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As filed with the Securities and Exchange Commission on July 12, 1999
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________
INFERENCE CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware 100 Rowland Way 953436352
(State or other jurisdiction of Novato, California 94945 (IRS Employer
incorporation or organization) (415) 893-7200 Identification Number)
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(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
____________
Mark A. Wolf
Vice President and Chief Financial Officer
Inference Corporation
100 Rowland Way
Novato, California 94945
(415) 893-7200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
___________
Copies to:
Thomas C. DeFilipps, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
___________
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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Title of Each Class of Securities to be Registered Proposed Maximum Proposed Maximum
Amount to be Offering Price per Aggregate Offering Amount of
Registered Unit/(1)/ Price Registration Fee
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Class A Common Stock, $0.01 par value 197,085 $4.1719 $822,219 $229
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Total 197,085 $4.1719 $822,219 $229
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(1) The Proposed Maximum Offering Price Per Share was estimated pursuant to
Rule 457(c) on the basis of the average of the high and low asked prices
reported on the NASDAQ National Market on July 2, 1999.
___________________
The Registrant hereby amends the Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
197,085 SHARES
INFERENCE CORPORATION (LOGO)
CLASS A COMMON STOCK
_____________
This Prospectus relates to the registration for resale of 197,085 shares of
Class A common stock, $0.01 par value of Inference Corporation. The Shares are
outstanding shares of Inference that may be sold from time to time by or on
behalf of certain stockholders of Inference or by pledgees, donees, transferees
or other successors in interest that receive such Shares as a gift, distribution
or other non-sale related transfer. The selling stockholders acquired these
shares in private transactions in which Inference acquired Verix Software, a
corporation duly organized and existing under the laws of California.
The shares may be offered by the selling stockholders from time to time in
transactions on the NASDAQ National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The selling
stockholders may effect such transactions by selling these shares to or through
broker-dealers and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders or the
purchasers of the shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both (which compensation to a particular broker-
dealer might be in excess of customary commissions).
We will not receive any of the proceeds from the sale of the shares by the
selling stockholders. We have also agreed to bear certain expenses in connection
with the registration and sale of the shares being offered by the selling
stockholders.
Inference's common stock is quoted on the NASDAQ National Market under the
symbol "INFR." On July 9, 1999, the last reported sale price of the common
stock was $5 9/16 per share.
________________
Owning shares of Inference's common stock involves a high degree of risk.
See "Risk Factors," beginning on page 4 of this prospectus before selling any of
the common stock covered hereby.
________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
________________
July 12, 1999
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TABLE OF CONTENTS
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Prospectus Summary................................................................ 3
Risk Factors...................................................................... 4
This Prospectus Contains Forward Looking Statements............................... 16
Use of Proceeds................................................................... 16
Selling Stockholders.............................................................. 17
Plan of Distribution.............................................................. 18
Legal Matters..................................................................... 18
Experts........................................................................... 19
Where You Can Find Additional Information About Inference......................... 19
Information Incorporated by Reference............................................. 19
SEC Position on Indemnification for Securities Act Liability...................... 20
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are allowing you to re-sell your shares of
Inference common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the shares. In this prospectus, the "company,"
"Inference," "we," "us," and "our" refer to Inference Corporation.
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PROSPECTUS SUMMARY
Business Summary. We develop, market and support enterprise customer
relationship management software solutions for self-service and agent-assisted
customer contact centers to improve customer care. We offer a complete line of
consulting, support and training services from offices throughout the U.S. and
Europe. Our k-Commerce/TM/ Support family of products ("k-Commerce/TM/
Support") facilitates a conversation between the contact center and the customer
to identify and resolve problems in external and internal customer support and
service environments.
Our primary focus to date has been on the customer support portion of the
customer relationship management market, which includes external customer
support and internal help desks. The customer support market is divided into
two segments: problem management, where customer calls and information are
tracked; and problem identification and resolution, where information is
obtained from the customer and used to define the problem and provide a
solution. We provide products focused primarily on the problem identification
and resolution segment of the customer support market. We believe our products
enable customers, employees and customer service agents to provide answers
quickly and consistently on the basis of the following product strengths -
multiple and global access options (full Contact Center support), ease of use
for novice and experienced customer service agents, an enterprise-wide
comprehensive knowledge base and intuitive conversation-based interactive
access. Contact center access allows customers to find answers using the method
that is most convenient for them - website, e-mail, interactive voice response
("IVR"), chat or Call Center. A comprehensive knowledge base takes advantage of
experiences, documents and other forms of problem-solving data and makes this
information available throughout the enterprise. Our value proposition is that
it applies knowledge management to deliver customer care solutions for self-
service and agent-assisted contact centers. We help our customers improve their
customers' satisfaction, reduce support costs and fuel corporate growth through
increased customer retention.
Self-service solutions allow customers and employees to directly access a
single comprehensive knowledge base through a wide-ranging set of access
options. Self-service solutions improve customer satisfaction by providing
global access to 7 by 24 support (7 days a week, 24 hours a day), reducing or
eliminating waiting on hold or call center charges, and providing consistent
accurate responses to their queries. Agent-assisted solutions allow customer
service agents to access a central knowledge base helping them increase first
call resolution, decrease response time, improve consistency and accuracy of
responses, increase productivity and minimize training time.
Our k-Commerce Support, our latest family of products, facilitates a
successful conversation with customers, prospects and other employees using
case-based reasoning (CBR) technology. A typical k-Commerce Support session
begins with a description of the problem a user is having, which is matched to
descriptions of previously solved problems. k-Commerce Support further refines
the search, engaging in a conversation with the user until a very likely
solution is presented. With our knowledge creation applications, experienced
service agents, knowledge engineers and experts in the relevant subject matter
can continuously capture their support expertise, creating a dynamic knowledge
base that utilizes experiences, documents and other problem-solving data from
throughout the organization.
k-Commerce Support is scalable and available on Microsoft Windows NT. The
knowledge creation applications support many database management systems,
including Oracle, Informix, Sybase, Microsoft's SQL Server and IBM's DB2. k-
Commerce Support works with stand-alone, client/server, Internet and intranet
environments, providing companies with many options to deploy knowledge. We
also provide Professional Services that include, consulting services, technical
support and training for k-Commerce Support.
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Acquisition Of Verix Software. On April 30, 1999, Inference acquired Verix
Software through the merger of a wholly-owned subsidiary of Inference with and
into Verix. Following this merger, Verix became a wholly-owned subsidiary of
Inference. As consideration for all the outstanding capital stock of Verix, we
gave the Verix shareholders 197,085 shares of our Common Stock. This prospectus
allows the Verix shareholders to sell their Inference stock in the marketplace
upon effectiveness of the Form S-3 registration statement. For more information
on the Form S-3, see "Where You Can Find Additional Information About Inference"
on page 19.
RISK FACTORS
In evaluating an investment in the shares you should consider carefully the
following risk factors in addition to the other information presented in this
prospectus or incorporated by reference into this prospectus. If any of the
following risks actually occur, our business, financial condition, or results of
operations could be materially adversely affected. In such case, the trading
price of our common stock could decline and you may lose all or part of your
investment
We have recently experienced quarterly losses, we expect to incur losses in the
near future and we may not ever become profitable.
We have now experienced losses in three of the last five quarters. As of
April 30, 1999, we had an accumulated deficit of approximately $23 million. We
expect to continue to incur net losses in the near future and possibly longer.
We anticipate that our expenses will continue to be high in the foreseeable
future as we continue to develop our technology, expand our distribution
channels and increase our sales and marketing activities. These efforts may
prove more expensive than we currently anticipate and we may not succeed in
increasing our revenue sufficiently to offset these higher expenses. If we fail
to increase our revenues to keep pace with our expenses, we will continue to
incur losses. If we do achieve profitability in any period, we cannot be
certain that we will sustain or increase such profitability on a quarterly or
annual basis.
There are many factors, including some beyond our control, that may cause
fluctuations in our quarterly operating results
We have experienced significant quarterly fluctuations in operating results
and we anticipate that such fluctuations will continue in the future depending
on a number of factors described below and elsewhere in this "Risk Factors"
section of this prospectus, including many that are beyond our control. As a
result, we believe that quarter-to-quarter comparisons of our financial results
are not necessarily meaningful, and you should not rely on them as an indication
of our future performance. These factors include:
. Changes in demand for our software, including changes in industry
growth rates for our products
. Varying size, timing and contractual terms of customer orders for our
products
. Fluctuation of consulting service revenues depending upon the status
of projects
. Varying budgeting cycles of our existing and potential customers
. Any downturn in our customers' businesses, in the domestic economy or
in international economies where our customers do substantial business
. Changes in our pricing policies resulting from competitive pressures
such as aggressive price discounting by our competitors
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. Our ability to develop and introduce on a timely basis new products or
enhanced versions of our existing software
. Changes in the mix of revenues attributable to domestic and
international sales
. Seasonal buying patterns which tend to peak in the fourth quarter
. Changes in the mix of revenue attributable to higher-margin software
license revenue as opposed to substantially lower-margin service
revenue
Certain of the above factors can have a particularly significant effect on
our quarterly results, and they include the following:
Fluctuations in Large Contract License Revenue. The value of individual
licenses as a percentage of quarterly revenues can be substantial, and
particular licenses may generate a substantial portion of the operating profits
for the quarter in which they are signed. To the extent Inference relies on
these large orders to make our quarterly operating objects, failure to close
such contracts in compliance with AICPA Statement of Position 97-2, Software
Revenue Recognition ("SOP 97-2") and in a specified time period could adversely
affect our operating results.
Varying Sales Cycle. Product revenue is also difficult to forecast because
the market for client/server and web-based software products is rapidly
evolving, and our sales cycle, from initial trial to multiple copy purchases and
the provision of support services, varies substantially from customer to
customer. Because our staffing and other operating expenses are based on
anticipated revenues, a substantial portion of which is not typically generated
until the end of each quarter, delays in the receipt of orders can cause
significant variations in operating results from quarter to quarter. We also
may choose to reduce prices or to increase spending in response to competition
or to pursue new market opportunities, which may adversely affect Inference's
operating results. Accordingly, we believe that period-to-period comparisons of
its results of operations may not be meaningful and should not be relied upon as
an indication of future performance.
Potential Changes in Mix of License and Service Revenue. Historically, a
majority of our revenue has been attributable to the licensing of our software
products. Changes in the mix of software products and services sold by us,
including the mix between higher margin software products and lower margin
maintenance, consulting and training, could materially affect our operating
results for future quarters.
Due to all of the foregoing factors, it is likely that in some future
quarters our operating results will be below the expectations of investors.
Regardless of the general outlook for Inference's business, the announcement of
quarterly operating results below investor expectations is likely to result in a
decline in the trading price of Inference's Class A Common Stock.
Potential Year 2000 problems with our software or our internal operating systems
could adversely affect our business
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. We have completed a Year
2000 compliance review for all products released through April 30, 1999. We do
not anticipate that addressing the Year 2000 problem for our products will have
a material impact on operations or financial results. To date, costs incurred in
remediating identified Year 2000 issues have not been material.
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All our products are capable of correctly identifying, manipulating, and
performing calculations on dates later than December 31, 1999, where operations
based on dates held in 2 digit format are affected due to re-sequencing from 99
to 00. We have instituted, within our product design specifications, the
requirement that internal date representations are held in full format and
manipulations are not performed on short formats. This assumes the software is
used in accordance with its associated documentation and provided that when the
software is linked up to other components, such components factor in the
calendar date on the same conditions as our products. However, despite design
review and ongoing testing, our products may contain undetected errors or
defects associated with Year 2000 date handling. Known or unknown errors or
defects in its products could result in (i) delay or loss of revenue; (ii)
diversion of development resources; (iii) damage to reputation; and (iv)
increased service and warranty costs. The occurrence of any of these errors or
defects could adversely affect our business, operations and financial condition.
Year 2000 issues may also affect the computer systems used internally by us
to manage and operate our business. To date we have not incurred and do not
believe that we will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be Year 2000 compliant. As of
April 30, 1999, we were in the process of reviewing all internal hardware
systems and software applications, both domestically and internationally, to
determine that they are complaint with the Year 2000. However, we may experience
significant unanticipated problems and costs caused by undetected errors or
defects in internal systems. We believe that the worst-case scenario if such
problems occur would be our inability to ship products and record revenue, which
would materially adversely affect our business, operations and financial
condition.
We do not currently have any information concerning the Year 2000
compliance status of our customers or prospective customers. If current or
future customers fail to achieve Year 2000 compliance or if they divert
technology expenditures (especially technology expenditures reserved for
software and services) to address Year 2000 compliance issues, our business,
results of operations or financial condition would be materially adversely
affected.
We have funded our Year 2000 activities from available cash and we have not
separately accounted for these costs in the past. To date, these costs have not
been material. We may incur additional costs for administrative, customer
support, internal IT and product engineering activities to address ongoing Year
2000 issues. We are in the process of developing a contingency plan to address
situations that may result if unanticipated problems caused by undetected errors
or defects in either internal systems or the Company's products arise. Our
contingency plan is expected to be complete in the second quarter of fiscal year
2000. The cost of developing and implementing such a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
Delays in product development may materially adversely affect our revenue
Our primary product development effort is focused on building and enhancing
the k-Commerce product line. There can be no assurance that the further
development of this new product line will be completed successfully or on a
timely basis or that the product will include the features required to achieve
market acceptance. Our future operations will be substantially dependent on the
k-Commerce product line, and failure to achieve market acceptance of this family
of products would have a material adverse effect on Inference's business,
operating results and financial condition.
We have in the past experienced delays in software development, and there
can be no assurance that we will not experience further delays in connection
with its current product development or future development activities. Software
products as complex as those offered by Inference may contain undetected errors
when first introduced or as new versions are released. Despite the quality
assurance procedures we currently have in place,
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there can be no assurance that errors will not be found in our new or enhanced
products after commencement of commercial shipments, or that modifications to
such products will not be required to satisfy customer requirements, resulting
in loss of or delay in market acceptance. Delays or difficulties associated with
new product introductions or product enhancements could have a material adverse
effect on our business, operating results and financial condition.
Failure to achieve broad market acceptance of the k-Commerce suite of products
may materially adversely affect our revenue
We recently launched our k-Commerce support line of products which enhanced
the functionality of our existing CBR product line and we intend to release our
k-Commerce sales line of products which are intended to enable our customers to
provide real-time and targeted sales promotions to drive Web direct selling.
Broad market acceptance of our k-Commerce products is critical to our future
success. As a result, a decline in demand for or failure to achieve broad market
acceptance of k-Commerce products as a result of competition, technological
change or otherwise would have a material adverse effect on our business,
operating results and financial condition. As part of the k-Commerce initiative,
we have entered into several partnering agreements for the purposes of extending
the offerings and capabilities of our products. There can be no assurance that
these relationships will translate into increased revenues or additional demand
for our products.
Our industry changes rapidly due to evolving technology standards and our future
success will depend on our ability to continue to meet the sophisticated needs
of our customers
The market for our products changes rapidly and our future success will
depend on our ability to continue to timely meet changing market conditions and
customer demands. The market for our products is characterized by rapid
technological developments, evolving industry standards, swift changes in
customer requirements and frequent new product introductions and enhancements.
As a result, our success depends upon our ability to continue to enhance our
existing products, respond to customer requirements, develop and introduce, in a
timely manner, new products incorporating technological advances and to address
the increasingly sophisticated needs of our customers by supporting existing and
emerging hardware, software, database and networking platforms. We will have to
develop and introduce enhancements to our existing products and new products on
a timely basis to keep pace with technological developments, evolving industry
standards and changing customer requirements. We expect that we will have to
respond quickly to:
. Rapid technological change
. Changing customer needs
. Frequent new product introductions
. Evolving industry standards that may render existing products and
services obsolete
To the extent one or more of our competitors introduce products that more
fully address customer requirements, our business, operating results and
financial condition could be adversely affected. There can be no assurance that
we will be successful in developing and marketing new products or enhancements
to our existing products on a timely basis or that any new or enhanced products
will adequately address the changing needs of the marketplace. As a result, our
position in existing markets or potential markets could be eroded rapidly by
product advances. The life cycles of our products are difficult to estimate. Our
growth and future financial performance will depend in part upon our ability to:
. Continue to enhance our existing products
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. Develop and introduce new applications that keep pace with
technological advances on a timely and cost-effective basis
. Meet changing customer requirements
. Match or exceed the product deliveries of our competitors
If we are unable to develop and introduce new products or enhancements to
existing products in a timely manner in response to changing market conditions
or customer requirements, our business, operating results and financial
condition will be materially and adversely affected. From time to time, we or
our competitors may announce new products, capabilities or technologies that
have the potential to replace or shorten the life cycles of our existing
products. There can be no assurance that announcements of currently planned or
other new products will not cause customers to delay their purchasing decisions
in anticipation of such products, which could have a material adverse effect on
our business, operating results and financial condition.
We expect that our product development efforts will continue to require
substantial investments to be able to attract and retain qualified software
development engineers. We may not have sufficient resources to make the
necessary investments. Any of these events could have a material adverse effect
on our business, quarterly and annual operating results and financial condition.
We may lose large enterprise customer purchases which may materially adversely
affect our revenue
We occasionally sell our products to large enterprise customers. Large
enterprise customers are expected to deploy our products in business critical
operations which involve significant capital and management commitments by such
customers. Potential large enterprise customers generally commit significant
resources to an evaluation of available software and require us to expend
substantial time, effort and money educating them about the value of our
solutions. Sales of our products to such customers require an extensive sales
effort throughout a customer's organization because decisions to purchase such
products generally involve the evaluation of the software by a significant
number of customer personnel in various functional and geographic areas, each
often having specific and conflicting requirements. A variety of factors,
including factors over which we have little or no control, may cause potential
large enterprise customers to favor a particular supplier or to delay or forego
a purchase. As a result of these or other factors, the sales cycle for our
products to these large customers is long, typically ranging between three and
nine months. As a result of the length of the sales cycle and the significant
selling expenses resulting from selling into the large enterprise, our ability
to forecast the timing and amount of specific sales is limited. The delay or
failure to complete, in compliance with SOP 97-2, one or more large transactions
to which we have devoted significant resources could have a material adverse
effect on our business, operating results or financial condition and could cause
significant variations in our operating results from quarter to quarter.
Our executive officers and certain key personnel are critical to our business
and the loss of one or more of such officers and key personnel could materially
adversely affect our business
Our success will depend to a significant extent on the continued service of
certain key sales, technical and senior management personnel. If we lost the
services of one or more of our senior executives or key employees, this could
materially adversely affect our business, results of operations and financial
condition, particularly if one or more of our senior executives or key employees
decided to join a competitor, or otherwise
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compete directly or indirectly with Inference. In addition, we do not maintain
key man life insurance on our employees and have no plans to do so.
On June 17, 1999, we announced that Glen Vendrick had resigned as Senior
Vice President of America's sales operations, effective as of the end of June
1999. We have initiated a search to find a replacement for the position. We may
experience delays in finding a replacement for the position, the new hire in
that position may not integrate well in our existing management team, or he or
she may be unsuccessful in fulfilling our desired objectives for the position.
The occurrence of any of these factors could materially adversely affect our
business, results of operations and financial condition.
We may not be able to recruit and retain the personnel we need to sustain or
grow our business
We consider our relation with our employees to be good, and there has never
been an interruption in our business activities due to labor unrest. However,
our future performance is contingent upon the uninterrupted service of key
sales, technological and executive management staff and upon the maintenance of
conditions that can help attract and retain capable salespeople, technicians and
managers.
We may not be successful in attracting, training and retaining qualified
personnel, and the failure to do so, particularly in key functional areas such
as product development and sales, could materially adversely affect our
business, results of operations and financial condition. Competition for such
personnel in the computer software industry is intense, and in the past we have
experienced difficulty in recruiting qualified personnel, especially developers
and sales personnel. The demand for qualified personnel is particularly acute in
the San Francisco Bay Area, due to the large number of software companies and
the low unemployment in the region. Our future success will likely depend in
large part on our ability to attract and retain additional experienced sales,
technical, marketing and management personnel. We expect competition for
qualified personnel to remain intense, and we may not succeed in attracting or
retaining such personnel.
Our failure to expand our direct sales force and third-party distribution
channels would impede our revenue growth and financial condition
To increase our revenue, we must increase the size of our direct sales
force and the number of our indirect marketing and distribution partners,
including software and hardware vendors and resellers. A failure to do so could
have a material adverse effect on our business, operating results and financial
condition. There is intense competition for sales personnel in our business, and
we may not be successful in attracting, integrating, motivating or retaining new
personnel for these positions. In addition, our existing or future marketing and
distribution partners may choose to devote greater resources to marketing and
supporting the products of competitors.
Competition may affect the amount of revenue we can generate from sales of our
products and services which could adversely affect our business
The market for customer support software is highly competitive, and there
are certain competitors with substantially greater sales, marketing, development
and financial resources than us. Among our major competitors in the problem
identification and resolution segment of the market are Primus Knowledge
Solutions, Inc., Clarify, Inc. and Verity, Inc. and other small privately held
companies. Furthermore, many potential customers implement low-end text
retrieval solutions or develop internal applications that eliminate the need to
acquire software and services from third-party vendors such as us.
We believe that that the competitive factors affecting the market for our
products and services include vendor and product reputation; product quality,
performance and price; product functionality and features; product
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scaleability; product integration with other enterprise applications; the
availability of products on multiple platforms; product ease-of-use; and the
quality of customer support services, documentation and training. The relative
importance of each of these factors depends upon the specific customer involved.
There can be no assurance that we will be able to compete effectively with
respect to any of these factors.
Our present or future competitors may be able to develop products
comparable or superior to those offered by us or adapt more quickly than us to
new technologies or evolving customer requirements. In order to be successful in
future, we must respond to technological change, customer requirements and
competitors' current products and innovations. In particular, while we are
currently developing additional product enhancements that we believe address
customer requirements, there can be no assurance that we will successfully
complete the development or introduction of these additional product
enhancements on a timely basis or that these product enhancements will achieve
market acceptance. Accordingly, there can be no assurance that we will be able
to continue to compete effectively in its market, that competition will not
intensify or that future competition will not have a material adverse effect on
our business, operating results and financial condition.
Our future revenue is substantially dependent upon service revenues; which is
dependent on future sales of our software products
We depend on our installed customer base for service revenues. Service
revenues depend in part on ongoing renewals of support contracts by our
customers, some of which may not renew their support contracts. Therefore, our
current customers may not necessarily generate significant service revenue in
future periods. In addition, our customers may not necessarily purchase
additional products or professional services. Our service revenue is also
dependent upon the continued use of these services by our installed customer
base. Service revenues represented 43% of total revenues for fiscal 1999, 53%
for fiscal 1998 and 43% for fiscal 1997. We anticipate that service revenues
will continue to represent a significant percentage of total revenues. Because
service revenues have lower gross margins than license revenues, a continued
increase in the percentage of total revenues represented by service revenues or
an unexpected decrease in license revenues could have a detrimental impact on
overall gross margins and operating results. If service revenues are lower than
anticipated, Inference's business, financial condition and operating results
could be materially and adversely affected.
The market price of our Class A common stock will likely be subject to
substantial price and volume fluctuations due to a number of factors, certain of
which are beyond our control
Stock prices and trading volumes for many software companies fluctuate
widely for a number of reasons, including some reasons which may be unrelated to
their businesses or results of operations. This market volatility, as well as
general domestic or international economic, market and political conditions,
could materially adversely affect the market price of our common stock without
regard to our operating performance. In addition, our operating results may be
below the expectations of public market analysts and investors. If this were to
occur, the market price of our common stock would likely decrease significantly.
The market price of our common stock has fluctuated significantly in the past
and may continue to fluctuate significantly because of:
. future announcements concerning us or our competitors,
. quarterly variations in operating results,
. announcements of technological innovations,
. changes in product pricing policies by us or our competitors,
. litigation relating to proprietary rights or otherwise,
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. market uncertainty about our financial condition or business prospects
or the prospects for our market in general,
. revenues or results of operations that do not match analysts'
expectations,
. the introduction of new products or product enhancements by us or our
competitors,
. general business conditions in our industry,
. changes in the mix of revenues attributable to license and maintenance
sales, and
. seasonal trends in technology purchases and other general economic
conditions.
We may be unable to integrate the recently acquired Verix Software business into
our business successfully
If we do not successfully integrate Verix Software into our business, this
may materially adversely affect our business and future operating results.
Additionally, we may never achieve the anticipated synergies from the
acquisition of Verix, including marketing, distribution or other operational
benefits. Our acquisition of Verix, which was completed in April 1999 will
require integrating the businesses and operations of the two companies. We
acquired Verix with the intent of adding their Web customer profiling,
personalization, product configuration and real-time sales promotions technology
to our k-Commerce solution to enable real-time and targeted sales promotions to
drive Web direct selling. Potential problems with this integration could
include:
. Impairment of relationships with Verix customers
. Difficulties in standardizing sales quotas, territories and incentive
compensation plans for sales personnel
. Difficulties in integrating Verix's distribution channels with our
existing channels
. The lack of focus on achieving our core business objectives if
management pays excessive attention to the integration process
Our international operations are exposed to international business risks as well
as fluctuations in the value of foreign currency
Our international sales are made mostly from our foreign sales subsidiaries
in their respective countries and are typically denominated in the local
currency of each country. These subsidiaries also incur most of their expenses
in the local currency. Accordingly, all foreign subsidiaries use the local
currency as their functional currency.
Our exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to our foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
We are also exposed to foreign exchange rate fluctuations as the financial
results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected results. The effect of
foreign exchange rate fluctuations on us in fiscal 1999 was not material.
11
<PAGE>
In addition, these subsidiaries which represent approximately 41% of our
total revenue in fiscal 1999, are subject to risks typical of an international
business, including, but not limited to the following, the occurrence of any of
which could materially adversely impact our business, operations and financial
condition:
. Difficulties in staffing and managing international operations
. Problems in collecting accounts receivable
. Longer payment cycles
. Fluctuations in currency exchange rates
. Seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world
. Uncertainties relating to political, economic and tax circumstances
. Recessionary environments in foreign economies
. Increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries
Any acquisitions or investments that we may make will be subject to a number of
factors which could materially adversely affect our business and such
investments or acquisitions may dilute existing stockholders
As part of our business strategy, we may in the future review acquisition
prospects that would complement our existing product offerings, augment our
market coverage or enhance our technological capabilities, or that may otherwise
offer growth opportunities. If we were to make such an acquisition or large
investments, the risks described below could materially adversely affect our
business and future operating results. However, we may not be able to complete
any such additional acquisitions in the future. Any future acquisition or
investment would present risks commonly encountered in acquisitions of
businesses. The following are examples of such risks:
. Difficulty in combining the technology, operations or work force of
the acquired business
. Disruption of Inference's on-going businesses
. Difficulty in realizing the potential financial or strategic benefits
of the transaction
. Difficulty in maintaining uniform standards, controls, procedures and
policies across the existing and acquired businesses
. Difficulty in entering markets where we have no or limited prior
experience
. Possible impairment of relationships with employees and customers as a
result of any integration of new businesses and management personnel
. Possible dilution to existing stockholders if the consideration for
such transaction is paid in common stock
12
<PAGE>
. Possible write-offs of software development costs or other assets,
incurrence of severance liabilities, or amortization of expenses
related to goodwill and other intangible assets and/or the incurrence
of debt, any of which could materially adversely affect Inference's
business, financial conditions, cash flows and results of operations.
There can be no assurance that we would be successful in overcoming these
or any other significant risks encountered and failure to do so could have a
material adverse effect upon our business, operating results and financial
condition.
Errors in our products or the failure of our products to conform to customer
specifications or expectations could result in our customers asserting claims
for damages against us or in decreased sales of our products
Because our software products are complex, they often contain errors or
"bugs" that can be detected at any point in a product's life cycle. While we
continually test our products for errors and work with customers through our
customer support services to identify and correct bugs in our software, we
expect that errors in our products will continue to be found in the future.
Although many of these errors may prove to be immaterial, certain of these
errors could be significant. Detection of any significant errors may result in,
among other things, loss of, or delay in, market acceptance and sales of our
products, diversion of development resources, injury to our reputation, or
increased service and warranty costs. These problems could materially adversely
affect our business and future quarterly and annual operating results.
A key determinative factor in our future success will continue to be the
ability of our products to operate and perform well with existing and future
leading, industry-standard application software products intended to be used in
connection with our products. Failure to meet in a timely manner existing or
future interoperability and performance requirements of certain independent
vendors could adversely affect the market for our products.
Commercial acceptance of our 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 us, our
products, business or competitors or by the advertising or marketing efforts of
competitors, or other factors that could affect consumer perception.
Product liability claims asserted against us in the future could adversely
affect our business
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. However,
it is possible that the limitation of liability provisions contained in our
license agreements may not be effective under the laws of certain jurisdictions.
Although Inference has not experienced any product liability claims to date, the
sale and support of our products may entail the risk of such claims, and there
can be no assurance that we will not be subject to such claims in the future.
In particular, issues relating to Year 2000 compliance have increased awareness
of the potential adverse effects of software defects and malfunctions. While we
carry insurance policies covering this type of liability, these policies may not
provide sufficient protection should a claim be asserted. A material product
liability claim could materially adversely affect our business.
We rely heavily on our intellectual property rights which offer only limited
protection against potential infringers; if we cannot protect our intellectual
property rights, our business could be adversely affected
Our success depends in part upon its proprietary technology. Although
case-based reasoning technology ("CBR") is available in the public domain, we
believe implementation of the CBR technology is proprietary. We rely primarily
relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and licensing arrangements to establish and protect
its proprietary rights. We have been awarded several patents
13
<PAGE>
for our CBR and related technology. Our CBR technology is embedded in our
current k-Commerce and CBR family of products. Despite the precautions we have
taken, it may be possible for an unauthorized third party to copy or otherwise
obtain and use our products, technology or other information that we regard as
proprietary or to develop similar products or technology independently.
In addition, effective trademark, copyright and trade secret protection may
be unavailable or limited in certain foreign countries where we do not operate.
We may also be unable to protect our technology because:
. Unauthorized third parties may be able to copy aspects of our products
or to obtain and use our proprietary information including by our
licensing activities where we provide third parties with access to our
data model and other proprietary information underlying our licensed
applications
. Our competitors may independently develop similar or superior
technology
. Policing unauthorized use of our software is difficult
. The laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States
. "Shrink-wrap" and/or "click-wrap" licenses may be wholly or partially
unenforceable under the laws of certain jurisdictions
We may have to employ litigation to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others and any litigation could prove to be
unsuccessful, result in substantial costs and diversion of resources and could
materially adversely affect our business, future operating results and financial
condition. In addition, we generally provide our products to end-users under
signed license agreements. These agreements are negotiated with and signed by
the licensee. We occasionally publish articles regarding our technical
developments in industry publications that may prevent us from obtaining patent
protection for ideas contained in such publications, thus increasing the
availability to third parties of fundamental aspects of our technology. Our
means of protecting our proprietary rights may not be adequate and our inability
to protect our intellectual property rights may adversely affect our business
and financial condition.
Third parties could assert that our products infringe their intellectual
property rights, which could adversely affect our business
We are not aware that any of our products infringe upon the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by us with respect to current or future
products. Any claims of this type could affect our relationships with existing
customers and may prevent future customers from licensing our products. Any of
these type of claims, with or without merit, could be time consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or license agreements may not be
available on acceptable terms or at all. If we were found to have infringed
upon the proprietary rights of third parties, we could be required to pay
damages, cease sales of the infringing products and redesign or discontinue such
products, any of which could have a material adverse effect on Inference's
business, operating results and financial condition. We expect that we will
increasingly be subject to infringement claims as the number of products and
competitors in the customer support software industry grows and the
functionality of such products overlaps with other industry segments. As a
result of these factors, infringement claims could materially adversely affect
our business.
14
<PAGE>
Costs associated with ensuring that our products and internal operating systems
are able to effectively work with the Euro conversion may adversely affect our
business
On January 1, 1999, a new currency, the Euro, became the legal currency for
eleven of the fifteen member countries of the European Economic Community.
Between January 1, 1999 and January 1, 2002, governments, companies and
individuals may conduct business in these countries in both the Euro and the
existing national currencies. On January 1, 2002, the Euro will become the sole
currency in these countries.
We are taking steps to evaluate internal system capabilities, review the
ability of financial institution vendors to support Euro transactions and
examine current marketing and pricing policies and strategies in light of the
Euro conversion. Although, we have not yet completed evaluating the impact of
the Euro conversion on our functional currency designations, the cost of this
effort is not expected to have a material adverse effect on our results of
operations or financial condition. There can be no assurance, however, that all
issues related to the Euro conversion have been identified and that any
additional issues would not have a material effect on our results of operations
or financial condition.
The conversion to the Euro also may have competitive implications on our
pricing and marketing strategies, the impact of which are not known at this
time. Additionally, we are at risk to the extent its principal European
suppliers and customers are unable to deal effectively with the impact of the
Euro conversion.
We may become subject to litigation
We may become subject to legal proceedings and claims that arise in the
ordinary course of business. We currently believe that the ultimate amount of
liability, if any, with respect to any pending actions, either individually or
in the aggregate, will not materially affect our financial position, results of
operations or liquidity. However, the ultimate outcome of any litigation is
uncertain. If an unfavorable outcome were to occur, the impact could be
material. Furthermore, any litigation, regardless of the outcome, can have an
adverse impact on Inference's results of operations as a result of defense
costs, diversion of management resources, and other factors.
We are exposed to market rate risk for changes in interest rates
Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We currently do not use derivative
financial instruments. We invest, by policy, our excess cash balances in money
market accounts, debt instruments of the U.S. Government and its agencies, and
in high-quality corporate issuers and limit the amount of credit exposure to
any one issuer. As of April 30, 1999, our investments consisted primarily of
funds contained in money market accounts. Investments in both fixed rate and
floating rate interest earning instruments carry a degree of interest rate risk.
Fixed rate securities may have their fair market value adversely impacted due to
a rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest
rates.
Our future success is dependent on the continued growth and commercial
acceptance of the Web
Our future success depends in part upon the widespread adoption of the Web
as a primary medium for business applications and communications. If the Web
does not continue to increase in importance as a commercial medium, our
business, operating results and financial condition could be materially
affected. Critical issues concerning the commercial use of the Web, such as
security, reliability, cost, accessibility and quality of service, remain
unresolved and may negatively affect the growth of Web use or the attractiveness
of business communications over the Web.
15
<PAGE>
THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS
This prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Exchange Act. These forward-
looking statements include, but are not limited to, statements about our plans,
objectives, expectations and intentions and other statements contained in the
prospectus that are not historical facts. When used in this prospectus, the
words "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are generally intended to identify forward-
looking statements. Because these forward-looking statements involve risks and
uncertainties, there are important facts that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed in this Prospectus under "Risk Factors" and the
prospective purchasers of the shares covered by this Prospectus should carefully
consider these factors when purchasing such shares.
Our actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth above. In
particular, please review the sections captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our annual report
on Form 10-K for the fiscal year ended January 31, 1999, and our quarterly
reports on Form 10-Q for the quarter ended April 30, 1999, which reports are
incorporated herein by reference and such section of any subsequently filed
Exchange Act reports.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
stockholders.
16
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth as of April 30, 1999 certain information
with respect to the beneficial share ownership of the selling stockholders. The
following table assumes the sale of all of the shares held by each selling
stockholder. Prior to and after such sale no selling stockholder will
beneficially own one percent (1%) or more of the Shares. There has been no
material relationship between any of the Selling Securityholders and the
registrant in the past three years.
We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, we
include shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60 days
after July 1, 1999, while those shares are not included for purposes of
computing percentage ownership of any other person. Unless otherwise indicated,
the persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Number of Shares Number of Shares of
Beneficially of Common Stock
Owned Prior to Common Stock Being Beneficially Owned
Name of Selling Stockholder Offering Offered After Closing
- --------------------------------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Philip Alford 120,888 120,888 0
Khanh C. Hoang 22,075 22,075 0
Jason Maynard 18,921 18,921 0
Anthony Nyugen 21,155 21,155 0
Eric Lavin 1,226 1,226 0
James Sutter 2,102 2,102 0
Allen Bonde 175 175 0
University of Southern California 5,518 5,518 0
Sanjay Vaswani 1,401 1,401 0
Jeffrey A. Weiss 1,401 1,401 0
Mark D. Evans 1,401 1,401 0
Phil White 560 560 0
Allen Weiner 262 262 0
------- ------- --------
Totals 197,085 197,085 0
</TABLE>
17
<PAGE>
PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of the shares. The shares
are being offered on behalf of the selling stockholders. The shares may be sold
or distributed from time to time by the selling stockholders, or by pledgees,
donees or transferees of, or other successors in interest to, the selling
stockholders, directly to one or more purchasers (including pledgees) or through
brokers, dealers or underwriters who may act solely as agents or may acquire
shares as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at negotiated prices, or at fixed
prices, which may be changed.
The sale of the shares may be effected in one or more of the following
methods:
. ordinary brokers' transactions, which may include long or short sales;
. transactions involving cross or block trades or otherwise on the
Nasdaq National Stock Market;
. purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this prospectus;
. "at the market" to or through market makers or into an existing market
for the shares;
. in other ways not involving market makers or established trading
markets, including direct sales to purchases or sales effected through
agents;
. through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); or
. any combination of the foregoing, or by any other legally available
means.
In addition, the selling stockholders or their successors in interest may
enter into hedging transactions with broker-dealers who may engage in short
sales of shares in the course of hedging the positions they assume with the
selling stockholders. The selling stockholders or their successors in interest
may also enter into option or other transactions with broker-dealers that
require the delivery by such broker-dealers of the shares, which shares may be
resold thereafter pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares as agents may receive compensation in the form of commissions,
discounts or concessions from the selling stockholders and/or purchasers of the
shares for whom such broker-dealers may act as agent, or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be less than or in excess of customary commissions). The selling stockholders
and any broker-dealers who act in connection with the sale of shares hereunder
may be deemed to be "Underwriters" within the meaning of the Securities Act, and
any commissions they receive and proceeds of any sale of shares may be deemed to
be underwriting discounts and commissions under the securities act. Neither
Inference nor any selling stockholder can presently estimate the amount of such
compensation. Inference knows of no existing arrangements between any selling
stockholder, any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the shares.
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been passed
upon for Inference by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
18
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K for the year ended January
31, 1999 and the financial statements of Verix Software included in our Current
Report on Form 8-K/A dated July 9, 1999, as set forth in their reports, which
are incorporated by reference in this prospectus and elsewhere in the
registration statement. Such financial statements are incorporated by reference
in reliance on Ernst & Young LLP's reports, given on their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT INFERENCE
We file annual, quarterly and special reports, proxy statements, and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. The SEC's public reference room in Washington, D.C. is
located at 450 Fifth Street, N.W. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms, including locations of
regional offices. Our SEC filings are also available to the public from our Web
site at http://www.Inference.com or at the SEC's Web site at http://www.sec.gov.
Information on our Web site does not constitute part of this prospectus.
We have filed with the Commission a registration statement (which contains
this prospectus) on Form S-3 under the Securities Act of 1933. The registration
statement relates to the common stock offered by the selling stockholders. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration statement. Please
refer to the registration statement and its exhibits and schedules for further
information with respect to us and our common stock. Statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, we refer you to the copy of that
contract or document filed as an exhibit to the registration statement. You may
read and obtain a copy of the registration statement and its exhibits and
schedules from the Commission, as described in the preceding paragraph.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents that we have previously filed with the
Commission as documents that we will file with the Commission in the future.
The information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the SEC will automatically
update and supersede this information. We incorporate by reference the
documents listed below, and any future filings made with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, until we close this
offering. The documents we incorporate by reference are:
1. Our Annual Report on Form 10-K for the fiscal year ended January 31,
1999.
2. Our Quarterly Report on Form 10-Q for the quarter ended April 30,
1999.
3. Our proxy materials on Schedule 14A as filed with the Commission on
May 3 and May 28, 1999.
4. Our Current Report on Form 8-K, dated May 17, 1999 and amended July 9,
1999.
5. The description of Inference's common stock contained in its Current
Report on Form 8-K as filed with the SEC on July 18, 1996 .
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Inference Corporation, 100 Rowland Way,
Novato, California 94945; telephone number (415) 893-7200.
19
<PAGE>
SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Inference,
Inference has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Inference of expenses incurred or paid by
a director, officer, or controlling person of Inference in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, Inference will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, payable by Inference
in connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the Nasdaq National Market fee.
<TABLE>
<CAPTION>
Amount to be Paid
-----------------
<S> <C>
SEC registration fee.......................................................... $ 229.00
Nasdaq National Market additional shares listing fee.......................... $ 3,941.70
Transfer Agents' Fees......................................................... $ 3,000.00
Financial printers expenses................................................... $ 1,000.00
Legal fees and expenses....................................................... $ 20,000.00
Accounting fees and expenses.................................................. $ 6,500.00
Miscellaneous expenses........................................................ $ 329.30
-----------------
Total.................................................................... $ 35,000.00
=================
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article Eight of Inference's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permitted under Delaware law.
Article VI of Inference's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation to the
fullest extent permitted under the General Corporation Law of Delaware.
Inference has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in
Inference's Bylaws, and intends to enter into indemnification agreements with
any new directors and executive officers in the future.
II-1
<PAGE>
Item 16. Exhibits
Exhibit No. Description
- ----------- -----------
2.1(1) Agreement and Plan of Reorganization by and among Inference
Corporation, Inference Acquisition Corporation and Verix
Software dated as of April 30, 1999
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation regarding legality of the securities of the
securities being registered
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
24.1(2) Power of Attorney (see page II-4)
27.1(3) Financial Data Schedule for fiscal years ended January 31, 1999,
1998 and 1997
_______________________
(1) Incorporated by reference to Registrant's Current Report on Form 8-K, filed
with the Commission on May 17, 1999 and subsequently amended and filed with
the Commission on July 9, 1999.
(2) Filed herein.
(3) Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K for fiscal year ended January 31, 1999 filed with the
Commission on April 29, 1999.
Item 17. Undertakings
Inference hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a) and (b) above do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by Inference pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
II-2
<PAGE>
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That, for the purpose of determining any liability under the
Securities Act, each filing of Inference's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act, (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
5. To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Exchange Act; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
6. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Inference pursuant to the foregoing provisions, or otherwise, Inference has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Inference of expenses incurred or paid by
a director, officer, or controlling person of Inference in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, Inference will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Inference certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Novato, State of California, on the 12th day of July,
1999.
INFERENCE CORPORATION
By: /s/ Mark A. Wolf
-------------------------------------
Mark A. Wolf
Vice President and Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Charles
W. Jepson or Mark A. Wolf, jointly and severally, as attorneys-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
amendment to this Registration Statement and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting to said attorneys-in-fact, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles W. Jepson President and Chief Executive Officer (Principal July 12, 1999
- ----------------------------------
(Charles W. Jepson) Executive Officer) and Director
/s/ Mark A. Wolf Vice President and Chief Financial Officer July 12, 1999
- ----------------------------------
(Mark A. Wolf) (Principal Financial and Accounting Officer)
/s/ Louis C. Cole Director July 12, 1999
- ----------------------------------
(Louis C. Cole)
/s/ C. Scott Gibson Director July 12, 1999
- ----------------------------------
(C. Scott Gibson)
/s/ John J. Katsaros Director July 12, 1999
- ----------------------------------
(John J. Katsaros)
/s/ Raymond A. Smelek Director July 12, 1999
- ----------------------------------
(Raymond A. Smelek)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1(1) Agreement and Plan of Reorganization by and among Inference
Corporation, Inference Acquisition Corporation and Verix
Software dated as of April 30, 1999
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation regarding legality of the securities of the
securities being registered
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
24.1(2) Power of Attorney (see page II-4)
27.1(3) Financial Data Schedule for fiscal years ended January 31,
1999, 1998 and 1997
___________________
(1) Incorporated by reference to Registrant's Current Report on Form 8-K, filed
with the Commission on May 17, 1999 and subsequently amended and filed with
the Commission on July 9, 1999.
(2) Filed herein.
(3) Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K for fiscal year ended January 31, 1999 filed with the
Commission on April 29, 1999.
<PAGE>
Exhibit 5.1
July 12, 1999
Inference Corporation
100 Rowland Drive
Novato, California 94945
RE: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the registration statement on Form S-3 to be filed by you
with the Securities and Exchange Commission on or about July 12, 1999 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, of 197,085 shares of Class A common stock, $0.01 par
value, to be sold by certain stockholders listed in the Registration Statement.
As your counsel, we have examined the transactions taken and proposed to be
taken in connection with the sale of such shares by such stockholders in the
manner set forth in the Registration Statement.
It is our opinion that such shares, if sold by such stockholders in the
manner set forth in the Registration Statement, will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
----------------------------------------
Wilson Sonsini Goodrich & Rosati
Professional Corporation
-2-
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of Inference Corporation for the registration
of 197,085 shares of its common stock and to the incorporation by reference
therein of our report dated February 19, 1999, with respect to the consolidated
financial statements of Inference Corporation included in its Annual Report
(Form 10-K) for the year ended January 31, 1999, and of our report dated June 3,
1999, with respect to the financial statements of Verix Software included in the
Current Report on Form 8-K/A dated July 9, 1999 of Inference Corporation, filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Sacramento, California
July 8, 1999
-3-
