issuance.
(4) Illustra's date of inception was July 31, 1992.
10
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------ YEAR ENDED DECEMBER 31,
OCTOBER 1, OCTOBER 2, -------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF INCOME DATA (1):
Net revenues.................................. $ 494,806 $ 319,537 $ 470,112 $ 353,115 $ 283,594
Net income.................................... 61,726 39,196 61,948 54,989 47,782
Net income per share.......................... 0.41 0.28 0.43 0.40 0.38
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 1,
1995
-----------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA (1):
Cash, cash equivalents and short-term investments.............................. $ 214,479
Working capital................................................................ 197,409
Total assets................................................................... 610,969
Long-term obligations.......................................................... 1,814
Stockholders'equity............................................................ 364,171
</TABLE>
- ------------------------
(1) Informix and Illustra estimate that they will incur Merger-related expenses,
consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other related charges, of
approximately $6.0 million. This estimate is preliminary and is therefore
subject to change. These nonrecurring expenses will be charged to operations
in the fiscal quarter in which the Merger is consummated. The Pro Forma
Combined Condensed Balance Sheet gives effect to such expenses as if they
had been incurred as of October 1, 1995, but the Pro Forma Combined
Condensed Statements of Income do not give effect to such expenses.
See Pro Forma Combined Condensed Financial Statements and the notes thereto
included elsewhere herein.
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of Informix
and Illustra and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis assuming the
issuance of 0.82685 of a share of Informix Common Stock for each outstanding
share of Illustra Common Stock and the issuance of 174,557 shares of Informix
Common Stock in satisfaction of certain rights retained by the former holders of
Illustra's Series C Preferred Stock upon conversion of Series C Preferred Stock
to Illustra Common Stock. The exchange ratio above assumes that the transaction
was consummated on October 1, 1995. The actual number of shares of Informix
Common Stock to be exchanged for all of the outstanding Illustra Common Stock
will be determined at the Effective Time based on the capitalization of Illustra
at the Effective Time. The following data should be read in conjunction with the
Selected Historical Financial Data, the Selected Pro Forma Combined Financial
Data, the Pro Forma Combined Condensed Financial Statements and the separate
historical financial statements of Informix and Illustra included elsewhere
herein. The unaudited pro forma combined per share data are not necessarily
indicative of the operating results that would have been achieved had the Merger
been consummated as of the beginning of the earliest period presented and should
not be construed as representative of future operations.
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -------------------------------
OCTOBER 1, 1995 1994 1993 1992
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
HISTORICAL -- INFORMIX (1):
Net income per share............................................ $ 0.48 $ 0.49 $ 0.42 $ 0.38
Book value per share (2)........................................ 2.68 2.10
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE YEAR ENDED JUNE 30,
SIX MONTHS ENDED -------------------------------
DECEMBER 31, 1995 1995 1994 1993 (6)
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
HISTORICAL -- ILLUSTRA:
Pro forma net loss per share.................................. $ (0.50) $ (0.83) $ (0.87) $ (0.46)
Book value per share (2)...................................... (0.15) 0.30
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -------------------------------
OCTOBER 1, 1995 1994 1993 1992
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED NET INCOME PER SHARE (3)(4):
Pro forma net income per Informix share....................... $ 0.41 $ 0.43 $ 0.40 $ 0.38
Equivalent pro forma net income per Illustra share (5)........ 0.34 0.36 0.33 0.31
PRO FORMA BOOK VALUE PER SHARE:
Pro forma book value per Informix share....................... $ 2.48 $ 2.02
Equivalent pro forma book value per Illustra share (5)........ 2.05 1.67
</TABLE>
- ------------------------
(1) Per share information applicable to prior periods for Informix has been
restated to reflect a two-for-one stock split (effected in the form of a
stock dividend) which was effective on June 26, 1995.
(2) The historical book value per share is computed by dividing total
stockholders' equity by the number of shares of common stock outstanding at
the end of the period and, with respect to Illustra, assumes conversion of
all outstanding Illustra Preferred Stock into Illustra Common Stock at the
end of each period.
(3) The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive common stock equivalent
shares of Informix Common Stock and Illustra Common Stock and assumes
conversion of all of outstanding Illustra Preferred Stock at
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the beginning of the earliest period presented and further assumes a Common
Exchange Ratio as of October 1, 1995 of 0.82685 of a share of Informix
Common Stock for each outstanding share of Illustra Common Stock and the
issuance of 174,557 shares of Informix Common Stock in satisfaction of
certain rights retained by the former holders of Illustra Series C Preferred
Stock upon conversion of Series C Preferred Stock to Illustra Common Stock.
The actual number of shares of Informix Common Stock to be exchanged for all
of the outstanding Illustra Common Stock will be determined at the Effective
Time based on the capitalization of Illustra at the Effective Time.
(4) Informix and Illustra estimate that they will incur Merger-related expenses,
consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other related charges, of
approximately $6.0 million. This estimate is preliminary and is therefore
subject to change. These nonrecurring expenses will be charged to operations
in the fiscal quarter in which the Merger is consummated. The pro forma
combined book value per share gives effect to such expenses as if they had
been incurred as of October 1, 1995, but the pro forma combined net income
per share does not give effect to such expenses.
(5) The Illustra equivalent pro forma per share amounts are calculated by
multiplying the Informix pro forma combined per share amounts by the
exchange ratio of 0.82685 of a share of Informix Common Stock for each
outstanding share of Illustra Common Stock. The actual number of shares of
Informix Common Stock to be exchanged for all of the outstanding Illustra
Common Stock will be determined at the Effective Time based on the
capitalization of Illustra at the Effective Time.
(6) Illustra's date of inception was July 31, 1992.
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RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted on at the Illustra Meeting and the acquisition of the
securities offered hereby. For periods following the Merger, references to the
products, business, results of operations or financial condition of Informix
should be considered to refer to Informix and its subsidiaries, including
Illustra, unless the context otherwise requires.
UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS. Informix and Illustra
have entered into the Merger Agreement with the expectation that the Merger will
result in beneficial synergies for the combined companies. See "Approval of the
Merger and Related Transactions -- Informix's Reasons for the Merger" and "--
Illustra's Reasons for the Merger." Achieving the anticipated benefits of the
Merger will depend in part upon whether the integration of the two companies'
businesses is achieved in an efficient, effective and timely manner, and there
can be no assurance that this will occur. The combination of the two companies
will require, among other things, the timely integration of Illustra's
object-relational database technology with Informix's relational database
technology and integration of their respective sales and marketing and research
and development efforts. There can be no assurance that integration will be
accomplished smoothly, on time or successfully. The difficulties of such
integration may be increased by the complexity of the technologies being
integrated and the necessity of coordinating geographically separated
organizations. The integration of certain operations following the Merger will
require the dedication of management resources which may temporarily distract
attention from the day-to-day business of the combined companies. Failure to
effectively accomplish the integration of the two companies' operations could
have an adverse effect on Informix's results of operations and financial
condition.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS. Although the companies believe
that beneficial synergies will result from the Merger, there can be no assurance
that the combining of the two companies' businesses, even if achieved in an
efficient, effective and timely manner, will result in combined results of
operations and financial condition superior to what would have been achieved by
each company independently, or as to the period of time required to achieve such
result. The issuance of Informix Common Stock in connection with the Merger will
have the effect of reducing Informix's net income per share and could reduce the
market price of Informix Common Stock unless and until revenue growth or cost
savings and other business synergies sufficient to offset the effect of such
issuance can be achieved. There can be no assurance that such synergies will be
achieved. In addition, there can be no assurance that stockholders of Illustra
would not achieve greater returns on investment if Illustra were to remain an
independent company.
DEPENDENCE ON ACCEPTANCE OF OBJECT-RELATIONAL TECHNOLOGY. The market for
the object-relational database products of Illustra is new and evolving, and its
growth depends both upon the growing need to store complex data and the broader
market acceptance of Illustra's object-relational technology as the solution for
this need. Because object-relational technology represents a shift in
programming methodology, it requires a substantial investment in the retraining
of programmers, which can be expensive and reduce the productivity of
programmers during the training period. As a result, there can be no assurance
that organizations will choose to make the transition from conventional
relational database management systems to object-relational database management
systems, or as to the time frame within which such transition may occur, even if
they believe that they can benefit from the advantages of an object-relational
system. Any delay in the market's acceptance of object-relational database
management systems will reduce the anticipated benefits of the Merger and could
have an adverse effect on Informix's results of operations and financial
condition.
NO EFFECT ON EXCHANGE RATIO OF PRICE OF INFORMIX COMMON STOCK. Under the
terms of the Merger Agreement, the shares of Illustra Common Stock issued and
outstanding at the Effective Time will be converted into the right to receive
shares of Informix Common Stock. The Merger Agreement does not contain any
provisions for adjustment of the Exchange Ratio based on fluctuations in the
price of Informix Common Stock. Accordingly, the value of the consideration to
be received by stockholders of
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<PAGE>
Illustra upon the Merger will depend on the market price of the Informix Common
stock at the Effective Time. On December 20, 1995, the date the Merger Agreement
was signed, the closing price of the Informix Common Stock was $25.75. There can
be no assurance that the market price of the Informix Common Stock on and after
the Effective Time will not be lower than such price. See "-- Volatility of
Informix Stock Prices."
FLUCTUATIONS IN QUARTERLY RESULTS. Informix's operating results can vary
substantially from period to period. The timing and amount of Informix's license
revenues are subject to a number of factors that make estimation of operating
results prior to the end of a quarter extremely uncertain. Informix has operated
historically with little or no backlog, and, as a result, license revenues in
any quarter are dependent on contracts entered into or orders booked and shipped
in that quarter. Informix's quarterly operating margins have generally followed
a historic pattern, with second half revenues and operating margins generally
being higher than those of the preceding first half. Informix believes that this
pattern has been primarily related to customers' capital spending cycles at the
end of a calendar year as well as to Informix's selling efforts, influenced by
annual sales incentive plans, at the end of the calendar year, which is the end
of Informix's fiscal year. Additionally, as is common in the industry, a
disproportionate amount of Informix's license revenue is derived from
transactions that close in the last few weeks of a quarter. The timing of
closing large license agreements also increases the risk of quarter-to-quarter
fluctuations and the uncertainty of estimating quarterly operating results.
Informix's operating expenses are based on projected annual and quarterly
revenue levels, have been increasing at rates approaching the rate of total
revenue growth and are incurred approximately ratably throughout each quarter.
As a result, if projected revenues are not realized in the expected period,
Informix's operating results for that period would be adversely affected as the
operating expenses are relatively fixed in the short term. Failure to achieve
revenue, earnings and other operating and financial results as forecasted or
anticipated by brokerage firm analysts or industry analysts could result in an
immediate and adverse effect on the market price of Informix's Common Stock.
Further, Informix may not learn of, or be able to confirm, revenue or earning
shortfalls until the end of each quarter, which could result in an even more
immediate and adverse effect on the trading price of Informix's Common Stock.
COSTS OF INTEGRATION; TRANSACTION EXPENSES. The combined companies' results
of operations will be adversely affected by Merger-related expenses, consisting
primarily of transaction costs for investment bankers fees, attorneys,
accountants, financial printing and other related charges estimated to be
approximately $6 million. These nonrecurring costs will be charged to operations
in the fiscal quarter in which the Merger is consummated. This estimate is
preliminary and is therefore subject to change.
VOLATILITY OF INFORMIX STOCK PRICES. The market for Informix's Common Stock
is highly volatile. The trading price of Informix's Common Stock could be
subject to wide fluctuations in response to quarterly variations in operating
and financial results, announcements of technological innovations or new
products by Informix or its competitors, changes in prices of Informix's or its
competitors' products and services, changes in product mix, changes in
Informix's revenue and revenue growth rates for Informix as a whole or for
individual geographic areas, business units, products or product categories, as
well as other events or factors. Statements or changes in opinions, ratings, or
earnings estimates made by brokerage firms or industry analysts relating to the
market in which Informix does business or relating to Informix specifically have
resulted, and could in the future result, in an immediate and adverse effect on
the market price of Informix's Common Stock. Statements by financial or industry
analysts regarding the extent of the dilution in Informix's net income per share
resulting from the Merger and the extent to which such analysts expect potential
business synergies to offset such dilution can be expected to contribute to
volatility in the market price of Informix Common Stock. In addition, the stock
market has from time to time experienced extreme price and volume fluctuations
which have particularly affected the market price for the securities of many
high-
15
<PAGE>
technology companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of Informix Common Stock.
COMPETITION. The market for Informix's software products and services is
extremely competitive. The chief competition faced by Informix is currently
provided by Oracle Corporation, Sybase, Inc., CA Ingres (a subsidiary of
Computer Associates International, Inc.), IBM Corporation, Microsoft Corporation
and Red Brick Systems, Inc. and suppliers of third party tools such as Gupta
Corporation, Forte Software, Inc. and Dynasty Technologies, Inc. Some of
Informix's current competitors and many potential competitors have greater
financial, technical and marketing resources than Informix. To the extent that
market acceptance for personal computer oriented technologies increases at the
expense of UNIX or other non-PC platforms, this could result in greater price
pressure on certain of Informix's database products and services. The
availability and market acceptance of Microsoft Corporation's Windows NT
operating system may increase the competition faced by the principal operating
system platforms on which Informix's products operate and may result in greater
price pressure on certain of Informix's database products and services. Also,
new or enhanced products introduced by existing or future competitors could have
an adverse effect on Informix's business, results of operations and financial
condition. Existing and future competition or changes in Informix's product or
services pricing structure or product or service offerings could result in an
immediate reduction in the prices of Informix's products or services. If this
were to result in significant price declines, the effects of which were not
offset by any resulting increases in sales volume of Informix's products or
services, Informix's business, results of operations and financial condition
would be adversely affected. There can be no assurance that Informix will
continue to compete successfully with its existing competitors or will be able
to compete successfully with new competitors.
TECHNOLOGICAL CHANGE AND NEW PRODUCTS. The market for Informix's products
and services is characterized by rapidly changing technology and frequent new
product introductions. Informix's success will depend upon its ability to
enhance its existing products and to introduce new products on a timely and
cost-effective basis that meet dynamic customer requirements. There can be no
assurance that Informix will be successful in developing new products or
enhancing its existing products or that such new or enhanced products will
receive market acceptance or be timely delivered to the market. Informix has
experienced product delays in the past and may have delays in the future. Delays
in the scheduled availability or a lack of market acceptance of its products or
failure to accurately anticipate customer demand or meet customer performance
requirements could have a material adverse effect on Informix's business,
results of operations and financial condition. In addition, products as complex
as those offered by Informix may contain undetected errors or bugs when first
introduced or as new versions are released. There can be no assurance that,
despite testing, new products or new versions of existing products will not
contain undetected errors or bugs that will delay the introduction or commercial
acceptance of such products. Informix's success also depends on the ability of
its products to interoperate and perform well with existing and future,
industry-standard leading application software products intended to be used in
connection with relational database management systems. Failure to meet existing
and future interoperability and performance requirements of certain independent
vendors marketing such applications in a timely manner could adversely affect
the market for Informix's products. Commercial acceptance of Informix's products
and services could also be adversely affected by critical or negative statements
or reports by brokerage firms, industry and financial analysts and industry
periodicals concerning Informix, its products, business or competitors or by the
advertising or marketing efforts of competitors, or other factors that could
affect consumer perception.
INTERNATIONAL OPERATIONS. Over half of Informix's net revenues are derived
from its international operations. Informix's operations and financial results
could be significantly affected by factors associated with international
operations such as changes in foreign currency exchange rates and uncertainties
relative to regional economic circumstances, as well as by other risks
associated with international activities. Most of Informix's international
revenue and expenses are denominated in
16
<PAGE>
local currencies. Although Informix takes into account changes in exchange rates
over time in its pricing strategy, Informix's business, results of operations
and financial condition could be materially and adversely affected by
fluctuations in foreign currency exchange rates. There can be no assurance that
Informix will not experience fluctuations in international revenues.
INTEGRATION OF ACQUIRED COMPANIES. Informix has recently completed several
acquisitions including the database division of ASCII Corporation in Japan,
Stanford Technology Group, Inc. in the United States and distributors in
Germany, Korea and Malaysia. Informix may acquire other distributors, companies,
products or technologies in the future. There can be no assurance that these
acquisitions and the acquisition of Illustra can be effectively integrated, that
such acquisitions will not result in costs or liabilities that could adversely
effect Informix's results of operations and financial condition, or that
Informix will obtain the anticipated or desired benefits of such acquisitions.
KEY PERSONNEL. Informix's success depends in part on the continued
contributions of both companies' key management and technical personnel. While
key employees do not generally enter into employment or noncompetition
agreements, certain key employees of Illustra have entered into two year
non-competition agreements in connection with the Merger. See "Approval of the
Merger and Related Transactions -- Non-Competition Agreements". The success of
Informix also depends on Informix's ability to attract and retain other
qualified technical, managerial, sales and marketing personnel. Uncertainty
during integration of the two companies' businesses may adversely affect the
combined companies' ability to attract and retain such personnel. The
competition for such personnel is intense in the software industry.
MANAGEMENT OF GROWTH. Both Informix and Illustra have experienced rapid
growth in recent years. There can be no assurance Informix will maintain its
recent rate of growth. Informix's future growth will depend in part on the
ability of its officers and key personnel to manage growth successfully through
the implementation of appropriate management systems and controls. Failure to
effectively implement or maintain such systems and controls could adversely
affect Informix's business, results of operations and financial condition.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS. Both Informix and Illustra rely on a combination of trade secret,
copyright and trademark laws and contractual provisions to protect their
proprietary rights in their software products. There can be no assurance that
these protections will be adequate or that competitors will not independently
develop technologies that are substantially equivalent or superior to Informix's
technology. In addition, copyright and trade secret protection for Informix's
products may be unavailable or unreliable in certain foreign countries. As of
the date hereof, neither Informix nor Illustra has any issued patents. As the
number of software products in the industry and software patents increases,
Informix believes that software developers may become increasingly subject to
infringement claims. There can be no assurance that a third party will not
assert that its patents or other proprietary rights are violated by products
offered by Informix. Any such claims, with or without merit, can be time
consuming and expensive to defend, and could have an adverse effect on
Informix's business, results of operations and financial condition. Infringement
of valid third-party patents and propriety rights could have an adverse effect
on Informix's business, results of operations and financial condition. Informix
and Illustra also rely on "shrink-wrap" break-the-seal licenses not signed by
the licensee to protect their proprietary rights. "Shrink-wrap" licenses may be
unenforceable under the laws of certain jurisdictions.
DEPENDENCE ON THIRD-PARTY PROVIDERS OF TECHNOLOGY. The products of Informix
and Illustra use certain products and technologies of various third-party
software developers, including both complete products offered as extensions of
the companies' product lines and technology used in the enhancement of
internally developed products. Such products and technologies are obtained from
the third-party providers under contractual license agreements, which in some
cases are for limited time periods and in some cases provide that such licenses
may be terminated under certain circumstances. There can be no assurance that
Informix will be able to maintain adequate relations with these third-party
providers, that these third-party providers will commit adequate development
resources to
17
<PAGE>
maintain these products and technologies or that the license agreements that are
for limited time periods will be renewed upon termination. In such
circumstances, Informix's inability to obtain or develop substitute technology
could adversely affect Informix's business, results of operations and financial
condition.
EFFECT OF ANTITAKEOVER PROVISIONS OF DELAWARE LAW AND INFORMIX'S CHARTER
DOCUMENTS. Upon consummation of the Merger, the stockholders of Illustra will
become stockholders of Informix, a corporation governed by the laws of Delaware.
Informix is subject to the provisions of Section 203 of the Delaware General
Corporation Law, which has the effect of restricting changes in control of a
company. The Board of Directors of Informix is divided into three classes, with
each class standing for election once every three years. In addition, Informix's
Board of Directors has authority to issue up to 5,000,000 shares of preferred
stock and to fix the rights, preferences, privileges and restrictions, including
voting rights, of such shares without any further vote or action by the
stockholders. Informix also has a Preferred Shares Rights Agreement that
provides for the issuance of rights which, upon the occurrence of certain
events, would result in significant dilution to Informix Common Stock held by a
bidder for Informix. These and other provisions of Delaware law applicable to
Informix and Informix's charter documents may have the effect of delaying,
deterring or preventing changes in control or management of Informix. See
"Comparison of Capital Stock."
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INTRODUCTION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies by the Illustra Board to be used at the Illustra
Meeting. This Prospectus/Proxy Statement is also furnished by Informix to
Illustra stockholders in connection with the issuance of shares of Informix
Common Stock in connection with the Merger described herein.
The information set forth herein concerning Informix has been furnished by
Informix and the information set forth herein concerning Illustra has been
furnished by Illustra.
ILLUSTRA MEETING
DATE, TIME AND PLACE OF ILLUSTRA MEETING
The Illustra Meeting will be held at Illustra's offices located at 1111
Broadway, Suite 2000, Oakland, California, on Friday, February 16, 1996 at 9:00
a.m. local time.
PURPOSE
The purpose of the Illustra Meeting is to approve and adopt the Merger
Agreement and approve the Merger.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record of Illustra Capital Stock at the close of business on
January 2, 1996 (the "Illustra Record Date") are entitled to notice of, and to
vote at, the Illustra Meeting. As of the Illustra Record Date, there were 85
stockholders holding an aggregate of approximately 4,322,000 shares of Illustra
Common Stock and 38 stockholders holding an aggregate of approximately
11,487,000 shares of Illustra Preferred Stock representing the right to cast
approximately 11,276,000 votes. See "Illustra -- Illustra Principal
Stockholders."
On January 27, 1996, a notice meeting the requirements of Delaware law was
mailed to all stockholders of record as of the Illustra Record Date.
VOTE REQUIRED; QUORUM
Approval and adoption of the Merger Agreement and approval of the Merger
requires the affirmative vote of the holders of a majority of (i) the
outstanding Illustra Common Stock and Illustra Preferred Stock voting together
as a single class, and (ii) the outstanding Illustra Preferred Stock voting
separately as a single class, in each case with each share of Illustra Preferred
Stock being entitled to a number of votes equal to the number of whole shares of
Illustra Common Stock into which such shares of Illustra Preferred Stock could
be converted on the Illustra Record Date. Each stockholder of record of Illustra
Common Stock on the Illustra Record Date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted for the vote of the stockholders of Illustra at the Illustra Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Illustra Capital Stock entitled to vote at
the Illustra Meeting and a majority of the outstanding shares of Illustra
Preferred Stock entitled to vote at the Illustra Meeting (each on an
as-converted basis) shall constitute a quorum. Abstentions will be counted for
purposes of determining a quorum, but will have the effect of a vote against
approval of the matters being voted upon.
Certain holders of Illustra Common Stock and Illustra Preferred Stock have
entered into Voting Agreements with Informix, pursuant to which each such holder
has agreed to vote (i) in favor of approval of the Merger Agreement and the
Merger and (ii) against (among other things) approval of any proposal made in
opposition to or competition with consummation of the Merger. In addition, each
such holder has granted pursuant to the Voting Agreements, to each director on
the Board of Directors of Informix, an irrevocable proxy to vote shares as
aforesaid. The shares of Illustra Common Stock subject to the Voting Agreements
represent 58.7% of the votes entitled to be cast by holders of shares of
Illustra Common Stock as of the Illustra Record Date. The shares of Illustra
Preferred Stock subject
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to the Voting Agreements represent 66.4% of the votes entitled to be cast by
holders of shares of Illustra Preferred Stock as of the Illustra Record Date.
THE VOTE IN ACCORDANCE WITH THE VOTING AGREEMENTS OF THE SHARES OF ILLUSTRA
COMMON STOCK AND ILLUSTRA PREFERRED STOCK SUBJECT TO THE VOTING AGREEMENTS WILL
BE ADEQUATE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER BY
THE ILLUSTRA STOCKHOLDERS.
VOTING OF PROXIES
All shares of Illustra Capital Stock that are entitled to vote and are
represented at the Illustra Meeting either in person or by properly executed
proxies received prior to or at the Illustra Meeting and not duly and timely
revoked will be voted at the Illustra Meeting in accordance with the
instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted for the approval and adoption of the Merger Agreement
and approval of the Merger.
If any other matters are properly presented for consideration at the
Illustra Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Illustra
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Illustra at or before the taking of the vote at the
Illustra Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Illustra, before the taking of the vote at the
Illustra Meeting or (iii) attending the Illustra Meeting and voting in person
(although attendance at the Illustra Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Illustra Information
Technologies, Inc. at 1111 Broadway, Suite 2000, Oakland, California 94607,
Attention: Secretary, or hand-delivered to the Secretary of Illustra, in each
case at or before the taking of the vote at the Illustra Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Illustra stockholders will be borne by
Illustra. Proxies may be solicited by certain Illustra directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
APPRAISAL AND DISSENTERS' RIGHTS
Stockholders of Illustra who do not vote in favor of the Merger may, under
certain circumstances and by following procedures prescribed by Section 262 of
the DGCL, exercise appraisal rights and receive cash for their shares of
Illustra Capital Stock. Alternatively, although Illustra is a Delaware
corporation and is therefore subject to Delaware law, the CGCL provides that
Illustra may be subject to California law with respect to dissenters' rights.
Accordingly, pursuant to Chapter 13 of the CGCL, stockholders of Illustra who do
not vote in favor of the Merger and who comply with Chapter 13 of the CGCL will
have a right to demand payment for, and appraisal of the "fair value" of, their
shares. A dissenting stockholder of Illustra must follow the appropriate
procedures under either Delaware or California law or suffer the termination or
waiver of such rights. See "Approval of the Merger and Related Transactions --
Appraisal and Dissenters' Rights" and "Applicability of California Law to
Illustra."
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
THE FOLLOWING DISCUSSION SUMMARIZES THE PROPOSED MERGER AND RELATED
TRANSACTIONS. THE FOLLOWING IS NOT, HOWEVER, A COMPLETE STATEMENT OF ALL
PROVISIONS OF THE MERGER AGREEMENT AND RELATED AGREEMENTS. DETAILED TERMS OF AND
CONDITIONS TO THE MERGER AND CERTAIN RELATED TRANSACTIONS ARE CONTAINED IN THE
MERGER AGREEMENT, A CONFORMED COPY OF WHICH IS ATTACHED TO THIS PROSPECTUS/PROXY
STATEMENT AS ANNEX A. STATEMENTS MADE IN THIS PROSPECTUS/PROXY STATEMENT WITH
RESPECT TO THE TERMS OF THE MERGER AND SUCH RELATED TRANSACTIONS ARE QUALIFIED
IN THEIR RESPECTIVE ENTIRETIES BY REFERENCE TO THE MORE DETAILED INFORMATION SET
FORTH IN THE MERGER AGREEMENT.
INFORMIX'S REASONS FOR THE MERGER
Informix believes that the object-relational database management system that
has been developed and commercialized by Illustra, when integrated with
Informix's core database technology, will give the combined companies a
significant time-to-market advantage over competing database vendors in
providing support for complex data, such as audio, video, text and
three-dimensional graphics, in a high performance scalable environment, and that
this time-to-market advantage will allow it to more quickly penetrate the
complex data management market, particularly the rapidly-growing new market for
applications developed for the World Wide Web.
ILLUSTRA'S REASONS FOR THE MERGER
The Illustra Board believes the Merger will be beneficial to Illustra and
its stockholders for the following principal reasons:
- Because Informix's relational database technology and products provide
certain capabilities -- such as scalability and online transaction
processing capability -- that presently exceed those of Illustra, the
Illustra Board believes a new set of products developed through the
combination of the two technologies has the potential to generate greater
customer demand than products based solely on Illustra's technology.
Although the Illustra Board believes Illustra could, and in the absence of
the Merger would, develop the desired capabilities independently, the
Illustra Board believes the Merger will provide competitively important
time-to-market advantages.
- The customers comprising Informix's significant installed base of database
products represent an attractive market for Illustra's products that the
Illustra Board believes can be addressed more effectively through the
combined efforts of Informix and Illustra.
- The Merger is expected to provide Illustra with substantially increased
marketing, financial and personnel resources for the pursuit of its
product development, marketing and sales objectives.
- As a result of the Merger, Illustra stockholders will hold Informix stock
for which there is a ready public market, in contrast to the illiquid
nature of their present holdings of Illustra stock.
The Illustra Board believes the Merger is in the best interests of Illustra
and its stockholders, notwithstanding the following potentially negative
factors: (i) the potential disruption of Illustra's business that might result
from employee uncertainty and lack of focus following announcement of the Merger
and during the integration of the operations of Informix and Illustra; (ii) the
possibility that the Merger might not be consummated, and the effects of the
public announcement of the Merger on Illustra's sales and operating results, its
ability to attract and retain key management, marketing and technical personnel
and the progress of certain of its development projects; (iii) the risk that,
despite the intentions and the efforts of the parties to support their
respective products, the announcement of the Merger could result in decisions by
customers to defer purchases of products of Informix or Illustra; (iv) the risk
that the other benefits sought to be achieved in the Merger will not be
achieved; and (v) the other risks described above under "Risk Factors."
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MATERIAL CONTACTS
Competition in the market for relational database management system products
is intense, and Informix commits substantial resources to enhance its existing
product lines and to develop new products. With the relatively recent focus of
many companies in the computer software industry on the opportunities made
possible through the Internet, the management of Informix also has considered
the potential market advantages of database applications developed for the World
Wide Web. Informix believes that a business strategy that combines complex data
management, including audio, video, text and three-dimensional graphics, with
database applications that can be employed on the World Wide Web, can
significantly expand the market for database products. Although Informix has
taken steps during the last year to begin development of the technology
necessary for complex data management products, Informix believes that this
internal product development effort will require over a year to complete. As an
alternative to its internal development strategy, in 1995 Informix began
considering the possibility of acquiring the necessary database technology from
an outside party.
Illustra's object-relational server and related products have been developed
with the specific objective of optimizing their functionality with respect to
complex multimedia data -- such as audio, video and images -- of the type often
used in World Wide Web or other Internet-based applications. In light of the
technical complexity of Illustra's products and the critical role major database
management system products typically play in the information systems of users,
Illustra's management has been aware since inception that the development and
marketing of Illustra's products are substantial challenges to Illustra's
long-term success.
In late May and early June 1995, representatives of the senior management of
Informix contacted the management of Illustra to discuss possible synergies that
might arise from a strategic relationship between the two companies, including
through a licensing arrangement or a merger. These discussions did not progress
beyond exploratory levels and ended when the management of Illustra failed to
indicate any interest in pursuing such a relationship.
In early November 1995, Phillip E. White, Informix's Chairman, President and
Chief Executive Officer, initiated contact with Richard H. Williams, Illustra's
President and Chief Executive Officer, to again indicate Informix's interest in
establishing a strategic relationship, including through a merger, with
Illustra. At Mr. White's suggestion, senior management representatives of the
two companies met on three occasions that month to discuss at a conceptual level
the possible synergies that might be realized through combining the technologies
and products of the two companies. These discussions included evaluation of the
feasibility of integrating the technologies of the two companies and the
companies' respective business strategies and corporate cultures.
On December 4, 1995, Mr. White of Informix and Mr. Williams of Illustra and
the companies' respective financial advisors met to discuss financial and other
terms of a possible merger. Following this meeting, on December 7, the Illustra
Board met to consider the principal financial and other terms upon which a
merger might be structured and appointed a committee of the Board to act with
the full authority of the Board with respect to merger negotiations between the
two companies. Senior management representatives of the companies and their
respective financial and legal advisors met again on December 8 and 10 to
continue discussing the principal terms of a merger. On December 10, the two
companies entered into a "no-shop" agreement prohibiting Illustra, directly or
indirectly, from taking any action to solicit, initiate or encourage any offer
or proposal from any outside party regarding an acquisition of Illustra, and
also entered a mutual non-disclosure agreement prohibiting the disclosure of
confidential information provided by the companies. In addition, the two
companies on that date agreed upon an outline of fundamental terms by which a
merger of the companies could be accomplished, subject to completion of a
comprehensive investigation by Informix of the technology and operations of
Illustra, the negotiation and preparation of a definitive agreement, and final
approval by the Informix Board and the Illustra Board committee of such an
agreement.
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On December 12, 1995, Informix provided to Illustra an unsecured $5 million
credit facility that bears interest at market rates and can be drawn against by
Illustra at any time until the earlier of June 30, 1996 or the completion of the
Merger. Illustra initially borrowed $2 million when the credit facility was
established to supplement its working capital.
Beginning on December 18 and continuing through December 20, 1995,
representatives of the two companies and their respective legal and financial
advisors met to negotiate the definitive agreement providing for the Merger. The
Informix Board met each day during this period to monitor the status of
negotiations and Informix's continuing investigation of Illustra's technology
and operations, and the members of the Illustra Board committee monitored the
status of negotiations through communications from Mr. Williams and at a meeting
on December 20. On the afternoon of December 20, following final approval by the
Informix Board and the Illustra Board committee, the Merger Agreement was
signed. A joint press release announcing the proposed merger was made that same
day following the close of Informix's trading markets.
RECOMMENDATION OF ILLUSTRA BOARD
THE ILLUSTRA BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, ILLUSTRA AND ITS STOCKHOLDERS. AFTER CAREFUL
CONSIDERATION, THE ILLUSTRA BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of State of Delaware in
accordance with the DGCL (the "Effective Time"). It is anticipated that if all
conditions of the Merger have been fulfilled or waived, the Effective Time will
occur on or about February 16, 1996, or on a date as soon as practicable
thereafter.
MANNER AND BASIS OF CONVERTING SHARES
As a result of the Merger, the maximum number of shares of Informix Common
Stock to be issued (including Informix Common Stock to be reserved for issuance
upon exercise of any of Illustra's options and warrants to be assumed by
Informix) in exchange for the acquisition by Informix of all outstanding
Illustra Capital Stock and all unexpired and unexercised options and warrants to
acquire Illustra Capital Stock will be 15,000,000. No adjustment will be made in
the number of shares of Informix Common Stock issued in the Merger as a result
of any cash proceeds received by Illustra from the date of execution of the
Merger Agreement to the closing date of the Merger pursuant to the exercise of
options or warrants to acquire Illustra Capital Stock.
Subject to the terms and conditions of the Merger Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
Merger Sub, Illustra or the holder of any shares of Illustra Capital Stock, the
following will occur:
CONVERSION OF ILLUSTRA COMMON STOCK. Each share of Illustra Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
Dissenting Shares) will be canceled and extinguished and be converted
automatically into the right to receive that number of shares of Informix Common
Stock equal to the Common Exchange Ratio (as defined below), upon surrender of
the certificate representing such share of Illustra Common Stock in the manner
provided in a letter of transmittal to be sent to each record holder of Illustra
Capital Stock promptly following the Effective Time (a "Letter of Transmittal"),
including, with respect to each whole share of Informix Common Stock to be
received, the right to receive one preferred share purchase right (a "Right")
under Informix's Amended and Restated Preferred Shares Rights Agreement dated as
of September 12, 1991 and amended and restated as of May 15, 1992 and July 25,
1995, and in any case, subject to the escrow provisions of the Merger Agreement
described under the section entitled "Approval of the Merger and Related
Transactions -- Escrow Fund" below.
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The "Common Exchange Ratio" will depend on the capitalization of Illustra at
the Effective Time. Assuming that all shares of Illustra Preferred Stock are
converted to shares of Illustra Common Stock prior to the Effective Time, and
further assuming that the capitalization of Illustra at the Effective Time is in
all other respects identical to the capitalization of Illustra at January 2,
1996 (although there can be no assurance as to the foregoing), the Common
Exchange Ratio will be 0.77184 of a share of Informix Common Stock for each
share of Illustra Common Stock. In any event, the Common Exchange Ratio will be
calculated at the Effective Time and will be equal to the number obtained by
dividing (i) 15,000,000 MINUS the number of shares of Informix Common Stock
issuable by virtue of the Merger in respect of shares of Illustra Preferred
Stock that remain outstanding and not converted into shares of Illustra Common
Stock immediately prior to the Effective Time (or are issuable upon exercise of
then outstanding options or warrants to acquire shares of Illustra Preferred
Stock) MINUS the number of shares of Informix Common Stock issuable by virtue of
the Merger in respect of the aggregate Series C Additional Conversion Shares (as
defined below), DIVIDED BY (ii) the sum of the aggregate number of shares of
Illustra Common Stock outstanding immediately prior to the Effective Time
(taking into account all shares of Illustra Preferred Stock that shall be
converted into Illustra Common Stock as of such time) PLUS the aggregate number
of shares of Illustra Common Stock issuable upon the exercise of all outstanding
options and warrants to acquire shares of Illustra Common Stock immediately
prior to the Effective Time. The Common Exchange Ratio and the exchange ratios
relating to shares of Illustra Preferred Stock will be adjusted to reflect fully
the effect of any stock split, reverse split, stock dividend (including any
dividend or distribution of securities convertible into Informix Common Stock or
Illustra Capital Stock), reorganization, recapitalization or other like change
with respect to Informix Common Stock or Illustra Capital Stock occurring after
the date of execution of the Merger Agreement and prior to the Effective Time.
CONVERSION OF ILLUSTRA PREFERRED STOCK; TREATMENT OF CONVERTED SERIES C
PREFERRED STOCK. Each share of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred issued and outstanding immediately prior to the
Effective Time (other than any shares of Illustra Preferred Stock that are
converted into shares of Illustra Common Stock immediately prior to the
Effective Time and any Dissenting Shares) will be canceled and extinguished and
be converted automatically into the right to receive 0.03728, 0.05825, 0.08738
and 0.11650 of a share of Informix Common Stock, respectively (the "Preferred
Exchange Ratios"), upon surrender of the certificate representing such share of
Illustra Preferred Stock in the manner provided in the Letter of Transmittal,
including, with respect to each whole share of Informix Common Stock to be
received, one Right, and in any case, subject to the escrow provisions of the
Merger Agreement described under the section entitled "Approval of the Merger
and Related Transactions -- Escrow Fund" below. The Preferred Exchange Ratios
were determined in accordance with the Amended and Restated Certificate of
Incorporation of Illustra for each series of Illustra Preferred Stock by
dividing the liquidation preference for each share in such series by $25.75, the
closing price of Informix Common Stock on Nasdaq on December 20, 1995, the date
on which the Merger Agreement was executed.
Holders of Illustra Preferred Stock should note that the number of shares of
Informix Common Stock which they will be entitled to receive in respect of each
share of Illustra Preferred Stock held by them by virtue of the Merger will be
significantly greater if such shares of Illustra Preferred Stock are converted
into shares of Illustra Common Stock prior to the Effective Time. Illustra's
Certificate of Incorporation provides that the proposed Merger as described
herein would be treated as a liquidation of Illustra, in which event the holders
of Preferred Stock of Illustra would only receive proceeds from the Merger to
the extent of their liquidation preferences set forth in Illustra's Certificate
of Incorporation. Such proceeds would be substantially less than the proceeds
which would be received if the Illustra Preferred Stock were converted to
Illustra Common Stock prior to the Effective Time of the Merger. The holder of
all of the Series C Preferred has already executed and delivered to Illustra a
notice indicating its irrevocable election to convert its shares of Series C
Preferred into Illustra Common Stock immediately prior to the Effective Time.
Holders of a sufficient number of shares of Illustra Preferred Stock to cause
the automatic conversion of all other shares of Illustra Preferred
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Stock into shares of Illustra Common Stock have entered into Voting Agreements
with Informix, which provide for their irrevocable election to vote in favor of
such conversion immediately prior to the Effective Time.
The Certificate of Incorporation of Illustra currently provides that if and
to the extent shares of Series C Preferred are converted into shares of Illustra
Common Stock prior to the date which is ten business days after Illustra first
receives copies of its audited financial statements for the 1996 fiscal year
(the "Conversion Calculation Date"), the number of shares of Illustra Common
Stock that shall be deliverable upon conversion of a share of Series C Preferred
provisionally shall be deemed to be a fixed amount (the "Conversion Amount"),
and the Conversion Amount shall be subject to increase based on events that
would be determinable on the Conversion Calculation Date (the Illustra Common
Stock that would constitute an increase to the Conversion Amount per share of
Series C Preferred is hereinafter referred to as the "Series C Additional
Conversion Share"; and thus one right to receive a Series C Additional
Conversion Share would be outstanding for each share of Series C Preferred that
is converted into Illustra Common Stock prior to the Conversion Calculation
Date). Based on the foregoing and the terms and conditions of the Merger
Agreement, in the event that the Effective Time occurs prior to the Conversion
Calculation Date, then by virtue of the Merger, each outstanding right to
receive a Series C Additional Conversion Share immediately prior to the
Effective Time will be canceled and extinguished and be converted automatically
into the right to receive that number of shares of Informix Common Stock equal
to 0.25 times the Common Exchange Ratio, upon surrender of a certificate (or
other evidence reasonably satisfactory to Informix or the exchange agent)
representing such Series C Additional Conversion Share in the manner provided in
the Letter of Transmittal, including, with respect to each whole share of
Informix Common Stock to be received, one Right, and in any case, subject to the
escrow provisions of the Merger Agreement described under the section entitled
"Approval of the Merger and Related Transactions -- Escrow Fund" below.
STOCK OPTIONS. At the Effective Time, each outstanding Illustra Option,
whether vested or unvested, will be, in connection with the Merger, assumed by
Informix. Each Illustra Option so assumed by Informix under the Merger Agreement
will continue to have, and be subject to, the same terms and conditions set
forth in the Option Plan and/or as provided in the respective option agreements
governing such Illustra Option immediately prior to the Effective Time, except
that (i) such Illustra Option will be exercisable for that number of whole
shares of Informix Common Stock equal to the product of the number of shares of
Illustra Common Stock that were issuable upon exercise of such Illustra Option
immediately prior to the Effective Time multiplied by the Common Exchange Ratio,
rounded down (in the case of Illustra Options granted under the Option Plan) to
the nearest whole number of shares of Informix Common Stock and (ii) the per
share exercise price for the shares of Informix Common Stock issuable upon
exercise of such assumed Illustra Option will be equal to the quotient
determined by dividing the exercise price per share of Illustra Common Stock at
which such Illustra Option was exercisable immediately prior to the Effective
Time by the Common Exchange Ratio, rounded up to the nearest whole cent. It is
the intention of Informix and Illustra that the Illustra Options assumed by
Informix qualify following the Effective Time as incentive stock options under
the Code to the extent the Illustra Options qualified as incentive stock options
immediately prior to the Effective Time.
In connection with the Merger, the Illustra Common Stock subject to an early
exercise stock purchase agreement under the Option Plan will be exchanged for
Informix Common Stock at the Common Exchange Ratio, and the shares of Informix
Common Stock so received shall continue to be subject to the same repurchase
right in favor of the surviving corporation, which the surviving corporation may
assign to Informix. The number of shares of Informix Common Stock subject to
repurchase from time to time after the Merger and the repurchase price per share
shall be appropriately adjusted to reflect the exchange of Illustra Common Stock
for Informix Common Stock.
WARRANTS. Each warrant to purchase shares of Illustra Preferred Stock
outstanding at the Effective Time will be, in connection with the Merger,
assumed by Informix. Each warrant so assumed by Informix under the Merger
Agreement will continue to have, and be subject to, the same terms and
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conditions set forth in the warrant agreement governing such warrant immediately
prior to the Effective Time, except that each such warrant will, following the
Effective Time, be exercisable only for shares of Informix Common Stock, in such
number, and at such exercise price as is determined by applying the appropriate
exchange ratio in accordance with the terms of the applicable warrant agreement.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of Illustra as of January 2, 1996 and the
Exchange Ratio Assumptions, an aggregate of approximately 12,315,000 shares of
Informix Common Stock will be issued to Illustra stockholders in the Merger and
Informix will assume options exercisable for up to an additional approximately
2,685,000 shares of Informix Common Stock. Based upon the number of shares of
Informix Common Stock issued and outstanding as of December 31, 1995, and after
giving effect to the issuance of Informix Common Stock in connection with the
Merger (assuming no exercise of appraisal or dissenters' rights and assuming no
exercise prior to the Merger as described in the previous sentence), the former
holders of Illustra Capital Stock would hold approximately 8.3% of Informix's
total issued and outstanding shares and holders of former Illustra Options would
hold options to acquire Informix Common Stock exercisable for approximately 1.8%
of Informix's total issued and outstanding shares (assuming the exercise of only
such options). The foregoing numbers of shares and percentages are subject to
change in the event that the capitalization of Illustra changes subsequent to
January 2, 1996 and prior to the Effective Time and there can be no assurance as
to the actual capitalization of Illustra at the Effective Time.
ESCROW FUND
In connection with the Merger, at the Effective Time, 10% of the shares of
Informix Common Stock otherwise issuable to holders of Illustra Capital Stock by
virtue of the Merger (the "Escrow Shares") will be registered in the name of and
deposited with the Escrow Agent, such deposit to constitute the Escrow Fund. The
Escrow Shares shall be contributed to the Escrow Fund on behalf of each holder
of Illustra Capital Stock in proportion to the aggregate number of shares of
Informix Common Stock such holder would otherwise receive by virtue of the
Merger. No portion of the Escrow Fund will be contributed in respect of any
options or warrants to acquire shares of Illustra Capital Stock. The Escrow
Shares will be held in escrow as security for any losses that Informix incurs or
reasonably anticipates incurring by reason of certain breaches by Illustra of
covenants, representations or warranties contained in the Merger Agreement
including, without limitation, those relating to Illustra's organization and
standing, capital structure, authority, financial statements, absence of
changes, taxes, title to properties and condition of equipment, intellectual
property, material contracts, environmental matters, employee matters, and
compliance with laws. The Illustra stockholders will have voting rights with
respect to the Escrow Shares while in escrow. Resort to the Escrow Fund will be
the exclusive contractual remedy of Informix for any such breaches and
misrepresentations if the Merger closes, provided that nothing will limit any
remedy for fraud. Notwithstanding the foregoing, except in limited
circumstances, Informix may not receive any shares from the Escrow Fund unless
and until losses in excess of $500,000 have been suffered, in which case
Informix may recover from the Escrow Fund an amount of Escrow Shares with a
value equal to the total of its losses in excess of $500,000. For the purpose of
compensating Informix for its losses, the Escrow Shares shall be valued at the
average of the closing prices of Informix Common Stock for the five consecutive
trading days ending two days prior to the closing of the Merger. Subject to
resolution of unsatisfied claims of Informix, the Escrow Fund shall terminate
upon the earlier of (i) twelve months following the closing date of the Merger
and (ii) the issuance of Informix's audited financial statements for fiscal year
ending December 31, 1996.
BY APPROVING THE MERGER AGREEMENT, ILLUSTRA STOCKHOLDERS WILL BE DEEMED TO
HAVE CONSENTED TO THE APPOINTMENT OF GARY J. MORGENTHALER, AN AFFILIATE OF
MORGENTHALER VENTURE PARTNERS III, WHICH IS A STOCKHOLDER OF ILLUSTRA, TO ACT AS
THE SECURITYHOLDER AGENT ON BEHALF OF ILLUSTRA'S STOCKHOLDERS TO DELIVER SHARES
HELD IN ESCROW TO INFORMIX IN SATISFACTION OF CLAIMS BROUGHT BY INFORMIX, TO
OBJECT TO SUCH DELIVERIES, TO AGREE TO, TO NEGOTIATE AND TO ENTER INTO
SETTLEMENTS AND COMPROMISES WITH RESPECT TO SUCH CLAIMS, AND TO
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TAKE CERTAIN OTHER ACTION ON BEHALF OF ILLUSTRA'S STOCKHOLDERS, ALL AS MORE
FULLY DESCRIBED IN ARTICLE VII OF THE MERGER AGREEMENT. SEE ARTICLE VII OF THE
MERGER AGREEMENT FOR A MORE DETAILED EXPLANATION OF THE ESCROW FUND AND RIGHTS
WITH RESPECT THERETO.
LEGAL STRUCTURE OF THE MERGER
Under the Merger Agreement, Merger Sub, a wholly-owned subsidiary of
Informix formed for this purpose, will merge with and into Illustra with
Illustra being the surviving corporation of the Merger (the "Surviving
Corporation"). The Certificate of Incorporation of Merger Sub in effect
immediately prior to the Effective Time will become the Certificate of
Incorporation of the Surviving Corporation, the Bylaws of Merger Sub will become
the Bylaws of the Surviving Corporation and the Board of Directors of Merger Sub
will become the Board of Directors of the Surviving Corporation.
CONDUCT OF ILLUSTRA'S BUSINESS PRIOR TO THE MERGER
Under the Merger Agreement, Illustra has agreed, during the period from the
date of the Merger Agreement and continuing until the earlier of the termination
of the Merger Agreement pursuant to its terms and the Effective Time, except to
the extent that Informix otherwise consents in writing, that Illustra will carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, to pay its debts and taxes when due subject
to good faith disputes over such debts or taxes, to pay or perform other
material obligations when due, and to use all reasonable efforts consistent with
past practices and policies to preserve intact Illustra's present business
organizations, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with Illustra, to the
end that Illustra's goodwill and ongoing businesses be unimpaired in all
material respects at the Effective Time. Among other things, Illustra has agreed
that, subject to certain specific exceptions, it will not, without the prior
written consent of Informix:
(a) enter into any commitment or transaction not in the ordinary course
of business;
(b) transfer to any person or entity any rights to Illustra's
intellectual property, other than pursuant to licenses in the ordinary
course of business;
(c) enter into or amend any agreements pursuant to which any other party
is granted marketing, distribution or similar rights of any type or scope
with respect to any products of Illustra;
(d) amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
material to the business of Illustra;
(e) commence any litigation;
(f) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of Illustra, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock (or options, warrants or other rights exercisable
therefor);
(g) except for the issuance of shares of Illustra Capital Stock upon
exercise or conversion of presently outstanding Illustra Options, warrants
or Illustra Preferred Stock, or the grant of stock options to new employees
pursuant to outstanding written offers of employment, issue, grant, deliver
or sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating
it to issue any such shares or other convertible securities;
(h) cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
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(i) acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets in an amount in excess of $100,000 in the case of a single
transaction or in excess of $200,000 in the aggregate in any 30-day period;
(j) sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business;
(k) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of Illustra or guarantee
any debt securities of others;
(l) grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof;
(m) except as contemplated by the Merger Agreement adopt or amend any
employee benefit plan, or enter into any employment contract, extend
employment offers, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage
rates of its employees, except as consistent with the ordinary course of
Illustra consistent with past practice (provided that the price per share of
any equity participation in Illustra shall be agreed in advance by
Informix);
(n) revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) pay, discharge or satisfy, in an amount in excess of $100,000 (in
any one case) or $250,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the Illustra financial statements attached to the Merger Agreement or that
arose in the ordinary course of business subsequent to September 30, 1995 or
expenses consistent with the provisions of the Merger Agreement incurred in
connection with any transaction contemplated thereby;
(p) make or change any material election in respect of taxes, adopt or
change any accounting method in respect of taxes, enter into any closing
agreement, settle any claim or assessment in respect of taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of taxes; or
(q) take, or agree in writing or otherwise to take, any of the actions
described above, or any other action that would prevent Illustra from
performing or cause Illustra not to perform its covenants hereunder.
NO SOLICITATION
The Merger Agreement provides that Illustra shall not, and shall cause its
directors, officers, employees, representatives, agents and affiliates not to,
directly or indirectly, (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of Illustra
or any of its subsidiaries (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets, (b) provide information with respect to it to any person, other
than Informix, relating to the possible acquisition of Illustra (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its or their capital stock or assets, (c) enter into an
agreement with any person, other than Informix, providing for the acquisition of
Illustra (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets or (d) make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of Illustra or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets by
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any person, other than by Informix. In addition to the foregoing, Illustra has
agreed that if it receives prior to the Effective Time or the termination of the
Merger Agreement any offer or proposal relating to any of the above, it shall
promptly notify Informix thereof, and will provide information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Informix may reasonably request.
EXPENSES; FEES
Except as set forth below, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses, whether or not the Merger is consummated.
If the Merger Agreement is terminated by Informix as a result of certain
breaches of the Merger Agreement on the part of Illustra, other than as a result
of a knowing or willful breach by Illustra, then, within two business days
following such termination by Informix, Illustra has agreed to pay to Informix
the sum of $12 million as liquidated damages for the breach giving rise to such
termination. Nothing in the Merger Agreement, however, limits the liability of
Illustra for any knowing or willful breaches of the Merger Agreement on the part
of Illustra. If the Merger Agreement is terminated by Illustra as a result of
certain breaches of the Merger Agreement on the part of Informix, other than as
a result of a knowing or willful breach by Informix, then, within two business
days following such termination by Illustra, Informix has agreed to pay to
Illustra the sum of $12 million as liquidated damages for the breach giving rise
to such termination. Nothing in the Merger Agreement, however, limits the
liability of Informix for any knowing or willful breaches of the Merger
Agreement on the part of Informix.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Merger Agreement to effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
the following conditions: (a) the Merger Agreement and the Merger shall have
been approved and adopted by the requisite vote under applicable law of the
stockholders of Illustra, (b) the SEC shall have declared the Registration
Statement effective; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of this
Prospectus/Proxy Statement, shall have been initiated or threatened in writing
by the SEC; and all requests for additional information on the part of the SEC
shall have been complied with to the reasonable satisfaction of the parties, (c)
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be in
effect, (d) Informix and Illustra shall each have received substantially
identical written opinions from their counsel, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, (e) Informix
and Illustra shall have each received letters from Ernst & Young LLP and KPMG
Peat Marwick LLP reaffirming those firms' concurrence with Informix management's
and Illustra management's conclusions, respectively, as to the appropriateness
of pooling-of-interests accounting for the Merger under Accounting Principles
Board Opinion No. 16 if consummated in accordance with the Merger Agreement, (f)
the shares of Informix Common Stock issuable to stockholders of Illustra
pursuant to the Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing on
Nasdaq upon official notice of issuance, and (g) each of the parties identified
by Informix or Illustra as being an affiliate of such party shall have delivered
to Informix an executed affiliate agreement which shall be in full force and
effect.
In addition, the obligations of Illustra to consummate the Merger are
further subject to the satisfaction of a number of conditions, unless waived by
Illustra, including (a) the truth and accuracy in all material respects of the
representations and warranties of Informix and Merger Sub contained in the
Merger Agreement except for breaches which have neither had nor reasonably would
be
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expected to have a material adverse effect on Informix, and delivery to Illustra
of a certificate to such effect signed on behalf of Informix by a duly
authorized officer of Informix, (b) Informix and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants required
by the Merger Agreement and have delivered to Illustra of a certificate to such
effect signed by a duly authorized officer of Informix, (c) Illustra shall have
received a legal opinion from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to Informix, and (d) there shall not have occurred any
material adverse change (within the meaning of the Merger Agreement) in the
business, assets, financial conditions or results of operations of Informix
since September 30, 1995.
In addition, the obligations of Informix and Merger Sub to consummate the
Merger are further subject to the satisfaction of a number of conditions, unless
waived by Informix, including (a) the truth and accuracy in all material
respects of the representations and warranties of Illustra contained in the
Merger Agreement except for breaches which have neither had nor reasonably would
be expected to have a material adverse effect on Informix or Illustra and
delivery to Informix and Merger Sub of a certificate to such effect signed on
behalf of Illustra by a duly authorized officer of Illustra, (b) Illustra shall
have performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
it on or prior to the Effective Time, and Informix and Merger Sub shall have
received a certificate to such effect signed by a duly authorized officer of
Illustra, (c) Informix shall have received a legal opinion from Cooley Godward
Castro Huddleson & Tatum, counsel to Illustra, (d) there shall not have occurred
any material adverse change (within the meaning of the Merger Agreement) in the
business, assets, financial condition or results of operations of Illustra since
September 30, 1995; (e) all shares of Illustra Series A Preferred, Series B
Preferred and Series D Preferred shall have converted into Illustra Common
Stock, and the holder of the Illustra Series C Preferred shall have delivered to
Informix an irrevocable election to convert such Series C Preferred into
Illustra Common Stock, subject to and effective upon the closing of the Merger,
(f) certain employees of Illustra shall have signed and delivered to Informix a
non-competition agreements, and such agreements shall be in full force and
effect, and (g) holders of no more than five percent of the outstanding shares
of Illustra Capital Stock shall have exercised or continue to have the right to
exercise appraisal or dissenters' rights.
TERMINATION OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by Illustra's
stockholders, (a) by mutual consent of Informix and Illustra, (b) by Informix or
Illustra if: (i) the Effective Time has not occurred by May 15, 1996 (provided
that the right to terminate the Merger Agreement under this clause (b) shall not
be available to any party whose willful failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the Merger
illegal, (c) by Informix if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any governmental entity, which would: (i) prohibit Informix or
Illustra's ownership or operation of any portion of the business of Illustra or
(ii) compel Informix or Illustra to dispose of or hold separate, as a result of
the Merger, any portion of the business or assets of Illustra or Informix; in
either case, the unavailability of which assets or business would have a
material adverse effect on Informix or would reasonably be expected to have a
material adverse effect on Informix's ability to realize the benefits expected
from the Merger, (d) by Informix if it is not in material breach of its
obligations under the Merger Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in the Merger
Agreement on the part of Illustra and as a result of such breach certain
conditions to the Merger set forth above would not then be satisfied; provided,
however, that if such breach is curable by Illustra within thirty days through
the exercise of its reasonable best efforts,
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then for so long as Illustra continues to exercise such reasonable best efforts
Informix may not terminate the Merger Agreement under this clause (d) unless
such breach is not cured within thirty days (but no cure period shall be
required for a breach which by its nature cannot be cured), (e) by Illustra if
it is not in material breach of its obligations under the Merger Agreement and
there has been a breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement on the part of Informix or Merger Sub and as a
result of such breach certain conditions to the Merger set forth above would not
then be satisfied; provided, however, that if such breach is curable by Informix
or Merger Sub within thirty days through the exercise of its reasonable best
efforts, then for so long as Informix or Merger Sub continues to exercise such
reasonable best efforts Illustra may not terminate the Merger Agreement under
this clause (e) unless such breach is not cured within thirty days (but no cure
period shall be required for a breach which by its nature cannot be cured).
VOTING AGREEMENTS
Each of Accel IV L.P. and affiliated entities, Morgenthaler Venture Partners
III, Oak Investment Partners IV and an affiliated entity, Bruce Golden, Paula B.
Hawthorn, Harvey C. Jones, Stephen G. Maysonave, Michael R. Stonebraker, Michael
C. Ubell and Richard H. Williams (who own an aggregate of 2,537,300 shares of
Illustra Common Stock and 7,483,503 shares of Illustra Preferred Stock
representing approximately 58.7% and 66.4%, respectively, of the votes entitled
to be cast by holders of shares of Illustra Common Stock and Illustra Preferred
Stock issued and outstanding as of January 2, 1996) has entered into a Voting
Agreement with Informix. Each of the foregoing individuals and entities has been
identified by Illustra as an "affiliate" (as that term is defined for purposes
of Rule 145 promulgated under the Securities Act) of Illustra. Pursuant to the
Voting Agreements, which are irrevocable, each of the foregoing Illustra
stockholders has agreed to vote in favor of approval and adoption of the Merger
Agreement and approval of the Merger. The vote in accordance with the Voting
Agreements of the shares of Illustra Common Stock and Illustra Preferred Stock
subject to the Voting Agreements will be adequate to approve the Merger
Agreement and the Merger by Illustra stockholders.
CERTAIN BENEFITS TO ILLUSTRA MANAGEMENT AND EMPLOYEES
Following the Effective Time, Informix has advised Illustra that it will
appoint Richard H. Williams, Illustra's President and Chief Executive Officer,
and Michael R. Stonebraker, Illustra's Chief Technology Officer, as executive
officers of Informix. Each of Messrs. Williams and Stonebraker is expected to
receive compensation, including equity participation in Informix's equity plans,
consistent with the compensation levels of other senior management of Informix.
In addition, Informix has indicated that it presently intends to offer
employment, through Informix (or its subsidiaries), to all or substantially all
of the employees of Illustra following the Effective Time. Such employment is
expected to be on an "at will" basis at the discretion of Informix (or its
subsidiaries) and the employee. See "Illustra Management and Executive
Compensation -- Management."
The Merger Agreement also provides that, commencing with the effectiveness
of the Merger, Informix will either cause Illustra to or will itself directly
indemnify the current officers and directors of Illustra in accordance with
Illustra's Bylaws in effect immediately before the Merger for any action or
inaction by such person prior to the Merger.
NON-COMPETITION AGREEMENTS
Certain officers and other employees of Illustra have entered into
non-competition agreements with Informix and Illustra. These persons include
Richard H. Williams, President and Chief Executive Officer, Michael R.
Stonebraker, Chief Technology Officer, Bruce Golden, Vice President, Marketing,
Paula B. Hawthorn, Vice President, Engineering, Stephen G. Maysonave, Senior
Vice President, Sales, and Michael C. Ubell, Chief Scientist. The
non-competition agreements contain provisions restricting such persons for a
period of two years following the closing of the Merger from participating or
engaging in the design, development, manufacture, production, marketing, sale or
servicing of any product or the provision of any service, that directly or
indirectly competes with Illustra's or
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Informix's products or services. These restrictions cease if the restricted
party's employment is terminated by Informix or Illustra other than for cause
(as defined in the non-competition agreements) and other than as a result of a
voluntary resignation.
AFFILIATE AGREEMENTS
The Informix Common Stock to be issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any person
who is an "affiliate" of Informix or Illustra within the meaning of Rules 144
and 145 under the Securities Act. Rules 144 and 145 impose restrictions on the
manner in which such affiliates may resell securities and also on the quantity
of securities that such affiliates and others with whom they might act in
concert may resell within any three-month period.
As a condition to the Merger, prior to the Effective Time, each person who
has been identified by Illustra as an affiliate of Illustra is required to have
entered into an agreement with Informix providing that such person will not
offer to sell or otherwise dispose of any Informix Common Stock obtained as a
result of the Merger except in compliance with the Securities Act and the rules
and regulations thereunder. Generally this will require that such sales be made
in accordance with Rule 145(d) under the Securities Act, which in turn requires
that, for specified periods, such sales be made in compliance with the volume
limitations, manner of sale provisions and current information requirements of
Rule 144 under the Securities Act. The volume limitations should not pose any
material limitations on any Informix stockholder who owns less than one percent
of the outstanding Informix Common Stock after the Merger unless, pursuant to
Rule 144, such stockholder's shares are required to be aggregated with those of
another stockholder and together they exceed the one percent threshold.
In order to help ensure that the Merger will qualify as a "reorganization"
under Section 368(a) of the Code, the affiliate agreements to be executed by
each affiliate of Illustra contain a representation that such affiliate has no
plan or intention to sell any of the shares of Informix Common Stock received in
the Merger (and will have no such plan or intention at the Effective Time).
In order to help ensure that the Merger will be treated as a pooling of
interests for financial reporting purposes, affiliate agreements to be executed
by affiliates of both Illustra and Informix provide that such affiliate will
not, subject to a de minimis exception, (i) sell, transfer or otherwise dispose
of any shares of Illustra Capital Stock or any shares of Informix Common Stock,
or (ii) in any way reduce such affiliate's interest in or risk relating to such
shares of Illustra Capital Stock or Informix Common Stock, during the period
from at least thirty days prior to the Effective Time until two days after such
time as results of combined sales and net income covering at least thirty days
of combined operations of Illustra and Informix have been published by Informix
in the form of a quarterly earnings report, an effective registration statement
filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other
public filing or announcement which includes such results of combined sales and
net income.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of
Illustra Capital Stock. This discussion does not deal with all income tax
considerations that may be relevant to particular Illustra stockholders in light
of their particular circumstances, such as stockholders who are dealers in
securities, foreign persons, or stockholders who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger), including without
limitation transactions in which shares of Illustra Common Stock were or are
acquired or shares of Informix Common Stock (including the Escrow Shares) were
or are disposed of. Furthermore, no foreign, state or local tax considerations
are addressed herein. ACCORDINGLY, ILLUSTRA STOCKHOLDERS ARE URGED TO CONSULT
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THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER.
The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, with each of Informix, Merger Sub and Illustra
intended to qualify as a "party to the reorganization" under Section 368(b) of
the Code, in which case the following tax consequences will generally result
(subject to the limitations and qualifications referred to herein):
(a) No gain or loss will be recognized by holders of Illustra Capital
Stock solely upon their receipt of Informix Common Stock in the Merger
(except to the extent of cash received in lieu of a fractional share
thereof) in exchange therefor;
(b) The aggregate tax basis of the Informix Common Stock (including the
Escrow Shares) received in the Merger by a Illustra stockholder will be the
same as the aggregate tax basis of Illustra Capital Stock surrendered in
exchange therefor;
(c) The holding period of the Informix Common Stock (including the
Escrow Shares) received in the Merger by a Illustra stockholder will include
the period during which the stockholder held the Illustra Capital Stock
surrendered in exchange therefor, provided that the Illustra Capital Stock
is held as a capital asset at the time of the Merger;
(d) A Illustra stockholder who exercises appraisal or dissenters' rights
with respect to all of such holder's shares of Illustra Capital Stock will
generally recognize gain or loss for federal income tax purposes, measured
by the difference between the holder's basis in such shares and the amount
of cash received, provided that the payment is neither essentially
equivalent to a dividend within the meaning of Section 302 of the Code nor
has the effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the Code (collectively, a "Dividend Equivalent Transaction").
Such gain or loss will be capital gain or loss, provided that the Illustra
Capital Stock is held as a capital asset at the time of the Merger. A sale
of Illustra Capital Stock pursuant to an exercise of dissenters' rights will
generally not be a Dividend Equivalent Transaction if, as a result of such
exercise, the stockholder exercising dissenters' rights owns no shares of
Informix Common Stock or Illustra Capital Stock (either actually or
constructively within the meaning of Section 318 of the Code). If, however,
a stockholder's sale for cash of Illustra Capital Stock pursuant to an
exercise of dissenters' rights is a Dividend Equivalent Transaction, then
such stockholder will generally recognize ordinary income for federal income
tax purposes in an amount up to the entire amount of cash so received;
(e) Cash payments in lieu of a fractional share will be treated as if a
fractional share of Informix Common Stock had been issued in the Merger and
then redeemed by Informix. A Illustra stockholder receiving such cash will
generally recognize gain or loss upon such payment equal to the difference
(if any) between such stockholder's basis in the fractional share and the
amount of cash received; and
(f) None of Informix, Merger Sub or Illustra will recognize material
amounts of gain or loss solely as a result of the Merger.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. As a condition to the obligations of
Illustra and Informix to consummate the Merger, which condition is not waivable,
Illustra and Informix will receive opinions from their respective legal counsel,
Cooley Godward Castro Huddleson & Tatum and Wilson Sonsini Goodrich & Rosati,
Professional Corporation, to the effect that, for federal income tax purposes,
the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Code. These opinions, which are collectively referred to herein as
the "Tax Opinions," neither bind the IRS nor preclude the IRS from adopting a
contrary position. In addition, the Tax Opinions will be subject to certain
assumptions and qualifications and will be based on the truth and accuracy of
certain representations made by Informix, Merger Sub and Illustra and
stockholders of Illustra, including representations in certificates
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to be delivered to counsel by the respective managements of Informix, Merger Sub
and Illustra and certain stockholders of Illustra. Of particular importance will
be certain assumptions and representations relating to the "continuity of
interest" requirement.
To satisfy the continuity of interest requirement, Illustra stockholders
must not, pursuant to a plan or intent existing at or prior to the Merger,
dispose of or transfer so much of either (i) their Illustra Capital Stock in
anticipation of the Merger or (ii) the Informix Common Stock to be received in
the Merger (collectively, "Planned Dispositions"), such that the Illustra
stockholders, as a group, would no longer have substantial proprietary interest
in the Illustra business being conducted by Informix after the Merger. Planned
Dispositions include, among other things, shares disposed of pursuant to the
exercise of dissenters' rights. Illustra stockholders will generally be regarded
as having retained a substantial proprietary interest as long as the Informix
Common Stock received in the Merger (after reduction for any Planned
Dispositions), in the aggregate, represents a substantial portion of the entire
consideration received by the Illustra stockholders in the Merger. If the
continuity of interest requirement were not satisfied, the Merger would not be
treated as a "reorganization."
A successful IRS challenge to the "reorganization" status of the Merger (as
a result of a failure of the "continuity of interest" requirement or otherwise)
would result in a Illustra stockholder recognizing gain or loss with respect to
each share of Illustra Capital Stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
Effective Time of the Merger, of the Informix Common Stock received in exchange
therefor. In such event, a stockholder's aggregate basis in the Informix Common
Stock so received would equal its fair market value and his or her holding
period for such stock would begin the day after the Merger.
Even if the Merger qualifies as a "reorganization," a recipient of shares of
Informix Common Stock may recognize income or gain to the extent that such
shares were considered to be received in exchange for services or property
(other than solely Illustra Capital Stock), in which case all or a portion of
such income or gain may be taxable as ordinary income. In addition, gain or loss
may have to be recognized to the extent that a Illustra stockholder was treated
as receiving (directly or indirectly) consideration other than Informix Common
Stock in exchange for his or her Illustra Capital Stock.
GOVERNMENTAL AND REGULATORY APPROVALS
Other than compliance with the federal securities laws and applicable
securities laws of the various states, Informix and Illustra are aware of no
governmental or regulatory approvals required for consummation of the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon receipt by Informix and Illustra
of letters from Ernst & Young LLP, Informix's independent auditors, and KPMG
Peat Marwick LLP, Illustra's independent auditors, reaffirming those firms'
concurrence with Informix management's and Illustra management's conclusions,
respectively, as to the appropriateness of pooling-of-interests accounting for
the Merger under APB No. 16, if consummated in accordance with the Merger
Agreement.
APPRAISAL AND DISSENTERS' RIGHTS
Stockholders of Illustra who do not vote in favor of the Merger may, under
certain circumstances and by following the procedure prescribed by the DGCL,
exercise appraisal rights and receive cash for their shares of Illustra Capital
Stock. Alternatively, although Illustra is a Delaware corporation and is
therefore subject to the DGCL, the CGCL provides that Illustra may be subject to
California law with respect to dissenters' rights. Accordingly, pursuant to
Chapter 13 of the CGCL, stockholders of Illustra who do not vote in favor of the
Merger and who comply with the requirements of the CGCL will have a right to
demand payment for, and appraisal of the "fair value" of, their shares. Although
a
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dissenting stockholder may choose to proceed under one or both of the states'
statutes, the dissenting stockholder must follow the appropriate procedures
under either the DGCL or the CGCL or suffer the termination or waiver of such
rights. See "Applicability of California Law to Illustra."
DELAWARE APPRAISAL RIGHTS. If a holder of Illustra Capital Stock exercises
appraisal rights in connection with the Merger under Section 262 of the DGCL
("Section 262"), any shares of Illustra Capital Stock in respect of which such
rights have been exercised and perfected will not be converted into Informix
Common Stock but instead will be converted into the right to receive such
consideration as may be determined by the Delaware Court of Chancery (the
"Court") to be due with respect to such shares pursuant to the laws of the State
of Delaware. This Prospectus/Proxy Statement is being sent by personal delivery
or by mail to all holders of record of shares of Illustra Capital Stock on the
Illustra Record Date and constitutes notice of the appraisal rights available to
such holders under Section 262.
The following summary of the provisions of Section 262 is not intended to be
a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached to this
Prospectus/Proxy Statement as Annex B and incorporated herein by reference.
Holders of shares of Illustra Capital Stock who object to the Merger and who
follow the procedures in Section 262 will be entitled to have their shares of
Illustra Capital Stock appraised by the Court and to receive payment of the
"fair value" of such shares as of the Effective Time of the Merger.
A stockholder of Illustra electing to exercise appraisal rights must, prior
to the vote concerning the Merger at the Special Meeting, perfect his, her or
its appraisal rights by demanding in writing from Illustra the appraisal of his,
her or its shares of Illustra Capital Stock. A vote against the Merger will not
constitute a demand for appraisal. A stockholder electing to take such action
must do so by a separate written demand as provided in Section 262. A holder who
elects to exercise appraisal rights should mail or deliver his, her or its
written demand to Illustra at 1111 Broadway, Suite 2000, Oakland, California
94607. The demand should specify the holder's name and mailing address, the
number of shares of Illustra Capital Stock owned and that such holder is
demanding appraisal of his, her or its shares. Within ten days after the
Effective Time of the Merger, Illustra must provide notice of the Effective Time
of the Merger to all stockholders who have complied with Section 262 and have
not voted in favor of approval and adoption of the Merger Agreement and approval
of the Merger. Only a holder of record of shares of Illustra Capital Stock (or
his, her or its duly appointed representative) is entitled to assert appraisal
rights for the shares registered in that holder's name.
Within 120 days after the Effective Time of the Merger, any stockholder who
has made a valid written demand and who has not voted in favor of approval and
adoption of the Merger Agreement and approval of the Merger may (i) file a
petition in the Court demanding a determination of the value of shares of
Illustra Capital Stock, and (ii) upon written request, receive from Illustra a
statement setting forth the aggregate number of shares of Illustra Capital Stock
not voted in favor of approval and adoption of the Merger Agreement and approval
of the Merger and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such statement must be
mailed within ten days after the written request therefor has been received by
Illustra.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court is required to determine the holders of Dissenting Shares
entitled to appraisal rights and to determine the "fair value" of the Dissenting
Shares exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the value of the Dissenting Shares. In determining such "fair value",
the Court is required to take into account all relevant factors, including the
market value of Illustra Capital Stock and the net asset and earnings value of
Illustra, and in determining the fair value of interest, the Court may consider
the rate of interest which Illustra would have had to pay to borrow money during
the pendency of the proceeding. Upon application by a stockholder, the Court may
also order that all or a portion of the expenses
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incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the shares of Illustra Capital Stock entitled to
appraisal.
Any holder of Dissenting Shares who has duly demanded an appraisal under
Section 262 will not, after the Effective Time of the Merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on such Dissenting Shares (except
dividends or other distributions payable to stockholders of record as of a date
prior to the Effective Time of the Merger).
If any holder of shares of Illustra Capital Stock who demands appraisal
under Section 262 effectively withdraws or loses, his, her or its right to
appraisal, the shares of such holder will be converted into a right to receive
that number of shares of Informix Common Stock as is determined in accordance
with the Merger Agreement. A holder will effectively lose his right to appraisal
if he, she or it votes in favor of approval and adoption of the Merger Agreement
and approval of the Merger, or if no petition for appraisal is filed within 120
days after the Effective Time of the Merger, or if the holder delivers to
Illustra a written withdrawal of such holder's demand for an appraisal and an
acceptance of the Merger, except that any such attempt to withdraw made more
than 60 days after the Effective Time of the Merger requires the written
approval of Illustra. A holder of stock represented by certificates may also
lose his, her or its right to appraisal if he, she or it fails to comply with
the Court's direction to submit such certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings.
CALIFORNIA DISSENTERS' RIGHTS. By virtue of Section 2115 of the CGCL, if
holders of Illustra Capital Stock exercise dissenters' rights in connection with
the Merger under Sections 1300-1312 of the CGCL ("Section 1300"), any shares of
Illustra Capital Stock as to which such dissenters' rights are exercised will
not be converted into the right to receive shares of Informix Common Stock by
virtue of the Merger but instead will be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the laws of the State of California. The following
summary of the provisions of Section 1300 is not intended to be a complete
statement of such provisions and is qualified in its entirety by reference to
the full text of Section 1300, a copy of which is attached hereto as Annex C and
is incorporated herein by reference. See "Applicability of California Law to
Illustra."
If the Merger is approved by the required vote of Illustra's stockholders,
each holder of shares of Illustra Capital Stock who does not vote in favor of
the Merger and who follows the procedures set forth in Section 1300 will be
entitled to have shares of Illustra Capital Stock purchased by Illustra for cash
at their fair market value. The fair market value of shares of Illustra Capital
Stock will be determined as of the day before the first announcement of the
terms of the proposed Merger, excluding any appreciation or depreciation in
consequence of the proposed Merger and therefore valuing the shares of Illustra
Capital Stock as if the Merger had not occurred.
Within ten days after approval of the Merger by Illustra's stockholders,
Illustra must mail a notice of such approval (the "Approval Notice") to all
stockholders who have not voted in favor of the Merger, together with a
statement of the price determined by Illustra to represent the fair market value
of the applicable Dissenting Shares, a brief description of the procedures to be
followed in order for the stockholder to pursue dissenters' rights, and a copy
of Sections 1300-1304 of the CGCL. The statement of price by Illustra
constitutes an offer by Illustra to purchase all Dissenting Shares at the stated
amount.
A stockholder of Illustra electing to exercise dissenters' rights must,
within thirty days after the date in which the Approval Notice is mailed to such
stockholder, mail or deliver the written demand to Illustra stating that such
holder is demanding purchase of his or her shares of Illustra Capital Stock,
stating the number of shares which Illustra must purchase, what the stockholder
claims to be the fair market value of such shares and enclosing the share
certificates for endorsement by Illustra.
36
<PAGE>
If Illustra and the stockholder agree that the shares are Dissenting Shares
and agree upon the price of the shares, Illustra must pay the stockholder the
agreed upon price plus interest thereon at the legal rate from the date of the
agreement on Dissenting Shares within thirty days from the later of (i) the date
of the agreement on Dissenting Shares, or (ii) the date all contractual
conditions to the Merger are satisfied.
If Illustra denies that the shares are Dissenting Shares, or if Illustra and
the stockholder fail to agree upon the fair market value of shares of capital
stock, then within six months after the date the Approval Notice was mailed to
stockholders, any stockholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the Merger may file a
complaint in California superior court requesting a determination as to whether
the shares are Dissenting Shares or as to the fair market value of such holder's
shares of Illustra Capital Stock, or both.
37
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro Forma Combined Condensed Financial Statements
assume a business combination between Informix and Illustra accounted for on a
pooling-of-interests basis and are based on each company's respective historical
consolidated financial statements and notes thereto, which are included in this
Prospectus/Proxy Statement. The Pro Forma Combined Condensed Balance Sheet
combines Informix's consolidated condensed balance sheet as of October 1, 1995
with Illustra's consolidated condensed balance sheet as of September 30, 1995,
giving effect to the Merger as if it had occurred on October 1, 1995. The
unaudited Pro Forma Combined Condensed Statements of Income combine Informix's
historical results for the nine months ended October 1, 1995 and October 2, 1994
and the years ended December 31, 1994 and 1993 with Illustra's historical
results for the nine months ended September 30, 1995 and 1994, the twelve months
ended December 31, 1994 and the period from July 31, 1992 (inception) to June
30, 1993, respectively, giving effect to the Merger as if it had occurred at the
beginning of the earliest period presented. Since Illustra's inception date was
during its fiscal year ended June 30, 1993, the unaudited Pro Forma Combined
Condensed Statement of Income for the year ended December 31, 1992 is the same
as Informix's historical results for such period.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results or financial position.
These Pro Forma Combined Condensed Financial Statements should be read in
conjunction with the Informix and Illustra historical consolidated financial
statements, including the notes thereto, included in this Prospectus/Proxy
Statement.
38
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
ILLUSTRA
INFORMIX INFORMATION PRO FORMA
CORPORATION TECHNOLOGIES, COMBINED
OCTOBER 1, INC. SEPTEMBER OCTOBER 1,
1995 30, 1995 1995
----------- ---------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 123,291 $ 3,340 $ 126,631
Short-term investments............................................. 87,848 -- 87,848
Accounts receivable, net........................................... 171,807 2,395 174,202
Deferred taxes..................................................... 9,978 -- 17,969
Other current assets............................................... 20,933 215 21,148
----------- -------- -----------
Total current assets............................................. 413,857 5,950 427,798
Property and equipment, net.......................................... 67,189 2,793 69,982
Software costs, net.................................................. 34,815 -- 34,815
Deferred taxes....................................................... 7,651 -- 7,651
Long-term investments................................................ 9,702 -- 9,702
Intangible assets.................................................... 42,317 -- 42,317
Other assets......................................................... 18,615 89 18,704
----------- -------- -----------
Total assets..................................................... $ 594,146 $ 8,832 $ 610,969
----------- -------- -----------
----------- -------- -----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Accounts payable..................................... $ 24,187 $ 541 $ 24,728
Accrued expenses..................................... 30,416 348 36,764
Accrued employees compensation....................... 41,830 682 42,512
Income taxes payable................................. 47,275 -- 47,275
Deferred taxes....................................... 1,612 -- 1,612
Deferred revenue..................................... 61,568 4,622 66,190
Other current liabilities............................ 10,946 362 11,308
----------- ------------- ---------
Total current liabilities.......................... 217,834 6,555 230,389
Deferred taxes......................................... 14,595 -- 14,595
Other liabilities...................................... 1,330 484 1,814
Stockholders' equity:
Preferred stock...................................... -- 1 --
Common stock and additional paid-in capital.......... 157,948 21,178 179,127
Retained earnings (deficit).......................... 202,524 (19,384) 185,131
Unrealized gain on available-for-sale securities, net
of tax.............................................. 4,636 -- 4,636
Foreign currency translation adjustment.............. (4,721) (2) (4,723)
----------- ------------- ---------
Total stockholders' equity......................... 360,387 1,793 364,171
----------- ------------- ---------
Total liabilities and stockholders' equity....... $ 594,146 $ 8,832 $ 610,969
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
39
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ILLUSTRA
INFORMIX INFORMATION
CORPORATION NINE TECHNOLOGIES, INC. PRO FORMA COMBINED
MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 1, 1995 SEPTEMBER 30, 1995 OCTOBER 1, 1995
------------------- ------------------ --------------------
<S> <C> <C> <C>
Net revenues:
Licenses........................................ $ 369,120 $ 2,279 $ 371,399
Services........................................ 122,795 612 123,407
---------- -------- ----------
491,915 2,891 494,806
Costs and expenses:
Cost of software distribution................... 24,975 172 25,147
Cost of services................................ 61,996 1,545 63,541
Sales and marketing............................. 210,824 4,450 215,274
Research and development........................ 57,717 4,315 62,032
General and administrative...................... 34,975 1,053 36,028
---------- -------- ----------
390,487 11,535 402,022
---------- -------- ----------
Operating income (loss)......................... 101,428 (8,644) 92,784
Interest income................................... 5,563 185 5,748
Interest expense.................................. (538) (66) (604)
Other expense, net................................ (56) -- (56)
---------- -------- ----------
Income (loss) before income taxes............... 106,397 (8,525) 97,872
Income taxes...................................... 39,898 -- 36,146
---------- -------- ----------
Net income (loss)................................. $ 66,499 $ (8,525) $ 61,726
---------- -------- ----------
---------- -------- ----------
Net income (loss) per share....................... $ 0.48 $ (0.65) $ 0.41
---------- -------- ----------
---------- -------- ----------
Weighted average number of common and common
equivalent shares outstanding.................... 138,238 13,142 150,041
---------- -------- ----------
---------- -------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
40
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ILLUSTRA
INFORMIX INFORMATION
CORPORATION NINE TECHNOLOGIES, INC. PRO FORMA COMBINED
MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 2, 1994 SEPTEMBER 30, 1994 OCTOBER 2, 1994
------------------- ------------------ --------------------
<S> <C> <C> <C>
Net revenues:
Licenses........................................ $ 245,996 $ 474 $ 246,470
Services........................................ 72,633 434 73,067
---------- ------- ----------
318,629 908 319,537
Costs and expenses:
Cost of software distribution................... 16,741 55 16,796
Cost of services................................ 33,118 533 33,651
Sales and marketing............................. 134,807 2,455 137,262
Research and development........................ 43,897 2,807 46,704
General and administrative...................... 24,847 621 25,468
---------- ------- ----------
253,410 6,471 259,881
---------- ------- ----------
Operating income (loss)......................... 65,219 (5,563) 59,656
Interest income................................... 2,720 92 2,812
Interest expense.................................. (213) (47) (260)
Other expense, net................................ (1,539) -- (1,539)
---------- ------- ----------
Income (loss) before income taxes............... 66,187 (5,518) 60,669
Income taxes...................................... 23,827 -- 21,473
---------- ------- ----------
Net income (loss)................................. $ 42,360 $ (5,518) $ 39,196
---------- ------- ----------
---------- ------- ----------
Net income (loss) per share....................... $ 0.32 $ (0.62) $ 0.28
---------- ------- ----------
---------- ------- ----------
Weighted average number of common and common
equivalent shares outstanding.................... 134,188 8,859 141,772
---------- ------- ----------
---------- ------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
41
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFORMIX ILLUSTRA INFORMATION
CORPORATION TECHNOLOGIES, INC. PRO FORMA COMBINED
YEAR ENDED TWELVE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994
------------------- -------------------- --------------------
<S> <C> <C> <C>
Net revenues:
Licenses...................................... $ 363,756 $ 905 $ 364,661
Services...................................... 104,941 510 105,451
---------- ------- ----------
468,697 1,415 470,112
Costs and expenses:
Cost of software distribution................. 24,669 104 24,773
Cost of services.............................. 45,986 813 46,799
Sales and marketing........................... 200,538 3,278 203,816
Research and development...................... 60,417 3,846 64,263
General and administrative.................... 34,526 844 35,370
---------- ------- ----------
366,136 8,885 375,021
---------- ------- ----------
Operating income (loss)....................... 102,561 (7,470) 95,091
Interest income................................. 3,847 123 3,970
Interest expense................................ (380) (61) (441)
Other expense, net.............................. (2,598) -- (2,598)
---------- ------- ----------
Income (loss) before income taxes............. 103,430 (7,408) 96,022
Income taxes.................................... 37,234 -- 34,074
---------- ------- ----------
Net income (loss)............................... $ 66,196 $ (7,408) $ 61,948
---------- ------- ----------
---------- ------- ----------
Net income (loss) per share..................... $ 0.49 $ (0.78) $ 0.43
---------- ------- ----------
---------- ------- ----------
Weighted average number of common and common
equivalent shares outstanding.................. 134,610 9,507 142,782
---------- ------- ----------
---------- ------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
42
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ILLUSTRA
INFORMATION
TECHNOLOGIES, INC.
INFORMIX PERIOD FROM JULY
CORPORATION 31, 1992 PRO FORMA COMBINED
YEAR ENDED (INCEPTION) TO YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31,
1993 1993 1993
------------------- ------------------ --------------------
<S> <C> <C> <C>
Net revenues:
Licenses........................................ $ 284,338 $ -- $ 284,338
Services........................................ 68,577 200 68,777
---------- ------- ----------
352,915 200 353,115
Costs and expenses:
Cost of software distribution................... 20,077 -- 20,077
Cost of services................................ 32,944 150 33,094
Sales and marketing............................. 137,698 74 137,772
Research and development........................ 43,619 884 44,503
General and administrative...................... 33,188 556 33,744
---------- ------- ----------
267,526 1,664 269,190
---------- ------- ----------
Operating income (loss)......................... 85,389 (1,464) 83,925
Interest income................................... 3,943 24 3,967
Interest expense.................................. (371) -- (371)
Other expense, net................................ (1,282) -- (1,282)
---------- ------- ----------
Income (loss) before income taxes............... 87,679 (1,440) 86,239
Income taxes...................................... 31,564 -- 31,250
---------- ------- ----------
Net income (loss)................................. $ 56,115 $ (1,440) $ 54,989
---------- ------- ----------
---------- ------- ----------
Net income (loss) per share....................... $ 0.42 $ (0.46) $ 0.40
---------- ------- ----------
---------- ------- ----------
Weighted average number of common and common
equivalent shares outstanding.................... 135,202 3,101 137,827
---------- ------- ----------
---------- ------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
43
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PERIODS COMBINED
The unaudited Pro Forma Combined Condensed Statements of Income combine the
historical statements of income of Informix for the nine months ended October 1,
1995 and October 2, 1994 and the fiscal years ended December 31, 1994 and 1993
with the historical statements of operations of Illustra for the nine months
ended September 30, 1995 and 1994, the twelve months ended December 31, 1994 and
the period from July 31, 1992 (inception) to June 30, 1993, respectively. Since
Illustra's inception date was during its fiscal year ended June 30, 1993, the
unaudited Pro Forma Combined Statement of Income for the year ended December 31,
1992 is the same as Informix's historical results for such period. Due to the
periods combined as described above, Illustra's net revenues of $152,000 and net
loss of $2,011,000 for the period July 1, 1993 to December 31, 1993 are not
included in the Pro Forma Combined Condensed Statements of Income.
NOTE 2. BASIS OF PRESENTATION
PRO FORMA OUTSTANDING INFORMIX COMMON STOCK
The maximum number of shares of Informix Common Stock to be issued in the
Merger (including Informix Common Stock to be reserved for issuance upon
exercise of Illustra's options and warrants to be assumed by Informix) in
exchange for the acquisition by Informix of all outstanding Illustra Capital
Stock and all outstanding options and warrants to acquire Illustra Capital Stock
will be 15,000,000 shares. Consequently, the Common Exchange Ratio will depend
on the capitalization of Illustra at the Effective Time. Assuming that all
shares of Illustra Preferred Stock are converted to shares of Illustra Common
Stock prior to the Effective Time, and further assuming that the capitalization
of Illustra at the Effective Time is in all other respects identical to the
capitalization as of September 30, 1995, the Common Exchange Ratio would be
0.82685 of a share of Informix Common Stock for each outstanding share of
Illustra Common Stock. Such Common Exchange Ratio was used in preparing the pro
forma combined financial data and the following table which provides the pro
forma share issuance in connection with the Merger:
<TABLE>
<S> <C>
Illustra Common Stock outstanding at September 30, 1995 (assuming
conversion of all outstanding Illustra Preferred Stock).............. 14,344,299
Common Exchange Ratio................................................. 0.82685
-----------
Number of shares of Informix Common Stock exchanged for Illustra
Common Stock......................................................... 11,860,603
Number of shares of Informix Common Stock exchanged for rights of
Series C Preferred Stock of Illustra................................. 174,557
-----------
Total number of shares of Informix Common Stock exchanged............. 12,035,160
Number of shares of Informix Common Stock outstanding as of October 1,
1995................................................................. 134,520,180
-----------
Number of shares of Informix Common Stock outstanding after completion
of the Merger........................................................ 146,555,340
-----------
-----------
</TABLE>
The actual number of shares of Informix Common Stock to be exchanged for all
of the outstanding Illustra Common Stock will be determined at the Effective
Time based on the capitalization of Illustra at the Effective Time.
MERGER-RELATED EXPENSES
Informix and Illustra estimate that they will incur Merger-related expenses,
consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other
44
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
related charges, of approximately $6.0 million. This estimate is preliminary and
is therefore subject to change. These nonrecurring expenses will be charged to
operations in the fiscal quarter in which the Merger is consummated.
The Pro Forma Condensed Combined Balance Sheet gives effect to such expenses
as if they had been incurred as of October 1, 1995, but the Pro Forma Combined
Condensed Statements of Income do not give effect to such expenses.
PRO FORMA ADJUSTMENTS
Since Informix plans to file consolidated tax returns which will include
Illustra's operations subsequent to the Effective Time, pro forma adjustments
were made to reduce the valuation allowances previously provided by Illustra for
Illustra's net deferred tax assets related primarily to loss carryforwards
generated since its inception in July 1992. Informix has determined that
estimated combined future taxable income is sufficient to conclude that it is
more likely than not that such net deferred tax assets could be realized. As a
result, the Pro Forma Combined Condensed Financial Statements include pro forma
adjustments which reduced income tax expense by $3,752,000, $2,354,000,
$3,160,000 and $314,000 for the the nine months ended October 1, 1995 and
October 2, 1994 and the years ended December 31, 1994 and 1993, respectively,
and increased net deferred tax assets by $7,991,000 at October 1, 1995. Other
than for the Merger-related expenses as described above, there were no other pro
forma adjustments.
CONFORMING ADJUSTMENTS
No adjustments were required to conform the accounting policies of Illustra
and Informix. Certain amounts for Illustra have been reclassified to conform to
Informix's financial statements presentation.
NOTE 3. PRO FORMA NET INCOME PER SHARE
The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive common stock equivalent shares of
Informix Common Stock and Illustra Common Stock and assumes conversion of all
outstanding Illustra Preferred Stock at the beginning of the earliest period
presented and further assumes a Common Exchange Ratio as of September 30, 1995
of 0.82685 of a share of Informix Common Stock for each outstanding share of
Illustra Common Stock and the issuance of 174,557 shares of Informix Common
Stock in satisfaction of certain rights retained by the former holders of Series
C Preferred Stock upon conversion of Series C Preferred Stock to Illustra Common
Stock. The actual number of shares of Informix Common Stock to be exchanged for
all of the outstanding Illustra Common Stock will be determined at the Effective
Time based on the capitalization of Illustra at the Effective Time.
Share and per share information applicable to prior periods for Informix has
been restated to reflect a two-for-one stock split (effected in the form of a
stock dividend) which was effective on June 26, 1995.
45
<PAGE>
INFORMIX BUSINESS
BACKGROUND
Informix designs, develops, manufactures, markets and supports distributed
relational database management systems, object-oriented, graphical- and
character-based application development tools and graphical data-access tools
for delivering information to most significant desktop platforms. In addition to
software products, Informix offers training, consulting and maintenance to its
customers. Informix was initially incorporated in California in 1980 and was
reincorporated in Delaware in August 1986. Unless the context requires
otherwise, the term "Informix" refers to Informix Corporation and its
subsidiaries.
Informix designs, develops, manufactures, markets and supports database
management systems, connectivity interfaces and gateways and application
development tools for graphical- and character-based software applications all
as part of relational database management systems ("RDBMS"). All of the Informix
database products developed since 1983 support Structured Query Language
("SQL"), an industry standard created by IBM. Informix believes that its
INFORMIX-4GL Product, introduced in 1986, was the first fourth-generation
applications development language consolidating SQL with syntax for menu
creation, formatted screen generation and report writing. The combination of
these features significantly increases programmer productivity and flexibility
in developing applications software. Informix's core database management
software runs on the UNIX-Registered Trademark-, Windows-TM- and Windows/NT-TM-
operating systems, and certain networks composed of computers running these
operating systems.
Informix's customers consist primarily of end-users, application resellers,
computer original equipment manufacturers ("OEMs") and distributors. Informix
markets its products directly to end-users through its sales force and
indirectly to end-users through application resellers, OEMs and distributors.
In 1995, Informix had three internal sales organizations: North America;
Europe, Middle East and Africa; and the Intercontinental Group, which included
Japan and the Asia/Pacific and Latin America regions. Effective January 1, 1996,
these sales organizations were reorganized into the following groups: Americas,
including the North America and Latin America regions; International, including
the Europe, Middle East, Africa and Asia/Pacific regions; and Japan. The
Americas sales organization is headquartered in Menlo Park, California, has
sales offices located in major cities throughout the United States and Canada
and in 7 Latin American countries. The International sales organization,
headquartered in the United Kingdom, has sales offices in 29 countries. Informix
also has a European development, production and distribution center located in
Ireland. The Japan sales organization is headquartered in Tokyo, Japan. Informix
has operating subsidiaries in 36 foreign countries.
PRODUCTS
DATABASE ENGINES
Informix offers the following relational database SQL engines, which share a
common set of development tools:
- INFORMIX-OnLine, Informix's first generation on-line transaction
processing ("OLTP") database server with stored procedures, triggers,
referential integrity, high availability, document imaging support and
fast response times in heavy transaction environments.
- INFORMIX-OnLine Dynamic Server-TM-, Informix's second generation OLTP
engine. This server is based on Informix's Dynamic Scalable Architecture
and features parallel data processing capability, replication and
connectivity options built into the core database server, offering users
significant enhancements without adding additional cost. This product is
available on uniprocessor and symmetric multiprocessing systems.
46
<PAGE>
- INFORMIX-OnLine Extended Parallel Server, a new, high-performance,
scalable database server which extends Informix's Dynamic Scalable
Architecture to loosely coupled, "shared nothing" computing architectures,
including clusters of symmetric multiprocessing systems and massively
parallel processing systems. This product became available in the third
quarter of 1995 on a limited basis.
- INFORMIX-SE, designed for smaller organizations with limited MIS staffing
or minimal database expertise because it is easy to install and maintain.
This product provides the power of SQL without the complex database
administration requirements.
DATABASE TOOLS
Informix offers a variety of database application development tools designed
to allow users to build applications quickly and maintain them easily. The
Informix database tools are:
- INFORMIX-NewEra-TM-, a graphical, object-oriented development environment
designed for creating enterprise-wide multi-tier client/server database
applications. INFORMIX-NewEra features a fourth-generation object-oriented
programming language, reusable class libraries, application partitioning,
and flexible application deployment, and supports open connectivity to
Informix and non-Informix databases. INFORMIX-NewEra is currently
available for Microsoft-Registered Trademark- Windows-TM- and OSF
Motif-TM-.
- INFORMIX-4GL, a character-based development environment, which includes a
fourth-generation programming language with full screen-building, report
entry and SQL database input/ output capabilities. The INFORMIX-4GL
product family is comprised of three core products: INFORMIX-4GL Compiled,
INFORMIX-4GL Rapid Development System and INFORMIX-4GL Interactive
Debugger.
- INFORMIX-SQL, a package of five interactive tools for creating
character-based applications. INFORMIX-SQL consists of a forms package, a
report writer, an interactive SQL editor, a menu builder and an
interactive schema editor.
- C-ISAM-Registered Trademark-, a library of C functions that manage indexed
sequential access method files. C-ISAM bypasses the overhead of an entire
database management system and allows direct access to an application's
records.
- INFORMIX-NewEra ViewPoint-TM-, a graphical database access and analytical
tool specifically designed to give non-technical computer users point and
click access to information contained in corporate or departmental
databases and to run their own customized forms and reports.
- INFORMIX-NewEra ViewPoint Pro, a graphical database administration tool,
includes all of the features of INFORMIX-NewEra ViewPoint, as well as a
database schema builder, a SQL editor and a SuperView-TM- builder, for
creating highly specialized views to the database that simplify access,
retrieval and analysis of data.
- INFORMIX-MetaCube-TM-, a high-performance on-line analytical processing
engine that automatically preconsolidates data and provides a
multidimensional view of data without the constraints of a two dimensional
(row and table) data model. The INFORMIX-MetaCube product family also
includes MetaCube Explorer, an adhoc decision support tool for end users,
MetaCube Warehouse Manager, a graphical tool for administering the
"metadata" describing a database in a logical, user-friendly view,
MetaCube Agents, a scheduler to perform user queries and administrative
tasks on a database in the background, and MetaCube for Excel, an add-in
to the standard Microsoft spreadsheet environment. The MetaCube products
became available in the fourth quarter of 1995 as a result of Informix's
acquisition of Stanford Technology Group, Inc.
In February 1995, Informix entered into an agreement with Investment
Intelligence Systems Limited ("IISL") which gave IISL exclusive rights to
develop, distribute, sell and support the
47
<PAGE>
INFORMIX-Wingz-Registered Trademark- spreadsheet and the
INFORMIX-HyperScript-Registered Trademark- Tools graphical development
environment to new and existing customers. IISL assumed full responsibility for
both products effective June 30, 1995. The agreement is world-wide, with the
exception of Japan, where ASCII Corporation retains the exclusive rights to
market and distribute the Kanji version of INFORMIX-Wingz.
In October 1995, Informix acquired Stanford Technology Group, Inc., a United
States based provider of on-line analytical processing technology, for
approximately 570,000 shares of Informix common stock. The transaction will be
accounted for as a pooling of interests. As a result of this acquisition,
Informix added the INFORMIX-MetaCube product family to its product line.
CONNECTIVITY PRODUCTS
The Informix connectivity products are:
- INFORMIX-Gateway-TM- with DRDA, a UNIX-based connectivity tool allowing
interoperability to IBM databases such as DB2, DB2/VM and DB2/400 from
Windows and UNIX clients. INFORMIX- Gateway with DRDA allows applications
built with Informix application development tools to transparently access
and modify information in Distributed Relational Database Architecture-TM-
-- compliant database management systems.
- INFORMIX-Enterprise Gateway-TM-, a UNIX-based connectivity tool, which
incorporates the Enterprise Data Access SQL suite of products from
Information Builders, Inc. This product provides transparent access
through SQL statements and remote procedure calls to over 60 relational
and non-relational data sources on 35 different hardware platforms and
operating systems.
- INFORMIX-STAR, provides the ability to access INFORMIX-OnLine databases
stored on multiple servers in the same transaction. INFORMIX-STAR allows
the joining and viewing of multiple databases at different locations as if
they were one common database. The functionality of this product is
automatically included in INFORMIX-OnLine Dynamic Server and
INFORMIX-OnLine Extended Parallel Server.
- INFORMIX-NET, allows the off-loading of application processing from the
server to a client workstation. The functionality of this product is
included in INFORMIX-SE and all of Informix's UNIX-based tools.
INFORMIX-NET PC for DOS permits the same offloading between a PC
workstation and an Informix database server.
- INFORMIX DCE/NET, a connectivity product based on the Open Software
Foundation Distributed Computing Environment specification. This Product
allows customers transparent access to Informix and other relational
databases and takes advantage of DCE security and directory services.
- INFORMIX-TP/XA, links INFORMIX-OnLine to a transaction manager to support
transactions involving multiple databases and multiple computer systems.
INFORMIX-TP/XA is a library of C functions that establishes the connection
between INFORMIX-OnLine and the transaction manager.
- INFORMIX-ESQL for C and COBOL, embedded SQL products which permit
developers to take advantage of SQL technology while building applications
in C or COBOL.
MAINTENANCE, CONSULTING AND SERVICES
Informix maintains field-based and centralized corporate technical staffs to
provide a comprehensive range of assistance to its customers. These services
include pre- and post- sales technical assistance, consulting, product and sales
training and technical support services. Consultants and trainers provide
services to customers to assist them in the use of Informix's products and the
design and development of applications that utilize Informix's products.
Informix provides maintenance to its RDBMS customers on an optional basis
for fees ranging from 10% to 18% of the license fees paid by the customer which
generally includes product updates.
48
<PAGE>
MARKETING AND CUSTOMERS
In 1995, Informix had three internal sales organizations: North America;
Europe, Middle East and Africa; and the Intercontinental Group, which included
Japan and the Asia/Pacific and Latin America regions. Effective January 1, 1996,
these sales organizations were reorganized into the following groups: Americas,
including the North America and Latin America regions; International, including
the Europe, Middle East, Africa and Asia/Pacific regions; and Japan.
In North America, Informix distributes its products through the channels of
direct end-user licensing, OEMs, application resellers addressing specific
markets and distributors. Informix licenses its products to large companies and
government entities through its direct sales force, and to certain of these
companies, as well as smaller end-users, through its telemarketing sales force.
In Europe, Latin America and Japan, Informix uses distribution channels
similar in type to those used by Informix in the United States. In other foreign
regions, Informix licenses its products to end-users primarily through
application resellers, distributors and OEMs.
Informix has chosen a multiple channel distribution strategy to maintain
broad market coverage and product availability. Informix, therefore, has
generally avoided exclusive relationships with its licensees and other resellers
of its products. Discount policies and reseller licensing programs are intended
to support each distribution channel with a minimum of channel conflict.
At December 31, 1995, Informix's sales, marketing and support staff totaled
1,011 regular employees in the North America region; 103 regular employees in
the Latin America region, 652 regular employees in the Europe, Middle East and
Africa regions, 231 regular employees in the Asia/ Pacific region and 77 regular
employees in Japan.
In January 1995, Informix acquired a 90 percent interest in the database
division of ASCII Corporation, a distributor of its products in Japan. Informix
acquired the remaining 10 percent interest in January 1996. This acquisition has
been recorded as a purchase. The purchase cost of this business was
approximately $46,000,000. Additionally, in April 1995, Informix acquired an 80
percent interest in the database division of Daou Corporation, a distributor of
its products in Korea. Informix will acquire the remaining 20 percent interest
in January 1997. This acquisition has been recorded as a purchase with the
purchase cost of this business being approximately $4,300,000.
Informix provides a financing option to customers in connection with the
license of software in the United States through its wholly-owned subsidiary,
Informix Credit Company. Similar financing is offered in Europe.
LICENSING
END-USER LICENSING
Informix's products are licensed directly to end-users through Informix's
sales force as well as indirectly to end-users through application resellers,
OEMs and distributors. Informix believes that the common core technology of its
RDBMS software products, based on standard operating systems and the SQL
database language places it in a strong position to sell into major corporations
and government agencies that wish to standardize their diverse computing
environments. As a result, certain of these end-user organizations have entered
into general purchasing agreements with Informix which offer volume discounts.
APPLICATION RESELLER LICENSING
Since its inception, Informix has licensed application resellers to
distribute its products. A typical application reseller develops an application
product (e.g., an insurance agency management system) using one of Informix's
products and then licenses the resultant application software to its customers
in the target market. The application reseller customer purchases a license for
use of Informix's product to develop an applications program. Depending on the
application program developed, it may include a run-only license, a full version
license or even multiple product licenses.
49
<PAGE>
Application resellers develop applications using a wide array of application
development tools, including products from Informix, such as INFORMIX-NewEra,
INFORMIX-4GL and INFORMIX-SQL, as well as products offered by third parties.
Applications developed using Informix's products are generally portable across
various brands of computers and different operating systems. Informix believes
that this feature is significant to this distribution channel.
Informix has specialized programs to support the application reseller
distribution channel. Under these programs, Informix provides to selected
application resellers a combination of marketing development services,
consulting and technical marketing support and discounts.
OEM LICENSING
Informix's products are also marketed with the assistance of the sales
forces of its OEM customers who have concluded that "solution selling" of a
combination of software and hardware to their respective customers enhances the
sales of their computer equipment. Informix believes that the compatibility and
range of applications for its products is significant to this distribution
channel.
DISTRIBUTOR LICENSING
Informix has established a network of full service international
distributors who provide local service and support, as well as Informix's
products, to their respective national markets. Informix's products have been
translated by Informix or Informix's distributors into a number of foreign
languages, including Japanese (Kanji), Chinese (Simplified and Traditional),
Czech, Danish, French, German, Hebrew, Hungarian, Korean (Hangul), Italian,
Polish, Russian, Slovak, Spanish, Swedish and Thai.
PRODUCT DEVELOPMENT
The computer software industry is highly competitive and rapidly changing.
Consequently, Informix dedicates considerable resources to research and
development efforts to enhance its existing product line and to develop new
products to meet new market opportunities. Major research and development
projects in 1995 included new releases of INFORMIX-NewEra and INFORMIX-OnLine
Dynamic Server and the release of INFORMIX-OnLine Extended Parallel Server on a
limited basis.
Most of Informix's current software products and accompanying documentation
have been developed internally; however, Informix has acquired certain software
products from others and plans to do so again in the future.
Current product development is focused toward:
- Improvement and enhancement of current products and new products, with
particular emphasis on parallel computer architecture, graphical desk top,
system administration, application partitioning, mobile capabilities and
support for complex data, such as audio, video, text and images of the
type often used in World Wide Web or other Internet-based applications.
- Improvements to Informix products to provide greater speed and support for
larger numbers of concurrent users.
- Adaptation of new products to the broad range of computer brands and
operating systems Informix currently supports and adaptation of current
products to new brands of computers and operating systems which represent
attractive market opportunities for Informix products.
There can be no assurance that Informix's product development efforts will
be successful or that any new products will achieve significant market
acceptance.
As of December 31, 1995, Informix had 644 regular employees engaged in
research and development.
50
<PAGE>
COMPETITION
Informix faces intense competition in the market for RDBMS software
products. Companies in the RDBMS market compete primarily on the basis of
price/performance characteristics, name recognition, and technical support,
training and consulting services.
With respect to RDBMS performance, Informix believes that the principal
competitive factors include:
- Application development productivity (the speed with which applications
can be built).
- Database performance (the speed at which database storage and retrieval
functions are executed).
- The ability to support large warehouses of information.
- Reliability, availability and serviceability.
- The distribution of RDBMS software applications and data across networks
of computers from multiple suppliers.
- Increasingly, the ability to manage complex data and solve more complex
business problems based on such data.
Informix believes that the technical advantages of its products, its
approach to sales and marketing, its relations with application resellers, OEMs
and distributors and its customer service and support contribute to its ability
to compete favorably in this market.
The chief competition faced by Informix is currently provided by Oracle
Corporation, Sybase, Inc., CA Ingres (a subsidiary of Computer Associates
International, Inc.), IBM Corporation, Microsoft Corporation and Red Brick
Systems, Inc. and suppliers of third party tools such as Gupta Corporation,
Forte Software, Inc. and Dynasty Technologies, Inc. Informix believes that there
is a large market for RDBMS software which might attract additional competitors.
Additionally, some of Informix's current competitors and many potential
competitors have greater financial, technical and marketing resources than
Informix.
To the extent that market acceptance for personal computer oriented
technologies increases at the expense of UNIX or other non-PC platforms, this
could result in greater price pressure on certain of Informix's database
products and services. The availability and market acceptance of Microsoft
Corporation's Windows NT operating system may increase the competition faced by
the principal operating system platforms on which Informix's products operate
and may result in greater price pressure on certain of Informix's database
products and services. Also, new or enhanced products introduced by existing or
future competitors could have an adverse effect on Informix's business. Existing
and future competition or changes in Informix's product or services pricing
structure or product or service offerings could result in an immediate reduction
in the prices of Informix's products or services. If this were to result in
significant price declines, the effects of which were not offset by any
resulting increases in sales volume of Informix's products or services,
Informix's business, results of operations and financial condition would be
adversely affected.
PRODUCT PROTECTION
Informix relies on a combination of trade secret, copyright and trademark
laws, license agreements and technical measures to protect its rights in its
software products. Like many software companies, Informix has no patents to
date, although it has applied for four software patents for core technology
present in Informix products, and is proceeding with applications for several
other software patents. Informix maintains trademark and service mark
registrations in the United States and numerous other foreign jurisdictions.
Informix's products are generally licensed to end-users on a "right-to-use"
basis pursuant to a license that restricts the use of the products to the
customer's internal business purposes either on a single computer at a single
site or to a specific number of users at a single site or enterprise wide.
51
<PAGE>
Informix also relies on "shrink-wrap" licenses. Informix's "shrink-wrap" license
includes a prominently displayed notice informing the end-user that, by opening
the product packaging, the end-user agrees to be bound by Informix's license
agreement printed on the package. Copyright and trade secret protection for
source and object code version of software products may be unavailable in
certain foreign countries. In addition, "shrink-wrap" licenses may be wholly or
partially unenforceable under the laws of certain jurisdictions.
Informix protects the human readable, source code version of its products as
a trade secret and an unpublished copyrighted work. Informix has licensed the
source code of its products to certain customers under certain circumstances,
and for restricted uses. In addition, Informix has entered into source code
escrow agreements with a number of its customers that generally require release
of source code to the customer in the event there is a bankruptcy or similar
proceeding by or against Informix, Informix ceases to do business or Informix
ceases to support the product. In the event of a release of the source code to a
customer, the customer is required to maintain its confidentiality and, in
general, to use the source code solely for internal business purposes or for the
purpose of providing maintenance and support to its customers, and, in certain
circumstances, to embedding it in customer products.
Informix believes that, because of the rapid pace of technological change in
the computer software industry, patent, trade secret and copyright protection
are less significant than factors such as the knowledge, ability and experience
of Informix's personnel, new product introduction, frequent product enhancement,
name recognition and ongoing product maintenance.
EMPLOYEES
As of December 31, 1995, Informix and its subsidiaries had 3,219 regular
employees worldwide, including 2,074 in sales, marketing and support; 644 in
research and development; 90 in operations and 411 in administration and
finance.
Competition in recruiting personnel in the computer software industry is
intense. Informix believes that its future success will depend in part on its
continued ability to recruit and retain highly skilled management, marketing and
technical personnel.
None of Informix's U.S. employees are represented by a labor union. A small
number of employees located outside of the United States are represented by
labor unions. The degree of this representation varies from country to country.
Informix has experienced no work stoppages and believes that its employee
relations are excellent.
PROPERTIES
Informix's headquarters and its marketing, finance, Americas sales,
administration, customer service and research and development operations are
located in five modern buildings in a seven building office park in Menlo Park,
California, approximately 30 miles south of San Francisco. Informix leases
approximately 214,000 square feet of space in these buildings. The leases for
spaces in three of the buildings expire in March 1998. Informix has an option to
renew each lease for another five year term at 95% of the then fair rental
value. The remaining leases expire in September 2001.
Some of the research and development for Informix's tools products, a
portion of Informix's customer service organization, Informix's principal
manufacturing facility and Informix's telemarketing organization are located in
two modern buildings aggregating approximately 135,000 square feet in Lenexa,
Kansas, a suburb of Kansas City. The buildings are owned by a partnership, of
which Informix Software, Inc. is a 50% partner, and leased by the partnership to
Informix Software, Inc. under a lease with an initial ten-year term that expires
in March 1998. There are two five-year renewal options. Rental under this lease
remains fixed through 1998, and then adjusts to prevailing rates for the renewal
terms.
Informix also leases office space in approximately 45 facilities in the
United States and Canada and approximately 58 facilities internationally.
Informix believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate the expansion of Informix's operations.
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INFORMIX MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- RECENT OPERATING RESULTS
On January 31, 1996, Informix announced financial results for its fourth
quarter and year ended December 31, 1995. Revenues for the quarter and the year
were $217,070,000 and $708,985,000, respectively, representing increases of
approximately 45% and 51%, respectively, of revenues over comparable periods in
1994. Informix also reported net income for the fourth quarter and the year of
$38,834,000 ($0.28 per share) and $105,333,000 ($0.76 per share), respectively,
compared to $23,836,000 ($0.18 per share) and $66,196,000 ($0.49 per share) for
the comparable periods in 1994.
RESULTS OF OPERATIONS -- NINE MONTH PERIOD COMPARISON
The following table sets forth operating results as a percentage of net
revenues for the periods ended October 1, 1995 and October 2, 1994,
respectively, and the percent change in the operating results for the nine month
period ended October 1, 1995, compared to the nine month period ended October 2,
1994.
<TABLE>
<CAPTION>
PERCENT OF NET REVENUES NINE
MONTHS ENDED
---------------------------- PERIOD TO PERIOD
OCTOBER 1, OCTOBER 2, PERCENT INCREASE
1995 1994 (DECREASE)
------------- ------------- -----------------
<S> <C> <C> <C>
Net revenues:
Licenses............................................................ 75% 77% 50%
Services............................................................ 25 23 69
--- --- ---
Total net revenues................................................ 100% 100% 54%
--- --- ---
--- --- ---
Costs and expenses:
Cost of software distribution....................................... 5% 5% 49%
Cost of services.................................................... 12 11 87
Sales and marketing................................................. 43 42 56
Research and development............................................ 12 14 31
General and administrative.......................................... 7 8 41
--- --- ---
Total operating expenses.......................................... 79% 80% 54%
--- --- ---
--- --- ---
Operating income...................................................... 21% 20% 56%
Interest income....................................................... 1 1 105
Interest expense...................................................... 0 0 153
Other expense, net.................................................... (0) (0) 96
--- --- ---
Income before income taxes............................................ 22 21 61
Income taxes.......................................................... 8 8 67
--- --- ---
Net income............................................................ 14% 13% 57%
--- --- ---
--- --- ---
</TABLE>
Informix's operating income in the first nine months of 1995 was 21 percent
of net revenues, compared to 20 percent in the corresponding period in 1994.
Although Informix's operating margins have exceeded or equaled 20 percent
over the last several quarters, Informix's expenses are relatively fixed in the
near term and unexpected variances in planned revenues, which are difficult to
forecast, can result in variations in operating margins and cost ratios.
Informix's quarterly operating margins have generally followed a pattern with
second half revenues and operating margins generally being higher than those of
the preceding first half; however, there is no assurance that this historical
pattern will be repeated.
Informix derives revenues principally from licensing its software and
providing technical product support and updates to customers. License revenues
may involve the shipment of product by Informix
53
<PAGE>
or the granting of a license to manufacture products. Informix's products are
sold directly to end-user customers or through resellers, including OEMs, system
integrators, distributors, or application vendors. Informix's revenues have been
increasingly derived from sales contracts directly with end-users and less from
the distributor or OEM sales channels. These end-user sales contracts can be
relatively large in size and are difficult to forecast both in timing and dollar
value. In addition, these revenue contracts have relatively lower associated
software distribution and selling costs. From time to time Informix has
recognized substantial net revenue from these large software license agreements.
These transactions, which are difficult to predict, have caused fluctuations in
net revenues and in net income because of the relatively high gross margin on
such revenues. Informix expects that transactions of this nature and the
resulting fluctuations will continue.
Throughout the remainder of 1995, Informix will continue to invest more in
customer services, marketing and research and development, and make personnel
additions to Informix's sales force worldwide. These additional expenses may
adversely affect Informix's operating margins in 1995 if there are no offsetting
increases in revenues or reductions in other operating expenses.
As the number of software products and software patents in the industry
increases, Informix believes that software developers may become increasingly
subject to infringement claims. There can be no assurance that a third party
will not assert that its patents or other proprietary rights are violated by
products offered by Informix. Any such claims, with or without merit, can be
time consuming and expensive to defend and could have an adverse effect on
Informix's business, results of operations, financial position and cash flows.
Informix's stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in revenue or earnings from
levels expected by securities analysts or others could have an immediate and
significant adverse effect on the trading price of Informix's common stock in
any given period. Additionally, as is common in the industry, a disproportionate
amount of Informix's license revenue is derived from transactions that close in
the last few weeks of a quarter that make quarterly revenues difficult to
forecast. Informix may not learn of, or be able to confirm, revenue or earnings
shortfalls until the end of each quarter, which could result in an even more
immediate and adverse effect on the trading price of Informix's common stock.
Finally, Informix participates in a highly dynamic industry, which often results
in significant volatility of Informix's common stock price.
NET REVENUES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
----------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
License fees.................................................................... $ 369.1 $ 246.0 50%
Percentage of net revenues.................................................... 75% 77%
Services........................................................................ $ 122.8 $ 72.6 69%
Percentage of net revenues.................................................... 25% 23%
Net revenues.................................................................... $ 491.9 $ 318.6 54%
</TABLE>
The increase in service revenue, which consists of customer support,
training and consulting, was primarily attributable to the continued growth of
the installed customer base, the renewal of maintenance contracts and increased
consulting revenue. Informix continues to emphasize support services as a source
of revenue.
The revenue growth in the first nine months of 1995 primarily reflects
continued strong worldwide acceptance for Informix's new and existing technology
and products. Although Informix expects revenues to grow in the remainder of
1995, there can be no assurance that such growth will be achieved or that growth
rates in the future will be comparable to those in the first nine months of
54
<PAGE>
1995. Informix's revenues, along with those of the RDBMS industry as a whole,
have shown substantial growth over the last several years. The industry has
benefited from trends to downsize from large proprietary computer systems and
market acceptance of UNIX and other open operating environments.
Informix has focused on the UNIX, open operating system market since 1980
and has broadened its open environments by releasing a Windows and Windows/NT
version of an Informix database server in 1994. Informix has also developed and
released connectivity products to allow access to other relational databases,
both proprietary and open, and access to this data through various protocols
such as IBM's DRDA and X/Open's XA. The industry movement to new open operating
systems like Windows/NT and access through low-end, desktop machines may cause
downward pressure on prices of database and related products. If such downward
pressure on prices were to occur, margins would be adversely affected.
The license revenue growth in the first nine months of 1995 reflects
continued strong demand for Informix's products, particularly for Informix's new
generation of database servers, INFORMIX-OnLine DynamicServer-TM-. Informix has
also started to see revenue growth in the tools area with the introduction of
INFORMIX-NewEra-TM-, a third-generation client/server application development
tool which became available in the second half of 1994. During the nine months
of 1995, Informix introduced, on a limited basis, INFORMIX-OnLine Extended
Parallel Server ("XPS"), a new high-performance, scalable database server based
on Informix's Dynamic Scalable Architecture ("DSA") and also introduced
INFORMIX-NewEra-TM- 2.X on the Windows platform.
Informix's ability to sustain growth depends in part on the timely release
of successful new and updated products, and the success of new and updated
products from its competitors. Informix has experienced product delays in the
past and may have delays in the future.
A key factor in determining the success of Informix will continue to be the
ability of Informix's products to interoperate and perform well with existing
and future leading, industry standard application software products intended to
be used in connection with RDBMS. Failure to meet existing or future
interoperability and performance requirements of certain independent vendors
marketing such applications in a timely manner could adversely affect the market
for Informix's products.
Over half of Informix's net revenues are derived from its international
operations. In Europe and Asia/Pacific, most revenues and expenses are now
denominated in local currencies. The U.S. dollar weakened in the first nine
months of 1995 against the major European and Asian/Pacific currencies, which
resulted in higher revenue and expenses recorded when translated into U.S.
dollars and compared with the prior year periods. Through 1994, most revenues
from Asia Pacific, Canada and Latin America were denominated in U.S. dollars.
Accordingly, the translation of the revenues for these regions was less impacted
by fluctuations in foreign exchange rates. Informix has increased its direct
sales presence in Asia/Pacific by opening offices and acquiring its primary
software distributors in Malaysia in 1994, and Japan and Korea in early 1995.
This increased the proportion of direct sales denominated in local currency in
these regions. Informix has also increased its direct presence in Latin America,
although a significant percentage of the revenue is still denominated in U.S.
dollars. In the future, Informix expects currency fluctuations in Mexico, and to
a lesser extent, other Latin American countries to continue. Informix's
operating and pricing strategies take into account changes in exchange rates
over time; however, Informix's results of operations may be significantly
affected in the short term by fluctuations in foreign currency exchange rates.
Informix has a hedging program in place to minimize foreign exchange gains
or losses, where possible, from recorded foreign denominated transactions
resulting from fluctuations in exchange rates. This program involves the use of
forward foreign exchange contracts in the primary European and Asian currencies.
Informix has limited unhedged transaction exposures in certain secondary
currencies in Latin America, Eastern Europe, and Asia/Pacific because there are
limited forward currency exchange markets in these currencies. Informix does not
attempt to hedge the translation to U.S. dollars of foreign denominated revenues
and expenses not yet incurred.
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<PAGE>
Informix's distribution markets are organized into three general markets:
North America; Europe, the Middle East, and Africa; and Intercontinental,
consisting of Latin America and the Asia/ Pacific region. During the first nine
months of 1995, these organizations contributed 42 percent, 38 percent and 20
percent, respectively, of Informix's net revenues compared to 44 percent, 40
percent, and 16 percent, respectively, for the same period in 1994.
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Manufactured cost of software distribution....................................... $ 16.5 $ 11.3 46%
Percentage of license revenue.................................................. 5% 5%
Amortization of capitalized software............................................. $ 8.5 $ 5.4 56%
Percentage of license revenue.................................................. 2% 2%
Cost of software distribution.................................................... $ 25.0 $ 16.7 49%
Percentage of licenses revenue................................................. 7% 7%
</TABLE>
Software distribution costs consist primarily of: 1) manufacturing and
related costs such as media, documentation, product assembly and purchasing
costs, customs, freight and third party royalties; and 2) amortization of
previously capitalized software development costs.
The increase in the amortization of capitalized software in absolute dollars
in the first nine months of 1995 compared to the same period in 1994 was due to
the release of several products in the latter half of 1994 and the first half of
1995. Informix expects that amortization of capitalized software in absolute
dollars will continue to increase in the future as new products are released.
Manufactured cost of software distribution in the first nine months of 1995,
as a percentage of license revenues, remained flat compared to the same period
in 1994. The cost of software distribution as a percentage of license revenues
may vary depending upon whether the product is reproduced by Informix or by its
customers.
COST OF SERVICES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cost of Services................................................................. $ 62.0 $ 33.1 87%
Percentage of service revenues................................................. 51% 46%
</TABLE>
Cost of services consists primarily of maintenance, consulting and training
expenses. The increase in cost of services in the first nine months of 1995 in
absolute dollars and as a percentage of net revenues compared to the
corresponding prior year period is primarily due to Informix's increased
expenditures in developing consulting and support services. In the future,
Informix expects that cost of services as a percentage of net revenues will
approximate the rate in the first nine months of 1995.
SALES AND MARKETING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
----------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Sales and marketing expenses.................................................... $ 210.8 $ 134.8 56%
Percentage of net revenues.................................................... 43% 42%
</TABLE>
The increase in sales and marketing expenses in the first nine months of
1995 in absolute dollars compared to the same period in 1994 was a result of
increased sales headcount worldwide, new sales offices and increased marketing
programs associated with new product introductions.
56
<PAGE>
With the continuing expansion throughout 1995 of worldwide operations, as
well as increased sales and marketing expenditures in 1995 aimed at positioning
Informix and its new and existing products in the marketplace, Informix expects
that sales and marketing expenses for the remainder of 1995, as a percentage of
net revenues, will be similar to those of the first nine months of 1995.
RESEARCH AND DEVELOPMENT EXPENSES
Informix accounts for its product development costs in accordance with
Statements of Financial Accounting Standards No. 86 (FAS 86). This statement
requires that once technological feasibility of a developing product has been
established, all subsequent costs incurred in developing that product to a
commercially acceptable level be capitalized and amortized ratably over the
revenue life of the product. Informix's research and development expenses
exclude capitalized software costs of $12.7 million and $9.7 million in the
first nine months of 1995 and 1994, respectively, and exclude amortization costs
of previously capitalized software. The following table summarizes research and
product development costs for the periods ended October 1, 1995 and October 2,
1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Incurred product development costs............................................... $ 70.4 $ 53.6 31%
Expenditures capitalized......................................................... (12.7) (9.7) 31%
----- -----
Research and development expenses................................................ $ 57.7 $ 43.9 31%
Expenditures capitalized as a % of incurred...................................... 18% 18% n/a
</TABLE>
The increase in research and development expenditures in absolute dollars in
the first nine months of 1995 compared to the corresponding period in 1994
resulted from an increase in staff working on new products and product
extensions.
The higher capitalization in absolute dollars of product development
expenditures in the first nine months of 1995 compared to the same period in
1994 resulted from an increase in the work involved in projects reaching
technological feasibility as they neared their release dates. Informix expects
the proportion of work on capitalized projects to remain relatively stable
throughout the remainder of 1995.
Major new programs currently under development include the expansion of the
DSA family of servers and connectivity products and subsequent versions of
Informix's graphical object-oriented tool INFORMIX-NewEra-TM-. Informix believes
that research and development expenditures are essential to maintaining its
competitive position in its primary markets and expects the expenditure levels
to increase in absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
General and administrative expenses.............................................. $ 35.0 $ 24.8 41%
Percentage of net revenue...................................................... 7% 8%
</TABLE>
General and administrative expenses for the first nine months of 1995
remained relatively flat as a percentage of net revenues compared to the
corresponding period in 1994. Informix expects that general and administrative
expenses as a percentage of net revenues for the remainder of 1995 will be
consistent with those of the first nine months of 1995.
57
<PAGE>
PROVISION FOR INCOME TAXES
Informix's effective tax rate increased to 37.5 percent of pretax income in
the first nine months of 1995 from 36.0 percent in the same period in 1994. The
higher effective tax rate for the first nine months of 1995 was primarily due to
the expiration of the U.S. federal research and development tax credit in 1995.
Informix anticipates its fiscal 1995 effective tax rate to be approximately
37.5 percent; however, this rate could change based on a change in the
geographic mix of Informix's earnings and the amount of permanent reinvestment
offshore of a portion of the 1995 earnings of Informix's lower-taxed Irish
operations and the potential reinstatement of the U.S. federal research and
development tax credit.
IMPACT OF INFLATION
The effect of inflation on Informix's financial position has not been
significant.
58
<PAGE>
RESULTS OF OPERATIONS -- FISCAL YEAR COMPARISON
Selected elements of Informix's financial statements are shown below for the
last three years as a percentage of net revenues and as a percentage change from
year to year.
In 1991, Informix was selected to provide the database component of a
decision-support system for the Army National Guard and Army Reserves. In 1992,
Informix received $26.8 million as part of this Reserve Component Automation
System ("RCAS") contract and recorded $21.8 million as license revenue and
incurred $3.2 million in related operating expenses. The remaining $5.0 million
of service revenue is being recognized over the support period. In 1992,
Informix also recorded a $10.5 million charge due to a settlement of a
securities class action lawsuit (see Litigation Settlement). In providing
comparative information, corresponding tables are presented with Table 1 showing
1992 amounts as reported and Table 2 showing 1992 pro forma amounts excluding
the RCAS license revenue and related expenses and the litigation settlement
charge. Informix believes that year-to-year comparisons of financial results are
not necessarily indicative of future results.
<TABLE>
<CAPTION>
% INCREASE
PERCENT OF NET REVENUES (DECREASE)
YEARS ENDED DECEMBER 31, 1994
------------------------------------- COMPARED
TABLE 1 (AS REPORTED) 1994 1993 1992 TO 1993
- --------------------------------------------------------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Net revenues................................................... 100% 100% 100% 33%
Costs and Expenses:
Cost of software distribution................................ 5 6 8 23
Cost of services............................................. 10 9 9 40
Sales and marketing.......................................... 43 39 36 46
Research and development..................................... 13 12 10 39
General and administrative................................... 7 10 11 4
--
--- --- ---
Total costs and expenses................................... 78 76 74 37
--
--- --- ---
Operating income............................................... 22 24 26 20
--
--- --- ---
Net income..................................................... 14 16 17 18
<CAPTION>
1993
COMPARED
TABLE 1 (AS REPORTED) TO 1992
- --------------------------------------------------------------- ---------------
<S> <C>
Net revenues................................................... 24%
Costs and Expenses:
Cost of software distribution................................ (7)
Cost of services............................................. 23
Sales and marketing.......................................... 37
Research and development..................................... 51
General and administrative................................... 3
--
Total costs and expenses................................... 28
--
Operating income............................................... 16
--
Net income..................................................... 17
</TABLE>
<TABLE>
<CAPTION>
% INCREASE
PERCENT OF NET REVENUES (DECREASE)
YEARS ENDED DECEMBER 31, 1994
------------------------------------- COMPARED
TABLE 2 (PRO FORMA) 1994 1993 1992 TO 1993
- --------------------------------------------------------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Net revenues................................................... 100% 100% 100% 33%
Costs and Expenses:
Cost of software distribution................................ 5 6 8 23
Cost of services............................................. 10 9 10 40
Sales and marketing.......................................... 43 39 38 46
Research and development..................................... 13 12 11 39
General and administrative................................... 7 10 12 4
--
--- --- ---
Total costs and expenses................................... 78 76 79 37
--
--- --- ---
Operating income............................................... 22 24 21 20
--
--- --- ---
Net income................................................... 14 16 16 18
<CAPTION>
1993
COMPARED
TABLE 2 (PRO FORMA) TO 1992
- --------------------------------------------------------------- ---------------
<S> <C>
Net revenues................................................... 35%
Costs and Expenses:
Cost of software distribution................................ (6)
Cost of services............................................. 23
Sales and marketing.......................................... 41
Research and development..................................... 53
General and administrative................................... 4
--
Total costs and expenses................................... 30
--
Operating income............................................... 54
--
Net income................................................... 31
</TABLE>
Informix's operating income in 1994 was 22 percent of net revenues compared
to 24 percent in 1993 and 26 percent in 1992. Excluding the revenue from the
RCAS contract and associated expenses, 1992 operating income was 21 percent. The
decrease in operating margin in 1994 compared to 1993 was primarily due to
extensive investment in customer services, marketing and research and
development expenditures and personnel additions to Informix's sales force
worldwide.
59
<PAGE>
NET REVENUES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
TABLE 3 (AS REPORTED) (DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
License fees....................................... $ 363.8 28% $ 284.3 20% $ 237.4
Percentage of net revenues....................... 78% 81% 84%
Services........................................... $ 104.9 53% $ 68.6 48% $ 46.2
Percentage of net revenues....................... 22% 19% 16%
Net revenues....................................... $ 468.7 33% $ 352.9 24% $ 283.6
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
TABLE 4 (PRO FORMA)* (DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Licensee fees...................................... $ 363.8 28% $ 284.3 32% $ 215.6
Percentage of net revenues....................... 78% 81% 82%
Services........................................... $ 104.9 53% $ 68.6 48% $ 46.2
Percentage of net revenues....................... 22% 19% 18%
Net revenues....................................... $ 468.7 33% $ 352.9 35% $ 261.8
</TABLE>
- ------------------------
* Excludes RCAS license revenue in 1992.
Service revenue, consisting of customer support, training, and consulting,
increased in each of the years presented. These increases were primarily
attributable to the continued growth of the installed customer base and the
renewal of maintenance contracts. Informix continues to emphasize support
services as a source of revenue.
The revenue growth in 1994 primarily reflects continued strong worldwide
acceptance for Informix's new and existing technology. The growth in 1993
reflects Informix's continued emphasis on increasing license volume for its
database servers and connectivity products. Informix's revenues, along with
those of the RDBMS industry as a whole, have shown substantial growth over the
last several years. The industry has benefitted from trends to downsize from
large, proprietary computer systems and market acceptance of UNIX" and other
open operating environments.
The license revenue growth in 1994 reflects continued strong demand
particularly for Informix's new generation of database servers and connectivity
products. In 1994, Informix released INFORMIX-OnLine Dynamic Server 7.1 on
eleven symmetric multiprocessing platforms. Informix also introduced
INFORMIX-NewEra-TM- in 1994, a second-generation client/server application
development tool, and anticipates tools revenue to increase in absolute dollars
in 1995. However, there is significant competition in the tools market from
other companies and their product offerings: graphical, character-based, and
object-oriented. Many of these tools products are "open," meaning they will
access data stored on virtually any relational database, including Informix.
Over half of Informix's net revenues are derived from its international
operations (see Note 7 of Notes to Consolidated Financial Statements). In
Europe, most revenues and expenses are denominated in local currencies. In 1994
and 1992, the U.S. dollar weakened against the major European currencies, which
resulted in higher revenue and expenses recorded when translated into U.S.
dollars and compared with the corresponding prior years. In 1993, the U.S.
dollar strengthened significantly against the major European currencies, which
resulted in lower revenue and expenses recorded when translated into U.S.
dollars and compared with the prior year. Through 1994, most revenues from
Asia/Pacific, Canada, and Latin America were denominated in U.S. dollars. The
translations of the revenues for these regions were less influenced by
fluctuations in foreign exchange rates. Informix incurred approximately $0.4
million in foreign exchange loss in Mexico in the fourth quarter of 1994 due to
the instability of the economic climate in this country. In the future, Informix
expects these currency fluctuations in Mexico and, to a lesser extent, other
Latin America countries to continue.
60
<PAGE>
Approximately 55 percent, 58 percent, and 53 percent of Informix's net
revenues were derived from sales to foreign customers for 1994, 1993, and 1992,
respectively. The increase in foreign revenues in absolute dollars is primarily
attributable to the establishment of new subsidiaries and sales offices in
Europe, Asia/Pacific, and Latin America, and continued international acceptance
for Informix's new and existing technology. Excluding the RCAS contract, foreign
revenue represented 58 percent of net revenues in 1992.
Informix's distribution markets were reorganized into three general markets
at the beginning of the second quarter of 1994: North America, Europe, Middle
East, and Africa; and the Intercontinental Group, consisting of Latin America,
Japan, and the Asia/Pacific region. These organizations contributed 46 percent,
38 percent, and 16 percent of Informix's net revenues, respectively, in 1994,
compared to 43 percent, 41 percent and 16 percent, respectively, in 1993, and 43
percent, 42 percent and 15 percent, respectively in 1992 (excluding the RCAS
revenue in North America).
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Manufactured cost of software distribution......... $ 16.9 13% $ 14.9 (6)% $ 15.8
Percentage of license revenue.................... 5% 5% 7%
Amortization of capitalized software............... $ 7.8 50% $ 5.2 (8)% $ 5.7
Percentage of license revenue.................... 2% 2% 2%
-- --
----- ----- -----
Cost of software distribution...................... $ 24.7 23% $ 20.1 (7)% $ 21.5
Percentage of license revenue.................... 7% 7% 9%
</TABLE>
Excluding amortization of previously capitalized software development costs,
costs of software distribution as a percentage of license revenue declined to 5
percent in 1994 and in 1993 from 7 percent in 1992. The decreases as a
percentage of license revenue are the result of the recording of several large
contracts which have low associated costs of software distribution since these
customers generally manufacture the software themselves, as well as cost
reduction programs implemented by Informix in 1992 and 1993.
The increase in amortization of capitalized software in 1994 resulted from
the release of several products in the second half of 1994. The decrease of
amortization of capitalized software in absolute dollars in 1993 was due to
several projects being fully amortized in early 1992.
COST OF SERVICES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cost of services................................... $ 46.0 40% $ 32.9 23% $ 26.8
Percentage of service revenue.................... 44% 48% 58%
</TABLE>
The decreases in cost of services as a percentage of service revenue in both
1994 and 1993, compared to their corresponding prior year periods, are primarily
due to higher growth in maintenance revenues, derived from product update rights
and technical support, than in maintenance expenses, primarily related to
technical customer support.
SALES AND MARKETING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Sales and marketing................................ $ 200.5 46% $ 137.7 37% $ 100.4
Percentage of net revenue........................ 43% 39% 36%
</TABLE>
61
<PAGE>
The increase in sales and marketing expenses, in absolute dollars and as a
percentage of net revenues, in 1994 and 1993 compared to their corresponding
prior year periods, was a result of increased sales personnel worldwide as
Informix expanded its investment in the worldwide direct sales organizations,
opening of new subsidiaries, acquisition of several foreign distributors, higher
commission expense associated with the increase in revenues, and increased
marketing programs associated with new product launches. Excluding RCAS revenue
and associated expenses in 1992, sales and marketing expenses were 37 percent of
net revenues.
RESEARCH AND DEVELOPMENT EXPENSES
In accordance with FAS 86, Informix's research and development expenses
exclude capitalized software costs of $13.6 million in 1994, $8.6 million in
1993, and $5.0 million in 1992, and exclude amortization costs of previously
capitalized software (see Note 1 of Notes to Consolidated Financial Statements).
The following table summarizes research and development costs for the prior
three years:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Incurred product development costs................. $ 74.0 42% $ 52.2 54% $ 33.5
Expenditures capitalized........................... (13.6) 58% (8.6) 70% (5.0)
----- ----- -----
Research and development expenses.................. $ 60.4 39% 43.6 51% $ 28.5
Percentage of net revenues....................... 13% 12% 11%*
Expenditures capitalized as % of incurred.......... 18% n/a 17% n/a 15%
</TABLE>
- ------------------------
* Excludes RCAS license revenue in 1992.
The increase in research and development expenditures in absolute dollars
and as a percentage of net revenues from year to year was attributed to
increased personnel and consultants working on new products and product
extensions.
The proportion of capitalized expenditures as a percentage of total incurred
expenses increased from year to year as several major projects in development
had reached technological feasibility. Informix expects the proportion of work
on capitalized projects in 1995 as a percentage of net revenues to remain
relatively stable compared to 1994 as other major new products reach
technological feasibility in 1995, and capitalization of the related software
development costs begins.
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
General and administrative expenses................ $ 34.5 4% $ 33.2 3% $ 32.2
Percentage of net revenues....................... 7% 10.0% 11%
</TABLE>
General and administrative expenses in 1994 remained relatively flat with
1993 and 1992 in absolute dollars. Excluding the RCAS contract, general and
administrative expenses were 12 percent of net revenues in 1992. The slight
increase in absolute dollars from year to year was primarily due to an increase
in the costs of supporting Informix's international operations as new
subsidiaries and branch offices were established and existing subsidiaries were
expanded.
LITIGATION SETTLEMENT
In 1992, a charge of $10.5 million was taken for the settlement of the
securities class action lawsuit filed against Informix and certain of its
officers and directors in 1988. The settlement, which was completed in May 1993,
does not constitute an admission of liability or wrongdoing on the part of
62
<PAGE>
Informix or on the part of any of its current or former officers and directors.
The settlement represents a decision by Informix's Board of Directors that a
settlement at the time was in the best interest of Informix and its
stockholders.
INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Interest income.................................... $ 3.8 (2)% $ 3.9 95% $ 2.0
Percentage of net revenues....................... 1% 1% 1%
</TABLE>
Interest income in 1994 remained flat compared with 1993 despite higher cash
and investments as Informix invested a large percentage of its cash and
investments in tax-exempt securities. The increase in absolute dollars from 1992
to 1993 resulted from higher balances of cash and cash equivalents and
short-term investments.
INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- --------------- ------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Interest expense................................... $ 0.4 2% $ 0.4 (84)% $ 2.3
Percentage of net revenues......................... 0% 0% 1%
</TABLE>
Interest expense in 1994 and 1993 consists principally of interest expense
on capital leases of certain computer and office equipment. Interest expense in
1992 consists primarily of interest expense on convertible debentures and
capital leases of certain computer and office equipment. The decrease from 1992
to 1993 resulted primarily from the call for redemption of the convertible
debentures in the fourth quarter of 1992.
OTHER EXPENSE, NET
Informix recognized net other expense of $2.6 million, $1.3 million, and
$1.4 million in 1994, 1993 and 1992, respectively. In 1994, net other expense
primarily consisted of foreign exchange losses, net, and expenses related to
Informix's financing programs for accounts receivable. In 1993, net other
expense primarily consisted of foreign exchange losses, net, partially offset by
a reversal of a liability which was determined to be no longer necessary,
related to a real estate partnership. In 1992, net other expense consisted of
foreign exchange losses, net, partially offset by a gain on a sale of an
investment.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Provision for income taxes......................... $ 37.2 18% $ 31.6 127% $ 13.9
Effective tax rate................................. 36.0% 36.0% 22.6%
</TABLE>
Informix's effective tax rate increased to 36.0 percent of pretax income in
1994 and 1993 from 22.6 percent in 1992. This increase resulted from net
operating loss and tax credit carryovers which were substantially utilized in
1992 and the 1.0 percent increase in the U.S. federal income tax rate in
1993. Informix's effective tax rate for fiscal years 1994 and 1993 is less than
the combined federal and state statutory rate primarily due to the federal
research and development credit and the permanent reinvestment offshore of a
portion of the earnings of Informix's lower-taxed Irish operations. The amount
considered permanently invested in the Irish operations may very from year to
year and may affect Informix's effective tax rate.
63
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
NINE MONTHS ENDED YEAR ENDED
------------------------ ----------------------------
OCTOBER 1, OCTOBER 2, DECEMBER 31, DECEMBER 31,
1995 1994 1994 1993
----------- ----------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents and investments.......... $ 220.8 $ 162.5 $ 196.0 $ 143.5
Working capital.................................... 196.0 160.3 194.5 156.0
Cash provided by operations........................ 103.5 72.4 114.5 64.8
Cash used in investment activities, excluding
investments of excess cash........................ 99.3 38.9 51.4 36.7
Cash provided by (used in) financing activities.... 16.3 (15.7) (10.8) (3.5)
</TABLE>
Cash generated by operations provided sufficient resources to fund
Informix's headcount growth and capital asset needs in all periods presented.
The increase in net cash and cash equivalents provided by operations in the
first nine months of 1995 compared with the same period in 1994 was primarily
attributable to higher income before depreciation and amortization charges.
The increase in cash and cash equivalents provided by operations in 1994
compared with 1993 was due mainly to higher income before depreciation and
amortization charges, increased accounts payable and accrued expenses, and the
litigation settlement payment in 1993, partially offset by an increase in
accounts receivable.
Accounts receivable increased by $23.2 million in 1994 and by $45.4 million
in 1993, principally as a result of increased sales. Days sales outstanding
decreased to 79 days in the fourth quarter of 1994 from approximately 97 days in
the fourth quarter of 1993.
Net accounts receivable increased by $40.3 million in the first nine months
of 1995 as compared to the fourth quarter of 1994, principally as a result of
higher sales partially offset by strong collections and the use of third party
financing programs. Days sales outstanding was 86 at October 1, 1995 compared
with 79 at December 31, 1994. Commencing in late 1993, Informix instituted
programs to have third-party financial institutions provide financing for
extended credit terms instead of such terms being provided by Informix. The days
sales outstanding ratio is dependent on many factors, including the mix of
contract-based revenue with significant OEMs and large corporate and government
end-users versus revenue recognized on shipments to application vendors and
distributors and the success of Informix's financing programs. Although a large
portion of Informix's revenues are derived from resellers, Informix's revenues
since 1993, particularly in Europe, have shifted substantially from distributors
to direct end-users. These end-user sales contracts frequently bear extended
payment terms which result in an increase in days sales outstanding ratios
unless the contracts are financed. The aforementioned shift in distributor
channels is likely to continue as products and markets mature. Informix is using
a variety of activities to reduce the days sales outstanding ratio. In the
future, Informix expects this ratio to vary within the range which prevailed in
the last nine months; however, there is no assurance that it will do so.
Excluding investments of excess cash, net cash and cash equivalents used in
investing activities increased in 1994 compared to 1993 and also increased in
the first nine months of 1995 in the first nine months of 1995 and 1994,
respectively. During the years ended Informix acquired $36.0 million and $19.7
million, respectively, of capital equipment consisting primarily of computer
equipment, computer software and office equipment and in 1994 and 1993, Informix
acquired $25.2 million and $22.1 million, respectively of capital equipment. The
increase of capital equipment purchases in the first nine months of 1995
resulted from Informix's growing employee headcount, the replacement of
64
<PAGE>
obsolete equipment and investment in new technology. In the future, Informix
anticipates the actual level of capital spending will be dependent on a variety
of factors, including Informix's business requirements and general economic
conditions.
In January 1995, Informix acquired a 90 percent interest in the database
division of ASCII Corporation, a distributor of its products in Japan. Informix
will acquired the remaining 10 percent interest in January 1996. Informix
accounted for the acquisition as a purchase. The purchase price of ASCII's
database division was approximately $46.0 million, of which $34.8 million has
been allocated to intangible assets acquired.
In April 1995, Informix acquired an 80 percent interest in the database
division of Daou Corporation, a distributor of its products in Korea. Informix
will acquire the remaining 20 percent by January 1997. The acquisition was
recorded as a purchase. The purchase price of this business was approximately
$4.3 million, of which approximately $4.0 million has been allocated to
intangible assets acquired.
In October 1995, Informix acquired Stanford Technology Group ("STG"), a
U.S.-based company that provides on-line analytical processing technology, in
exchange for approximately 570,000 shares of its common stock. The transaction
will be accounted for as a pooling of interests.
Net cash and cash equivalents provided by or used in, financing activities
in 1994 and 1993 included payments on capital leases and the repurchase of
Informix's common stock offset by proceeds from the sale of Informix's common
stock to employees.
Net cash and cash equivalents provided by financing activities in the first
nine months of 1995 consisted primarily of proceeds from the sale of Informix's
common stock to employees, partially offset by payments on capital leases. Net
cash and cash equivalents used in financing activities in the first nine months
of 1994 included repurchases of Informix's common stock and payments on capital
leases, partially offset by proceeds from the sale of Informix's common stock to
employees.
In June 1995, the Board of Directors authorized a two-for-one stock split of
Informix's common stock, effected in the form of a stock dividend. Through
December 31, 1994, Informix had repurchased 3,580,000 shares with an aggregate
cost of approximately $32.1 million on the open market under a plan authorized
by the Board of Directors in 1994. No repurchases have been made in 1995.
Informix expects that current balances of cash, cash equivalents and
short-term investments will be sufficient to fund anticipated levels of
operations at least through 1996 and may be used for investments and
acquisitions to supplement internal revenue growth and for other corporate
purposes.
65
<PAGE>
INFORMIX MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
The executive officers and directors of Informix and their ages as of
January 1, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------
<S> <C> <C>
Phillip E. White 53 Chairman of the Board of Directors,
President and Chief Executive Officer
Mike Saranga 58 Senior Vice President, Product Management
and Development
Howard H. Graham 48 Senior Vice President, Finance and Chief
Financial Officer
D. Kenneth Coulter 51 Senior Vice President, International
Edwin C. Winder 46 Senior Vice President, Japan Operations
Ronald M. Alvarez 46 Vice President, Americas Sales
Richard C. Blass 41 Vice President, Corporate Controller
Margaret R. Brauns 41 Vice President and Treasurer
Ira H. Dorf 55 Vice President, Human Resources
James F. Hendrickson, Jr. 56 Vice President, Customer Services and
Lenexa Site Manager
Stephen E. Hill 37 Vice President, Advanced Technology
Jeffrey V. Hudson 43 Vice President, Business Development
Steven R. Sommer 40 Vice President, Marketing
David H. Stanley 49 Vice President, Legal and Corporate
Services, General Counsel and Secretary
Albert F. Knorp, Jr. 60 Director
James L. Koch 51 Director
Thomas A. McDonnell 50 Director
Cyril J. Yansouni 53 Director
</TABLE>
Phillip E. White, 53, has been Informix's Chief Executive Officer and a
director since January 1989. He has held the additional office of President
since August 1990 and of Chairman since December 1992. Mr. White also serves as
a director of Adaptec, Inc., a computer input/output technology company, and of
Legato Systems, a manufacturer and developer of network storage management
software products.
Mike Saranga, 58, joined Informix as Senior Vice President, Product
Management and Development in May 1993. Prior to joining Informix, Mr. Saranga
was employed by IBM for 30 years, most recently as Assistant General Manager of
Programming Systems, where Mr. Saranga developed IBM's technical and business
strategies for key technologies including client/server, distributed systems and
multimedia.
Howard H. Graham, 48, joined Informix in February 1990 as Vice President,
Finance and Chief Financial Officer and became Senior Vice President, Finance
and Chief Financial Officer in March 1991.
66
<PAGE>
D. Kenneth Coulter, 51, joined Informix in February 1988 as Managing
Director, UK. He became Senior Vice President, Europe, Middle East and Africa,
in April 1992. From January 1990 to April 1992, Mr. Coulter was Vice President,
Europe of Informix. He was named Senior Vice President, International in January
1996.
Edwin C. Winder, 46, joined Informix in February 1990. Since joining
Informix, Mr. Winder has held a variety of executive positions in sales,
marketing and customer service. He is currently Informix's Senior Vice
President, Japan Operations.
Ronald M. Alvarez, 46, rejoined Informix in December 1991 as Director of
Latin America Operations. He was promoted to Executive Director, Latin America
Operations in March 1993, and to Vice President, Latin America in May 1995. He
was appointed to his current position of Vice President, Americas Sales in
January 1996. From August 1991 to December 1991, Mr. Alvarez occupied a sales
position at MarketMax, a provider of software and data feeds for the financial
community. From May 1988 to August 1991, Mr. Alvarez was a District Manager in
the Informix U.S. sales organization.
Richard C. Blass, 41, joined Informix in February 1985 as Controller and
became Vice President, Corporate Controller in February 1988.
Margaret R. Brauns, 41, became Vice President and Treasurer of Informix in
November 1992. Ms. Brauns joined Informix as Treasurer in May 1990. From
February 1988 to May 1990, she served as Treasurer at Wyse Technology
Incorporated.
Ira H. Dorf, 55, joined Informix as Vice President, Human Resources in
October 1989.
James F. Hendrickson, Jr., 56, joined Informix as Vice President, Customer
Services in July 1992. In February 1995, Mr. Hendrickson assumed the additional
responsibility of Lenexa Site Manager. Prior to joining Informix, Mr.
Hendrickson was Senior Vice President of Marketing at Image Business Systems
from 1991. From 1988 to 1990, Mr. Hendrickson worked as Executive Vice President
of Development at International Customer Solutions, Inc.
Stephen E. Hill, 37, joined Informix in December 1985, and has served the
Company in a variety of strategic planning, development and marketing positions.
Mr. Hill currently serves as Vice President, Advanced Technology.
Jeffrey V. Hudson, 43, joined Informix in June 1995 as Vice President,
Business Development. From December 1993 to January 1995, Mr. Hudson was
President and Chief Executive Officer of Visioneer Communications, Inc. From
June 1989 to December 1993, he was Vice President, Sales, Marketing and Service
for Netframe Systems, Inc.
Steven R. Sommer, 40, joined Informix as Vice President, Marketing in May
1993. Mr. Sommer was employed by Cognos, Inc., an application development tools
software company, from February 1990 to March 1993. At Cognos, Inc., Mr. Sommer
had responsibility for world-wide marketing as Vice President of Corporate
Marketing and Vice President of Marketing Operations.
David H. Stanley, 49, joined Informix as Vice President, Legal, General
Counsel and Assistant Secretary in July 1988. In August 1990, Mr. Stanley was
elected to the additional office of Secretary. In March 1995, Mr. Stanley
assumed the additional responsibility for corporate services and became Vice
President, Legal and Corporate Services, General Counsel and Secretary.
Albert F. Knorp, Jr., 60, became a director of Informix in 1984, and has
served as Assistant Secretary of Informix since 1985. Mr. Knorp has been of
counsel to the law firm of Gray Cary Ware & Freidenrich since November 1994. He
had previously been a partner in the law firm of Lewis, Knorp, Walsh & Kavalaris
since its formation in November 1990. Mr. Knorp serves as Chairman of the
Nominating Committee and as a member of the Audit and Compensation Committees.
James L. Koch, 51, became a director of Informix in July 1991. Mr. Koch has
served as Dean of the Leavey School of Business & Administration at Santa Clara
University since July 1990. He served as
67
<PAGE>
Manager of the Organization Planning and Development Department of Pacific Gas
and Electric Company, a public utility, in San Francisco from January 1981 to
July 1990. Mr. Koch serves as a member of the Audit and Compensation Committees.
Thomas A. McDonnell, 50, became a director of Informix in February 1988. He
has served as Chief Executive Officer of DST Systems, Inc. ("DST"), a transfer
agent for mutual funds, stocks and bonds, since October 1984 and as a director
of DST since 1971. He has served as President of DST from 1973 until October
1984 and from March 1987 to the present, and was its Treasurer from 1973 to
September 1995. Mr. McDonnell was Executive Vice President of Kansas City
Southern Industries, Inc. ("KCSI"), a holding company and parent of DST, from
August 1983 to November 1995 and was a director of KCSI from August 1983 to
November 1995. Mr. McDonnell is also director of BHA Group, Inc., a manufacturer
of pollution control devices, The Continuum Company, a software provider to the
insurance industry, First of Michigan Capital Corporation, a broker/dealer, and
Nellcor-Puritan-Bennett Corporation, a medical device company. Mr. McDonnell
serves as Chairman of the Audit Committee and as a member of the Compensation
Committee and the Nominating Committee.
Cyril J. Yansouni, 53, became a director of Informix in 1991. Mr. Yansouni
is the Chief Executive Officer and Chairman of Read-Rite Corporation, a
manufacturer of thin film magnetic recording heads. Prior to joining Read-Rite
Corporation in March 1991, Mr. Yansouni was with Unisys Corporation, a
world-wide electronics-based information systems company, from December 1988 as
its Executive Vice President and President of the Computer Systems Product
Group. Mr. Yansouni is also a director of PeopleSoft, Inc., a software company,
and Raychem Corporation, an international manufacturer and marketer of products
for electronics, industrial and telecommunications applications. Mr. Yansouni
serves as Chairman of the Compensation Committee and as a member of the Audit
Committee.
There is no family relationship between any director or executive officer of
Informix.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by
Informix's Chief Executive Officer and Informix's four other most highly
compensated executive officers for services rendered to Informix during the
fiscal years ended December 31, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#)(1) ($)
- --------------------------------- --------- --------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Phillip E. White 1995 421,667 400,000 250,000 4,256(2)
Chairman, President and 1994 387,000 300,000 100,000 3,000
Chief Executive Officer 1993 363,666 315,000 190,000 2,500
Howard H. Graham 1995 244,333 200,000 120,000 3,363(3)
Sr. Vice President, Finance 1994 226,667 130,000 50,000 2,406
and Chief Financial 1993 210,500 152,800 60,000 1,870
Officer
D. Kenneth Coulter (4) 1995 227,100 194,102 60,000 3,226(5)
Sr. Vice President, 1994 210,082 128,622 35,000 25,494
International 1993 171,592 166,227 50,000 22,686
Mike Saranga (6) 1995 229,333 168,000 130,000 5,525(7)
Sr. Vice President, 1994 212,000 150,000 40,000 3,844
Product Management and 1993 127,308 193,000 160,000 1,406
Development
Edwin C. Winder 1995 206,667 145,725 50,000 3,363(8)
Sr. Vice President, 1994 193,750 126,142 30,000 2,406
Japan Operations 1993 172,449 154,188 40,000 1,531
</TABLE>
- ------------------------
(1)
Adjusted to give effect to the two-for-one stock split effected in the form
of a stock dividend in June 1995.
(2)
Includes $2,256 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
(3)
Includes $1,363 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
(4)
Adjusted to US dollar equivalents based on foreign exchange rates on
December 31, 1995, 1994 and 1993, respectively.
(5)
Includes $969 for group paid life insurance paid by Informix and $2,257
paid into a pension plan for Mr. Coulter.
(6)
Mr. Saranga became an employee and an executive officer of Informix in May
1993.
(7)
Includes $3,525 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
(8)
Includes $1,363 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
69
<PAGE>
EMPLOYEE STOCK PLANS
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE TERM (3)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE 5% ($) 10% ($)
- ---------------------------- -------------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Phillip E. White (4) 250,000 6.6122 18.25 4/18/2005 2,869,332 7,271,450
Howard H. Graham (4) 120,000 3.1738 18.25 4/18/2005 1,377,279 3,490,296
D. Kenneth Coulter 60,000 1.5869 18.25 4/18/2005 688,640 1,745,148
Mike Saranga 130,000 3.4383 18.25 4/18/2005 1,492,053 3,781,154
Edwin C. Winder 50,000 1.3224 18.25 4/18/2005 573,866 1,454,290
</TABLE>
- ------------------------
(1) Options granted in 1995 are exercisable starting 12 months after the grant
date, with 25% of the shares becoming exercisable at that time and with an
additional 25% of the option shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date. Under the terms of the option plan, the Compensation Committee retains
discretion, subject to plan limits, to modify the terms of outstanding
options. The options were granted for a term of ten years, subject to
earlier termination in certain events related to termination of employment.
The number of shares shown has been adjusted to give effect to the
two-for-one stock split effected in the form of a stock dividend in June
1995.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain conditions.
(3) The 5% and the 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent Informix's
estimate or projection of the future Common Stock price. Of course, the
actual realizable value of the stock options will depend on the appreciation
of the stock price and the executive officer's continued employment with
Informix through the applicable vesting periods of the stock options.
(4) The terms of the stock options granted to Messrs. White and Graham in 1995
and prior years provide that such stock options shall become fully vested
and immediately exercisable in the event of a change in control of Informix.
A change in control of Informix is defined as a sale or exchange of
securities by the stockholders of Informix, a merger involving Informix or a
sale of all or substantially all of the assets of Informix, wherein the
stockholders of Informix immediately before the sale or exchange, merger or
sale of assets do not retain, directly or indirectly, at least a majority of
the beneficial interests in the voting securities of (i) Informix, in the
event of a sale or exchange, (ii) the resultant corporation, in the event of
a merger, or (iii) the transferee corporation or corporations, in the event
of a sale of assets.
70
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR
SHARES YEAR-END (#) END ($)(1)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE (#)(2) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- -------------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Phillip E. White 266,000 5,597,868 770,000 790,000 19,181,536 15,654,990
Howard H. Graham 175,000 3,019,621 50,000 305,000 1,175,625 5,700,310
D. Kenneth Coulter 117,500 2,592,981 150,000 212,500 3,641,012 4,275,310
Mike Saranga 120,000 2,180,308 0 350,000 0 6,112,492
Edwin C. Winder 50,000 1,107,410 195,000 165,000 5,300,618 3,247,186
</TABLE>
- ------------------------
(1) Market value of the underlying securities at exercise date or year-end, as
the case may be, minus the exercise price.
(2) The number of shares shown has been adjusted to give effect to the
two-for-one stock split effected in the form of a stock dividend in June
1995.
COMPENSATION OF DIRECTORS
For the fiscal year ended December 31, 1995, Informix paid all outside
directors as follows: $1,000 for each Board meeting attended; $500 for each
meeting of the Audit and Compensation Committees attended; and $2,000 per
quarter. For the fiscal year ending December 31, 1996, the outside directors
will continue to receive the same compensation as they received in 1995.
Informix reimburses directors for travel expenses associated with attending
board meetings. From time to time, Informix may invite the directors' spouses to
accompany the directors to a board meeting. When invited, Informix also pays the
travel expenses incurred by the spouses. In 1995, these spousal travel expenses
were less than $5,000 per director. In addition, the outside directors receive
options to acquire shares of Informix's Common Stock under the Informix 1989
Outside Directors Stock Option Plan (see the "Outside Directors Stock Option
Plan"). Employee directors did not in 1995, and will not in 1996, receive any
additional compensation for serving as a director.
OUTSIDE DIRECTORS STOCK OPTION PLAN
At the 1990 Annual Meeting of Stockholders, the stockholders approved the
adoption of the Informix 1989 Outside Directors Stock Option Plan (the
"Directors Option Plan"). Only directors who are not employees of Informix or
any Informix or subsidiary corporations of Informix are eligible to be granted
options under the Directors Option Plan. The Directors Option Plan is
administered by a committee appointed by the Board of Directors of Informix,
which currently is all of the members of the Board. Options for 15,000 shares of
stock are granted automatically upon election or re-election to the Board of
Directors.
Options granted under the Directors Option Plan are evidenced by written
agreements specifying the number of shares of stock covered thereby and the
option price, which price shall be the fair market value of the shares as of the
date of grant of the option. No option may be exercised after the expiration of
ten years from the date the option is granted. All options must be granted, if
at all, no later than May 2009. A total of 1,600,000 shares of Common Stock of
Informix (subject to adjustment in the event of certain changes in the capital
structure of Informix) may be issued under the Directors Option Plan.
In 1995, Messrs. Koch and McDonnell were each granted an option for 30,000
shares upon re-election to the Board which vests pro-rata over a three year
period from the date of grant. The number of shares included in such grants has
been adjusted to give effect to the two-for-one stock split effected in the form
of a stock dividend in June 1995. Options issued to terminated directors lapse
30 days after termination as a director and unexercised shares subject to those
options are returned to the share reserve and become available for future stock
option grants.
71
<PAGE>
Options may be exercised by payment of the option price in cash, check or
cash equivalent. All options granted under the Directors Option Plan shall be
nonqualified stock options, that is options which do not meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended. Options are
non-assignable and non-transferable and may be exercised only by the optionee.
In the event of a transfer of control or the dissolution of Informix, the
optionee shall have 30 days within which to exercise the options to the extent
of all or any part of the shares subject to such options.
The Board may terminate or amend the Directors Option Plan at any time, but
without the approval of stockholders, the Board may not amend the Directors
Option Plan to increase the number of shares subject thereto or to change the
class of persons eligible to receive options thereunder.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following individuals served as members of the Compensation Committee of
the Informix Board of Directors: Albert F. Knorp, Jr., James L. Koch, Thomas A.
McDonnell and Cyril J. Yansouni. Mr. Knorp also served as an Assistant Secretary
of Informix during the fiscal year ended December 31, 1995 and continues to
serve in such capacity. Mr. Knorp is of counsel to the law firm of Gray Cary
Ware & Freidenrich, which provided legal services to Informix in 1995 in
connection with corporate and licensing matters. Thomas A. McDonnell is the
President, Chief Executive Officer and a director of DST Systems, Inc. ("DST").
Affiliates of DST paid approximately $500,000 to Informix in 1995 for products
and services.
CERTAIN TRANSACTIONS
In June 1993, Informix made a loan in the principal amount of $150,000 to
Mr. Saranga, Senior Vice President, Product Management and Development, in
connection with his accepting employment by Informix. The loan is secured by a
second deed of trust on property acquired by Mr. Saranga in California and was
originally due and payable in full on the earliest of June 2, 1995, the date Mr.
Saranga sold his Connecticut property or the date Mr. Saranga's employment with
Informix was terminated. In June 1995, Mr. Saranga and Informix amended the loan
to increase the interest rate of 3.56% per annum to 6.55% per annum and to
provide that $30,000 of principal, and accrued interest, will be forgiven on
June 2, 1996 and each anniversary thereafter provided Mr. Saranga remains an
employee of Informix. The loan continues to provide that the full amount of
unpaid principal and accrued interest will become immediately due and payable on
the date Mr. Saranga's employment with Informix is terminated for any reason.
Mr. Knorp, a director of Informix, is of counsel to the law firm of Gray
Cary Ware & Freidenrich, which provided legal services to Informix in 1995 in
connection with corporate and licensing matters.
Thomas A. McDonnell, a director of Informix, is the President, Chief
Executive Officer and a director of DST. Affiliates of DST paid approximately
$500,000 to Informix in 1995 for products and services.
72
<PAGE>
INFORMIX STOCK INFORMATION
INFORMIX PRINCIPAL STOCKHOLDERS
The following table contains information regarding the ownership of the
Common Stock of Informix as of December 31, 1995, by all persons who, to the
knowledge of Informix, were the beneficial owners of 5% or more of the
outstanding shares of Common Stock of Informix, each director of Informix, the
Chief Executive Officer and each of the four other most highly compensated
executive officers, and all current directors and executive officers of Informix
as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE APPROXIMATE PERCENT
BENEFICIAL OF COMMON STOCK
NAME OWNERSHIP (1) OUTSTANDING
- ----------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
D. Kenneth Coulter (2)..................................... 157,738 *
Howard H. Graham (3)....................................... 54,222 *
Albert F. Knorp, Jr........................................ 133,180 *
James L. Koch (4).......................................... 78,000 *
Thomas A. McDonnell (5).................................... 120,000 *
Mike Saranga............................................... 899 *
Phillip E. White (6)....................................... 781,157 *
Edwin C. Winder (7)........................................ 207,316 *
Cyril J. Yansouni (8)...................................... 20,000 *
All current directors and executive officers as a group (18
persons) (9).............................................. 2,257,708 1.7%
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares.
(1)
To Informix's knowledge, the persons named in the table under "Directors
and Executive Officers" have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them, subject
to community property laws where applicable.
(2)
Includes 150,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(3)
Includes 50,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(4)
Includes 76,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(5)
Includes 80,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(6)
Includes 770,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(7)
Includes 195,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(8)
Includes 20,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(9)
See footnotes 2-8. Also includes, 672,528 shares subject to options held by
executive officers and currently exercisable or exercisable within 60 days
of December 31, 1995.
73
<PAGE>
INFORMIX STOCK PRICE AND DIVIDEND INFORMATION
Informix Common Stock has been traded on Nasdaq under the symbol "IFMX"
since Informix's initial public offering on September 24, 1986. The following
table sets forth the range of high and low closing prices for the Informix
Common Stock as reported on Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1994*
First Quarter.................................................................... $ 12.06 $ 8.00
Second Quarter................................................................... 11.06 7.25
Third Quarter.................................................................... 13.88 7.94
Fourth Quarter................................................................... 16.06 11.88
Fiscal 1995*
First Quarter.................................................................... 19.63 14.63
Second Quarter................................................................... 25.94 17.06
Third Quarter.................................................................... 34.00 25.25
Fourth Quarter................................................................... 33.00 24.13
Fiscal 1996
First Quarter (through February 5, 1996)......................................... 33.38 26.88
</TABLE>
- ------------------------
* The prices shown prior to June 26, 1995 reflect a two-for-one stock split
effected in the form of a stock dividend as of that date.
Informix has not paid any dividends since its inception and does not intend
to pay any dividends in the foreseeable future.
At December 31, 1995, there were approximately 1,763 stockholders of record.
74
<PAGE>
ILLUSTRA BUSINESS
BACKGROUND
Illustra develops, produces, markets and supports object-relational database
systems and software tools. It also provides consulting, training and
maintenance services. Illustra develops its systems software and tools at its
development center in Oakland, California. Its products are sold through
multiple channels of distribution.
Illustra was incorporated in Delaware in July 1992. Its headquarters are in
Oakland, California. Certain of its marketing and sales activities in Europe are
conducted through wholly-owned subsidiaries in the United Kingdom and France.
PRODUCTS
Illustra markets a proprietary object-relational database management system
("ORDBMS") and tools for applications in multimedia and entertainment, digital
media publishing and financial services. Illustra believes the development of
its ORDBMS represents one of the most significant technological advances in the
25-year history of relational and object-oriented database management. The
Illustra-TM- Server allows users to store, manage and analyze complex multimedia
data such as images, audio, video and Hypertext Markup Language ("HTML") files
in a single database with traditional text and numbers using industry-standard
SQL.
ILLUSTRA SERVER
The Illustra Server is a full-featured database management system designed
for the management of complex multimedia data, not just numerical information.
Combining the capabilities of object-orientation with those of relational
databases, Illustra provides support for industry-standard SQL with SQL3
extensions, thereby enabling existing relational database developers to leverage
their existing development expertise. The Illustra Server delivers flexible and
controllable security and is designed for rapid access to terabytes of complex
data by tens to hundreds of simultaneous users. The first production release was
shipped in August 1993, and the most recent release -- Illustra Server 3.2 --
first shipped in October 1995.
ILLUSTRA DATABLADE-REGISTERED TRADEMARK- MODULES
Illustra develops and markets "snap-in" software modules, called DataBlade
modules, which extend the database's ability to handle new data types and
provide new "methods" for specific handing of the data. DataBlade modules can
work alone or in conjunction with one another. DataBlade modules can even
include completely new access methods, providing quick access to data not well
served by the B-trees of the RDBMS vendors. Illustra DataBlades are developed by
Illustra or by third party vendors. Current Illustra DataBlade modules include:
- IMAGE DATABLADE. The Illustra Image DataBlade module supports over 50
image formats (E.G. GIF, TIFF, PICT), both color and monochrome. Examples
of image manipulation include rotation, edge enhancement and convolution.
With the Image DataBlade, expertise at managing images is in the database
manager, instead of in each application.
- 2D SPATIAL DATABLADE. The Illustra 2D Spatial DataBlade module supplies a
set of over 200 functions to allow manipulation and querying of
two-dimensional spatial data, including points, lines, polygons and other
spatial and location data.
- 3D SPATIAL DATABLADE. The Illustra 3D Spatial DataBlade module supplies a
set of over 1,000 functions to allow manipulation and querying of spatial
data that enables the database to manage three-dimensional spatial
information.
- TEXT DATABLADE. The Illustra Text DataBlade module supplies a large set
of functions to allow easy development of complex searches -- accessing
documents by their content. Stored text can be queried for keyword matches
as well as for idea and concept relevance.
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<PAGE>
- TIMESERIES DATABLADE. The Illustra TimeSeries DataBlade module enables
the database to manage time series and temporal data, which are
particularly useful for systems used in the financial services arena. The
DataBlade supports a regularly repeating time-stamped series of any type
or assortment of data--integer, floating point numbers, currency, text
fields, spatial information that can be represented in digital form, or
any structure or combination of these. The granularity of time recording
can be in a variety of units. Support for two new data types, time series
and calendars, and over 40 functions to manage them, is included.
- S-PLUS DATABLADE. The Illustra S-Plus DataBlade module is a
user-installable extension to the Illustra Server that adds support for
over 1,000 statistical functions. The S-Plus DataBlade module maps S-Plus
data types to Illustra data types, making it possible to incorporate
S-Plus functions directly inside of Illustra SQL.
- WEB DATABLADE. The Illustra Web DataBlade module is an innovative product
which substantially reduces the required effort (and thus cost) of
developing World Wide Web ("WWW")-enabling database applications. The Web
DataBlade consists of a core functionality that makes it possible to store
HTML pages in the database. These pages can contain SQL queries which are
triggered when accessed and the results are formatted. The programmer can
therefore generate HTML pages automatically without knowledge of
programming languages such as C, perl or tcl and focus on the "look and
feel" of the pages, using only industry standard HTML and SQL.
- VIR DATABLADE AND VIR IMAGE VIEWER. The Illustra Visual Information
Retrieval ("VIR") DataBlade is a content-based image retrieval system for
retrieving images, animation and video from complex multimedia databases.
Users can perform searches on any kind of image, including video, based on
the actual content of the image. Illustra also sells the Illustra VIR
Image Viewer, a graphical user interface to the VIR DataBlade module that
allows users to visually search through collections of images stored in
the Illustra Server.
ILLUSTRA TOOLS AND TOOLKITS
Illustra's tool and toolkit products provide mechanisms for enabling
application development against the Illustra Server. This suite of tools changes
application development from low-level programming to high-level "componentware"
designed to serve developers creating multimedia or WWW applications for the
Illustra Server. Illustra's tools and toolkits include:
- ODBC DRIVER. A high performance driver enabling rapid application
development by providing an industry-standard database interface to the
Illustra Server and DataBlade modules from industry standard Microsoft
products. Illustra's ODBC driver allows Windows desktop applications to
interact with Illustra's object relational database technology.
- SCHEMA KNOWLEDGE. A tool for developers working with schema objects such
as tables, functions, data types, casts, operators and aggregates. It
provides an easy-to-use graphical interface so the developer can "see" the
schema information in the database, allowing easy navigation through
complex designs.
- ILLUSTRA C++ INTERFACE. By transforming the underlying mechanism for
communicating with the servers into a high-level collection of C++
classes, this Microsoft-compatible tool drastically reduces code and makes
it easy to create, debug and modify applications for the Illustra Server.
- ILLUSTRA CLIENT TOOLKIT FOR WINDOWS. Illustra tools native to the
Microsoft Windows NT operating system for rapid application development.
Tools include Illustra Query, enabling development and debugging using AD
HOC SQL queries rather than application programming interface language,
and the Visual Basic interface for accessing the Illustra Server from
Visual Basic rather than prototype C/C++.
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<PAGE>
OTHER PRODUCTS AND SERVICES
In addition to those described above, Illustra's products and services
include the following:
- OBJECT KNOWLEDGE. Illustra's Object Knowledge is a system of programs and
libraries that enable applications to graphically depict data in Illustra
databases so that users can literally visualize database information.
Graphically displayed data is much more readily understood and therefore a
more useful form of information than the traditional spreadsheet format of
tabular numerical data.
- DATABLADE DEVELOPER'S KIT. The DataBlade Developer's Kit includes
machine-readable source code, the Illustra Architecture Manual and the
Example DataBlades Manual to allow developers to develop DataBlade
modules.
- GATEWAYS. Illustra offers a Sybase Gateway that enables access and
updates through the Illustra Server to data stored in Sybase databases.
Data from the Sybase server can be fetched, qualified, aggregated and
combined with Illustra data as if it were from the same source.
- CONSULTING SERVICES. Illustra offers consulting services to help
customers with a variety of design, development and implementation
activities. Illustra also has a variety of approved systems integration
partners who have additional resources.
- TRAINING. Illustra offers a variety of courses to assist in learning the
Illustra product set. Classes incorporate lectures, demonstrations and,
often, lab sessions.
MARKETING AND DISTRIBUTION
Illustra markets its software through its direct end-user sales
organization, as well as its indirect OEM, value-added reseller ("VAR") and
value-added distributor ("VAD") network.
There are four territory operational groups. The North America territory
group is responsible for marketing and supporting Illustra products in North
America through its end-user sales organization, OEMs, VARs and VADs. The Japan
territory group, in conjunction with its master distributor, is responsible for
localizing, translating, marketing and supporting Illustra products in Japan
through its end-user sales organization, OEMs, VARs and VADs. The European
territory group (with wholly-owned subsidiaries in the United Kingdom and
France) is responsible for translating, marketing and supporting Illustra
products in Europe through its end-user sales organization, OEM, VARs and VADs.
The Intercontinental territory group (which covers all areas not mentioned
above) translates, markets and supports Illustra products through its end-user
sales organization, OEMs, VARs and VADs.
OEMS AND MASTER DISTRIBUTORS
Illustra products are marketed to OEMs and master distributors under
agreements which grant OEMs and master distributors the right to make copies of
the product and distribute the copies with the OEM's hardware or to other
authorized resellers.
VARS, VADS AND AUTHORIZED RESELLERS
Illustra markets its products to large corporate customers through its
end-user sales organization and independent VADs and authorized resellers.
Illustra employs a staff of field sales representatives and field support
personnel who solicit orders primarily from end-users and provide product
training and sales support to VARs, VADs, other authorized resellers and larger
corporate customers.
CUSTOMERS
As of December 31, 1995, Illustra had licensed its products to approximately
240 end-user customers, some of which had licensed multiple copies of various
products, and Illustra's VARs, VADs and other authorized resellers had licensed
Illustra's products to additional end-users and resellers. Illustra offers
technical support for all of its products through its technical support
department
77
<PAGE>
located in the corporate headquarters. Revenues received from Fujitsu Network
Transmission Systems, Inc. represented approximately 13% of Illustra's total
revenues for fiscal year 1995, and revenues from Digital Equipment Corp. and
Wyse Technology Inc. represented approximately 29% and 22%, respectively, of
Illustra's total revenues for fiscal year 1994.
Certain payments received from customers have been recorded initially as
deferred revenue and are recognized as revenue in subsequent periods. See
"Illustra Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 11 of Notes to Consolidated Financial Statements
of Illustra.
PRODUCT DEVELOPMENT
The database software market is fiercely competitive and characterized by
rapid technological change, which requires industry participants to make
continuous expenditures of substantial resources for product enhancement and
innovation. Illustra is committed to the creation of new products and the
enhancement of existing products. It maintains its development center in
Oakland, California which is responsible for product development, documentation
and quality assurance. The development center works closely with sales and
marketing personnel in the marketing of its products and the definition of new
or enhanced product features.
During fiscal years 1995, 1994 and 1993, Illustra spent approximately $4.8
million, $2.9 million and $884,000, respectively, on product research and
development. These amounts represent approximately 327%, 353% and 442%,
respectively, of revenues in each of those periods. All software development
costs have been expensed as incurred.
In addition, certain of Illustra's existing DataBlade modules have been
developed by third-party developers and are sold on a stand-alone basis or
incorporated into products developed by Illustra. Illustra anticipates that
additional DataBlade modules will be developed by third parties and sold by
Illustra in the future. Illustra typically pays third-party developers of
DataBlade modules royalties based on the number of licensed copies sold.
COMPETITION
Database development has been ongoing in the industry as the need to store,
manage and analyze more rich and complex data has increased. Traditional
relational database vendors have realized this need and are developing ways to
add to their RDBMS products technology to handle multimedia data types such as
those handled effectively by Illustra's products. Illustra sees its principal
competitors to be companies such as Oracle Corporation, Sybase Inc., Informix,
IBM Corporation, CA Ingres (a subsidiary of Computer Associates) and Microsoft
Corporation, all of which have substantially greater financial and personnel
resources than Illustra.
Illustra believes the principal competitive factors in its industry include
database performance (I.E., the speed with which operations can be executed),
database extensibility to handle new and complex data types (E.G., multimedia
data such as images, audio and video), database scalability to run on expanding
and often heterogeneous computer systems, including systems incorporating
various types of high-performance parallel processors, and the ease and speed
with which applications can be developed, including the quality of available
applications development tools. Illustra believes it currently compares
favorably with its principal competitors with respect to these factors in the
market segments on which it has concentrated to date.
PROPRIETARY RIGHTS
Illustra regards its software as proprietary and attempts to protect it with
copyrights, trademarks and internal and external nondisclosure safeguards, as
well as restrictions on transferability that are incorporated into its software
license agreements. As is common in the software industry, Illustra has not
sought to rely on patents to protect its technology. In addition to its
internally-developed technology, Illustra uses some technology licensed from
third-party vendors under agreements that typically restrict Illustra's
permitted uses of the licensed technology.
78
<PAGE>
EMPLOYEES
As of December 31, 1995, Illustra had 180 employees, 169 domestically and 11
internationally. Of the total, 86 were engaged in product development and
support, 43 in marketing, sales and field operations, 16 in strategic business
units, 16 in consulting and 10 in administration, human resources and finance.
None of Illustra's employees is represented by a labor union. Illustra has
experienced no work stoppages and believes its employee relations are excellent.
PROPERTIES
Illustra's corporate offices are located in approximately 65,000 square feet
of leased office space in Oakland, California. This lease for these facilities
expires in June 1997. In addition, Illustra leases small amounts of office space
in numerous locations in the United States and in foreign countries. Illustra
believes its existing facilities are sufficient for its current operations and
that, for the foreseeable future, any additional facilities that may be required
will be obtainable on reasonable terms.
79
<PAGE>
ILLUSTRA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
The following table sets forth Illustra's operating results as a percentage
of revenues for the six months ended December 31, 1995 and 1994 and the fiscal
years ended June 30, 1995, 1994 and 1993, together with the percentage changes
from period to period.
<TABLE>
<CAPTION>
PERIOD FROM JULY 31,
SIX MONTHS ENDED DECEMBER 1992 (INCEPTION) TO
31, YEAR ENDED JUNE 30, JUNE 30
-------------------------- -------------------------- --------------------
REVENUES: 1995 CHANGE 1994 1995 CHANGE 1994 CHANGE 1993
- -- ------- ------ ------- ------- ------ ------- ------ -----------
(DOLLARS IN THOUSANDS)
<C> <C> <C> <C> <C> <C> <C> <C>
Licenses... $3,430 479% $ 592 $1,000 135% $ 426 -- -$-
Percentage
of
revenues... 76% 79% 69% 52% --
Services... $1,091 613% $ 153 $ 458 16% $ 396 98% $200
Percentage
of
revenues... 24% 21% 31% 48% 100%
------- ------- ------- ------- -----
Total
Revenues... $4,521 507% $ 745 $1,458 77% $ 822 311% $200
COSTS
AND
EXPENSES:
Cost
of
software
distribution... $ 229 227% $ 70 $ 160 233% $ 48 -- -$-
Percentage
of
license
revenues... 7% 12% 16% 11% --
Cost
of
services... $1,617 219% $ 507 $1,429 228% $ 436 191% $150
Percentage
of
service
revenues... 148% 331% 312% 110% 75%
Sales
and
marketing... $4,913 195% $1,668 $4,040 78% $2,264 2,959% $ 74
Percentage
of
revenues... 109% 224% 277% 275% 37%
Research
and
Development... $3,669 77% $2,068 $4,769 64% $2,904 229% $884
Percentage
of
revenues... 81% 278% 327% 353% 442%
General
and
Administrative... $1,480 239% $ 436 $1,104 71% $ 645 16% $556
Percentage
of
revenues... 33% 59% 76% 78% 278%
Interest
income... $ 105 36% $ 77 $ 186 170% $ 69 187% $ 24
Percentage
of
revenues... 2% 10% 13% 8% 12%
Interest
expense... $ 82 173% $ 30 $ 67 20% $ 56 N/A -$-
Percentage
of
revenues... 2% 4% 5% 7% --
</TABLE>
Illustra derives revenue from the licensing of its software and from the
provision of services consisting of customer support, training, consulting and
development projects. Revenue under product license agreements is recognized
upon delivery. Services revenues primarily consist of maintenance and customer
training and consulting services and development contract fees. Maintenance
revenue is deferred and recognized ratably over the term of the maintenance
agreement, which is typically 12 months. Revenue for customer training and
consulting is recognized as the services are performed. Revenue on development
contracts is recognized based upon achievement of specified milestones.
Illustra's activities during fiscal 1993 were devoted almost entirely to
product development, and Illustra did not record any license revenues during its
first fiscal year of operations. The first commercial shipment of the Illustra
Server product was made in August 1993. License revenues were $426,000 in fiscal
1994 and increased by approximately 135% to $1.0 million in fiscal 1995 on the
strength of initial commercial shipments of Illustra's products. Service
revenues were $200,000 in fiscal 1993 and increased by approximately 98% to
$396,000 in fiscal 1994 and an additional 16% to $458,000, or approximately 31%
of total revenues, in fiscal 1995. Commercial shipments of Illustra's products
and demand for Illustra's services continued to grow in the first six months of
fiscal 1996, as license revenues increased by approximately five-fold from
$592,000 for the first six months of fiscal 1995 to $3.4 million in the first
six months of fiscal 1996. Service revenues increased by over six-fold from
$153,000 in the first six months of fiscal 1995 to $1.1 million, or
approximately 24% of total revenues, in the first six months of fiscal 1996.
80
<PAGE>
Illustra's ability to sustain growth depends in part on the timely release
of successful new and updated products, and the success of new and updated
products from its competitors.
COST OF SOFTWARE DISTRIBUTION
Software distribution costs consist primarily of manufacturing and related
costs such as media, documentation, product assembly and freight. Software
distribution costs have increased from zero in fiscal 1993 to $48,000, or
approximately 11% of license revenues, in fiscal 1994 to $160,000, or
approximately 16% of license revenues, in fiscal 1995. From the first six months
of fiscal 1995 to the first six months of fiscal 1996, cost of software
distribution increased by approximately 227% from $70,000 to $229,000 but
decreased as a percentage of license revenues from 12% to 7%.
COST OF SERVICE
Cost of service, which consists primarily of technical support, consulting
and training expense, has to-date exceeded service revenue as Illustra has
incurred significant consulting and technical support expenses in order to build
the organizational infrastructure to support anticipated future demand for its
products. Cost of service was $150,000 in fiscal 1993, increased to $436,000 in
fiscal 1994 and increased by approximately 228% to $1.4 million in fiscal 1995.
Cost of service increased by approximately 219% from $507,000 in the first six
months of fiscal 1995 to $1.6 million in the first six months of fiscal 1996 but
decreased as a percentage of service revenues from 331% to 148%.
In light of Illustra's short three-year operating history, it is difficult
to formulate any trends or predict any other trends.
SALES AND MARKETING EXPENSE
Sales and marketing expense, consisting primarily of compensation and
benefits of Illustra's sales and marketing organization, has increased as that
organization and associated infrastructure have grown to include several offices
in the United States, Europe and two distributorships in Asia. Sales and
marketing expense was $74,000 in fiscal 1993, increased to $2.3 million in
fiscal 1994 and increased by approximately 78% to $4.0 million in fiscal 1995.
Sales and marketing expense has to-date exceeded total revenues as a result of
Illustra's investment in its sales and marketing organization and infrastructure
in support of initial product sales and anticipation of future demand for its
products. From the first six months of fiscal 1995 to the first six months of
fiscal 1996, sales and marketing expense increased by approximately 195% from
$1.7 million to $4.9 million but decreased as a percentage of total revenues
from 224% to 109%.
Throughout the remainder of fiscal 1996, Illustra will continue to invest
more in customer services, marketing and research and development, and make
personnel additions to its sales force worldwide. These additional expenses may
adversely affect Illustra's operating performance in fiscal 1996 if there are no
offsetting increases in revenues or reductions in other operating expenses.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense, consisting principally of compensation and
benefits of Illustra's product development organization, has grown substantially
since inception as the size and complexity of Illustra's product development
activities have increased. All research and development costs to-date have been
expensed as incurred. Research and development expense increased by
approximately 229% from $884,000 in fiscal 1993 to $2.9 million in fiscal 1994
and increased again by approximately 64% to $4.8 million in fiscal 1995.
Research and development expense increased by approximately 77% from $2.1
million in the first six months of fiscal 1995 to $3.7 million in the first six
months of fiscal 1996.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense consists principally of compensation and
benefits of employees engaged in administration, human resources and finance, as
well as occupancy expense and outside professional services. General and
administrative expense increased by approximately 16% from $556,000 in fiscal
1993 to $645,000 in fiscal 1994 and increased again by approximately 71% to $1.1
million in fiscal 1995. General and administrative expense increased by
approximately 239%
81
<PAGE>
from $436,000 in the first six months of fiscal 1995 to $1.5 million in the
first six months of fiscal 1996. These increases resulted primarily from growth
in Illustra's administrative infrastructure necessary to support expanding
operations and legal and accounting expenses related to the Merger.
INTEREST INCOME
Interest income represents interest earned on cash balances. Interest income
increased by approximately 187% from $24,000 in fiscal 1993 to $69,000 in fiscal
1994 because of higher cash balances. Interest income increased 170% to $186,000
in fiscal 1995 as a result of significantly increased interest income from
higher cash balances. Interest income increased by approximately 36% from
$77,000 in the first six months of fiscal 1995 to $105,000 in the first six
months of fiscal 1996 because an increase in interest income resulting from
higher cash balances and higher interest rates.
INTEREST EXPENSE
Interest expense results from equipment leases. Interest expense increased
from $56,000 in 1994 to $67,000 in 1995 and from $30,000 in the first six months
of 1995 to $82,000 in the first six months of 1996 due to additional leases.
Additional financing was required for the new equipment purchased for the
additional employees hired by the Company.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
AS OF JUNE
30 OR FOR
THE
PERIOD FROM
JULY 31,
AS OF OR FOR THE 1992
SIX MONTHS ENDED DECEMBER 31, AS OF OR FOR THE (INCEPTION)
YEAR ENDED JUNE 30, TO JUNE 30
---------------------------------- ---------------------------------- ------------
1995 CHANGE 1994 1995 CHANGE 1994 CHANGE
--------- ------------ --------- --------- ------------ --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments................................. $ 1,045 (60%) $ 2,627 $ 7,119 33% $ 5,371 527%
Working capital (deficit).................... $ (5,296) (341%) $ 2,200 $ 2,453 (45%) $ 4,488 550%
Cash used in operations...................... $ (6,566) 67% $ (3,923) $ (5,745) 23% $ (4,684) 283%
Cash used in investing activities, excluding
investments of excess cash.................. $ (2,597) 659% $ (342) $ (1,340) 272% $ (360) (34%)
Cash provided by financing activities........ $ 3,089 103% $ 1,521 $ 8,833 (8%) $ 9,559 264%
<CAPTION>
1993
---------
<S> <C>
Cash, cash equivalents and short-term
investments................................. $ 856
Working capital (deficit).................... $ 690
Cash used in operations...................... $ (1,224)
Cash used in investing activities, excluding
investments of excess cash.................. $ (549)
Cash provided by financing activities........ $ 2,628
</TABLE>
Since its inception in 1993, Illustra funded its operations primarily
through private issuance of capital stock and borrowings under financing
arrangements ($21.7 million and $3.8 million, respectively, through December 31,
1995). Cash used in operating activities was approximately $1.2 million, $4.7
million, $5.7 million and $6.6 million in fiscal 1993, 1994 and 1995 and the
first six months of fiscal 1996, respectively. Illustra used each of $527,000,
$321,000, $1.3 million and $2.5 million in fiscal 1993, 1994 and 1995 and the
first six months of fiscal 1996, respectively, for the purchase of equipment to
be used by employees. Illustra anticipates that increased investment in capital
equipment will be required in the future to support its anticipated operations.
As of December 31, 1995, Illustra had no material commitments for capital
expenditures.
Illustra invests excess funds in short-term investments such as money market
funds, short-term commercial paper and repurchase agreements.
As of December 31, 1995, Illustra had cash, cash equivalents and investments
of $1.0 million and a working capital deficit of $5.3 million. Although Illustra
does not have a bank line of credit, it has equipment financing arrangements
with two commercial lenders which were fully drawn down as of December 31, 1995.
In December 1995, Illustra entered into a credit arrangement with Informix under
which Illustra may borrow up to $5 million for working capital requirements. As
of December 31, 1995, the Company had borrowed $2.0 million, in the form of a
note payable, under the Informix arrangement. Illustra anticipates that its
existing cash balances and financing sources will be sufficient to meet its
working capital and capital expenditure requirements through the anticipated
closing date of the Merger; however, if the closing of the Merger is delayed or
the Merger does not occur for any reason, Illustra will have an immediate need
for substantial additional financing. There can be no assurance that such
financing will be available on reasonable terms, if at all.
82
<PAGE>
ILLUSTRA MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
The following individuals are expected to serve as executive officers of
Informix or the Surviving Corporation following the Merger. Their positions at
Illustra and their ages as of January 1, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Richard H. Williams 52 President, Chief Executive Officer and Director
Michael R. Stonebraker 52 Chief Technology Officer and Director
Stephen G. Maysonave 49 Senior Vice President, Sales
Bruce Golden 36 Vice President, Marketing
Paula B. Hawthorn 52 Vice President, Engineering
Masahiro Morimoto 55 Vice President -- World Trade Division, Japan
Michael C. Ubell 42 Chief Scientist
</TABLE>
Mr. Williams joined Illustra as President, Chief Executive Officer and
Director in December 1993. Prior to joining Illustra, he was Executive Vice
President of Sales for Novell, Inc., a computer software company ("Novell"), and
General Manager of Novell's Digital Research Systems Group from 1991 to 1992.
From 1987 to 1991, Mr. Williams served as President and Chief Executive Officer
of Digital Research, Inc., a computer software company, which merged with a
wholly-owned subsidiary of Novell in 1991. Mr. Williams retired upon completion
of the integration of Digital Research, Inc. into Novell in 1992 and remained in
retirement until he joined Illustra.
Dr. Stonebraker, who serves in a consulting capacity as Illustra's Chief
Technology Officer, co-founded Illustra in July 1992. Dr. Stonebraker is
professor emeritus of Electrical Engineering and Computer Sciences at the
University of California, Berkeley, where he joined the faculty in 1971.
Mr. Maysonave joined Illustra as Senior Vice President, Sales in January
1994. Prior to joining Illustra, he was Founder, President and Chief Executive
Officer of International Business and Marketing Services, a management
consulting firm from 1990 to 1994. From 1988 to 1990, Mr. Maysonave served as
Director of Business Development, Advanced Computing Technology Program at
Microelectronics and Computer Technology Corporation, a consortium of computer
and related companies.
Mr. Golden joined Illustra as Vice President, Marketing in June 1993. Prior
to joining Illustra, he was Director of Commercial Market Development at Sun
Microsystems, Inc., a computer hardware and software company, where he was
employed for eight years.
Dr. Hawthorn joined Illustra as Vice President, Engineering in August 1992.
Prior to joining Illustra, she was Manager of the Operating Systems Research
Department of Hewlett-Packard Laboratories, a computer research organization,
from 1989 to 1992. From 1987 to 1989, Dr. Hawthorn was Vice President,
Engineering at ShareBase Corporation (formerly Britton Lee, Inc.), a database
software company.
Mr. Morimoto joined Illustra as Vice President -- World Trade Division,
Japan in March 1995. Prior to joining Illustra, he was Vice President and
General Manager Flex Os Group at Integrated Systems Inc., a computer software
company, from 1994 to 1995. From 1992 to 1994, Mr. Morimoto served as Vice
President and General Manager Dedicated Systems Business Unit at Novell. From
1989 to 1992, he was employed by Digital Research Japan where he served as
President of Digital Research Japan and as Corporate Vice President of Digital
Research, Inc.
Mr. Ubell joined Illustra as Chief Scientist in August 1992. Prior to
joining Illustra, he served as Lab Consultant to the San Francisco Systems
Center of Digital Equipment Corporation, a computer manufacturer, from 1991 to
1992. From 1986 to 1991, Mr. Ubell was employed as Chief Scientist of ShareBase
Corporation.
83
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by
Illustra's Chief Executive Officer and Illustra's four other most highly
compensated executive officers (together, the "Illustra Named Executive
Officers") for services rendered to Illustra during the fiscal years ended June
30, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($)(1) BONUS ($) ($) ($)
- ------------------------------------------------ ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Richard H. Williams (2) ........................ 1995 151,999 29,268 -- --
President and Chief Executive Officer 1994 87,500 -- -- --
Stephen G. Maysonave (3) ....................... 1995 142,834 -- 180,000 127,496(4)
Senior Vice President, Sales 1994 61,875 -- 120,000 59,768(5)
Bruce Golden (6) ............................... 1995 139,249 42,161 150,000 --
Vice President, Marketing 1994 125,000 -- 100,000 --
1993 3,788 -- -- --
Paula B. Hawthorn .............................. 1995 130,563 19,313 40,000 --
Vice President, Engineering 1994 124,987 -- 30,000 --
1993 109,000 -- -- --
Michael C. Ubell ............................... 1995 120,156 -- 40,000 --
Chief Scientist 1994 114,025 -- 30,000 --
1993 94,958 11,600 -- --
</TABLE>
- ------------------------
(1) Includes compensation which was accrued but deferred at the election of each
Illustra Named Executive Officer pursuant to Illustra's 401(k) Plan.
(2) Mr. Williams became an employee, executive officer and director of Illustra
in December 1993.
(3) Mr. Maysonave became an employee and executive officer of Illustra in
January 1994.
(4) Includes $7,200, $38,838 and $81,458 for travel expenses, moving expenses
and advanced temporary living expenses, respectively, paid to Mr. Maysonave
in fiscal year 1995 in connection with his relocation.
(5) Includes $3,000, $17,810 and $38,958 for travel expenses, moving expenses
and advanced temporary living expenses, respectively, paid to Mr. Maysonave
in fiscal year 1994 in connection with his relocation.
(6) Mr. Golden became an employee and executive officer of Illustra in June
1993.
84
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Option Plan to each Illustra Named Executive Officer during
the fiscal year ended June 30, 1995:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE OR BASE --------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE 5%($) 10%($)
- ----------------------- ------------- ------------- ------------------- ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Williams.... -- -- -- -- -- --
Stephen G. Maysonave... 120,000 6.3 0.15 September 21, 2004 11,280 28,680
to April 28, 2005
Bruce Golden........... 100,000 5.2 0.15 September 21, 2004 9,400 23,900
to April 28, 2005
Paula B. Hawthorn...... 40,000 2.1 0.15 September 21, 2004 3,760 9,560
Michael C. Ubell....... 40,000 2.1 0.15 September 21, 2004 3,760 9,560
</TABLE>
- ------------------------------
(1) All options vest at the rate of 20% at the end of the first year of service
with Illustra and then an additional 1/60 per month until all options have
become vested at the end of five years' service with Illustra. In the event
an option was granted to an existing employee of Illustra (rather than a
newly-hired employee), such option vests at the rate described above based
on the grant date of such option.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant. It is calculated by assuming that the stock price on
the date of grant appreciates at the indicated annual rate compounded
annually for the entire term of the option and the option is exercised and
sold on the last day of its term for the appreciated stock price. No gain to
the optionee is possible unless the stock price increases over the option
term, which will benefit all stockholders.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the exercise of
stock options by the Illustra Named Executive Officers during the fiscal year
ended June 30, 1995 and the number and value of securities underlying
unexercised options held by the Illustra Named Executive Officers at June 30,
1995:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT FISCAL YEAR- OPTIONS AT FISCAL
ACQUIRED ON VALUE END (#)(1) VESTED/ YEAR-END ($)(1)
NAME EXERCISE (#) REALIZED ($) UNVESTED (2) VESTED/UNVESTED (2)
- -------------------------------------------- ------------ ----------- ------------------- -------------------
<S> <C> <C> <C> <C>
Richard H. Williams......................... -- -- -- --
Stephen G. Maysonave........................ -- -- 49,000/251,000 3,100/41,900
Bruce Golden................................ -- -- 67,916/182,084 10,187/27,313
Paula B. Hawthorn........................... -- -- 6,500/63,500 975/9,525
Michael C. Ubell............................ -- -- 6,500/63,500 975/9,525
</TABLE>
- ------------------------
(1) Fair market value of Illustra's Common Stock at June 30, 1995, minus the
exercise price of the options, multiplied by the number of shares underlying
the options.
(2) Stock options granted under the Option Plan may be exercised prior to
vesting. Shares issued upon such early exercise are subject to repurchase by
the Company at cost until vested.
85
<PAGE>
ILLUSTRA STOCKHOLDERS
The following sets forth certain information as to the number of shares of
Illustra Common Stock and Illustra Preferred Stock beneficially owned as of
January 2, 1996 and the number of shares of Informix Common Stock to be
beneficially owned immediately upon consummation of the Merger by (i) each
person who is known to Illustra beneficially to own 5% or more of the
outstanding shares of any class of Illustra Capital Stock, (ii) each director of
Illustra, (iii) each Illustra Named Executive Officer and (iv) all directors and
executive officers of Illustra as a group. Unless otherwise noted, (i) the
persons named in the table have sole voting and investment power with respect to
all shares indicated as being beneficially owned by them and (ii) all officers
and directors can be reached at the principal offices of Illustra.
<TABLE>
<CAPTION>
SHARES OF ILLUSTRA CAPITAL STOCK
BENEFICIALLY OWNED SHARES OF INFORMIX
------------------------------------------------------------- COMMON STOCK
PERCENT BENEFICIALLY OWNED AFTER
COMMON STOCK PREFERRED STOCK OF ALL THE MERGER (1)
------------------------ ------------------------ ILLUSTRA ------------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER PERCENT NUMBER PERCENT CAPITAL NUMBER
HOLDER OF SHARES OF CLASS OF SHARES OF CLASS STOCK (1) OF SHARES PERCENT
- ------------------------------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Morgenthaler Venture 192,000 4.4% 3,406,306 30.2% 23.0% 2,777,317 1.9%
Partners III (2)
700 National City Bank Building
629 Euclid Avenue
Cleveland, OH 44114
Gary J. Morgenthaler (3) 192,000 4.4 3,406,306 30.2 23.0 2,777,317 1.9
Robert D. Pavey (3) 192,000 4.4 3,406,306 30.2 23.0 2,777,317 1.9
Accel IV L.P. and affiliated -- -- 1,817,058 16.1 11.6 1,402,477 1.0
entities (4)
One Palmer Square
Princeton, NJ 08542
James R. Swartz (5) -- -- 1,817,058 16.1 11.6 1,402,477 1.0
Oak Investment Partners V -- -- 1,817,058 16.1 11.6 1,402,477 1.0
and affiliated entity (6)
525 University Ave.
Suite 1300
Palo Alto, CA 94301
Bandel L. Carano (7) -- -- 1,817,058 16.1 11.6 1,402,477 1.0
Richard H. Williams 880,000 20.4 333,333 3.0 7.8 936,498 *
Trinity Ventures IV L.P. -- -- 1,194,768 10.6 7.7 922,169 *
and affiliated entities (8)
155 Bovet Road, Suite 660
San Mateo, CA 94402
Intel Corporation (9) -- -- 807,278 7.2 5.2 786,033 *
2200 Mission College Blvd.
Santa Clara, CA 95052
Michael R. Stonebraker (10) 900,000 20.8 33,333 * 6.0 720,383 *
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
SHARES OF ILLUSTRA CAPITAL STOCK
BENEFICIALLY OWNED SHARES OF INFORMIX
------------------------------------------------------------- COMMON STOCK
PERCENT BENEFICIALLY OWNED AFTER
COMMON STOCK PREFERRED STOCK OF ALL THE MERGER (1)
------------------------ ------------------------ ILLUSTRA ------------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER PERCENT NUMBER PERCENT CAPITAL NUMBER
HOLDER OF SHARES OF CLASS OF SHARES OF CLASS STOCK (1) OF SHARES PERCENT
- ------------------------------------ ----------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sequoia Capital V and 320,334 7.4 411,841 3.7 4.7 565,122 *
affiliated entities (11)
3000 Sand Hill Road
Building Four, Suite 280
Menlo Park, CA 94025
Stephen G. Maysonnave (12) 300,000 6.4 11,948 * 2.0 240,774 *
Bruce Golden 250,000 5.8 0 0 1.6 192,960 *
Paula B. Hawthorn (13) 220,000 5.0 0 0 1.4 169,805 *
Michael C. Ubell (14) 220,000 5.0 0 0 1.4 169,805 *
Harvey C. Jones (15) 51,800 1.2 64,467 * * 89,740 *
All Directors and executive 3,013,800 62.9 7,483,503 65.3 8,102,238 5.5
officers as a group
(12 persons) (16)
</TABLE>
- ------------------------
* Less than 1%.
(1) Assumes conversion of all shares of Illustra Preferred Stock into Illustra
Common Stock.
(2) Common Stock includes 32,000 shares of Illustra Common Stock subject to
options exercisable within 60 days of January 2, 1996. Preferred Stock
includes 1,041,667 shares of Series A Preferred, 1,883,591 shares of Series
B Preferred and 481,048 shares of Series D Preferred.
(3) Includes all shares held by Morgenthaler Venture Partners III. Messrs.
Morgenthaler and Pavey, general partners of Morgenthaler Venture Partners
III, disclaim beneficial ownership of all shares held by Morgenthaler
Venture Partners III, except to the extent of their respective pecuniary
interests therein.
(4) Includes 1,241,878 shares of Series B Preferred and 279,001 shares of
Series D Preferred held by Accel IV L.P.; 118,697 shares of Series B
Preferred and 26,667 shares of Series D Preferred held by Accel Japan L.P.;
54,898 shares of Series B Preferred and 12,333 shares of Series D Preferred
held by Accel Investors '93 L.P.; 32,642 shares of Series B Preferred and
7,333 shares of Series D Preferred held by Ellmore C. Patterson Partners;
26,707 shares of Series B Preferred and 6,000 shares of Series D Preferred
held by Accel Keiretsu L.P.; and 8,902 shares of Series B Preferred and
2,000 shares of Series D Preferred held by Prosper Partners.
(5) Includes all shares held by Accel IV L.P. and affiliated entities Mr.
Swartz is a general partner of Accel IV Associates L.P., (the general
partner of Accel IV L.P.), a general partner of Accel Japan Associates L.P.
(the general partner of Accel Japan L.P.), a general partner of Accel
Investors '93 and an officer of Accel Partners & Co., Inc. (the general
partner of Accel Keiretsu L.P.). Ellmore C. Patterson Partners and Prosper
Partners are affiliates of Accel IV L.P. Mr. Swartz disclaims beneficial
ownership of all shares held by Accel IV L.P. and affiliated entities,
except to the extent of his pecuniary interest therein.
(6) Includes 1,451,085 shares of Series B Preferred and 326,000 shares of
Series D Preferred held by Oak Investment Partners V, L.P.; and 32,640
shares of Series B Preferred and 7,333 shares of Series D Preferred held by
Oak V Affiliates Fund, L.P.
87
<PAGE>
(7) Includes all shares held by Oak Investment Partners V and affiliated
entities. Mr. Carano is a general partner of Oak Associates V, L.P. (the
general partner of Oak Investment Partners V) and a general partner of Oak V
Affiliates, L.P. (the general partner of Oak V Affiliates Fund, L.P.). Mr.
Carano disclaims beneficial ownership of all shares held by Oak Investment
Partners V and affiliated entities, except to the extent of his pecuniary
interest therein.
(8) Includes 944,229 shares of Series B Preferred and 183,906 shares of Series
D Preferred held by Trinity Ventures IV, L.P.; and 55,771 shares of Series B
Preferred and 10,862 shares of Series D Preferred held by Trinity IV
Side-by-Side Fund, L.P.
(9) Includes 173,945 shares of Series D Preferred. Also includes 844,444 shares
of Series C Preferred which, prior to the date which is ten business days
after Illustra first receives copies of its audited financial statements for
the 1996 fiscal year or conversion into Illustra Common Stock in connection
with the Merger, is convertible into 633,333 shares of Illustra Common
Stock.
(10) Includes 33,333 shares of Series B Preferred owned by the Michael
Stonebraker Pension Plan.
(11) Includes 294,540 shares of Illustra Common Stock and 386,050 shares of
Series B Preferred held by Sequoia Capital V; 12,982 shares of Illustra
Common Stock and 9,316 shares of Series B Preferred 12,812 shares of
Illustra Common Stock and 9,808 shares of Series B Preferred held by Sequoia
XXIII and 6,667 shares of Series B Preferred held by Sequoia XXIV.
(12) Common Stock includes 300,000 shares of Illustra Common Stock subject to
options exercisable within 60 days of January 2, 1996. Preferred Stock
includes 10,000 shares of Series B Preferred and 1,948 shares of Series D
Preferred.
(13) Includes 70,000 shares of Illustra Common Stock subject to options
exercisable within 60 days of January 2, 1996.
(14) Includes 70,000 shares of Illustra Common Stock subject to options
exercisable within 60 days of January 2, 1996.
(15) Common Stock includes 5,300 shares of Illustra Common Stock subject to
options exercisable within 60 days of January 2, 1996. Preferred Stock
includes 26,042 shares of Series A Preferred; 27,919 shares of Series B
Preferred and 10,506 shares of Series D Preferred.
(16) See footnotes (3), (5), (7), (9), (12), (13), (14) and (15).
88
<PAGE>
APPLICABILITY OF CALIFORNIA LAW TO ILLUSTRA
Section 2115 of the CGCL makes substantial portions of the CGCL applicable,
with limited exceptions, to a foreign corporation with more than half of its
outstanding stock held of record by persons having addresses in California and
more than half of its business conducted in the state (as measured by factors
based on a corporation's levels of property, payroll and sales determined for
California franchise tax purposes), irrespective of the corporation's state of
incorporation. Although Illustra is incorporated in Delaware, it is subject to
Section 2115. The statutory provisions of the CGCL to which Illustra is subject
include but are not limited to provisions governing a director's standard of
care in performing the duties of a director, a stockholder's right to vote
cumulatively in any election of directors, a director's or stockholder's right
to inspect corporate records, indemnification requirements concerning directors,
officers and others and the corporate requirements to effectuate corporate
reorganizations (including mergers and acquisitions). Section 2115 also invokes
the application of Chapter 13 of the CGCL to the Merger with respect to Illustra
stockholders who elect to exercise dissenters' rights. Under Section 2115, the
provisions of the CGCL made applicable pursuant to such section apply to the
exclusion of the law of the jurisdiction in which the foreign corporation is
incorporated.
Upon completion of the Merger, the statutory protections available to
Illustra stockholders pursuant to Section 2115 will cease to exist.
COMPARISON OF CAPITAL STOCK
DESCRIPTION OF INFORMIX CAPITAL STOCK
The authorized capital stock of Informix consists of 350,000,000 shares of
Common Stock, $0.01 par value, and 5,000,000 shares of Preferred Stock, $0.01
par value.
INFORMIX COMMON STOCK. As of December 31, 1995, there were approximately
135,327,804 shares of Informix Common Stock outstanding held of record by
approximately 1,763 stockholders. Informix Common Stock is listed on Nasdaq
under the symbol "IFMX." Holders of Informix Common Stock are entitled to one
vote per share on all matters to be voted upon by the stockholders. The
stockholders do not have a right to take action by written consent nor may they
cumulate votes in connection with the election of Directors. Both the Restated
Certificate of Incorporation and the Bylaws of Informix contain provisions
requiring the affirmative vote of the holders of two-thirds of the outstanding
Common Stock of Informix to amend the cumulative voting or stockholder written
consent provisions. The holders of Informix Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Informix, the holders of Informix
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities. The Informix Common Stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the Informix Common Stock. All outstanding shares of Informix
Common Stock are fully paid and non-assessable, and the shares of Informix
Common Stock to be outstanding upon completion of the Merger will be fully paid
and non-assessable.
PREFERRED STOCK. Informix has 5,000,000 shares of Preferred Stock
authorized, of which 350,000 shares are designated Series A Participating
Preferred (the "Series A Preferred"), and no shares are outstanding. The Series
A Preferred has been designated for use in connection with the Preferred Shares
Rights Agreement. See "Description of Informix Capital Stock -- Preferred Shares
Rights Agreement." The Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock (including the 350,000 shares of Series A
Participating Preferred) in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any unissued
and undesignated shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series, without any further
vote or action by the stockholders. Although it presently has no intention to do
so, the Board of Directors, without stockholder approval, can issue
89
<PAGE>
Preferred Stock with voting and conversion rights which could adversely affect
the voting power or other rights of the holders of Informix Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of Informix. Informix has no present plans to
issue Preferred Stock.
PREFERRED SHARES RIGHTS AGREEMENT. On September 17, 1991, the Board of
Directors of Informix declared a dividend of one Preferred Stock Purchase Right
(a "Right") for each outstanding share of Informix Common Stock issued and
outstanding on November 20, 1991, and authorized and directed the issuance of
one Right with respect to each share of Informix Common Stock that becomes
outstanding prior to the occurrence of certain terminating events, pursuant to a
Preferred Shares Rights Agreement dated September 17, 1991, as initially amended
on May 15, 1992 and subsequently amended and restated on July 25, 1995 (the
"Amended and Restated Rights Agreement"). The holder of each share of Informix
Common Stock issued in exchange for Illustra Common Stock includes one Right.
Each Right entitles the registered holder to purchase from Informix 1/1000 of a
share of Series A Preferred Stock at a price equal to $154.00, subject to
adjustment under certain circumstances provided in the Rights Agreement. Upon
the occurrence of certain events generally associated with an unsolicited
attempt to take over Informix, the Rights (except for Rights held by an
Acquiring Person (as defined in the Rights Agreement)) will become exercisable
and will cease to trade with the Informix Common Stock. Upon the acquisition
without Board consent of 20% or more of Informix's Common Stock or announcement
of a tender offer or exchange offer for shares in excess of 20% or more of
Informix's Common Stock, each Right (except for Rights held by an Acquiring
Person) will be converted into a right to purchase at the then-current exercise
price of the Right that number of shares of Informix Common Stock having a
market value of two times the exercise price of the Right or, in the event of a
merger of Informix into an Acquiring Person, securities of the Acquiring Person
having a market value of two times the exercise price of the Right. Subject to
the terms of the Rights Agreement, Informix may exchange the Rights for Informix
Common Stock. The Rights have certain anti-takeover effects.
The Rights will cause substantial dilution to a person or group that
attempts to acquire Informix in a manner which causes the Rights to become
exercisable. Informix believes, however, that the Rights should neither affect
any prospective offering willing to negotiate with the Board of Directors of
Informix nor interfere with any merger or other business combination approved by
the Board of Directors of Informix because the Board of Directors may, at its
option, redeem the Rights. The terms of the Rights may be amended by the Board
of Directors of Informix without the consent of the holders of the Rights.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Informix Common Stock is The First National Bank of Boston, 150 Royall Street,
Canton, Massachusetts and its telephone number is (617) 575-3120.
DESCRIPTION OF ILLUSTRA CAPITAL STOCK
The authorized capital stock of Illustra consists of 20,000,000 shares of
Common Stock, $.0001 par value, and 13,000,000 shares of Preferred Stock, $.0001
par value, 1,300,000 shares of which are designated as Series A Preferred,
7,760,000 shares of which are designated as Series B Preferred, 844,444 shares
of which are designated as Series C Preferred, and 2,600,000 shares of which are
designated as Series D Preferred.
COMMON STOCK. As of the Illustra Record Date, there were 4,321,663 shares
of Illustra Common Stock outstanding and held of record by 85 stockholders.
Holders of Illustra Common Stock have no preemptive rights and no right to
convert Illustra Common Stock into any other securities. All outstanding shares
of the Illustra Common Stock are validly issued, fully paid and nonassessable.
PREFERRED STOCK. As of the Illustra Record Date, there were 1,083,334
shares of Series A Preferred, 7,048,505 shares of Series B Preferred, 844,444
shares of Series C Preferred and 2,510,583
90
<PAGE>
shares of Series D Preferred issued and outstanding and held of record by 38
stockholders. The principal rights, privileges and preferences of the issued and
outstanding shares of Illustra Preferred Stock are as set forth below.
Dividends
------------- Holders of Illustra Preferred Stock are entitled to dividend
preferences, when, as and if declared by the Illustra Board, at annual rates
of (i) $.075 per share with respect to shares of Series A Preferred and (ii)
$0.12 per share with respect to shares of Series B Preferred, Series C Preferred
and Series D Preferred. All dividends are non-cumulative. Illustra may not pay
cash dividends on Illustra Common Stock while there are any declared but unpaid
cash dividends on any shares of Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred outstanding.
Liquidation
-------------- In the event of any liquidation, dissolution or winding up
of Illustra (which, as defined in Illustra's Certificate of Incorporation,
would include the Merger) holders of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred are entitled to receive, prior and in
preference to any distribution of any assets of Illustra to the holders of
Illustra Common Stock, $0.96, $1.50, $2.25 and $3.00 per share, respectively,
plus all accrued and unpaid dividends. After the holders of Illustra Preferred
Stock have received the full amount of their liquidation preference, the holders
of Illustra Common Stock are entitled to receive all remaining assets of
Illustra available for distribution, pro rata based on the number of shares of
Illustra Common Stock held by each.
Conversion
-------------- Each share of Series A Preferred, Series B Preferred and
Series D Preferred is presently convertible into one share of Illustra
Common Stock, subject to anti-dilution adjustment provisions. Each share of
Series C Preferred is presently convertible into three-fourths of one share of
Illustra Common Stock, subject to future adjustment based on certain financial
performance criteria and subject to anti-dilution adjustment provisions.
Certain Protective Provisions Applicable to Series C Preferred
------------------------------------------------------------- In addition
to any other rights provided by law or agreement, so long as at least
700,000 shares of Series C Preferred shall be outstanding, Illustra may not,
without first obtaining the affirmative vote or written consent of the holders
of a majority of the outstanding shares of the Series C Preferred: (i) Create
any new series or class of stock having any preference or priority as to
dividends or assets superior to any such preference or priority of the Series C
Preferred; (ii) Issue additional shares of Series C Preferred; or (iii) Amend
the Certificate of Incorporation to increase the number of authorized shares of
Series C Preferred.
VOTING RIGHTS. Subject to the protective provisions described above and
except as otherwise required by law, the holders of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Illustra Common Stock are
entitled to notice of any stockholders' meeting and to vote together as one
class upon any matter submitted to the stockholders for a vote on the following
basis:
(a) COMMON VOTE. Each share of Illustra Common Stock issued and outstanding
has one vote.
(b) PREFERRED VOTE. Each holder of Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred has a number of votes equal to the
number of full shares of Illustra Common Stock into which such Illustra
Preferred Stock is then convertible.
91
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF INFORMIX
COMMON STOCK AND HOLDERS OF ILLUSTRA CAPITAL STOCK
Upon consummation of the Merger, the holders of Illustra Common Stock and
the holders of Illustra Preferred Stock will become holders of Informix Common
Stock. As of the Effective Time, holders of Illustra Preferred Stock will no
longer be entitled to certain rights and privileges previously provided for in
Illustra's Certificate of Incorporation. Such rights include (i) a dividend
preference in the amounts described above, (ii) a liquidation preference in the
amounts described above, (iii) certain anti-dilution adjustments upon dilutive
issuances of Illustra Capital Stock, and (iv) the right to vote as a separate
class concerning certain corporate transactions including the Merger. Appraisal
and dissenters' rights are available to stockholders of Illustra with respect to
the Merger. See "Approval of the Merger and Related Transactions -- Appraisal
and Dissenters' Rights."
In addition, certain other rights and privileges of Illustra stockholders
will change as a result of the Merger. Upon completion of the Merger, the
percentage ownership of Informix by each former Illustra stockholder will be
substantially less than his, her or its current percentage ownership of
Illustra. Accordingly, former Illustra stockholders will have a significantly
smaller voting influence over the affairs of Informix than they currently enjoy
over the affairs of Illustra. Moreover, certain contractual rights presently
possessed by holders of Illustra Preferred Stock will cease to exist after the
Merger. Specifically, certain information rights, registration rights, rights to
representation on, or attendance at meetings of the Illustra Board and other
rights unique to the organization and financing of Illustra will terminate at
the Effective Time. Finally, the statutory protections available to Illustra
stockholders under Section 2115 of the CGCL will no longer exist. See
"Applicability of California Law to Illustra."
EXPERTS
The consolidated financial statements of Informix Corporation at December
31, 1994 and 1993, and for each of the three years in the period ended December
31, 1994, included in this Prospectus/ Proxy Statement of Informix Corporation
and Illustra Information Technologies, Inc., which is referred to in and made as
part of the Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Illustra Information Technologies,
Inc. and subsidiary as of June 30, 1995 and 1994, and for each of the two years
ended June 30, 1995 and 1994, and for the period from July 31, 1992 (inception)
to June 30, 1993 included in this Prospectus/Proxy Statement have been so
included in reliance on the report of KPMG Peat Marwick LLP, independent
auditors, given on the authority of such firm as experts in auditing and
accounting.
LEGAL MATTERS
The validity of the Informix Common Stock issuable pursuant to the Merger
will be passed on by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Cooley Godward Castro Huddleson & Tatum, San Francisco,
California, is acting as counsel for Illustra in connection with certain legal
matters relating to the Merger and the transaction contemplated thereby.
92
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMIX
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Income.................................................... F-4
Consolidated Statements of Cash Flows................................................ F-5
Consolidated Statements of Stockholders' Equity...................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
ILLUSTRA
Independent Auditors' Report......................................................... F-21
Consolidated Balance Sheets.......................................................... F-22
Consolidated Statements of Operations................................................ F-23
Consolidated Statements of Stockholders' Equity...................................... F-24
Consolidated Statements of Cash Flows................................................ F-25
Notes to Consolidated Financial Statements........................................... F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Informix Corporation
We have audited the accompanying consolidated balance sheets of Informix
Corporation as of December 31, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Informix
Corporation at December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
February 6, 1995
F-2
<PAGE>
INFORMIX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
OCTOBER 1, ------------ ------------
1995
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................................. $ 123,291 $ 131,882 $ 67,329
Short-term investments.................................................... 87,848 59,644 76,198
Accounts receivable, less allowances for doubtful accounts of $8,901 at
October 1, 1995, $6,036 in 1994 and $3,181 in 1993....................... 171,807 131,548 109,005
Deferred taxes............................................................ 9,978 9,978 5,884
Other current assets...................................................... 20,933 14,964 11,001
----------- ------------ ------------
Total current assets.................................................... 413,857 348,016 269,417
Property and equipment, at cost:
Computer equipment........................................................ 92,656 68,240 48,095
Office equipment and leasehold improvements............................... 39,725 28,069 24,283
----------- ------------ ------------
132,381 96,309 72,378
Less accumulated depreciation and amortization............................ (65,192) (52,188) (39,597)
----------- ------------ ------------
67,189 44,121 32,781
Software costs, less accumulated amortization of $8,465 at October 1, 1995,
$7,973 in 1994 and $7,989 in 1993.......................................... 34,815 24,681 17,680
Deferred taxes.............................................................. 7,651 7,651 1,378
Long-term investments....................................................... 9,702 4,477 --
Intangible and other assets................................................. 60,932 15,464 5,377
----------- ------------ ------------
Total Assets............................................................ $ 594,146 $ 444,410 $ 326,633
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................... $ 24,187 $ 18,737 $ 14,926
Accrued expenses.......................................................... 30,416 27,784 18,388
Accrued employee compensation............................................. 41,830 33,777 26,823
Income tax payable........................................................ 47,275 17,725 12,705
Deferred taxes............................................................ 1,612 1,612 818
Deferred revenue.......................................................... 61,568 48,580 36,309
Current portion of capital lease obligations.............................. 414 391 1,081
Other current liabilities................................................. 10,532 4,946 2,354
----------- ------------ ------------
Total current liabilities............................................... 217,834 153,552 113,404
Capital lease obligations, less current portion............................. 953 343 451
Other noncurrent liabilities................................................ 377 179 --
Deferred taxes.............................................................. 14,595 14,692 5,373
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01 per share -- 5,000,000 shares authorized,
none issued.............................................................. -- -- --
Common stock, par value $.01 per share -- 350,000,000 shares authorized,
issued 134,520,180 at October 1, 1995; 130,947,778 in 1994 and
129,738,324 in 1993...................................................... 1,345 655 649
Additional paid-in capital................................................ 156,603 139,897 125,230
Treasury stock, at cost (266,778 shares in 1993).......................... -- -- (2,431)
Retained earnings......................................................... 202,524 136,025 86,484
Unrealized gain on available-for-sale securities, net of tax.............. 4,636 665 --
Foreign currency translation adjustment................................... (4,721) (1,598) (2,527)
----------- ------------ ------------
Total Stockholders' Equity.............................................. 360,387 275,644 207,405
----------- ------------ ------------
Total Liabilities and Stockholders' Equity.............................. $ 594,146 $ 444,410 $ 326,633
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------ YEARS ENDED DECEMBER 31,
OCTOBER 1, OCTOBER 2, -------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Licenses...................................... $ 369,120 $ 245,996 $ 363,756 $ 284,338 $ 237,407
Services...................................... 122,795 72,633 104,941 68,577 46,187
----------- ----------- ----------- ----------- -----------
491,915 318,629 468,697 352,915 283,594
Costs and expenses:
Cost of software distribution................. 24,975 16,741 24,669 20,077 21,483
Cost of services.............................. 61,996 33,118 45,986 32,944 26,777
Sales and marketing........................... 210,824 134,807 200,538 137,698 100,418
Research and development...................... 57,717 43,897 60,417 43,619 28,807
General and administrative.................... 34,975 24,847 34,526 33,188 32,214
----------- ----------- ----------- ----------- -----------
390,487 253,410 366,136 267,526 209,699
----------- ----------- ----------- ----------- -----------
Operating income.............................. 101,428 65,219 102,561 85,389 73,895
Litigation settlement........................... -- -- -- -- (10,500)
Interest income................................. 5,563 2,720 3,847 3,943 2,018
Interest expense................................ (538) (213) (380) (371) (2,253)
Other expense, net.............................. (56) (1,539) (2,598) (1,282) (1,448)
----------- ----------- ----------- ----------- -----------
Income before income taxes.................... 106,397 66,187 103,430 87,679 61,712
Income taxes.................................... 39,898 23,827 37,234 31,564 13,930
----------- ----------- ----------- ----------- -----------
Net income...................................... $ 66,499 $ 42,360 $ 66,196 $ 56,115 $ 47,782
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per share............................ $ 0.48 $ 0.32 $ 0.49 $ 0.42 $ 0.38
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding.................. 138,238 134,188 134,610 135,202 127,324
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------ YEARS ENDED DECEMBER 31,
OCTOBER 1, OCTOBER 2, -----------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 66,499 $ 42,360 $ 66,196 $ 56,115 $ 47,782
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation and amortization.................... 20,294 11,375 16,206 11,414 9,931
Amortization of capitalized software............. 8,465 5,467 7,848 5,220 5,662
Deferred tax expense............................. -- 450 (624) 7,164 635
Provisions for losses on accounts receivable..... 4,742 1,707 3,824 1,578 2,017
Foreign currency transaction loss (gain)......... (3,688) (2,359) (1,323) 1,444 370
Changes in operating assets and liabilities:
Accounts receivable............................ (46,066) 45 (23,167) (45,389) (26,288)
Other current assets........................... (8,004) (4,811) (1,518) (2,666) (1,445)
Accounts payable and accrued expenses.......... 48,238 13,014 35,557 29,672 28,463
Accrued litigation settlement.................. -- -- -- (9,720) 9,720
Deferred revenue............................... 12,993 5,124 11,467 9,942 13,683
----------- ----------- ----------- ---------- ----------
Net cash and cash equivalents provided by operating
activities........................................ 103,473 72,372 114,466 64,774 90,530
INVESTING ACTIVITIES
Investments of excess cash:
Purchases of held-to-maturity securities......... (124,204) (87,554) (124,102) (42,117) (40,956)
Purchases of available-for-sale securities....... (189) (104,901) (108,846) (94,790) (51,314)
Maturities of held-to-maturity securities........ 64,273 134,783 106,513 36,929 26,829
Sales of available-for-sale securities........... 26,690 68,465 138,423 70,437 18,784
Increase in strategic investments.................. -- -- (1,623) (3,487) --
Purchase of property and equipment................. (35,952) (19,698) (25,247) (22,071) (9,681)
Additions to software costs........................ (18,599) (10,249) (15,048) (9,576) (6,064)
Business combinations, net of cash acquired........ (41,709) -- (8,799) -- --
Other.............................................. (3,071) (8,919) (699) (1,585) 1,085
----------- ----------- ----------- ---------- ----------
Net cash and cash equivalents used in investing
activities........................................ (132,761) (28,073) (39,428) (66,260) (61,317)
FINANCING ACTIVITIES
Proceeds from issuances of common stock............ 17,396 469 4,611 6,044 6,878
Principal payments on capital leases, net.......... (1,063) (876) (1,179) (2,458) (5,157)
Acquisition of common stock........................ -- (22,139) (22,139) (9,999) --
Proceeds from reissuance of treasury stock......... -- 6,871 7,915 2,957 --
----------- ----------- ----------- ---------- ----------
Net cash and cash equivalents provided by (used in)
financing activities.............................. 16,333 (15,675) (10,792) (3,456) 1,721
Effect of exchange rate changes on cash and cash
equivalents....................................... 4,364 1,170 307 (526) 9
----------- ----------- ----------- ---------- ----------
Increase (decrease) in cash and cash equivalents... (8,591) 29,794 64,553 (5,468) 30,943
Cash and cash equivalents at beginning of period... 131,882 67,329 67,329 72,797 41,854
----------- ----------- ----------- ---------- ----------
Cash and cash equivalents at end of period......... $ 123,291 $ 97,123 $ 131,882 $ 67,329 $ 72,797
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED GAIN
COMMON STOCK ADDITIONAL TREASURY STOCK RETAINED ON AVAILABLE
---------------------- PAID-IN ---------------------- EARNINGS FOR SALE
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) SECURITIES
--------- ----------- ----------- ----------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991........ 112,332 $ 140 $ 66,101 -- $ -- $ (12,802) $ --
Stock split effected in the form of
a stock dividend.................. 140 (140)
Exercise of stock options.......... 7,148 18 5,012
Sale of stock to employees under
employee stock purchase plan...... 664 2 1,846
Tax benefits related to stock
options........................... 3,803
Foreign currency translation
adjustment........................
Conversion of convertible
debentures........................ 5,528 14 22,399
Net income......................... 47,782
--------- ----------- ----------- ----------- --------- --------- -------
Balances at December 31, 1992........ 125,672 $ 314 $ 99,021 -- $ -- $ 34,980 $ --
Stock split effected in the form of
a stock dividend.................. 314 (314)
Exercise of stock options.......... 3,934 20 5,039
Sale of stock to employees under
employee stock purchase plan...... 132 1 984
Tax benefits related to stock
options........................... 20,500
Foreign currency translation
adjustment........................
Acquisition of treasury stock...... (980) (9,999)
Reissuance of treasury stock....... 714 7,568 (4,611)
Net income......................... 56,115
--------- ----------- ----------- ----------- --------- --------- -------
Balances at December 31, 1993........ 129,738 $ 649 $ 125,230 (266) $ (2,431) $ 86,484 $ --
Exercise of stock options.......... 1,120 5 3,553
Sale of stock to employees under
employee stock purchase plan...... 90 1 1,052
Tax benefits related to stock
options........................... 10,062
Foreign currency translation
adjustment........................
Acquisition of treasury stock...... (2,600) (22,139)
Reissuance of treasury stock....... 2,866 24,570 (16,655)
Unrealized gain on
available-for-sale securities, net
of tax............................ 665
Net income......................... 66,196
--------- ----------- ----------- ----------- --------- --------- -------
Balances at December 31, 1994........ 130,948 $ 655 $ 139,897 -- $ -- $ 136,025 $ 665
Stock split effected in the form of
a stock dividend (unaudited)...... 655 (655)
Exercise of stock options
(unaudited)....................... 3,287 33 12,617
Sale of stock to employees under
employee stock purchase plan
(unaudited)....................... 285 2 4,744
Foreign currency translation
adjustment (unaudited)............
Unrealized gain on
available-for-sale securities, net
of tax (unaudited)................ 3,971
Net income (unaudited)............. 66,499
--------- ----------- ----------- ----------- --------- --------- -------
Balances at October 1, 1995
(unaudited)......................... 134,520 $ 1,345 $ 156,603 -- $ -- $ 202,524 $ 4,636
--------- ----------- ----------- ----------- --------- --------- -------
--------- ----------- ----------- ----------- --------- --------- -------
<CAPTION>
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT TOTALS
----------- ---------
<S> <C> <C>
Balances at December 31, 1991........ $ 740 $ 54,179
Stock split effected in the form of
a stock dividend.................. --
Exercise of stock options.......... 5,030
Sale of stock to employees under
employee stock purchase plan...... 1,848
Tax benefits related to stock
options........................... 3,803
Foreign currency translation
adjustment........................ (2,403) (2,403)
Conversion of convertible
debentures........................ 22,413
Net income......................... 47,782
----------- ---------
Balances at December 31, 1992........ $ (1,663) $ 132,652
Stock split effected in the form of
a stock dividend.................. --
Exercise of stock options.......... 5,059
Sale of stock to employees under
employee stock purchase plan...... 985
Tax benefits related to stock
options........................... 20,500
Foreign currency translation
adjustment........................ (864) (864)
Acquisition of treasury stock...... (9,999)
Reissuance of treasury stock....... 2,957
Net income......................... 56,115
----------- ---------
Balances at December 31, 1993........ $ (2,527) $ 207,405
Exercise of stock options.......... 3,558
Sale of stock to employees under
employee stock purchase plan...... 1,053
Tax benefits related to stock
options........................... 10,062
Foreign currency translation
adjustment........................ 929 929
Acquisition of treasury stock...... (22,139)
Reissuance of treasury stock....... 7,915
Unrealized gain on
available-for-sale securities, net
of tax............................ 665
Net income......................... 66,196
----------- ---------
Balances at December 31, 1994........ $ (1,598) $ 275,644
Stock split effected in the form of
a stock dividend (unaudited)...... --
Exercise of stock options
(unaudited)....................... 12,650
Sale of stock to employees under
employee stock purchase plan
(unaudited)....................... 4,746
Foreign currency translation
adjustment (unaudited)............ (3,123) (3,123)
Unrealized gain on
available-for-sale securities, net
of tax (unaudited)................ 3,971
Net income (unaudited)............. 66,499
----------- ---------
Balances at October 1, 1995
(unaudited)......................... $ (4,721) $ 360,387
----------- ---------
----------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS. Informix Corporation, a Delaware corporation, through its
wholly owned subsidiary Informix Software, Inc. and its foreign subsidiaries
(collectively "the Company"), designs, develops, manufactures, markets, and
supports distributed relational database management systems (RDBMS), and
object-oriented, graphical and character-based application development tools,
and graphical data-access tools for delivering information to most significant
desktop platforms. In addition to software products, the Company offers
training, consulting and maintenance to its customers.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Informix Corporation and its wholly owned subsidiaries. All
material intercompany accounts, transactions, and profits have been eliminated
in consolidation.
INTERIM FINANCIAL STATEMENTS The accompanying unaudited consolidated
financial statements as of October 1, 1995 and for the nine months ended October
1, 1995 and October 2, 1994, have been prepared on substantially the same basis
as the audited consolidated financial statements, and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information set forth therein.
FOREIGN CURRENCY TRANSLATION. For foreign operations with the local
currency as the functional currency, assets and liabilities are translated at
year-end exchange rates, and statements of income are translated at the average
exchange rates during the year. Exchange gains or losses arising from
translation of foreign currency denominated assets and liabilities are included
as a component of stockholders' equity.
For foreign operations with the U.S. dollar as the functional currency,
assets and liabilities are translated at the year-end exchange rates. Statements
of income are translated at the average exchange rates during the year. Gains
and losses resulting from foreign currency translation are included in other
expense, net.
The Company hedges, where possible, certain portions of its foreign exchange
transaction exposures to foreign currency fluctuations primarily through the use
of forward foreign exchange contracts in European and Asian foreign currencies.
The Company has limited unhedged transaction exposures in certain secondary
currencies in Latin America and Eastern Europe because there are limited forward
currency exchange markets in these currencies. Gains and losses associated with
exchange rate fluctuations on forward foreign exchange contracts are recorded
currently as income or loss as they offset corresponding gains and losses on the
foreign currency denominated assets and liabilities being hedged. The costs of
the forward foreign exchange contracts are recorded as other expense, net. See
Note 3 of Notes to Consolidated Financial Statements.
REVENUE RECOGNITION. The Company generally recognizes license revenue from
sales of software licenses upon delivery of the software product to a customer.
However, for certain computer hardware manufacturers and end-user licensees with
amounts payable within twelve months, the Company will recognize revenue at the
time the customer makes a contractual commitment for a minimum non-refundable
license fee, if such computer hardware manufacturers and end-user licensees meet
certain criteria established by the Company. License revenue from resellers
(such as distributors and application vendors) and from other computer hardware
manufacturers and end-users may be recognized at
F-7
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the earlier of either payment of the license fee or the shipment of the software
media on a per-unit basis. However, in no case is revenue recognized unless a
master or first copy is delivered to the customer.
Maintenance contracts generally call for the Company to provide technical
support and software updates to customers. Maintenance contract revenue is
recognized ratably over the term of the maintenance contract, generally on a
straight-line basis. Where maintenance revenue is not separately invoiced, it is
unbundled from license fees and deferred for revenue recognition purposes. Other
service revenue, primarily training and consulting, is generally recognized at
the time the service is performed.
The Company's revenue recognition policy is in compliance with the
provisions of the American Institute of Certified Public Accountants' Statement
of Position 91-1, "Software Revenue Recognition."
No single customer accounted for 10 percent or more of consolidated revenues
in 1994, 1993, or 1992.
INCOME TAXES. The Company accounts for income taxes in accordance with the
provisions of the Financial Accounting Standards Board Statement No. 109 (FAS
109) "Accounting for Income Taxes." Under FAS 109, the liability method is used
in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and income tax bases of assets and liabilities, and are measured by applying
enacted tax rates and laws to the taxable years in which such differences are
expected to reverse.
INVENTORIES. Inventories, which consist primarily of software product
components, finished software products, and marketing and promotional materials,
are carried at the lower of cost (first in, first out) or market value, and are
included in other current assets.
SOFTWARE COSTS. The Company capitalizes software development costs incurred
in developing a product once technological feasibility of the product has been
determined. Software costs also include amounts paid for purchased software and
outside development on products which have reached technological feasibility.
All software costs are amortized as a cost of software distribution either on a
straight-line basis over the remaining estimated economic life of the product or
on the basis of each product's projected revenues, whichever is greater. The
Company recorded amortization of $7.8 million, $5.2 million, and $5.7 million of
software costs in 1994, 1993, and 1992, respectively, in cost of software
distribution.
PROPERTY AND EQUIPMENT. Depreciation of property and equipment is
calculated using the straight-line method over the estimated useful life,
generally the shorter of the lease term or three to seven years for financial
reporting purposes, and by accelerated methods for tax purposes.
BUSINESSES ACQUIRED. The purchase price of businesses acquired is allocated
to the tangible and specifically identifiable intangible assets acquired based
on their fair values with any amount in excess of such allocations being
designated as goodwill. Intangible assets are amortized over their estimated
useful lives, which to date have been five to seven years. The Company
periodically monitors the recoverability of such intangible assets.
F-8
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER COMMON SHARE. Net income per common share is based on the
weighted average number of common and dilutive common equivalent shares
outstanding during each year. All stock options and convertible debentures are
considered common stock equivalents and are included in the weighted average
computations when the effect is dilutive.
STOCK SPLIT. All share and per share amounts applicable to prior periods
have been restated to reflect a two-for-one stock split (effected in the form of
a stock dividend) which was effective June 26, 1995.
CONCENTRATION OF CREDIT RISK. The Company designs, develops, manufactures,
markets, and supports computer software systems to customers in diversified
industries and in diversified geographic locations. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND LONG-TERM
INVESTMENTS. The Company considers liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
considers investments with an original maturity of more than three months but
less than one year to be short-term investments. Investments with an original
maturity of more than one year are considered long-term investments. Short-term
and long-term investments are carried at either amortized costs or fair value,
depending on their classification as held-to-maturity or available-for-sale,
respectively. Cash equivalents are carried at amortized costs.
The Company invests its excess cash in accordance with its short-term and
long-term investments policy which is approved by the Board of Directors. The
policy authorizes the investment of excess cash in government securities,
municipal bonds, time deposits, certificates of deposit with approved financial
institutions, commercial paper rated A-1/P-1 (a small portion of the portfolio
may consist of commercial paper rated A-2/P-2), and other specific money market
instruments of similar liquidity and credit quality. The Company has not
experienced any significant losses related to these investments.
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE. Management determines
the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive intent and the
ability to hold the securities until maturity. Held-to-maturity securities are
stated at amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, as well as any interest on the
securities, is included in interest income.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
expense, net. The cost of securities sold is based on the specific
identification method. Interest on securities classified as available-for-sale
are included in interest income.
F-9
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 2 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (FAS 115).
Due to insignificant differences at the date of adoption of FAS 115 between
the cost and fair value of the Company's investments, when considering both
gross unrealized gains and gross unrealized losses, the adoption of FAS 115 had
no effect on the Company's financial statements. Consequently, in accordance
with FAS 115, prior period financial statements have not been restated.
The fair values for marketable debt and equity securities are based on
quoted market prices.
The following is a summary of held-to-maturity securities and
available-for-sale securities at December 31, 1994:
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
----------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury Securities.......................................... $ 4,863 $ 4 $ $ 4,867
Municipal Bonds................................................... 31,020 2 119 30,903
Commercial Paper.................................................. 39,602 4 39,606
--------- ----------- ----------- ---------
$ 75,485 $ 10 $ 119 $ 75,376
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
Amounts included in cash and cash equivalents..................... $ 38,604 $ 3 $ $ 38,607
Amounts included in short-term investments........................ 32,404 5 119 32,290
Amounts included in long-term investments......................... 4,477 2 4,479
--------- ----------- ----------- ---------
$ 75,485 $ 10 $ 119 $ 75,376
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
----------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury Securities.......................................... $ 356 $ $ $ 356
Commercial Paper.................................................. 223 223
Municipal Bonds................................................... 6,079 62 6,017
Auctioned Preferred Stock......................................... 21,000 21,000
--------- ----------- ----------- ---------
Total Debt Securities......................................... 27,658 62 27,596
U.S. Equity Securities............................................ 3,000 1,124 4,124
--------- ----------- ----------- ---------
$ 30,658 $ 1,124 $ 62 $ 31,720
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
Amounts included in cash and cash equivalents..................... $ 356 $ $ $ 356
Amounts included in short-term investments........................ 27,302 62 27,240
Amounts included in intangibles and other assets.................. 3,000 1,124 4,124
--------- ----------- ----------- ---------
$ 30,658 $ 1,124 $ 62 $ 31,720
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
F-10
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 3 -- DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 1994, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" (FAS 119).
The Company enters into forward foreign exchange contracts to hedge the
value of recorded foreign currency denominated transactions against fluctuations
in exchange rates. The purpose of the Company's foreign exchange exposure
management policy and practices is to attempt to minimize the impact of exchange
rate fluctuations on the value of the foreign currency denominated assets and
liabilities being hedged. Substantially all forward foreign exchange contracts
entered into by the Company have maturities of 360 days or less. At December 31,
1994 and 1993, the Company had approximately $94.3 million and $29.3 million of
forward foreign exchange contracts outstanding, respectively. The table below
summarizes by currency the contractual amounts of the Company's forward foreign
exchange contracts at December 31, 1994 and December 31, 1993.
<TABLE>
<CAPTION>
FORWARD UNREALIZED
CONTRACTS GAIN/
AT COST (LOSS)
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
AT DECEMBER 31, 1994
Forward Currency Contracts Sold:
Deutsche Mark........................................................................... $ 23,000 $ (394)
French Franc............................................................................ 6,922 (104)
Japanese Yen............................................................................ 4,182 14
British Pound........................................................................... 3,696 (46)
Spanish Peseta.......................................................................... 3,147 (68)
Italian Lira............................................................................ 2,999 (4)
Singapore Dollar........................................................................ 2,144 (13)
Other................................................................................... 6,176 (92)
--------- -----------
52,266 (707)
Forward Currency Contracts Purchased:
Japanese Yen............................................................................ 42,009 (485)
--------- -----------
Total............................................................................. $ 94,275 $ (1,192)
--------- -----------
--------- -----------
<CAPTION>
FORWARD UNREALIZED
CONTRACTS GAIN/
AT COST (LOSS)
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
AT DECEMBER 31, 1993
Forward Currency Contracts Sold:
Deutsche Mark........................................................................... $ 8,239 $ 177
Italian Lira............................................................................ 5,884 106
British Pound........................................................................... 4,255 36
Spanish Peseta.......................................................................... 3,898 77
French Franc............................................................................ 3,635 36
Other................................................................................... 3,384 31
--------- -----------
Total............................................................................. $ 29,295 $ 463
--------- -----------
--------- -----------
</TABLE>
F-11
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 3 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Other than the use of forward foreign exchange contracts as discussed
immediately above, the Company does not currently invest in or hold any other
financial instruments defined as derivative financial instruments by FAS 119.
NOTE 4 -- EMPLOYEE STOCK OPTION AND PURCHASE PLANS
Under the Company's 1986 Employee Stock Option Plan, options are granted at
fair market value on the date of the grant. Options are generally exercisable in
cumulative annual installments over three to five years. Payment for shares
purchased upon exercise of options may be by cash or, with Board approval, by
full recourse promissory note or by exchange of shares of the Company's common
stock at fair market value on the exercise date. Options expire 10 years after
the date of grant. At December 31, 1994, 40,800,000 shares were authorized for
issuance under the Plan.
Additionally, 1,600,000 shares were authorized for issuance under the 1989
Outside Directors Stock Option Plan, whereby non-employee directors are
automatically granted non-qualified stock options upon election or re-election
to the Board of Directors.
Following is a summary of activity for both stock option plans for the three
years ended December 31, 1994:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
SHARES PRICE PER SHARE
------------- -----------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1991................... 18,253,360 $ 0.13 to $ 1.91
Options granted.................................... 6,860,744 2.49 to 8.07
Options exercised.................................. (7,149,016) 0.21 to 1.91
Options canceled................................... (1,314,340) 0.43 to 3.91
------------- ----- --------- -----------
Outstanding at December 31, 1992................... 16,650,748 $ 0.13 to $ 8.07
Options granted.................................... 4,567,800 7.13 to 13.13
Options exercised.................................. (4,386,334) 0.17 to 7.32
Options canceled................................... (1,405,640) 0.42 to 8.63
------------- ----- --------- -----------
Outstanding at December 31, 1993................... 15,426,574 $ 0.13 to $ 13.13
Options granted.................................... 2,695,900 7.38 to 14.44
Options exercised.................................. (3,579,546) 0.39 to 12.75
Options canceled................................... (940,750) 0.39 to 11.88
------------- ----- --------- -----------
Outstanding at December 31, 1994................... 13,602,178 $ 0.13 to $ 14.44
------------- ----- -----------
------------- ----- -----------
Available for grant at December 31, 1994........... 1,313,422
-------------
-------------
</TABLE>
In April 1994, the Company adopted the 1994 Stock Option and Award Plan.
Options can be granted to employees on terms substantially equivalent to those
described above. The 1994 Stock Option and Award Plan also allows the Company to
award performance shares of the Company's common stock to be paid to recipients
on the achievement of certain performance goals set with respect to each
recipient. At December 31, 1994, 8,000,000 shares were authorized for issuance,
but no options have been granted to date under this plan.
In connection with all stock option plans, 22,915,600 shares of common stock
were reserved for issuance as of December 31, 1994. At December 31, 1994 and
1993, options exercisable were 4,684,724 and 3,080,074, respectively.
F-12
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 4 -- EMPLOYEE STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The Company also has a qualified Employee Stock Purchase Plan under which
7,600,000 shares of common stock in the aggregate have been authorized for
issuance. Under the terms of the Plan, employees may contribute via payroll
deductions up to 10 percent of their base pay and purchase up to 1,000 shares
per quarter (with the limitation of purchases of $25,000 annually in fair market
value of the shares). Employees may elect to withdraw from the Plan during any
quarter and have their contributions for the period returned to them. Also,
employees may elect to reduce the rate of contribution one time in each quarter.
The price at which employees may purchase shares is 85 percent of the lower of
the fair market value of the stock at the beginning or end of the quarter. The
Plan is qualified under Section 423 of the Internal Revenue Code of 1986, as
amended. During 1994, 1993, and 1992 the Company issued 484,756 shares, 395,102
shares, and 665,932 shares, respectively, under this Plan. In connection with
the Employee Stock Purchase Plan, 1,614,458 shares were reserved for issuance as
of December 31, 1994.
The Board of Directors has authorized the purchase of up to 8 million shares
of the Company's common stock in the open market to satisfy requirements under
Stock Option and Stock Purchase Plans. Such shares are recorded using the cost
method and are reissued using the first-in, first-out (FIFO) method. During 1994
and 1993, approximately 2,600,000 shares and 980,000 shares with an aggregate
cost of approximately $22.1 million and $10.0 million, respectively, had been
repurchased on the open market. All such shares have been reissued as of
December 31, 1994.
NOTE 5 -- 401(K) PLAN
The Company has a 401(k) plan covering substantially all of its U.S.
employees. Under this plan, participating employees may defer up to 15 percent
of their pre-tax earnings, subject to the Internal Revenue Service annual
contribution limit ($9,240 for 1994). In 1994, the Company matched 50 percent of
each employee's contribution up to a maximum of $1,500. The Company's matching
contributions to this 401(k) plan for 1994, 1993, and 1992 were $1.4 million,
$0.8 million, and $0.3 million, respectively.
NOTE 6 -- LEASES
The Company leases certain computer and office equipment under capital
leases having terms of three to five years. Amounts capitalized for such leases
are included on the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment (at cost)............................................... $ 7,701 $ 9,788
Office equipment........................................................... 1,438 1,313
------------- ------------
9,139 11,101
Less: accumulated amortization............................................. 8,450 8,702
------------- ------------
$ 689 $ 2,399
------------- ------------
------------- ------------
</TABLE>
Amortization with respect to leased equipment is included in depreciation
expense.
During 1994 and 1993, the Company financed approximately $381,000 and
$373,000, respectively, of equipment purchases under capital lease arrangements.
F-13
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 6 -- LEASES (CONTINUED)
The Company leases certain of its office facilities and equipment under
non-cancelable operating leases.
Future minimum payments, by year and in the aggregate, under the capital and
non-cancelable operating leases as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
---------------------------
NON-CANCELABLE
CAPITAL OPERATING
LEASES LEASES
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
1995.......................................................................... $ 423 $ 18,337
1996.......................................................................... 265 16,156
1997.......................................................................... 98 9,775
1998.......................................................................... 6 5,021
1999.......................................................................... -- 2,921
Thereafter.................................................................... -- 3,634
----- --------------
Total payments................................................................ 792 $ 55,844
----- --------------
Less: amount representing interest............................................ 58
-----
Present value of minimum lease payments....................................... 734
Less current portion.......................................................... 391
-----
$ 343
-----
-----
</TABLE>
Total rent expense aggregated $17.1 million, $14.4 million, and $13.8
million in 1994, 1993, and 1992, respectively.
In 1994, 1993, and 1992, the Company made interest payments on notes payable
to banks, convertible subordinated debentures, and other obligations aggregating
$0.4 million, $0.4 million and $2.4 million, respectively.
The Company's Lenexa, Kansas office and warehouse facilities are leased
under an initial 10-year operating lease term (with two five-year renewal
options) from a partnership in which Informix Software, Inc. is a 50 percent
partner. Rental payments are approximately $1.4 million annually through 1997,
exclusive of maintenance costs for common areas. This related commitment is
included in the above schedule of non-cancelable operating lease payments.
F-14
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 7 -- GEOGRAPHIC INFORMATION
Net revenues, operating income (loss), and identifiable assets for the
Company's U.S., European, and other foreign operations are summarized below by
year:
<TABLE>
<CAPTION>
UNITED
STATES EUROPEAN OTHER ELIMINATIONS TOTAL
----------- ----------- ---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994:
Net revenues.................................... $ 303,611 $ 172,947 $ 35,854 $ (43,715) $ 468,697
Operating income (loss)......................... 78,620 39,013 (12,771) (2,301) 102,561
Identifiable assets............................. 382,650 109,939 36,053 (84,232) 444,410
1993:
Net revenues.................................... $ 257,439 $ 137,404 $ 11,403 $ (53,331) $ 352,915
Operating income (loss)......................... 92,987 11,192 (10,657) (8,133) 85,389
Identifiable assets............................. 287,538 74,004 13,355 (48,264) 326,633
1992:
Net revenues.................................... $ 217,934 $ 107,034 $ 12,276 $ (53,650) $ 283,594
Operating income (loss)......................... 74,553 3,592 (5,167) 917 73,895
Identifiable assets............................. 226,361 49,406 13,032 (57,340) 231,459
</TABLE>
Sales and transfers between geographic areas are accounted for at prices
which the Company believes are arm's length prices, which in general are in
accordance with the rules and regulations of the respective governing tax
authorities.
Export revenues consisting of sales from the Company's U.S. operating
subsidiary to non-affiliated customers were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Asia/Pacific......................................................... $ 32,820 $ 35,598 $ 25,489
Other................................................................ 15,256 19,703 12,436
--------- --------- ---------
Total................................................................ $ 48,076 $ 55,301 $ 37,925
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 8 -- INCOME TAXES
The provision for income taxes applicable to income before income taxes
consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENTLY PAYABLE:
Federal.............................................................. $ 27,150 $ 14,949 $ 6,980
State................................................................ 4,548 3,349 3,070
Foreign.............................................................. 6,160 6,102 3,245
--------- --------- ---------
37,858 24,400 13,295
DEFERRED:
Federal.............................................................. 2,855 5,704 (1,039)
State................................................................ 675 2,098 --
Foreign.............................................................. (4,154) (638) 1,674
--------- --------- ---------
(624) 7,164 635
--------- --------- ---------
$ 37,234 $ 31,564 $ 13,930
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1994 and 1993, the Company recognized tax benefits related to stock
option plans of $10.1 million and $20.5 million, respectively. Such benefits
were recorded as an increase to additional paid-in capital.
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................................ $ 92,661 $ 69,155 $ 54,329
Foreign............................................................. 10,769 18,524 7,383
----------- --------- ---------
$ 103,430 $ 87,679 $ 61,712
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-16
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 8 -- INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income before income taxes. The sources
and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate.......... $ 36,200 35.0% $ 30,688 35.0% $ 20,982 34.0%
Losses which resulted in no current tax
benefit........................................ 908 0.9 -- -- 1,116 1.8
Research and development credits................ (976) (1.0) (1,273) (1.4) (2,050) (3.3)
Effect of foreign income and related taxes...... -- -- -- -- (1,730) (2.8)
State income taxes, net of federal tax
benefit........................................ 3,395 3.3 3,540 4.0 2,026 3.3
Benefit from net earnings of foreign
subsidiaries considered to be permanently
reinvested in non-U.S. operations.............. (2,000) (1.9) (850) (1.0) -- --
Benefit of tax net operating loss............... -- -- -- -- (6,466) (10.5)
Other, net...................................... (293) (0.3) (541) (0.6) 52 0.1
--------- --- --------- --- --------- -----
$ 37,234 36.0% $ 31,564 36.0% $ 13,930 22.6%
--------- --- --------- --- --------- -----
--------- --- --------- --- --------- -----
</TABLE>
F-17
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 8 -- INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Reserves and accrued expenses................................................................ $ 5,645 $ 4,848
Deferred revenue............................................................................. 4,016 2,590
Foreign net operating loss carryforwards..................................................... 2,823 1,378
Tax credit carryforwards..................................................................... -- 1,144
Foreign taxes on unremitted earnings, net of related U.S tax liability....................... 257 --
Other........................................................................................ 513 59
--------- ---------
Total deferred tax assets.................................................................... 13,254 10,019
Valuation allowance for deferred tax assets.................................................. (908) --
--------- ---------
Net deferred tax assets...................................................................... 12,346 10,019
--------- ---------
--------- ---------
<CAPTION>
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Capitalized software......................................................................... 9,038 6,124
Revenue recognition.......................................................................... 1,612 818
Undistributed earnings of profitable foreign subsidiaries.................................... -- 1,608
Valuation of investment portfolio............................................................ 371 --
Other........................................................................................ -- 398
--------- ---------
Total deferred tax liabilities............................................................... 11,021 8,948
--------- ---------
Net deferred tax assets...................................................................... $ 1,325 $ 1,071
--------- ---------
--------- ---------
</TABLE>
Cumulative undistributed earnings of the Company's Irish subsidiary for
which no income taxes have been provided aggregated approximately $11.4 million
at December 31, 1994. These earnings are considered to be permanently reinvested
in non-U.S. operations. Additional taxes of approximately $2.9 million would
have to be provided if these earnings were repatriated to the U.S.
At December 31, 1994 the Company had approximately $8.0 million of foreign
net operating loss carryforwards which expire at various dates beginning in
1999. Income taxes paid amounted to $22.5 million, $7.8 million and $3.1 million
in 1994, 1993 and 1992, respectively.
The deferred tax asset valuation allowance increased by $0.9 million in 1994
and decreased $9.9 million and $5.0 million in 1993 and 1992, respectively.
Approximately $8.9 million of the 1993 valuation allowance decrease of $9.9
million was related to tax carryforwards attributable to stock option deductions
which was credited to paid-in capital.
F-18
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 9 -- LITIGATION
On May 10, 1993, the Company settled the securities class action lawsuit
filed against the Company and certain of its officers and directors in 1988. The
Company provided a charge of $10.5 million in the fourth quarter of 1992 for
such settlement and related costs.
The settlement does not constitute an admission of liability or wrongdoing
on the part of the Company or on the part of any of its current or former
officers and directors. The settlement does represent a decision by the
Company's Board of Directors that a settlement at the time was in the best
interest of the Company and its stockholders.
In the ordinary course of business, various lawsuits and claims are filed
against the Company. It is the Company's opinion that the resolution of such
litigation will not have a material effect on the Company's financial position,
results of operations, or cash flows.
NOTE 10 -- BUSINESS COMBINATIONS
In July 1994, the Company acquired the business of a division of a
distributor of its products in Germany. This acquisition has been recorded as a
purchase. The purchase cost of this business was approximately $10.6 million, of
which $4.8 million was allocated to intangible assets acquired.
In August 1994, the Company acquired the business of a distributor of its
products in Malaysia. This acquisition has also been recorded as a purchase. The
purchase cost of this business was approximately $1.9 million, of which $1.8
million was allocated to intangible assets acquired. An additional $1.0 million
consideration may be payable by the Company contingent upon the achievement of
certain financial objectives by the business.
In January 1995, the Company acquired a 90 percent interest in the database
division of ASCII Corporation, a distributor of its products in Japan. The
Company will acquire the remaining 10 percent in January 1996. This acquisition
has been accounted for as a purchase. The purchase price of this business was
approximately $46.0 million, of which $34.8 million has been allocated to
intangible assets acquired which are being amortized over a weighted average
life of seven years.
In April 1995, the Company acquired an 80 percent interest in the database
division of Daou Corporation, a distributor of its products in Korea. The
Company will acquire the remaining 20 percent by January 1997. This acquisition
has been accounted for as a purchase. The purchase price of this business was
approximately $4.3 million, of which $4.0 million has been allocated to
intangible assets acquired which are being amortized over a weighted average
life of seven years.
The operating results of these businesses have not been material in relation
to those of the Company and are included in the Company's consolidated results
of operations from the date of acquisition.
F-19
<PAGE>
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(INFORMATION AS OF OCTOBER 1, 1995 AND FOR THE PERIODS ENDED OCTOBER 1, 1995
AND OCTOBER 2, 1994 IS UNAUDITED)
NOTE 11 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994:
Net revenues......................................... $ 96,100 $ 105,686 $ 116,843 $ 150,068
Gross profit......................................... 81,375 89,349 98,046 129,272
Net income........................................... 12,520 13,250 16,590 23,836
Net income per share................................. 0.09 0.10 0.12 0.18
1993:
Net revenues......................................... $ 77,094 $ 84,333 $ 90,074 $ 101,414
Gross profit......................................... 64,228 71,704 76,711 87,251
Net income........................................... 11,510 12,031 14,520 18,054
Net income per share................................. 0.09 0.09 0.11 0.13
</TABLE>
NOTE 12 -- SUBSEQUENT EVENTS
In October 1995, the Company acquired Stanford Technology Group (STG), a
U.S.-based company that provides on-line analytical processing technology, for
approximately 570,000 shares of its common stock. The transaction will be
accounted for as a pooling of interests. Since the operating results of STG are
insignificant to the Company, prior period annual and quarterly financial
statements of the Company will not be restated for this transaction. The
Company's results of operations for the year ended December 31, 1995 will
include the results of operations of STG for such year, all of which will be
recorded in the fourth quarter.
In December 1995, the Company entered into an agreement to acquire Illustra
Information Technologies, Inc. (Illustra), a U.S.-based company that provides
dynamic content management systems and tools for applications in multimedia and
entertainment, digital media publishing, and financial services, in a
transaction that will be accounted for as a pooling of interests. Under the
terms of the agreement, the Company will issue 15,000,000 shares of its common
stock, less the shares reserved for all of Illustra's outstanding options and
warrants, in exchange for all of the outstanding common and preferred stock of
Illustra. Expenses related to this merger are expected to approximate $5 million
and will be recorded in the quarter in which the transaction is consummated,
currently expected to be during the first quarter of 1996.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Illustra Information Technologies, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Illustra
Information Technologies, Inc. and subsidiary (the Company) as of June 30, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended and for the period from July 31,
1992 (inception) to June 30, 1993. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Illustra
Information Technologies, Inc. and subsidiary as of June 30, 1995 and 1994, and
the results of their operations and their cash flows for the years then ended
and for the period from July 31, 1992 (inception) to June 30, 1993, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Palo Alto, California
August 9, 1995
F-21
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1994
DECEMBER 31, --------- ---------
1995
------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 1,045 $ 6,216 $ 2,187
Short-term investments.................................................... -- 903 3,184
Accounts receivable, net of allowance for doubtful accounts............... 2,732 1,397 300
Other current assets...................................................... 614 146 75
------------ --------- ---------
Total current assets................................................ 4,391 8,662 5,746
Property and equipment, net................................................. 4,404 2,405 1,336
Other assets................................................................ 135 65 61
------------ --------- ---------
Total assets........................................................ $ 8,930 $ 11,132 $ 7,143
------------ --------- ---------
------------ --------- ---------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................................... $ 1,057 $ 582 $ 322
Accrued liabilities....................................................... 1,883 844 622
Deferred revenue.......................................................... 4,257 4,431 96
Note payable.............................................................. 2,000 -- --
Current portion of long-term debt......................................... 239 113 --
Current portion of obligations under capital leases....................... 251 239 218
------------ --------- ---------
Total current liabilities........................................... 9,687 6,209 1,258
Deferred revenue -- long-term............................................... 748 -- --
Long-term debt.............................................................. 665 330 --
Obligations under capital leases............................................ 120 248 487
------------ --------- ---------
Total liabilities................................................... 11,220 6,787 1,745
------------ --------- ---------
Commitments and contingencies
Redeemable convertible Series C preferred stock; -0-, 844,444, and -0- shares
outstanding as of December 31, 1995 and June 30, 1995 and 1994,
respectively............................................................... -- 1,900 --
Stockholders' equity (deficit):
Preferred stock; $0.0001 par value; 13,000,000 shares authorized;
11,486,866, 10,465,172, and 8,111,839 shares issued and outstanding as of
December 31, 1995 and June 30, 1995 and 1994, respectively; liquidation
preference of $21,044,506 as of December 31, 1995........................ 1 1 1
Common stock, $0.0001 par value; 20,000,000 shares authorized; 4,321,663,
3,178,066, and 3,076,743 shares issued and outstanding as of December 31,
1995 and June 30, 1995 and 1994, respectively............................ -- -- --
Additional paid-in capital................................................ 21,958 19,314 12,340
Notes receivable from stockholders........................................ (41) (41) (41)
Accumulated deficit....................................................... (24,191) (16,827) (6,902)
Foreign currency translation adjustment................................... (17) (2) --
------------ --------- ---------
Total stockholders' equity (deficit)................................ (2,290) 2,445 5,398
------------ --------- ---------
Total liabilities, redeemable convertible preferred stock and
stockholders' equity (deficit)..................................... $ 8,930 $ 11,132 $ 7,143
------------ --------- ---------
------------ --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 31,
SIX MONTHS ENDED 1992
DECEMBER 31, YEARS ENDED JUNE 30, (INCEPTION)
-------------------- -------------------- TO JUNE 30,
1995 1994 1995 1994 1993
--------- --------- --------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses.......................................... $ 3,430 $ 592 $ 1,000 $ 426 $ --
Services.......................................... 1,091 153 458 396 200
--------- --------- --------- --------- ------------
4,521 745 1,458 822 200
--------- --------- --------- --------- ------------
Cost and expenses:
Cost of software distribution..................... 229 70 160 48 --
Cost of services.................................. 1,617 507 1,429 436 150
Sales and marketing............................... 4,913 1,668 4,040 2,264 74
Research and development.......................... 3,669 2,068 4,769 2,904 884
General and administrative........................ 1,480 436 1,104 645 556
--------- --------- --------- --------- ------------
11,908 4,749 11,502 6,297 1,664
--------- --------- --------- --------- ------------
Operating loss.............................. (7,387) (4,004) (10,044) (5,475) (1,464)
Interest income..................................... 105 77 186 69 24
Interest expense.................................... (82) (30) (67) (56) --
--------- --------- --------- --------- ------------
Net loss.................................... $ (7,364) $ (3,957) $ (9,925) $ (5,462) $ (1,440)
--------- --------- --------- --------- ------------
--------- --------- --------- --------- ------------
Pro forma net loss data (unaudited)
(Note 1):
Pro forma net loss per share.................... $ (0.50) $ (0.35) $ (0.83) $ (0.87) $ (0.46)
--------- --------- --------- --------- ------------
--------- --------- --------- --------- ------------
Shares used in pro forma net loss per share
computation.................................... 14,669 11,322 11,923 6,309 3,101
--------- --------- --------- --------- ------------
--------- --------- --------- --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
-------------------- -------------------- --------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A, net of
issuance costs................... 1,083,334 $ -- -- $ -- -- $ -- -- $ --
Issuance of Series B, net of
issuance costs................... -- -- 1,066,668 -- -- -- -- --
Issuance of common stock, net of
issuance costs................... -- -- -- -- -- -- -- --
Repurchase of common stock........ -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- --------- --------- --------- ---------- --------- --------- ---------
Balances as of June 30, 1993...... 1,083,334 -- 1,066,668 -- -- -- -- --
Issuance of Series C, net of
issuance costs................... -- -- -- -- 1,204,000 -- -- --
Conversion of Series C to Series
B................................ -- -- 1,753,767 -- (1,052,263) -- -- --
Issuance of Series B, net of
issuance costs................... -- -- 4,376,667 1 -- -- -- --
Conversion of preferred stock to
common stock..................... -- -- (361,792) -- (151,737) -- -- --
Conversion of common stock to
preferred stock.................. -- -- 193,195 -- -- -- -- --
Repurchase of common stock........ -- -- -- -- -- -- -- --
Issuance of common stock.......... -- -- -- -- -- -- -- --
Exercise of stock options......... -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- --------- --------- --------- ---------- --------- --------- ---------
Balances as of June 30, 1994...... 1,083,334 -- 7,028,505 1 -- -- -- --
Issuance of Series B, net of
issuance costs................... -- -- 20,000 -- -- -- -- --
Issuance of Series D, net of
issuance costs................... -- -- -- -- -- -- 2,333,333 --
Issuance of common stock.......... -- -- -- -- -- -- -- --
Exercise of stock options......... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- --------- --------- --------- ---------- --------- --------- ---------
Balances as of June 30, 1995...... 1,083,334 -- 7,048,505 1 -- -- 2,333,333 --
Exercise of stock options
(unaudited)...................... -- -- -- -- -- -- -- --
Termination of Series C put right
(unaudited)...................... -- -- -- -- 844,444 -- -- --
Issuance of Series D, net of
issuance costs (unaudited)....... -- -- -- -- -- -- 177,250 --
Issuance of common stock
(unaudited)...................... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment (unaudited)........... -- -- -- -- -- -- -- --
Net loss (unaudited).............. -- -- -- -- -- -- -- --
--------- --------- --------- --------- ---------- --------- --------- ---------
Balances as of December 31, 1995
(unaudited)...................... 1,083,334 $ -- 7,048,505 $ 1 844,444 $ -- 2,510,583 $ --
--------- --------- --------- --------- ---------- --------- --------- ---------
--------- --------- --------- --------- ---------- --------- --------- ---------
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
-------------------- PAID-IN NOTES RECEIVABLE ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL FROM STOCKHOLDERS DEFICIT ADJUSTMENT
--------- --------- ----------- ----------------- ------------- ---------------
<S> <C>
Issuance of Series A, net of
issuance costs................... -- $ 1,002 -- -- --
Issuance of Series B, net of
issuance costs................... -- -- 1,586 -- -- --
Issuance of common stock, net of
issuance costs................... 1,965,70 -- 98 (54) -- --
Repurchase of common stock........ (90,000) -- (4) -- -- --
Net loss.......................... -- -- -- -- (1,440) --
--
--------- --------- ----------- ------------- ---
Balances as of June 30, 1993...... 1,875,700 -- 2,682 (54) (1,440) --
Issuance of Series C, net of
issuance costs................... -- -- 2,997 -- -- --
Conversion of Series C to Series
B................................ -- -- -- -- -- --
Issuance of Series B, net of
issuance costs................... -- -- 6,521 -- -- --
Conversion of preferred stock to
common stock..................... 513,529 -- -- -- -- --
Conversion of common stock to
preferred stock.................. (193,195) -- -- -- -- --
Repurchase of common stock........ (158,300) -- (16) 13 -- --
Issuance of common stock.......... 1,010,000 -- 153 -- -- --
Exercise of stock options......... 29,009 -- 3 -- -- --
Net loss.......................... -- -- -- -- (5,462) --
--
--------- --------- ----------- ------------- ---
Balances as of June 30, 1994...... 3,076,743 -- 12,340 (41) (6,902) --
Issuance of Series B, net of
issuance costs................... -- -- 29 -- -- --
Issuance of Series D, net of
issuance costs................... -- -- 6,931 -- -- --
Issuance of common stock.......... 10,000 -- 2 -- -- --
Exercise of stock options......... 91,323 -- 12 -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- (2)
Net loss.......................... -- -- -- -- (9,925) --
--
--------- --------- ----------- ------------- ---
Balances as of June 30, 1995...... 3,178,066 -- 19,314 (41) (16,827) (2)
Exercise of stock options
(unaudited)...................... 1,076,596 192 -- -- --
Termination of Series C put right
(unaudited)...................... -- -- 1,900 -- -- --
Issuance of Series D, net of
issuance costs (unaudited)....... -- -- 532 -- -- --
Issuance of common stock
(unaudited)...................... 67,001 -- 20 -- -- --
Foreign currency translation
adjustment (unaudited)........... -- -- -- -- -- (15)
Net loss (unaudited).............. -- -- -- -- (7,364) --
--
--------- --------- ----------- ------------- ---
Balances as of December 31, 1995
(unaudited)...................... 4,321,663 $ -- 21,958 (41) (24,191) (17)
--
--
--------- --------- ----------- ------------- ---
--------- --------- ----------- ------------- ---
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Issuance of Series A, net of
issuance costs................... 1,002
Issuance of Series B, net of
issuance costs................... 1,586
Issuance of common stock, net of
issuance costs................... 44
Repurchase of common stock........ (4)
Net loss.......................... (1,440)
------
Balances as of June 30, 1993...... 1,188
Issuance of Series C, net of
issuance costs................... 2,997
Conversion of Series C to Series
B................................ --
Issuance of Series B, net of
issuance costs................... 6,522
Conversion of preferred stock to
common stock..................... --
Conversion of common stock to
preferred stock.................. --
Repurchase of common stock........ (3)
Issuance of common stock.......... 153
Exercise of stock options......... 3
Net loss.......................... (5,462)
------
Balances as of June 30, 1994...... 5,398
Issuance of Series B, net of
issuance costs................... 29
Issuance of Series D, net of
issuance costs................... 6,931
Issuance of common stock.......... 2
Exercise of stock options......... 12
Foreign currency translation
adjustment....................... (2)
Net loss.......................... (9,925)
------
Balances as of June 30, 1995...... 2,445
Exercise of stock options
(unaudited)...................... 192
Termination of Series C put right
(unaudited)...................... 1,900
Issuance of Series D, net of
issuance costs (unaudited)....... 532
Issuance of common stock
(unaudited)...................... 20
Foreign currency translation
adjustment (unaudited)........... (15)
Net loss (unaudited).............. (7,364)
------
Balances as of December 31, 1995
(unaudited)...................... (2,290)
------
------
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED YEARS ENDED JUNE 30, JULY 31, 1992
DECEMBER 31, (INCEPTION)
-------------------- -------------------- TO JUNE 30,
1995 1994 1995 1994 1993
--------- --------- --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (7,364) $ (3,957) $ (9,925) $ (5,462) $ (1,440)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 513 235 533 280 50
Provision for doubtful accounts receivable............... 105 -- 26 13 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,440) (203) (1,123) (313) --
Other current assets................................... (468) (160) (71) (62) (12)
Accounts payable....................................... 475 148 260 182 139
Accrued liabilities.................................... 1,039 (84) 220 582 39
Deferred revenue....................................... 574 98 4,335 96 --
--------- --------- --------- --------- -------------
Net cash used in operating activities................ (6,566) (3,923) (5,745) (4,684) (1,224)
--------- --------- --------- --------- -------------
Cash flows from investing activities:
Purchases of equipment, excluding capital leases........... (2,512) (340) (1,336) (321) (527)
Proceeds from maturities of short-term investments......... 903 2,443 7,644 -- --
Purchases of short-term investments........................ -- (1,485) (5,363) (3,184) --
Other assets............................................... (85) (2) (4) (39) (22)
--------- --------- --------- --------- -------------
Net cash provided by (used in) investing
activities.......................................... (1,694) 616 941 (3,544) (549)
--------- --------- --------- --------- -------------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock.............. 532 1,623 8,594 9,519 2,588
Net proceeds from issuance of common stock................. 20 -- 2 153 44
Proceeds from exercise of employee stock options........... 192 4 12 3 --
Proceeds from debt......................................... 541 -- 459 -- --
Borrowings under note payable.............................. 2,000 -- -- -- --
Repayment of debt.......................................... (80) (106) (16) -- --
Principal payments on capital leases....................... (116) -- (218) (113) --
Repurchase of common stock................................. -- -- -- (3) (4)
--------- --------- --------- --------- -------------
Net cash provided by financing activities............ 3,089 1,521 8,833 9,559 2,628
--------- --------- --------- --------- -------------
Net (decrease) increase in cash and cash equivalents......... (5,171) (1,786) 4,029 1,331 855
Cash and cash equivalents at beginning of year/ period....... 6,216 2,187 2,187 856 --
--------- --------- --------- --------- -------------
Cash and cash equivalents at end of year/period.............. $ 1,045 $ 401 $ 6,216 $ 2,187 $ 855
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
Supplemental schedule of cash flow information:
Cash paid during the year/period for interest.............. $ 72 $ 30 $ 67 $ 38 $ --
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
Supplemental schedule of noncash transactions:
Capital lease obligations incurred......................... $ -- $ -- $ -- $ 818 $ --
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
Equipment and services received in lieu of cash for
preferred stock issued.................................... $ -- $ 266 $ 266 $ -- $ --
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (1) -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF BUSINESS
Illustra Information Technologies, Inc. and subsidiary (the Company) was
incorporated in the state of Delaware in July 1992 to engage in the design,
development, and marketing of object-relational database management systems.
MERGER WITH SUBSIDIARY OF INFORMIX CORPORATION
On December 20, 1995, the Company entered into an Agreement and Plan of
Reorganization providing for the merger of the Company with a subsidiary of
Informix Corporation (Informix). Under the terms of the proposed merger, the
Company will exchange all of its then outstanding (and certain committed) shares
of capital stock, options, and warrants for a maximum of 15,000,000 shares of
Informix common stock. If the requisite approvals of the stockholders of the
Company are received, the merger is expected to be consummated in February 1996.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Illustra Information
Technologies, Ltd. and Illustra Information Technologies S.A. (August 1995). All
significant intercompany balances and transactions have been eliminated in
consolidation.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the local
currency. Assets and liabilities denominated in the local currency are
translated to U.S. dollars at the exchange rate on the balance sheet date.
Revenues, costs and expenses are translated at average rates of exchange
prevailing during the year. Translation adjustments resulting from this process
are shown separately in stockholders' equity. Foreign currency transaction gains
and losses are included in net loss.
As of June 30, 1995, no material assets are located in nor have any material
operating results been generated in foreign jurisdictions.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, for investments held as of or acquired after July 1, 1994. Under the
provisions of SFAS No. 115, the Company has classified its investments as
"available-for-sale." Such investments are recorded at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity. In accordance with the provisions of SFAS No. 115, prior period
consolidated financial statements have not been restated to reflect the change
in accounting principle. The cumulative effect of adopting SFAS No. 115 was not
material to the Company's consolidated financial position and results of
operations.
Realized gains and losses, and declines in value judged to be other than
temporary on available-for-sale securities are included in other income, net on
the accompanying consolidated statements of operations. The cost of securities
sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income,
net.
F-26
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (1) -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue under product license agreements is recognized upon delivery. Costs
of software distribution primarily include product packaging, documentation, and
software media.
Services revenues primarily consist of maintenance, and customer training
and consulting services, and development contract fees. Maintenance revenue is
deferred and recognized ratably over the term of the maintenance agreement,
which is typically 12 months. Revenue for customer training and consulting is
recognized as the services are performed. Revenue on development contracts is
recognized based upon achievement of specified milestones.
Deferred revenue is recorded on billed product licenses, maintenance,
training, and consulting efforts for which performance is incomplete or
significant vendor obligations exist.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided over the estimated useful life of the respective assets
(generally three to five years) using the straight-line method. Property and
equipment recorded under capital leases and leasehold improvements are amortized
on a straight-line basis over the shorter of the lease term or the estimated
useful life of the asset.
SOFTWARE DEVELOPMENT COSTS
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility has been
established. No costs have been capitalized to date.
INCOME TAXES
The Company uses the asset and liability method of comprehensive interperiod
income tax accounting pursuant to SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
Under SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is computed based on the weighted average
number of shares of common stock outstanding and common equivalent shares from
stock options and warrants (under the treasury stock method, if dilutive) and
preferred stock outstanding (on an "as-if converted" basis, even if
antidilutive).
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements for the six
months ended December 31, 1995 and 1994, have been prepared on substantially the
same basis as the audited consolidated financial statements, and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
F-27
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (2) -- CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents and short-term investments consisted of the
following as of June 30, 1995 (in thousands):
<TABLE>
<CAPTION>
CARRYING
VALUE
-----------
<S> <C>
U.S. Treasury and other U.S. government agency securities..................................... $ 1,799
Money market mutual funds..................................................................... 4,582
-----------
Investments in debt and equity securities................................................... 6,381
Cash and other cash equivalents............................................................... 737
-----------
Cash and cash equivalents and short-term investments........................................ $ 7,119
-----------
-----------
</TABLE>
Cash equivalents of $5,479,000 and short-term investments of $903,000 have
been classified as available-for-sale securities as of June 30, 1995. The
carrying value of the Company's available-for-sale securities as of June 30,
1995 approximates their fair values based on quoted market prices. All
securities have a maturity of less than one year.
NOTE (3) -- PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Computer equipment................................................................. $ 2,247 1,059
Furniture and fixtures............................................................. 599 363
Office equipment................................................................... 264 164
Leasehold improvements............................................................. 158 80
--------- ---------
3,268 1,666
Less accumulated depreciation and amortization..................................... 863 330
--------- ---------
$ 2,405 1,336
--------- ---------
--------- ---------
</TABLE>
As of June 30, 1995 and 1994, the Company had equipment under capital lease
agreements of $818,000 and accumulated amortization of $419,000 and $188,000,
respectively.
NOTE (4) -- ACCRUED LIABILITIES
A summary of accrued liabilities follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Compensation and related benefits....................................................... $ 579 246
Consulting and professional fees........................................................ 111 223
Other................................................................................... 154 153
--------- ---------
$ 844 622
--------- ---------
--------- ---------
</TABLE>
F-28
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (5) -- PREFERRED STOCK
PREFERRED STOCK TRANSACTIONS
In April 1994, the Company converted all of its previously outstanding
Series C preferred stock into shares of the Company's Series B preferred stock
at a conversion price of $1.50 per share (or approximately 1.67 shares of Series
B preferred stock for each share of Series C preferred stock). As a result, all
1,052,263 shares of previously outstanding Series C preferred stock were
converted to 1,753,767 shares of Series B preferred stock.
In April 1994, by operation of the pro rata investment provisions discussed
below, 361,792 and 151,737 shares of Series B and previously outstanding Series
C preferred stock, respectively, were converted into an equal number of shares
of common stock.
In April 1994, the Company entered into an agreement with one investor to
exchange 193,195 shares of common stock for an equal number of shares of Series
B preferred stock and to repurchase the investor's remaining 158,300 shares of
common stock.
In November 1994, the Company sold 844,444 shares of Series C preferred
stock to an investor who held the right to put the shares back to the Company if
certain Company development milestones were not met. The put price was
established as the higher of: (i) the price the investor initially paid plus any
declared but unpaid dividends thereon, or (ii) the then current fair market
value. In September 1995, the Company achieved the development milestones and
the put right was terminated by its terms, whereupon the liquidation value was
reclassified to stockholders' equity.
In November 1995, the Company issued 177,250 shares of Series D preferred
stock for gross proceeds of $531,750.
RIGHTS AND PREFERENCES:
- Holders of preferred stock are entitled to noncumulative annual dividends
of $0.075, $0.12, $0.12 and $0.12 per share of Series A, B, C and D
preferred stock, respectively, when and if declared by the Board of
Directors.
- Holders of preferred stock have a liquidation preference of $0.96, $1.50,
$2.25 and $3.00 per share of Series A, B, C and D preferred stock,
respectively, plus all declared but unpaid dividends. Any remaining assets
shall be distributed ratably among the common stockholders.
- Each share of preferred stock has voting rights on an "as if converted"
basis.
- Each share of Series A, B, and D preferred stock is convertible into one
share of common stock subject to certain adjustments for dilution.
Outstanding Series C preferred stock is convertible into shares of common
stock based on a conversion factor which adjusts according to fiscal 1995
and 1996 revenues.
- Each share of preferred stock will automatically be converted to common
stock upon the earlier of the closing of an initial public offering or
upon the written consent to such conversion by the holders of a majority
of Series A, Series B and Series D preferred stock and the written consent
to such conversion by the holders of a majority of the Series C preferred
stock.
F-29
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (5) -- PREFERRED STOCK (CONTINUED)
- Preferred stock investors who do not invest their pro rata share in
subsequent preferred stock rounds may be subject to automatic conversion
of preferred stock to common stock based on the decline in their pro rata
share.
- The holders of preferred stock have a right of first refusal to acquire
any new securities issued by the Company.
- The holders of outstanding Series C preferred stock have the right to put
their shares back to the Company, as described above.
WARRANTS
In connection with an equipment lease agreement (Note 9), the Company issued
preferred stock warrants. As of June 30, 1995 and 1994, there was outstanding a
warrant exercisable for the purchase of 54,577 shares of Series B preferred
stock at an exercise price of $1.50 per share. The warrant expires on the later
of October 11, 2003 or five years from the effective date of the Company's
initial public offering. No significant value was assigned to this warrant.
In connection with a secured line of credit agreement (Note 8), the Company
granted the lender a warrant to purchase 40,000 shares of Series B preferred
stock at an exercise price of $2.25 per share. The warrant expires on the later
of March 10, 2005 or five years from the effective date of the Company's initial
public offering. No significant value was assigned to this warrant.
NOTE (6) -- COMMON STOCK
From inception through June 30, 1995, the Company issued 2,546,500 shares of
common stock to employees and directors which are subject to repurchase. The
Company's repurchase right to such shares expires as shares vest, generally 20%
to 25% following the first year of employment with the remainder vesting ratably
over the following three to four years. As of June 30, 1995, 1,168,790 shares of
common stock were subject to repurchase.
The Company may not pay cash dividends on common stock while there are
declared but unpaid cash dividends on any shares of Series A preferred, Series B
preferred, Series C preferred or Series D preferred stock outstanding.
As of June 30, 1995, employees had exercised options to purchase 41,312
shares of common stock (Note 7) prior to the options having vested. These shares
are subject to repurchase by the Company if an employee terminates employment
before the options vest.
In April 1995, the Company reserved 214,500 shares of common stock for
issuance to certain employees as performance awards. The shares may be awarded
to these employees through June 1996, at up to a maximum of 20% each quarter, by
meeting specified operational goals. As of June 30, 1995, targeted operational
goals had been met, and in July 1995, the Board of Directors granted options to
purchase 42,900 shares of common stock to the employees.
NOTE (7) -- OPTION PLANS
In 1992, the Board of Directors adopted an Equity Incentive Plan (the Plan)
providing for the issuance of common stock options to employees, directors, and
consultants of the Company. The stock options are a combination of both
incentive and nonstatutory stock options.
F-30
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (7) -- OPTION PLANS (CONTINUED)
Incentive stock options may be granted at not less than 100% of the fair
market value per share and nonstatutory stock options may be granted at not less
than 85% of the fair market value per share at the date of grant as determined
by the Board of Directors or committee thereof, except for options granted to a
person owning greater than 10% of the total combined voting power of all classes
of stock of the Company, for which the exercise price of the options must be not
less than 110% of the fair market value. Stock option plan shares generally vest
20% to 25% after one year with the remainder vesting ratably over the following
three to four years.
A summary of activity under the Plan for the years ended June 30, 1995 and
1994 follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING EXERCISE
OPTIONS PRICE
---------------- ------------
<S> <C> <C>
Granted................................................................. 430,500 $ .05 - .15
Canceled................................................................ (25,000) .05
---------------- ------------
Outstanding as of June 30, 1993......................................... 405,500 .05 - .15
Granted................................................................. 1,169,240 .15 - .25
Exercised............................................................... (29,009) .05 - .15
Canceled................................................................ (146,491) .05 - .25
---------------- ------------
Outstanding as of June 30, 1994......................................... 1,399,240 .05 - .25
Granted................................................................. 1,278,990 .15 - .30
Exercised............................................................... (91,323) .15 - .25
Canceled................................................................ (192,977) .05 - .25
---------------- ------------
Outstanding as of June 30, 1995......................................... 2,393,930 05 - .30
Granted (unaudited)..................................................... 1,200,974 .30
Exercised (unaudited)................................................... (398,196) .15 - .30
Canceled (unaudited).................................................... (82,424) .15 - .25
---------------- ------------
Outstanding as of December 31, 1995 (unaudited)......................... 3,114,284 .05 - .30
---------------- ------------
---------------- ------------
Vested as of December 31, 1995 (unaudited).............................. 561,167
----------------
----------------
</TABLE>
As of June 30, 1995, the Company had reserved 3,533,658 shares of common
stock for issuance under the Plan. There were 1,139,728 shares of common stock
available for grant under the Plan and 485,464 vested options as of June 30,
1995.
The Company also grants options to certain employees, directors, and
consultants outside the Plan. As of June 30, 1995, options totaling 697,900
shares of common stock, of which 203,015 were vested, have been granted as
follows: employees received 130,000 shares, directors received 507,000 shares,
and consultants received 60,900 shares. The options have an exercise price of
$.15 and vest 20% after one year with the remainder vesting ratably over four
years. During the six months ended December 31, 1995, certain employees and a
director exercised options issued outside the 1992 Equity Incentive Plan
totaling 203,400 and 475,000, respectively.
F-31
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (8) -- DEBT
In fiscal 1995, the Company entered into a secured line of credit agreement
that allows the Company to borrow up to $1,000,000, to finance equipment
purchases. In fiscal 1995, the Company borrowed $459,296 under this line at an
interest rate of 16%. The aggregate annual principal payments for debt
outstanding as of June 30, 1995, are summarized as follows:
<TABLE>
<S> <C>
1996............................................. $ 112,492
1997............................................. 132,308
1998............................................. 198,479
</TABLE>
In December 1995, the Company entered into a credit arrangement with
Informix under which the Company may borrow up to $5 million for working capital
requirements. As of December 31, 1995, the Company had borrowed $2,000,000, in
the form of a note payable, under this arrangement.
NOTE (9) -- COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities under noncancelable operating leases
expiring through 1997. Future minimum lease payments under these leases will be
$428,000 in 1996 and $391,000 in 1997.
Total rent expense was $483,000 and $226,000 in 1995 and 1994, respectively.
Future minimum lease payments under the Company's capital lease agreements
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- ------------------------------------------------------------------
<S> <C>
1996.............................................................. $ 297
1997.............................................................. 259
1998.............................................................. 21
---------
Total minimum lease payments...................................... 577
Less amount representing interest................................. 90
Less current portion.............................................. 239
---------
$ 248
---------
---------
</TABLE>
EMPLOYEE BENEFITS
The Company maintains a 401(k) defined contribution benefit plan that covers
all employees who have completed at least 1,000 hours of service. This plan
allows employees to defer up to 15% of their pretax salary, up to $9,240, in
certain investments at the election of the employee. The Company has the option
to make discretionary employer matching contributions. The Company did not make
any matching contributions to the plan during the years ended June 30, 1995 and
1994.
LITIGATION
The Company is a party to a lawsuit in which one of its competitors alleges
intentional interference with contractual relationships, unfair competition, and
conspiracy arising out of the Company's alleged improper solicitation of the
competitor's employees for employment with the Company. The suit seeks
unspecified restitution, compensatory and punitive damages, attorneys' fees, and
costs of the suit. The Company believes the claim to be without merit and is
vigorously defending the suit.
F-32
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (9) -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
While legal proceedings can be unpredictable, management believes the outcome of
the matter will not have a material adverse effect on the Company's consolidated
results of operations and financial position.
NOTE (10) -- INCOME TAXES
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenues and accruals.............................................................. 179 112
Net operating loss carryforwards................................................... 4,119 1,898
Research credit carryforwards...................................................... 774 355
Capitalized research and development and "start-up" costs.......................... 713 544
Deferred revenue................................................................... 1,286 --
--------- ---------
7,071 2,909
Less: valuation allowance.......................................................... (7,071) (2,909)
--------- ---------
Net deferred tax assets............................................................ -- --
--------- ---------
--------- ---------
</TABLE>
As of June 30, 1995, the Company has net operating loss carryforwards of
approximately $12,000,000 and $3,000,000 for federal and California purposes,
respectively. The Company also has research and development credit carryforwards
of approximately $600,000 and $200,000 for federal and California purposes,
respectively. The federal net operating loss carryforwards and federal and
California research credit carryforwards expire from 2008 to 2010. The
California net operating loss carryforwards expire from 1998 to 2001.
The Company experienced an "ownership change," as defined by Section 382 of
the Internal Revenue Code, in the fiscal year ended June 30, 1993. As a result
of this ownership change, $800,000 and $400,000 of the federal and California
net operating loss carryforwards, respectively, are subject to limitation.
Research and development credit carryforwards for federal and California
purposes of $50,000 and $20,000, respectively, are also subject to limitation.
The limitation allows the Company to utilize approximately $75,000 annually of
"pre-ownership change" net operating loss carryforwards or credit equivalents
subsequent to June 30, 1994. This annual limitation may be carried forward to
subsequent years if not used.
The proposed merger with Informix will result in an additional "ownership
change" pursuant to Section 382 of the Internal Revenue Code. However,
management believes that there will be no further "Section 382 limitation" on
available net operating loss carryforwards described above.
NOTE (11) -- SIGNIFICANT CUSTOMERS AND CONTRACTS
CUSTOMERS
One customer accounted for 13% of fiscal 1995 total revenues and 15% of
trade accounts receivable as of June 30, 1995. Each of two customers accounted
for 29% and 22%, respectively, of fiscal 1994 total revenues and 18% and 38%,
respectively, of trade accounts receivable as of June 30, 1994.
F-33
<PAGE>
ILLUSTRA INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1994, AND 1993
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE (11) -- SIGNIFICANT CUSTOMERS AND CONTRACTS (CONTINUED)
Revenues for each of the two years ended June 30, 1995 and 1994 and for the
period from July 31, 1992 (inception) to June 30, 1993 have primarily been
derived from customers in North America.
DEFERRED REVENUE
In January 1995, the Company entered into an International Distribution
Agreement (Distribution Agreement) with a Japanese value-added reseller (VAR).
Under this Distribution Agreement, the Company granted the VAR a license to
market and sublicense the Company's software in Japan. The companies also agreed
that the localization of the Illustra Server and certain Datablades to the
Japanese market shall be a joint development effort. In exchange for the product
license and development assistance, the Company received $2,000,000 in cash
which has been recorded as deferred revenue. The VAR also made an equity
investment of $2,000,000 for which the Company issued 666,667 shares of Series D
preferred stock. As of June 30, 1995, sales in connection with the Distribution
Agreement have been minimal.
In April 1995, the Company entered into a License, Support, and Maintenance
Agreement with a domestic customer in which the Company agreed to license
certain software products to be embedded in or combined with the customer's
products, during an initial two-year period. As of June 30, 1995, the Company
has deferred approximately $1,200,000 in license fees associated with this
contract.
In June 1995, the Company entered into a Software Development, License, and
Maintenance Agreement with a domestic customer in which the Company agreed to
port certain software products to the customer's platform. The Company also
granted the customer the right to sublicense the software to end users, for
which the Company will receive royalties. As of June 30, 1995, the Company has
deferred approximately $750,000 in prepaid royalties associated with this
contract.
F-34
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFORMIX CORPORATION
INFORMIX DELAWARE, INC.
AND
ILLUSTRA INFORMATION TECHNOLOGIES, INC.
DATED AS OF DECEMBER 20, 1995
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of December 20, 1995 among Informix Corporation, a Delaware
corporation ("PARENT"), Informix Delaware, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Illustra Information
Technologies, Inc., a Delaware corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("COMPANY CAPITAL STOCK") and all outstanding
options, warrants and other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive shares of Common
Stock of Parent ("PARENT COMMON STOCK").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW")
and the California General Corporation Law ("CALIFORNIA LAW"), Merger Sub shall
be merged with and into the Company, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation and
as a wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION".
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "CLOSING") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California, unless another place or time is agreed to by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"CLOSING DATE". On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing a Certificate of Merger (or like instrument) with
the Secretary of State of the State of Delaware (the "CERTIFICATE OF MERGER"),
in accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of Delaware of such filing being referred
to herein as the "EFFECTIVE TIME"). The parties currently intend that the
Closing Date will occur on or prior to February 29, 1996.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and
A-1
<PAGE>
subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, the Certificate of Incorporation of Merger Sub shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
Illustra Information Technologies, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 MAXIMUM SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK. The maximum
number of shares of Parent Common Stock to be issued (including Parent Common
Stock to be reserved for issuance upon exercise of any of the Company's options
and warrants to be assumed by Parent) in exchange for the acquisition by Parent
of all outstanding Company Capital Stock and all unexpired and unexercised
options and warrants to acquire Company Capital Stock shall be 15,000,000 (the
"AGGREGATE SHARE NUMBER"). No adjustment shall be made in the number of shares
of Parent Common Stock issued in the Merger as a result of any cash proceeds
received by the Company from the date hereof to the Closing Date pursuant to the
exercise of options or warrants to acquire Company Capital Stock. Subject to the
terms and conditions of this Agreement, as of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any shares of the Company Capital Stock, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common Stock of
the Company ("COMPANY COMMON STOCK") issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Common Stock
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled and
extinguished and be converted automatically into the right to receive that
number of shares of Parent Common Stock equal to the Common Exchange Ratio
(as defined in paragraph (i) below), upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.8, including, with respect to each whole share of Parent Common
Stock to be received, the right to receive one preferred share purchase
right (a "RIGHT") under Parent's Amended and Restated Preferred Shares
Rights Agreement dated as of September 12, 1991 and amended and restated as
of May 15, 1992 and July 25, 1995.
(b) CONVERSION OF COMPANY PREFERRED STOCK; TREATMENT OF CONVERTED SERIES
C PREFERRED STOCK.
(i) SERIES A PREFERRED STOCK. Each share of Series A Preferred
Stock of the Company ("SERIES A PREFERRED") issued and outstanding
immediately prior to the Effective Time (other than any shares of Series
A Preferred that are converted into shares of Company Common Stock
immediately prior to the Effective Time, any shares of Series A Preferred
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled
and extinguished and be converted automatically into the right to receive
that number of shares of Parent Common Stock equal to the Series A
A-2
<PAGE>
Exchange Ratio (as defined in paragraph (i) below), upon surrender of the
certificate representing such share of Series A Preferred in the manner
provided in Section 1.8, including, with respect to each whole share of
Parent Common Stock to be received, one Right.
(ii) SERIES B PREFERRED STOCK. Each share of Series B Preferred
Stock of the Company ("SERIES B PREFERRED") issued and outstanding
immediately prior to the Effective Time (other than any shares of Series
B Preferred that are converted into shares of Company Common Stock
immediately prior to the Effective Time, any shares of Series B Preferred
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled
and extinguished and be converted automatically into the right to receive
that number of shares of Parent Common Stock equal to the Series B
Exchange Ratio (as defined in paragraph (i) below), upon surrender of the
certificate representing such share of Series B Preferred in the manner
provided in Section 1.8, including, with respect to each whole share of
Parent Common Stock to be received, one Right.
(iii) SERIES C PREFERRED STOCK; TREATMENT OF CONVERTED SERIES C
PREFERRED STOCK.
(a) Each share of Series C Preferred Stock of the Company
("SERIES C PREFERRED") issued and outstanding immediately prior to
the Effective Time (other than any shares of Series C Preferred that
are converted into shares of Company Common Stock immediately prior
to the Effective Time, any shares of Series C Preferred to be
canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be
canceled and extinguished and be converted automatically into the
right to receive that number of shares of Parent Common Stock equal
to the Series C Exchange Ratio (as defined in paragraph (i) below),
upon surrender of the certificate representing such share of Series C
Preferred in the manner provided in Section 1.8, including, with
respect to each whole share of Parent Common Stock to be received,
one Right.
(b) The Certificate of Incorporation of the Company currently
provides that if and to the extent shares of Series C Preferred are
converted into shares of Company Common Stock prior to the date which
is ten business days after the Company first receives copies of its
audited financial statements for the 1996 fiscal year (the
"CONVERSION CALCULATION DATE"), the number of shares of Company
Common Stock that shall be deliverable upon conversion of a share of
Series C Preferred provisionally shall be deemed to be a fixed amount
(the "CONVERSION AMOUNT"), and the Conversion Amount shall be subject
to increase based on events that would be determinable on the
Conversion Calculation Date (the Company Common Stock that would
constitute an increase to the Conversion Amount per share of Series C
Preferred is hereinafter referred to as the "SERIES C ADDITIONAL
CONVERSION SHARE", and thus one right to receive a Series C
Additional Conversion Share would be outstanding for each share of
Series C Preferred that is converted into Company Common Stock prior
to the Conversion Calculation Date). Based on the foregoing, in the
event that the Effective Time occurs prior to the Conversion
Calculation Date, then by virtue of the Merger, each outstanding
right to receive a Series C Additional Conversion Share immediately
prior to the Effective Time will be canceled and extinguished and be
converted automatically into the right to receive that number of
shares of Parent Common Stock equal to the Additional Conversion
Share Exchange Ratio (as defined in paragraph (i) below), upon
surrender of a certificate (or other evidence reasonably satisfactory
to Parent or the Exchange Agent) representing such Series C
Additional Conversion Share in the manner provided in Section 1.8,
including, with respect to each whole share of Parent Common Stock to
be received, one Right.
(iv) SERIES D PREFERRED STOCK. Each share of Series D Preferred
Stock of the Company ("SERIES D PREFERRED; together with the Series A
Preferred, Series B Preferred and Series C
A-3
<PAGE>
Preferred, the "COMPANY PREFERRED STOCK") issued and outstanding
immediately prior to the Effective Time (other than any shares of Series
D Preferred that are converted into shares of Company Common Stock
immediately prior to the Effective Time, any shares of Series D Preferred
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled
and extinguished and be converted automatically into the right to receive
that number of shares of Parent Common Stock equal to the Series D
Exchange Ratio (as defined in paragraph (i) below), upon surrender of the
certificate representing such share of Series D Preferred in the manner
provided in Section 1.8, including, with respect to each whole share of
Parent Common Stock to be received, one Right.
(c) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each share of
Company Capital Stock owned by Merger Sub, Parent, the Company or any
direct or indirect wholly-owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(d) STOCK OPTIONS. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's 1992 Equity
Incentive Plan (the "OPTION PLAN"), or otherwise, shall be assumed by Parent
in accordance with provisions described below.
(i) At the Effective Time, each outstanding option to purchase shares
of Company Common Stock (each a "COMPANY OPTION") under the Option Plan
or otherwise, whether vested or unvested, shall be, in connection with
the Merger, assumed by Parent. Each Company Option so assumed by Parent
under this Agreement shall continue to have, and be subject to, the same
terms and conditions set forth in the Option Plan and/or as provided in
the respective option agreements governing such Company Option
immediately prior to the Effective Time, except that (A) such Company
Option shall be exercisable for that number of whole shares of Parent
Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Common Exchange
Ratio, rounded down (in the case of Company Options granted under the
Option Plan) to the nearest whole number of shares of Parent Common Stock
and (B) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed Company Option shall be
equal to the quotient determined by dividing the exercise price per share
of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Common Exchange Ratio,
rounded up to the nearest whole cent.
(ii) It is the intention of the parties that the Company Options
assumed by Parent qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent the Company
Options qualified as incentive stock options immediately prior to the
Effective Time.
(iii) Promptly following the Effective Time, Parent will issue to each
holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
(e) WARRANTS. Each warrant to purchase shares of Company Preferred
Stock outstanding at the Effective Time shall be, in connection with the
Merger, assumed by Parent. Each warrant so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the respective warrant agreements governing such
warrant immediately prior to the Effective Time, except that each such
warrant shall, following the Effective Time, be exercisable only for shares
of Parent Common Stock, in such number, and at such exercise price as is
determined by applying the appropriate Exchange Ratio in accordance with the
terms of the applicable warrant agreement.
A-4
<PAGE>
(f) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of Merger
Sub issued and outstanding immediately prior to the Effective time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(g) ADJUSTMENTS TO EXCHANGE RATIOS. The Exchange Ratios shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Capital Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time.
(h) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof, each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall be entitled to receive
from Parent an amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) the average closing
price of a share of Parent Common Stock for the five (5) consecutive trading
days ending on the trading day immediately prior to the Closing Date, as
reported on the Nasdaq National Market.
(i) DEFINITIONS.
(a) ADDITIONAL CONVERSION SHARE EXCHANGE RATIO. The "Additional
Conversion Share Exchange Ratio" shall mean the product of 0.25
multiplied by the Common Exchange Ratio.
(b) AGGREGATE ADDITIONAL CONVERSION SHARE NUMBER. The "Aggregate
Additional Conversion Share Number" shall mean the product of 0.25
multiplied by the aggregate number of shares of Series C Preferred that
shall have been converted into shares of Company Common Stock up to and
including immediately prior to the Effective Time.
(c) AGGREGATE PREFERRED NUMBER. The "Aggregate Preferred Number" shall
mean the sum of (w) the product obtained by multiplying the Outstanding
Series A Amount by the Series A Exchange Ratio, plus (x) the product
obtained by multiplying the Outstanding Series B Amount by the Series B
Exchange Ratio, plus (y) the product obtained by multiplying the Outstanding
Series C Amount by the Series C Exchange Ratio, plus (z) the product
obtained by multiplying the Outstanding Series D Amount by the Series D
Exchange Ratio.
(d) AGGREGATE SHARE NUMBER. The "Aggregate Share Number" shall be a
number of shares of Parent Common Stock equal to 15,000,000 shares (as
appropriately adjusted to reflect the effect of any stock split, stock
dividend, reorganization, recapitalization or the like with respect to the
Parent Common Stock occurring after the date hereof and prior to the
Effective Time).
(e) COMMON EXCHANGE RATIO. The "Common Exchange Ratio" shall mean the
quotient obtained by dividing (x) the Aggregate Share Number minus the
Aggregate Preferred Number, by (y) the sum of (A) the Outstanding Common
Amount plus (B) the Outstanding Option Amount plus (C) the Aggregate
Additional Conversion Share Number.
(f) ESCROW AMOUNT. The "Escrow Amount" shall be a number of shares of
Parent Common Stock obtained by multiplying (x) the Aggregate Share
Number minus the Outstanding Option Amount by (y) 0.10.
(g) EXCHANGE RATIOS. The "Exchange Ratios" shall mean the Common
Exchange Ratio, the Series A Exchange Ratio, the Series B Exchange Ratio,
the Series C Exchange Ratio, the Series D Exchange Ratio or the Additional
Conversion Share Exchange Ratio, as applicable.
A-5
<PAGE>
(h) OUTSTANDING COMMON AMOUNT. The "Outstanding Common Amount" shall
mean the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (taking into account all shares of
Company Preferred Stock that shall be converted into Company Common Stock as
of such time).
(i) OUTSTANDING OPTION AMOUNT. The "Outstanding Option Amount" shall
mean (i) the aggregate number of shares of Company Common Stock issuable
upon the exercise of all outstanding options and warrants to acquire shares
of Company Common Stock immediately prior to the Effective Time.
(j) OUTSTANDING SERIES A AMOUNT. The "Outstanding Series A Amount"
shall mean the aggregate number of shares of Series A Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series A Preferred issuable upon exercise of any options or
warrants to acquire shares of Series A Preferred then outstanding.
(k) OUTSTANDING SERIES B AMOUNT. The "Outstanding Series B Amount"
shall mean the aggregate number of shares of Series B Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series B Preferred issuable upon exercise of any options or
warrants to acquire shares of Series B Preferred then outstanding.
(l) OUTSTANDING SERIES C AMOUNT. The "Outstanding Series C Amount"
shall mean the aggregate number of shares of Series C Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series C Preferred issuable upon exercise of any options or
warrants to acquire shares of Series C Preferred then outstanding.
(m) OUTSTANDING SERIES D AMOUNT. The "Outstanding Series D Amount"
shall mean the aggregate number of shares of Series D Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series D Preferred issuable upon exercise of any options or
warrants to acquire shares of Series D Preferred then outstanding.
(n) PARENT PRICE. The "Parent Price" shall mean the closing sale price
on the Nasdaq National Market of Parent Common Stock as of the date of
this Agreement.
(o) SERIES A EXCHANGE RATIO. The "Series A Exchange Ratio" shall mean
the quotient obtained by dividing 0.96 by the Parent Price.
(p) SERIES B EXCHANGE RATIO. The "Series B Exchange Ratio" shall mean
the quotient obtained by dividing 1.50 by the Parent Price.
(q) SERIES C EXCHANGE RATIO. The "Series C Exchange Ratio" shall mean
the quotient obtained by dividing 2.25 by the Parent Price..
(r) SERIES D EXCHANGE RATIO. The "Series D Exchange Ratio" shall mean
the quotient obtained by dividing 3.00 by the Parent Price.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock held by a holder who has demanded and perfected
appraisal or dissenters' rights for such shares in accordance with Delaware Law
and California Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal or dissenters' rights ("DISSENTING SHARES"),
shall not be converted into or represent a right to receive Parent Common Stock
pursuant to Section 1.6, but the holder thereof shall only be entitled to such
rights as are granted by Delaware Law and California Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Capital Stock who demands appraisal of such shares under
Delaware Law or California Law shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the later
of the Effective Time and the occurrence of such event, such holder's shares
shall automatically be
A-6
<PAGE>
converted into and represent only the right to receive Parent Common Stock and
fractional shares as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demands
for appraisal of any shares of Company Capital Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law or California
Law and received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law and California Law. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisal of capital stock of the Company or offer to settle or
settle any such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall designate a
bank or trust company reasonably acceptable to the Company to act as exchange
agent (the "EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, the aggregate number of shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Capital Stock; provided that, on behalf of the holders of Company Capital Stock,
Parent shall deposit into an escrow account a number of shares of Parent Common
Stock equal to the Escrow Amount out of the aggregate number of shares of Parent
Common Stock otherwise issuable pursuant to Section 1.6. The portion of the
Escrow Amount contributed on behalf of each holder of Company Capital Stock
shall be in proportion to the aggregate number of shares of Parent Common Stock
which such holder would otherwise be entitled to receive under Section 1.6 by
virtue of ownership of outstanding shares of Company Capital Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "CERTIFICATES") which immediately prior to the Effective
Time represented outstanding shares of Company Capital Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of shares of Parent Common Stock,
if any, to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VII hereof), plus cash in lieu of fractional shares in accordance with
Section 1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount which shall
be registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent as provided in Article VII.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the
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payment of dividends, to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Capital Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this Section
1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.6; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE") and
(ii) qualify for accounting treatment as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
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powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub, subject
to such exceptions as are clearly disclosed in the disclosure letter supplied by
the Company to Parent (the "COMPANY SCHEDULES") and dated as of the date hereof,
as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or results
of operations of the Company (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of authorized Common Stock, of which 4,008,263 shares are issued and
outstanding and 13,000,000 shares of authorized Preferred Stock. The authorized
Preferred Stock consists of 1,300,000 shares of authorized Series A Preferred
Stock, of 1,083,334 shares are issued and outstanding, 7,760,000 shares of
authorized Series B Preferred Stock, of which 7,048,505 shares are issued and
outstanding, 844,444 shares of authorized Series C Preferred Stock, of which
844,444 shares are issued and outstanding, and 2,600,000 shares of authorized
Series D Preferred Stock, of which 2,510,583 shares are issued and outstanding.
The Company Capital Stock is held of record by the persons, with the addresses
of record and in the amounts set forth on Schedule 2.2(a). All outstanding
shares of Company Capital Common Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound.
(b) The Company has reserved 4,161,971 shares of Common Stock for issuance
to employees and consultants pursuant to the Option Plan, of which 3,230,664
shares are subject to outstanding, unexercised options and 931,307 shares remain
available for future grant. The Company has reserved 247,800 shares of Common
Stock for issuance upon exercise of outstanding Company Options granted outside
the Option Plan. Schedule 2.2(b) sets forth for each outstanding Company Option
the name of the holder of such option, the domicile address of such holder, the
number of shares of Common Stock subject to such option, the exercise price of
such option and the vesting schedule for such option, including the extent
vested to date and whether the exercisability of such option will be accelerated
and become exercisable by the transactions contemplated by this Agreement. The
Company has reserved 94,557 shares of Series B Preferred Stock (and such number
of shares of Common Stock into which such Series B Preferred Stock is
convertible) for issuance upon exercise of outstanding warrants. Schedule 2.2(b)
sets forth for each of the Warrants the name of the holder and exercise price of
such warrants. Except for the Company Options and warrants described in Schedule
2.2(b), there are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Company is a party or by which
it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company. Except for the Company Options and
warrants described in Schedule 2.2(b), there are no Options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which
the Company is a party or by which it is bound obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such
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option, warrant, call, right, commitment or agreement. The holders of Company
Options and warrants have been or will be given, or shall have properly waived,
any required notice prior to the Merger and all such rights will be terminated
at or prior to the Effective Time. As a result of the Merger, Parent will be the
record and sole beneficial owner of all Company Capital Stock and rights to
acquire or receive Company Capital Stock.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Company's
stockholders to duly approve the Merger and this Agreement is that number of
shares as would constitute a majority of the outstanding shares of (a) the
Common Stock and Preferred Stock, voting together as a single class, and (b) the
Preferred Stock voting separately as a single class (in each case with each
share of Preferred Stock being entitled to a number of votes equal to the number
of whole shares of Common Stock into which such share of Preferred Stock could
be converted on the record date for the vote). The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject only to the approval of the Merger by the Company's
stockholders. The Company's Board of Directors has unanimously approved the
Merger and this Agreement. This Agreement has been duly executed and delivered
by the Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms. Except as set forth on Schedule 2.4,
subject only to the approval of the Merger and this Agreement by the Company's
stockholders, the execution and delivery of this Agreement by the Company does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other federal,
state, county, local or foreign governmental authority, instrumentality, agency
or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger
any Conflict), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Delaware Secretary of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and (iii)
such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.4.
2.5 COMPANY FINANCIAL STATEMENTS. Schedule 2.5 sets forth the Company's
audited balance sheet as of June 30, 1995 and the related audited statements of
operations and cash flows for the twelve-month period then ended and the
Company's unaudited balance sheet as of September 30, 1995 (the "BALANCE SHEET")
and the related unaudited statements of operations and cash flows for the
three-month period then ended (collectively, the "COMPANY FINANCIALS"). The
Company Financials are correct in all material respects and have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a basis consistent throughout the periods indicated and
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consistent with each other. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject, in the case of the unaudited financial
statements, to normal year-end adjustments, which will not be material in amount
or significance.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6, the
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type. whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
principles), which individually or in the aggregate, (i) has not been reflected
in the Balance Sheet, or (ii) has not arisen in the ordinary course of the
Company's business since September 30, 1995, consistent with past practices.
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since September 30,
1995, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of business
as conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company of $100,000 in any
individual case or $250,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any
of its capital stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any
kind for the payment, by the Company, of a bonus or other additional salary
or compensation to any such person except as otherwise contemplated by this
Agreement;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others except for advances to
employees for travel and business expenses in the ordinary course of
business, consistent with past practices;
(m) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company;
(n) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of the Company or its affairs;
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(o) notice of any claim of ownership by a third party of the Company's
Intellectual Property (as defined in Section 2.11 below) or of infringement
by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or
of any other of its securities;
(q) change in pricing or royalties set or charged by the Company to its
customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company;
(r) event or condition of any character that has or reasonably would be
expected to have a Material Adverse Effect on the Company; or
(s) agreement by the Company or any officer or employees thereof to do
any of the things described in the preceding clauses (a) through (r) (other
than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or,
collectively, "TAXES", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared and filed
all required federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to any and all
Taxes concerning or attributable to the Company or its operations and, to
the Company's knowledge, such Returns have been completed in accordance
with applicable law.
(ii) The Company as of the Effective Time. (A) will have paid or accrued
all Taxes it is required to pay or accrue and (B) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, proposed or assessed against the
Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company does not have any liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in
accordance with GAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has no knowledge of any basis for
the assertion of any such liability attributable to the Company, its assets
or operations.
(vi) The Company has provided to Parent copies of all federal and state
income and all state sales and use Tax Returns for all periods since the
date of Company's incorporation.
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(vii) There are (and as of immediately following the Closing there will
be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("LIENS") on the assets of the Company relating to
or attributable to Taxes, other than Liens for Taxes not yet due and
payable.
(viii) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(ix) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G or 162 of the Code.
(x) The Company has not filed any consent agreement under Section 341(f)
of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xi) The Company is not a party to a tax sharing or allocation agreement
nor does the Company owe any amount under any such agreement.
(xii) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2)
of the Code.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete
or otherwise), judgment, injunction, order or decree to which the Company is a
party or otherwise binding upon the Company which has or reasonably would be
expected to have the effect of prohibiting or impairing any business practice of
the Company, any acquisition of property (tangible or intangible) by the Company
or the conduct of business by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor and the date of the lease and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financials or in Schedule 2.10(b) and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material that are used in the business of the Company as currently conducted
or as proposed to be conducted by the Company (the "COMPANY INTELLECTUAL
PROPERTY RIGHTS").
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(b) Schedule 2.11(a) sets forth a complete list of all patents, registered
and material unregistered trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. Schedule 2.11(b) sets forth a complete list of
all licenses, sublicenses and other agreements to which the Company is a party
and pursuant to which the Company or any other person is authorized to use any
Company Intellectual Property Right (excluding object code end-user licenses
granted to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the same
("END-USER LICENSES")) or trade secret of the Company, and includes the identity
of all parties thereto. The execution and delivery of this Agreement by the
Company, and the consummation of the transactions contemplated hereby, will
neither cause the Company to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except as set forth in Schedules 2.11(a) or 2.11(b), the Company is
the sole and exclusive owner or licensee of, with all right, title and interest
in and to (free and clear of any liens or encumbrances), the Company
Intellectual Property Rights, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which the Company Intellectual Property
Rights are being used.
(c) No claims with respect to the Company Intellectual Property Rights have
been asserted or are, to the Company's knowledge, threatened by any person, nor
are there any valid grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any of the products of the Company
infringes on any copyright, patent, trade mark, service mark, trade secret or
other proprietary right, (ii) against the use by the Company of any trademarks,
service marks, trade names, trade secrets, copyrights, maskworks, patents,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted or as proposed to be conducted by the
Company, or (iii) challenging the ownership by the Company, validity or
effectiveness of any of the Company Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by the Company are valid and
subsisting. The business of the Company as currently conducted or as proposed to
be conducted by the Company has not and does not infringe on any proprietary
right of any third party. To the Company's knowledge, there is no material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by the Company. Each employee of and consultant to the Company has
executed a proprietary information and confidentiality agreement substantially
in the Company's standard forms.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it bound
by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement, under
which a firm or other organization provides services to the Company,
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(v) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $100,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement containing any covenant limiting the freedom of the
Company to engage in any line of business or to compete with any person,
(x) any agreement relating to capital expenditures and involving future
payments in excess of $100,000,
(xi) any agreement relating to the disposition or acquisition of assets
or any interest in any business enterprise outside the ordinary course of
the Company's business,
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw materials
involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or may grant
in the future, to any party a source-code license or option or other right
to use or acquire source-code, or
(xvii) any other agreement that involves $100,000 or more or is not
cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time, giving
of notice, or both, as are all noted in Schedule 2.12(b), the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment required to be set forth on Schedule 2.12(a) or Schedule
2.11(b) (any such agreement, contract or commitment, a "CONTRACT"). Each
Contract is in full force and effect and, except as otherwise disclosed in
Schedule 2.12(b), is not subject to any default thereunder of which the Company
has knowledge by any party obligated to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13,
to the Company's knowledge, no officer, director or affiliate (as defined under
Regulation C under the Securities Act of 1933, as amended) of the Company (nor
any ancestor, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had an
economic interest), has or has had, directly or indirectly, (i) an economic
interest in any entity which furnished or sold, or furnishes or sells, services
or products that the Company furnishes or sells, or proposes to furnish or sell,
or (ii) an economic interest in any entity that purchases from or sells or
furnishes to, the Company, any goods or services or (iii) a beneficial interest
in any contract or agreement set forth in Schedule 2.12(a) or Schedule 2.11(b);
provided, that (x) ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation and no more than ten percent (10%)
of the outstanding equity of any other entity shall not be deemed an "economic
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interest in any entity" for purposes of this Section 2.13 and (y) this provision
shall only apply if the terms and conditions applicable to the subject
relationship are materially less favorable to the Company than the terms and
conditions that could be obtained in an arms-length relationship.
2.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or to the Company's knowledge
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
schedule 2.15, to the Company's knowledge, there is no investigation pending or
threatened against the Company, its properties or any of its officers or
directors by or before any governmental entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. No governmental entity has at any
time challenged or questioned the legal right of the Company to manufacture,
offer or sell any of its products in the present manner or style thereof.
2.16 INSURANCE. With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.17 MINUTE BOOKS. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any underground
storage tanks at any property that the Company has at any time owned, operated,
occupied or leased; or (ii) illegally released any material amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"),
but excluding office and janitorial supplies properly and safely maintained. No
Hazardous Materials are present, as a result of the deliberate actions of the
Company, or, to the Company's knowledge, as a result of any actions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has the Company disposed of, transported, sold, or
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manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "ENVIRONMENTAL PERMITS")
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth
on Schedule 2.19, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth the principal terms and conditions
of any agreement, written or oral, with respect to such fees. Schedule 2.19 sets
forth the Company's current reasonable estimate of all Third Party Expenses (as
defined in Section 5.4) expected to be incurred by the Company in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate" set
forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant
to which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each management, employment,
severance, consulting, relocation, repatriation, expatriation, visa, work
permit or similar agreement or contract between the Company or any Affiliate
and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
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(viii) "PENSION PLAN" shall refer to each Company Employee Plan which is
an "employee pension benefit plan", within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. Schedule 2.20(b) contains an accurate and complete list of
each Company Employee Plan and each Employee Agreement, together with a schedule
of all liabilities, whether or not accrued, under each such Company Employee
Plan or Employee Agreement. The Company does not have any stated plan or
commitment to establish any new Company Employee Plan or Employee Agreement, to
modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent (i) correct and complete
copies of all documents embodying or relating to each Company Employee Plan and
each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications, if
any, required under ERISA with respect to each Company Employee Plan; (vi) all
IRS determination letters and rulings relating to Company Employee Plans and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; and (viii) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 2.20(d), (i)
the Company has performed in all material respects all obligations required to
be performed by it under each Company Employee Plan and each Company Employee
Plan has been established and maintained in all material respects in accordance
with its terms and in compliance with all applicable laws, statutes, orders,
rules and regulations, including but not limited to ERISA or the Code; (ii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened or anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; and (iv) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to the Company, Parent or any of its Affiliates (other than
ordinary administration expenses typically incurred in a termination event); (v)
there are no inquiries or proceedings pending or, to the knowledge of the
Company or any affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vi) neither the Company nor any Affiliate is subject
to any penalty or tax with respect to any Company Employee Plan under Section
402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) PENSION PLANS. The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company contributed to or been
requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee
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benefits to any Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as provided in Section 1.6 of this Agreement or as set forth on
Schedule 2.20(h)(i), the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no payment or benefit
which will or may be made by the Company or Parent or any of their respective
affiliates with respect to any Employee will be characterized as an "excess
parachute payment", within the meaning of Section 280G(b)(1) of the Code.
(i) EMPLOYMENT MATTERS. The Company (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against the Company is pending
or, to the best knowledge of the Company, threatened. Except as set forth in
Schedule 2.20(j), the Company is not involved in or, to the knowledge of the
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to the Company. Neither the Company nor any of
its subsidiaries has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a liability to the Company. Except as set forth
in Schedule 2.20(j), the Company is not presently, nor has it been in the past,
a party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
2.21 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the stockholders of the Company in connection with soliciting their consent
to this Agreement and the Merger, contains or will contain at the Effective
Time, any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on the ability of Parent and Merger Sub to consummate
the transactions contemplated hereby.
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 350,000,000 shares of Common
Stock, of which 134,566,906 shares were issued and outstanding as of October 27,
1995, and 5,000,000 shares of Preferred Stock, none of which is issued or
outstanding. The authorized capital stock of Merger Sub consists of 1,000 shares
of Common Stock, 1,000 shares of which, as of the date hereof, are issued and
outstanding and are held by Parent. All such shares have been duly authorized,
and all such issued and outstanding shares have been validly issued, are fully
paid and nonassessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, non-assessable.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934 (the "EXCHANGE
ACT") for all periods subsequent to January 1, 1993, all in the form so filed
(all of the foregoing being collectively referred to as the "SEC DOCUMENTS"). As
of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed document
with the SEC. The financial statements of Parent, including the notes thereto,
included in the SEC Documents (the "PARENT FINANCIAL STATEMENTS") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto) and
present fairly the consolidated financial position of Parent at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments).
There has been no change in Parent accounting policies except as described in
the notes to the Parent Financial Statements.
3.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-Q or Form 10-K,
Parent has conducted its business in the ordinary course and there has not
occurred: (a) any material adverse change in the financial condition,
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liabilities, assets or business of Parent; (b) any amendment or change in the
Certificate of Incorporation or Bylaws of Parent; or (c) any damage to,
destruction or loss of any assets of the Parent, (whether or not covered by
insurance) that materially and adversely affects the financial condition or
business of Parent.
3.6 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Parent has received any notice of
assertion against Parent which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any materially negative event related to the Company
or its business. Except as expressly contemplated by this Agreement or disclosed
in Schedule 4.1, the Company shall not, without the prior written consent of
Parent:
(a) Enter into any commitment or transaction not in the ordinary course
of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to End-User Licenses in
the ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any other party
is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock (or options, warrants or other rights exercisable
therefor);
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options, warrants or
Company Preferred Stock, or the grant of stock options to new employees
pursuant to outstanding written offers of employment, issue, grant, deliver
or sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating
it to issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
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(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets in an amount in excess of $100,000 in the case of a single
transaction or in excess of $200,000 in the aggregate in any 30-day period;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof;
(m) Subject to the provisions of Section 4.5 below, adopt or amend any
employee benefit plan, or enter into any employment contract, extend
employment offers, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage
rates of its employees, except as consistent with the ordinary course of the
Company consistent with past practice (provided that the price per share of
any equity participation in the Company shall be agreed in advance by
Parent);
(n) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $100,000 (in
any one case) or $250,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the Company Financial Statements (or the notes thereto) or that arose in the
ordinary course of business subsequent to September 30, 1995 or expenses
consistent with the provisions of this Agreement incurred in connection with
any transaction contemplated hereby;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (p) above, or any other action that
would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time and the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets, (b) provide information with respect to it to
any person, other than Parent, relating to the possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its or their capital stock or assets,
(c) enter into an agreement with any person, other than Parent, providing for
the acquisition of the Company (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise) or any material portion of its or their
capital stock or assets or (d) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of the Company or any of
its subsidiaries (whether
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by way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets by any person,
other than by Parent. In addition to the foregoing, if the Company receives
prior to the Effective Time or the termination of this Agreement any offer or
proposal relating to any of the above, the Company shall promptly notify Parent
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request.
4.3 STRATEGIC AGREEMENTS. The Company agrees that it will not enter into
any strategic alliance, joint development or joint marketing agreement during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement and the Effective Time unless it has first
consulted with the Vice President, Business Development of Parent.
4.4 EMPLOYEE TERMINATION. Parent agrees that for a period of one year
following the Effective Time, it will not terminate the employment of any
employee who (i) is an employee of the Company on the execution date of this
Agreement, (ii) holds Company Common Stock or stock options to purchase Company
Common Stock and (iii) elects to become an employee of Parent or any affiliate
of Parent upon completion of the Merger ("Company Employee") without the prior
agreement of Richard H. Williams (or his designee if Mr. Williams shall no
longer serve as an employee of Parent); and provided further that Parent shall
not be obligated to consult with Mr. Williams with respect to terminations that
result from voluntary resignation by a Company Employee or termination of the
employment of a Company Employee for cause in accordance with Parent's customary
policies.
4.5 EMPLOYEE HIRING. As soon as practicable after the date of this
Agreement and in any event not later than twenty-one (21) days after such date,
the Chief Executive Officers of Parent and the Company will agree upon the
guidelines within which the Company will proceed with recruitment, compensation
and equity participation of new and existing employees. Such agreement will be
summarized in writing and, upon approval by the parties, deemed a part of this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT; STOCKHOLDER MEETINGS.
(i) As promptly as practicable after the execution of this Agreement, Parent
shall prepare, and the Company shall assist in preparing, a registration
statement on Form S-4 (the "Registration Statement") pertaining to the offer and
sale of shares of Parent Common Stock to be issued by virtue of the Merger. The
Registration Statement shall include therein a Proxy Statement (the "PROXY
STATEMENT") relating to the solicitation of the consent of the stockholders of
the Company to the Merger. Parent shall file with the SEC the Registration
Statement as soon as is reasonably practicable following preparation thereof.
The Company shall provide to Parent and its counsel for inclusion in the Proxy
Statement, in form and substance reasonably satisfactory to Parent and its
counsel, such information concerning the Company, its operations,
capitalization, technology, share ownership and other material as Parent or its
counsel may reasonably request. Each of Parent and the Company shall use its
reasonable efforts to respond to any comments of the SEC, to have the
Registration Statement declared effective under the Securities Act of 1933 (the
"SECURITIES ACT") as promptly as practicable after such filing and to cause the
Proxy Statement to be mailed to the Company's stockholders at the earliest
practicable time. Each party will notify the other parties hereto promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Registration Statement or
the Proxy Statement or for additional information and will supply the other
party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff, on the other hand,
with respect to the Registration Statement or the Proxy Statement. Whenever any
event occurs which should be set forth
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in an amendment or supplement to the Proxy Statement and the Registration
Statement, Parent or the Company, as the case may be, shall promptly inform the
other company of such occurrence and cooperate in filing with the SEC or its
staff.
(ii) As promptly as practicable after the execution of this Agreement and at
such time as Parent may request so as not to interfere with the S-4 registration
process, the Company shall submit this Agreement and the transactions
contemplated hereby to its stockholders for approval and adoption as provided by
applicable law. The Company shall use its best efforts to solicit and obtain the
consent of its stockholders sufficient to approve the Merger and this Agreement
and to enable the Closing to occur as promptly as practicable. The materials
submitted to the Company's stockholders shall be subject to review and approval
by Parent and include information regarding the Company, the terms of the Merger
and this Agreement and the unanimous recommendation of the Board of Directors of
the Company in favor of the Merger and this Agreement.
5.2 ACCESS TO INFORMATION. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its best efforts to
cause to be waived) each party shall afford the others and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to and
reaffirms the terms and provisions of the Mutual Nondisclosure Agreement between
Parent and the Company dated as of December 9, 1995.
5.4 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses; provided, however,
that Parent and the Company shall share equally all fees and expenses, other
than attorneys, accountants and financial advisors fees, incurred in connection
with the printing and filing of the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, securities laws) or, as to Parent, by the rules and
regulations of the National Association of Securities Dealers, Inc., prior to
the Effective Time, no disclosure (whether or not in response to an inquiry) of
the subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld.
5.6 CONSENTS. The Company shall use its reasonable efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of, and benefits to the
Company thereunder.
5.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all
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necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement; provided that Parent
shall not be required to agree to any divestiture by Parent or the Company or
any of Parent's subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of Parent or its subsidiaries or affiliates or the
Company or its affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets, properties and stock.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time except as
contemplated by their Agreement (including the Company Schedules) and (ii) any
failure of the Company or Parent, as the case may be, to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.9 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.10 POOLING ACCOUNTING. Parent and the Company shall each use its
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of Parent and the
Company shall use its reasonable efforts to cause its respective employees,
directors, stockholders and affiliates not to take any action that would
adversely affect the ability of Parent to account for the business combination
to be effected by the Merger as a pooling of interests. Neither Parent nor the
Company shall take any action, including the acceleration of vesting of any
options, warrants, restricted stock or other rights to acquire shares of the
capital stock of the Company, which reasonably would be expected to (i)
interfere with Parent's ability to account for the Merger as a pooling of
interests or (ii) jeopardize the tax-free nature of the reorganization
hereunder.
5.11 AFFILIATE AGREEMENTS. Schedule 5.12 sets forth those persons who, in
the Company's reasonable judgment, are "affiliates" of the Company within the
meaning of Rule 145 (each such person an "Affiliate") promulgated under the
Securities Act ("Rule 145"). The Company shall provide Parent such information
and documents as Parent shall reasonably request for purposes of reviewing such
list. Each of Parent and the Company has delivered or shall cause to be
delivered to the other, concurrently with the execution of this Agreement, from
each of their respective Affiliates, an executed Affiliate Agreement in the form
attached hereto as EXHIBIT A or EXHIBIT B. Parent and Merger Sub shall be
entitled to place appropriate legends on the certificates evidencing any Parent
Common Stock to be received by Affiliates of the Company pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate Agreements.
5.12 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.13 FORM S-8. Parent shall file a registration statement on Form S-8 for
the shares of Parent Common Stock issuable with respect to assumed Company
Options no later than ten business days after the Closing Date.
5.14 NMS LISTING. Parent shall authorize for listing on the Nasdaq Stock
Market the shares of Parent Common Stock issuable, and those required to be
reserved for issuance, in connection with the Merger, upon official notice of
issuance.
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5.15 VOTING AGREEMENTS. Concurrently with the execution of this Agreement,
the Company will cause the persons and entities listed in the preamble to
EXHIBIT C hereto to execute Voting Agreements in the form attached hereto as
EXHIBIT C (the "VOTING AGREEMENTS"), agreeing, among other things, to vote in
favor of the Merger and against any competing proposals.
5.16 BLUE SKY LAWS. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock pursuant
hereto.
5.17 INDEMNIFICATION. Parent shall either (i) cause the Company to
continue to indemnify or (ii) directly indemnify the persons who are currently
officers and directors of the Company substantially in accordance with the
Bylaws of the Company as they are currently in effect for action or inaction by
such person prior to the Merger.
5.18 PARENT REGISTRATIONS. Parent will not file a registration statement
with the SEC covering the issuance of any new shares of the capital stock of
Parent until Parent has publicly announced financial results covering a period
of combined operations of Parent and the Company of at least thirty (30) days,
provided, however, that the foregoing restriction shall not apply to (i)
registrations covering any employee benefit plans, (ii) the Registration
Statement as contemplated herein, and (iii) any registrations which the Company
is required to file pursuant to any demand registration rights or other
contractual rights, and provided further that with respect to such required
registrations, Parent shall be permitted to include in any such registration
statement enough primary issue shares to cover the expenses of the required
registration and to allow the registration expenses to be capitalized on its
balance sheet rather than expensed on its profit and loss statement.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the stockholders of the Company by the requisite
vote under applicable law and the Company's Certificate of Incorporation.
(b) REGISTRATION STATEMENT EFFECTIVE. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding in
respect of the Proxy Statement, shall have been initiated or threatened in
writing by the SEC; and all requests for additional information on the part
of the SEC shall have been complied with to the reasonable satisfaction of
the parties hereto.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) TAX OPINIONS. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, and Cooley Godward
Castro Huddleson & Tatum, respectively, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization
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within the meaning of Section 368(a) of the Code. The parties to this
Agreement agree to make reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
(e) OPINION OF ACCOUNTANTS. Each of Parent and the Company shall have
received letters from Ernst & Young LLP, and KPMG Peat Marwick LLP,
respectively reaffirming those firms' written concurrence, delivered
concurrently with the execution of this Agreement, with Parent management's
and the Company management's conclusions, respectively, as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if consummated in accordance
with this Agreement.
(f) NASDAQ LISTING. The shares of Parent Common Stock issuable to
stockholders of the Company pursuant to this Agreement and such other
shares required to be reserved for issuance in connection with the Merger
shall have been authorized for listing on the Nasdaq Stock Market upon
official notice of issuance.
(g) AFFILIATE AGREEMENTS. Each of the parties identified by the Company
or Parent as being one of their respective Affiliates shall have
delivered an executed Affiliate Agreement which shall be in full force and
effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct in all material respects on and as of the Closing, except for
changes contemplated by this Agreement and except for those representations
and warranties which address matters only as of a particular date (which
shall remain true and correct as of such date), with the same force and
effect as if made on and as of the Effective Time, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations
and warranties which have neither had nor reasonably would be expected to
have a Material Adverse Effect on Parent; and the Company shall have
received a certificate to such effect signed on behalf of Parent by a duly
authorized officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject
to Parent's or Merger Sub's ability to cure as provided in Section 8.1(e)
below) in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to
the Effective Time, and the Company shall have received a certificate to
such effect signed by a duly authorized officer of Parent.
(c) THIRD PARTY CONSENTS. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) LEGAL OPINION. The Company shall have received a legal opinion from
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to
Parent, in substantially the form attached hereto as Exhibit D.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any material
adverse change in the business, assets (including intangible assets),
financial condition or results of operations of Parent since September 30,
1995. For purposes of this condition, a reduction in the trading price of
Parent's Common Stock, whether occurring at any time or from time to time,
as reported by Nasdaq or any other automated quotation system or exchange
shall not constitute a material adverse change.
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6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct in
all material respects on and as of the Effective Time, except for changes
contemplated by this Agreement (including the Company Schedules) and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with
the same force and effect as if made on and as of the Effective Time,
except, in all such cases, for such breaches, inaccuracies or omissions of
such representations and warranties which have neither had nor reasonably
would be expected to have a Material Adverse Effect on the Company or
Parent; and Parent and Merger Sub shall have received a certificate to such
effect signed on behalf of the Company by a duly authorized officer of the
Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied (which performance or compliance shall be subject to the
Company's ability to cure as provided in Section 8.1(d) below) in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate
to such effect signed by a duly authorized officer of the Company;
(c) THIRD PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) LEGAL OPINION. Parent shall have received a legal opinion from
Cooley Godward Castro Huddleson & Tatum, legal counsel to the Company, in
substantially the form attached hereto as EXHIBIT E.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any material
adverse change in the business, assets (including intangible assets)
financial condition or results of operations of the Company since September
30, 1995. For purposes of this condition, none of the following,
individually or in the aggregate, shall be deemed to constitute such a
material adverse change: (i) any failure of the Company to record revenue or
deferred revenue at any particular level subsequent to September 30, 1995;
(ii) the lack of success of the Company in hiring new employees; or (iii)
the lack of success of the Company in retaining existing employees, other
than those employees who in the aggregate are material to the Company's
ability to commercialize its technology.
(f) CONVERSION OF PREFERRED STOCK. All shares of the Series A, Series B
and Series D Preferred Stock of the Company shall have converted into
Company Common Stock in accordance with the Company's Certificate of
Incorporation, and the holder of the Company's Series C Preferred Stock
shall have delivered to Parent an irrevocable election to convert such
Preferred Stock into Company Common Stock as contemplated in Section 1.6(b)
above, subject to and effective upon the consummation of the Merger.
(g) NONCOMPETITION AGREEMENTS. Each person listed in the preamble to
EXHIBIT F shall have executed and delivered to Parent a Noncompetition
Agreement in substantially the form of EXHIBIT F and all of the
Noncompetition Agreements shall be in full force and effect.
(h) DISSENTERS' RIGHTS. Holders of more than 5% of the outstanding
shares of Company Capital Stock shall not have exercised, nor shall they
have any continued right to exercise, appraisal, dissenters' or similar
rights under applicable law with respect to their shares by virtue of the
Merger.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the earlier
of the date which is the date of the auditor's report for the first audit of
Parent's financial statements after the Closing Date or the date which is one
year following the Closing Date (the "Expiration Date").
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Effective Time the Company's stockholders will be
deemed to have received and deposited with the Escrow Agent (as defined below)
the Escrow Amount (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time) without any act of any stockholder. As soon as practicable after the
Effective Time, the Escrow Amount, without any act of any stockholder, will be
deposited with First Trust of California National Association Global Escrow
D.S., (or other institution acceptable to Parent and the Securityholder Agent
(as defined in Section 7.2(g) below)) as Escrow Agent (the "ESCROW AGENT"), such
deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by the
terms set forth herein and at Parent's cost and expense. The portion of the
Escrow Amount contributed on behalf of each stockholder of the Company shall be
in proportion to the aggregate Parent Common Stock which such holder would
otherwise be entitled under Section 1.6(a). No portion of the Escrow Amount
shall be contributed in respect of any Company Options or warrants. The Escrow
Fund shall be available to compensate Parent and its affiliates for any claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defense (hereinafter individually a "LOSS" and collectively "LOSSES") incurred
by Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of the Company or any contained in Article II herein
(as modified by the Company Schedules), or any failure by the Company to perform
or comply with any covenant contained herein. Parent and the Company each
acknowledge that such Losses, if any, would relate to unresolved contingencies
existing at the Effective Time, which if resolved at the Effective Time would
have led to a reduction in the aggregate Merger consideration. Subject to
Section 8.3 below, nothing herein shall limit the liability of the Company for
any breach of any representation, warranty or covenant if the Merger does not
close. Parent may not receive any shares from the Escrow Fund unless and until
Officer's Certificates (as defined in paragraph (d) below) identifying Losses,
the aggregate amount of which exceed $500,000, have been delivered to the Escrow
Agent as provided in paragraph (e); in such case, Parent may recover from the
Escrow Fund its Losses in excess of the first $500,000.
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., California time, on the Expiration Date (the "ESCROW PERIOD"); provided
that the Escrow Period shall not terminate with respect to such amount (or some
portion thereof), that together with the aggregate amount remaining in the
Escrow Fund is necessary in the reasonable judgment of Parent, subject to the
objection of the Securityholder Agent and the subsequent arbitration of the
matter in the manner provided in Section 7.2(f) hereof, to satisfy any
unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent shall deliver to
the stockholders of the Company the remaining portion of the Escrow Fund and not
required to satisfy such claims. Deliveries of Escrow Amounts to the
stockholders of the Company pursuant to this Section 7.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund.
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(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during the
Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity securities issued or
distributed by Parent (including shares issued upon a stock split) ("NEW
SHARES") in respect of Parent Common Stock in the Escrow Fund which have not
been released from the Escrow Fund shall be added to the Escrow Fund and become
a part thereof. New Shares issued in respect of shares of Parent Common Stock
which have been released from the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the recordholders thereof. Cash dividends on
Parent Common Stock shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof.
(iii) Each stockholder shall have voting rights with respect to the shares of
Parent Common Stock contributed to the Escrow Fund by such stockholder (and on
any voting securities added to the Escrow Fund in respect of such shares of
Parent Common Stock).
(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on or before the last day
of the Escrow Period of a certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE"): (A) stating that Parent has paid or properly accrued
or reasonably anticipates that it will have to pay or accrue Losses, and (B)
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability, and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related, the Escrow Agent
shall, subject to the provisions of Section 7.2(e) hereof, deliver to Parent out
of the Escrow Fund, as promptly as practicable, shares of Parent Common Stock
held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of Parent Common
Stock to be delivered to Parent out of the Escrow Fund pursuant to Section
7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at the
average of the closing prices of Parent's Common Stock on the principal
securities exchange on which Parent's Common Stock is then traded, or if not so
traded, the National Market System of the National Association of Securities
Dealers Automated Quotation system, in either case as reported in THE WALL
STREET JOURNAL for the five (5) consecutive trading days ending on the date that
is two (2) trading days prior to the Closing Date. Parent and the Securityholder
Agent shall certify such fair market value in a certificate signed by both
Parent and the Securityholder Agent, and shall deliver such certificate to the
Escrow Agent.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to Parent of any Escrow
Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Agent to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make delivery
of shares of Parent Common Stock from the Escrow Fund in accordance with Section
7.2(d) hereof, provided that no such payment or delivery may be made if the
Securityholder Agent shall object in a written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in writing to any claim
or claims made in any Officer's Certificate, the Securityholder Agent and Parent
shall attempt in good faith to agree upon the rights of the respective parties
with respect to each of such claims. If the Securityholder Agent and Parent
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by
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both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and distribute shares of Parent
Common Stock from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Securityholder Agent may demand arbitration of the matter
unless the amount of the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in either such event
the matter shall be settled by arbitration conducted by three arbitrators.
Parent and the Securityholder Agent shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator, each of which
arbitrators shall be independent and have at least ten years relevant
experience. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys
fees and costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be entered in
any court having jurisdiction. Any such arbitration shall be held in San Mateo
or Santa Clara Counties, California under the rules then in effect of the
Judicial Arbitration and Mediation Services, Inc. For purposes of this Section
7.2(f), in any arbitration hereunder in which any claim or the amount thereof
stated in the Officer's Certificate is at issue, Parent shall be deemed to be
the Non-Prevailing Party in the event that the arbitrators award Parent less
than the sum of one-half (1/2) of the disputed amount plus any amounts not in
dispute; otherwise, the stockholders of the Company as represented by the
Securityholder Agent shall be deemed to be the Non-Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative costs of the arbitration, and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
(g) SECURITYHOLDER AGENT OF THE STOCKHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective upon such vote, and
without further act of any stockholder, Gary J. Morgenthaler shall be appointed
as agent and attorney-in-fact (the "SECURITYHOLDER AGENT") for each stockholder
of the Company (except such stockholders, if any, as shall have perfected their
appraisal or dissenters' rights under Delaware Law or California Law), for and
on behalf of stockholders of the Company, to give and receive notices and
communications, to authorize delivery to Parent of shares of Parent Common Stock
from the Escrow Fund in satisfaction of claims by Parent, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the stockholders of the Company
from time to time upon not less than thirty (30) days prior written notice to
Parent; provided that the Securityholder Agent may not be removed unless holders
of a two-thirds interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. Any vacancy in the position of Securityholder
Agent may be filled by approval of the holders of a majority in interest of
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the Escrow Fund. No bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her services.
Notices or communications to or from the Securityholder Agent shall constitute
notice to or from each of the stockholders of the Company.
(ii) The Securityholder Agent shall not be liable for any act done or
omitted hereunder as Securityholder Agent while acting in good faith and in the
exercise of reasonable judgment. The stockholders of the Company on whose behalf
the Escrow Amount was contributed to the Escrow Fund shall severally indemnify
the Securityholder Agent and hold the Securityholder Agent harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Securityholder Agent as being
the decision, act, consent or instruction of each every such stockholder of the
Company. The Escrow Agent and Parent are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a third-party
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the stockholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund. In the event
that the Securityholder Agent has consented to any such settlement and
acknowledged that the claim is a valid claim against the Escrow Fund, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by Parent against the
Escrow Fund with respect to such settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any additional
written escrow instructions which the Escrow Agent may receive after the date of
this Agreement which are signed by an officer of Parent and the Securityholder
Agent, and may rely and shall be protected in relying or refraining from acting
on any instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be liable
for any act done or omitted hereunder as Escrow Agent while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties hereto
or to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
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(iv) The Escrow Agent shall not be liable for the expiration of any rights
under any statute of limitations with respect to this Agreement or any documents
deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent shall not
be liable to any party for damages, losses, or expenses, except for gross
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this Agreement, or with
any other party, concerning the subject matter of this Agreement, its terms or
conditions, the Escrow Agent will not be required to determine the controversy
or to take any action regarding it. The Escrow Agent may hold all documents and
shares of Parent Common Stock and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, the Escrow Agent may be required, despite what may be
set forth elsewhere in this Agreement. In such event, the Escrow Agent will not
be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and shares of Parent Common Stock held in escrow, except
all cost, expenses, charges and reasonable attorney fees incurred by the Escrow
Agent due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by the
terms of this Agreement.
(vii) The parties and their respective successors and assigns agree jointly
and severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with the performance of his/her
duties under this Agreement, including but not limited to any litigation arising
from this Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at least thirty
(30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any
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litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred
by May 15, 1996 (provided that the right to terminate this Agreement under
this clause 8.1(b)(i) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date); (ii) there shall be a final nonappealable order of a federal or state
court in effect preventing consummation of the Merger; or (iii) there shall
be any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any governmental entity that would make
consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's
or the Company's ownership or operation of any portion of the business of
the Company or (ii) compel Parent or the Company to dispose of or hold
separate, as a result of the Merger, any portion of the business or assets
of the Company or Parent; in either case, the unavailability of which assets
or business would have a Material Adverse Effect on Parent or would
reasonably be expected to have a Material Adverse Effect on Parent's ability
to realize the benefits expected from the Merger.
(d) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of the Company
and as a result of such breach the conditions set forth in Section 6.3(a) or
6.3(b), as the case may be, would not then be satisfied; provided, however,
that if such breach is curable by the Company within thirty (30) days
through the exercise of its reasonable best efforts, then for so long as the
Company continues to exercise such reasonable best efforts Parent may not
terminate this Agreement under this Section 8.1(d) unless such breach is not
cured within thirty (30) days (but no cure period shall be required for a
breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Merger Sub and as a result of such breach the conditions set forth
in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or
Merger Sub within thirty (30) days through the exercise of its reasonable
best efforts, then for so long as Parent or Merger Sub continues to exercise
such reasonable best efforts the Company may not terminate this Agreement
under this Section 8.1(e) unless such breach is not cured within thirty (30)
days (but no cure period shall be required for a breach which by its nature
cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
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8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and,
except as set forth in Section 8.3, there shall be no liability or obligation on
the part of Parent, Merger Sub or the Company, or their respective officers,
directors or stockholders, provided that each party shall remain liable for any
breaches of this Agreement prior to its termination to the extent provided in
Section 8.3; and provided further that, the provisions of Sections 5.3 and 5.4
and Article VIII of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 BREAKUP FEE.
(a) In the event that this Agreement is terminated by Parent pursuant to
Section 8.1(d) hereof, other than as a result of a knowing or willful breach by
the Company of any representation, warranty, covenant or agreement contained in
this Agreement on the part of the Company, then, within two business days
following such termination by Parent, the Company shall pay to Parent by wire
transfer of immediately available funds the sum of $12 million as liquidated
damages for the breach giving rise to such termination. Nothing herein shall
limit the liability of the Company for any knowing or willful breaches of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company.
(b) In the event that this Agreement is terminated by the Company pursuant
to Section 8.1(e) hereof, other than as a result of a knowing or willful breach
by Parent of any representation, warranty, covenant or agreement contained in
this Agreement on the part of Parent or Merger Sub, then, within two business
days following such termination by the Company, Parent shall pay to the Company
by wire transfer of immediately available funds the sum of $12 million as
liquidated damages for the breach giving rise to such termination. Nothing
herein shall limit the liability of Parent for any knowing or willful breaches
of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent.
8.4 AMENDMENT. Except as is otherwise required by applicable law after the
stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.5 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent and
Merger Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Informix Corporation
4100 Bohannon Drive
Menlo Park, California 94025
Attention: General Counsel
Telephone No.: (415) 926-6300
Facsimile No.: (415) 926-6564
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with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Larry W. Sonsini, Esq. and Douglas H. Collom, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Illustra Information Technologies, Inc.
1111 Broadway, Suite 2000
Oakland, California 94607
Attention: Chief Executive Officer
Telephone No.: (510) 652-8000
Facsimile No.: (510) 652-6399
with a copy to:
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza, 20th Floor
San Francisco, California 94111
Attention: Kenneth L. Guernsey, Esq.
Telephone No.: (415) 693-2000
Facsimile No.: (415) 951-3699
(c) if to the Securityholder Agent:
Gary J. Morgenthaler
Morgenthaler Ventures
2730 Sand Hill Road, Suite 280
Menlo Park, California 94025
Telephone No.: (415) 233-7600
Facsimile No.: (415) 233-7606
(d) if to the Escrow Agent:
First Trust of California
National Association of Global Escrow D.S.
One Embarcadero, 20th Floor
San Francisco, CA 94111
Attention: Barbara Wise
Telephone No.: (415) 953-5710
Facsimile No.: (415) 622-3778
9.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
9.5 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company the Securityholder Agent
(as to Article VII only) and the Escrow Agent (as to matters set forth in
Article VII only) have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
<TABLE>
<S> <C>
ILLUSTRA INFORMATION INFORMIX CORPORATION
TECHNOLOGIES, INC.
By ----------------------------------------- BY -----------------------------------------
Richard H. Williams Phillip E. White
PRESIDENT AND CHIEF EXECUTIVE OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECURITYHOLDER AGENT: INFORMIX DELAWARE, INC.
By ----------------------------------------- By -----------------------------------------
Gary J. Morgenthaler Phillip E. White
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ESCROW AGENT
By -----------------------------------------
Name:
Title:
</TABLE>
***REORGANIZATION AGREEMENT***
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ANNEX B
SECTION 262
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of a merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market systems security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did no require for its approval
the vote of the holders of the surviving corporation as provided in (1)
SUBSECTIONS (F) OR (G) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) and (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after
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his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by one or more publications at least one week before the day
of the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so make to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 79, L.
'95, eff. 7-1-95.)
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<PAGE>
ANNEX C
CHAPTER 13
CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS
SECTION 1300. RIGHT TO REQUIRE PURCHASE; "DISSENTING SHARES" AND "DISSENTING
STOCKHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) of Section 1201, each stockholder of such corporation entitled to vote on
the transaction and each stockholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
stockholder holds shares to purchase for cash at their fair market value the
shares owned by the stockholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split or share dividend which
becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (0) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of stockholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
five percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
stockholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting stockholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting stockholder has submitted for endorsement, in
accordance with Section 1301.
(c) As used in this chapter, "dissenting stockholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any stockholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such stockholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within ten (10) days alter the date of such approval accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value
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of the dissenting shares, and a brief description of the procedure to be
followed if the stockholder desires to exercise the stockholder s right under
such sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any stockholder who has a right to require the corporation to purchase
the stockholder s shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the stockholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the stockholders meeting to vote upon the
reorganization, or (2) in any other case within thirty (30) days alter the date
on which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the stockholder.
(c) The demand shall state the number and class of the shares held of record
by the stockholder which the stockholder demands that the corporation purchase
and shall contain a statement of what such stockholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the stockholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within thirty (30) days alter the date on which notice of the approval by
the outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the stockholder, the stockholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the stockholder's certificates
representing any shares which the stockholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the stockholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
SECTION 1303. AGREED PRICE; TIME FOR PAYMENT.
(a) If the corporation and the stockholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
stockholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within thirty (30) days after the
amount thereof has been agreed or within thirty (30) days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is later,
and in the case of certificated securities, subject to surrender of the
certificates therefor, unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the stockholder fail to agree upon the fair market value of the
shares, then the stockholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six (6) months after the date on
which notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the stockholder, but
not thereafter, may file a complaint
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in the superior court of the proper county praying the court to determine
whether the shares are dissenting shares or the fair market value of the
dissenting shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting stockholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISER'S REPORT; PAYMENT; COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within ten (10) days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting stockholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING STOCKHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
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<PAGE>
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING STOCKHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
stockholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING STOCKHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting stockholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
stockholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable attorneys
fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting stockholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six (6) months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the stockholder.
(d) The dissenting stockholder, with the consent of the corporation,
withdraws the stockholder s demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the stockholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No stockholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the stockholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any stockholder of such party who has not demanded payment of cash for
such stockholder's shares pursuant to this chapter; but if the stockholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization
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<PAGE>
or short-form merger set aside or rescinded, the stockholder shall not
thereafter have any right to demand payment of cash for the stockholder s shares
pursuant to this chapter. The court in any action attacking the validity of the
reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded shall not restrain or enjoin the consummation of
the transaction except upon ten (10) days' prior notice to the corporation and
upon a determination by the court that clearly no other remedy will adequately
protect the complaining stockholder or the class of stockholders of which such
stockholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by or under common control with, another party
to the reorganization or short-form merger, in any action to attack the validity
of the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or
short-form merger shall have the burden of proving that the transaction is just
and reasonable as to the stockholders of the controlled party, and (2) a person
who controls two or more parties to a reorganization shall have the burden of
proving that the transaction is just and reasonable as to the stockholders of
any party so controlled.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Article
Eight of the Registrant's Certificate of Incorporation (Exhibit 3.1 hereto) and
Article VI of the Registrant's Bylaws (Exhibit 3.2 hereto) provide for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware Law. In addition, the Registrant has
entered into Indemnification Agreements (Exhibit 10.11 hereto) with its officers
and directors.
The Merger Agreement provides that commencing with the effectiveness of the
Merger, the Registrant will either cause Illustra to, or will itself directly
indemnify the current officers and directors of Illustra in accordance with
Illustra's Bylaws in effect immediately before the Merger for any action or
inaction by such person prior to the Merger.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <C> <S>
(A ITS
2.1* -- Conformed Agreement and Plan of Reorganization, by and among the Registrant,
Informix Delaware, Inc. and Illustra Information Technologies, Inc. (filed
herewith as Annex A)
2.2* -- Form of Voting Agreement by and among the Registrant and certain stockholders
of Illustra Information Technologies, Inc.
3.1(1) -- Certificate of Incorporation
3.2(1) -- Bylaws
4.1 -- Specimen of Common Stock Certificate
4.2(2) -- Amended and Restated Preferred Share Rights Agreement
5.1* -- Opinion of Wilson Sonsini Goodrich & Rosati (regarding legality of securities
being registered)
8.1 -- Form of Opinion of Wilson Sonsini Goodrich & Rosati (regarding tax matters)
8.2 -- Form of Opinion of Cooley Godward Castro Huddleson & Tatum (regarding tax
matters)
10.1(3) -- Form of Indemnity Agreement
10.2(4) -- Form of Amended Indemnity Agreement
10.3(5) -- 1989 Directors Stock Option Plan
10.4(6) -- Amendment to the 1989 Directors Stock Option Plan
10.5* -- Full Recourse Installment Note issued by Mike Saranga to Informix, dated June
15, 1993, as amended June 15, 1995.
11.1* -- Statement Regarding Computation of Earnings Per Share (regarding the
Registrant)
11.2* -- Statement Regarding Computation of Pro Forma Net Loss Per Share (regarding
Illustra)
21.1 -- List of Subsidiaries
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of KPMG Peat Marwick LLP
23.3 -- Consents of counsel (included in Exhibits 5.1 and 8.2)
24.1* -- Power of Attorney
99.1* -- Form of Illustra Information Technologies, Inc. Proxy card
</TABLE>
- ------------------------
* Previously filed.
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<PAGE>
(1) Incorporated by reference to exhibits to the Form 10-Q of Informix
Corporation for the fiscal quarter ended July 2, 1995.
(2) Incorporated by reference to exhibits to the Form 8-A/A Registration
Statement filed on August 11, 1995.
(3) Incorporated by reference to exhibits to the Form S-1 Registration Statement
No. 33-8006.
(4) Incorporated by reference to exhibits to the Form 10-K of Informix
Corporation for the fiscal year ended December 31, 1988.
(5) Incorporated by reference to exhibits to the Form S-8 Registration Statement
No. 33-31116.
(6) Incorporated by reference to exhibits to the Form S-8 Registration Statement
No. 33-50608.
(B) FINANCIAL STATEMENT SCHEDULES
Informix
Report of Independent Auditors (see page S-1)
Schedule II Valuation and Qualifying Accounts (see page S-2)
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements, management's discussion and analysis or notes thereto.
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned Registrant undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 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, 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.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within
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<PAGE>
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Menlo Park, State of California, on the 6th day of February 1996.
INFORMIX CORPORATION
By: ________/s/ RICHARD C. BLASS______
Richard C. Blass
VICE PRESIDENT, CORPORATE
CONTROLLER AND
CHIEF ACCOUNTING OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
President, Chief Executive
*/s/ PHILLIP E. WHITE Officer and Chairman of the
Phillip E. White Board (Principal Executive February 6, 1996
Officer)
Vice President, Finance and Chief
*/s/ HOWARD H. GRAHAM Financial Officer (Principal February 6, 1996
Howard H. Graham Financial Officer)
Vice President, Corporate
*/s/ RICHARD C. BLASS Controller and Chief Accounting
Richard C. Blass Officer (Principal Accounting February 6, 1996
Officer)
*/s/ ALBERT F. KNORP, JR.
Albert F. Knorp, Jr. Director February 6, 1996
*/s/ JAMES L. KOCH
James L. Koch Director February 6, 1996
*/s/ THOMAS A. MCDONNELL
Thomas A. McDonnell Director February 6, 1996
*/s/ CYRIL J. YANSOUNI
Cyril J. Yansouni Director February 6, 1996
*By: /S/DAVID H. STANLEY
David H. Stanley
AS ATTORNEY-IN-FACT
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Informix Corporation
We have audited the consolidated financial statements of Informix
Corporation as of December 31, 1994 and 1993, and for each of the three years in
the period ended December 31, 1994, and have issued our report thereon dated
February 6, 1995 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 21(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
February 6, 1995
S-1
<PAGE>
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS END OF
OF PERIOD EXPENSES ACCOUNTS DESCRIBE PERIOD
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1994.................... $ 3,181 $ 1,924 $ 1,900(1) $ 969(2) $ 6,036
Year ended December 31, 1993.................... $ 3,021 $ 1,578 $ 0 $ 1,418(2) $ 3,181
Year ended December 31, 1992.................... $ 2,704 $ 2,017 $ 0 $ 1,700(2) $ 3,021
</TABLE>
- ------------------------
(1) Charged to net revenues.
(2) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE>
NUMBER SHARES
INFORMIX
INFORMIX CORPORATION
SEE REVERSE FOR ABBREVIATIONS
AND STATEMENT OF RIGHTS GRANTED
TO EACH CLASS OF SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 456779 60 7
THIS CERTIFIES THAT is the owner of
FULLY PAID AND NON ASSESSABLE SHARES OF COMMON STOCK OF
--------------------------
--------------------------
______________________________ ______________________________
-------------------------- INFORMIX CORPORATION
--------------------------
transferable on the share register of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[seal]
David H. Stanley Phillip E. White
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT
AND REGISTRAR
M. PENEZIL
AUTHORIZED SIGNATURE
<PAGE>
INFORMIX CORPORATION
The Corporation will furnish to any stockholder upon request and without
charge a full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of such authorized class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights to the extent that the same have been fixed, and
of the authority of the Board of Directors to designate the same with respect to
other series. Such request may be made to the Corporation's Chief Financial
Officer.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C> <C>
TEN COM -- AS TENANTS IN COMMON UNIF GIFT MIN ACT-- ............... CUSTODIAN ...............
(CUST) (MINOR)
TEN ENT -- AS TENANTS BY THE ENTIRETIES UNDER UNIFORM GIFTS TO MINORS
JT TEN -- AS JOINT TENANTS WITH RIGHT OF ACT...........................................
SURVIVORSHIP AND NOT AS TENANTS (STATE)
IN COMMON
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto
<TABLE>
<S> <C> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------------
- - -
- - -
- - -
- - -
- ----------------------------------------------------
</TABLE>
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of Common Stock represented by the within certificate, and do hereby irrevocably
constitute and appoint
____________________________________________________________________ as Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated, ____________________________
________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN
EVERY
NOTICE:
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17-AD-15.
<PAGE>
EXHIBIT 8.1
Form of WSGR Opinion
[WSGR Letterhead]
, 1996
Informix Corporation
4100 Bohannon Drive
Menlo Park, California 94025
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Agreement and
Plan of Reorganization dated December 20, 1995 (the "Reorganization Agreement")
by and among Informix Corporation, a Delaware corporation ("Parent"), Informix
Delaware, Inc., a Delaware corporation and wholly owned subsidiary of Parent
("Merger Sub") and Illustra Information Technologies, Inc., a Delaware
corporation (the "Company"). Merger Sub will merge into the Company (the
"Merger") pursuant to the Reorganization Agreement and related Agreement of
Merger to be filed by Merger Sub and the Company with the Secretary of State of
Delaware on the Closing Date (collectively, including the exhibits to each, the
"Agreements").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Reorganization Agreement or in certificates dated
, 1996 delivered to us by Parent, Merger Sub and the Company
containing certain representations of Parent, Merger Sub and the Company (the
"Certificates of Representations"). All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as counsel to Parent in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) the Agreements;
(b) the Registration Statement on Form S-4 filed by Parent with the
Securities and Exchange Commission (the "Registration Statement");
(c) the Certificates of Representations;
(d) Affiliates Agreements entered into by certain Company stockholders;
and
(e) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related
to the consummation of the Merger and the transactions contemplated thereby
as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
<PAGE>
Informix Corporation
, 1996
Page 2
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
will be prior to the Closing) due execution and delivery of all documents where
due execution and delivery are a prerequisite to the effectiveness thereof;
2. The truth and accuracy at all relevant times, of all representations,
warranties and statements made or agreed to by Parent, Merger Sub and the
Company, their managements, employees, officers, directors and stockholders in
connection with the Merger, including but not limited to those set forth in the
Agreements (including the exhibits) and the Certificates of Representations; and
that all covenants contained in such agreements are performed without waiver or
breach of any material provision thereof; and
3. There is no plan or intention on the part of the Company's stockholders
to engage in a sale, exchange, transfer, distribution, pledge or other
disposition (including a distribution by a corporation to its stockholders) or
any transaction which would result in a reduction of risk of ownership, or a
direct or indirect disposition (a "Sale") of shares of Parent Common Stock to be
received in the Merger that would reduce the Company stockholders' ownership of
Parent Common Stock to a number of shares having an aggregate fair market value,
as of the Effective Time, of less than fifty percent (50%) of the aggregate fair
market value of all of the capital stock of the Company outstanding immediately
prior to the consummation of the Merger. Shares of the Company capital stock (a)
with respect to which dissenters' rights are exercised in the Merger, (b) which
are exchanged for cash in lieu of fractional shares of Parent Common Stock or
(c) which are sold, redeemed or disposed of in a transaction that is in
contemplation of or related to the Merger, shall be considered shares of capital
stock of the Company which are exchanged in the Merger for shares of Parent
Common Stock which are then disposed of pursuant to a plan.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that:
(a) For federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code; and
(b) The discussion entitled "Certain Federal Income Tax Considerations" in
the Prospectus constituting a part of the Registration Statement insofar as it
relates to the statements of law or legal conclusions is correct in all material
respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger except as
specifically set forth herein and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Agreements or to any other transaction whatsoever including the
Merger if all the transactions described in the Agreements are not consummated
in accordance with the terms of the Agreements and without waiver of any
material provision thereof. To the extent any of the representations,
warranties, statements and assumptions material to our opinion and upon which we
have relied are not complete, correct, true and accurate in all material
respects at all relevant times, our opinion would be adversely affected and
should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
the courts. The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, by rendering
this opinion, we undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws.
<PAGE>
Informix Corporation
, 1996
Page 3
This opinion may not be relied upon or utilized for any other purpose or by
any other person or entity, and may not be distributed or otherwise made
available to any other person or entity without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Certain Federal Income
Tax Considerations" in the Registration Statement.
Sincerely,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 8.2
FORM OF CGC OPINION
[CGC Letterhead]
February , 1996
Illustra Information Technologies, Inc.
1111 Broadway, Suite 2000
Oakland, CA 94607
Dear Sir or Madam:
This opinion is being delivered to you in accordance with the Agreement and Plan
of Reorganization dated December 20, 1995 (the "Reorganization Agreement") by
and among Informix Corporation, a Delaware corporation ("Parent"), Informix
Delaware, Inc., a Delaware corporation and wholly owned subsidiary of Parent
("Merger Sub"), and Illustra Information Technologies, Inc., a Delaware
corporation (the "Company"). Merger Sub will merge into the Company (the
"Merger") pursuant to the Reorganization Agreement and related Agreement of
Merger to be filed by Merger Sub and the Company with the Secretary of State of
Delaware on the Closing Date (collectively, including the exhibits to each, the
"Agreements").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Reorganization Agreement or in certificates dated
February , 1996 delivered to us by Parent, Merger Sub and the Company
containing certain representations of Parent, Merger Sub and the Company (the
"Certificates of Representations"). All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) the Agreements;
(b) the Registration Statement on Form S-4 filed by Parent with the
Securities and Exchange Commission (the "Registration Statement");
(c) the Certificates of Representations;
(d) Affiliates Agreements entered into by certain Company stockholders; and
(e) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
will be prior to the Closing) due execution and delivery of all documents where
due execution and delivery are a prerequisite to the effectiveness thereof;
<PAGE>
Illustra Information Technologies, Inc.
February , 1996
Page 2
2. The truth and accuracy at all relevant times, of all representations,
warranties and statements made or agreed to by Parent, Merger Sub and the
Company, their managements, employees, officers, directors and stockholders in
connection with the Merger, including but not limited to those set forth in the
Agreements (including the exhibits) and the Certificates of Representations; and
that all covenants contained in such agreements are performed without waiver or
breach of any material provision thereof; and
3. There is no plan or intention on the part of the Company's stockholders
to engage in a sale, exchange, transfer, distribution, pledge or other
disposition (including a distribution by a corporation to its stockholders) or
any transaction which would result in a reduction of risk of ownership, or a
direct or indirect disposition (a "Sale") of shares of Parent Common Stock to be
received in the Merger that would reduce the Company stockholders' ownership of
Parent Common Stock to a number of shares having an aggregate fair market value,
as of the Effective Time, of less than fifty percent (50%) of the aggregate fair
market value of all of the capital stock of the Company outstanding immediately
prior to the consummation of the Merger. Shares of the Company capital stock (a)
with respect to which dissenters' rights are exercised in the Merger, (b) which
are exchanged for cash in lieu of fractional shares of Parent Common Stock or
(c) which are sold, redeemed or disposed of in a transaction that is in
contemplation of or related to the Merger, shall be considered shares of capital
stock of the Company which are exchanged in the Merger for shares of Parent
Common Stock which are then disposed of pursuant to a plan.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that:
(a) For federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code; and
(b) The discussion entitled "Certain Federal Income Tax Considerations" in
the Prospectus constituting a part of the Registration Statement insofar as it
relates to the statements of law or legal conclusions is correct in all material
respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger except as
specifically set forth herein and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as described
in the Agreements or to any other transaction whatsoever including the Merger if
all the transactions described in the Agreements are not consummated in
accordance with the terms of the Agreements and without waiver of any material
provision thereof. To the extent any of the representations, warranties,
statements and assumptions material to our opinion and upon which we have relied
are not complete, correct, true and accurate in all material respects at all
relevant times, our opinion would be adversely affected and should not be relied
upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
the courts. The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, by rendering
this opinion, we undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws.
This opinion may not be relied upon or utilized for any other purpose or by any
other person or entity, and may not be distributed or otherwise made available
to any other person or entity without our prior
<PAGE>
Illustra Information Technologies, Inc.
February , 1996
Page 3
written consent. We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the heading
"Certain Federal Income Tax Considerations" in the Registration Statement.
Sincerely,
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
Susan Cooper Philpot
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
NAME PARENT INCORPORATION
- -------------------------------------------- --------------------------- ------------------
<S> <C> <C>
Informix Software, Inc. Informix Corporation Delaware
Informix International, Inc. Informix Software, Inc. Delaware
Informix Credit Company Informix Software, Inc. Delaware
Stanford Technology Group, Inc. Informix Corporation California
Informix Software Argentina, S.A. Informix International, Argentina
Inc.
Informix Software GmbH Informix International, Austria
Inc.
Informix Software Pty. Ltd. Informix International, Australia
Inc.
Informix Software NV Informix International, Belgium
Inc.
Informix do Brasil Comercio e Servicios Informix International, Brazil
Ltda. Inc.
Informix Software (Canada), Inc. Informix International, Canada
Inc.
Informix Software de Chile, S.A. Informix International, Chile
Inc.
Informix Software de Columbia S.A. Informix International, Columbia
Inc.
Informix Software sro Informix International, Czech Republic
Inc.
Informix Software A/S Informix International, Denmark
Inc.
Informix Software Ltd. Informix International, England
Inc.
Innovative Software Ltd. Informix Software Ltd. England
Informix Software SARL Informix International, France
Inc.
Informix Software GmbH Informix International, Germany
Inc.
Informix GmbH Informix Software GmbH Germany
Gamhausen & Partners, GmbH Informix International, Germany
Inc.
Informix Software (Hong Kong) Ltd. Informix International, Hong Kong
Inc.
Informix Holdings Company Informix Software Ireland Ireland
Limited
Informix Software Ireland Limited Informix International, Ireland
Inc.
Informix Software SpA Informix International, Italy
Inc.
Informix ASCII Kabushiki Kaisha Informix Holdings Company Japan
Informix Software Kabushiki Kaisha Informix International, Japan
Inc.
Informix Daou Korea, Inc. Informix Holdings Company Korea
Informix Software (Korea) Ltd. Informix International, Korea
Inc.
Informix Sdn Bhd Informix International, Malaysia
Inc.
Informix Software de Mexico S.A. de C.V. Informix International, Mexico
Inc.
Informix Software B.V. Informix International, Netherlands
Inc.
Informix Software Limited Informix International, New Zealand
Inc.
Informix Software AS Informix International, Norway
Inc.
Informix Software de Peru S.A. Informix Holdings Company Peru
Informix Software Spolka z.o.o. Informix International, Poland
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
NAME PARENT INCORPORATION
- -------------------------------------------- --------------------------- ------------------
<S> <C> <C>
Informix Software Limited Liability Company Informix International, Russia
Inc.
Informix Software Asia-Pacific Pte. Ltd. Informix International, Singapore
Inc.
Informix Software, spol. s.r.o. Informix Software GmbH Slovakia
I.N.I.X. South Africa (Pty.) Limited Informix International, South Africa
Inc.
Informix Software Iberica, S.A. Informix International, Spain
Inc.
Informix Software Scandinavia AB Informix International, Sweden
Inc.
Informix Software AG Informix International, Switzerland
Inc.
Informix Software (Taiwan) Inc. Informix International, Taiwan
Inc.
Informix Software (Thailand) Limited Informix International, Thailand
Inc.
Informix Software, V.I., Inc. Informix International, Virgin Islands
Inc.
Informix Software de Venezuela, S.A. Informix International, Venezuela
Inc.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 6, 1995, in Amendment No. 1 to the
Registration Statement (Form S-4) and related Prospectus of Informix Corporation
for the registration of 15,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
San Jose, California
February 6, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors
Illustra Information Technologies, Inc. and Subsidiary:
We consent to the use of our report dated August 9, 1995 on the consolidated
financial statements of Illustra Information Technologies, Inc. and subsidiary
as of June 30, 1995 and 1994, and for each of the years then ended and for the
period from July 31, 1992 (inception) to June 30, 1993 included herein, and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Palo Alto, California
February 6, 1996
