<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended September 28, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ______________.
Commission file number 0-15325
INFORMIX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3011736
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4100 Bohannon Drive, Menlo Park, CA 94025
(Address of principal executive office)
650-926-6300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- -----
At November 14, 1997, 152,428,406 shares of the Registrant's Common Stock were
outstanding.
Total number of pages 23.
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<PAGE>
FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements as a result of
certain factors described herein and in other documents. Readers should pay
particular attention to the section of this Report entitled "Business Risks" and
should also carefully review the risk factors described in the other documents
the Company files from time to time with the Securities and Exchange Commission.
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RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION
On August 7, 1997 and again on September 22, 1997, the Company announced that
as a result of errors and irregularities discovered in the recording of
income in 1996 and 1995 the Company anticipated restating its financial
statements. The procedures undertaken by the Company to determine the extent
of the restatement (described in those announcements) have resulted in the
restatement of its financial statements for the quarter ended March 30, 1997
and all interim periods for the year ended December 31, 1996 (see Note A to
the Consolidated Financial Statements).
Financial statement and related disclosures contained in this amended filing
reflect, where appropriate, changes to conform to the restatement.
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<TABLE>
<CAPTION>
INDEX
<S> <C>
Part I. Financial Information
Page
Item 1. Condensed Consolidated Financial Statements
(Unaudited and Restated - see Note A):................................... 3
Condensed Consolidated Statements of Operations for the
three-month and nine-month periods ended September 28,
1997 and September 29, 1996.............................................. 3
Condensed Consolidated Balance Sheets as of September 28, 1997 and
December 31, 1996........................................................ 4
Condensed Consolidated Statements of Cash Flows for the nine-month
periods ended September 28, 1997 and September 29, 1996.................. 5
Notes to Condensed Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 9
Part II. Other Information
Item 1. Legal Proceedings........................................................22
Item 2. Changes in Securities and Use of Proceeds................................22
Item 3. Defaults Upon Senior Securities..........................................22
Item 4. Submission of Matters to a Vote of Security Holders......................22
Item 5. Other Information........................................................22
Item 6. Exhibits and Reports on Form 8-K.........................................22
Signature page.......................................................................23
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMIX CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Restated - See Note 1
-------------------------------------------------------
Three months ended Nine months ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Licenses $77,164 $128,696 $271,614 $346,215
Services 72,747 58,377 209,532 164,786
------- -------- -------- --------
149,911 187,073 481,146 511,001
Costs and expenses:
Cost of software distribution 11,793 13,058 52,860 34,629
Cost of services 40,493 35,923 128,197 104,828
Sales and marketing 101,946 103,409 347,906 292,539
Research and development 34,106 32,122 108,420 87,539
General and administrative 18,144 16,572 72,110 47,356
Write-off of goodwill and other long-term assets - - 30,473 -
Write-off of acquired research & development - - 7,000 -
Restructuring charges 49,733 - 109,356 -
Expenses related to Illustra merger - - - 5,914
------- -------- -------- --------
256,215 201,084 856,322 572,805
------- -------- -------- --------
Operating loss (106,304) (14,011) (375,176) (61,804)
Interest income 1,290 2,436 3,691 6,671
Interest expense (1,830) (1,941) (5,372) (4,073)
Other income/(expense), net (879) (777) 17,596 1,821
------- -------- -------- --------
Loss before income taxes (107,723) (14,293) (359,261) (57,385)
Income taxes 2,800 2,802 6,800 9,170
------- -------- -------- --------
Net loss $(110,523) $(17,095) $(366,061) $(66,555)
------- -------- -------- --------
------- -------- -------- --------
Net loss per share $(0.73) $(0.11) $(2.41) $(0.45)
------- -------- -------- --------
------- -------- -------- --------
Weighted average number of common and
common equivalent shares outstanding 152,352 149,646 151,708 149,194
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
INFORMIX CORPORATION
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
<TABLE>
<CAPTION>
Restated -
See Note A
------------
December 31, September 28,
1996 1997
------------- -------------
(Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $226,508 $78,935
Short-term investments 34,512 16,535
Accounts receivable, net 194,499 137,223
Deferred taxes 42,133 50,655
Other current assets 35,662 25,022
-------- ---------
Total current assets 533,314 308,370
Property and equipment, net 186,727 188,207
Software costs, net 54,486 42,246
Deferred taxes 10,542 10,542
Long-term investments 6,639 11,726
Intangible assets 34,693 8,297
Other assets 55,597 18,210
-------- ---------
Total assets $881,998 $587,598
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $65,446 $46,610
Accrued expenses 59,723 69,290
Accrued employee compensation 57,626 70,931
Income taxes payable 7,369 6,896
Deferred maintenance revenue 94,981 99,782
Advances on unearned license revenue 239,507 210,269
Other liabilities 5,525 59,485
-------- ---------
Total current liabilities 530,177 563,263
Other liabilities 2,359 6,927
Deferred taxes 24,158 24,085
Commitments and contingencies
Convertible Series A Preferred Stock - 37,200
<CAPTION>
PRO-FORMA
(NOTE K)
SEPTEMBER 28,
1997
-------------
<S> <C> <C> <C>
Stockholders' equity (deficit):
Convertible Series A-1 Preferred Stock 37,200
Common stock 1,508 1,524 $1,524
Additional paid-in capital 243,564 252,558 252,558
Retained earnings (deficit) 78,723 (287,338) (287,338)
Unrealized gain on (loss) available-for-sale 11,690 (433) (433)
securities, net of tax
Foreign currency translation adjustment (10,181) (10,188) (10,188)
-------- --------- --------
Total stockholders' equity (deficit) 325,304 (43,877) (6,677)
-------- --------- --------
Total liabilities and stockholders' equity $881,998 $587,598 $587,598
-------- --------- --------
-------- --------- --------
</TABLE>
(Note) Columnar amounts are derived from audited consolidated
financial statements
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
INFORMIX CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
<CAPTION>
Restated -
See Note A
----------
Nine Months Ended
--------------------
Sept. 28, Sept. 29,
1997 1996
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................. $(366,061) $(66,555)
Adjustments to reconcile net loss to net cash and cash
equivalents provided by (used in) operating activities:
License revenue paid in advance (see contra)........................ (51,025) (40,867)
Depreciation and amortization....................................... 52,750 31,954
Amortization and write-off of capitalized software.................. 31,628 10,802
Deferred tax expense................................................ -- (14,172)
Provisions for losses on accounts receivable........................ 19,872 11,001
Write-off of goodwill and other long-term assets.................... 30,473 --
Write-off of acquired research & development........................ 7,000 --
Foreign currency transaction gain................................... (1,258) (2,805)
Gain on sales of strategic investments.............................. (8,334) (1,867)
Provision for losses on strategic investments....................... 3,787 --
Loss on disposal of property and equipment.......................... 5,102 1,139
Restructuring charges............................................... 102,109 --
Changes in operating assets and liabilities:
Accounts receivable............................................. 26,337 (37,338)
Other current assets............................................ 4,024 4,627
Accounts payable and accrued expenses........................... (489) 35,825
Deferred revenue................................................ 7,361 15,760
-------- -------
Net cash and cash equivalents provided by (used in)
operating activities............................................ (136,724) (52,496)
INVESTING ACTIVITIES
Investments of excess cash:
Purchases of available-for-sale securities............................... 18,481 (123,160)
Maturities of available-for-sale securities.............................. -- 86,217
Proceeds from sales of available-for-sale securities...................... 30,676 25,703
Purchases of hold-to-maturity securities.................................. (24,526) --
Purchases of strategic investments........................................ 4,517 (3,750)
Proceeds from sales of strategic investments.............................. 10,002 5,085
Purchases of property and equipment....................................... (93,494) (96,116)
Proceeds from disposal of property and equipment.......................... 2,644 1,821
Additions to software costs............................................... (17,188) (21,138)
Business combinations, net of cash acquired............................... (9,935) (1,840)
Other..................................................................... (4,723) (9,729)
-------- --------
Net cash and cash equivalents used in investing activities................ (83,546) (136,907)
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
FINANCING ACTIVITIES
Advances on unearned license revenue (see contra) .................... 51,025 145,859
Proceeds from issuance of stock, net ................................. 9,033 14,761
Proceeds from issuance of Preferred Stock ............................ 37,600 -
Proceeds from customer deposit ....................................... (28,445) -
Principal payments on capital leases ................................. (1,268) (749)
Proceeds from issuance of treasury stock ............................. (22)
-------- ---------
Net cash and cash equivalents provided by financing activities ....... 67,923 159,871
-------- ---------
Effect of exchange rate changes on cash and cash equivalents ......... 4,774 9,019
-------- ---------
Decrease in cash and cash equivalents ................................ (147,573) (20,513)
Cash and cash equivalents at beginning of period ..................... 226,508 164,305
-------- ---------
Cash and cash equivalents at end of period ........................... $ 78,935 $143,792
-------- ---------
-------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
INFORMIX CORPORATION
Notes to Condensed Consolidated Financial Statements
September 28, 1997
(unaudited)
NOTE A - RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the filing of its Annual Report on Form 10-K for the year
ended December 31, 1996 with the Securities and Exchange Commission, the
Company became aware of errors and irregularities that ultimately affected
the timing and dollar amount of reported earned revenues from license
transactions for all periods in the three years ended December 31, 1996. The
irregularities took numerous forms and were primarily the result of lack of
compliance with or circumvention of the Company's procedures and controls.
The Company undertook and completed extended procedures related to
license transactions recorded in each year of the three-year period ended
December 31, 1996 and for the quarter ended March 30, 1997. As a result of
these findings and other relevant information now known or disclosed, the
Company has determined that a significant number and dollar amount of license
transactions were improperly reported as earned revenue for all interim
periods in the years ended December 31, 1996.
Because of the pervasiveness of the aforementioned irregularities, the
Company has concluded that the earnings process for a significant number of
original license agreements with resellers (original equipment manufacturers,
distributors and value added resellers) was not complete at the time of
delivery of the master copy of the software to the reseller. Further, the
Company has learned that informal or otherwise undisclosed arrangements with
a number of resellers have or could result in significant concessions or
allowances that were not accounted for when the revenue was originally
reported as earned. Accordingly, the Company has determined that this revenue
is earned when the licenses are resold or utilized by the reseller and after
any related obligations have been satisfied (i.e., when there are no longer
any significant remaining uncertainties related to the earnings process).
This revised application of accounting policy has been followed for all
transactions with resellers, other than those licenses sold and billed on a
per-copy basis, for 1997, 1996, 1995 and 1994.
6
<PAGE>
As a result of the restatement, the financial statements shown under Item 1
in the Index of this Form 10-Q have been restated.
Three Months Ended Nine Months Ended
Sept. 30, 1996 Sept. 30, 1996
------------------ -----------------
As As
Reported Restated Reported Restated
-------- -------- -------- --------
Net Revenues
Licenses $179,617 $128,696 $501,223 $346,215
Services 58,563 58,377 167,260 164,786
------- ------- ------- --------
238,180 187,073 668,483 511,001
Operating income (Loss) 35,883 (14,011) 91,865 (61,804)
Income tax expense 12,267 2,802 34,300 9,170
Net Income (Loss) 26,181 (17,095 63,700 (66,555)
Net Income (loss) per share $ 0.17 $ (0.11) $ 0.41 $ (0.45)
Retained earnings (deficit) $288,687 $ 27,532 $288,687 $ 27,532
Advances on unearned
license revenue - 249,599 - 249,599
NOTE B - MANAGEMENT PLANS TO ADDRESS OPERATIONAL ISSUES AND LIQUIDITY
The consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company incurred losses in
1996 and anticipates that it will continue to incur losses and report reduced
revenues through at least December 31, 1997. In addition, the Company
anticipates that its cash and working capital requirements in the short term
cannot be met entirely from funds generated internally from operations.
Management's operational and financing plans to address the above issues
include (1) continued cost containment measures to bring spending levels in line
with planned revenue; (2) sale of non-essential assets including an undeveloped
land site; (3) obtaining additional equity and debt financing; (4) modifying
long-term lease arrangements for new offices; and (5) resolution of stockholder
class action litigation (see Note to the Consolidated Financial Statements).
There can be no assurance that management will be successful in accomplishing
these objectives. The September 28, 1997 consolidated financial statements do
not include any adjustments that might result from the outcome of these
liquidity uncertainties.
NOTE C - PRESENTATION OF INTERIM FINANCIAL STATEMENTS
All significant adjustments, in the opinion of management, which are
normal, recurring in nature and necessary for a fair presentation of the
financial position and results of the operations of the Company, have been
consistently recorded. The operating results for the interim periods presented
are not necessarily indicative of expected performance for the entire year.
NOTE D - NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
outstanding. Common equivalent shares from stock options (using the treasury
stock method) have been included in the computation only when dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("FAS 128"), "Earnings per Share", which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded.
The adoption of Statement 128 would not change the computation of net loss
per common share for the quarters ended June 29, 1997 and June 30, 1996.
7
<PAGE>
NOTE E - STOCKHOLDERS' EQUITY
Reconciliation of outstanding shares:
Shares outstanding at December 31, 1996 150,781,634
Shares issued upon exercises of stock options 432,459
------------
Shares outstanding at September 28, 1997 151,214,093
------------
------------
NOTE F - BUSINESS COMBINATIONS
In February 1996, the Company acquired Illustra Information Technologies,
Inc. ("Illustra"), a company that provides dynamic content management database
software and tools for managing complex data in the Internet,
multimedia/entertainment, financial services, earth sciences and other markets.
Approximately 12.7 million shares of Informix common stock were issued to
acquire all outstanding shares of Illustra common stock. An additional 2.3
million shares of Informix common stock were reserved for issuance in connection
with the assumption of Illustra's outstanding options. The transaction has been
accounted for as a pooling of interests, and accordingly, the consolidated
financial statements for all periods presented include the accounts and
operations of Illustra. Related merger and transaction fees of approximately
$5.9 million have been recorded in the first quarter of 1996.
In February 1997, the Company acquired all of the outstanding capital
stock of Centerview Software, Inc. ("Centerview"), a privately owned
corporation that provides software tools for application development. The
aggregate purchase price was approximately $8.7 million, which included cash
plus direct costs of acquisition. For financial statement purposes, the
acquisition has been accounted for as a purchase and, based on an independent
appraisal of all the assets acquired and liabilities assumed, the purchase
price was allocated to the specifically identifiable tangible and intangible
assets acquired, including approximately $7 million of purchased research and
development which has been charged to operations in the period the
acquisition was consummated which was the first quarter of 1997.
NOTE G - COMMITMENTS
In April 1997, the Company exercised its option to purchase the 27 acres of
real estate in Santa Clara, California, being leased under a two-year
operating lease entered into in December 1996, so that alternative financing
or a third party sale could be pursued. The Company had originally intended
to lease the land for purposes of arranging the construction of its new
corporate headquarters. The purchase price paid, $60 million, had previously
been pledged by the Company as collateral under the lease and recorded as a
long-term asset as of December 31, 1996. In the second quarter of 1997, the
Company wrote down the carrying value of this real estate asset to its
estimated fair market value (based on a current independent appraisal) less
estimated selling costs, of approximately $58 million. The Company has
entered into agreements to sell the land in two separate transactions. Both
sales are expected to be consummated in the fourth quarter of 1997.
NOTE H - WRITE-OFF OF GOODWILL AND OTHER LONG-TERM ASSETS
8
<PAGE>
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets
to be Disposed of", the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the estimated future undiscounted cash flows to be generated by
those assets are less than the assets' carrying amounts. During the first
quarter of 1997, the Company's Japanese subsidiary experienced a significant
sales shortfall and operating losses. Accordingly, the Company evaluated the
ongoing value of the subsidiary's long-lived assets (primarily computer and
other equipment) and related goodwill. Based on this evaluation, the Company
determined that the subsidiary's assets had been impaired and wrote them down by
$30.5 million to their estimated fair values. Fair value was determined using
estimated future discounted cash flows and/or resale market quotes as
appropriate.
NOTE I - RESTRUCTURING CHARGES
In September 1997, the Company approved a plan to continue to
restructure its operations to bring expenses in line with forecasted
revenues. In connection with the restructuring, the Company reduced its
worldwide headcount by approximately 7% and consolidated facilities and
operations to improve efficiency. The following analysis sets forth the
significant components of the restructuring charge included in other accrued
liabilities at September 28, 1997:
Severance and related costs represented the reduction of 300 employees on a
worldwide basis primarily impacting sales and marketing. Temporary employees
and contractors were also reduced. Asset charges included a write-off or
write-down of equipment as a result of the decision to reduce the number of
Superstores. Facility charges included early termination costs associated
with the closing of certain domestic and international sales offices.
NOTE J - LITIGATION
Commencing in April 1997, a series of class action lawsuits and a separate
but related stockholder action were filed in federal court purportedly by or on
behalf of stockholders. These actions name as defendants the Company, certain of
its present and former officers and directors and its independent auditors. The
complaints allege various violations of the federal securities laws and seek
unspecified but potentially significant damages. Similar actions were also filed
in state court. While management intends to contest these actions vigorously,
the disposition of this litigation could have a material adverse effect on the
Company's financial condition, results of operations and cash flows.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants, were also filed in state court.
Any monetary judgments in the derivative actions would accrue to the benefit of
the Company.
In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.
9
<PAGE>
In the ordinary course of business, various other lawsuits and claims are
filed from time to time against the Company. It is the Company's opinion that
the resolution of such other litigation will not have a material effect on the
Company's financial position, results of operations or cash flows.
NOTE K - PRO-FORMA PRESENTATION OF CONVERTIBLE PREFERRED STOCK
In August 1997, the Company sold 160,000 shares of newly issued Series A
Convertible Preferred Stock, face value $250 per share, to a private investor
for an aggregate of $40 million ($37.2 million, net) and issued a warrant to
the same investor to purchase up to an additional 140,000 shares of Series A
Convertible Preferred Stock at an aggregate purchase price of up to $35
million. In November 1997, the Company canceled the Series A Convertible
Preferred Stock in exchange for the same number of shares of a substantially
identical Series A-1 Convertible Preferred Stock issued to the same investor,
with a corresponding change to the warrant shares. The warrant may be
exercised from August 13, 1997 through April 15, 1999.
The Series A-1 Convertible Preferred shares are convertible into common
shares at any time, at the holder's option at a per share price equal to 101%
of the average price of the Company's common stock for the 30 days ending
five trading days prior to conversion, but not greater than the lesser of (I)
105% of the common stock's average price of the first five trading days of
such thirty day period, or (ii) $12 per share. If not converted prior, the
Series A-1 Convertible Preferred Stock will automatically convert into common
shares eighteen months after their issuance, subject to extension of the
automatic conversion date in certain defined circumstances. However, if at
the time of conversion, the aggregate number of shares of common stock
already issued and to be issued as a result of the conversion of the shares
of the Series A-1 Convertible Preferred Stock were to exceed 19.9% of the
total number of shares of then outstanding common stock, then such excess
does not convert unless or until stockholder approval is obtained.
The mandatory redemption provisions of the new Series A-1 Convertible
Preferred Stock (A-1 Preferred) differ from the Series A Convertible
Preferred Stock. The redemption provisions in the Convertible Preferred
Stock A-1 Series effectively preclude the Company from having to redeem the
preferred stock except by actions solely within its control. Accordingly,
the Pro Forma September 28, 1997 Consolidated Balance Sheet reflects the
Series A-1 Series under stockholder's equity (deficit).
NOTE L - SUBSEQUENT EVENTS (UNAUDITED)
BUSINESS COMBINATION. In February 1997, the Company acquired all of the
outstanding capital stock of Centerview Software, Inc. ("Centerview"), a
privately-owned company which develops and sells software application
development tools. The aggregate purchase price paid was approximately $8.7
million, which included cash plus direct costs of acquisition. The transaction
has been accounted for as a purchase and, based on an independent appraisal of
the assets acquired and liabilities assumed, the purchase price has been
allocated to the net tangible and intangible assets acquired including
approximately $7 million of research and development, which has been charged to
operations in the period the acquisition was consummated (the first quarter of
1997).
PURCHASE AND SALE OF SANTA CLARA REAL ESTATE. In April 1997, the Company
exercised its option to purchase the 27 acres of real estate in Santa Clara,
California, being leased under a two-year operating lease entered into in
December 1996, so that alternative financing or a third party sale could be
pursued. The Company had originally intended to lease the land for purposes
of arranging the construction of its new corporate headquarters. The
purchase price paid, $61.5 million, had previously been pledged by the
Company as collateral under the lease and recorded as a long-term asset as of
December 31, 1996. In the second quarter of 1997, the Company wrote down the
carrying value of this real estate asset to its estimated fair market value
(based on a current independent appraisal) less estimated selling costs, of
approximately $58 million. The Company has entered into agreements to sell
the land in two separate transactions. Both sales are expected to be
consummated in the fourth quarter of 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-
10
<PAGE>
looking statements as a result of certain factors described herein and in other
documents. Readers should carefully review the risk factors described in the
documents the Company files from time to time with the Securities and Exchange
Commission, specifically the Quarterly Reports on Form 10-Q to be filed by the
Company in 1997 and any Current Reports on Form 8-K filed by the Company.
As a result of the restatement of the Company's financial statements for
the quarter ended March 30, 1997, and the annual and interim periods for the
years ended December 31, 1996, 1995 and 1994, certain information contained
in this item has been changed from that which appeared in the Company's
originally filed form 10-Q for the quarterly period ended September 28, 1997.
Readers should carefully review the "Liquidity and Capital Resources" and
"Business Risks" sections included here to reflect current events.
RESULTS OF OPERATIONS
The following table sets forth operating results as a percentage of net
revenues for the three- and nine-month periods ended September 28, 1997 and
September 29, 1996, respectively.
<TABLE>
<CAPTION>
Percent of Net Revenues
-----------------------
Three months ended Nine months ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
--------- --------- --------- ---------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET REVENUES:
Licenses 51% 69% 56% 68%
Services 49% 31% 44% 32%
--------- --------- --------- ---------
Total net revenues 100% 100% 100% 100%
COSTS AND EXPENSES:
Cost of software 8% 7% 11% 7%
distribution
Cost of services 27% 19% 27% 21%
Sales and marketing 68% 55% 72% 57%
Research and development 23% 17% 23% 17%
General and administrative 12% 9% 15% 9%
Write-off of goodwill and 0% 0% 6% 0%
long-term assets
Write-off of acquired 0% 0% 1% 0%
research and development
Restructuring costs 33% 0% 23% 0%
Expenses related to 0% 0% 0% 1%
Illustra merger
--------- --------- --------- ---------
Total operating expenses 171% 107% 178% 112%
--------- --------- --------- ---------
OPERATING LOSS (71)% (7)% (78)% (12)%
INTEREST INCOME 1% 1% 1% 1%
INTEREST EXPENSE (1)% (1)% (1)% (1)%
OTHER INCOME (EXPENSE), NET (1)% (1)% 3% 1%
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (72)% (8)% (74)% (11)%
INCOME TAXES (2)% 1% (1)% 2%
--------- --------- --------- ---------
NET LOSS (74)% (9)% (76)% (13)%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
11
<PAGE>
The following table sets forth the percentage change in the restated operating
results for the three- and six-month periods ended September 28, 1997 compared
to the respective three- and six-month periods ended September 29, 1996.
<TABLE>
<CAPTION>
Period-to-Period Percent Increase (Decrease)
--------------------------------------------
Three months ended Nine months ended
Sept. 28, 1997 vs. Sept. 28, 1997 vs.
Sept. 29, 1996 Sept. 29, 1996
------------------ ------------------
<S> <C> <C>
NET REVENUES:
Licenses (40) (22)
Services 25 27
------ ------
Total net revenues 20 (6)
COSTS AND EXPENSES:
Cost of software distribution (9) 53
Cost of services 13 22
Sales and marketing (1) 19
Research and development 6 24
General and administrative 9 53
Expenses related to Illustra merger N/A N/A
------ ------
Total operating expenses 27 50
------ ------
Operating income (loss) N/A N/A
Interest income (47) (45)
Interest expense (6) 32
Other income (expense), net N/A 854
Income (loss) before income taxes N/A N/A
Income taxes (benefits) - (26)
Net income (loss) N/A N/A
</TABLE>
Informix's operating results for the third quarter ended September 28,
1997 were significantly below the same period of the prior year due to
decreases in revenue and increases in costs and expenses. Sales declined 20%
in the third quarter of 1997 versus the previous year, due primarily to
decreased sales in North America, Europe and Japan. These lower revenues
combined with a 27 percent increase in operating costs resulted in an
operating loss of $106.4 million.
REVENUES
The Company 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 the Company or the granting of a license
to a customer to manufacture products. Service revenue consists of customer
telephone or direct support, update rights for new product versions, consulting,
and training fees.
The Company's products are sold directly to end-user customers or
through resellers, including original equipment manufacturers (OEM's),
distributors, and value added resellers (VAR's). In 1996, the Company
increased the focus on its reseller channels to establish partnerships with
hardware and application vendors in order to utilize their sales force,
obtain access to their installed base of customers and benefit from their
consulting and sytems integration organizations. This increased focus on
reseller channels resulted in a significant build-up of licenses that had not
been resold or utilized by such resellers. These unsold licenses have
12
<PAGE>
not been recognized as earned revenue as of September 28, 1997. Overall,
license sales in the first nine months of 1997 declined significantly versus
the comparable period of the prior year. Although sales contracts can be
relatively large in size and are difficult to forecast both in timing and
dollar value, the Company did not expect this magnitude of decline.
The increase in service revenue was primarily attributable to the
continued growth of the Company's installed customer base, and resulting
renewal of maintenance contracts and increased consulting revenue. The
Company continues to emphasize support services as a source of revenue. As
the Company's products become more complex, more support services will be
required. The Company intends to satisfy this requirement through internal
support, third-party services and OEM support. The contribution margin on
service revenue increased from 38% in the third quarter of 1996 to 44% in the
third quarter of 1997.
The increase in service revenue, as a percentage of total revenue, was
primarily the result of the continued increases in service revenue combined with
a decrease in license revenue. The Company continues to emphasize support
services as a source of revenue and the growth achieved in absolute dollars
versus the prior year quarter reflects the growth in the Company's installed
base.
During the third quarter ended September 28, 1997, Informix's net
revenues from sales to foreign customers was 50% of total revenue as compared
to 47% in the similar period in 1996. In absolute dollars, foreign sales
decreased from $88.2 million in the quarter ended September 29, 1996 to $74.8
million in the quarter ended September 28, 1997. Sales in Europe and Japan
decreased 25 and 30%, respectively. Sales in Asia/Pacific and Latin America
increased 1% and 44%, respectively, versus the previous period.
Substantially all of the Company's Latin American revenue is U.S.
dollars denominated. In Europe, Asia/Pacific, and Japan, most revenues and
expenses are denominated in local currencies. The U.S. dollar strengthened in
the first nine months of 1997 against the major European and Asia/Pacific
currencies, which resulted in lower revenue and expenses recorded when
translated into U.S. dollars, compared with the prior year period.
The Company's operating and pricing strategies take into account changes in
exchange rates over time; however, the Company's results of operations may be
significantly affected in the short term by fluctuations in foreign currency
exchange rates. Changes in foreign currency exchange rates, the strength of
local economies, and the general volatility of software markets may result in a
higher or lower proportion of foreign revenues as a percentage of total revenues
in the future.
The Company enters into forward foreign exchange contracts primarily to
hedge the value of accounts receivable or accounts payable denominated in
foreign currencies against fluctuations in exchange rates until such receivables
are collected or payables are disbursed. This program involves the use of
forward foreign exchange contracts in the primary European and Asian currencies.
The Company 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. The Company does
not attempt to hedge the translation to U.S. dollars of foreign denominated
revenues and expenses not yet earned or incurred, respectively.
The restatement significantly changed the recorded value of the
Company's foreign currency denominated accounts receivable and accounts
payable, primarily intercompany balances. As a result, the hedging
activities taken in the quarter were not effective in hedging the accounting
exposure to changes in foreign currency exchange rate. This unhedged exposure
resulted in a net foreign currency transaction loss of $0.5 million in the
quarter.
13
<PAGE>
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
Quarter Ended Nine Months Ended
------------- -----------------
Sept. 28, 1997 Sept. 29, 1996 Change Sept. 28, 1997 Sept. 29, 1996 Change
-------------- -------------- ------ -------------- -------------- ------
<S> <C> <C> <C> <C> <C>
Manufactured cost of software distribution $ 5.7 $ 9.3 (38%) $ 21.5 $ 23.8 (10%)
Percentage of license revenue 7% 7% 8% 7%
Amortization of capitalized software $ 5.4 $ 3.7 48% $ 16.0 $ 10.8 48%
Percentage of license revenue 7% 3% 6% 3%
Write-down to net realizable value $ - $ - $ 14.7 $ - N/A
Percentage of license revenue 5%
Cost of software distribution $ 11.1 $ 13.1 (15%) $ 52.2 $ 34.6 51%
Percentage of license revenue 14% 10% 19% 10%
</TABLE>
Software distribution costs consist primarily of: 1) manufacturing and
related costs such as media, documentation, product assembly and purchasing
costs, freight, customs, and third party royalties; and 2) amortization of
previously capitalized software development costs and any write-offs of
previously capitalized software.
The manufactured cost of software distribution as a percentage of license
revenue remained flat at 7% in the third quarter of 1997 compared to the same
period in 1996. In the future, the cost of software distribution as a
percentage of revenue may vary depending upon the sales levels, third party
software costs where their software is bundled with Informix's and whether the
product is reproduced by the Company or by customers.
Amortization of capitalized software costs begin in the quarter following
product introduction. The increase of amortization of capitalized software in
the third quarter of 1997 compared to the third quarter of 1996 is due to the
release of various products subsequent to the third quarter of 1996. The
absolute value of amortization of capitalized software will vary slightly
quarter to quarter as new products are released and other products become fully
amortized.
In addition, due to the Company's acquisition of Centerview and the
announcement of its revised tool strategy, and in accordance with Financial
Accounting Standards Board Statement No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed", a net realizable
value test performed on certain of the Company's tool products resulted in a
write-down of $14.7 million of previously capitalized software costs, during the
first quarter of 1997.
COST OF SERVICES
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
Quarter Ended Nine Months Ended
------------- ------------------
Sept. 28, 1997 Sept. 29, 1996 Change Sept. 28, 1997 Sept. 29, 1996 Change
-------------- -------------- ------ -------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Cost of services $ 40.5 $ 35.9 13% $128.2 $104.8 22%
Percentage of service revenue 56% 62% 61% 64%
</TABLE>
Cost of services consists primarily of maintenance, consulting and training
expenses. Costs of services for the second quarter of 1997 are comparable to
expense in the prior year quarter on a percentage of service revenue basis. In
the future, the Company expects that cost of services as a percentage of net
service revenue will approximate the rate in the third quarter of 1997.
14
<PAGE>
SALES AND MARKETING EXPENSES
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
Quarter Ended Nine Months Ended
------------- ------------------
Sept. 28, 1997 Sept. 29, 1996 Change Sept. 28, 1997 Sept. 29, 1996 Change
-------------- -------------- ------ -------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing expenses $ 101.9 $103.4 (1%) $ 347.9 $ 292.5 19%
Percentage of net revenue 68% 55% 72% 57%
</TABLE>
The decline in sales and marketing expenses in the third quarter of
1997, in absolute dollars, as compared to the third quarter of 1996 was
primarily a result of the reduction of sales and marketing personnel
worldwide. Over the twelve-month period ending September 28, 1997, the
headcount for sales and marketing personnel decreased from 1,722 to 1,276 or
a decline of 29%. Lower staffing levels and expenses were partly offset by
depreciation in connection with the Company's Superstores which are more
fully described in "Liquidity and Capital Resources." The increase of costs
as a percentage of revenue reflects that despite sales commissions being a
large variable cost, there are significant sales and marketing costs that are
fixed in nature.
RESEARCH AND DEVELOPMENT EXPENSES
The Company accounts for its product development costs in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." 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. The following table summarizes research and
development costs for the periods ended September 28, 1997 and September 29,
1996:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
Quarter Ended Nine Months Ended
------------- ------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 Change 1997 1996 Change
----------------------- ------ ----------------------- ------
<S> <C> <C> <C> <C> <C> <C>
Incurred product development expenditures $38.3 $39.8 (4%) $124.9 $108.5 15%
Expenditures capitalized 4.2 7.7 (45%) 1[caad 214]6.8 21.0 (20%)
Research and development expenses $34.1 $32.1 6% $108.1 $87.5 24%
Expenditures capitalized as a % of incurred 11% 19% 13% 19%
</TABLE>
The incurred research and development expenditures declined by 4% in the
third quarter of 1997 compared to the third quarter of 1996. The proportion
of capitalized expenditures as a percentage of total incurred expenses
decreased in the third quarter of 1997. The decrease is attributable to the
fact that during the third quarter of 1996 a large portion of expenses
incurred were on products which had reached technological feasibility. The
Company expects the proportion of work on capitalized projects for the
remainder of 1997 to remain relatively stable compared to the third quarter
of 1997.
Significant programs currently under development include improvements and
enhancements of current products, with particular emphasis on parallel computer
architecture, user-defined database extensions, web technology integration,
database application tools and systems administration. The Company believes
that research and development expenditures are essential to maintaining its
competitive position in its primary markets and expects the expenditure levels
to continue to constitute a significant percentage of revenues.
15
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
Quarter Ended Nine Months Ended
------------- ------------------
Sept. 28, 1997 Sept. 29, 1996 Change Sept. 28, 1997 Sept. 29, 1996 Change
-------------- -------------- ------ -------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
General and administrative expenses $18.1 $16.6 9% $72.4 $47.4 53%
Percentage of net revenue 12% 9% 15% 9%
</TABLE>
General and administrative expenses increased in absolute dollars in the
third quarter of 1997 compared to the same prior year period primarily as a
result of the higher bad debt expense, legal fees and other miscellaneous
charges.
WRITE-OFF OF GOODWILL AND LONG-TERM ASSETS
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets
to be Disposed of," the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the estimated future undiscounted cash flows to be generated by
those assets are less than the assets' carrying amounts. During the first
quarter of 1997, the Company's Japanese subsidiary experienced a significant
sales shortfall and operating losses. Accordingly, the Company evaluated the
ongoing value of the subsidiary's long-lived assets (primarily computer and
other equipment) and related goodwill. Based on this evaluation, the Company
determined that the subsidiary's assets had been impaired and wrote them down by
$30.5 million to their estimated fair values. Fair value was determined using
estimated future discounted cash flows and/or resale market quotes as
appropriate.
WRITE-OFF OF ACQUIRED RESEARCH AND DEVELOPMENT
In February 1997, the Company acquired all of the outstanding capital
stock of Centerview, a privately owned corporation that provides software
tools for application development. The aggregate purchase price was
approximately $8.7 million, which included cash plus direct costs of
acquisition. For financial statement purposes, the acquisition has been
accounted for as a purchase and, based on an independent appraisal of all the
assets acquired and liabilities assumed, the purchase price was allocated to
the specifically identifiable tangible and intangible assets acquired,
including approximately $7 million of purchased research and development
which has been charged to operations in the period the acquisition was
consummated, which was the first quarter of 1997.
MERGER EXPENSES
In the first quarter of 1996, the Company had expenses of approximately
$5.9 million as a result of the acquisition of Illustra, which was accounted for
as a pooling of interests. These costs consisted primarily of investment
banking, legal and accounting fees.
PROVISION FOR INCOME TAXES
The income tax expense resulted from an increase in the valuation allowance
for deferred tax assets attributable to the increase in net operating loss
carryforwards and taxable earnings and withholding taxes in certain foreign
jurisdictions.
FOREIGN EXCHANGE LOSSES
The Company enters into forward foreign exchange contracts primarily to
hedge the value of accounts receivable or accounts payable denominated in
foreign currencies against fluctuation in exchange rates until such receivables
are collected or payables disbursed. The purpose of the Company's foreign
exchange exposure management policy and practices is to attempt to minimize the
impact of exchange rate fluctuation on the value of foreign currency denominated
assets and
16
<PAGE>
liabilities being hedged. The receivables and payables being hedged are
primarily intercompany transactions related to internal distribution of the
Company's product under formal agreements drafted between the Company's
various subsidiaries. Due to the restatement of revenues and the related
cost of these sales, the Company also restated its intercompany receivable
and payable accounts. The restatement of the intercompany accounts
effectively modifies the hedging positions taken and results in a $0.5
million during the restated periods.
IMPACT OF INFLATION
The effect of inflation on the Company's financial position has not been
significant.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
(DOLLARS IN MILLION) Nine Months Ended
-----------------
Sept. 28, Sept. 29,
--------- ---------
1997 1996
---- ----
<S> <C> <C>
Cash, cash equivalents, and investments $ 95.4 $165.8
Working capital (deficit) (254.8) 75.4
Cash and cash equivalents provided by (used by) operations (136.7) (52.5)
Cash and cash equivalents used for investment activities,
excluding investments of excess cash 83.5 136.9
Cash and cash equivalents provided by financing activities 67.9 159.0
</TABLE>
Cash from operations did not provide sufficient resources to fund the
Company's headcount growth and capital asset needs in 1996 due to a significant
increase of the Company's operating expenses, in comparison to a moderate
increase of its revenue. Cash generated by operations provided sufficient
resources in the prior years.
Net accounts receivable increased by $68.6 million in 1996 as compared to
December 1995. Days sales outstanding increased from approximately 76 days in
December 1995 to 84 days in December 1996. 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 the Company's third-party accounts receivable financing programs.
The Company's programs with third-party financing institutions provide
financing for extended credit terms instead of such financing being provided
by the Company. Cash received from customers and third-party financial
institutions in advance of revenue being recognized is reflected in the
Statement of Cash Flows under "Advances on Unearned License Revenue" as a
financing activity.
Excluding investments of excess cash, net cash and cash equivalents used in
investing activities increased in the first quarter of 1997 compared with the
same period in 1996 due to restricted cash for a security deposit on the Santa
Clara property, purchase of Centerview, and the purchase of capital equipment,
partially offset by a decrease in investment activity. In the first quarters of
1997 and 1996, the Company acquired $20.4 million and $15.8 million,
respectively, of capital equipment consisting primarily of computer equipment,
computer software and office equipment. The increase of capital equipment
purchases in the first quarter of 1997 resulted from the Company's growing
employee headcount and the investment in new equipment as well as new
technology. In the future, the Company anticipates the actual level of capital
spending will be dependent on a variety of factors, including the Company's
business requirements and general economic conditions.
The Company's investments in software costs were previously discussed under
"Results of Operations."
In February 1997, the Company acquired all of the outstanding capital stock
of Centerview, a privately owned corporation that provides software tools for
application development. The aggregate purchase price was approximately $8.7
million, which included cash plus direct costs of acquisition. For financial
statement purposes, the acquisition has been
17
<PAGE>
accounted for as a purchase and, based on an independent appraisal of all the
assets acquired and liabilities assumed, the purchase price was allocated to the
specifically identifiable intangible assets acquired, including approximately $7
million of purchased research and development which has been charged to
operations in the period the acquisition was consummated - the first quarter of
1997.
Net cash and cash equivalents provided by financing activities in the first
quarter of 1997 and 1996 consist primarily of proceeds from the sale of the
Company's common stock to employees, partially offset by payments on capital
leases.
In addition, in November 1996, the Company leased approximately 200,000
square feet of office space in Santa Clara adjacent to the 27 acres described
above. The lease term is for fifteen years and minimum lease payments amount to
$96.0 million over the term. The minimum lease payments are scheduled to
increase within a contractual range based on changes in the Consumer Price
Index. As a result of the sale of the adjacent land, the Company does not
intend to occupy this office space. The Company is actively pursuing solutions
to sell its leasehold interest along with related obligations under the lease to
an unrelated third party.
RECENT DEVELOPMENTS IN LIQUIDITY AND CAPITAL RESOURCES. During 1996 and
the first half of 1997, Informix launched a series of Information SuperStores
worldwide which demonstrate and offer the most recent Informix technology
advances. Along with the core Informix product line, these locations have
tools from leading third-party tools and application vendors installed on a
wide variety of hardware platforms, such as Data General, Hewlett Packard,
IBM, NCR, Pyramid, Sequent, Silicon Graphics, and Sun. The Company has
scaled back its original plans for the SuperStores and repositioned the
remaining sites as solution labs managed by the Company's consulting
practice. The Company's decision to scale back SuperStore activity resulted
in charges to operations of $16.0 million in the second quarter of 1997 and
an expected charge of $12.2 million in the third quarter of 1997 (see Note 14
of Notes to the Consolidated Financial Statements). The Company does not
expect at this time to make further capital equipment expenditures related to
the Information SuperStore program in 1997.
In 1996, the Company planned on relocating its corporate headquarters to
Santa Clara, California, approximately 15 miles to the south of the Company's
current headquarters. To facilitate the move, in January 1997, the Company
entered into a two-year lease for 27 acres of undeveloped commercial real
estate. In order to secure performance of its obligation under the lease,
the Company was required to pledge certain cash collateral to the lessor
throughout the full term of the lease. Accordingly, in January 1997, the
Company deposited $61.5 million in cash into a non-interest bearing
collateral account controlled by an affiliate of the lessor. Interest on
those deposits computed at market rates, otherwise due to the Company, have
been assigned by the Company to the lessor in order to reduce the gross
monthly lease payments due under the lease. In April 1997, the Company
exercised its option to purchase the land for $61.5 million, with the intent
to arrange for the sale of the parcels to an unrelated third party. In
October 1997, the Company entered into agreements to sell the Santa Clara
land in two separate transactions. Both sales are expected to be consummated
in the fourth quarter of 1997.
As a result of the operating losses incurred and restructurings taken by
the Company in 1997 and the prior capital equipment and real estate
commitments made by the Company in 1996, the Company's cash, cash equivalents
and short-term investments declined from 104.0 million on June 29, 1997 to
$87.1 million at September 30, 1997. In August 1997, the Company sold
160,000 shares of newly issued Series A Convertible Stock, face value $250
per share, to a private investor for aggregate gross proceeds of $40 million.
In order to continue as a going concern, the Company will need to raise
additional capital to offset expected and future operating losses, to fund
restructuring programs, such as headcount reduction and elimination or
consolidation of administrative and sales offices worldwide, and to finance
necessary capital equipment additions and software development. The Company
intends to achieve this goal through a combination of a) continued cost
containment measures to bring spending levels in line with planned revenue, b)
sale of non-essential assets, including the undeveloped Santa Clara land site
described above, and c) raising additional equity and debt financing (see Notes
B and J of Notes to Consolidated Financial Statements). There can be no
assurance that management will be successful in accomplishing these plans and
objectives.
BUSINESS RISKS
18
<PAGE>
RESTATEMENT OF FINANCIAL STATEMENTS. As previously announced, the
Company's restatement of its consolidated financial statements for 1996 and
1995 reflects significant reductions in reported earned revenue for all three
years and resulted in reporting a net loss for 1996 and a significant
reduction in net income for 1994 and 1995. The cumulative effect of the
restatement negatively impacts the Company's financial condition, most
notably evidenced by the reduction in retained earnings and working capital
in the consolidated balance sheet (see Note A to the Consolidated Financial
Statements). The Company anticipates reduced revenues, lower operating
results and a significant restructuring charge for the third quarter of 1997
when compared to the third quarter of 1996.
In October 1997, the Company's independent auditors reported to the
Company's Board of Directors that as a result of the findings and other
relevant information related to the restatement of the Company's financial
statements for the three years ended December 31, 1996 (see Note A to the
Consolidated Financial Statements), they concluded that a material weakness
in internal accounting controls exists. In conjunction with such findings,
the independent auditors have also made a number of recommendations to
strengthen the Company's internal accounting controls. The Company has
reviewed the independent auditor's report and is in fundamental agreement
with the recommendations. The Company is taking action to implement such
recommendations. The Audit Committee of the Board of Directors has initiated
a plan to monitor the Company's implementation of these recommendations and
will consider other actions that might be undertaken by the Company to
further improve the accuracy and integrity of its financial reporting process.
The Company's public announcement of the pending restatement of its
financial statements, the delay in reporting its second quarter results for 1997
while the restatement was being compiled and the related uncertainty regarding
the Company's financial condition have adversely affected the Company's ability
to sell its products.
The Company is unable to estimate the amount of any additional financial
exposures from possible claims that might be asserted as a result of the
restatement of its 1994, 1995 and 1996 financial statements.
These factors and other matters described under "Business Risks" have had,
and will continue to have, a material adverse effect on the Company's business,
including its financial condition and results of operations.
LITIGATION. Commencing in April 1997, a series of class action lawsuits and a
separate but related stockholder action were filed in federal court purportedly
by or on behalf of stockholders. These actions name as defendants the Company,
certain of its present and former officers and directors and its independent
auditors. The complaints allege various violations of the federal securities
laws and seek unspecified but potentially significant damages from the Company.
Similar actions were also filed in state court. While management intends to
contest these actions vigorously, the disposition of this litigation could have
a material adverse effect on the Company's financial condition, results of
operations and cash flows.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants, were also filed in state court.
Any monetary judgments in the derivative actions would accrue to the benefit of
the Company.
In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.
ADVANCES ON UNEARNED LICENSE REVENUE. At December 31, 1996 and for the 1997
quarters, "advances on unearned license revenue" in the Company's restated
consolidated balance sheet reflects amounts received from customers and third-
party financial institutions in advance of revenue being recognized. The
Company's license agreements with customers provide contractually for a non-
refundable fee payable by the customer in a single or multiple installment(s) at
the initiation or over the term of the license arrangement. If the Company
fails to comply with the contractual terms of a specific license agreement, the
Company could be required to refund to the customer or the financial institution
the amount(s) received.
CUSTOMER FINANCING. In the normal course of business, the Company often
arranges for non-recourse financing through the sale of customer payment
streams. Such financing arrangements are offered by a number of financial
institutions. The
19
<PAGE>
Company has traditionally relied on a limited number of these financing
institutions for most of the customer financing it arranges. Future revenue and
cash flows of the Company would be negatively impacted if the Company's
financing resources were to discontinue their services for any reason.
NEED FOR ADDITIONAL FINANCING. In connection with its current restructuring and
in order to provide additional working capital to fund its operating activities,
the Company expects that it will be required to raise additional capital, which
may be in the form of equity or debt. There can be no assurance that additional
debt or equity financing will be available as needed or that, if available, such
financing could be completed on commercially favorable terms. Failure to obtain
additional capital as needed would have a material adverse effect on the
Company's business and financial condition. To the extent the terms of any
available financing are materially unfavorable to the Company, such a financing
could impair the Company's ability to obtain additional financing in the future
or to implement its business plan.
VOLATILITY OF INFORMIX STOCK PRICES. The market for the Company's common stock
is highly volatile. The trading price of the Company'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 the Company or its competitors, changes in prices of the Company's
or its competitors' products and services, changes in product mix, change in the
Company's revenue and revenue growth rates for the Company 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 the Company does business or relating to the Company
specifically have resulted, and could in the future result, in an immediate and
adverse effect on the market price of the Company's 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 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 the Company's common
stock.
PERSONNEL CHANGES. The Company's future performance will depend to a
significant extent on its ability to attract and retain highly skilled sales,
consulting, technical, marketing and management personnel. Beginning in the
first part of 1997 and continuing until the present, a number of senior
management personnel and other key employees have departed the Company. The
Company has been successful to date in replacing only some of the positions
that have been vacated. The competition for employees in the database
software industry is intense, and the Company expects that such competition
will continue for the foreseeable future. From time to time the Company has
experienced difficulty in locating candidates with appropriate
qualifications. The Company also believes stock options are a critical
component for motivating and retaining its key employees. The recent decline
in the price of the Company's Common Stock has made stock options previously
granted with higher exercise prices less valuable to the Company's current
employees and has consequently made it more difficult for the Company to
retain its key employees. The failure of the Company to attract and retain
key personnel could have an adverse effect on the Company's business, results
of operations, financial position and cash flows.
During 1997, the Company has experienced a significant number of voluntary
resignations and in addition has taken actions to selectively reduce the number
of employees in certain functional areas. At December 31, 1996, the Company had
4,491 regular employees worldwide. On or about September 28, 1997, regular
employees numbered approximately 3,745.
COMPETITION. The market for the Company's software products and services is
extremely competitive. Some of the Company's current competitors have greater
financial, technical and marketing resources than the Company. The industry
movement to new operating systems, like Windows NT, access through low-end
desktop machines, and access to data through the Internet 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. Also, new or
enhanced products introduced by existing or future competitors could have an
adverse effect on the Company's business, results of operations and financial
condition. Existing and future competition or changes in the Company's product
or service pricing structure or product or service offerings could result in an
immediate reduction in the prices of the Company's products or services. If
significant price reductions in the Company's products or services were to occur
and not be offset by increases in sales volume, the Company's business, results
of operations and financial condition would be adversely affected. There can be
no assurance that the Company will continue to compete successfully with its
existing competitors or will be able to compete successfully with new
competitors.
TECHNOLOGICAL CHANGE AND NEW PRODUCTS. In recent years, the relational database
management system (RDBMS) industry has expanded at significant growth rates, due
in part to the continuing development of new technologies and products
responsive to customer requirements. In the event the growth rates in the RDBMS
industry should decline for any reason, it
20
<PAGE>
is likely the markets for the Company's products would be adversely affected,
which would have a negative impact on the Company's business, results of
operations, financial position and cash flows. In addition, the market for the
Company's products and services is characterized by rapidly changing technology
and frequent new product introductions. The Company's success will depend upon
its ability to enhance its existing products and to introduce new products on a
timely and cost-effective basis and that meet dynamic customer requirements.
There can be no assurance that the Company 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 delivered timely to the market.
The Company has experienced product delays in the past and may experience 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
and meet customer performance requirements could have a material adverse effect
on the Company's business, results of operations and financial condition. In
addition, products as complex as those offered by the Company 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. A key factor in
determining the success of the Company will continue to be the ability of the
Company's products to interoperate and perform well with existing and future
leading, industry-standard application software products intended to be used in
connection with relational database management systems. 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 the Company's products. Commercial acceptance
of the Company'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 the Company, its
products, business or competitors or by the advertising or marketing efforts of
competitors, or other factors that could affect consumer perception.
INTERNATIONAL OPERATIONS. In the third quarter of 1996 and 1997,
approximately 47% and 50%, respectively, of the Company's net revenues were
derived from its international operations. The Company'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 political and economic circumstances,
as well as by other factors associated with international activities. Most
of the Company's international revenue and expenses are denominated in local
currencies. Although the Company takes into account changes in exchange
rates over time in its pricing strategy, the Company's business, results of
operations and financial condition could be materially and adversely affected
by fluctuations in foreign currency exchange rates.
INTEGRATION OF ACQUIRED COMPANIES. The Company has completed several
acquisitions during the last two years, including the database division of ASCII
Corporation in Japan; distributors in Germany, Korea and Malaysia; Stanford
Technology Group; and, most recently, Illustra in the United States. The Company
may acquire other distributors, companies, products or technologies in the
future. There can be no assurance that these acquisitions can be effectively
integrated, that such acquisitions will not result in costs and liabilities that
could adversely affect the Company's results of operations and financial
condition, or that the Company will obtain the anticipated or desired benefits
of such acquisitions.
INFRINGEMENT CLAIMS. As the number of software products and software patents in
the industry increases, the Company believes that software developers like the
Company have and will become increasingly subject to infringement claims with
respect to patents, trademarks and other proprietary rights. Such claims, with
or without merit, can be time consuming and expensive to defend and could have
an adverse effect on the Company's business, results of operations, financial
position, and cash flows.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Commencing in April 1997, a series of class action lawsuits and a
separate but related stockholder action were filed in federal court
purportedly by or on behalf of stockholders. These actions name as defendants
the Company, certain of its present and former officers and directors and its
independent auditors. The complaints allege various violations of the federal
securities laws and seek unspecified but potentially significant damages.
Similar actions were also filed in state court. While management intends to
contest these actions vigorously, the disposition of this litigation could
have a material adverse effect on the Company's financial condition, results
of operations and cash flows.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants, were also filed in state
court. Any monetary judgments in the derivative actions would accrue to the
benefit of the Company.
In addition, in July 1997, the Securities and Exchange Commission issued
a formal order of investigation of the Company and certain unidentified
indivduals associated with the Company with respect to non-specified
accounting matters, public disclosures and trading activity in the Company's
securities. The Company is cooperating with the investigation and is
providing all information subpoenaed by the Commission.
In the ordinary course of business, various other lawsuits and claims are
filed from time to time against the Company. It is the Company's opinion that
the resolution of such other litigation will not have a material effect on the
Company's financial position, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 12, 1997, the Company and BankBoston, N.A., as successor rights
agent, entered into the First Amended and Restated Rights Agreement (the
"Amended Rights Agreement"), which amended and superseded the Preferred
Shares Rights Agreement, as amended, between the Company and The First
National Bank of Boston, as rights agent. Pursuant to the Prior Rights
Agreement, The Company's Board of Directors had declared a dividend of one
right (the "Right") to purchase one one-thousandth share of the Company's
Series A Participating Preferred Stock for each share of Common Stock, $0.01
par value, of the Company issued and outstanding on November 20, 1991, and
one Right for each share of Common Stock issued after such date. Each Right
entitled the registered holder to purchase from the Company one
one-thousandth share of Series A Preferred Stock at an exercise price as set
forth in the Prior Rights Agreement. The terms of the Amended Rights
Agreement are substantially similar to those of the Prior Rights Agreement,
except that each Right is now exercisable, following the distribution date
and until the occurrence of certain specified events, for one share of Common
Stock at an exercise price of $60.00. The foregoing summary of the principal
terms of the Amended Rights Agreement is a general description only and is
qualified by the detailed terms and conditions of the Amended Rights
Agreement. A more comprehensive description of the Amended Rights Agreement
is contained in the Company's Registration Statement on Form 8-A/A (the "Form
8-A") filed with the Commission on September 3, 1997. A copy of the Amended
Rights Agreement is also filed as an exhibit to the Form 8-A.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Exhibit Title
----------- -------------
10.8 Employment Agreement between the Company and
Robert J. Finocchio, Jr., dated July 22, 1997
10.9 Offer Letter of Employment to Wes Raffel,
dated September 18, 1997, as Vice President,
North American Field Operations
10.10 Offer Letter of Employment to Jean-Yves Dexmier,
dated September 24, 1997, as Executive Vice
President and Chief Financial Officer
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On August 14, 1997, the Company filed a Current Report on Form
8-K concerning (i) results for the quarter ended June 29, 1997,
(ii) the discovery of errors in the recording of revenue in 1996,
(iii) the anticipated restatement of the Company's 1996 financial
statements to reflect adjustments to revenue that will decrease
revenue and net income from previously reported amounts, and (iv) a
planned restructuring and reorganization. In addition, the Company
indicated that disclosure of the Company's second quarter financial
results would be delayed as a result of the need to restate prior
period operating results.
On August 25, 1997, the Company filed a Current Report on
Form 8-K disclosing the sale and issuance of 160,000 shares of
Series A Convertible Preferred Stock for an aggregate sales
price of $40,000,000.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFORMIX CORPORATION
Dated: November 18, 1997 /s/ Jean-Yves Dexmier
-----------------------------------------
Jean-Yves Dexmier
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Karen Blasing
------------------------------------------
Karen Blasing
Vice President and Corporate Controller
(Principal Accounting Officer)
23
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit Title Page
- -------------- ------------- ----
10.8 Employment Agreement between the Company and
Robert J. Finocchio, Jr. Dated July 22, 1997
10.9 Offer Letter of Employment of Wes Raffel as Vice
President, North American Field Operations of
the Company
10.10 Offer Letter of Employment of Jean-Yves Dexmier as
Executive Vice President and Chief Financial Officer of
the Company
27.1 Financial Data Schedule
24
<PAGE>
INFORMIX CORPORATION
EMPLOYMENT AGREEMENT
This Agreement is made by and between Informix Corporation (the "Company"),
and Robert J. Finocchio, Jr. ("Executive"), effective as of the last date signed
below (the "Effective Date").
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION; EMPLOYMENT COMMENCEMENT DATE. The Company shall employ
the Executive as the President and Chief Executive Officer of the Company
reporting to the Board of Directors of the Company (the "Board") to perform the
duties and responsibilities commensurate with such positions. Upon the
Effective Date, Executive shall be appointed as a member of the Board.
Additionally, subject to continued election to the Board by the vote of the
stockholders of the Company, Executive shall serve as a member of the Board
during the period of his employment hereunder. Executive's employment with the
Company and tenure as a member of the Board pursuant to this Agreement shall
commence as of July 22, 1997 (the "Employment Date"). It is the intention of
the Board to appoint two additional members to the Board in addition to
Executive's Board membership, after due consideration of Executive's
recommendations.
(b) OBLIGATIONS. Executive shall devote his full business efforts
and time to the Company; provided, however, that notwithstanding the foregoing,
Executive may remain as a non-operating employee, without meaningful cash
compensation, of 3Com Corporation through October 1, 1997. Executive agrees not
to actively engage in any other employment, occupation or consulting activity
for any direct or indirect remuneration without the prior approval of the Board;
provided, however, that Executive may serve in any capacity with any civic,
educational or charitable organization without the approval of the Board and may
serve on the board of directors of Latitude Communications and on any other
boards of directors so long as such service does not give rise to any conflict
with the Company's interests and so long as Executive provides advance notice of
such service to the Board.
2. EMPLOYEE AND FRINGE BENEFITS. During his employment hereunder,
Executive shall be eligible to participate in the employee benefit and fringe
benefit plans and programs maintained by the Company for its senior executives
at a level comparable to that of other senior executives of the Company.
3. COMPENSATION AND STOCK OPTIONS.
(a) BASE SALARY. While employed by the Company pursuant to this
Agreement, the Company shall pay the Executive as compensation for his services
a base salary at the minimum annualized rate of $460,000 (the "Base Salary").
Such salary shall be paid periodically in accordance with normal Company payroll
practices and subject to the usual, required withholding. Executive's salary
shall be reviewed annually for possible raises in light of Executive's
performance of his duties, as determined by the Board. It is understood that
Executive will not participate in the Company's current 1997 executive bonus
plan.
(b) STOCK OPTIONS. On the Employment Date, Executive shall be
granted stock options (the "Stock Options") to purchase a total of one million
five hundred thousand (1,500,000) shares of Company Common Stock with a per
share exercise price equal to 100% of the "Fair Market Value," as determined
under the Informix Corporation 1994 Stock Option and Award Plan (the "Stock
Option Plan"). The Stock Options shall be for a term of ten years (or shorter,
as described below, upon termination of Executive's employment (or, with the
approval of the Board, Executive's consulting relationship) with the Company)
and, subject to accelerated vesting as set forth in the Company's standard form
of stock option agreement and as set forth elsewhere herein, shall vest as to
25% of the shares originally subject to the Stock Options on each anniversary of
the date of grant, so as to be 100% vested four years from the date of grant,
conditioned upon Executive's continued employment (or, with the approval of the
Board,
<PAGE>
Executive's consulting relationship) with the Company as of each vesting date.
Except as specified otherwise herein, these option grants are in all respects
subject to the terms, definitions and provisions of the Stock Option Plan and
the standard form of stock option agreement thereunder to be entered into by and
between Executive and the Company (the "Option Agreements"); provided, however,
that to the extent that the Stock Options may not be granted under the Stock
Option Plan by virtue of the limitation on the number of shares subject to
option that may be granted thereunder in any fiscal year of the Company, they
shall be granted outside of the Stock Plan pursuant to a written option
agreement containing the same terms and conditions as the option granted under
the Stock Option Plan. Any such non-Stock Option Plan stock option shall be
registered by the Company on Form S-8 prior to any vesting of such option. All
stock options granted to Executive pursuant to this Section 3(b) shall remain
exercisable (to the extent vested upon the date of termination) for twelve
months following Executive's termination of employment (or, with the approval of
the Board, Executive's consulting relationship) with the Company in the event
that Executive is terminated by the Company other than for "Cause," (as defined
in Section 4 hereof), or if Executive's employment (or, with the approval of the
Board, Executive's consulting relationship) with the Company terminates due to
Executive's death or "Total Disability" (as defined in Section 7 hereof)
otherwise, such options shall remain exercisable (to the extent vested upon the
date of termination) for three months following Executive's termination of
employment with the Company; provided, however, that in no event shall any stock
option granted pursuant to this Section 3(b) remain exercisable longer than its
original ten-year term.
4. SEVERANCE BENEFITS. If, while employed hereunder, Executive's
employment with the Company terminates involuntarily other than for "Cause" (as
defined herein), or if Executive terminates his employment with the Company
voluntarily within twelve months following a "Change of Control" (as defined
herein), then Executive shall be entitled to receive a lump-sum severance
payment from the Company, within 30 days of such termination, equal to twelve
months' of Executive's Base Salary as in effect as of the date of such
termination.
For the purposes of this Agreement, "Cause" shall mean (i) Executive's
engaging in willful misconduct which is materially injurious to the Company or
its affiliates; (ii) Executive's committing a felony, (iii) Executive's
committing an act of fraud against the Company or its affiliates; or (iv)
Executive's willful breaching, in any material respect, of the Employee
Confidentiality/Ownership/Nonsolicitation Agreement (attached hereto as EXHIBIT
A) (the "Confidentiality/Ownership/Nonsolicitation Agreement") between Executive
and the Company.
For the purposes of this Agreement, "Change of Control" shall mean:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors
are Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the Employment Date, or (B) are elected,
or nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The consummation of a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; or
-2-
<PAGE>
(iv) The consummation of the sale or disposition by the Company
of all or substantially all of the Company's assets.
5. CHANGE OF CONTROL. In the event a Change of Control occurs within six
months following the Effective Date, then, if Executive is employed by the
Company as of the date of such Change of Control, Executive's Stock Options
shall have their vesting accelerated as to two years' additional vesting, and in
the event a Change of Control occurs on or after six months following the
Effective Date, if Executive is employed by the Company as of the date of such
Change of Control, then Executive's Stock Options shall have their vesting
accelerated in full so as to become 100% vested.
6. TOTAL DISABILITY OR DEATH OF EXECUTIVE.
(a) TOTAL DISABILITY. Upon Executive's becoming "Totally Disabled"
(as defined herein) while employed hereunder, employment hereunder shall
automatically terminate, and all payments of compensation by the Company to
Executive hereunder shall immediately terminate, except for any amounts earned
by Executive as of the date of such employment termination, which shall be paid
to Executive. Executive shall be deemed to be "Totally Disabled" ninety (90)
days following written notice by the Company to Executive of such determination
by an independent physician acceptable to the Board and Executive (which
acceptance will not be unreasonably withheld); provided, however, that if
Executive resumes work on a regular basis prior to the end of such 90 day
period, Executive shall not be deemed to be "Totally Disabled."
(b) DEATH OF EXECUTIVE. If Executive dies while employed hereunder,
this Agreement shall terminate immediately and all payments of compensation by
the Company to the Executive hereunder shall immediately terminate, except for
any amounts earned by Executive as of the date of Executive's death, which shall
be paid to Executive's estate.
7. ARBITRATION.
(a) Any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof shall be settled by arbitration to
be held in San Mateo County, California, in accordance with the National Rules
for the Resolution of Employment Disputes then in effect of the American
Arbitration Association (the "Rules"). The arbitrator may grant injunctions or
other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator's decision in any court having
jurisdiction.
(b) The arbitrator shall apply California law to the merits of any dispute
or claim, without reference to rules of conflict of law. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. With respect to any actions or
proceedings to compel arbitration, enforce any arbitration award or appeal any
arbitration award related to this Agreement, the parties hereto expressly
consent to the personal jurisdiction of the state and federal courts located in
California.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) THE PARTIES HAVE READ AND UNDERSTAND SECTION 7, WHICH DISCUSSES
ARBITRATION. THE PARTIES UNDERSTAND THAT BY SIGNING THIS AGREEMENT, THEY AGREE
TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR
-3-
<PAGE>
TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE
CONSTITUTES A WAIVER OF THEIR RIGHT TO A JURY TRIAL AND RELATES TO THE
RESOLUTION OF ALL DISPUTES, INCLUDING AS TO DISCRIMINATION, RELATING TO ALL
ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP.
8. AT-WILL EMPLOYMENT. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law, notwithstanding that Executive may become eligible for severance
benefits in accordance with the provisions of Section 4 hereof. If Executive's
employment terminates for any reason, Executive shall not be entitled to any
payments, benefits, damages, awards or compensation other than as provided by
this Agreement or other written Company benefit plans.
9. INDEMNIFICATION. The Company shall indemnify Executive to the same
extent as other senior executives and directors of the Company are indemnified
and the Company and Executive shall enter into the Indemnity Agreement set forth
as EXHIBIT B hereto (the "Indemnity Agreement"). The foregoing indemnification
shall not limit any other right which Executive may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation or Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise. The
foregoing indemnification shall not be deemed to affect any rights to
subrogation which may exist in any policy of directors and officers liability.
10. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company.
11. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's legal
fees associated with entering into this Agreement up to $5,000 upon receiving an
invoice for such legal services.
12. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if delivered
personally or three (3) days after being mailed by registered or certified mail,
or sent by Federal Express or a similar private delivery company, return receipt
requested, prepaid and addressed to the parties or their successors in interest
at the following addresses, or at such other addresses as the parties may
designate by written notice in the manner aforesaid:
If to the Company: Informix Corporation
4100 Bohannon Drive
Menlo Park, CA 94025
ATTN: General Counsel
If to Executive: Robert J. Finocchio, Jr.
at the last residential address known to the
Company
13. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction or an arbitrator to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
14. ENTIRE AGREEMENT. This Agreement, the Stock Option Plan, the
Confidentiality/
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<PAGE>
Ownership/Nonsolicitation Agreement, the Indemnity Agreement and the Option
Agreements represent the entire agreement and understanding between the Company
and Executive concerning Executive's employment relationship with the Company,
and supersedes and replaces any and all prior agreements and understandings
concerning Executive's employment relationship with the Company.
15. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and an
authorized representative of the Board.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the respective dates set forth below
INFORMIX CORPORATION
By: Phillip White /s/ Phillip White
Signature
Date: 7-18-97
ROBERT J. FINOCCHIO, JR.
Date: 7-18-97 /s/ Robert J. Finocchio, Jr.
Signature
-5-
<PAGE>
September 18, 1997
Wes Raffel
1976 Tasso Street
Palo Alto, CA 94301
Dear Wes:
We are very pleased that you are considering joining us at Informix Software,
Inc. (Company). The purpose of this letter is to set forth our offer of
employment. We propose that you begin employment with Informix Software, Inc.
in the capacity of Vice President, North American Sales, reporting to Bob
Finocchio, Chairman, President and Chief Executive Officer.
Your salary, computed on an annual basis beginning on the date you become an
employee of the Company, will be $250,000 per year and shall be paid in equal
semi-monthly installments.
You will also participate in the Sales Incentive Compensation Plan in 1997 at an
annual incentive target of $150,000 for 100% achievement of target. Targets
will be mutually agreed to as the budgeting process is completed for 1998. Your
incentive payment will be guaranteed at 100% of target for the first six (6)
months of your employment.
It will be recommended to the Board of Directors that you receive a
non-qualified stock option under the Informix Corporation Employee Stock Option
Plan to acquire 325,000 shares of the common stock of Informix Corporation on
terms and conditions to be determined solely by the Board of Directors at the
time of the grant. You, of course, will be under no obligation to exercise any
stock options which may be granted to you. If the Board accelerates option
vesting pursuant to a change in control for the executive staff, you will be
included as a member of the executive staff for this purpose.
In the event of a change in CEO or change in ownership of the company, you will
be entitled to receive as severance an amount equal to one (1) year base salary,
if your employment terminates within 90 days of the initiating event
irrespective of which party initiates the termination.
This offer of employment is contingent upon the following:
- - Your signing of the Company's Employee Agreement for Nondisclosure of
Confidential Information, in the form attached.
- - Your acceptance of this offer by signing this letter below.
- - Your signing of the enclosed W-4 form.
Approval by the Informix Board of Directors.
- - Within your first day of employment, you must provide for examination,
proof of your legal right to work in the United States and complete the
Immigration Form I-9 as required by the U.S. Immigration and Naturalization
Service. These include either 1) a U.S. passport, a U.S. certificate of
citizenship, a U.S. certificate of naturalization, an unexpired foreign
passport with attached employment authorization or an alien registration
card with photograph; OR 2) a state driver's license, a state I.D. card, a
U.S. military card AND a Social Security card or a
<PAGE>
Page 2
Wes Raffel
September 18, 1997
U.S. birth certificate. If you do not have proof of identification on the
first day of employment, you will be sent home to obtain the documents. You
will not be placed on the payroll until this form is completed by a Company
representative. If for any reason you are unable to provide proof of your
identity as well as your legal right to work in the United States within the
first three days the Company may terminate your employment. From time to time
after your first day of employment, you may be asked to provide proof of your
identity as well as your legal right to work in the United States.
This offer of employment is not for any specific period of time and your
employment may be terminated with or without cause by yourself or the Company at
any time for any reason.
As an employee of Informix, you also agree to comply with company policies,
procedures and standards of conduct that may be established by the Company.
This offer of employment contains all of the terms and conditions of your
employment with the Company and supersedes any and all prior, oral or written
representations or agreements made by anyone employed by, or associated with,
the Company.
The terms of this offer, if accepted, will become your terms of employment and
can only be added to or modified by a written document signed by the Vice
President of Human Resources or the President of the Company.
I am looking forward to your acceptance of this offer. Please be advised that
this offer of employment is valid only to September 25, 1997. Please
acknowledge your acceptance by signing and dating this letter and returning it
to us before September 28, 1997. In addition, please complete the W-4 form and
return it to the Human Resources Department prior to beginning your employment
or no later than 3 days after your date of hire. Enclosed for your convenience
in making the return is a self-addressed envelope. Please bring your I-9 form,
required identification, and Non-Disclosure Agreement with you on your first day
of employment for verification and witnessing by your manager.
Sincerely,
INFORMIX SOFTWARE, INC.
Bob Finocchio
Chairman, President and
Chief Executive Officer
Enclosures
1. Non-Disclosure Form
2. I-9 Form
3. W-4
4. Employee Handbook
AGREED ON THE 22ndDAY OF September 1997
<PAGE>
ANTICIPATED START DATE: 22nd DAY OF September 1997
SIGNED: /s/Wes Raffel
<PAGE>
September 24, 1997
Jean-Yves Dexmier
1152 Brown Avenue
Lafayette, CA 94549
Dear Jean-Yves:
We are very pleased that you are considering joining us at Informix Software,
Inc. (Company). The purpose of this letter is to set forth our offer of
employment. We propose that you begin employment with Informix Software, Inc.
in the capacity of Executive Vice President and Chief Financial Officer,
reporting to Bob Finocchio, Chairman, President and Chief Executive Officer.
Your salary, computed on an annual basis beginning on the date you become an
employee of the Company, will be $350,000 per year and shall be paid in equal
semi-monthly installments.
You will also participate in the Executive Incentive Compensation Plan with a
target rate of 50% of base salary based upon achievement of corporate
objectives, guaranteed for six (6) months from your start date. Plan details
will be provided under separate cover.
You will receive a non-qualified stock option under the Informix Corporation
Employee Stock Option Plan to acquire 500,000 shares of the common stock of
Informix Corporation on terms and conditions to be determined solely by the
Board of Directors at the time of the grant. You, of course, will be under
no obligation to exercise any stock options which may be granted to you.
These options will be protected by the Executive Officer Acceleration Program
currently under preparation.
If your employment is terminated by the company within the first twelve (12)
months of your employment for other than cause, you will receive, as
severance, in accordance with our severance pay practices, an amount equal to
one year of base salary plus your Executive Incentive Compensation Plan at
target (total target compensation). If you employment is terminated by the
company after 12 months of your employment for other than cause, your
severance allowance shall be equal to six (6) months of total target
compensation, payable in accordance with our severance pay practices.
If there is a change in ownership of the company during the first twelve (12)
months of your employment, you will receive a bonus equal to $1,000,000 less
any stock option profit realized upon the change in ownership. For the
purpose of this provision, stock option profit will be equal to the number of
shares vested at the time of the closing of the sale of the company
multiplied by the difference in the price of the company's common stock
immediately prior to the closing of this transaction and your option price if
that difference is positive.
During the first six (6) months of your employment, you will be allowed to
continue with your present consulting activities at a rate of one (1) day per
week, assuming that these activities pose no conflict of interest with the
business of this company. If you avail yourself of this provision, your base
salary will be adjusted pro rata based upon the amount of time you spend on
these activities.
<PAGE>
Page 2
Jean-Yves Dexmier
September 24, 1997
This offer of employment is contingent upon the following:
- - Your signing of the Company's Employee Agreement for Nondisclosure of
Confidential Information, in the form attached.
- - Your acceptance of this offer by signing this letter below.
- - Your signing of the enclosed W-4 form.
- - Within your first day of employment, you must provide for examination,
proof of your legal right to work in the United States and complete the
Immigration Form I-9 as required by the U.S. Immigration and Naturalization
Service. These include either 1) a U.S. passport, a U.S. certificate of
citizenship, a U.S. certificate of naturalization, an unexpired foreign
passport with attached employment authorization or an alien registration
card with photograph; OR 2) a state driver's license, a state I.D. card, a
U.S. military card AND a Social Security card or a U.S. birth certificate.
If you do not have proof of identification on the first day of employment,
you will be sent home to obtain the documents. You will not be placed on the
payroll until this form is completed by a Company representative. If for any
reason you are unable to provide proof of your identity as well as your legal
right to work in the United States within the first three days the Company
may terminate your employment. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as
your legal right to work in the United States.
This offer of employment is not for any specific period of time and your
employment may be terminated with or without cause by yourself or the Company
at any time for any reason.
As an employee of Informix, you also agree to comply with company policies,
procedures and standards of conduct that may be established by the Company.
This offer of employment contains all of the terms and conditions of your
employment with the Company and supersedes any and all prior, oral or written
representations or agreements made by anyone employed by, or associated with,
the Company.
The terms of this offer, if accepted, will become your terms of employment
and can only be added to or modified by a written document signed by the Vice
President of Human Resources or the President of the Company.
<PAGE>
Page 3
Jean-Yves Dexmier
September 24, 1997
I am looking forward to your acceptance of this offer. Please be advised
that this offer of employment is valid only to September 29, 1997. Please
acknowledge your acceptance by signing and dating this letter and returning
it to us before October 3, 1997. In addition, please complete the W-4 form
and return it to the Human Resources Department prior to beginning your
employment or no later than 3 days after your date of hire. Enclosed for
your convenience in making the return is a self-addressed envelope. Please
bring your I-9 form, required identification, and Non-Disclosure Agreement
with you on your first day of employment for verification and witnessing by
your manager.
Sincerely,
INFORMIX SOFTWARE, INC.
Bob Finocchio
Chairman, President and
Chief Executive Officer
Enclosures
1. Non-Disclosure Form
2. I-9 Form
3. W-4
4. Employee Handbook
AGREED ON THE 1stDAY OF October 1997
ANTICIPATED START DATE: 2nd DAY OF October 1997
SIGNED:/s/Jean-Yves Dexmier
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