<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1996
REGISTRATION NO. 333-11711
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
GIGA INFORMATION GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8732 06-1422860
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
ONE KENDALL SQUARE, BUILDING 1400W, CAMBRIDGE, MASSACHUSETTS 02139 (617) 577-
9595
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GIDEON I. GARTNER
CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
GIGA INFORMATION GROUP, INC.
ONE KENDALL SQUARE, BUILDING 1400W
CAMBRIDGE, MASSACHUSETTS 02139 (617) 577-9595
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to:
PAUL P. BROUNTAS, ESQ. GORDON H. HAYES, JR., ESQ.
MARK G. BORDEN, ESQ. TESTA, HURWITZ & THIBEAULT, llp
HALE AND DORR High Street Tower
60 State Street 125 High Street
Boston, Massachusetts 02109 Boston, Massachusetts 02110
(617) 526-6000 (617) 248-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] 333-
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 number of the earlier effective registration statement for the
same offering. [_] 333-
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
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
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated October 22, 1996
PROSPECTUS
4,000,000 SHARES
[GIGA LOGO APPEARS HERE]
COMMON STOCK
-------------
All of the 4,000,000 shares of Common Stock offered hereby are being sold by
Giga Information Group, Inc. ("Giga" or the "Company"). Prior to this Offering,
there has been no public market for the Common Stock. It is currently
anticipated that the initial public offering price will be between $9.00 and
$11.00 per share. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Company has applied for
inclusion of the Common Stock on the Nasdaq National Market under the symbol
"GIGX."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..........................
- --------------------------------------------------------------------------------
Total(3)...........................
</TABLE>
- --------------------------------------------------------------------------------
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of $1,550,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 600,000 additional shares of Common Stock on the same
terms and conditions set forth above, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
-------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain other conditions. It is expected that delivery of certificates
for the shares of Common Stock will be made at the offices of Lehman Brothers
Inc., New York, New York, on or about , 1996.
-------------
LEHMAN BROTHERS
OPPENHEIMER & CO., INC.
SALOMON BROTHERS INC
, 1996
<PAGE>
[graphic depiction of an internet menu bar]
http://Welcome to GigaWeb, Your IT Decision Support
from Giga Information Group
[picture of a building] [picture of a building] [picture of a building]
RELEVANCE SERVICES GIGA ADVISORY EXPERNET
The VIRTUAL OFFICE is your personalized command center
for all Giga Advisory Service IT analysis, and other
functions as follows:
[LOGO]
SMART SEARCH - Enter a topic word or phrase in Smart
Search and receive immediate content plus a list of
related subjects to help you extract the most
relevant IT analysis.
GIGA CONTENT - Giga's growing library of Planning
Assumption (PA) research documents and "idea bytes"
are on view. From here you can immediately
download a PA, continue your search, or access
Forums.
SMART EXPERNET - A network of external IT practitioners
SEARCH helps you solve tactical problems and adds to your
internal IT department resources.
GIGA
CONTENT PARTNER CONTENT - Content from Dow Jones and Company,
Inc., including The Wall Street Journal Interactive,
EXPERNET gives you IT coverage which supplements Giga
analysis.
PARTNER
CONTENT KNOWLEDGE CENTER - Submit your on-line inquiry and
track its progress.
GIGABOTS - Save your defined Smart Searches as
Gigabots to run when you wish, when you enter your
Virtual Office, or continuously with email
modification of results.
KNOWLEDGE
CENTER GIGA EVENTS - Your schedule of GigaTels (audio-
teleconferences), local Giga briefings, and
GIGABOTS conferences helps you plan your peer-to-peer
networking activities.
GIGA EVENTS
FORUMS - Initiate or participate in electronic
FORUMS discussion groups.
HELP HELP - View frequently asked questions and answers
about the specific area of the site you are in.
[LOGO]
USA UK GERMANY FRANCE ITALY JAPAN KOREA AUSTRALIA
IN CONNECTION WITH THE OFFERING, THE UNDERWITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
contained in this Prospectus (i) assumes no exercise of the Underwriters' over-
allotment option, (ii) reflects the automatic conversion of all outstanding
shares of the Company's Series A and Series B Preferred Stock (the "Preferred
Stock") into an aggregate of 7,552,215 shares of Common Stock upon the closing
of the Offering, and (iii) has been adjusted to reflect a four-for-one stock
split of the Common Stock effected as a stock dividend in November 1995.
THE COMPANY
Giga Information Group, Inc. (the "Company") provides information, analysis
and advice relating to developments and trends in the computing,
telecommunications and related industries (collectively, the information
technology or "IT" industry). Information technologies have become increasingly
critical to the competitiveness and long-term viability of a wide range of
organizations. As a result, many of these organizations have turned to IT
"Continuous Information Services" providers, which monitor and analyze IT
developments and trends to support customers' IT decisions. The Company's
customers include: users of IT products and services; vendors of IT hardware,
software and services; and institutional and other investors in the IT
industry. These customers access the Company's services and products through a
personalized Internet-based interface, as well as through published reports and
consultation with the Company's analysts and consultants.
Giga was founded in 1995 by Gideon I. Gartner, who founded Gartner Group,
Inc. in 1979 and served as its Chairman and Chief Executive Officer for twelve
years. Building upon his extensive experience in the IT Continuous Information
Services industry, Mr. Gartner formed Giga with the objective of creating a new
integrated single-service approach to providing Continuous Information Services
to address customers' needs more effectively than the multiple-service
offerings of existing IT information providers. See "Business--Industry
Background" and "--The Giga Solution."
The Giga Advisory Service, the principal service offering of the Company,
provides customers access to all of the Company's Giga Advisory Service
information, analysis and advice, as well as inquiry access to analysts and
practitioners and participation in briefings, conferences, electronic forums
and teleconferences. The Company believes that its integrated, single-service
offering, which is provided to customers for an annual subscription fee,
delivers significant advantages over its competitors' multiple-service
offerings which require customers to select, and separately purchase, subject-
specific services. The Company believes that significant advantages include
integrated broad-based coverage of IT developments and trends and on-line
access through its GigaWeb system. See "Business--Industry Background," "--The
Giga Solution" and "--The Giga Strategy." The Company also provides its
customers with access to its ExperNet network of external IT practitioners who
are available to answer inquiries by customers. The Company recently introduced
the first of a planned series of specialized research services, called
Relevance Services, which combine original analysis, data and information
produced by proprietary surveys and methodologies with consulting, to assist in
enhancing the IT practices and operations of Giga's customers. In addition, the
Company is pursuing relationships with select content partners to complement
the original information and analyses provided by Giga's analysts.
The Company's GigaWeb system, an Internet-based interface to its services, is
designed to make it easy and efficient for customers to navigate through the
full spectrum of Giga's original research and third-party content. Through the
use of intelligent software agents, the Company is able to provide customized
information to each customer and also allow customers to search for and select
the information that is most relevant to their particular needs.
In addition, customers of the Giga Advisory Service and Relevance Services
have access to the Company's other information services, including various IT
events, publications, consulting and econometric forecasting. These services
are generally offered on a non-continuous basis and are also marketed outside
the Company's Giga Advisory Service and Relevance Services customer base to
generate incremental revenue and broaden the Company's IT industry visibility.
Since the introduction of its Giga Advisory Service in April 1996, the
Company's customers grew to 109 as of September 30, 1996. Customers of the
Company's services include AIG, Alcatel Mobile Phones, The Boeing Co., Colonial
Penn Insurance Company, Digital Equipment Corporation, Duracell Inc., IBM, KPMG
Peat Marwick LLP, Oracle Corporation, Safeguard Scientifics, Inc. and
Southwestern Bell Telephone Company. These specific customers accounted for
approximately 8.5% of the Company's revenue from Continuous Information
Services during the nine months ended September 30, 1996.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated by such forward-looking statements.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.............. 4,000,000 shares
Common Stock to be outstanding
after the Offering............... 17,662,815 shares(1)
Working capital and other general corporate
Use of Proceeds................... purposes
Proposed Nasdaq National Market
symbol........................... GIGX
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES (2) COMPANY
---------------------------------------------------- ------------------------------------
SIX MONTHS
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 MARCH 17 TO MARCH 17 ENDED
DECEMBER 15, DECEMBER 31, DECEMBER 31, TO APRIL 5, DECEMBER 31, TO JUNE 30, JUNE 30,
1993 1993 1994 1995 1995 1995 1996
------------ -------------- ------------ ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues.............. $11,371 $ 329 $12,700 $3,237 $10,706 $ 3,571 $6,482
Loss from continuing
operations, net of
taxes................ (2,193) (462) (5,064) (449) (5,116) (733) (9,913)
Income (loss) from
discontinued BIS
market research
business, net of
taxes................ 1,044 44 (1,469) 597 1,490 301 (2,390)
Net income (loss)..... (1,149) (418) (6,533) 148 (3,626) (432) (12,303)
Historical results per
common and common
equivalent share:
Loss from continuing
operations......... (0.38) (0.06) (0.70)
Income (loss) from
discontinued
operations......... 0.11 0.02 (0.01)
Loss from disposal
of discontinued
operations......... -- -- (0.16)
Net loss............ (0.27) (0.04) (0.87)
Historical weighted
average common and
common equivalent
shares outstanding: 13,486,788 12,299,420 14,180,287
Pro forma results per
common and common
equivalent share(3):
Loss from continuing
operations......... (0.34) (0.61)
Income (loss) from
discontinued
operations......... 0.10 0.00
Loss from disposal
of discontinued
operations......... -- (0.14)
Net loss............ (0.24) (0.75)
Pro forma weighted
average common and
common equivalent
shares
outstanding(3)....... 14,855,209 16,360,287
<CAPTION>
JUNE 30, 1996
----------------------------------------
DECEMBER 31, PRO FORMA
1995 ACTUAL PRO FORMA (3) AS ADJUSTED (3)(4)
------------ ------- ------------- ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $16,906 $ 9,331 $ 9,331 $44,981
Working capital......... 11,205 2,734 2,734 38,384
Total assets............ 24,684 19,220 19,220 54,870
Deferred revenues....... 2,480 4,995 4,995 4,995
Long-term debt, less
current portion........ 1,437 1,472 1,472 1,472
Total stockholders'
equity................. 13,660 4,053 4,053 39,703
</TABLE>
- -------
(1) Based on shares outstanding as of June 30, 1996. Does not include (i)
3,649,473 shares of Common Stock issuable upon the exercise of outstanding
options as of August 31, 1996 at a weighted average option exercise price
of $0.64 per share; (ii) 3,426,653 shares of Common Stock reserved for
issuance under the Company's stock plans as of August 31, 1996;
(iii) 233,873 shares of Common Stock issuable upon conversion of
outstanding convertible notes at a weighted average conversion price of
$5.00 per share at August 31, 1996; (iv) 393,590 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $2.95 per share at August 31, 1996; and (v) shares of
Common Stock issued by the Company to employees after June 30, 1996. See
"Management--Executive Compensation" and "Description of Capital Stock."
(2) Financial data included herein contains results of certain predecessor
companies acquired by the Company in 1995. For a description of the
predecessor companies and an explanation of the comparative periods
presented herein, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Organization of the Company and
Financial Statement Presentation."
(3) Presented on a pro forma basis to give effect to the automatic conversion
of all outstanding shares of the Company's Preferred Stock into an
aggregate of 7,552,215 shares of Common Stock upon the closing of the
Offering. See Note 2 of Notes to Consolidated Financial Statements.
(4) Adjusted to give effect to the sale by the Company of 4,000,000 shares of
Common Stock offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
RECENT DEVELOPMENTS
For the quarter ended September 30, 1996, the Company estimates that it had
revenues of approximately $3.2 million, of which approximately $900,000 was
attributable to Continuous Information Services and the balance to Other
Services. The Company estimates that its loss from continuing operations and
pro forma loss from continuing operations per share for such quarter were
approximately $5.3 million and $0.32, respectively.
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby.
LIMITED OPERATING HISTORY; PRIOR LOSSES AND ANTICIPATION OF FUTURE LOSSES
The Company was incorporated on March 17, 1995, and in April 1996 introduced
the Giga Advisory Service, its principal service offering, and GigaWeb, the
Company's Internet-based system for delivering information, analyses and
advice to its customers. The Company introduced the first of its planned
series of Relevance Services in July 1996. The Company has been marketing its
Giga Advisory Service and Relevance Services for only a limited period of
time, and the Company's future success will depend on its ability to
successfully market and enhance these services.
Substantially all of the Company's revenues through June 30, 1996 were
derived from the operations of BIS Strategic Decisions, Inc. and its five
foreign affiliates (collectively, "BIS") which the Company acquired on April
5, 1995. Since its inception, the Company has incurred substantial costs to
develop its Giga Advisory Service, establish its GigaWeb system, build a
management team and recruit, employ and train research analysts, sales and
support staff for its Giga Advisory Service. As a consequence, the Company has
incurred substantial operating losses since its inception, and at June 30,
1996 had an accumulated deficit of $16,537,000.
For the fiscal year ended December 31, 1995 (pro forma) and the six months
ended June 30, 1996, the Company incurred net losses of $3,733,000 and
$12,303,000, respectively. The results for these two periods include the
discontinued BIS market research business. In its report for 1993 and 1994 for
the predecessor company, Ernst & Young LLP described credit risks and
projected 1995 cash shortfalls which raised substantial doubt at that time
about the predecessor company's ability to continue as a going concern. The
Company does not consider the historical results of the discontinued BIS
market research business to be meaningful or indicative of the Company's
future operating results. See "Risk Factors--Risks Associated with
Discontinuance of BIS Market Research Business."
The Company expects to incur losses through at least 1997 and expects that
such losses will continue to be substantial as the Company expands and
develops its services. The magnitude and duration of the Company's losses will
depend on a number of factors both within and outside of the Company's
control, including the Company's ability to successfully market its Giga
Advisory Service and Relevance Services; customer acceptance of the Company's
single-service model; the Company's ability to attract and retain qualified
research analysts and sales personnel on a timely basis and the related costs
of such efforts; the response of competitors to the Company's services; the
ability of the Company to develop and market new services; and the continued
acceptance by customers of subscription agreements providing for advance
payments rather than equal monthly installments or some other payment model.
In addition, the Company has significantly increased its operating expenses
and expects to continue such increases in the future primarily to expand its
staff of research analysts and sales and support personnel and to further
develop and enhance its Giga Advisory Service, Relevance Services, GigaWeb
system and other information services. As a result, the Company may not be
readily able to reduce or adjust expenses in the event that it does not
generate planned revenues or if its revenues decrease. There can be no
assurance when or if the Company will begin to generate revenue that is
sufficient to achieve profitability, to maintain profitability on a quarterly
or annual basis or to sustain or increase its revenue growth in future
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON SALES AND RENEWALS OF SUBSCRIPTION-BASED SERVICES; NEED TO
ANTICIPATE CHANGING MARKET NEEDS
The Company offers its Continuous Information Services on a subscription
basis. Accordingly, the Company's prospects will depend on its ability to
enter into a significant number of contracts for subscriptions to its services
and to achieve and sustain high renewal rates, and no assurance can be given
that it will be successful in doing so. The Company's ability to secure
subscriptions and subscription renewals is dependent
5
<PAGE>
upon, among other things, its ability to deliver, through its Continuous
Information Services, consistently high-quality and timely analysis and advice
with respect to issues, developments and trends in the IT industry that
clients view as important. To deliver valuable analysis and advice on a
sustained basis, the Company must, among other things, recruit and retain a
large and growing number of highly talented professionals in a very
competitive job market, understand and anticipate market trends so as to keep
its analysis focused on the changing needs of its customers, and deliver
services of sufficiently high quality and on a timely basis to withstand
competition. There can be no assurance that the Company will be able to
sustain the necessary level of performance to enter into contracts for
subscriptions to its services and to achieve and sustain high subscription
renewal rates or that the Company's employees will be able to achieve expected
sales productivity levels. Any material decline in subscriptions and
subscription renewal rates or inability of the Company's employees to achieve
expected sales productivity levels would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The Company competes in the market for IT information services directly with
other independent providers of Continuous Information Services, including
Gartner Group, Inc., META Group, Inc. and Forrester Research Inc., and also
competes with the internal planning, research and marketing staffs of current
and prospective customer organizations. The Company also competes indirectly
with other information providers, including market research firms, "Big Six"
accounting firms, consulting firms and systems integrators. Many of the
Company's direct and indirect competitors have substantially greater
financial, information gathering and marketing resources than the Company.
Some of the Company's direct and indirect competitors also have established
research organizations with greater market recognition and experience in the
IT industry. There can be no assurance that the Company will continue to be
successful in establishing a competitive research organization. Delays,
difficulty in developing and achieving market acceptance of the Giga Advisory
Service and Relevance Services or customer dissatisfaction would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, there are few barriers to entry into the
Company's market, and new competitors could readily seek to compete in one or
more market segments addressed by the Company's services and products. There
can be no assurance that the Company's current or potential competitors will
not develop services comparable or superior to those developed by the Company
or respond more quickly to new or emerging industry trends or changing
customer requirements. There can be no assurance that the Company will be able
to continue to compete successfully against existing or new competitors. In
addition, any pricing pressures, reduced margins or loss of market share
resulting from increased competition could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Competition."
DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
The Company's success will depend in large part upon the continued services
of its executive officers and key employees, including its founder, Chairman
of the Board of Directors and Chief Executive Officer, Gideon I. Gartner. Mr.
Gartner, in particular, is well known in the IT community and his reputation
in the Continuous Information Services industry and his network of contacts
have been instrumental in establishing and building the Company's business and
in obtaining financing for the Company. The loss of the services of either Mr.
Gartner or one or more of the Company's other key personnel would have a
material adverse effect on the Company.
The Company's success will also depend upon its ability to hire, train,
motivate and retain a significant number of highly-skilled and experienced
employees, particularly management, research analysts and sales personnel. The
Company experiences, and expects to continue to experience, intense
competition for professional personnel with, among others, producers of IT
services, management consulting firms and systems integrators. Many of these
firms have substantially greater financial resources than the Company to
attract and compensate qualified personnel. In addition, some of the Company's
competitors require that their employees enter into non-
6
<PAGE>
competition agreements the terms of which could prohibit such individuals for
a period of time from working for the Company. There can be no assurance that
the Company will be successful in attracting a sufficient number of highly-
skilled employees in the future, or that it will be successful in training,
motivating and retaining the employees it is able to hire, and any inability
to do so would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Employees."
RISKS ASSOCIATED WITH DISCONTINUANCE OF BIS MARKET RESEARCH BUSINESS
The Company acquired BIS to obtain its marketing, sales, and other corporate
infrastructure and certain of its personnel. BIS was engaged in compiling and
providing data-intensive market research to vendors for use primarily in
planning their product offerings and marketing programs. The BIS offerings
were principally quantitative in nature; employed in large part relatively
junior data specialists; were marketed to purchasers of quantitative research;
included little high-level advice and analysis; were marketed in multiple
separate service offerings; and focused principally on vendors (collectively,
the "BIS Market Research Business"). In contrast, the Company's strategic
business plan focuses on qualitative, analytical information and advice
addressed to a broader range of customers; employs a single, integrated
continuous information model; contemplates building a cadre of high-level
research analysts and other professionals who are peers of its target
customers to develop original ideas and knowledge; and concentrates marketing
of its services to senior decision makers to support their critical IT
decisions. The BIS Market Research Business did not fit with Giga's business
model. Accordingly, in June 1996 the Company decided to discontinue the BIS
Market Research Business.
In connection with the discontinuance of the BIS Market Research Business,
in August 1996 the Company entered into contracts with two unrelated IT
service providers to fulfill the Company's obligations under certain existing
BIS subscription agreements, all of which expire on or before June 1997. There
can be no assurance that these providers will be able to satisfactorily
fulfill the Company's obligations under these subscription agreements. If such
providers are not able to satisfactorily fulfill the terms of the subscription
agreements, customers may seek refunds and other damages from the Company. As
of August 15, 1996, the total remaining contract value of these agreements for
which payment has been received by the Company was $1,982,000. Although the
Company has established a provision (approximately $416,000) for these
probable refunds which it believes is adequate, there can be no assurance that
the amount of actual obligations of the Company to these BIS customers will
not exceed the amount of this provision. A substantial amount of claims in
excess of the provision established by the Company would have a material
adverse effect on the Company's business, financial condition and results of
operations.
In addition, the Company determined to cease or relocate former BIS
operations at leased facilities in Luton, England at Rothesay Road (the
"Rothesay Road Facility") and Napier Road (the "Napier Road Facility"). The
leases at the Rothesay Road Facility and the Napier Road Facility have
remaining terms of approximately 19 years and five years, respectively, at
annual rental obligations of approximately $145,000 and $184,000,
respectively. If the Company is not able to negotiate a termination of these
lease agreements, it will seek to sublease the rental obligations for the
remainder of each lease term. There can be no assurance that the Company will
be able to enter into sublease contracts on terms that satisfy the Company's
obligations under the leases, if at all. The aggregate net present value of
the rental obligations under these two leases is approximately $2,200,000. The
Company has established a provision (approximately $1,210,000) for the
Rothesay Road Facility and for the Napier Road Facility equal to the present
value of the expected rental obligations of these facilities for two and one-
half years plus 50% of the expected rental obligations over the remaining life
of the leases. There can be no assurance that this provision is adequate for
such expenses or that the Company will be able to terminate these leases or
enter into sublease agreements. Any failure to successfully negotiate a
termination of the leases or to successfully enter into subleases on terms
favorable to the Company would have a material adverse effect on the business,
financial condition and results of operations of the Company.
In connection with the cessation of operations at the Rothesay Road Facility
and Napier Road Facility and the relocation of certain of the operations
previously conducted at those facilities, the Company has terminated
approximately eight employees and expects that, in addition, approximately 16
of the remaining 22 employees
7
<PAGE>
will determine not to relocate. Pursuant to certain United Kingdom labor laws,
the Company will be required to pay severance wages to its terminated
employees and to those employees who elect not to relocate. The Company has
established a provision of approximately $241,000 which the Company believes
approximates the Company's maximum liability for the payment of such severance
wages. Although the Company believes that this provision is adequate, if
additional employees elect not to relocate then the actual obligations of the
Company would exceed the provision. Significant claims in excess of the
provision established by the Company could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH DEVELOPMENT OF NEW SERVICES
The Company's future success will depend in part on its ability to
anticipate emerging market trends and to develop or acquire new services that
address the changing information, analysis and advice needs of IT users,
vendors and investors. The process of internally researching, developing,
launching and gaining client acceptance of a new service, or assimilating and
marketing an acquired service, is inherently risky and costly. Delays or
failures during development or implementation, or lack of market acceptance of
these services could have a material adverse effect on the Company. The future
success of the Giga Advisory Service will depend in part of the Company's
ability to expand the breadth and depth of its services through the addition
of internal analysts and content from third party sources. The Company has
recently introduced the first of a planned series of Relevance Services. The
success of these services will depend on the Company's ability to add
experienced consultants and to complete the development of additional
Relevance Services on a timely basis. The Company's continued ability to
differentiate itself through its Internet-based GigaWeb system will depend on
its ability to continue to add features and functionality to GigaWeb. In
addition, the Company has limited internal resources dedicated to its Web site
development and relies on third parties, including consultants and software
developers, for the design, development and testing of its GigaWeb system. Any
technical or other related problems or deficiencies in GigaWeb in the areas of
reliability, performance and scalability could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company has had limited experience introducing new services and there can be
no assurance that its efforts to introduce new services or to assimilate
acquired services will be successful. If the Company is unable, for technical
or other reasons, to develop and introduce new services or make enhancements
to existing services in a timely manner in response to changing market
conditions or customer requirements, or if its Giga Advisory Service or other
services offered by the Company do not achieve market acceptance, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Business--Services."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may fluctuate significantly in the future
due to various factors, including the level and timing of renewals of
subscriptions to its Continuous Information Services, the timing and amount of
new business generated by the Company, the mix of domestic versus
international business, the timing of the development, introduction and
marketing of new services, the timing of the hiring of research analysts and
sales people, changes in the spending patterns of the Company's target
clients, the Company's accounts receivable collection experience, changes in
market demand for IT research and analysis and competitive conditions in the
industry. Due to these and other factors, the Company believes period-to-
period comparisons of results of operations may not be meaningful and should
not be relied upon as an indication of future results of operations. The
potential fluctuations in the Company's operating results make it possible
that, in some future period, the Company's operating results will be below the
expectations of securities analysts and investors, which would have a material
adverse effect on the price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
UNCERTAINTIES RELATING TO PROPRIETARY RIGHTS AND USE OF THE INTERNET
The Company's success and ability to compete is dependent in part upon its
proprietary information and technology. The Company relies on a combination of
copyright, trademark and trade secret laws, employee and
8
<PAGE>
third-party nondisclosure agreements and contractual provisions and other
methods to protect its proprietary information and technology. There can be no
assurance that the measures taken by the Company to protect its proprietary
information and technology will be adequate to prevent misappropriation or
that others will not develop independently similar proprietary information or
technology. Furthermore, there can be no assurance that competitors will not
develop similar or superior proprietary information or technologies.
As a distributor of content over the Internet, the Company faces potential
liability for libel, defamation, negligence, copyright and trademark
infringement and other claims based on the nature of the content that it
distributes, although the nature and extent of the liability is generally
unsettled under law. In addition, the Company licenses certain content from a
third party and may license content from other third parties in the future.
There can be no assurance the Company will not be involved in expensive and
time consuming litigation with respect to claims based on the third-party
content that it distributes. Any such litigation, whether or not resulting in
a ruling requiring the payment of damages, could have a material adverse
effect on the Company's business, financial condition and results of
operations.
SUBSTANTIAL FUTURE CAPITAL NEEDS; RISKS OF WORKING CAPITAL DEFICIENCY
The Company's business has significant fixed costs, primarily attributable
to the costs associated with producing research to implement its single-
service strategy, which provides for coverage of many of the IT sectors and
contemplates broad direct distribution worldwide. The Company has spent
substantial amounts to date and expects capital and operating expenditures to
increase in the near term as it hires additional sales people, research
analysts and other support staff and continues to develop its services. The
Company anticipates funding its ongoing working capital needs, including the
hiring of additional research analysts and other personnel, the expansion of
its sales force, the further enhancement of the GigaWeb system and the
expansion of its international operations, principally through the net
proceeds to the Company from the Offering. However, the Company is unable to
quantify the amount of funds to be required for each specific use because such
expenditures will depend on factors such as the rate at which it will be able
to recruit and hire additional personnel. In the event that the Company
encounters difficulties in collecting accounts receivable, experiences low or
reduced subscription renewal rates or otherwise has revenues that are lower
than planned, the Company might require additional working capital and there
can be no assurance that such capital would be available to the Company on
terms that are acceptable, if at all. If adequate funds are not available, the
Company may be required to reduce its fixed costs and delay, scale back or
eliminate certain of its services, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Certain of the Company's operations are located outside of the United States
and the Company expects to expand its international operations significantly.
Revenues attributable to the Company's continuing foreign operations were 65%
and 64%, respectively, of total revenues for 1995 and the six months ended
June 30, 1996. The Company believes there are certain risks inherent in
international operations, including changes in demand resulting from
fluctuations in interest and exchange rates, changes in trade policies,
regulatory requirements, difficulties in staffing and managing foreign sales
operations, and higher levels of taxation on foreign income than domestic
income. Most of the Company's international revenues are expected to be
denominated in foreign currencies. Consequently, a decrease in the value of a
relevant foreign currency in relation to the United States dollar could have
an adverse impact on the Company's results of operations. Adverse developments
in any one of these factors could have a material adverse effect on the
Company's business, financial condition or results of operations.
MANAGEMENT OF PLANNED EXPANSION
The Company's planned expansion is expected to place a significant strain on
the Company's financial, operational and managerial resources. To manage its
expansion, the Company must continue to implement and improve its operations
and financial systems and to increase, train and manage its personnel. There
can be no
9
<PAGE>
assurance that the Company's systems, procedures or controls currently in
place will be adequate to support the Company's operations or that the Company
will be able to implement additional systems successfully and in a timely
manner if required. If the Company continues to grow, it will be required to
expand its research staff, expand its sales and marketing force, recruit
additional key management personnel, improve its operational and financial
systems and train, motivate and manage additional employees. There can be no
assurance that the Company will be able to manage these changes successfully.
Any inability of the Company to manage its growth successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISK OF NON-UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS
The Company has incurred substantial tax loss carryforwards since inception
and acquired tax loss carryforwards with its acquisition of BIS, all of which
aggregate approximately $15.0 million at June 30, 1996. Due to the magnitude
of these existing tax loss carryforwards, the continuing anticipated losses
through 1997 and the substantial uncertainties associated with its business,
the Company is unable to conclude that it is more likely than not that the
deferred tax asset associated with these tax loss carryforwards will be
realized. Accordingly, this deferred tax asset has been substantially
reserved. This valuation allowance will be reduced and the deferred tax asset
will be recognized when it becomes more likely than not that the deferred tax
asset will be realized.
LEGAL PROCEEDINGS
The Company and Mr. Gartner are currently involved in a pending lawsuit with
a former employee based upon allegations by the former employee that, among
other things, the Company breached an oral employment agreement with him and
that the Company and Mr. Gartner made fraudulent representations in inducing
him to accept employment with the Company. The former employee has asserted
that he is entitled to certain compensation, 60,000 shares of the Company's
Common Stock (or cash in lieu thereof) and an option to purchase an additional
60,000 shares of the Company's Common Stock, as well as $2.5 million in
compensatory damages and $1.0 million in punitive damages. See "Business--
Legal Proceedings."
CONTROL BY MANAGEMENT
Upon the closing of the Offering, Mr. Gartner will beneficially own
approximately 36% of the outstanding Common Stock and Mr. Gartner, together
with the Company's other executive officers and directors, including entities
affiliated with them, will beneficially own approximately 55% of the
outstanding Common Stock. As a result, these stockholders will be able to
exercise control over matters requiring stockholder approval, including the
election of directors and the approval of significant corporate matters such
as transactions which may lead to a change of control of the Company. The
effects of such control could be to delay or prevent a change of control of
the Company unless the terms are approved by such stockholders, which could
adversely affect the market price of the Company's Common Stock. See
"Management" and "Principal Stockholders."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that, following the Offering, an
active trading market for the Common Stock will develop or be sustained or
that the market price of the Common Stock will not decline below the initial
public offering price. The initial public offering price was determined
through negotiations between the Company and the Representatives of the
Underwriters and will not necessarily reflect the market price of the Common
Stock after the Offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The stock market
in recent years has experienced extreme price and volume fluctuations that
have particularly affected market prices of many growth-oriented companies in
industries similar or related to that of the Company and that have often been
unrelated or disproportionate to the operating performance of such companies.
The market price of the Common Stock could also be subject to significant
fluctuations in response to, and may be adversely affected by, variations in
quarterly results, changes in earnings estimates or other actions by analysts
and earnings or other announcements of the Company's customers or competitors
as well as other factors.
10
<PAGE>
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution of $7.83 in the net tangible book value of
the Common Stock from an assumed initial public offering price of $10.00 per
share (after deducting the estimated underwriting discounts and commissions
and estimated offering expenses). Additional dilution will occur upon exercise
or conversion of outstanding stock options, warrants or convertible notes. See
"Dilution" and "Shares Eligible for Future Sale."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. The 4,000,000 shares offered hereby will be eligible for sale in the
public market immediately following the effective date of the Registration
Statement; 2,600 shares will become eligible for sale in the public market 90
days after the effective date of the Registration Statement; and the remaining
outstanding shares will become eligible for sale in the public market at
various dates beginning 180 days after the effective date of the Registration
Statement. Holders of 10,880,215 shares have contractual rights to have their
shares registered with the Securities and Exchange Commission for resale to
the public beginning 180 days after the effective date of the Registration
Statement. In addition, within 180 days after the effective date of the
Registration Statement, the Company intends to file a registration statement
covering the shares of Common Stock issued or reserved for issuance under the
Company's 1995 Stock Option/Stock Issuance Plan, 1996 Stock Option Plan and
1996 Employee Stock Purchase Plan, and upon filing any shares subsequently
issued under such plans will be eligible for sale in the public market,
subject to Rule 144 compliance in the case of affiliates of the Company. See
"Shares Eligible for Future Sale" and "Description of Capital Stock."
EFFECT OF ANTI-TAKEOVER PROVISIONS
A Restated Certificate of Incorporation (the "Restated Certificate") will be
filed upon the closing of the Offering, pursuant to which the Company's Board
of Directors will have the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, conversion ratios,
preferences and privileges of those shares without any further vote or action
by the Company's stockholders. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
such Preferred Stock. Any such issuance, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company and could negatively
impact the voting power or other rights of the holders of Common Stock. In
addition, such Preferred Stock may have other rights, including economic
rights senior to the Common Stock, and, as a result, the issuance thereof
could have a material adverse effect on the market value of the Common Stock.
The Restated Certificate will provide for a classified Board of Directors and
will permit a member of the Board of Directors to be removed for cause only
upon the affirmative vote of holders of a majority, or without cause only upon
the affirmative vote of at least two-thirds, of the shares of capital stock of
the Company entitled to vote. Furthermore, the Company is subject to the anti-
takeover provisions of Section 203 of the Delaware General Corporation Law
that prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person first becomes an "interested stockholder,"
unless the business combination is approved in a prescribed manner. The
application of Section 203 could also have the effect of delaying or
preventing a change of control of the Company. Certain other provisions of the
Restated Certificate may have the effect of delaying or preventing changes of
control or management of the Company, which could adversely affect the market
price of the Company's Common Stock. See "Description of Capital Stock--
Delaware Law and Certain Charter and By-Law Provisions."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to Giga from the sale of the 4,000,000 shares of Common
Stock offered hereby are estimated to be $35,650,000 ($41,230,000 if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company and assuming an initial public offering price of $10.00 per
share.
The Company is conducting the Offering at this time in order to raise funds
for working capital and other general corporate purposes. The Company's
planned working capital uses include the expansion of the Company's staff of
analysts, further development of the Giga Advisory Service, Relevance Services
and other consulting services and expansion of its sales, marketing and
support staff. See "Risk Factors--Future Capital Needs, Risks of Working
Capital Deficiency." A portion of the net proceeds may also be used for the
acquisition of businesses, services and technologies that are complementary to
those of the Company. The Company currently has no plans, commitments or
agreements with respect to any such acquisitions as of the date of this
Prospectus. The Company has not determined the allocation of the net proceeds
among the expected uses, since the allocation is dependent on the future
expansion of the Company's business and the accompanying working capital
needs, available future acquisition opportunities and other related future
business opportunities that are not predictable at this time. Pending such
uses, the Company intends to invest the net proceeds from the Offering in
short-term, investment grade, interest-bearing instruments. The Company has
broad discretion over the use and investment of the net proceeds.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support
its growth strategy and does not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account
various factors including the Company's financial condition, operating
results, current and anticipated cash needs and plans for expansion.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company as described in Note (1) below, and (iii) the pro forma capitalization
of the Company as adjusted to reflect the issuance and sale by the Company of
4,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share and receipt of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
--------------- ---------------- ---------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long term debt, less
current portion.......... $1,472 $1,472 $1,472
--------------- --------------- ---------------
Stockholders' Equity(3):
Preferred Stock, $.001
par value; 5,000,000
shares authorized; none
issued or outstanding on
an actual, pro forma or
pro forma as adjusted
basis................... -- -- --
Series A Preferred Stock,
$.001 par value;
650,000 shares
authorized; 570,000
shares issued and
outstanding (actual); no
shares authorized,
issued or outstanding on
a pro forma or pro forma
as adjusted basis....... 1 -- --
Series B Preferred Stock,
$.001 par value;
6,500,000 shares
authorized; 5,272,215
shares issued and
outstanding (actual); no
shares authorized,
issued or outstanding on
a pro forma or pro forma
as adjusted basis....... 5 -- --
Common Stock, $.001 par
value; 60,000,000 shares
authorized; 6,110,600
shares issued and
outstanding (actual);
13,662,815 shares issued
and outstanding (pro
forma); 17,662,815
shares issued and
outstanding (pro forma
as adjusted)(2)......... 6 14 18
Additional paid-in
capital................. 20,631 20,629 56,275
Stock subscriptions
receivable.............. (75) (75) (75)
Accumulated deficit...... (16,537) (16,537) (16,537)
Cumulative translation
adjustments............. 22 22 22
--------------- --------------- ---------------
Total stockholders'
equity................. 4,053 4,053 39,703
--------------- --------------- ---------------
Total capitalization.... $ 5,525 $ 5,525 $ 41,175
=============== =============== ===============
</TABLE>
- --------
(1) Presented on a pro forma basis to give effect to the conversion of all
outstanding shares of Preferred Stock into an aggregate of 7,552,215
shares of Common Stock upon the closing of the Offering. See Note 2 of
Notes to Consolidated Financial Statements.
(2) Based on shares outstanding as of June 30, 1996. Does not include (i)
3,649,473 shares of Common Stock issuable upon the exercise of outstanding
options at a weighted average option exercise price of $0.64 per share as
of August 31, 1996; (ii) 3,426,653 shares of Common Stock reserved for
issuance under the Company's stock plans as of August 31, 1996;
(iii) 233,873 shares of Common Stock issuable upon conversion of
outstanding convertible notes at a weighted average conversion price of
$5.00 per share at August 31, 1996; (iv) 393,590 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $2.95 per share at August 31, 1996; and (v) shares of
Common Stock issued by the Company to employees after June 30, 1996. See
"Management--Executive Compensation" and "Description of Capital Stock."
(3) Reflects the filing of the Company's Restated Certificate of Incorporation
upon the closing of the Offering.
13
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996 was
$2,756,000 or $0.20 per share. Pro forma net tangible book value per share
represents the amount of total tangible assets (total assets less intangible
assets) of the Company reduced by the Company's total liabilities, divided by
the pro forma number of shares of Common Stock outstanding. Assuming an
initial public offering price of $10.00 per share, and after giving effect to
the sale by the Company of 4,000,000 shares of Common Stock in the Offering
(after deducting the estimated underwriting discounts and commissions and
estimated offering expenses), the pro forma net tangible book value of the
Company as of June 30, 1996 would have been $38,406,000 or $2.17 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.97 per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $7.83 per share to new investors purchasing
Common Stock in the Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed price to public...................................... $10.00
Pro forma net tangible book value per share before the
Offering................................................... $0.20
Increase per share attributable to new investors............ 1.97
-----
Pro forma net tangible book value per share after the
Offering.................................................... 2.17
------
Dilution per share to new investors.......................... $ 7.83
======
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by the
existing stockholders and by the investors purchasing shares of Common Stock
offered hereby (at an assumed initial public offering price of $10.00 per
share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 13,662,815 77.4% $21,564,052 35.0% $ 1.58
New investors............. 4,000,000 22.6% $40,000,000 65.0% $10.00
---------- ------ ----------- ------
Total................. 17,662,815 100.0% $61,564,052 100.0%
========== ====== =========== ======
</TABLE>
The foregoing assumes no exercise or conversion of any outstanding stock
options, warrants or convertible notes to purchase shares of Common Stock. As
of August 31, 1996, there were outstanding (i) options to purchase 3,649,473
shares of Common Stock at a weighted average exercise price of $0.64 per
share; (ii) warrants to purchase 393,590 shares of Common Stock at a weighted
average exercise price of $2.95 per share; and (iii) convertible notes that
are convertible into 233,873 shares of Common Stock at a weighted average
conversion price of $5.00 per share. In addition, as of August 31, 1996,
3,426,653 shares of Common Stock were reserved for future issuance pursuant to
the Company's stock plans. To the extent that the outstanding options,
warrants and convertible notes are exercised or converted at prices lower than
the initial public offering price, there will be further dilution to new
investors. See "Management--Executive Compensation," "Certain Transactions"
and "Description of Capital Stock."
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are derived from the consolidated
financial statements of the Company and the combined financial statements of
BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively,
the "Predecessor Companies"). For the years ended December 31, 1991 and 1992
and the period January 1 to December 15, 1993, the operations comprising the
Predecessor Companies were those of wholly-owned subsidiaries of NYNEX
Corporation ("NYNEX"). For the period December 16 to December 31, 1993, the
year ended December 31, 1994 and the period January 1 to April 5, 1995, the
operations of the Predecessor Companies were those of wholly-owned
subsidiaries of Friday Holdings, L.P. ("Friday Holdings"). Because of the
impact to the statements of operations of the revaluation of the assets and
liabilities in connection with the acquisitions and the application of
different accounting methods, the results of operations of the Predecessor
Companies for the periods under NYNEX and Friday Holdings ownership are not
comparable with each other or with those reported by the Company.
The consolidated financial statements of the Company as of December 31, 1995
and June 30, 1996 and for the period from March 17, 1995 to December 31, 1995
and the six months ended June 30, 1996 included elsewhere in this Prospectus
have been audited by Coopers & Lybrand L.L.P., independent accountants. The
consolidated financial statements of the Company for the period March 17, 1995
to June 30, 1995 included elsewhere in this Prospectus are unaudited, however,
in the opinion of management, such unaudited data include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information included therein. The results of operations
for the periods March 17, 1995 to December 31, 1995, March 17, 1995 to June
30, 1995 and the six months ended June 30, 1996 are not necessarily indicative
of the results for an entire fiscal year or any other interim period. The
combined financial statements of the Predecessor Companies for the period
January 1, 1995 to April 5, 1995 included elsewhere in this Prospectus have
been audited by Coopers & Lybrand L.L.P. The combined financial statements of
the Predecessor Companies as of December 31, 1994 and for the periods January
1, 1993 to December 15, 1993 and December 16, 1993 to December 31, 1993 and
for the year ended December 31, 1994 included elsewhere in this Prospectus
have been audited by Ernst & Young LLP, independent auditors. For the periods
January 1, 1993 to December 15, 1993 and December 16, 1993 to December 31,
1993, the financial statements of BIS Shrapnel PTY Limited, one of the
combined companies, were audited by other auditors. Ernst & Young LLP's report
on the combined financial statements as of December 31, 1994 and for the
periods January 1, 1993 to December 15, 1993, and December 16, 1993 to
December 31, 1993 and the year ended December 31, 1994, includes a description
of uncertainties regarding the Predecessor Companies' ability to continue as a
going concern which is discussed in Note 4 to the financial statements of BIS
Strategic Decisions. The selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
15
<PAGE>
SELECTED FINANCIAL DATA--(CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES(1) PREDECESSOR COMPANIES
YEAR ENDED JANUARY 1 DECEMBER 16 YEAR JANUARY 1
DECEMBER 31, TO TO ENDED TO
---------------- DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5,
1991 1992 1993 1993(1) 1994 1995
------- ------- ------------ ------------ ------------ ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Continuous
information
services........ $ -- $ -- $ -- $ -- $ -- $ --
Other services... 14,415 12,774 11,371 329 12,700 3,237
------- ------- ------- ----- ------- ------
Total revenues.. 14,415 12,774 11,371 329 12,700 3,237
------- ------- ------- ----- ------- ------
Costs and
Expenses:
Cost of
services........ 7,169 6,462 5,530 357 6,172 2,208
Sales and
marketing....... 2,617 1,685 1,448 92 1,589 266
Research and
development..... -- -- -- -- -- --
General and
administrative.. 9,802 9,132 6,901 307 8,108 1,197
Depreciation and
amortization.... 1,064 963 744 38 3,068 250
------- ------- ------- ----- ------- ------
Total costs and
expenses....... 20,652 18,242 14,623 794 18,937 3,921
------- ------- ------- ----- ------- ------
Operating loss... (6,237) (5,468) (3,252) (465) (6,237) (684)
Interest income... 206 153 114 7 103 26
Interest expense.. (176) (57) (38) (4) (26) (4)
------- ------- ------- ----- ------- ------
Loss from
continuing
operations
before income
taxes
(benefit)....... (6,207) (5,372) (3,176) (462) (6,160) (662)
Benefit from
income taxes..... -- (1,063) (983) -- (1,096) (213)
------- ------- ------- ----- ------- ------
Loss from
continuing
operations...... (6,207) (4,309) (2,193) (462) (5,064) (449)
------- ------- ------- ----- ------- ------
Discontinued
operations:
Income (loss)
from the
discontinued BIS
market research
business (net of
tax effect)..... 4,922 4,623 1,044 44 (1,469) 597
Loss on disposal
of discontinued
BIS market
research
business (net of
tax effect)..... -- -- -- -- -- --
------- ------- ------- ----- ------- ------
Income (loss)
from
discontinued
operations...... 4,922 4,623 1,044 44 (1,469) 597
------- ------- ------- ----- ------- ------
Net income
(loss).......... $(1,285) $ 314 $(1,149) $(418) $(6,533) $ 148
======= ======= ======= ===== ======= ======
Historical results
per common and
common equivalent
share:
Loss from
continuing
operations......
Income (loss)
from
discontinued
operations......
Loss from
disposal of
discontinued
operations......
Net loss.........
Historical
weighted average
common and common
equivalent shares
outstanding:
Pro forma results
per common and
common equivalent
share:
Loss from
continuing
operations......
Income (loss)
from
discontinued
operations......
Loss from
disposal of
discontinued
operations......
Net loss.........
Pro forma weighted
average common
and common
equivalent shares
outstanding......
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(2) COMPANY
----------------------- -----------------------------------
SIX MONTHS MARCH 17 MARCH 17 SIX MONTHS
ENDED YEAR ENDED TO TO ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1995 1995 1996
---------- ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Continuous
information
services........ $ -- $ -- $ -- $ -- $ 627
Other services... 6,880 14,015 10,706 3,571 5,855
------ ------- ---------- ---------- ----------
Total revenues.. 6,880 14,015 10,706 3,571 6,482
------ ------- ---------- ---------- ----------
Costs and
Expenses:
Cost of
services........ 4,803 10,427 8,097 2,473 8,809
Sales and
marketing....... 457 1,282 1,016 191 1,982
Research and
development..... -- 348 348 -- 839
General and
administrative.. 2,672 7,455 6,216 1,433 4,257
Depreciation and
amortization.... 927 1,797 1,397 527 1,088
------ ------- ---------- ---------- ----------
Total costs and
expenses....... 8,859 21,309 17,074 4,624 16,975
------ ------- ---------- ---------- ----------
Operating loss... (1,979) (7,294) (6,368) (1,053) (10,493)
Interest income... 54 287 259 26 375
Interest expense.. (50) (134) (100) (16) (52)
------ ------- ---------- ---------- ----------
Loss from
continuing
operations
before income
taxes
(benefit)....... (1,975) (7,141) (6,209) (1,043) (10,170)
Benefit from
income taxes..... (531) (1,311) (1,093) (310) (257)
------ ------- ---------- ---------- ----------
Loss from
continuing
operations...... (1,444) (5,830) (5,116) (733) (9,913)
------ ------- ---------- ---------- ----------
Discontinued
operations:
Income (loss)
from the
discontinued BIS
market research
business (net of
tax effect)..... 899 2,097 1,490 301 (85)
Loss on disposal
of discontinued
BIS market
research
business (net of
tax effect)..... -- -- -- -- (2,305)
------ ------- ---------- ---------- ----------
Income (loss)
from
discontinued
operations...... 899 2,097 1,490 301 (2,390)
------ ------- ---------- ---------- ----------
Net income
(loss).......... $ (545) $(3,733) $ (3,626) $ (432) $ (12,303)
====== ======= ========== ========== ==========
Historical results
per common and
common equivalent
share:
Loss from
continuing
operations...... (0.38) (0.06) (0.70)
Income (loss)
from
discontinued
operations...... 0.11 0.02 (0.01)
Loss from
disposal of
discontinued
operations...... -- -- (0.16)
Net loss......... (0.27) (0.04) (0.87)
Historical
weighted average
common and common
equivalent shares
outstanding: 14,486,788 12,299,420 14,180,287
Pro forma results
per common and
common equivalent
share:
Loss from
continuing
operations...... (0.34) (0.61)
Income (loss)
from
discontinued
operations...... 0.10 0.00
Loss from
disposal of
discontinued
operations...... -- (0.14)
Net loss......... (0.24) (0.75)
Pro forma weighted
average common
and common
equivalent shares
outstanding...... 14,855,209 16,360,287
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA--(CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES COMPANY
-------------------------------- ----------------------
DECEMBER 31,
-------------------------------- DECEMBER 31, JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------- ------- ------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $2,177 $ 1,798 $ 2,814 $ 1,809 $ 16,906 $ 9,331
Working capital
(deficit).............. (347) (680) 1,893 (1,777) 11,205 2,734
Total assets............ 7,124 6,632 12,979 8,601 24,684 19,220
Deferred revenues....... 1,194 386 1,299 1,681 2,480 4,995
Long term debt, less
current portion........ 258 -- -- -- 1,437 1,472
Total stockholders'
equity................. 1,784 1,843 8,679 1,823 13,660 4,053
</TABLE>
- --------
(1) Effective January 1, 1993, the Predecessor Companies changed the method of
accounting for revenue recognized from the BIS Market Research Business.
For the years ended December 31, 1991 and 1992, the Predecessor Companies
recognized 35% of the revenue upon execution of a services contract and
the remaining 65% on a pro rata monthly basis over the contract period.
Under the Company's current revenue recognition method, income after taxes
from the discontinued BIS Market Research Business and net income would
have been reduced by approximately $632,000 and $32,000 for the years
ended December 31, 1991 and 1992, respectively. Subsequent to January 1,
1993, the Predecessor Companies recognized such revenue ratably over the
related contract periods. The cumulative effect of this change in
accounting method decreased income from the discontinued BIS Market
Research Business and net income for the period ended December 15, 1993 by
$1,928,000, net of applicable income taxes of $462,000.
(2) The pro forma results reflect the results of operations as if the
acquisitions of BIS and ExperNet had occurred on January 1, 1995. See Note
3 of Notes to Consolidated Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ORGANIZATION OF THE COMPANY AND FINANCIAL STATEMENT PRESENTATION
The Company was organized on March 17, 1995. On April 5, 1995, the Company
acquired BIS Strategic Decisions, Inc. and its five foreign affiliates
(collectively, "BIS" or the "Predecessor Companies") as part of its strategic
plan to accelerate the development of its Continuous Information Services
business and to obtain the marketing, sales and other corporate
infrastructures and certain personnel of BIS. On July 6, 1995, the Company
acquired a 77.8% equity interest in ExperNet Corporation ("ExperNet"), which
was owned by Gideon I. Gartner and David L. Gilmour, each a director and
officer of the Company, and, on December 29, 1995, acquired the remaining
22.2% equity interest.
This Prospectus includes the financial statements of BIS, as the predecessor
to the Company, through the period ended April 5, 1995, the date of
acquisition by the Company. The period December 16 to December 31, 1993 is
shown separately for the Predecessor Companies because of a prior acquisition
by an unrelated entity on December 16, 1993. The periods covered by the
financial statements of the Company commence on March 17, 1995, the date of
its incorporation, and include the results of operations of BIS from April 5,
1995 and the results of operations of ExperNet from July 6, 1995, their
respective dates of acquisition. Results of operations of ExperNet are not
included in results of Predecessor Companies, which are solely the results of
BIS. The acquisition of BIS was accounted for under the purchase method;
accordingly, acquired assets were recorded at their estimated fair values and
related goodwill of approximately $3,059,000 was also recorded and is being
amortized over two years. Because ExperNet was a related company under common
control, its assets were recorded by the Company at their historical cost.
OVERVIEW
The Company's current services target three principal customer markets: IT
users, IT vendors and IT institutional and other investors. The Company
derives its revenues primarily from two sources: Continuous Information
Services, which include its Giga Advisory Service and Relevance Services, and
Other Services, which include events, publications, consulting and econometric
forecasting.
In June 1996, the Company discontinued the BIS Market Research Business.
Results of operations from the discontinued BIS Market Research Business are
reflected as Discontinued Operations in the Company's financial statements.
The Company continues to generate revenues from the events, publications,
consulting and econometric forecasting businesses acquired as part of the
acquisition of BIS, which are reflected in the statements of operations as
Other Services revenue. Revenues to date have been primarily attributable to
Other Services. The Company expects these revenues will be a declining
percentage of total revenues in future periods. As a result of the
discontinuance of the BIS Market Research Business, Giga recorded a charge of
approximately $2.3 million in the six months ended June 30, 1996. The Company
does not consider the historical results of Predecessor Companies' operations
which have been discontinued to be meaningful or indicative of the Company's
future operating results. The Company has entered into agreements with two
unrelated parties which have assumed responsibility for fulfillment of the
Company's obligations to former BIS customers in exchange for a share of the
deferred revenues recorded by Giga with respect to such customers. See "Risk
Factors--Limited Operating History; Prior Losses and Anticipation of Future
Losses," and "--Risks Associated with Discontinuance of BIS Market Research
Business."
In April 1996, the Company introduced its Giga Advisory Service and GigaWeb.
In July 1996, the Company introduced the first of a planned series of
specialized research products, called Relevance Services, which combine
original analysis, data and information with consulting to address specific IT
needs of customers. The Company expects that future revenues from its
Continuous Information Services will significantly increase as a percentage of
future total revenues.
18
<PAGE>
The Company's Giga Advisory Service and Relevance Services are typically
sold through annual subscriptions which generally provide for payment at the
commencement of the subscription period and renew automatically unless the
customer cancels the subscription. These agreements generally may be
terminated by the customer on 90-days' notice. Amounts received in advance of
services provided are reflected initially in the Company's financial
statements as deferred revenues and are recognized on a pro rata monthly basis
over the term of the subscription. The Company expects costs of services to
continue to significantly increase in the future primarily as a result of the
Company's expansion of its staff of analysts and further development of its
Giga Advisory Service, Relevance Services and other consulting services.
The Company has incurred significant operating losses since its inception in
1995 due to its focus on building its research, sales and marketing
capabilities, development and enhancement of its GigaWeb system and the
development of the Giga Advisory Service and Relevance Services. The Company
expects sales and marketing expenses to continue to significantly increase in
the future as it expands its sales, marketing and support staff. The Company
expects to incur losses through at least fiscal year 1997 as it continues to
invest in these activities.
The Company has incurred substantial tax loss carryforwards since inception
and acquired tax loss carryforwards with its acquisition of BIS, all of which
aggregate approximately $15.0 million at June 30, 1996. Due to the magnitude
of these existing tax loss carryforwards, the continuing anticipated losses
through 1997 and the substantial uncertainties associated with its business,
the Company is unable to conclude that it is more likely than not that the
deferred tax asset associated with these tax loss carryforwards will be
realized. Accordingly, this deferred tax asset has been substantially
reserved. This valuation allowance will be reduced and the deferred tax asset
will be recognized when it becomes more likely than not that the deferred tax
asset will be realized.
The Company believes that a leading measure of the Company's volume of
business is the contract value ("Contract Value") of its Giga Advisory Service
and Relevance Services agreements in effect at a given point in time. The
Company calculates Contract Value each month as the cumulative annualized
subscription value payable under subscription agreements, without regard to
commencement date, duration or risk of cancellation. Since the introduction of
the Company's Giga Advisory Service and Relevance Services, as of September
30, 1996, the Company had entered into contracts with 109 customers having an
aggregate Contract Value of approximately $3.8 million, excluding
approximately $1.1 million of subscriptions sold to former customers of the
BIS Market Research Business. The Company can give no assurance that its
Contract Value will continue to grow.
In the six months ended June 30, 1996, approximately 64% of the Company's
revenue was attributable to foreign operations, substantially all of which was
related to sales of the Company's Other Services. The Company expects that
this percentage will decline significantly as it grows its Continuous
Information Services business, substantially all of which is currently located
in the United States. The Company does not believe that changes in foreign
exchange rates will have a material effect on its future results of
operations.
ESTIMATED THIRD QUARTER RESULTS
For the quarter ended September 30, 1996, the Company estimates that it had
revenues of approximately $3.2 million, of which approximately $900,000 was
attributable to Continuous Information Services and the balance to Other
Services. The Company estimates that its loss from continuing operations and
pro forma loss from continuing operations per share for such quarter were
approximately $5.3 million and $0.32, respectively.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO PRO FORMA SIX MONTHS ENDED JUNE
30, 1995
For purposes of the following discussion, the pro forma six month period
ended June 30, 1995 reflects the results of operations of the Predecessor
Companies from January 1, 1995 to April 5, 1995 (the date of acquisition of
the Predecessor Companies by the Company) and the Company from March 17, 1995
(the date of inception) through June 30, 1995, and includes the results of
operations of ExperNet and the amortization of
19
<PAGE>
goodwill incurred in connection with the acquisition of the Predecessor
Companies as though these acquisitions occurred on January 1, 1995. The
Company's activities from March 17, 1995 to April 5, 1995 were principally
devoted to the acquisition of the Predecessor Companies.
Revenues. Revenues for the six months ended June 30, 1996 were approximately
$6.5 million compared to revenues of approximately $6.9 million for the pro
forma six months ended June 30, 1995, due to a decrease in revenues from Other
Services of approximately $1.0 million which was partially offset by revenues
from the Company's newly introduced Continuous Information Services. In the
six months ended June 30, 1996, the Company recorded Continuous Information
Services revenues of $0.6 million. Other Services revenues declined by
approximately $1.0 million as compared to the pro forma six months ended June
30, 1995, primarily due to a reduction in the number of events sponsored by
the Company.
Cost of Services. The Company's cost of services development increased to
approximately $8.8 million in the six months ended June 30, 1996 from
approximately $4.8 million in the pro forma six months ended June 30, 1995.
The increase was principally attributable to the Company's substantial
investment during the six months ended June 30, 1996 in research and
technology related to the development of the Company's Giga Advisory Service
and Relevance Services.
Sales and Marketing Expenses. Sales and marketing expenses in the six months
ended June 30, 1996 increased to approximately $2.0 million compared to
approximately $0.5 million in the pro forma six months
ended June 30, 1995. The increase was principally attributable to the
increased investment in marketing programs and expansion of the Company's
sales force to support the introduction and marketing of its Giga Advisory
Service.
Research and Development Expenses. Research and development expenses
increased from approximately $348,000 in 1995 to approximately $839,000 for
the six months ended June 30, 1996 due to an increased investment required for
the development of GigaWeb and ExperNet.
General and Administrative Expenses. General and administrative expenses
increased to approximately $4.3 million in the six months ended June 30, 1996
from approximately $2.7 million in the pro forma six months ended June 30,
1995. The increase resulted principally from significant investments for
internal systems, facilities and infrastructure, including the hiring of a
senior management team.
Discontinued Operations. The Company recorded a loss from discontinued
operations of approximately $2.4 million for the six months ended June 30,
1996 compared to income of approximately $0.9 million for the pro forma six
months ended June 30, 1995. The 1996 loss included $2.3 million of charges
related to the discontinuance of the BIS Market Research Business in June
1996. See Note 16 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS FOR 1995 PRO FORMA, 1994 AND 1993
For purposes of the following discussion, the pro forma year ended December
31, 1995 reflects the operations of the Predecessor Companies from January 1,
1995 to April 5, 1995 and the Company from March 17, 1995 to December 31, 1995
and includes the results of operations of ExperNet and the amortization of
goodwill incurred in connection with the acquisition of the Predecessor
Companies as though these acquisitions occurred on January 1, 1995. The
Company's activities from March 17, 1995 to April 5, 1995 were principally
devoted to the acquisition of the Predecessor Companies.
Revenues. Revenues were approximately $14.0 million, $12.7 million and $11.7
million for pro forma 1995, 1994 and 1993, respectively. The revenues were
derived from the Predecessor Companies' Other Services business, consisting of
events, publications, consulting and econometric forecasting. The increases in
pro forma 1995 and 1994 were attributable primarily to increased events and
consulting revenues in those years.
Cost of Services. Expenses for cost of services increased year to year, with
the major increase occurring in pro forma 1995, when these costs were
approximately $10.4 million compared to approximately $6.2 million
20
<PAGE>
in 1994. The pro forma 1995 increase resulted primarily from increased
expenditures relating to the hiring of research analysts to support the
Company's Giga Advisory Service and Relevance Services.
Sales and Marketing Expenses. Sales and marketing expenses in 1994 and 1993
were relatively unchanged, but declined to approximately $1.3 million in pro
forma 1995 from $1.6 million in 1994. The pro forma 1995 decline resulted
primarily from a curtailment of marketing investments in the Predecessor
Companies' Other Services business and a reduction in the number of sponsored
events.
Research and Development Expenses. The Company incurred research and
development expenses of approximately $348,000 for the development of GigaWeb
and ExperNet.
General and Administrative Expenses. General and administrative expenses for
pro forma 1995, 1994 and 1993 did not vary significantly during the three year
period. The decrease in these expenses to approximately $7.5 million in pro
forma 1995 from approximately $8.1 million in 1994 resulted primarily from
certain headcount reductions made by the Company shortly after its acquisition
of BIS in April 1995 and severance expenses included in the 1994 results. In
1994, severance expenses totaled $905,000 (of which $600,000 pertain to
continuing operations), and in 1995 severance expenses totaled approximately
$220,000 (of which $198,000 pertain to continuing operations).
Discontinued Operations. The income from discontinued operations increased
to $2.1 million in pro forma 1995, compared with a loss of $1.5 million in
1994. The results for the year ended 1994 included a charge of $2.6 million
for an impairment of goodwill recognized in connection with the planned sale
of BIS by Friday Holdings.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through
private placements of equity securities. The private placements of equity
securities have provided the Company with net proceeds of approximately $20.6
million, representing $1.0 from the sale of Common Stock, $2.0 million from
the sale of Series A Preferred Stock and $17.6 million from the sale of Series
B Preferred Stock. At June 30, 1996, the Company had cash and cash equivalents
of $9.3 million. See Notes 10 and 11 of Notes to Consolidated Financial
Statements.
The Company has used the proceeds of the private placements primarily to
hire research analysts and sales personnel and to fund the development of its
Continuous Information Services. In the period March 17 to June 30, 1995 and
the six months ended June 30, 1996, the Company's capital expenditures
totalled approximately $0.2 million and $1.1 million, respectively, primarily
for computer equipment. The Company expects that additional purchases of
computer equipment will be made as the Company's employee base grows. As of
June 30, 1996, the Company had no material commitments for capital
expenditures.
The Company's accounts receivable, exclusive of unbilled amounts, increased
from approximately $2.2 million at December 31, 1995 to approximately $3.0
million at June 30, 1996, primarily due to sales of the Company's Continuous
Information Services. These accounts receivables reflect both revenue that has
been recognized as income, as well as unrecognized revenue attributable to
billed amounts for the remaining balance of the customer's contract. Unbilled
accounts receivable increased from $90,000 at December 31, 1995 to $925,000 at
June 30, 1996, primarily as a result of sales of Continuous Information
Services to customers who are billed on a periodic basis rather than upon
contract signing.
Cash used by continuing operations of approximately $1.1 million and
$345,000 for the periods March 17 to December 31, 1995 and March 17 to June
30, 1995 and approximately $8.5 million for the six months ended June 30, 1996
were due primarily to losses incurred from continuing operations. Cash flows
from investing activities of $121,000 and $981,000 for the periods March 17 to
December 31, 1995 and March 17 to
21
<PAGE>
June 30, 1995 and cash used of approximately $1.3 million for the six months
ended June 30, 1996 were due primarily to cash used for the acquisition of
computer equipment offset by cash received from the acquisition of BIS. Cash
provided from financing activities of approximately $17.6 million and
approximately $1.3 million for the periods March 17 to December 31, 1995 and
March 17 to June 30, 1995, respectively, and approximately $2.6 million for
the six months ended June 30, 1996 were generated primarily from the issuance
of Common Stock and Series A and Series B Preferred Stock. The Company does
not presently expect to generate cash from operations until at least fiscal
year 1998.
The Company believes that the net proceeds from the Offering, together with
its existing cash and cash equivalents and cash generated from operations,
will be sufficient to fund the Company's working capital needs at least
through 1997. In the event that the Company is unable to complete the
Offering, certain of its existing investors have represented that they will,
to the extent necessary, fund the Company through June 1997 on terms to be
mutually agreed upon. The Company's actual future capital requirements will
depend on numerous factors, including the Company's ability to successfully
market its Giga Advisory Service and Relevance Services; the Company's ability
to enter into contracts for the sale of its services and to achieve and
sustain high renewal rates; its ability to attract and retain qualified
research analysts and sales personnel on a timely basis and the related costs
of such efforts; the response of competitors to the Company's services; the
Company's ability to develop and market new services and products; and the
continued acceptance by customers of annual membership agreements providing
for advance payments rather than equal monthly installments or some other
payment model. The Company expects that it may require additional working
capital in the future and there can be no assurance that such capital would be
available to the Company on terms that are acceptable, if at all. If adequate
funds are not available, the Company may be required to reduce its fixed costs
and delay, scale back or eliminate certain of its services, any of which could
have a material adverse effect on the Company's business, financial condition
or results of operations. See "Risk Factors--Substantial Future Capital Needs;
Risks of Working Capital Deficiency."
22
<PAGE>
BUSINESS
The Company provides information, analysis and advice relating to
developments and trends in the computing, telecommunications and related
industries (collectively, the information technology or "IT" industry).
Information technologies have become increasingly critical to the
competitiveness and long-term viability of a wide range of organizations. As a
result, many of these organizations have turned to IT "Continuous Information
Services" providers, which monitor and analyze IT developments and trends to
support customers' IT decisions. The Company's customers include: users of IT
products and services; vendors of IT hardware, software and services; and
institutional and other investors in the IT industry. These customers access
the Company's services through a personalized Internet-based interface, as
well as through published reports and consultation with the Company's analysts
and consultants.
Giga was founded in 1995 by Gideon I. Gartner, who founded Gartner Group,
Inc. in 1979 and served as its Chairman and Chief Executive Officer for twelve
years. Building upon his extensive experience in the IT Continuous Information
Services industry, Mr. Gartner formed Giga with the objective of creating a
new integrated single-service approach to providing Continuous Information
Services to address customers' needs more effectively than the multiple-
service offerings of existing IT information providers. See "--Industry
Background" and "--The Giga Solution."
The Giga Advisory Service, the principal service offering of the Company,
provides customers access to all of the Company's Giga Advisory Service
information, analysis and advice, as well as inquiry access to analysts and
practitioners and participation in briefings, conferences, electronic forums
and teleconferences. The Company believes that its integrated, single-service
offering, which is provided to customers for an annual subscription fee,
delivers significant advantages over its competitors' multiple-service
offerings which require customers to select, and separately purchase, subject-
specific services. The Company believes that significant advantages include
integrated broad-based coverage of IT development and trends and on-line
access through its GigaWeb system. See "Business--Industry Background," "--The
Giga Solution" and "--The Giga Strategy." The Company also provides its
customers with access to its ExperNet network of external IT practitioners who
are available to answer inquiries by customers. The Company recently
introduced the first of a planned series of specialized research products,
called Relevance Services, which combine original analysis, data and
information produced by proprietary surveys and methodologies with consulting,
to assist in enhancing the IT practices and operations of Giga's customers. In
addition, the Company is pursuing relationships with select content partners
to complement the original information and analyses provided by Giga's
analysts.
The Company's GigaWeb system, an Internet-based interface to its services
and products, is designed to make it easy and efficient for customers to
navigate through the full spectrum of Giga's original research and third-party
content. Through the use of intelligent software agents, the Company is able
to provide customized information to each customer and also allow customers to
search for and select the information that is most relevant to their
particular needs.
In addition, customers of the Giga Advisory Service and Relevance Services
have access to the Company's other information services, including various IT
events, publications, consulting and econometric forecasting. These services
are generally offered on a non-continuous basis and are also marketed outside
the Company's Giga Advisory Service and Relevance Services customer base to
generate incremental revenue and broaden the Company's IT industry visibility.
INDUSTRY BACKGROUND
Information technologies have become increasingly critical to the
competitiveness and long-term viability of a wide range of organizations. As
organizations have recognized the importance of information technologies, they
have made substantial and increasing financial commitments to IT systems and
services. At the same time, IT products have become increasingly complex and
diverse, and the rate of technological change and new product introductions
has accelerated. Many organizations maintain an internal staff of IT
professionals and also engage outside consultants to assist in IT decision
support. However, these organizations often require greater capabilities than
they can economically support internally and a more integrated approach than
individual consultants can provide. As a result, they have increasingly turned
for assistance to providers of Continuous Information Services which
continuously monitor and analyze IT industry developments and trends and
provide reports and information to clients on a subscription basis.
23
<PAGE>
The overall market for IT Continuous Information Services consists primarily
of three types of customers --users of IT products and services; vendors of IT
hardware, software and services; and institutional and other investors in the
IT industry.
Users. Users continually assess new technologies and anticipate future
trends in making major purchasing decisions and formulating long-term IT
strategies. Decision-making has become increasingly complicated as the pace
of technological change continues to accelerate. As a result, IT users
require current information and analysis of new product introductions and
other events, independent comparisons among competing platforms and
vendors, accurate assessments of trends such as pricing and obsolescence
and reasoned analysis of how issues will evolve over time. Users generally
seek alternative points of view and rely on the advice and insights of more
than one provider of Continuous Information Services for their IT
requirements.
Vendors. Vendors use Continuous Information Services primarily for
product planning, evaluation of competitors' products and formulation of
marketing and other business strategies. Vendors require a reliable source
of information on areas such as new markets and market forecasts,
competitive products, user preferences and buying trends, distribution and
marketing strategies and evolving market needs. The Company believes that
much of the information and analyses serving the needs of users can also
benefit the vendor community.
Investors. Institutional and other investors require Continuous
Information Services to evaluate user and vendor strategies, new IT product
performance, product purchase expectations and evolving market trends. By
gaining timely access to this information and using it in their company and
industry analyses, investors can make more informed decisions and enhance
their ability to make successful IT investments.
The IT information service industry began in the 1960s with companies that
analyzed IT market trends and provided quantitative data to either users or
vendors. The next generation of IT information providers, which emerged in the
1980s, generally offered IT analysis to both users and vendors. This second
generation model is still prevalent and typically provides multiple
information service offerings, each of which is focused on a specific subject
within the IT industry. For example, a second generation provider might offer
separate service offerings addressing mainframes, personal computers,
operating systems, application development tools and relational databases.
The Company believes that the second generation business model for IT
information providers does not fulfill the evolving needs of IT users, vendors
and investors. A solution to a customer's particular IT problem typically
involves a broad range of platforms, technologies and services. Giga believes
that separate reports addressing each distinct technology or issue do not
provide integrated or cost-effective support for the customer. The planning,
selection and implementation of IT solutions is becoming increasingly complex.
Historically, IT users would typically purchase a vertically integrated
solution involving hardware, operating systems and application software from a
single large vendor. In the current environment, IT users must evaluate a
variety of products based on emerging technologies from multiple vendors and
design systems in which the products operate with one another, with existing
legacy systems and, increasingly, within the Internet and emerging corporate
intranet environments.
Users have been confronted not only with an increasing number of
technological choices but also with a proliferation of technical information
from multiple independent sources, such as newsletters, vendors, trade
publications, the World Wide Web and the news media. This glut of information
makes it difficult for users to find the particular analysis and expertise
that is most relevant to their particular operational needs and can lead to
information-anxiety, confusion and frustration.
In seeking to formulate their IT plans and strategies in an environment of
rapid technological change and proliferation of available information,
organizations desire Continuous Information Services that can best address the
following needs:
. Broad-Based Coverage. Since IT solutions generally require knowledge of
multiple segments of the IT industry, the Company believes that customers
will increasingly desire integrated broad-based coverage of the IT
market, rather than a subject-specific approach.
24
<PAGE>
. Practical Experience. Industry analysts who conduct IT research and
analysis generally have an analytical or strategic orientation. However,
the solutions to many of today's IT problems require practical hands-on
experience.
. Customized Services. The mass of content produced by IT information
providers is often unconnected to the specific problem confronted by the
IT customer. IT customers need services that can provide access to
independent research while at the same time make that research relevant
to their particular application or environment.
. Efficient Information Retrieval. Customers want to quickly search for,
find and retrieve the particular research, analyses and expertise that
they require.
The Company believes that these largely unsatisfied and evolving needs have
created a market opportunity for a third generation IT information provider
that is able, through the use of technological innovation and reorientation of
the IT information provider business model, to satisfy the demand for
comprehensive, easy-to-use and cost-effective Continuous Information Services.
THE GIGA SOLUTION
The Company has developed, and is continuing to develop, a range of
innovative IT services that meet customers' needs for comprehensive and
customized Continuous Information Services. The principal elements of Giga's
solution for IT users, vendors and investors are as follows:
. Single-Service Model. The Company's Giga Advisory Service is offered to
customers as a single integrated service. Customers may, for a
subscription fee, access the full spectrum of the Giga Advisory Service
information, analysis and advice on a continuous basis, in contrast to
the multiple-services approach that requires customers to purchase
multiple services which generally are neither integrated nor
comprehensive.
. ExperNet. Subscribers to the Giga Advisory Service have access to the
Company's ExperNet network of external IT practitioners. These
practitioners have significant practical experience in solving real-world
IT problems and are available to answer customer inquiries and provide
analysis and advice.
. Relevance Services. The Company offers a series of Relevance Services
that combine original analysis, data and information produced by
proprietary surveys and methodologies with consulting, to assist in
enhancing the IT practices and operations of the Company's customers. The
Company believes its Relevance Services will be used by IT management to
evaluate competitive industry practices, benchmark their IT practices
against peer practices and assist in decision support.
. GigaWeb. The Company has focused its efforts not only on developing
original research and analyses content, but also on developing
technologies and methodologies to effectively deliver such original
content and other third-party content to customers in an efficient,
flexible and personalized manner. The Company's Internet-based interface,
GigaWeb, enables Giga's customers to gain personalized, interactive
access to the Company's full range of information sources. The GigaWeb
interface includes search and intelligent software agent technology
("Gigabots") that is designed to make it easy for customers to navigate
through the full spectrum of the Company's available information and,
based on the customer's profile, to obtain automatically the content that
is of particular interest to the customer.
THE GIGA STRATEGY
Giga's objective is to become a leading provider of IT Continuous
Information Services by delivering information, analysis and advice that is of
high strategic relevance to customers. The Company's strategy includes the
following key elements:
. Expand Breadth of Research. The Company plans to broaden its research and
analysis coverage both by hiring additional analysts and by recruiting
additional IT practitioners for the ExperNet network. At August 31, 1996,
the Company employed 50 in-house analysts, 32 of whom were Giga Advisory
Service
25
<PAGE>
analysts, and has established relationships with approximately 210
external IT practitioners as part of its ExperNet network. The Company
seeks to hire analysts who have significant experience in existing and
emerging areas of technology covering computer infrastructure,
applications and development, networking and telecommunications and IT
management.
. Increase Penetration of Existing Customers. The Company seeks to expand
its relationships with existing customers both by increasing the number
of individual subscribers within an organization and by upgrading the
status of subscribers from site license seat holders (who only have
access to the Company's research databases) to members (who have full
access to all of the Company's Continuous Information Services and may
make inquiries to the Company's analysts and ExperNet practitioners). The
Company will also seek to increase its penetration of existing accounts
by developing and offering additional services, such as its Relevance
Services, events, publications, consulting and econometric forecasting.
. Leverage Technological Innovation. The Company seeks to take advantage of
technological developments to enhance both the creation and delivery of
its research and analyses to customers. For example, the Company has
developed GigaWeb using both its own proprietary technology and licensed
third-party technologies. The Company plans to continue to evaluate and
implement technologies that can help to facilitate the flow of
information between the Company and its customers.
. Expand Worldwide Sales Force and Marketing. The Company's global strategy
is to increase its market penetration on a worldwide basis. The Company
plans to approximately double its worldwide direct sales force in the
next six months and to continue to expand its sales force in the future.
At August 31, 1996, the Company had 51 sales personnel worldwide. The
Company also plans to expand its market presence through events and
publications, the World Wide Web, direct mail, public relations,
telesales, and additional strategic alliances.
26
<PAGE>
SERVICES
The Company's three principal service areas are the Giga Advisory Service,
Relevance Services and Other Services. The Company's services are designed to
be accessed through the Company's personalized Internet-based interface,
GigaWeb, as well as through published reports and consultation with the
Company's analysts and consultants.
--------------------
| GIGA INFORMATION |
| GROUP |
--------------------
|
----------------------------------------------------------
| | |
| ------------------------- |
| | GIGA ADVISORY | |
- --------------------- | SERVICE | -----------------------
| RELEVANCE SERVICES | | | | OTHER SERVICES |
| | |Continuous subscription-| | |
| Survey/methodology | | based advisory service | | |
| based research | | | | |
| services combined | | ExperNet Network | |Events, Publications,|
| with consulting | -------------------------- | Consulting and |
|focusing on specific| | | Econometric |
| user needs | | | Forecasting |
- ---------------------- | -----------------------
|
|
|
----------------------------------------------------------
| GIGA WEB |
| Internet-based information delivery system for |
| proprietary research and third-party content |
----------------------------------------------------------
GIGA ADVISORY SERVICE
The Company's Giga Advisory Service is the principal service offering of the
Company. The Giga Advisory Service offers customers, generally for an annual
subscription fee billed and payable in advance, access to all of the Company's
Giga Advisory Service information, analysis and advice, as well as inquiry
access to analysts and practitioners, and participation in briefings,
conferences and teleconferences.
The Giga Advisory Service offers the following deliverables to its
customers:
. PAs (Planning Assumptions). PAs are typically multi-page research reports
that provide customers with in-depth analyses of IT topics and
recommendations for action. Through August 31, 1996, the Company had
produced approximately 465 PAs.
. CQAs (Catalyst, Question and Answer). CQAs are brief presentations of
developments or ideas, in question and answer format, that are intended
to provide customers with quick, up-to-date findings and opinions,
authored by the Company's analysts. Through August 31, 1996, the Company
had produced approximately 3,000 CQAs.
. Inquiry Support. The Company maintains a "Knowledge Center," which
consists of experienced research associates who track customer inquiries
and direct customers to the appropriate analyst or source of information.
Customers also have direct access to the Company's analysts to answer
specific questions. Customers can make their inquiries and track the
status of an inquiry on-line through GigaWeb.
27
<PAGE>
. ExperNet. ExperNet is a network of external IT practitioners who are
available to respond to customer inquiries that require hands-on,
practical advice. ExperNet practitioners may include consultants, system
integrators, value-added resellers, IT vendor representatives and
developers. The Company has developed a multi-dimensional database
organized by topic that enables customers to access the particular
ExperNet practitioner whose experience and skills match the customer's IT
area of inquiry. Customers can direct their ExperNet inquiries to the
Knowledge Center by telephone. The Company reimburses its ExperNet
practitioners on a fee basis per customer inquiry. In addition, the
Company permits its ExperNet practitioners to enter into follow-on
consulting arrangements with the Company's customers for which Giga
currently receives no compensation.
. Events. The Company sponsors conferences on significant IT industry
issues and trends. Since the beginning of 1996, Giga had sponsored or co-
sponsored six conferences addressing various industry topics in North
America and Europe, with attendance exceeding approximately 1,700
participants, and plans to sponsor or co-sponsor five additional
conferences prior to the end of 1996.
. GigaTels. GigaTels are audioteleconferences that include presentations by
analysts on selected topics and provide an open forum for questions,
exchanges and debate. GigaTels typically take place from three to five
times per week. Through August 31, 1996, the Company had produced over 70
GigaTels with over 1,000 participants.
. Workgroups. Customers who have shared objectives or interests will be
able to interact with each other through on-line discussion groups
(electronic forums) and special interest groups, which the Company plans
to introduce in the fourth quarter of 1996. Also, customers can respond
to a PA by initiating discussion among analysts and other users of
GigaWeb.
. Partner Content. In May 1996, the Company entered into a content
distribution agreement with Dow Jones & Company, Inc. ("Dow Jones")
pursuant to which Dow Jones granted the Company a nonexclusive right to
distribute and make available to GigaWeb users IT industry news and
information via access to several leading business-oriented news sources,
including Dow Jones Online News, The Wall Street Journal Interactive,
Public Relations Newswire, and Canada Businesswire. The agreement is for
an initial term ending in November 1997 and is renewable yearly
thereafter. As a result of this collaboration, a user can, using the
Company's Smart Search technology, supplement original Giga content with
up-to-date news and information. Giga plans to add additional suppliers
of third-party content in the future.
As of August 31, 1996, the Company employed 32 analysts to support its Giga
Advisory Service and had relationships with approximately 210 external IT
practitioners to support its ExperNet network. In addition, the Company
employed 44 research and analysis support and fulfillment personnel. The
Company plans to broaden its research and analysis coverage both by hiring
additional analysts and by recruiting additional external IT practitioners for
the ExperNet network. The Company actively monitors technology trends and
industry issues. The Company's research process is designed to produce timely
analysis that is responsive to day-to-day IT developments. In their research,
analysts identify significant patterns from a broad range of inputs, formulate
original ideas, collaborate with other Company analysts to refine these ideas,
and document the results.
28
<PAGE>
The following table sets forth certain technology areas covered by the
Company's Giga Advisory Service:
- --------------------------------------------------------------------------------
GIGA ADVISORY SERVICE
RESEARCH COMPETENCIES
- --------------------------------------------------------------------------------
MANAGEMENT OF IT APPLICATIONS AND SOLUTIONS
. Asset Management . Application Development
. Costs of Ownership Tools and Methods
. Financial Strageties for IT . Object Technology
. Help Desk and Customer Support . Packaged Solutions
. Intellectual Property and Licensing . Personal Productivity
. Organizing the IT Function . Programming Environments
. Outsourcing . Web Development Tools
. Process Management . Workgroup and Workflow
. Project Management Computing
. Quality and Testing
. Re-engineering IT
. Year 2000 Problem
- --------------------------------------------------------------------------------
COMPUTER INFRASTRUCTURE NETWORKING AND COMMUNICATIONS
. Client-Server Architectures . Electronic Commerce
. Data Management on the Internet
. Data Mining . Internet Security
. Desktop Computing . LAN Hardware and Software
Hardware . Network Operating Systems
. Middleware . Private Networking
. Operating Systems . Protocols and Interoperability
. Server Hardware . Public Networking
. Storage Management . Remote Access
. Systems Configuration . Telecommunications
and Management Environment
. Transaction Processing . Web Browsers and Clients
. Web Servers . Wireless Networking
- --------------------------------------------------------------------------------
RELEVANCE SERVICES
The Company has begun to offer a series of Relevance Services, which combine
original analysis, data, and information produced by proprietary surveys and
methodologies with consulting, to assist in enhancing the IT practices and
operations of Giga's customers. The Company believes its Relevance Services
will be used by IT management to evaluate competitive industry practices,
benchmark their IT practices against peer practices and assist in decision
support. In July 1996, the Company introduced the first of its Relevance
Services which will consist of several studies relating to best industry
practices ("Best Practices") for IT management job functions. The initial
Relevance Service focuses on the human resources management function within
organizations, and illustrates tested IT Best Practices of individuals
performing that function. The first study within this service covers skills
assessment and management Best Practices. Results of each Relevance Service
will be furnished to customers through the studies, peer group meetings,
GigaWeb-facilitated collaborations and periodic on-site visits by the Company's
consultants.
29
<PAGE>
The Company also plans to develop additional Relevance Services addressing
other customer IT needs. One such planned service will assist clients in
determining the benefits, productivity and returns from IT assets and
investments. The Company is also developing Relevance Services that will focus
on specific IT industry sectors and vertical applications.
OTHER SERVICES
Giga offers discrete services which are not subscribed to on a continuous
basis, including separately-priced events, publications, consulting services
and econometric forecasting.
Events. Through the acquisition of BIS, Giga acquired a conference
development and management operation that produced more than 20 IT industry
events in 1995 in the U.S. and Europe. In the first half of 1996, the Company
sponsored or co-sponsored six events and five half-day briefings and plans to
conduct five additional events and six half-day briefings during the remainder
of 1996. The events are targeted to IT users and vendors, and cover such
topics as business process reengineering, workflow, electronic commerce,
mobile and wireless communications and data warehousing. The Company's events
typically draw between 200 and 500 participants per conference and are
designed to showcase its analysts and encourage networking among participants.
The Company establishes strategic alliances with prominent industry
associations, consulting firms, and publishing houses to enhance the quality
of its conferences and gain marketing leverage. For example, the Company has
relationships with Arthur D. Little, Inc. with which the Company co-sponsors
conferences, Smith Bucklin, Inc. and Decision Support Technology, Inc. These
relationships supplement the Company's marketing communications programs and
help build awareness of the Giga name.
Publications. The Company's publications business includes special reports
and newsletters. The Company plans to publish approximately 35 reports and
newsletters in 1996. These reports include original content as well as
contributions from outside authors.
Consulting. The Company offers engagement-based consulting that focuses on
solving specific customer problems in areas such as market and product line
strategy, competitive positioning, channel dynamics, product life cycle
analysis, feature and functional specification requirements and market demand
analysis. At August 31, 1996, the Company provided these consulting services
through 11 consultants located at the Company's facilities in the United
States, Europe and Australia.
Econometric Forecasting. The Company's Australian subsidiary specializes in
supporting a diverse range of industries with a mix of econometric forecasting
and modeling, market research, and market analysis services. This organization
offers customers multi-client studies and subscription-based information
services in key industry sectors, including information technologies, building
and construction, economics and government, financial services, manufacturing
and commercial property.
GIGAWEB
GigaWeb is the Company's Internet-based information delivery interface.
GigaWeb provides customers with on-line access to the Company's analysts,
research and reports and third-party content. Customers who have shared
objectives or interests can interact with each other through on-line
discussion groups, such as electronic forums. GigaWeb is designed to optimize
the search and retrieval of the information and analyses by enabling the
selection and management of information from multiple sources based on the
customer's specific needs.
GigaWeb is designed to make it easy and efficient for a customer to navigate
through the full spectrum of Giga's original research and third-party content.
Subscribers to GigaAdvisory are provided with a personalized home page (the
"Virtual Office") which may be accessed through a password using a standard
Web browser.
30
<PAGE>
Based on the individualized customer profile, GigaWeb automatically selects
the particular subset of Giga original and third-party content most relevant
to the customer and delivers it to the customer's Virtual Office. In addition,
GigaWeb includes search technologies that enable customers to search for
relevant information using word searches, concept and topic associations.
GigaWeb also incorporates intelligent software agents that are designed to
accept predetermined search criteria and apply them on a repetitive basis
against selected sources of information, alerting the customer only when the
criteria under which the agent is operating finds a match. These technologies
enable the Company to provide customized information to each customer and also
allow customers to search for and select information most relevant to their
particular needs.
GigaWeb is based on both proprietary and third-party software, including
both text indexing and retrieval. The Company plans to continue to evaluate
and implement technologies that can help facilitate the flow of information
from the Company to its customers. For example, the Company has established an
authoring environment based on Lotus Notes that automatically feeds research
findings over GigaWeb. The Company also offers an alternative on-line delivery
mechanism, GigaNotes, for customers that use the Lotus Notes platform for
collaboration and information access.
SALES, MARKETING AND CUSTOMERS
The Company offers its Giga Advisory Service pursuant to subscription
agreements which generally provide for payment promptly following the start of
the subscription period and renew automatically each year unless cancelled by
the customer. These agreements may generally be terminated by the customer on
90-days' notice. The Company initially records contractual subscription fees
as deferred revenue and recognizes the revenue on a pro rata monthly basis
over the term of the agreement. The Company has three categories of
subscribers: members (who have full access to all of the Company's Continuous
Information Services and may make inquiries to the Company's analysts and
ExperNet practitioners); users (who have access only to the Company's research
databases and partner content), and site license seat holders (who have access
to the Company's research databases). The Company's list annual subscription
fee for these services is currently $12,000 per member, $1,200 per user and
approximately $150 per site license seat holder for up to 250 site license
seats after which the price per site license seat varies. The Company also
offers volume discounts and transaction-based options to qualified customers.
The Company offers its Relevance Services pursuant to subscription
agreements which provide for payment in full promptly after the start of the
subscription period and renew automatically each year unless cancelled by the
customer. The Company's annual list subscription fee for its Relevance
Services ranges between $24,000 and $36,000. The Company initially records
contractual subscription fees as deferred revenue and recognizes the revenue
on a pro rata monthly basis over the term of the agreement.
The Company believes that a leading measure of the Company's volume of
business is the contract value ("Contract Value") of its Giga Advisory Service
and Relevance Services agreements in effect at a given point in time. The
Company calculates Contract Value each month as the cumulative annualized
subscription value payable under subscription agreements, without regard to
commencement date, duration or risk of cancellation. Since the introduction of
the Company's Giga Advisory Service and Relevance Services, as of September
30, 1996, the Company had entered into contracts with 109 customers having an
aggregate Contract Value of approximately $3.8 million, excluding
approximately $1.1 million of subscriptions sold to former customers of the
BIS Market Research Business. The Company can give no assurance that its
Contract Value will continue to grow.
31
<PAGE>
Customers of the Company's Giga Advisory Service include:
AIG Hewlett Packard
Alcatel Mobile Phones IBM
The Boeing Co. KPMG Peat Marwick LLP
Colonial Penn Insurance Company National Cash Register Company
Digital Equipment Corporation Oracle Corporation
Duracell Inc. Safeguard Scientifics, Inc.
First USA Bank Southwestern Bell Telephone Company
Domestic. As of August 31, 1996, the Company had a North American direct
sales force comprised of 41 field sales personnel. The Company's internal
marketing organization, comprised of 12 marketing personnel located primarily
at the Company's Norwell, Massachusetts facility, provides public relations,
lead generation, direct mail support and other related services. The Company
plans to approximately double its domestic sales force over the next six
months and to continue to substantially expand its domestic marketing
organization. The Company also plans to develop a domestic telemarketing
group.
International. The Company presently conducts operations in six foreign
countries with offices in England, Germany, France, Italy, Korea and
Australia. The Company's activities in these countries are conducted through
the Company's wholly-owned subsidiaries. Revenues from the Company's foreign
operations accounted for approximately 65% and 64% of the Company's total
revenues for the year ended December 31, 1995 and the six month period ended
June 30, 1996, respectively. For the year ended December 31, 1995 and the six
month period ended June 30, 1996, BIS Shrapnel Pty Limited, the Company's
Australian subsidiary, accounted for approximately 54% and 55%, respectively,
of its total foreign revenues and Giga Information Group Limited, its United
Kingdom subsidiary, accounted for approximately 27% and 30% of its total
foreign revenues, respectively. As of August 31, 1996, the Company had an
international sales and marketing force of 10 sales personnel in Europe and
Asia Pacific. The Company plans to expand its international sales force over
the next six months and to explore the development of alternative worldwide
distribution channels.
COMPETITION
The Company competes in the IT information services market directly with
other independent providers of Continuous Information Services including
Gartner Group, Inc., META Group, Inc. and Forrester Research Inc., and will
compete with the internal planning, research and marketing staffs of current
and prospective customer organizations. The Company also competes indirectly
with other information providers, including market research firms, "Big Six"
accounting firms, consulting companies and systems integrators. Many of the
Company's direct and indirect competitors have substantially greater financial
information gathering and marketing resources than the Company.
Some of the Company's direct and indirect competitors also have established
research organizations with greater market recognition and experience in the
IT industry. There can be no assurance that the Company will continue to be
successful in establishing a competitive research organization. Delays,
difficulty in developing and achieving market acceptance of the Giga Advisory
Service and Relevance Services or customer dissatisfaction would have a
material adverse effect on the Company's business, financial condition and
results of operations. While the Company believes it can compete successfully
on the basis of price, quality, distinctiveness, and responsiveness to
customers, there are few barriers to entry into the Company's market and new
competitors could readily seek to compete in one or more market segments
addressed by the Company's services. There can be no assurance that the
Company's current or potential competitors will not develop services
comparable or superior to those developed by the Company or respond more
quickly to new or emerging industry trends or changing customer requirements.
There can be no assurance that the Company will be able to compete
successfully against existing or new competitors. In addition, any pricing
pressures, reduced margins or loss of market share resulting from increased
competition could have a material adverse effect on the Company's business,
financial condition or results of operations.
32
<PAGE>
BIS STRATEGIC DECISIONS ACQUISITION
The Company acquired BIS in April 1995 to obtain its marketing, sales, and
other corporate infrastructures and certain of its personnel. BIS was engaged
in compiling and providing data-intensive market research to vendors for use
primarily in planning their product offerings and marketing programs. The BIS
Market Research Business offerings were principally quantitative in nature;
employed in large part relatively junior data specialists; were marketed to
purchasers of quantitative research; included little high-level advice and
analysis; were marketed in multiple separate service offerings; and focused
principally on vendors. In contrast, the Company's strategic business plan
focuses on qualitative, analytical information and advice addressed to a
broader range of customers; employs a single, integrated continuous
information model; contemplates building a cadre of high-level research
analysts and other professionals who are peers of its target customers to
develop original ideas and knowledge; and concentrates marketing of its
services and products to senior decision makers to support their critical IT
decisions. The BIS Market Research Business did not fit with Giga's business
model. Accordingly, in June 1996 the Company decided to discontinue the BIS
Market Research Business, including termination of the personnel employed in
developing and compiling its data-intensive market research products;
assignment of its obligations under existing BIS subscription agreements to
two unrelated IT service providers; and cessation of operations at its two
leased facilities in England. See "Risk Factors--Risks Associated With
Discontinuance of BIS Market Research Business."
EMPLOYEES
As of August 31, 1996, the Company employed 247 persons (excluding employees
from the Company's discontinued BIS Market Research Business), including 50
analysts, 44 research and analysis support and fulfillment personnel, 51 sales
personnel, 20 conferences, events and publications personnel, 12 marketing
personnel, 11 consultants and 59 administrative and operational personnel. Of
such employees, 100 are located at the Company's facilities in Cambridge and
Norwell, Massachusetts, 67 are located at other domestic facilities or home
offices and 80 are located overseas. None of the Company's employees is
represented by a collective bargaining arrangement and the Company has
experienced no work stoppages. The Company considers its relations with
employees to be good.
FACILITIES
The Company's headquarters are located in approximately 8,000 square feet of
office space in Cambridge, Massachusetts. This facility, together with the
Company's approximately 27,000 square feet Norwell facility, accommodate
corporate administration, research and analysis, marketing and sales and
customer support. The lease on the Cambridge facility expires in November 2000
and the lease on the Norwell facility expires in April 1998. The Company also
leases office space in four other domestic and seven international locations
to support its research and analysis, domestic and international sales efforts
and other functions. The Company believes its existing facilities and
expansion options are adequate for its current needs and that additional
facilities will be available for lease on reasonable terms to meet future
needs.
LEGAL PROCEEDINGS
In July 1996, Alan J. Green, a former employee of the Company, filed a
lawsuit against the Company and Gideon I. Gartner in the United States
District Court for the Southern District of New York. In his complaint, Mr.
Green alleged that the Company breached an oral employment agreement with him
by failing to pay him certain compensation. In connection with this claim, Mr.
Green is seeking damages of approximately $2,200 in cash; at his option,
either the right to purchase 60,000 shares of Common Stock at a purchase price
of $.50 per share or payment of an amount of money equal to the fair market
value of 60,000 shares of Common Stock on the date that judgment is entered
less $30,000; and an option to purchase an additional 60,000 shares of Common
Stock at an exercise price of $0.50 per share. Mr. Green also alleged that the
Company and Mr. Gartner, among other things, made fraudulent representations
in inducing him to accept employment with the Company, and with respect to
this claim Mr. Green is seeking compensatory damages of $2.5 million and
punitive damages of $1.0 million. The Company believes it has meritorious
defenses and intends to vigorously defend itself against these claims.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Gideon I. Gartner 61 Chairman of the Board of Directors and Chief
Executive Officer
Kenneth E. Marshall 44 President and Chief Operating Officer;
Director
David L. Gilmour 38 Senior Vice President, Research; Director
Richard B. Goldman 50 Senior Vice President and Chief Financial
Officer; Treasurer; Secretary
Leander R. Jennings, Jr. 36 Senior Vice President, Worldwide Sales
Jeffrey L. Swartz 42 Senior Vice President, Marketing Operations,
Events and Publications
Neill H. Brownstein 52 Director
Richard L. Crandall 53 Director
Irwin Lieber(1)(2) 57 Director
James D. Robinson III(1)(2) 60 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
MR. GARTNER has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since its inception in March 1995. From 1993
to 1994, he was a private investor. From 1991 to 1992, he served as Chairman,
and from 1979 to 1991 he served as President, Chairman and Chief Executive
Officer, of Gartner Group, Inc., an information technology company which he
founded. From 1972 to 1979, he served as a technology analyst and subsequently
as a partner at Oppenheimer & Co., an entity engaged in the financial services
business. Mr. Gartner received his B.S. in engineering from Massachusetts
Institute of Technology ("MIT") and received an M.A. in management from MIT's
Sloan School.
MR. MARSHALL has served as President and Chief Operating Officer and as a
director of the Company since December 1995. From 1990 to 1995, he served as
President and Chief Executive Officer of Object Design, Inc., a computer
software company ("Object Design"). From 1985 to 1989, he held a variety of
management positions, the last being Group Vice President, East Operations, at
Oracle Corporation, a computer software company ("Oracle"). From 1979 to 1985,
he served as a consultant at Planmetrics, Inc., a management consulting firm.
Mr. Marshall received his B.S. in education from Northeastern University and
his M.A. in economics from Boston College.
MR. GILMOUR has served as Senior Vice President, Research of the Company
since April 1996 and as a director of the Company since July 1995. From
December 1995 to April 1996, he served as Senior Vice President of Technology
of the Company. From July 1993 to December 1995, he served as Chief Executive
Officer of ExperNet Corporation ("ExperNet"), an information technology
company which he founded with Mr. Gartner. From October 1992 to April 1993,
Mr. Gilmour served as acting President and Chief Executive Officer, and from
April 1991 to October 1992 and from April 1993 to July 1993 he served as
Executive Vice President, Marketing, of Versant Object Technology Corporation,
a computer software company. From 1989 to 1991, he served as Vice President--
Database Systems Division, from 1986 to 1989 he served as General Manager--
Advanced Products Division, and from 1984 to 1986 he served as Director--
Product Planning, at Lotus Development
34
<PAGE>
Corporation, a software company. Mr. Gilmour received a B.S. in Applied
Physics, an M.E. in engineering and an M.B.A. with distinction from Harvard
University.
MR. GOLDMAN has served as Senior Vice President and Chief Financial Officer
since May 1996, and as Treasurer and Secretary of the Company since August
1996. From October 1992 to May 1996, he served as Executive Vice President,
Finance and Chief Financial Officer of Sequoia Systems, Inc., a manufacturer
of fault tolerant servers, mobile computers and other computer products. From
May 1991 to October 1992, he served as Senior Vice President, Finance and
Chief Financial Officer for Connell Limited Partnership, a multi-business
industrial equipment manufacturing company. From 1990 to 1991, he served as
Senior Vice President, Finance and Administration and Chief Financial Officer
of Alliant Computer Systems Corporation, a manufacturer of super computers.
From 1978 to 1989, he served in a number of management capacities at Prime
Computer, Inc., a supplier of mini computers and CAD/CAM services and
products, the last of which was as Senior Vice President, Finance and
Administration and Chief Financial Officer from 1988 to 1989. Mr. Goldman
received a B.S. in accounting from Northeastern University and an M.B.A. in
finance from Boston University.
MR. JENNINGS has served as Senior Vice President, Worldwide Sales of the
Company since February 1996. From June 1995 to February 1996, Mr. Jennings
served as National Product and Sales Manager of the Telecom, Cable and
Wireless Division of Oracle. From 1991 to June 1995, he served as the Western
Regional Director of Object Design. From 1990 to 1991, he served as Vice
President of Sales of Carlyle Sales, Inc., a developer of library automation
systems. Mr. Jennings received a B.A. from Boston College.
MR. SWARTZ has served as Senior Vice President, Marketing Operations, Events
and Publications since April 1996. From March 1995 to February 1996, he served
as Vice President, Conferences and Publications of the Company. From 1989
until 1995, he served in a number of capacities at BIS Strategic Decisions,
Inc., serving as interim Co-CEO from January until March 1995, as Senior Vice
President, Conferences and Publications Division from 1994 to 1995, as Senior
Vice President, Consulting from 1992 to 1993, and as Vice President, Research
Publications from 1989 to 1992. From 1986 to 1989 he served as an independent
consultant to and from 1982 to 1986 he served as President of Communications
Publishing Group, Inc., a newsletter publishing company which he founded. Mr.
Swartz received a B.S. in psychology from Boston College.
MR. BROWNSTEIN has served as a director of the Company since July 1995 and
has served as an advisor to the Company since its inception. Since January
1995, he has been a private investor. From 1970 to January 1995, Mr.
Brownstein was associated with Bessemer Securities Corporation and was a
founder and General Partner of three affiliated venture capital funds:
Bessemer Venture Partners L.P., Bessemer Venture Partners II L.P. and Bessemer
Venture Partners III L.P., for which he currently serves as a Special General
Partner. Since 1970, he has been president of Neill H. Brownstein Corporation,
an investment management counseling enterprise. He serves as a director of DSP
Communications, Inc. Mr. Brownstein received a B.A. from Columbia College and
an M.B.A. from the Kellogg School of Management at Northwestern University.
MR. CRANDALL has served as a director of the Company since August 1995.
Since April 1994, he has served as Chairman, and from 1970 until April 1994 he
served as President and Chief Executive Officer, of Comshare, Incorporated, a
software company which he founded ("Comshare"). He currently serves on the
Board of Directors of Comshare, Computer Task Group, Incorporated and Diebold,
Incorporated. Mr. Crandall received a B.S. in electrical engineering, a B.S.
in mathematics and an M.S.E. in industrial engineering from the University of
Michigan.
MR. LIEBER has served as a director of the Company since November 1995.
Since 1979, he has served as Chairman and Chief Executive Officer of Geo
Capital Corporation, a investment advisory firm which he founded.
Additionally, Mr. Lieber has served as a corporate officer of InfoMedia
Associates Ltd., a general partner of 21st Century Communications Partners,
L.P., an investment fund. From 1970 to 1979, Mr. Lieber was a General Partner
of First Manhattan Co., an investment management, brokerage and investment
banking firm. Mr. Lieber is a director of LeaRonal Inc. He received a B.S.
degree in electrical engineering from City College of New York and an M.S.
degree in electrical engineering from Syracuse University.
35
<PAGE>
MR. ROBINSON has served as a director of the Company since August 1995.
Since 1994, Mr. Robinson has served as Chairman and Chief Executive Officer of
RRE Investors, L.L.C., a venture capital firm which he co-founded. From 1977
to 1993, Mr. Robinson served as Chairman and Chief Executive Officer of the
American Express Company and held a series of executive positions with
American Express Company from 1970 to 1976. Mr. Robinson is a director of The
Coca-Cola Company, Union Pacific Corporation, Bristol-Meyers Squibb Company,
First Data Corporation, New World Communications Group, Incorporated,
Alexander & Alexander Services Inc. and Cambridge Technology Partners
(Massachusetts), Inc. Mr. Robinson received a B.S. from the Georgia Institute
of Technology and an M.B.A. from Harvard University.
Following the Offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of three Class I Directors (Messrs. Gilmour, Crandall and
Lieber), two Class II Directors (Messrs. Marshall and Brownstein) and two
Class III Directors (Messrs. Gartner and Robinson). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed directors of the same class whose term is then expiring. The terms of
the Class I Directors, Class II Directors and Class III Directors will expire
upon the election and qualification of successor directors at the annual
meeting of stockholders held during the calendar years 1997, 1998 and 1999,
respectively.
Certain of the current directors of the Company were nominated and elected
in accordance with a stockholders voting agreement. This agreement will
terminate upon the consummation of the Offering. See "Certain Transactions."
Mr. Marshall serves on the Board of Directors pursuant to the terms of his
Employment Agreement. See "--Executive Compensation."
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.
BOARD COMPENSATION
Each non-employee director is reimbursed for expenses incurred in connection
with his attendance at meetings of the Board of Directors and committees
thereof. Directors who are employees of the Company currently receive no
compensation for serving as directors.
For a discussion of transactions between the Company and certain directors
of the Company, see "Certain Transactions."
36
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal year ended
December 31, 1995 of the Company's Chief Executive Officer and the Company's
other most highly compensated executive officer whose annual cash compensation
exceeds $100,000 (the Chief Executive Officer and such other executive officer
are hereinafter referred to as the "Senior Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------------- ------------
NUMBER OF
SECURITIES
NAME AND UNDERLYING
PRINCIPAL POSITION SALARY($)(1) BONUS($) OPTIONS
------------------ ------------ -------- ------------
<S> <C> <C> <C>
Gideon I. Gartner............................ 0(2) 0 660,000
Chairman of the Board of Directors
and Chief Executive Officer
David L. Gilmour(3).......................... 129,838 0 120,000
Senior Vice President,
Research; Director
</TABLE>
- --------
(1) Includes amounts payable in 1995 and/or 1996 for services rendered by the
Senior Executives in 1995. Other compensation in the form of perquisites
and other personal benefits has been omitted because it constitutes the
lesser of $50,000 or ten percent of the total annual salary and bonus of
each of the Senior Executives in 1995.
(2) In 1995, Mr. Gartner was paid no compensation for his services as Chairman
of the Board of Directors and Chief Executive Officer of the Company. In
1996, Mr. Gartner will receive annual compensation and will be entitled to
receive a cash bonus in such amount as shall be determined by the Board of
Directors or Compensation Committee thereof.
(3) In 1995, Mr. Gilmour served as Chief Executive Officer of ExperNet, which
became a wholly-owned subsidiary of the Company in that year.
The following table sets forth certain information regarding options granted
by the Company to each of the Senior Executives during the fiscal year ended
December 31, 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------
POTENTIAL
REALIZABLE
VALUE
AT ASSUMED
NUMBER ANNUAL RATES OF
OF PERCENT OF EXERCISE STOCK PRICE
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER OPTION TERM($)(1)
OPTIONS EMPLOYEES IN SHARE EXPIRATION -----------------
GRANTED FISCAL YEAR ($) DATE 5% 10%
---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gideon I. Gartner....... 500,000(2) 16.1% $0.50 10/16/05 $157,224 $398,436
160,000(2) 5.1 0.50 07/06/05 50,312 127,499
David L. Gilmour........ 120,000(3) 3.9 0.50 07/06/05 37,734 95,625
</TABLE>
- --------
(1) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionholders' continued employment through the option period and the date
on which the options are exercised.
(2) These stock options are immediately exercisable.
(3) Twenty-five percent of the shares subject to the option vest on July 6,
1996 and one forty-eighth of the shares vest monthly thereafter.
37
<PAGE>
The following table sets forth certain information concerning stock options
held as of December 31, 1995 by each of the Senior Executives:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF AT FISCAL YEAR-END AT FISCAL YEAR END(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gideon I. Gartner....... 0 0 660,000/ 0 $6,207,000/$ 0
David L. Gilmour........ 0 0 0 /120,000 $ 0 /$1,140,000
</TABLE>
- --------
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1995 were exercised, determined by
multiplying the number of shares underlying the options by the difference
between the assumed initial public offering price of $10.00 per share and
the per share option exercise price. An option is in-the-money if the fair
market value of the underlying shares exceeds the exercise price of the
option.
Employment Agreements
Gideon I. Gartner. The Company has entered into a non-competition agreement
with Mr. Gartner, dated November 13, 1995, pursuant to which Mr. Gartner has
agreed not to compete with the Company, solicit any employee or take away any
customer of the Company either during his employment with the Company or for
so long thereafter as the Company continues to pay Mr. Gartner annual
compensation of at least $120,000 (whether as an employee, consultant or in
the form of severance or post-employment benefits).
Kenneth E. Marshall. Mr. Marshall serves as President and Chief Operating
Officer pursuant to the terms of a five-year employment agreement with the
Company, dated December 1, 1995. During the term of his employment, Mr.
Marshall will serve as a director of the Company and will have the right to
recommend one person to serve on the Board of Directors. Mr. Marshall is
entitled to a base salary of $160,000 and a guaranteed bonus of $80,000 for
1996, and a base salary of $192,000 and a target bonus of $96,000, of which
$48,000 is guaranteed, for 1997. Pursuant to the employment agreement, Mr.
Marshall was granted a stock option to purchase 600,000 shares of Common Stock
at an exercise price of $0.50 per share and received a loan from the Company
in the amount of $20,000. Twenty-five percent of the shares subject to the
option vest on January 31, 1997 and one forty-eighth of the shares vest
monthly thereafter. In addition, the Company has agreed to grant Mr. Marshall
an option to purchase 80,000 shares of Common Stock if the Company achieves
certain goals for the year ended December 31, 1996. If Mr. Marshall terminates
his employment for cause or is terminated by the Company other than for cause,
the agreement provides for a severance payment of $160,000 in the event
termination occurs prior to January 31, 1997, or, in the event such
termination occurs on or following January 31, 1997, 50% of his average annual
base salary during the twelve months prior to such termination. In addition,
Mr. Marshall has agreed not to compete with the Company either during his
employment and for a period of one year thereafter.
David L. Gilmour. Mr. Gilmour serves as Senior Vice President, Research
pursuant to the terms of a two-year employment agreement, dated July 6, 1995,
with ExperNet, at the time a majority-owned subsidiary of the Company, to
which the Company is successor by reason of the merger of ExperNet with and
into the Company. Pursuant to the terms of the employment agreement, Mr.
Gilmour was elected to serve as a director of the Company. Mr. Gilmour was
entitled to receive a salary of $90,000 per year through August 1995 and a
salary of $160,000 per year commencing on September 1, 1995. If Mr. Gilmour is
terminated without cause before July 6, 1997, he is entitled to a severance
payment equal to one year's salary and thirty percent of all unvested options
become immediately exercisable. If Mr. Gilmour is terminated without cause, he
has agreed to provide the Company with consultation services for up to one-
quarter time for one year after such termination.
38
<PAGE>
He also has agreed that he will not engage in any activities that are designed
to impact the Company negatively in the marketplace, which agreement will
terminate on the latter to occur of one year after such termination or the
date Mr. Gilmour divests himself of all shares of the Company's capital stock
then owned by him.
Leander R. Jennings, Jr. Mr. Jennings serves as Senior Vice President,
Worldwide Sales pursuant to the terms of an employment agreement with the
Company, dated February 1, 1996. The employment agreement terminates on June
30, 1997. Mr. Jennings is entitled to receive a base salary of $120,000, plus
commissions and relocation expenses, for the first twelve months, and
thereafter as may be determined by the Compensation Committee of the Board of
Directors. Pursuant to the employment agreement, Mr. Jennings was granted an
option to purchase 120,000 shares of Common Stock at $.60 per share. Twenty-
five percent of the shares subject to the option vest on February 1, 1997 and
one forty-eighth of the shares vest monthly thereafter. Mr. Jennings is also
entitled to receive additional options if certain sales quotas are met in
1997. If his employment is terminated by the Company other than for cause, the
agreement provides for a severance payment equal to the greater of (i) the
base salary he would have received had his employment not been so terminated
and (ii) the amount that would be payable to Mr. Jennings for the greater of
the remainder of his term of employment or six months. In addition, Mr.
Jennings has agreed not to compete with the Company either during his
employment by the Company and for a period of one year thereafter.
Stock Plans
1995 Stock Option/Stock Issuance Plan. The Company's 1995 Stock Option/Stock
Issuance Plan, as amended (the "1995 Stock Plan") was adopted by the Board of
Directors in September 1995 and was approved by the stockholders in February
1996. Under the terms of the 1995 Stock Plan, the Company is authorized to
make awards of restricted stock and to grant incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") ("incentive stock options"), and stock options not intended to
qualify as incentive stock options ("non-statutory stock options"), to
employees, officers and directors of, and consultants and advisors to, the
Company and its subsidiaries. A total of 3,100,000 shares of Common Stock may
be issued upon the exercise of options or restricted stock awards granted
under the 1995 Stock Plan.
The Board of Directors is authorized to select the option recipients and to
determine the kind and terms of each option, including (i) the number of
shares of Common Stock subject to each option, (ii) the option exercise price,
(iii) the vesting schedule of the option, and (iv) the duration of the option.
Options are generally not assignable or transferable except by will or the
laws of descent and distribution.
Restricted stock awards under the 1995 Stock Plan entitle the recipient to
purchase Common Stock from the Company under terms which provide for vesting
over a period of time and a right of repurchase of unvested stock by the
Company when the recipient's relationship with the Company terminates. The
Board of Directors is authorized to select the recipients of restricted stock
awards and to determine the terms of each award, including (i) the dates on
which restricted stock awards are made, (ii) the number of shares of Common
Stock subject to the award, (iii) the purchase price (which can be less than
the fair market value of the Common Stock) of the award, and (iv) the vesting
schedule of the award. The recipients may not sell, transfer or otherwise
dispose of shares subject to a restricted stock award until such shares are
vested. Upon termination of the recipient's relationship with the Company, the
Company will be entitled to repurchase those shares which are not vested on
the termination date at a price equal to their original purchase price.
As of August 31, 1996, 26,653 shares of Common Stock were available for
future grant under the 1995 Stock Plan. However, in connection with the
adoption of the 1996 Option Plan (defined below), the Board of Directors
amended the 1995 Stock Plan to provide that all future options would only be
granted under the 1996 Option Plan.
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Option Plan") was adopted by the Board of Directors in August 1996 and was
approved by the stockholders in September 1996. The 1996
39
<PAGE>
Option Plan provides for the grant of stock options to employees, officers and
directors of, and consultants or advisors to, the Company and its
subsidiaries. Under the 1996 Option Plan, the Company may grant incentive
stock options or non-statutory stock options. Incentive stock options may only
be granted to employees of the Company. A total of 3,000,000 shares of Common
Stock may be issued upon the exercise of options granted under the 1996 Option
Plan. The maximum number of shares with respect to which options may be
granted to any employee under the 1996 Option Plan shall not exceed 100,000
shares of Common Stock during any calendar year.
The 1996 Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1996 Option Plan, the
Compensation Committee has the authority to select option recipients and to
determine the kind and terms of each option, including (i) the number of
shares of Common Stock subject to the option, (ii) the option exercise price,
which, in the case of incentive stock options, must be at least 100% (110% in
the case of incentive stock options granted to a stockholder owning in excess
of 10% of the Company's Common Stock) of the fair market value of the Common
Stock as of the date of grant, (iii) the vesting schedule of the option, and
(iv) the duration of the option (which, in the case of incentive stock
options, may not exceed ten years).
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash and Common Stock or by any other method
(including delivery of a promissory note payable on terms specified by the
Compensation Committee) approved by the Compensation Committee consistent with
Section 422 of the Code and Rule 16b-3 under the Securities Exchange Act of
1934, as amended. Options are not assignable or transferable except by will or
the laws of descent and distribution and, in the case of non-statutory
options, pursuant to a "qualified domestic relations order" (as defined in the
Code).
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "1996 Purchase Plan") was adopted by the Board of Directors
in August 1996, was approved by the stockholders in September 1996, and will
become effective upon the consummation of the Offering. The 1996 Purchase Plan
authorizes the issuance of up to 400,000 shares of Common Stock to
participating employees.
All employees of the Company, including directors of the Company who are
employees and all employees of the Company's subsidiaries whose customary
employment is more than 25 hours per week and for more than six months in any
calendar year, are eligible to participate in the 1996 Purchase Plan.
Employees who would immediately after a grant own 5% or more of the total
combined voting power or value of the Common Stock of the Company or any
subsidiary are not eligible to participate.
On the first day of a payroll deduction period, as designated by the
Compensation Committee of the Board of Directors (the "Offering Period"), the
Company will grant to each eligible employee who has elected to participate in
the 1996 Purchase Plan an option to purchase shares of Common Stock. The
employee may authorize a percentage (as determined by the Compensation
Committee and in no event greater than 10%) of such employee's regular pay to
be deducted by the Company during the Offering Period and applied to the
purchase of Common Stock. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of all accumulated payroll deductions. Under the terms of the 1996
Purchase Plan, the option price is an amount equal to 85% of the fair market
value per share of the Common Stock on either the first day or the last day of
the Offering Period, whichever is lower. No employee may purchase Common Stock
under the 1996 Purchase Plan at a rate which exceeds $25,000 of the fair
market value of such Common Stock (determined on the commencement date of the
Offering Period) in any calendar year. The Compensation Committee may, in its
discretion, choose an Offering Period of 12 months or less for each Offering
Period.
If an employee is not a participant of the 1996 Purchase Plan on the last
day of the Offering Period, such employee is not entitled to exercise any
option and the amount of such employee's accumulated payroll deductions will
be refunded. An employee's rights under the 1996 Purchase Plan terminate upon
voluntary withdrawal from the 1996 Purchase Plan at any time or when such
employee ceases employment for any reason,
40
<PAGE>
except that upon termination of employment because of death, the employee's
beneficiary has certain rights to elect to exercise the option to purchase the
shares which the accumulated payroll deductions in the participant's account
would purchase on the date of death.
401(k) Profit Sharing Plan. The Company maintains a 401(k) Profit Sharing
Plan (the "401(k) Plan"), a tax-qualified plan covering all of its employees
who are at least 21 years of age and have completed one year of service with
the Company. Each employee may elect to reduce his or her current compensation
by up to 10% (on a pre-tax basis). The Company matches by 25% that portion of
an employee's contribution representing the first 3% of an employee's base
salary and by 50% that portion representing the next 3% of an employee's base
salary.
All employee and Company contributions to the 401(k) Plan are fully vested
at all times. Upon termination of employment, an employee may elect a lump sum
distribution of all amounts contributed by him or her under the 401(k) Plan.
Early withdrawals from amounts contributed under the 401(k) Plan are allowed
under certain circumstances, such as disability. In addition, subject to
certain restrictions, employees may take a loan drawn on contributions made by
the employee under the 401(k) Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Irwin Lieber and James D.
Robinson III.
41
<PAGE>
CERTAIN TRANSACTIONS
In 1995, Mr. Gartner, Chairman of the Board of Directors and Chief Executive
Officer of the Company, contributed approximately $1.0 million to the capital
of the Company. In consideration for such capital contribution, the Company
issued to Mr. Gartner (i) in March 1995, 4,200,000 shares of Common Stock at a
purchase price of $0.02375 per share, (ii) in July 1995, 240,000 shares of
Series A Preferred Stock at a purchase price of $1.25 per share, and (iii) in
October 1995, 1,200,000 shares of Common Stock at a purchase price of $0.50
per share. The shares of Common Stock and Series A Preferred Stock of the
Company issued to Mr. Gartner are subject to restrictions on transfer and
rights of first offer pursuant to an agreement entered into in November 1995
among Mr. Gartner, the Company and certain stockholders, which agreement will
terminate upon the consummation of the Offering. In addition, Mr. Gartner has
made loans totalling $221,000 to ExperNet and $186,000 to the Company, which
loans were repaid, together with interest thereon, in December 1995 and August
1995, respectively.
In July 1995, Giga acquired all of the ExperNet shares owned by Mr. Gartner
and a majority of the ExperNet shares owned by Mr. Gilmour, aggregating 77.8%
of ExperNet's outstanding common stock, in exchange for (i) 160,000 shares of
Series A Preferred Stock (640,000 shares on an as-converted basis) of the
Company, 80,000 shares (320,000 shares on an as-converted basis) of which were
issued to Mr. Gartner and 80,000 shares (320,000 shares on an as-converted
basis) of which were issued to Mr. Gilmour, and (ii) the issuance to Mr.
Gartner of a fully-vested option to purchase 160,000 shares of Common Stock at
an exercise price of $0.50 per share. In December 1995, the Company acquired
Mr. Gilmour's remaining 22.2% interest in ExperNet in exchange for a $400,000
6% Convertible Note due December 31, 2005 (the "Convertible Note"). The
Convertible Note is convertible at any time after December 31, 1995 at the
option of Mr. Gilmour into shares of the Company's Series B Preferred Stock
pursuant to a formula set forth in the Convertible Note. The shares of Series
A Preferred Stock, as well as the shares of Series B Preferred Stock issuable
upon the conversion of the Convertible Note held by Mr. Gilmour, are subject
to repurchase by the Company under certain circumstances. In addition, Mr.
Gilmour made loans totalling $101,000 to ExperNet, which loans were repaid in
full, together with interest thereon, by ExperNet in December 1995.
In July 1995, the Company issued and sold an aggregate of 2,280,000 shares
of Series A Preferred Stock at a purchase price of $1.25 per share to a
limited number of investors, including Mr. Brownstein (240,000 shares), Mr.
Crandall (60,000 shares) and Mr. Robinson (40,000 shares).
In August 1995, the Company entered into a Convertible Promissory Note and
Warrant Purchase Agreement (the "Note and Warrant Agreement") with RRE Giga
Investors, L.P. ("RRE Giga"), pursuant to which the Company borrowed $2.0
million from RRE Giga and issued RRE Giga a convertible promissory note (the
"Note") in the principal amount of $2,000,000 and a warrant to purchase
285,714 shares of Series B Preferred Stock at an exercise price of $2.345 per
share (the "Series B Warrant"). In November 1995, the Note was converted into
571,428 shares of Series B Preferred Stock. In September 1996, RRE Giga made a
cashless exercise of the Series B Warrant and received 218,714 shares of
Series B Preferred Stock. Mr. Robinson, a director of the Company, is Chairman
and Chief Executive Officer of RRE Investors, L.L.C., the General Partner of
RRE Giga.
In August 1995, the Company entered into a consulting arrangement with Mr.
Crandall, a director of the Company. The arrangement provided for payment to
Mr. Crandall of $50,000 per annum in 1995 and $60,000 per annum in 1996. In
lieu of certain payments due to Mr. Crandall, the Company issued to Mr.
Crandall 120,000 shares of Common Stock at a purchase price of $0.50 per
share. The shares are subject to vesting and certain restrictions on transfer.
In July 1996, as compensation for the consulting services Mr. Crandall will
render to the Company for the twelve month period ending June 30, 1997, the
Company granted to Mr. Crandall an option to purchase 20,000 shares of Common
Stock at an exercise price of $0.60 per share. Twenty-five percent of the
shares subject to the option vest one year from the date of grant and one
forty-eighth of the shares vest monthly thereafter.
In October 1995, the Company sold to Mr. Brownstein, a director of the
Company, 80,000 shares of Common Stock at a purchase price of $.50 per share.
The shares are subject to vesting and certain restrictions on transfer.
42
<PAGE>
In November 1995 and February 1996, the Company issued and sold an aggregate
of 5,272,215 shares of Series B Preferred Stock, at a purchase price of $3.50
per share, to a limited number of investors, including the following persons
and entities who are directors, affiliates of directors and/or principal
stockholders of the Company:
<TABLE>
<CAPTION>
TOTAL
NAME NO. OF SHARES CONSIDERATION PAID
---- ------------- -------------------
<S> <C> <C>
21st Century Communications Partners,
L.P..................................... 968,615 $3,390,153
21st Century Communications T-E Partners,
L.P..................................... 329,560 1,153,460
21st Century Communications Foreign Part-
ners, L.P............................... 130,397 456,390
Quota Fund N.V........................... 224,000 784,000
Haussmann Holdings....................... 288,000 1,008,000
Montgomery Small Cap Partners, L.P....... 40,000 140,000
Montgomery Small Cap Partners II, L.P.... 96,000 336,000
Montgomery Small Cap Partners III, L.P... 40,000 140,000
Nosrob Investments Ltd................... 48,000 168,000
RRE Giga Investors, L.P.................. 571,428 2,000,000
RRE Giga Investors II, L.P............... 288,571 1,010,000
Neill and Linda Brownstein............... 16,000 56,000
</TABLE>
Mr. Lieber, a director of the Company, is a corporate officer of InfoMedia
Associates, Ltd., which is a General Partner of 21st Century Communications
Partners, L.P., 21st Century Communications T-E Partners, L.P. and 21st
Century Communications Foreign Partners, L.P. Mr. Robinson, a director of the
Company, is Chairman and Chief Executive Officer of RRE Investors, L.L.C., the
General Partner of RRE Giga and RRE Giga Investors II, L.P.
Montgomery Securities served as private placement agent in connection with
the sale by the Company of the Series B Preferred Stock. In consideration for
such private placement agent services, Montgomery Securities received a
placement agent fee of $695,105 and a warrant to purchase 107,876 shares of
Series B Preferred Stock, exercisable for five years from the date of issuance
at an exercise price of $4.625 per share. Montgomery Securities is a limited
partner of Montgomery Asset Management, L.P., which is the investment advisor
for Montgomery Small Cap Partners, L.P., Montgomery Small Cap Partners II,
L.P., Montgomery Small Cap Partners III, L.P., Quota Fund N.V., Haussmann
Holdings and Nosrob Investments Ltd.
In December 1995, the Company loaned to Mr. Marshall, its President and
Chief Operating Officer, $20,000 pursuant to the terms of a promissory note
which bears interest at 5.74% per annum. The loan, plus interest, is payable
in full on December 1, 1996.
In January 1996, the Company entered into a one-year consulting agreement
with the Neill H. Brownstein Corporation (the "Brownstein Corporation"), of
which the sole shareholder is Neill H. Brownstein, a director of the Company.
Pursuant to the consulting agreement, the Brownstein Corporation is entitled
to receive a consulting fee of $60,000, plus reasonable expenses, payable
quarterly. The Brownstein Corporation has agreed that during the term of the
agreement and for a period of one year thereafter, the Brownstein Corporation
will not use any of the Company's proprietary or confidential information or
disclose such proprietary and confidential information to any third party.
Messrs. Gartner, Gilmour, Robinson and Lieber were elected to the Board of
Directors pursuant to the terms of an Investor Rights and Voting Agreement
dated November 13, 1995 among the Company, Messrs. Gartner and Gilmour and
certain stockholders of the Company. The agreement terminates upon the
consummation of the Offering.
For a description of certain transactions between the Company and certain
directors of the Company, see "Management--Director Compensation." For a
description of certain employment and other arrangements
43
<PAGE>
between the Company and certain executive officers of the Company, see
"Management--Executive Compensation" and "Management--Employment Agreements."
The Company believes that the securities issued in the transactions
involving the Company described above were sold by the Company at their then
fair market value and that the terms of the transactions described above were
no less favorable than the Company could have obtained from unaffiliated third
parties.
The Company has adopted a policy, effective following the consummation of
the Offering, that all material transactions between the Company and its
officers, directors and other affiliates must (i) be approved by a majority of
the members of the Company's Board of Directors and by a majority of the
disinterested members of the Company's Board of Directors, and (ii) be on
terms no less favorable to the Company than could be obtained from
unaffiliated third parties. In addition, this policy will require that any
loans by the Company to its officers, directors or other affiliates be for
bona fide business purposes only.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of July 31, 1996 (assuming the
conversion of all outstanding shares of all series of Preferred Stock into
Common Stock), and as adjusted to reflect the sale of the shares of Common
Stock offered hereby, by (i) each person or entity known to the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Senior Executives and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)(2)
----------------------------
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIALLY OWNED BEFORE AFTER
BENEFICIAL OWNER PRIOR TO OFFERING(1) OFFERING OFFERING
------------------- -------------------- ------------ ------------
<S> <C> <C> <C>
21st Century 1,428,572(3) 10.5% 8.1%
Communications Partners
L.P. ....................
767 Fifth Avenue, 45th
Floor
New York, NY 10153
Entities affiliated with 1,049,143(4) 7.7 5.9
S/2/ Technology
Corporation..............
515 Madison Avenue, Suite
4200
New York, NY 10022
Funds managed by 736,000(5) 5.4 4.2
Montgomery Asset
Management, L.P..........
101 California Street
San Francisco, CA 94111
RRE Giga Investors, 1,078,713(6) 7.9 6.1
L.P......................
126 East 56th Street,
22nd Floor
New York, NY 10022
Gideon I. Gartner........ 6,608,000(7) 46.1 36.1
c/o Giga Information
Group, Inc.
One Kendall Square
Cambridge, MA 02139
David L. Gilmour......... 355,000(8) 2.6 2.0
Neill H. Brownstein...... 360,000(9) 2.6 2.0
Richard L. Crandall...... 180,000(10) 1.3 1.0
Irwin Lieber............. 1,428,572(11) 10.5 8.1
James D. Robinson III.... 1,118,713(12) 8.2 6.3
Kenneth E. Marshall...... 0 -- --
Richard B. Goldman....... 0 -- --
Leander R. Jennings, 0 -- --
Jr. .....................
Jeffrey L. Swartz........ 14,166(13) * *
All directors and execu-
tive officers as a group
(10 persons)............ 10,064,451(14) 70.0 54.8
</TABLE>
- --------
* Less than 1%
(1) Each stockholder possesses sole voting and investment power with respect
to the shares listed, except as otherwise noted. Amounts shown include
shares issuable within the 60-day period following July 31, 1996 pursuant
to the exercise of options or warrants.
(2) On July 31, 1996, there were 13,664,148 shares of Common Stock
outstanding, assuming the conversion of all outstanding shares of all
series of Preferred Stock into Common Stock.
(3) Includes 968,615 shares of Common Stock held by 21st Century
Communications Partners, L.P., a limited partnership ("21-CCP"), 329,560
shares of Common Stock held by 21st Century Communications T-E Partners,
L.P., a limited partnership ("21-CCTEP") and 130,397 shares of Common
Stock held by 21st Century Communications Foreign Partners, L.P., a
limited partnership ("21-CCFP").
45
<PAGE>
(4) S/2/ Technology Corporation ("S Squared"), an investment manager, is the
General Partner of (i) Sci-Tech Investment Partners L.P., which holds
98,058 shares of Common Stock, (ii) SG Partners, L.P., which holds 84,127
of Common Stock, and (iii) Executive Technology, L.P., which holds 66,080
shares of Common Stock. Seymour L. Goldblatt, the President of S Squared,
is the Managing Director of both The Matrix Technology Group, which holds
39,746 shares of Common Stock, and Core Technology Fund, Inc., which
holds 184,339 shares of Common Stock. S Squared serves as an investment
advisor to each of the foregoing funds and exercises by agreement
investment and voting power on behalf of each fund. Mr. Goldblatt, as
President of S Squared, also exercises by agreement investment and voting
power for the following funds: (i) Yale University, which holds 524,581
shares of Common Stock, (ii) Yale University Retirement Plan for Retired
Employees, which holds 25,752 shares of Common Stock, and (iii) Monstol
Investment N.V., which holds 26,460 shares of Common Stock.
(5) Includes 224,000 shares of Common Stock held by Quota Fund N.V., a
Netherland Antilles corporation, 288,000 shares of Common Stock held by
Haussmann Holdings, a Netherland Antilles limited liability company,
40,000 shares of Common Stock held by Montgomery Small Cap, L.P., 96,000
shares of Common Stock held by Montgomery Small Cap Partners II, L.P.,
40,000 shares of Common Stock held by Montgomery Small Cap Partners III,
L.P. and 48,000 shares of Common Stock held by Nosrob Investments Ltd., a
Channel islands limited liability company. Montgomery Asset Management,
L.P. serves as the investment advisor to each of these entities and
possesses investment and voting power with respect to each such entity
but disclaims beneficial ownership.
(6) Includes 790,142 shares of Common Stock held by RRE Giga (including
218,714 shares acquired after July 31, 1996 upon the exercise of a
warrant) and 288,571 shares of Common Stock held by RRE Giga Investors
II, L.P ("RRE Giga II"). RRE Investors, L.L.C. is the General Partner of
RRE Giga and RRE Giga II. Mr. Robinson, a director and stockholder of the
Company, is the Chairman and Chief Executive Officer of RRE Investors,
L.L.C.
(7) Includes options to purchase 660,000 shares of Common Stock which are
exercisable within 60 days of July 31, 1996. Also includes 660,000 shares
of Common Stock which are held of record by members of Mr. Gartner's
family. Mr. Gartner disclaims beneficial ownership of shares held by
members of his family.
(8) Includes options to purchase 35,000 shares of Common Stock which are
exercisable within 60 days of July 31, 1996.
(9) Includes 24,000 shares of Common Stock held by Mr. Brownstein's children
and 16,000 shares of Common Stock held by Mr. Brownstein and his spouse
jointly. Mr. Brownstein disclaims beneficial ownership of the 18,000
shares of Common Stock held by his adult children, Adam J. and Todd D.
Brownstein, and Will Gordon, the adult child of his spouse. Mr.
Brownstein disclaims beneficial ownership of the 6,000 shares of Common
Stock held by his minor child, Emily Hamilton; however, Mr. Brownstein
claims investment and voting power with respect to these shares. Of the
shares held by Mr. Brownstein directly, 80,000 of such shares are subject
to repurchase by the Company under certain circumstances.
(10) Includes 120,000 shares of Common Stock which are subject to repurchase
by the Company under certain circumstances.
(11) Includes 968,615 shares of Common Stock held by 21-CCP, 329,560 shares of
Common Stock held by 21-CCTEP and 130,397 shares of Common Stock held by
21-CCFP. Mr. Lieber, a director of the Company, is a General Partner of a
General Partner of 21-CCP, 21-CCTEP and 21-CCFP. Mr. Lieber disclaims
beneficial ownership of such shares, except to the extent of his
pecuniary interest in such shares. Mr. Lieber shares dispositive and
voting power of such shares with the General Partners of the General
Partner of each fund.
(12) Includes 790,142 shares held by RRE Giga (including 218,714 shares
acquired after July 31, 1996 upon the exercise of a warrant) and 288,571
shares of Common Stock held by RRE Giga II. Mr. Robinson, a director of
the Company, is a General Partner of RRE Investors, L.L.C., the General
Partner of RRE Giga and RRE Giga II. Mr. Robinson disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest
in such shares. Mr. Robinson shares dispositive and voting power of such
shares with the General Partners of RRE Investors, L.L.C.
(13) Represents shares which Mr. Swartz has the right to acquire within 60
days of July 31, 1996 upon exercise of stock options.
(14) Includes 709,166 shares of Common Stock issuable upon exercise of stock
options held by all directors and executive officers as a group which are
exercisable within 60 days of July 31, 1996 and 218,714 shares acquired
after July 31, 1996 by RRE Giga upon the exercise of a warrant. Also
includes 200,000 shares of Common Stock held by all directors and
executive officers as a group which may be repurchased by the Company
under certain circumstances.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At June 30, 1996, there were outstanding an aggregate of 6,110,600 shares of
Common Stock and 5,842,215 shares of Preferred Stock of the Company. Upon the
closing of the Offering, all of such shares of Preferred Stock will
automatically be converted into an aggregate of 7,552,215 shares of Common
Stock. All of the shares of Preferred Stock that have been converted will
cease to be outstanding and may not be reissued.
Assuming conversion of all of the Company's Preferred Stock, at June 30,
1996, there were 13,662,815 shares of Common Stock outstanding, held of record
by 81 stockholders.
COMMON STOCK
The Company's Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation"), which will become effective upon the closing
of the Offering, will authorize the issuance of up to 60,000,000 shares of
Common Stock, $.001 par value per share. Holders of Common Stock are entitled
to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of
a majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities. Holders of
Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered by
the Company in the Offering will be, when issued and paid for, fully paid and
nonassessable.
PREFERRED STOCK
Upon the consummation of the Offering, the Restated Certificate of
Incorporation will authorize the issuance of up to 5,000,000 shares of
Preferred Stock, $.001 par value per share. Under the terms of the Restated
Certificate of Incorporation, the Board of Directors is authorized, subject to
any limitations prescribed by law, without stockholder approval, to issue such
shares of Preferred Stock in one or more series. Each such series of Preferred
Stock shall have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
WARRANTS
At August 31, 1996, there were outstanding a warrant to purchase 285,714
shares of Common Stock at an exercise price of $2.345 per share and a warrant
to purchase 107,876 shares of Common Stock at an exercise price of $4.5625 per
share. The holders of such warrants have no rights as stockholders until the
exercise thereof.
CONVERTIBLE NOTES
The Company's 6% $400,000 convertible note (the "6% Note") is convertible at
the option of the holder after December 31, 1995 and at any time prior to
December 31, 2005 into the lesser of (i) the number of shares of
47
<PAGE>
Common Stock arrived at by dividing the unpaid principal of the 6% Note being
converted by $3.50 and (ii) the amount of such unpaid principal amount being
converted, expressed as a fraction of the total unpaid principal of the 6%
Note, multiplied by the Maximum Conversion Amount. The "Maximum Conversion
Amount" equals 28,576 shares plus an additional 2,857 shares on the sixth day
of each of the thirty months after January 1996. At August 31, 1996, the
principal amount of the 6% Note is convertible into 48,575 shares of Common
Stock of the Company.
The Company's 5% $1.0 million convertible note (the "5% Note") is
convertible at the option of the holder, Friday Holdings L.P., at any time
prior to April 5, 1998, in whole or in part, into 185,298 shares of Common
Stock of the Company. The Company has provided notice to the holder that it
intends to repay the 5% Note promptly after the closing of the Offering and
therefore expects that the 5% Note will be converted into Common Stock at that
time.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within the past three years did own, 15% or more of a
corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the Company entitled to vote. Under the Restated Certificate
of Incorporation, any vacancy on the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may only be
filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Restated Certification of Incorporation also provides that, after the
consummation of the Offering, any action required or permitted to be taken by
the stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be undertaken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. Under the Company's Amended and Restated By-Laws (the "By-
Laws"), which will become effective upon the closing of the Offering, in order
for any matter to be considered "properly brought" before a meeting, a
stockholder must comply with certain requirements regarding advance notice to
the Company. The foregoing provisions could have the effect of delaying until
the next stockholders' meeting stockholder actions which are favored by the
holders of a majority of the outstanding voting securities of the Company.
These provisions may also discourage another person or entity from making a
tender offer for the Company's Common Stock, because such person or entity,
even if it acquired a majority of the outstanding voting securities of the
Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting,
and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
48
<PAGE>
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Restated Certificate of
Incorporation and the By-Laws require the affirmative vote of the holders of
at least two-thirds of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the Restated Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, based on the number of shares outstanding
at June 30, 1996, there will be 17,662,815 shares of Common Stock outstanding.
Of these shares, the 4,000,000 shares of Common Stock sold in the Offering
will be freely transferable without restriction under the Securities Act,
except that any shares purchased by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act ("Rule 144"), generally must
be sold in compliance with the limitations of Rule 144 described below. The
remaining 13,662,815 shares of Common Stock outstanding will be "restricted
securities" as that term is defined in Rule 144 (the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below.
Subject to the lock-up agreements described below and the provisions of Rules
144, 144(k) and 701, additional shares will be available for sale in the
public market (subject in the case of shares held by affiliates to compliance
with certain volume restrictions) as follows: (i) no shares will be available
for immediate sale in the public market on the date of the Prospectus, (ii)
2,600 shares will be eligible for resale 90 days after the date of this
Prospectus, (iii) 4,200,000 shares will be eligible for resale upon expiration
of lock-up agreements 180 days after the date of this Prospectus, and
thereafter (iv) the remaining 9,460,215 shares will be eligible for sale upon
expiration of their respective two-year holding periods.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years, including persons who may be deemed affiliates of the
Company, would be entitled to sell within any three-month period, subject to
meeting certain manner of sale and notice requirements, a number of shares
that does not exceed the greater of (i) one percent of the number of shares of
Common Stock then issued and outstanding (176,628 shares upon consummation of
the Offering) and (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 notice of
sale with the Securities and Exchange Commission. A person who is not deemed
to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years, is entitled to sell such shares under Rule
144(k) without regard to the volume limitations described above. Affiliates
whose shares are not Restricted Shares must nonetheless comply with the same
Rule 144 restrictions applicable to Restricted Shares with the exception of
the two-year holding period requirement. The Securities and Exchange
Commission has proposed to reduce the two- and three-year holding periods to
one and two years, respectively. If enacted, such modification may have a
material effect on the timing of when certain shares of Common Stock become
eligible for resale.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired on the exercise of outstanding options may be resold by
persons, other than affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates, beginning 90 days after the date of this Prospectus, subject to
all provisions of Rule 144 except its two-year minimum holding period.
The Company's executive officers and directors of the Company (who in the
aggregate will beneficially own approximately 10,064,451 Restricted Shares,
including 709,166 shares of Common Stock that may be acquired by them upon the
exercise of stock options exercisable with 60 days of July 31, 1996) have
agreed not to sell or offer to sell or otherwise dispose of any shares of
Common Stock currently held by them, or to exercise any right to acquire any
shares of Common Stock or any securities exercisable for or convertible into
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Lehman Brothers Inc. Lehman
Brothers Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. See "Underwriting."
50
<PAGE>
The Company has agreed, subject to certain exceptions, not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus, except that the Company may issue, and grant
options to purchase, shares of Common Stock under its current stock option and
purchase plans and other currently outstanding options.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1995
Stock Plan, 1996 Option Plan and 1996 Purchase Plan. These registration
statements are expected to be filed approximately 180 days after the effective
date of the Registration Statement of which this Prospectus is a part and will
be effective upon filing. Shares issued upon the exercise of stock options
after the effective date on the Form S-8 registration statements will be
eligible for resale in the public market without restriction, subject to Rule
144 limitations applicable to affiliates and the lock-up agreements noted
above.
As of August 31, 1996, the holders of 10,880,215 shares of Common Stock and
warrants to purchase 393,590 shares of Common Stock are entitled to certain
demand and/or piggyback registration rights with respect to such shares (the
"Registrable Shares"). At any time after the earlier of November 1, 1999 or
six months after the Company's initial public offering, holders of at least
40% of the Registrable Shares then outstanding may request that the Company
file, at the Company's expense, a registration statement under the Securities
Act covering at least 20% of the Registrable Shares then outstanding with
aggregate gross proceeds of at least $5,000,000. The Company is obligated to
effect only two demand registrations and, in any event, not more than one such
registration in any twelve-month period. In addition, holders of Registrable
Shares with piggyback registration rights may include their shares in any
registration statement the Company intends to effect for the Company's shares
for stockholders other than the holders of Registrable Shares. So long as the
Company is qualified to effect a registration statement on Form S-3, holders
of at least 20% of the Registrable Shares may request that the Company effect
a registration on Form S-3 provided that (i) the aggregate price of the
Registrable Shares to be sold on such Form S-3 exceeds $500,000, (ii) the
Company is obligated to file only one such Form S-3 in any 6-month period and
(iii) the Company is only obligated to effect a total of six such
registrations.
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of the Common Stock
in the public market could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
51
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions contained in, an
Underwriting Agreement (the "Underwriting Agreement"), the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part, the underwriters named below (the "Underwriters"), for whom Lehman
Brothers Inc., Oppenheimer & Co., Inc. and Salomon Brothers Inc are acting as
Representatives (the "Representatives"), have severally agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriters, the
aggregate number of shares of Common Stock set forth opposite the name of each
Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc. .............................................
Oppenheimer & Co., Inc. ..........................................
Salomon Brothers Inc..............................................
---------
Total........................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to certain conditions, and that
if any of the shares of Common Stock are purchased by the Underwriters
pursuant to the Underwriting Agreement, all shares of Common Stock agreed to
be purchased by the Underwriters pursuant to the Underwriting Agreement must
be purchased.
The Company has been advised that the Underwriters initially propose to
offer the shares of Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers (who may include the Underwriters) at such public offering price less
a selling concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other Underwriters or to certain other brokers or dealers.
After the initial public offering, the public offering price, the concession
to selected dealers and the reallowance to other dealers may be changed by the
Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments that the Underwriters may be required
to make in respect thereof.
The Company has granted to the Underwriters an option to purchase up to an
additional 600,000 shares of Common Stock at the public offering price less
the underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters
will be committed, subject to certain conditions, to purchase a number of
option shares proportionate to such Underwriter's initial commitment.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The Company, the directors and officers and certain other securityholders of
the Company have agreed not to, directly or indirectly, offer, sell or
contract to sell, or otherwise dispose of shares of Common Stock of the
Company, or any securities convertible into, or exchangeable for, or any
rights to acquire, shares of Common
52
<PAGE>
Stock, for a period of 180 days after the date of this Prospectus without the
prior written consent of Lehman Brothers Inc. on behalf of the
Representatives, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its current stock option and purchase
plans and other currently outstanding options.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation among the
Company and the Representatives of the Underwriters. Among the factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, will be the Company's historical performance,
capital structure, estimates of the business potential and earnings prospects
of the Company, an overall assessment of the Company, an assessment of the
Company's management, and the consideration of the above factors in relation
to market valuation of companies in related businesses.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of Common Stock offered hereby for employees of
the Company and certain other individuals who have expressed an interest in
purchasing such shares of Common Stock in the Offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
other shares offered hereby.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr, Boston, Massachusetts.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of the Company at December 31, 1995 and June
30, 1996 and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the periods March 17, 1995 to December 31,
1995 and January 1, 1996 to June 30, 1996 included in this Prospectus have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The combined balance sheet of BIS Strategic Decisions at April 5, 1995 and
the related combined statements of operations, cash flows and stockholder's
equity for the period January 1, 1995 to April 5, 1995 included in this
Prospectus have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
The combined balance sheet of BIS Strategic Decisions at December 31, 1994
and the related combined statements of operations, cash flows and
stockholder's equity for the periods January 1, 1993 to December 15, 1993,
December 16, 1993 to December 31, 1993 and for the year ended December 31,
1994 included in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains
explanatory paragraphs with respect to BIS Strategic Decision's ability to
continue as a going concern and an accounting change as described in Notes 4
and 2, respectively, of the Notes to the Combined Financial Statements)
appearing elsewhere herein, which, as to the periods from January 1, 1993
through December 15, 1993, and December 16, 1993 through December 31, 1993 are
based in part on the report of Coopers & Lybrand and are included herein in
reliance upon such reports, given upon the authority of such firms as experts
in accounting and auditing.
53
<PAGE>
The statements of operations, changes in stockholder's equity and cash flows
of BIS Shrapnel PTY Limited for each of the periods of January 1, 1993 to
December 15, 1993 and December 16, 1993 to December 31, 1993 on which the
report of Ernst & Young LLP, independent auditors, for the related periods are
based in part is given in reliance on the reports of Coopers & Lybrand,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
----------------
The Giga logo(TM), Giga Information Group(TM), Giga Advisory Service(TM),
GigaWeb(TM), Relevance Services(TM), Gigabots(TM), GigaNotes(TM), GigaTel(TM),
Giga World Forum(TM), Smart Search(TM) and ExperNet(TM) are trademarks of Giga
Information Group, Inc. All other trademarks or trade names referred to in
this Prospectus are the property of their respective owners.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GIGA INFORMATION GROUP, INC.:
Report of Independent Accountants--Coopers & Lybrand L.L.P............... F-2
Consolidated Balance Sheets at December 31, 1995 and June 30, 1996....... F-3
Consolidated Statements of Operations for the periods March 17, 1995 to
December 31, 1995; March 17, 1995 to June 30, 1995 (unaudited) and
January 1, 1996 to June 30, 1996........................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the
periods March 17, 1995 to December 31, 1995 and January 1, 1996 to June
30, 1996................................................................ F-5
Consolidated Statements of Cash Flows for the periods March 17, 1995 to
December 31, 1995; March 17, 1995 to June 30, 1995 (unaudited) and
January 1, 1996 to June 30, 1996........................................ F-6
Notes to Consolidated Financial Statements............................... F-7
BIS STRATEGIC DECISIONS:
Report of Independent Accountants--Coopers & Lybrand L.L.P............... F-20
Report of Independent Auditors--Ernst & Young LLP........................ F-21
Reports of Independent Accountants--Coopers & Lybrand ................... F-22
Combined Balance Sheet at December 31, 1994.............................. F-24
Combined Statements of Operations for the periods January 1, 1993 to
December 15, 1993; December 16, 1993 to December 31, 1993; the year
ended December 31, 1994 and for the period January 1, 1995 to April 5,
1995.................................................................... F-25
Combined Statements of Changes in Stockholder's Equity for the periods
January 1, 1993 to
December 15, 1993; December 16, 1993 to December 31, 1993; the year
ended December 31, 1994 and for the period January 1, 1995 to April 5,
1995.................................................................... F-26
Combined Statements of Cash Flows for the periods January 1, 1993 to
December 15, 1993; December 16, 1993 to December 31, 1993; the year
ended December 31, 1994 and for the period January 1, 1995 to April 5,
1995.................................................................... F-27
Notes to Combined Financial Statements................................... F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Giga Information Group, Inc.:
We have audited the accompanying consolidated balance sheets of Giga
Information Group, Inc. as of December 31, 1995 and June 30, 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the period March 17, 1995 (date of inception) to December
31, 1995 and the six months ended June 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Giga Information Group,
Inc. as of December 31, 1995 and June 30, 1996, and the results of its
operations and its cash flows for the period March 17, 1995 to December 31,
1995 and the six months ended June 30, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 31, 1996
F-2
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
1995 JUNE 30, 1996 JUNE 30, 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $16,906 $ 9,331
Trade accounts receivable, net of
allowance for uncollectible
accounts of $79 and $86 at December
31, 1995 and June 30, 1996,
respectively....................... 2,180 3,030
Unbilled accounts receivable........ 90 925
Prepaid expenses and other current
assets............................. 1,406 1,571
------- -------
Total current assets................ 20,582 14,857
Property and equipment, net of
accumulated depreciation and
amortization of $562 and $1,136 at
December 31, 1995 and June 30, 1996,
respectively........................ 2,194 2,716
Leasehold intangible, net of
accumulated amortization of $283 and
$496 at December 31, 1995 and June
30, 1996, respectively.............. 1,028 815
Goodwill, net of accumulated
amortization of $482 and $803 at
December 31, 1995 and June 30, 1996,
respectively........................ 803 482
Note receivable...................... 150
Other assets......................... 77 200
------- -------
Total assets...................... $24,684 $19,220
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts..................... $ 458 $ 479
Accounts payable.................... 1,519 651
Deferred revenues................... 2,480 4,995
Accrued compensation and benefits... 632 1,095
Accrued expenses.................... 1,924 1,774
Sales tax reserve................... 1,000 1,000
Other current liabilities........... 503 563
Other current liabilities and
accrued expenses................... 3,427 3,337
Net liabilities of discontinued
operations, current portion........ 861 1,566
------- -------
Total current liabilities........... 9,377 12,123
Long-term debt - related party....... 400 412
Long-term debt - other............... 1,037 1,060
Other liabilities.................... 210 240
Net liabilities of discontinued
operations, less current portion.... -- 1,332
------- -------
Total liabilities................... 11,024 15,167
Commitments and other contingent
liabilities (Note 17)...............
Stockholders' equity:
Preferred Stock, $.001 par value;
10,000,000 shares authorized at
December 31, 1995 and June 30,
1996; 5,000,000 shares authorized
at June 30, 1996 pro forma; none
issued or outstanding at June 30,
1996 pro forma..................... -- -- --
Series A Preferred Stock; $.001 par
value per share, 650,000 shares
authorized: 570,000 shares issued
and outstanding (liquidation
preference of $2,850,000).......... 1 1 --
Series B Preferred Stock; $.001 par
value per share, 6,000,000 and
6,500,000 shares authorized:
4,598,200 and 5,272,215 shares
issued and outstanding at December
31, 1995 and June 30, 1996,
respectively (liquidation
preference of $16,094,000 and
$18,453,000 at December 31, 1995
and June 30, 1996, respectively)... 4 5 --
Common Stock; $.001 par value per
share, 28,000,000 shares
authorized: 6,108,000, 6,110,600
and 13,662,815 shares issued and
outstanding at December 31, 1995,
June 30, 1996 and June 30, 1996 pro
forma, respectively................ 6 6 $ 14
Additional paid-in capital.......... 18,295 20,631 20,629
Stock subscriptions receivable...... (375) (75) (75)
Accumulated deficit................. (4,234) (16,537) (16,537)
Cumulative translation adjustments.. (37) 22 22
------- ------- -------
Total stockholders' equity.......... 13,660 4,053 $ 4,053
------- ------- -------
Total liabilities and
stockholders' equity............. $24,684 $19,220
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
MARCH 17 TO MARCH 17 TO ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Continuous Information Services....... $ -- $ -- $ 627
Other Services........................ 10,706 3,571 5,855
---------- ---------- ----------
Total revenues...................... 10,706 3,571 6,482
Cost and Expenses:
Cost of services...................... 8,097 2,473 8,809
Sales and marketing................... 1,016 191 1,982
Research and development.............. 348 -- 839
General and administrative............ 6,216 1,433 4,257
Depreciation and amortization......... 1,397 527 1,088
---------- ---------- ----------
Total costs and expenses............ 17,074 4,624 16,975
---------- ---------- ----------
Operating loss........................ (6,368) (1,053) (10,493)
Interest income......................... 259 26 375
Interest expense........................ (100) (16) (52)
---------- ---------- ----------
Loss from continuing operations before
income taxes......................... (6,209) (1,043) (10,170)
Income tax benefit...................... (1,093) (310) (257)
---------- ---------- ----------
Loss from continuing operations....... (5,116) (733) (9,913)
---------- ---------- ----------
Discontinued operations:
Income (loss) from the discontinued BIS
market research business, net of tax
effect................................. 1,490 301 (85)
Loss on disposal of discontinued BIS
market research business, net of tax
effect................................. -- -- (2,305)
---------- ---------- ----------
Income (loss) from discontinued
operations........................... 1,490 301 (2,390)
---------- ---------- ----------
Net loss............................ $ (3,626) $ (432) $(12,303)
========== ========== ==========
Historical results per common and common
equivalent share:
Loss from continuing operations....... $(0.38) $ (0.06) $(0.70)
Income (loss) from discontinued
operations........................... 0.11 0.02 (0.01)
Loss from disposal of discontinued
operations........................... -- -- (0.16)
Net loss.............................. $(0.27) $(0.04) $(0.87)
Historical weighted average common and
common equivalent shares outstanding... 13,486,788 12,299,420 14,180,287
Pro forma results per common and common
equivalent share:
Loss from continuing operations....... $(0.34) $(0.61)
Income (loss) from discontinued
operations........................... 0.10 0.00
Loss from disposal of discontinued
operations........................... -- (0.14)
Net loss.............................. $(0.24) $(0.75)
Pro forma weighted average common and
common equivalent shares outstanding... 14,855,209 16,360,287
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B ADDITIONAL STOCK CUMULATIVE TOTAL
PREFERRED PREFERRED COMMON PAID-IN SUBSCRIPTIONS TRANSLATION ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL RECEIVABLE ADJUSTMENTS DEFICIT EQUITY
--------- --------- ------ ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 6,108,000
shares of Common
Stock.................. $ 6 $1,054 $(350) $710
Issuance of 160,000
shares of Series A
Preferred Stock and
convertible note for
acquisition of ExperNet
Corporation............ $(608) (608)
Issuance of 410,000
shares of Series A
Preferred Stock ....... $ 1 2,049 (25) 2,025
Issuance of 4,026,772
shares of Series B
Preferred Stock........ $ 4 13,212 13,216
Conversion of bridge
financing to 571,428
shares of Series B
Preferred Stock........ 1,980 1,980
Net loss................ (3,626) (3,626)
Translation
adjustments............ $(37) (37)
--- --- --- ------- ----- ---- -------- --------
Balance at December 31,
1995................... 1 4 6 18,295 (375) (37) (4,234) 13,660
--- --- --- ------- ----- ---- -------- --------
Payment of stock
subscription
receivable............. 300 300
Issuance of 674,015
shares of Series B
Preferred Stock........ 1 2,336 2,337
Issuance of 2,600 shares
of Common Stock........ -- --
Net loss................ (12,303) (12,303)
Translation
adjustments............ 59 59
--- --- --- ------- ----- ---- -------- --------
Balance at June 30,
1996................... $ 1 $ 5 $ 6 $20,631 $ (75) $ 22 $(16,537) $ 4,053
=== === === ======= ===== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
MARCH 17 TO MARCH 17 TO ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(3,626) $ (432) $(12,303)
Adjustments to reconcile net loss to
net cash used in continuing operating
activities:
(Income) loss from discontinued
operations......................... (1,490) (301) 85
Loss on disposal of discontinued
operations......................... -- -- 2,305
Depreciation and amortization....... 1,397 527 1,088
Provision for (recovery from)
doubtful accounts.................. 27 (24) 48
(Increase) decrease in deferred
taxes.............................. 50 -- (8)
Interest on long term debt added to
principal.......................... 37 12 35
(Gain) loss on sale of fixed
assets............................. 15 (6) 4
Changes in assets and liabilities
net of effects of acquisitions:
Decrease (increase) in accounts
receivable........................ 1,638 525 (1,799)
Decrease (increase) in prepaid
expenses and other current
assets............................ (1,462) 585 (142)
Increase (decrease) in accounts
payable and accrued liabilities... 2,067 (295) (292)
Increase (decrease) in deferred
revenues........................... 283 (936) 2,500
------- ------ --------
Net cash provided by (used in)
operating activities:
Net cash used in continuing
operations.......................... (1,064) (345) (8,479)
Net cash provided by (used in)
discontinued operations............. 335 352 (333)
------- ------ --------
Net cash provided by (used in)
operating activities: (729) 7 (8,812)
Cash flows from investing activities:
Acquisition of equipment and
improvements........................ (1,049) (34) (1,140)
Net cash acquired in BIS
acquisition......................... 1,013 1,013 --
Net cash acquired in ExperNet
acquisition......................... 61 -- --
Issuance of note receivable.......... -- -- (150)
Other, net........................... 96 2 (56)
------- ------ --------
Cash provided by (used in) investing
activities............................ 121 981 (1,346)
------- ------ --------
Cash flows from financing activities:
Proceeds from issuance of Common
Stock............................... 710 100 --
Due to shareholder................... -- 1,086 --
Proceeds from issuance of Series A
Preferred Stock..................... 2,025 -- --
Proceeds from bridge financing, net
of issuance costs of $20............ 1,980 -- --
Proceeds from issuance of Series B
Preferred Stock, net of issuance
costs of $878 and $25............... 13,216 -- 2,337
Repayments of principal to related
parties............................. (321) -- --
Proceeds from stock subscriptions
receivable.......................... -- -- 300
Net short-term borrowings............ 40 193 23
Principal payments on long-term
debt................................ (97) (34) (32)
------- ------ --------
Cash provided by financing activities.. 17,553 1,345 2,628
------- ------ --------
Effect of exchange rates on cash....... (39) -- (45)
Net increase (decrease) in cash and
cash equivalents...................... 16,906 2,333 (7,575)
Cash and cash equivalents, beginning of
period................................ -- -- 16,906
------- ------ --------
Cash and cash equivalents, end of
period................................ $16,906 $2,333 $ 9,331
======= ====== ========
Supplementary cash flow information:
Income taxes paid.................... $39 $0 $22
Interest paid........................ $58 $2 $14
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE PERIOD MARCH 17, 1995 TO JUNE 30, 1995 IS
UNAUDITED)
1. THE COMPANY
Giga Information Group, Inc. ("Giga" or the "Company") was incorporated on
March 17, 1995 (date of inception) in the State of Delaware. The Company's
principal business activity is to provide information, analysis and advice
relating to developments and trends in the computing, telecommunications and
related industries (collectively the information technology or "IT" industry)
primarily through subscription based products. The Company derives its
revenues primarily from two sources: Continuous Information Services, which
include its Giga Advisory Service and Relevance Services; and Other Services,
which include events, publications, consulting and econometric forecasting. On
April 5, 1995, the Company acquired BIS Strategic Decisions, Inc. and its five
foreign affiliates (collectively "BIS" or "Predecessor Companies"). On July 6,
1995, Giga acquired a 77.8% equity interest in ExperNet Corporation
("ExperNet") which was owned by Gideon I. Gartner, Chairman of the Board of
Directors and Chief Executive Officer of the Company, and David L. Gilmour, a
director and officer of the Company, and, on December 29, 1995, acquired the
remaining 22.2% interest. The results of operations of ExpertNet are included
in the Company's results from July 6, 1995.
The Company is subject to a number of risks similar to other companies in
its industry, including a dependence on sales and renewals of subscription-
based services, uncertainty of market acceptance of its services, competition
from other companies including those with greater resources than the Company,
dependence on key individuals, the need to obtain additional financing,
protection of proprietary information and technology and the risks associated
with international operations. In addition, the Company is subject to risks
associated with the discontinuance of the BIS Market Research Business (see
Note 16).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the results of operations,
cash flows and changes in stockholders' equity for the periods from March 17,
1995 (date of inception) to December 31, 1995 and March 17, 1995 to June 30,
1995 and the six months ended June 30, 1996. The financial statements
pertaining to the period from the date of inception to June 30, 1995 have been
prepared for comparative purposes only and as such have not been audited. In
the opinion of the Company's management, these unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation. The comparison of the period from the date
of inception to June 30, 1995 and the six months ended June 30, 1996 may not
be meaningful because the periods are of different durations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries. The Company's 50% interest in
BIS Japan, Inc. has been accounted for at cost which approximates equity. All
significant intercompany balances and transactions have been eliminated.
Pursuant to the purchase method of accounting, acquired assets and
liabilities were revalued to their fair market value. The excess of the
purchase price over the fair market value of the net assets acquired was
recorded as goodwill.
CASH AND CASH EQUIVALENTS
Cash equivalents primarily represent liquid investments, with original
maturities of 90 days or less, in money market funds which are convertible to
a known amount of cash and bear an insignificant risk of change in value.
FOREIGN CURRENCY TRANSLATION
For international operations, the local currency is used as the functional
currency. The assets and liabilities of the foreign entities are translated at
the period-end rates of exchange and the related statements of operations and
cash flows are translated at the weighted average rates of exchange for the
respective periods. The resulting
F-7
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
translation adjustments are excluded from the results of operations and
charged to a separate component of stockholders' equity. Realized and
unrealized exchange gains or losses arising from transaction adjustments are
reflected in operations and are not material.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
in money market accounts and trade receivables. The Company places its
temporary cash investments with high credit quality financial institutions in
accordance with its investment policy as approved by its board of directors.
Trade receivables result from contracts with various customers. Giga generally
does not require collateral or other security from these customers.
Historically, no significant credit-related losses have been incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS
109"), which uses a balance sheet approach in accounting for income taxes.
Under SFAS 109, deferred tax liabilities and assets are recognized based on
differences between book and tax bases of assets and liabilities using
presently enacted tax rates. The provision for income taxes is the sum of the
amount of income tax paid or payable for the period as determined by applying
the provisions of enacted tax laws to taxable income for the period and the
net changes during the period in the Company's deferred tax assets and
liabilities.
Income taxes on $807,000, $444,000 and $0 of cumulative undistributed
earnings of subsidiaries outside of the United States for the periods from
March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and the
six months ended June 30, 1996, respectively, have not been provided for as
these earnings will either be indefinitely reinvested or remitted
substantially free of additional tax.
REVENUE AND COMMISSION EXPENSE RECOGNITION
Continuous Information Services provide customers with ongoing information,
analysis and advice relating to developments and trends in the IT industry on
a subscription basis. Revenues from Continuous Information Services are
deferred and recognized on a pro rata monthly basis over the contract period,
generally one year. The Company's policy is to record a receivable and related
deferred revenues for the full amount of the contract on the date it is
signed. Contracts are generally billable upon signing. The Company also
records the related commission obligation upon the signing of these contracts
and amortizes the corresponding deferred commission expense over the contract
period in which the related Continuous Information Services revenues are
earned. The commissions are payable to the Company's sales force upon the
execution of the subscription agreement. In the event the contract is canceled
by the customer, the commission is refundable with respect to the portion
related to the revenue which will not be recognized.
Revenues from Other Services are recognized as follows: events as they
occur; publications when delivered; and consulting and econometric forecasting
as such services are performed.
Unbilled receivables are primarily generated as a result of contractual
quarterly billing terms offered in connection with the Continuous Information
Services.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost for items acquired after the
initial acquisition of the respective entities and at estimated fair market
value for those assets in existence at the date of acquisition. Expenditures
F-8
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for maintenance and repairs are charged to expense while the costs of
significant improvements are capitalized. Depreciation is computed for
financial reporting purposes principally by using the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
Computers and related
equipment................ 3 years
Furniture and fixtures.... 5 years
Motor vehicles............ 4 years
Leaseholds and related im-
provements............... Shorter of economic life or remaining lease term
</TABLE>
Upon retirement or sale, the cost of assets disposed of and the related
accumulated depreciation are eliminated from the balance sheet and related
gains or losses are reflected in income.
GOODWILL
Goodwill represents the excess of the purchase price of entities acquired
over the fair values of amounts assigned to the net tangible assets acquired
and liabilities assumed. Amortization is recorded using the straight-line
method over two years. These amounts are subject to adjustment in accordance
with the provisions of SFAS 109. Impairment of goodwill is measured on the
basis of whether anticipated future undiscounted operating cash flows expected
from the acquired businesses will recover the recorded respective intangible
asset balances over the remaining amortization period. At June 30, 1996,
approximately $666,000 of goodwill identifiable with the discontinued
operations was written off to expenses in connection with the disposition of
these operations.
Amortization expense was $482,000, $160,000 and $321,000 for the periods
from March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and
the six months ended June 30, 1996, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities,
(ii) disclosure of contingent assets and liabilities at the dates of the
financial statements and (iii) the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
NET LOSS PER COMMON SHARE
The unaudited pro forma net loss per common share is computed based upon the
weighted average number of common shares, on an as-if converted basis, and
common equivalent shares outstanding after certain adjustments described
below. Common equivalent shares comprise stock options and warrants using the
treasury stock method. Common equivalent shares from stock options and
warrants are excluded from the computation if their effect is antidilutive. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 83 ("SAB No. 83"), all common and common equivalent shares and other
potentially dilutive instruments which include stock options, warrants and the
Series A and Series B Preferred Stock issued at prices below the estimated
initial public offering price of $10.00 per share during the twelve month
period prior to the initial filing date of September 10, 1996 of the
Registration Statement have been included in the calculation as if they were
outstanding for all periods presented.
Shares of Series A Preferred Stock not included as Common Stock equivalents
under SAB No. 83 are not included as Common Stock equivalents because their
inclusion would be anti-dilutive.
F-9
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PRO FORMA PRESENTATION (UNAUDITED)
Upon the closing of an initial public offering of Common Stock at an
offering price of not less than $5.25 per share and having aggregate proceeds
of $15,000,000, all of the Company's shares of Series A Preferred Stock and
Series B Preferred Stock will be converted into 7,552,215 shares of Common
Stock. The unaudited pro forma presentation of the June 30, 1996 balance sheet
reflects the conversion of outstanding shares of Series A Preferred Stock and
Series B Preferred Stock into Common Stock.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which is effective for fiscal year 1996. The
Company has determined that it will elect the disclosure-only alternative. The
Company will be required to disclose the pro forma net income or loss and per
share amounts in the notes to the financial statements using the fair value
based method for fiscal year 1996 with comparable disclosures for fiscal year
1995. The Company has not determined the impact of these pro forma
adjustments.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," which must be adopted in fiscal year
1996, requires that impairment losses be recognized when the carrying value of
an asset exceeds its fair value. The Company regularly assesses all of its
long-lived assets for impairment and, therefore, does not believe the adoption
of the standard will have a material effect on its financial position or
results of operations.
3. ACQUISITIONS
BIS STRATEGIC DECISIONS, INC. AND AFFILIATES
On April 5, 1995, the Company acquired 100% of the stock of BIS for $200,000
in cash and a $1,000,000 convertible promissory note (see Note 9). The
acquisition was accounted for as a purchase and, accordingly, the cost
(including acquisition costs of $204,000) was assigned to the tangible and
identifiable intangible assets acquired and liabilities assumed based upon
their estimated fair values at the date of acquisition. As part of the
transaction, an intangible asset (leasehold) of approximately $1,300,000 was
recorded representing the fair value of payments being made through May 1998
by a former owner of BIS. In addition, the Company acquired current assets of
approximately $8,700,000 and furniture and equipment of approximately
$2,000,000 offset by current liabilities assumed of approximately $12,600,000
(of which approximately $9,100,000 were deferred revenues), a note payable of
$192,000 and a tax provision of approximately $1,000,000. The excess of the
purchase price over the net assets acquired of approximately $3,059,000 has
been recorded as goodwill. The Company's statements of operations include the
results of operations of BIS from April 5, 1995.
EXPERNET
On July 6, 1995, the Company acquired a majority interest in ExperNet in
exchange for (i) 160,000 shares of Series A Preferred Stock (640,000 shares of
Common Stock on an as-converted basis), 80,000 shares (320,000 shares of
Common Stock on an as-converted basis) of which were issued to Mr. Gartner and
80,000 shares (320,000 shares of Common Stock on an as-converted basis) of
which were issued to Mr. Gilmour and (ii) the issuance to Mr. Gartner of an
option to purchase 160,000 shares of Common Stock at an exercise price of $.50
per share which vested immediately. On December 29, 1995, the Company acquired
Mr. Gilmour's remaining interest in ExperNet in exchange for a $400,000 6%
convertible note (the "Note") due December 31, 2005 (see Note 9). As a result
of the common control of the Company and ExperNet, there has been no
adjustment to the historical cost basis of the net assets acquired and
liabilities assumed of ExperNet. As a result of the transaction, the Company's
accumulated deficit increased by $608,000 representing the net deficit of
ExperNet at the date of acquisition ($208,000) and the obligation under the
convertible note ($400,000). The results of operations include ExperNet from
July 6, 1995.
F-10
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions of BIS and ExperNet had occurred on
January 1, 1995 and does not purport to be indicative of what would have
occurred had the acquisitions been made as of that date or of the results
which may occur in the future (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, TO
DECEMBER 31, 1995
-----------------
(UNAUDITED)
<S> <C>
Other Services revenues............................... $14,015
Cost of services...................................... 10,427
Sales and marketing................................... 1,282
Research and Development.............................. 348
General and administrative............................ 7,455
Depreciation and amortization......................... 1,797
-------
Total costs and expenses........................... 21,309
-------
Operating loss..................................... (7,294)
Interest income, net.................................. 153
-------
Loss from continuing operations before income tax-
es................................................. (7,141)
Income tax benefit.................................... (1,314)
-------
Loss from continuing operations.................... $(5,827)
=======
</TABLE>
4. RELATED PARTIES
During the period from March 17, 1995 to December 31, 1995, the Company
reimbursed Mr. Gartner $186,000 for disbursements made by him for items
related to the acquisition of BIS and for other operational expenses prior to
the incorporation of the Company.
In addition, following the initial closing of the sale of Series B Preferred
Stock by the Company in November 1995, ExperNet repaid a loan in the principal
amount of approximately $221,000 plus accrued interest at a rate of 10%, or a
total of approximately $248,000, to Mr. Gartner and a loan in the principal
amount of approximately $101,000 plus accrued interest at a rate of 10%, or a
total of approximately $113,000, to Mr. Gilmour.
In the event the Company is unable to complete its proposed initial public
offering, certain of its existing investors have represented that they will,
to the extent necessary, fund the Company through June 1997 on terms to be
mutually agreed upon.
5. PROPERTY AND EQUIPMENT
Property and equipment at cost, less accumulated depreciation and
amortization, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Computers and related equipment............ $1,815 $2,422
Furniture and fixtures..................... 498 1,000
Motor vehicles............................. 426 339
Leasehold improvements..................... 17 91
------ ------
2,756 3,852
Less accumulated depreciation and amortiza-
tion...................................... (562) (1,136)
------ ------
Property and equipment, net................ $2,194 $2,716
====== ======
</TABLE>
F-11
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASE COMMITMENTS
The Company leases certain office space and equipment under operating lease
agreements. As of June 30, 1996, future minimum rental commitments under all
operating leases with remaining noncancelable terms of one year or more,
including the rental payments being made by a former owner of the Company (see
Note 3), are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
---- ---------
<S> <C>
1996............................................................... $ 765
1997............................................................... 1,485
1998............................................................... 999
1999............................................................... 729
2000............................................................... 583
Thereafter......................................................... 3,364
------
Total lease commitments ......................................... $7,925
======
</TABLE>
Rent expense, net of sublease income of approximately $60,000, $20,000 and
$39,000, was $650,000, $218,000 and $452,000 for the periods March 17, 1995 to
December 31, 1995, March 17, 1995 to June 30, 1995 and January 1, 1996 to June
30, 1996, respectively. Amortization expense includes $253,000, $63,000 and
$190,000 amortization of the leasehold asset in lieu of rent expense for the
periods March 17, 1995 to December 31, 1995, March 17, 1995 to June 1995 and
January 1, 1996 to June 30, 1996, respectively.
An agreement was entered into by and among the Company and two prior owners
of BIS providing for one of the prior owners, who had guaranteed all payments
under a lease, to pay an aggregate of $1,500,000 to the landlord for rent
under the lease, payable monthly in an amount of $36,722.
7. INCOME TAXES
The Company has deferred tax assets of approximately $2,833,000 and
$6,421,000 at December 31, 1995 and June 30, 1996, respectively. For financial
reporting purposes, valuation allowances of $2,772,000 and $6,351,000,
respectively, have been recognized to offset these deferred tax assets until
the Company can conclude that it is more likely than not that these deferred
tax assets will be realized. During the period March 17, 1995 to December 31,
1995 and the six month period ended June 30, 1996, the valuation allowance
increased by approximately $1,006,000 and $3,579,000, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Deferred revenue........................... $ 539 $ 370
Net operating loss carryforwards........... 2,395 5,910
Other, net................................. (101) 141
------ ------
Total deferred tax assets................ 2,833 6,421
Valuation allowance for deferred tax
assets.................................... 2,772 6,351
------ ------
Net deferred tax assets.................. $ 61 $ 70
====== ======
</TABLE>
F-12
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For financial reporting purposes, income before income taxes includes the
following components (in thousands):
<TABLE>
<CAPTION>
MARCH 17 TO SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
<S> <C> <C>
Pre-tax loss from continuing operations:
United States.................................. $(4,972) $ (9,690)
Non-United States.............................. (1,237) (480)
------- --------
Consolidated..................................... $(6,209) $(10,170)
======= ========
</TABLE>
The income tax benefit of the loss from continuing operations, substantially
all of which is deferred, consists of the following components (state and
local taxes are not material) (in thousands):
<TABLE>
<CAPTION>
MARCH 17 TO SIX MONTHS
DECEMBER 31, MARCH 17 TO ENDED
1995 JUNE 30, 1995 JUNE 30, 1996
------------ ------------- -------------
<S> <C> <C> <C>
U.S. Federal........................... (754) (178) (257)
Foreign................................ (339) (132) --
------ ---- ----
(1,093) (310) (257)
====== ==== ====
</TABLE>
The income tax benefit of the loss from continuing operations differs from
the amount of income tax benefit determined by applying the applicable U.S.
statutory income tax rate to pretax loss from continuing operations as a
result of the following differences (in thousands):
<TABLE>
<CAPTION>
MARCH 17 TO SIX MONTHS
DECEMBER 31, MARCH 17 TO ENDED
1995 JUNE 30, 1995 JUNE 30, 1996
------------ ------------- -------------
<S> <C> <C> <C>
Income tax at the statutory rate .... (2,111) (355) (3,458)
Foreign subsidiary losses with no
benefit recognized.................. 224 -- 163
Foreign income taxed at different
rates .............................. (141) (90) (1)
Nondeductible goodwill............... 164 54 109
U.S. losses with no benefit
recognized.......................... 796 107 2,991
Other items (net).................... (25) (26) (61)
------ ---- ------
(1,093) (310) (257)
====== ==== ======
</TABLE>
The Company has available net operating loss carryforwards of approximately
$15,109,000 at June 30, 1996, which may be used to reduce future taxable
income. Of this amount, U.S. carryforwards of approximately $11,804,000 expire
in various years through 2011, certain non-U.S. carryforwards of approximately
$1,589,000 expire in various years through 2001 and the balance may be carried
forward indefinitely. If losses of acquired companies are used to reduce
future taxable income, associated tax benefits will first reduce acquired
goodwill and other noncurrent intangible assets before being recognized as a
reduction of income tax expense in the period the benefits are realized.
Utilization of the net operating loss carryforwards may be limited pursuant to
the provisions of Section 382 of the Internal Revenue Code of 1986.
The results of continuing operations for March 17, 1995 to December 31,
1995, the period March 17, 1995 to June 30, 1995 and the six months ended June
30, 1996 include non-U.S. income tax benefits of approximately $(339,000),
$(55,000) and $0, respectively, and U.S. federal, state and local income,
franchise and minimum tax benefits of approximately $(754,000), $(255,000) and
($257,000), respectively.
8. JOINT VENTURE AGREEMENT
In 1991, BIS Strategic Decisions, Inc. entered into a joint venture
agreement with a Japanese company to provide additional market penetration in
Japan for its services. BIS Strategic Decisions, Inc.'s initial equity
ownership was 40%. Pursuant to the terms of the agreement, the Company
purchased an additional 10% interest
F-13
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in the joint venture from its partner in March 1996 for approximately $85,000.
In April 1996, the Company and its partner each increased their investment in
the joint venture by approximately $24,000. The net earnings of the joint
venture to date have been de minimus.
At December 31, 1995 and June 30, 1996, the Company had accounts receivable
due from the joint venture of $100,000 and $69,000, respectively.
9. LONG TERM DEBT
In connection with the Company's acquisition of BIS, the Company issued a
$1,000,000 5% convertible note due April 5, 1998 in favor of Friday Holdings,
L.P. The note is convertible into 185,298 shares of the Common Stock of the
Company.
In connection with the Company's acquisition of ExperNet, the Company issued
a $400,000 6% convertible note to Mr. Gilmour (see Note 3). The Note is
convertible into shares of Series B Preferred Stock. The Note may be prepaid
in part, up to $150,000, at the option of the holder at any time between July
1, 1997 and July 1, 1999 and all, or any part, at the option of the holder on
or after July 1, 1999. The holder may convert all or part of the unpaid
principal of the note into the Company's Series B Preferred Stock at a
conversion rate of $3.50 per share, up to a maximum number of 28,576 shares at
December 31, 1995, with the maximum number increasing by 2,857 shares for each
month after January 1996. As of June 30, 1996, the note is convertible into
42,861 shares of Series B Preferred Stock.
10. PREFERRED STOCK
The authorized capital stock of the Company includes 10,000,000 shares of
Preferred Stock. Of the Preferred Stock, 650,000 shares have been designated
as Series A Preferred Stock and 6,500,000 shares have been designated as
Series B Preferred Stock. The remaining 2,850,000 shares of Preferred Stock
have not been designated. Upon completion of the Company's proposed initial
public offering, the Company will have authorized 5,000,000 shares of
undesignated Preferred Stock.
SERIES A PREFERRED STOCK
During 1995, the Company issued 410,000 shares of Series A Preferred Stock
(1,640,000 shares on an as- converted basis) for consideration of $2,050,000
which consisted of $2,025,000 cash and a $25,000 non-recourse note from an
employee in connection with his acceptance of employment with the Company. Of
these shares, 80,000 were issued and sold to employees of the Company. In
addition, 160,000 shares of Series A Preferred Stock (640,000 shares on an as-
converted basis) were issued in connection with the acquisition of ExperNet as
described in Note 3.
SERIES B PREFERRED STOCK
During 1995, the Company issued 4,026,772 shares of Series B Preferred Stock
for cash consideration of $13,216,000, net of issuance costs of $878,000. In
addition, bridge financing in the principal amount of $2,000,000 was
automatically converted into 571,428 shares of Series B Preferred Stock at the
first closing of the Series B Preferred Stock financing in November 1995.
During the six months ended June 30, 1996, the Company issued 674,015 shares
of Series B Preferred Stock for cash consideration of $2,337,000, net of
issuance costs of $25,000.
CONVERSION
Each share of Series A Preferred Stock and Series B Preferred Stock is
convertible, at the holder's option, into that number of shares of Common
Stock as is determined by dividing the initial purchase price of such shares
by the conversion price in effect at the time of conversion. The conversion
price of each share of Series A Preferred Stock and Series B Preferred Stock
is subject to adjustment upon the occurrence of certain events. At
F-14
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
June 30, 1996 each share of Series A Preferred Stock is convertible into four
shares of Common Stock and each share of Series B Preferred Stock is
convertible into one share of Common Stock.
The Series A Preferred Stock and Series B Preferred Stock will automatically
convert into Common Stock at the then effective conversion price immediately
prior to the closing of a firm commitment underwritten public offering of
Common Stock at a price of at least $5.25 per share (as adjusted for any stock
splits, stock dividends, subdivisions or combinations), and having aggregate
gross proceeds of at least $15,000,000. In addition, the Series A Preferred
Stock and Series B Preferred Stock will convert into Common Stock at the then
effective conversion price upon the consent of the holders of at least two-
thirds (2/3) of the then outstanding Series A Preferred Stock and Series B
Preferred Stock.
LIQUIDATION
Upon (i) the liquidation, dissolution, or winding up of the Company (either
voluntary or involuntary) or (ii) the merger or consolidation of the Company
with another corporation or the sale or other transfer of all or substantially
all of the assets of the Company which is not agreed to by the holders of not
less than a majority of the Preferred Stock, voting together as a single
class, and in which stockholders of the Company immediately prior to such
transaction do not own more than a 50% interest in the surviving entity, (i)
holders of the Series A Preferred Stock are entitled to receive out of the
assets of the Company available for distribution to its stockholders, an
amount equal to $5.00 per share, plus any declared but unpaid dividends, prior
to any distribution to the holders of the Company's Common Stock, and (ii)
holders of Series B Preferred Stock are entitled to receive out of the assets
of the Company available for distribution to its shareholders, an amount equal
to $3.50 per share, plus any declared but unpaid dividends, prior to any
distribution to the holders of the Company's Common Stock. Following
distribution of such preferential amounts, holders of Series A Preferred Stock
and Series B Preferred Stock shall not participate in any further
distribution.
VOTING
Except as provided by law or in the Company's Amended and Restated
Certificate of Incorporation, the holders of the Series A Preferred Stock and
Series B Preferred Stock vote with holders of the Company's Common Stock on an
as converted basis and not as a separate class or series. In addition, so long
as any shares of Series A Preferred Stock or Series B Preferred Stock are
outstanding, the Company may not, without the approval of at least a majority
of the outstanding shares of the Series A Preferred Stock and Series B
Preferred Stock, take certain actions as described in the Certificate of
Incorporation.
11. COMMON STOCK
In November 1995, the Company amended its Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 10,000,000 to
28,000,000. In November 1995, the Company effected a four-for-one stock split
of the Common Stock in the form of a stock dividend. All share and per share
data presented herein have been restated to reflect the Common Stock split.
Upon completion of the Company's proposed initial public offering, the Company
will have authorized 60,000,000 shares of Common Stock.
During March 1995, the Company sold to Mr. Gartner 4,200,000 shares of
Common Stock at a purchase price of $0.02375 per share. During the remainder
of 1995, the Company sold 1,908,000 shares of Common Stock to employees,
consultants and directors at a purchase price of $0.50 per share.
12. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
In June 1995, the Company adopted the 1995 Stock Plan (the "Prior Stock
Plan"). The Prior Stock Plan was superseded in October 1995 by the 1995 Stock
Option/Stock Issuance Plan (the "1995 Stock Plan"). A total of 5,000,000
shares of Common Stock were reserved for issuance under the 1995 Stock Plan as
of June 30, 1996.
F-15
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 1995 Stock Plan provides for direct purchases of Common Stock and the
grants of non-qualified and incentive options to purchase shares of the
Company's Common Stock to employees (including officers and directors who are
employed by the Company) of, and consultants to, the Company at the fair
market value determined by the Board on the date of the grant. The Board may
determine the date on which these shares vest and become exercisable. Shares
purchased as the result of the exercise of these options are subject to the
Company's right to repurchase such shares upon the occurrence of certain
events and at a price equal to the fair market value as defined on the date of
repurchase. At June 30, 1996, 2,271,361 shares were available for grant.
A summary of activity under the 1995 Stock Plan through June 30, 1996
follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE/
SHARES UNDER PURCHASE
OPTION/PURCHASE PRICE
--------------- ----------
<S> <C> <C>
Outstanding at March 17, 1995
Granted........................................ 2,550,400 $0.50-0.60
Exercised/purchased............................ (160,000) 0.50
Cancelled...................................... (60,000) 0.50
--------- ----------
Outstanding at December 31, 1995 2,330,400 0.50-0.60
Granted........................................ 586,050 0.50-0.60
Exercised/purchased............................ (2,600) 0.50
Cancelled...................................... (347,811) 0.50-0.60
--------- ----------
Outstanding at June 30, 1996..................... 2,566,039 0.50-0.60
========= ==========
</TABLE>
Of the options to purchase 2,566,039 shares of Common Stock outstanding on
June 30, 1996, options for 257,991 shares of Common Stock were vested and
exercisable at that date.
Through August 31, 1996, pursuant to the 1995 Stock Plan, the Company
granted additional options to acquire a total of 393,000 shares of Common
Stock at exercise prices ranging from $0.60 to $6.75, net of cancellations of
options to purchase 86,892 shares of Common Stock. In addition, in July 1995
the Company has granted options to purchase a total of 780,000 shares of
Common Stock other than pursuant to the 1995 Stock Plan at an exercise price
of $0.50.
WARRANTS
In connection with its engagement of a private placement agent for the sale
by the Company of the Series B Preferred Stock, the Company agreed in June
1995 to issue the placement agent a warrant to purchase 107,876 shares of
Series B Preferred Stock at an exercise price of $4.625 per share. In
connection with the Series B Preferred Stock bridge financing, the Company
agreed in August 1995 to issue the lender a warrant to purchase 285,714 shares
of Series B Preferred Stock at an exercise price of $2.345 per share. Both of
these warrants are for a term of five years, subject to earlier expiration
upon the occurrence of certain events. The Company believes the fair market
value of each warrant was nominal.
13. STOCK PURCHASE PLANS/AGREEMENTS
In the period from inception to December 31, 1995, the Company sold 420,000
shares of Common Stock to certain employees of the Company at $0.50 per share
under the provisions of the 1995 Stock Plan or separate stock purchase
agreements. Employees vest in these shares over four years from their
respective dates of purchase, with 25% vesting on the first anniversary of the
purchase and one forty-eighth vesting pro rata thereafter monthly over the
remaining 36 months. If an employee who purchased stock under either the 1995
Stock Plan or separate agreements ceases to be employed by the Company, the
Company at its option may elect to repurchase the employee's unvested shares
at the original cost paid by the employee for such stock and vested shares at
a price equal to the fair market value as defined on the date of repurchase.
F-16
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1995, the Company sold 120,000 shares of Common Stock to Richard
Crandall, a director who also serves as a consultant to the Company for $0.50
per share of which $10,000 was paid in cash and $50,000 was paid in the form
of a non-recourse interest bearing note due March 31, 1996. In June 1996, the
Company cancelled the promissory note plus interest accrued thereunder
(totalling approximately $52,000), in lieu of payment to Mr. Crandall for
services rendered to the Company in 1995 (for which Mr. Crandall was entitled
to receive $25,000) and the first six months of 1996 (for which Mr. Crandall
was entitled to receive $30,000) plus interest. These shares are also subject
to certain repurchase rights by the Company in the event that Mr. Crandall
ceases to be either a director of, or consultant to, the Company.
14. EMPLOYEE BENEFITS AND DEFERRED COMPENSATION PLANS
In the United States, the Company maintains a Savings and Retirement Plan
(the "401(k) Plan") under Section 401 of the Internal Revenue Code. Employees
are eligible to participate in the 401(k) Plan who work a minimum of one year
and have attained the age of 21. The Company matches by 25% that portion of a
participant's contribution representing the first 3% of an employee's base
salary and by 50% that portion representing the next 3% of an employee's base
salary. The Company may also make additional contributions to the 401(k) Plan
at the discretion of the Board of Directors. The Company has made mandatory
contributions to the 401(k) Plan of $47,000, $17,000 and $33,000 during the
periods March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995
and the six months ended June 30, 1996. The Company has not made any
discretionary contributions to the 401(k) Plan during 1995 or 1996.
15. GEOGRAPHICAL MARKET INFORMATION
The Company operates in one business segment and in the geographical markets
indicated in the table below. Sales for continuing operations are reflected in
the segment from which the sales are made. The Other International segment
includes France, Italy, Germany and Korea.
<TABLE>
<CAPTION>
(IN THOUSANDS)
UNITED UNITED OTHER
STATES AUSTRALIA KINGDOM INTERNATIONAL TOTAL
------- --------- ------- ------------- -------
<S> <C> <C> <C> <C> <C>
MARCH 17, 1995 TO DECEMBER
31, 1995:
Revenues:
Total revenues......... $ 3,755 $ 3,832 $ 2,051 $1,185 $10,823
Transfers between
areas................. -- -- (55) (62) (117)
------- ------- ------- ------ -------
Unaffiliated revenues.. 3,755 3,832 1,996 1,123 10,706
======= ======= ======= ====== =======
Income (loss) from
operations.............. (5,087) 215 (857) (639) (6,368)
Total assets............. 20,222 1,163 2,077 1,222 24,684
MARCH 17, 1995 TO JUNE 30,
1995:
Revenues:
Total revenues......... $ 1,113 $ 1,337 $ 681 $ 472 $ 3,603
Transfers between
areas................. -- -- (13) (19) (32)
------- ------- ------- ------ -------
Unaffiliated revenues.. 1,113 1,337 668 453 3,571
======= ======= ======= ====== =======
Income (loss) from
operations.............. (898) 135 (117) (173) (1,053)
Total assets............. 7,517 996 2,017 1,351 11,881
JANUARY 1, 1996 TO JUNE 30,
1996:
Revenues:
Total revenues......... $ 2,364 $ 2,281 $ 1,239 $ 662 $ 6,546
Transfers between
areas................. (12) -- (16) (36) (64)
------- ------- ------- ------ -------
Unaffiliated revenues.. 2,352 2,281 1,223 626 6,482
======= ======= ======= ====== =======
Loss from operations..... (9,978) (9) (288) (218) (10,493)
Total assets............. 15,014 1,434 1,773 999 19,220
</TABLE>
F-17
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EXPORT SALES
The information below summarizes export sales by geographic area for the
United States operations of Giga (in thousands).
<TABLE>
<CAPTION>
TOTAL
EXPORT
EUROPE FAR EAST OTHER SALES
------ -------- ----- ------
<S> <C> <C> <C> <C>
March 17, 1995 to December 31, 1995................ $191 $251 $105 $547
March 17, 1995 to June 30, 1995.................... 61 80 34 175
January 1, 1996 to June 30, 1996................... 67 90 14 171
</TABLE>
16. DISCONTINUED OPERATIONS
On June 25, 1996, the Company announced the discontinuation of the BIS
Market Research Business. In connection with the discontinuance of such
operations, the Company terminated the personnel employed in developing and
compiling the BIS data-intensive market research products, ceased operations
at two of its licensed facilities in England and entered into contracts with
two independent IT service providers engaged to fulfill the Company's
obligations to customers of BIS under certain existing subscription
agreements, all of which expire on or before June 1997. The contracts with the
service providers require that Giga pay a percentage of the remaining contract
value in exchange for their fulfillment of Giga's obligations. Through
September 30, 1996, a total of approximately $432,000 has been paid to two
service providers to fulfill the obligations remaining under the discontinued
operations. A provision of approximately $416,000 has been established for
probable refunds in connection with the transition of service to the new
service providers. An additional provision of approximately $771,000 was
established for probable refunds in connection with dissatisfied clients
serviced by Giga prior to the transition to the new providers. The contracts
with the providers also require the service providers to pay royalties to Giga
upon the renewal of contracts by them. Through September 30, 1996, no
royalties have been earned or received. The results of these operations prior
to June 25, 1996 have been classified as discontinued operations and prior
year financial statements have been restated to reflect the discontinuance. A
charge of approximately $2,305,000 (net of taxes of approximately $158,000)
was recorded in June 1996 for the loss on disposition of the operations
consisting primarily of rent and compensation. Included within the charge was
the establishment of a provision related to the operations at two facilities
in England approximating the present value of the expected expenses of these
facilities for two and one-half years plus fifty percent of the expected
expenses over the remaining life of the leases and a provision for the
severance benefits payable to the terminated employees.
The net liabilities of the discontinued operations of the BIS business have
been segregated in the consolidated balance sheets and as of June 30, 1996
consist primarily of accounts receivable ($1,739,000) and amounts payable
related to rent and facilities expenses ($1,893,000), customer refunds
($1,187,000) and salaries and related severance costs ($495,000). The
operating results of the BIS business are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 17 TO MARCH 17, SIX MONTHS ENDED
DECEMBER 31, 1995 TO JUNE 30, 1995 JUNE 30, 1996
----------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................ $11,329 $3,829 $3,521
Pre-tax income.......... 2,987 731 29
Provision for income
taxes.................. 1,497 430 114
------- ------ ------
Net income (loss)....... $ 1,490 $ 301 $ (85)
======= ====== ======
</TABLE>
F-18
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. COMMITMENTS AND CONTINGENT LIABILITIES
The Company entered into an agreement in May 1996 with Dow Jones & Company,
Inc. regarding the distribution of certain content provided by Dow Jones to
GigaWeb subscribers. In exchange for the rights to distribute Dow Jones
information, the Company is required to pay Dow Jones a monthly fee equal to
the greater of a Guaranteed Minimum Monthly Payment or an established rate per
GigaWeb subscriber. The Guaranteed Minimum Monthly Payment schedule is as
follows: $5,000 per month for July and August 1996, $7,500 for September 1996,
$10,000 for October 1996, $11,000 per month for November and December 1996 and
$22,500 per month throughout calendar year 1997. The total minimum payments
would be approximately $320,000 over the life of the Agreement. This agreement
is due to expire on December 31, 1997.
A subsidiary of the Company has an unused line of credit with a bank which
is secured by all assets owned or leased by the Company. The line of credit
bears interest at the bank's base rate plus 1.5% and is secured by all assets
owned or leased by the subsidiary. The agreement contains operational
covenants and expired on December 31, 1995; however the bank has allowed the
subsidiary to extend the agreement on a month to month basis with a current
limit of approximately $387,000.
The weighted average interest rates of outstanding borrowings were 7.3%,
7.5% and 6.9% for the periods March 17, 1995 to December 31, 1995, March 17,
1995 to June 30, 1995 and January 1, 1996 to June 30, 1996, respectively.
18. SUBSEQUENT EVENTS
In July 1996, an action was brought against the Company and its chairman by
a former employee alleging breach of employment agreement and fraud and
seeking, among other things, approximately $3.5 million in compensatory and
punitive damages. The Company believes it has meritorious defenses and intends
to vigorously defend its case. Management believes it is remote that the
outcome of this case will have a material adverse effect on the financial
condition, liquidity or results of operations of the Company. However, there
can be no assurance that the Company will prevail and an unfavorable outcome
could have a material adverse effect on the Company's operating results in the
period in which the outcome occurs.
In August 1996, the Board of Directors authorized, subject to stockholder
approval and the closing of the proposed initial public offering, the filing
of a Restated Certificate of Incorporation which authorized 60,000,000 shares
of Common Stock and 5,000,000 shares of undesignated Preferred Stock which is
issuable in one or more series, each of such series to have such rights and
preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences as shall be determined by
the Board of Directors.
On August 5, 1996, the Board of Directors amended the 1995 Stock Plan,
subject to stockholder approval, to increase the number of shares of Common
Stock reserved for issuance under the 1995 Stock Plan from 5,000,000 to
6,000,000. On August 28, 1996, the Board of Directors adopted, subject to
stockholder approval, the 1996 Stock Option Plan (the "1996 Plan") to
effectively supersede the 1995 Stock Plan. The 1996 Stock Plan will provide
for the granting of options to purchase 3,000,000 shares of Common Stock. As a
result, the Board of Directors also voted not to grant any additional stock
options under the 1995 Stock Plan.
On August 28, 1996, the Board of Directors also adopted, subject to
stockholder approval and the closing of the proposed initial public offering,
the 1996 Employee Stock Purchase Plan (the "Purchase Plan"). A total of
400,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Giga Information Group, Inc.:
We have audited the accompanying combined statements of operations, changes
in stockholder's equity and cash flows of BIS Strategic Decisions for the
period from January 1, 1995 to April 5, 1995. These financial statements are
the responsibility of management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1 to the combined financial statements, BIS Strategic
Decisions was acquired by Giga Information Group, Inc. on April 5, 1995 and
has been operated by the management of Giga since that date. The transaction
involved the payment of $200,000 cash and a convertible note in the principal
amount of $1,000,000 for all the outstanding shares of BIS Strategic
Decisions.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of BIS Strategic Decisions'
operations and its cash flows for the period from January 1, 1995 to April 5,
1995 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 31, 1996
F-20
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholder
BIS Strategic Decisions
We have audited the accompanying combined balance sheet of the entities
listed in Note 2 as of December 31, 1994, and the related combined statements
of operations, stockholder's equity, and cash flows for the year ended
December 31, 1994, the period from December 16, 1993 to December 31, 1993, and
the period from January 1, 1993 to December 15, 1993. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the financial statements of BIS Shrapnel
PTY Limited for the periods January 1, 1993 to December 15, 1993, and December
16, 1993 to December 31, 1993, which statements reflect total revenues of
approximately $4,245,000 and $187,000, respectively. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion for the period from January 1, 1993 to December 15, 1993, and December
16, 1993 to December 31, 1993, insofar as it relates to data included for BIS
Shrapnel PTY Limited, is based solely on the reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and, for the periods
January 1, 1993 to December 15, 1993, and December 16, 1993 to December 31,
1993, the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and, for the periods January 1, 1993 to
December 15, 1993, and December 16, 1993 to December 31, 1993, the reports of
other auditors, the combined financial statements referred to above present
fairly, in all material respects, the combined financial condition of the
entities listed in Note 2 as of December 31, 1994, and the combined results of
their operations and their cash flows for the year ended December 31, 1994,
the period from December 16, 1993 to December 31, 1993, and the period from
January 1, 1993 to December 15, 1993, in conformity with generally accepted
accounting principles.
The accompanying combined financial statements have been prepared assuming
that the Companies listed in Note 2 will continue as a going concern. As more
fully described in Note 4, the Companies' expired line of credit with a bank
and projected cash shortfalls for 1995 raise substantial doubt about their
ability to continue as a going concern. The Companies are wholly-owned by
Friday Holdings, L.P., a limited partnership that is in the process of winding
up its affairs. In connection therewith, Friday Holdings, L.P. is in
discussions with potential buyers of the Companies. On March 6, 1995, Friday
Holdings, L.P. entered into a nonbinding letter of intent to sell the
Companies. Among other things, the terms of the nonbinding letter of intent
provide that the buyer infuse up to $1,800,000 into the Companies during the
first year. See Note 4 for additional information about the nonbinding letter
of intent and management's plans to address the projected cash shortfalls. The
accompanying combined financial statements as of December 31, 1994, and for
the year ended December 31, 1994, the period from December 16, 1993 to
December 31, 1993, and the period from January 1, 1993 to December 15, 1993,
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
As described in Note 2, effective January 1, 1993, the Companies changed
their method of accounting for revenue recognized for continuous information
services.
Ernst & Young LLP
Boston, Massachusetts
March 13, 1995, except with respect to
the matters described in Note 12, as to which the date is September 6, 1996.
F-21
<PAGE>
BIS SHRAPNEL PTY LIMITED
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
BIS SHRAPNEL PTY LIMITED
SCOPE
We have audited the attached financial package of the business BIS Shrapnel
from 1 January 1993 to 15 December 1993 which is not included in this
Registration Statement. The results incorporate the operations of the two
legal entities that carried on the business under the name BIS Shrapnel and
have been prepared on the basis of the footnotes to the financial package.
The company's directors are responsible for the preparation and presentation
of the financial package and the information contained therein. We have
conducted an independent audit of this financial package in order to express
an opinion on the financial package to the members of the company.
Our audit has been conducted in accordance with Australian Auditing Standards,
which are substantially comparable to United States Generally Accepted
Auditing Standards, to provide reasonable assurance as to whether the
financial package is free of material misstatement. Our procedures included
examination, on a test basis, of evidence supporting the amounts and other
disclosures in the financial package, and the evaluation of accounting
policies and significant accounting estimates. These procedures have been
undertaken to form an opinion as to whether, in all material respects, the
financial package is presented fairly in accordance with Australian accounting
standards so as to present a view of the business which is consistent with our
understanding of its financial position, the results of its operations and its
cash flows.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION
In our opinion the financial package of the business of BIS Shrapnel is
properly drawn up:
(a) so as to give a true and fair view of the state of affairs of the business
as at 15 December 1993 and of its result and cash flows for the period
from 1 January 1993 to 15 December 1993; and
(b) in accordance with applicable Accounting Standards. The applicable
Australian Accounting Standards are substantially similar to the
applicable accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United
States would have affected the classification of certain items within the
financial package but would not have materially affected the determination
of net income or shareholder's equity.
COOPERS & LYBRAND
Chartered Accountants
Signed at Sydney this 21st day of October 1996.
F-22
<PAGE>
BIS SHRAPNEL PTY LIMITED
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
BIS SHRAPNEL PTY LIMITED
SCOPE
We have audited the attached financial package of BIS Shrapnel Pty Limited
from 16 December 1993 to 31 December 1993 which is not included in this
Registration Statement. The financial package has been prepared on the basis
of the footnotes to the financial package.
The company's directors are responsible for the preparation and presentation
of the financial package and the information contained therein. We have
conducted an independent audit of this financial package in order to express
and opinion on the financial package to the members of the company.
Our audit has been conducted in accordance with Australian Auditing Standards,
which are substantially comparable to United States Generally Accepted
Auditing Standards, to provide reasonable assurance as to whether the
financial package is free of material misstatement. Our procedures included
examination, on a test basis, of evidence supporting the amounts and other
disclosures in the financial package, and the evaluation of accounting
policies and significant accounting estimates. These procedures have been
undertaken to form an opinion as to whether, in all material respects, the
financial package is presented fairly in accordance with Australian accounting
standards so as to present a view of the company which is consistent with our
understanding of its financial position, the results of its operations and its
cash flows.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION
In our opinion the financial package of the business of BIS Shrapnel is
properly drawn up:
(a) so as to give a true and fair view of the state of affairs of the company
as at 31 December 1993 and of its result and cash flows for the period
from 16 December 1993 to 31 December 1993; and
(b) in accordance with applicable Accounting Standards. The applicable
Australian Accounting Standards are substantially similar to the
applicable accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United
States would have affected the classification of certain items within the
financial package but would not have materially affected the determination
of net income or shareholder's equity.
COOPERS & LYBRAND
Chartered Accountants
Signed at Sydney this 21st day of October 1996.
F-23
<PAGE>
BIS STRATEGIC DECISIONS
COMBINED BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $1,809
Trade accounts receivable, net of allowance for uncollectible
accounts of $45............................................. 2,227
Unbilled accounts receivable................................. 663
Prepaid expenses and other current assets.................... 302
------
Total current assets..................................... 5,001
Property and equipment, net of accumulated depreciation of
$674.......................................................... 1,807
Goodwill, net of accumulated amortization of $2,299............ 1,778
Other assets................................................... 15
------
Total assets........................................... $8,601
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank loans................................................... $345
Accounts payable............................................. 652
Accrued expenses............................................. 991
Other current liabilities.................................... 751
Deferred revenues............................................ 1,681
Accrued compensation and benefits............................ 791
Net liabilities of discontinued operations................... 1,567
------
Total current liabilities................................ 6,778
Stockholder's equity:
Common Stock:
BIS Strategic Decisions, Inc. $0.01 par value per share;
one share authorized, issued and outstanding.............. --
BIS Strategic Decisions, Ltd. (Pounds)1 par value per
share;
2,160,791 shares authorized, issued and outstanding....... 3,220
BIS Shrapnel PTY Ltd. A$1 par value per share; 10,000,000
shares
authorized, 2,467,841 shares issued and outstanding....... 1,654
BIS Strategic Decisions, GmbH DM 60,000 par value per
share;
one share authorized, issued and outstanding.............. 29
BIS Strategic Decisions, Srl Lire 200,000 par value per
share;
100 shares authorized, issued and outstanding............. 11
BIS Strategic Decisions, Sarl FF 100 par value per share;
10,000 shares authorized, issued and outstanding.......... 171
Additional paid-in capital................................... 4,011
Accumulated deficit.......................................... (6,951)
Cumulative translation adjustment............................ (322)
------
Total stockholder's equity............................... 1,823
------
Total liabilities and stockholder's equity............. $8,601
======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-24
<PAGE>
BIS STRATEGIC DECISIONS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES
(NYNEX) PREDECESSOR COMPANIES (FHLP)
--------------- ----------------------------------------
JANUARY 1 DECEMBER 16 YEAR ENDED JANUARY 1
TO DECEMBER 15, TO DECEMBER 31, DECEMBER 31, TO APRIL 5,
1993 1993 1994 1995
--------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Service revenues........ $11,371 $ 329 $12,700 $3,237
Cost and expenses:
Cost of services...... 5,530 357 6,172 2,208
Sales and marketing... 1,448 92 1,589 266
General and
administrative....... 6,901 307 8,108 1,197
Depreciation and
amortization......... 744 38 974 250
Write down of
goodwill............. -- -- 2,094 --
------- ----- ------- ------
Total costs and
expenses........... 14,623 794 18,937 3,921
------- ----- ------- ------
Operating loss........ (3,252) (465) (6,237) (684)
Interest income......... 114 7 103 26
Interest expense........ (38) (4) (26) (4)
------- ----- ------- ------
Loss from continuing
operations before
income taxes......... (3,176) (462) (6,160) (662)
Income tax benefit...... (983) -- (1,096) (213)
------- ----- ------- ------
Loss from continuing
operations........... (2,193) (462) (5,064) (449)
Discontinued operations:
Income (loss) from the
discontinued BIS
market research
business, net of tax
effect .............. 1,044 44 (1,469) 597
------- ----- ------- ------
Net income (loss)....... $(1,149) $(418) $(6,533) $148
======= ===== ======= ======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-25
<PAGE>
BIS STRATEGIC DECISIONS
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
---------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT EQUITY
--------- ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Companies
(NYNEX):
Balance at December 31,
1992; $2,764 $(282) $(1,021) $1,461
BIS Strategic Deci-
sions, Inc., par
value $.01 per
share................ 1 $ -- -- -- -- --
BIS Strategic Deci-
sions, Ltd., par
value (Pounds).1 per
share................ 1,050,000 160 -- -- -- 160
BIS Shrapnel PTY Ltd.,
par value A$1 per
share................ 230,000 206 -- -- -- 206
BIS Strategic Deci-
sions, Srl, par value
Lire 200,000 per
share................ 100 16 -- -- -- 16
Reorganization adjust-
ments: 135 -- (823) (688)
BIS Strategic Deci-
sions, GmbH, par
value DM 50,000 per
share................ 1 29 -- -- -- 29
BIS Strategic Deci-
sions, Sarl, par
value FF 100 per
share................ 10,000 171 -- -- -- 171
BIS Strategic Deci-
sions, Ltd. par value
(Pounds).01 per
share................ -- 31 -- -- -- 31
BIS Strategic, Srl,
par value Lire
200,000 share........ -- (5) -- -- -- (5)
Net income............ (1,149) (1,149)
Common stock issued in
conjunction with reor-
ganization:
BIS Strategic Deci-
sions, Ltd., par
value (Pounds)1 per
share................ 1,110,791 3,029 -- -- -- 3,029
BIS Strategic PTY
Ltd., par value A$1
per share............ 2,237,841 1,448 -- -- -- 1,448
Equity adjustment from
translation........... -- -- -- 331 -- 331
--------- ------ ------ ----- ------- ------
Balance at December 15,
1993.................. 4,638,734 $5,085 $2,899 $ 49 $(2,993) $5,040
========= ====== ====== ===== ======= ======
- -------------------------------------------------------------------------------------------
Predecessor Companies
(FHLP):
Pushdown of invest-
ment................. -- -- 1,112 (49) 2,993 4,056
--------- ------ ------ ----- ------- ------
Balance at December 16,
1993.................. 4,638,734 5,085 4,011 -- -- 9,096
--------- ------ ------ ----- ------- ------
Net loss.............. -- -- -- -- (418) (418)
Equity adjustment from
translation.......... -- -- -- 1 -- 1
--------- ------ ------ ----- ------- ------
Balance at December 31,
1993.................. 4,638,734 5,085 4,011 1 (418) 8,679
--------- ------ ------ ----- -------
Net loss.............. -- -- -- -- (6,533) (6,533)
Equity adjustment from
translation.......... -- -- -- (323) -- (323)
--------- ------ ------ ----- ------- ------
Balance at December 31,
1994.................. 4,638,734 5,085 4,011 (322) (6,951) 1,823
--------- ------ ------ ----- ------- ------
Net income............ -- -- -- -- 148 148
Equity adjustment from
translation.......... -- -- -- (6) (6)
--------- ------ ------ ----- ------- ------
Balance at April 5,
1995.................. 4,638,734 $5,085 $4,011 $(328) $(6,803) $1,965
========= ====== ====== ===== ======= ======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-26
<PAGE>
BIS STRATEGIC DECISIONS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES
(NYNEX) PREDECESSOR COMPANIES (FHLP)
------------ ----------------------------------------
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO
DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5,
1993 1993 1994 1995
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities
Net income (loss)...... $(1,149) $(418) $(6,533) $148
Adjustments to
reconcile net income
(loss) to net cash
used in continuing
operating activities:
Net (income) loss
from discontinued
operations.......... (1,044) (44) 1,469 (597)
Depreciation
expense............. 744 30 788 226
Amortization and
writedown of
goodwill............ -- 8 2,280 24
Loss (gain) on sale
of fixed assets..... (11) -- 62 --
Provision for
deferred income
taxes............... -- -- (1,183) 58
Allowance for
doubtful accounts... (1) (3) 27 9
Changes in certain
operating assets and
liabilities:
Increase in accounts
receivable......... (110) (123) (217) (608)
Decrease (increase)
in unbilled
services........... (74) 10 (3) 183
Decrease (increase)
in prepaid expenses
and other current
assets............. (805) 377 257 (314)
Increase (decrease)
in accounts
payable, accrued
expenses and other
current
liabilities........ 461 (827) 589 (559)
Increase (decrease)
in deferred
revenue............ 818 (221) 1,763 490
------- ------- ------- ------
Net cash provided by
(used in) operating
activities of:
Continuing
operations........... (1,171) (1,211) (701) (940)
Discontinued
operations........... 3,302 812 1,136 642
------- ------- ------- ------
Net cash provided by
(used in) operating
activities........... 2,131 (399) 435 (298)
Cash flows from
investing activities:
Purchase of fixed
assets............... (795) (19) (1,157) (197)
Proceeds from sale of
equipment............ 107 -- 70 32
------- ------- ------- ------
Net cash used in
investing
activities........... (688) (19) (1,087) (165)
Cash flows from
financing activities:
Proceeds from
borrowings........... 176 -- 80 22
Principal payments on
borrowings........... (157) -- -- (157)
Principal payments on
capital lease
obligations.......... (61) -- -- (19)
------- ------- ------- ------
Net cash provided by
(used in) financing
activities............. (42) -- 80 (154)
Effect of exchange rate
changes on cash........ 37 (4) (433) 225
------- ------- ------- ------
Net increase (decrease)
in cash and cash
equivalents............ 1,438 (422) (1,005) (392)
Cash and cash
equivalents at
beginning of period... 1,798 3,236 2,814 1,809
------- ------- ------- ------
Cash and cash
equivalents at end of
period................ $3,236 $2,814 $1,809 $1,417
======= ======= ======= ======
Supplemental cash flow
information:
Income taxes paid..... $ 155 $ 0 $ 51 $ 7
Interest paid......... $ 17 $ 6 $ 35 $ 2
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-27
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. BACKGROUND
During the period January 1, 1993 to December 15, 1993, BIS Strategic
Decisions, Inc. and its five foreign affiliates (collectively "BIS Strategic
Decisions," "BIS" or the "Predecessor Companies") were wholly-owned
subsidiaries of NYNEX Corporation ("NYNEX"). On December 16, 1993, Friday
Holdings, L.P. ("FHLP") acquired 100% of the common stock outstanding of each
of the Predecessor Companies from NYNEX in exchange for $8,696,000 in cash. On
April 5, 1995, Giga Information Group, Inc. ("Giga") acquired 100% of the
common stock outstanding of each of the Predecessor Companies from FHLP for
$200,000 in cash and a $1,000,000 convertible promissory note. The acquisition
of the Predecessor Companies by Giga was accounted for as a purchase. As part
of the transaction, a $1,300,000 intangible asset was recorded representing
the fair value of payments being made on a property lease through May 1998 by
a former owner of the Predecessor Companies. The financial data of the
Predecessor Companies for the period January 1, 1993 to December 15, 1993 are
reflected on the financial statements and referred to from time to time herein
as "Predecessor Companies (NYNEX)." The financial data for the Predecessor
Companies for the period December 16, 1993 to December 31, 1993, the year
ended December 31, 1994 and for the period January 1 to April 5, 1995 are
reflected on the financial statements and referred to from time to time herein
as "Predecessor Companies (FHLP)."
On June 25, 1996, the Company decided to discontinue the BIS Market Research
Business. In connection with the discontinuance of such operations, the
Company terminated the personnel employed in developing and compiling the BIS
market research services, ceased operations at two of the licensed facilities
in England and entered into contracts with two independent IT service
providers engaged to fulfill the Company's obligations to customers of BIS
under certain existing subscription agreements, all of which expire on or
before June 1997.
The continuing operations reflected in the financial statements represent
revenues and expenses associated with the Predecessor Companies' Service
revenues, which include events, publications, consulting and econometric
forecasting.
The financial statements for the period January 1, 1993 to December 15, 1993
are presented as if the Predecessor Companies existed as an entity separate
from NYNEX and include only financial information directly related to the
Predecessor Companies. During 1993, in anticipation of the sale of the
Predecessor Companies, NYNEX initiated certain reorganization efforts which
changed the legal and capital structure of certain of the Predecessor
Companies.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements of BIS Strategic Decisions include the
accounts of BIS Strategic Decisions, Inc., BIS Strategic Decisions, Ltd., BIS
Shrapnel PTY Ltd., BIS Strategic Decisions, GmbH, BIS Strategic Decisions, Srl
and BIS Strategic Decisions, Sarl. All intercompany accounts and transactions
have been eliminated in combination.
Pursuant to the acquisition of BIS on December 16, 1993 by FHLP,
identifiable assets acquired and liabilities assumed were carried over at net
book value which approximates fair market value. The excess of the purchase
price over the fair market value of the net identifiable assets acquired was
recorded as goodwill.
F-28
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Because of the impact to the combined statements of operations, changes in
stockholder's equity and cash flows of the revaluation of the net assets
acquired by FHLP on December 16, 1993, the combined statements of operations,
changes in stockholder's equity and cash flows for the periods January 1, 1993
to December 15, 1993 are not comparable with those of December 16, 1993 to
December 31, 1993, the year ended December 31, 1994 and the period January 1,
1995 to April 5, 1995.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
Effective January 1, 1993, the Predecessor Companies changed their method of
accounting for revenue recognized for continuous information services (which
services were provided solely by the BIS Market Research Business) to
recognize revenue ratably over the contract period. Previously, 35% of the
revenue was recognized at the start of the service term and the remaining 65%
was recognized ratably over the service period. Management believes that the
change in accounting principle results in better matching of revenues and
expenses and is preferable given the current industry practice. The cumulative
effect of the change in accounting at January 1, 1993, net of $462,000 in
applicable income taxes, decreased the net income by $1,928,000 for the period
ended December 15, 1993. The change in revenue recognition is reflected in its
entirety in the results of discontinued operations.
FOREIGN CURRENCY TRANSLATION
For international operations, the local currency is used as the functional
currency. The assets and liabilities of the foreign companies are translated
at the year-end rates of exchange and the related income statement items are
translated at the average rates of exchange for the year. The resulting
translation adjustments are excluded from income and charged to a separate
component of stockholder's equity. Realized and unrealized exchange gains or
losses arising from transaction adjustments are reflected in operations and
are not material.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities of
three months or less at date of purchase.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
following estimated useful lives;
<TABLE>
<CAPTION>
<S> <C>
Computers and related equipment... 3 years
Furniture and fixtures............ 5 years
Motor vehicles.................... 4 years
Leasehold improvements............ Shorter of economic life or lease term
</TABLE>
Major additions and improvements are capitalized, while repairs and
maintenance are charged to expense as incurred. Upon retirement or
disposition, the cost and related accumulated depreciation are removed from
the account and the resulting gain or loss is included in the determination of
net income.
REVENUE RECOGNITION
Service revenues from events, publications, consulting and econometric
forecasting are recognized as follows:
Events--revenues and associated expenses are recognized during the month
that the conference is held.
Publications--revenues from general and research reports are recognized
when the report is delivered. Newsletter revenues are recognized over
the subscription period.
Consulting Services--revenues are recognized on the percentage of
completion method with losses recognized in the period that they
become evident.
Econometric Forecasting--revenues are recognized based on the percentage
of the service that has been completed.
F-29
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Cash equivalents are financial instruments which potentially subject the
Predecessor Companies to concentrations of credit risk. The Predecessor
Companies invest the majority of their excess cash in overnight investments in
a money market account. The Predecessor Companies have not experienced any
losses on their investments. The Predecessor Companies offer services to a
diversified client base, many of which are large, well established companies.
Accordingly, there is no one customer or industry that represents a
significant portion of revenues or receivables.
INCOME TAXES
The Predecessor Companies account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which is a balance sheet approach for accounting for
income taxes (see Note 3). Under SFAS 109, deferred tax liabilities and assets
are recognized based on temporary differences between the financial statement
and tax bases of assets and liabilities using current statutory tax rates.
SFAS 109 also requires a valuation allowance against net deferred tax assets
if, based on the available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
For the period January 1, 1993 to December 15, 1993, NYNEX included BIS
Strategic Decisions, Inc.'s U.S. tax return in its consolidated U.S. tax
return. Income taxes pertaining to BIS Strategic Decisions, Inc. for the
period January 1, 1993 to December 15, 1993 were calculated as if BIS
Strategic Decisions, Inc. had filed a separate tax return. The Predecessor
Companies' foreign affiliates file separate tax returns.
From December 16, 1993 through April 15, 1995 the Predecessor Companies
(FHLP) filed separate tax returns for all periods presented.
GOODWILL
Goodwill represents the excess of cost over the fair value of the net assets
of companies acquired. This balance is amortized over 20 years using the
straight-line method.
3. PROPERTY AND EQUIPMENT
Property and equipment for continuing operations at December 31, 1994
consists of the following (in thousands):
<TABLE>
<S> <C>
Computer and related equipment....................................... $1,143
Furniture and fixtures............................................... 522
Motor vehicles....................................................... 794
Leasehold improvements............................................... 22
------
2,481
Less accumulated depreciation and amortization....................... (674)
------
Property and equipment, net.......................................... $1,807
======
</TABLE>
4. LIQUIDITY
In 1994, the Company made substantial changes in its operations and incurred
nonrecurring restructuring costs, predominately severance, of approximately
$905,000 of which $680,000 pertains to continuing operations. Further, in
March 1995, there was an additional reduction in force with related severance
costs of approximately $220,000 of which $198,000 pertains to continuing
operations. The budgets for 1995 anticipate a net use of cash
F-30
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
which is less than the December 31, 1994 cash balance, however, there are
several months where the forecasted cash balance is negative. The Company's
only bank financing arrangement expired on December 31, 1994 . The bank has,
however, continued to honor the line on an informal month-to-month basis. As
of March 13, 1995, all amounts outstanding under this agreement were paid.
Should the bank not continue to extend the line, the Company will need to
obtain alternative financing or modify the 1995 operating plan to meet its
obligations.
FHLP acquired 100% of the outstanding capital stock of each of the
Predecessor Companies (NYNEX) on December 16, 1993. FHLP has substantial
obligations to its limited partners which were due on December 31, 1994. FHLP
is in technical default of these obligations. Currently, FHLP management is in
the process of winding up its affairs. In connection therewith, on March 6,
1995, FHLP entered into a nonbinding letter of intent to sell the Predecessor
Companies. Among other things, the terms of the nonbinding letter of intent
includes a sales price of $1,800,000 (cash of $200,000 and a one-year note of
$1,600,000) and a requirement that the buyer infuse up to $1,800,000 into the
Predecessor Companies during the first year. Because of the terms of this
agreement, the Company has recorded an adjustment in 1994 to the carrying
value of goodwill of approximately $4,711,000 of which $2,617,000 is
attributable to discontinued operations.
5. CREDIT ARRANGEMENTS
One of the combined affiliates of the Company has a working capital line of
credit agreement with a bank under which it may borrow amounts which ranged
from $480,000 to $750,000. The line of credit bears interest at the bank's
base rate plus 1.5% and is secured by all assets owned or leased by the
affiliate. The agreement contains operational covenants and expired on
December 31, 1994; however, the bank has allowed the affiliate to extend the
line pending resolution of the sale of the affiliate. As of December 31, 1994,
there was approximately $345,000 outstanding on the line of credit. As of
March 13, 1995, all amounts outstanding under this agreement were paid.
The weighted average interest rates of outstanding borrowings were 4.0%,
4.4% 6.1% and 7.5% for the periods January 1, 1993 to December 15, 1993 and
December 16, 1993 to December 31, 1993, the year ended December 31, 1994 and
the period January 1, 1995 to April 5, 1995, respectively.
6. INCOME TAXES
At December 31, 1994, the Predecessor Companies have deferred tax assets of
approximately $2,035,000. For financial reporting purposes, a valuation
allowance of $2,035,000 has been recognized to offset the deferred tax assets
until the Company can conclude that it is more likely than not that these
deferred tax assets will be realized. During the period ended December 31,
1994, the valuation allowance was increased by approximately $586,000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Predecessor Companies' deferred tax liabilities and assets as of
December 31, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Discontinued operations........................................... $ 1,025
Net operating loss carryforward................................... 1,116
Other, net........................................................ (106)
-------
Total deferred tax assets......................................... $ 2,035
Valuation allowance for deferred tax assets......................... (2,035)
-------
Net deferred tax assets............................................. $ 0
=======
</TABLE>
F-31
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
For financial reporting purposes, income taxes (benefit) from continuing
operations were based on the following components:
<TABLE>
<CAPTION>
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO
DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5,
1993 1993 1994 1995
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Pretax loss from continuing operations:
United States........................................................ $(1,609) $(338) $(1,458) $(497)
Foreign.............................................................. (1,567) (124) (4,702) (165)
------- ----- ------- -----
Total pretax loss from continuing operations....................... $(3,176) $(462) $(6,160) $(662)
- --------------------------------------------------
======= ===== ======= =====
</TABLE>
The income tax benefit of the loss from continuing operations, substantially
all of which is deferred, consists of the following components (state and
local taxes are not material) (in thousands):
<TABLE>
<CAPTION>
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO
DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5,
1993 1993 1994 1995
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Federal......................................................... $(638) $ 0 $ (573) $(210)
Foreign.............................................................. (345) 0 (523) (3)
- -------------------------------------------------- ----- --- ------- -----
$(983) $ 0 $(1,096) $(213)
===== === ======= =====
</TABLE>
The income tax benefit of the loss from continuing operations differs from
the amount of income tax benefit determined by applying the applicable U.S.
statutory income tax rate to pretax loss from continuing operations as a
result of the following differences (in thousands):
<TABLE>
<CAPTION>
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO
DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5,
1993 1993 1994 1995
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Income tax at the statutory rate..................................... $(1,080) $(157) $(2,094) $(225)
Foreign subsidiary losses with
no benefit recognized............................................... 137 40 425 71
Foreign income taxed at different rates.............................. (51) -- (54) (26)
Nondeductible goodwill............................................... -- 3 712 8
U.S. losses with no benefit recognized............................... -- 117 -- --
Other items (net).................................................. 11 (3) (85) (41)
------- ----- ------- -----
Other items (net).................................................. $ (983) $ 0 $(1,096) $(213)
======= ===== ======= =====
</TABLE>
The Company had available net operating loss carryforwards of approximately
$2,722,000 which may be used to reduce future taxable income. Domestic
carryforwards of approximately $1,100,000 expire in 2008. These carryforwards
have been limited to approximately $450,000 due to the purchase of the
Predecessor Companies by Giga. Certain remaining foreign carryforwards expire
in 1998 while others may be carried forward indefinitely. The results of
continuing operations for January 1 to December 15, 1993, December 16 to
December 31, 1993, the year ended December 31, 1994 and January 1 to April 5,
1995 include foreign tax expense (benefit) of $(345,000), $0, $(512,000) and
$(3,000), respectively.
F-32
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. PENSION PLANS
North America--In 1987, the Predecessor Companies established CAP
International Savings and Retirement Plan (the 401(k) Plan), a profit sharing
plan under Section 401 of the Internal Revenue Code. Employees are eligible to
participate in the 401(k) Plan by meeting certain requirements, including
length of service and minimum age. The Predecessor Companies match the first
3% of an employee's contribution by 25% and the next 3% of an employee's
contribution by 50%. The Predecessor Companies may also make additional
contributions to the plan at the discretion of the Board of Directors. The
Predecessor Companies have not made any discretionary contributions to the
profit sharing plan. From January 1 to December 15, 1993, the Predecessor
Companies contributed $89,000 to the plan, $5,000 from December 16 to December
31, 1993, $101,000 in 1994 and $23,000 from January 1 to April 5, 1995.
Australia--BIS Shrapnel maintains a Superannuation fund (a defined
contribution plan) for its employees to which it contributes 5% of annual
salary. Long service leave is provided for when employees become eligible to
receive it (5 years). BIS Shrapnel contributed $89,000 to the plan from
January 1 to December 15, 1993, $3,000 from December 16 to December 31, 1993,
$109,000 in 1994 and $26,000 from January 1 to April 5, 1995.
8. LEASE COMMITMENTS
The Predecessor Companies lease certain office space and equipment under
operating lease agreements. Future minimum rental commitments under all leases
with noncancelable terms of one year or more are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
YEAR ---------
<S> <C>
1995............................................................... $1,323
1996............................................................... 1,188
1997............................................................... 1,089
1998............................................................... 655
1999............................................................... 451
Thereafter......................................................... 3,271
------
Total lease commitments....................................... $7,977
======
</TABLE>
Rent expense was $1,195,000, $62,000, $1,169,000 and $296,000 for the
periods January 1 to December 16, 1993 and December 16 to December 31, 1993,
the year ended December 31, 1994 and the period January 1 to April 6, 1995,
respectively.
9. JOINT VENTURE AGREEMENT
On October 18, 1991, the Predecessor Companies entered into a joint venture
agreement with a Japanese company in which the Company obtained a 40%
interest. The interest in this Japanese company has been accounted for at cost
which approximates equity. The purpose of the joint venture was to provide
additional market penetration in Japan for its products and services. Under
the terms of the joint venture agreement, the Predecessor Companies may be
required to pay its Japanese partner approximately $75,000 if cumulative sales
under the joint venture do not meet certain agreed upon levels by December 31,
1995. In addition, on or prior to April 1, 1996, the Predecessor Companies may
be required to increase its investment in the joint venture by approximately
$23,000.
As of December 31, 1994, the Predecessor Companies had accounts receivable
from the joint venture in Japan totalling approximately $100,000.
F-33
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. RELATED--PARTY TRANSACTIONS
During 1994, management fees aggregating $236,000 were paid to FHLP. These
fees primarily represent charges for salaries and benefits of the principals
of FHLP, who actively managed the operations of BIS. Management believes these
fees are reasonable considering the value received. As of December 31, 1994,
$50,000 in unpaid management fees due to FHLP are included in accounts
payable.
In 1994, the Predecessor Companies acquired computer equipment from FHLP
(and one of its wholly-owned subsidiaries) for an aggregate purchase price of
$100,000. As of December 31, 1994, the entire $100,000 was included in
accounts payable.
During 1994, a note in the amount of $458,000 from FHLP was repaid with
interest of approximately $21,000.
For the period January 1 to December 15, 1993 the Predecessor Companies paid
to NYNEX a management fee of approximately $131,000. It was NYNEX's policy to
charge a management fee on the basis of annual sales regardless of the amount
of corporate services utilized by the Predecessor Companies. Management
believes the management fee charged by NYNEX for services such as legal,
strategic planning and human resource reflects the value of the services
received.
11. GEOGRAPHIC MARKETS
The Predecessor Companies operate in one business segment and in the
geographical markets indicated in the table below. Revenues from continuing
operations are reflected in the market from which the sales are made. The
Other International market includes France, Italy and Germany.
PREDECESSOR COMPANIES (NYNEX)
JANUARY 1 TO DECEMBER 15, 1993
<TABLE>
<CAPTION>
UNITED UNITED OTHER
STATES AUSTRALIA KINGDOM INTERNATIONAL TOTAL
------ --------- ------- ------------- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Total revenues............ $4,209 $4,245 $1,275 $2,249 $11,978
Transfers between areas... (118) (8) (48) (433) (607)
------ ------ ------ ------ -------
Unaffiliated revenues..... 4,091 4,237 1,227 1,816 11,371
====== ====== ====== ====== =======
Income (loss) from opera-
tions...................... (1,625) 116 (1,390) (353) (3,252)
Total assets................ 6,318 1,628 2,585 2,015 12,546
PREDECESSOR COMPANIES (FHLP)
DECEMBER 16, 1993 TO DECEMBER 31, 1993
<CAPTION>
UNITED UNITED OTHER
STATES AUSTRALIA KINGDOM INTERNATIONAL TOTAL
------ --------- ------- ------------- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Total revenues............ $ 36 $ 187 $ 37 $ 90 $ 350
Transfers between areas... (6) -- -- (15) (21)
------ ------ ------ ------ -------
Unaffiliated revenues..... 30 187 37 75 329
====== ====== ====== ====== =======
Income from operations...... (345) (12) (71) (37) (465)
Total assets................ 8,977 1,500 1,077 1,425 12,979
</TABLE>
F-34
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1, 1994 TO DECEMBER 31, 1994
<TABLE>
<S> <C> <C> <C> <C> <C>
Revenues:
Total revenues..................... $4,722 $4,534 $1,831 $1,969 $13,056
Transfers between areas............ (61) -- (101) (194) (356)
------ ------ ------ ------ -------
Unaffiliated revenues.............. 4,661 4,534 1,730 1,775 12,700
====== ====== ====== ====== =======
Income from operations............... (3,577) (406) (1,569) (685) (6,237)
Total assets......................... 4,377 1,007 1,877 1,340 8,601
JANUARY 1, 1995 TO APRIL 5, 1995
Revenues:
Total revenues..................... $1,113 $1,121 $499 $586 $3,319
Transfers between areas............ -- -- (19) (63) (82)
------ ------ ------ ------ -------
Unaffiliated revenues.............. 1,113 1,121 480 523 3,237
====== ====== ====== ====== =======
Income from operations............... (537) 51 (22) (176) (684)
Total assets......................... 5,684 1,340 1,747 1,660 10,431
</TABLE>
EXPORT SALES
The information below summarizes export sales by geographic area for the
United States operations of BIS.
<TABLE>
<CAPTION>
TOTAL
EXPORT
EUROPE FAR EAST OTHER SALES
------ -------- ----- ------
<S> <C> <C> <C> <C>
January 1, 1993 to December 15, 1993............. $141 $144 $ 56 $341
December 16, 1993 to December 31, 1993........... 0 0 0 0
January 1, 1994 to December 31, 1994............. 199 196 153 548
January 1, 1995 to April 5, 1995................. 57 75 31 163
</TABLE>
12. DISCONTINUED OPERATIONS
On June 25, 1996, Giga decided to discontinue the BIS Market Research
Business. The results of these operations have been classified as discontinued
operations and the financial statements have been restated to reflect the
discontinuance. The net liabilities of the BIS business have been segregated in
the consolidated balance sheet and as of December 31, 1994, consisted primarily
of deferred revenue ($7,002,000), accounts receivable ($3,696,000) and goodwill
($2,222,000). The operating results of the business are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO
DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5,
1993 1993 1994 1995
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues................ $14,204 $635 $15,608 $3,994
Pre-tax income (loss)... 2,037 44 (343) 876
Provision for income
taxes.................. 993 -- 1,126 279
Net income (loss)....... 1,044 44 (1,469) 597
</TABLE>
F-35
<PAGE>
[GIGA LOGO]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Financial Data.................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 23
Management............................................................... 34
Certain Transactions..................................................... 42
Principal Stockholders................................................... 45
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 54
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD-
DITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 SHARES
[GIGA LOGO APPEARS HERE]
COMMON STOCK
------------------
PROSPECTUS
, 1996
------------------
LEHMAN BROTHERS
OPPENHEIMER & CO., INC.
SALOMON BROTHERS INC
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 17,449
NASD Filing Fee............................................... 5,560
Nasdaq Listing Fee............................................ 50,000
Blue Sky Fees and Expenses.................................... 25,000
Transfer Agent and Registrar Fees............................. 48,000
Accounting Fees and Expenses.................................. 450,000
Legal Fees and Expenses....................................... 500,000
Printing, Engraving and Mailing Expenses...................... 250,000
Premium for directors and officers insurance.................. 160,000
Miscellaneous................................................. 43,991
----------
Total..................................................... $1,550,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eight of the Registrant's Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach
of fiduciary duty as a director, except to the extent that the Delaware
General Corporation Law prohibits the elimination or limitation of liability
of directors for breach of fiduciary duty.
Article Eight of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right
of the Registrant) brought against him by virtue of his position as a director
or officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Registrant, except that no indemnification shall be made with respect
to any matter as to which such person shall have been adjudged to be liable to
the Registrant, unless a court determines that, despite such adjudication but
in view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent
to the right of indemnification, the director or
II-1
<PAGE>
officer must give the Registrant notice of the action for which indemnity is
sought and the Registrant has the right to participate in such action or assume
the defense thereof.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
The Board of Directors on April 26, 1996 approved, in accordance with Section
145 of Delaware General Corporation Law, a Directors and Officers
Indemnification Agreement to be entered into between the Registrant and each of
Registrant's directors and officers. Pursuant to the terms of the agreement,
the Registrant agrees to hold any director or officer harmless against any and
all expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such director or officer in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the Registrant), to which the director or officer becomes a party at
any time or is threatened to be made a party, by reason of the fact that the
director or officer is a director, officer, employee or agent of the
Registrant, or serves at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise; and otherwise to the fullest extent
as may be provided to the director or officer by the Registrant under the non-
exclusivity provisions of Article V of the Bylaws of the Registrant and the
Delaware General Corporation Law. The agreement also obligates the Registrant
under certain circumstances to advance amounts and contribute to any amounts
paid out by a director or officer as a result of his or her role as a director
or officer of the Registrant in cases where indemnification by the Registrant
is not available. This agreement is also intended to indemnify special advisors
of the Registrant.
Under Section Eight of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number of
shares of capital stock and other securities issued by the Registrant since the
Registrant's inception in March 1995. Further included is the consideration, if
any, received by the Registrant for such shares of capital stock and other
securities and information relating to the section of the Securities Act, or
rule of the Commission under which exemption from registration was claimed. All
awards of options did not involve any sale under the Securities Act and none of
these securities was registered under the Securities Act.
1. Since March 1995, the Registrant has issued options to purchase an
aggregate of 3,649,473 shares of Common Stock at a weighted average
exercise price of $0.64 per share. During this same time period, the
Registrant has issued a total of 11,107 shares of Common Stock pursuant to
the exercise of options previously granted.
2. In March 1995, the Registrant sold to its Chairman of the Board of
Directors and Chief Executive Officer 4,200,000 shares of Common Stock at a
purchase price of $0.02375 per share.
3. In April 1995, the Registrant issued to Friday Holdings, L.P. a 5%
$1.0 million principal amount Convertible Promissory Note in connection
with the Registrant's acquisition of BIS Strategic Decisions, Inc. and its
five foreign affiliates.
II-2
<PAGE>
4. In July 1995 and October 1995, the Registrant issued and sold an
aggregate of 410,000 shares of Series A Convertible Preferred Stock, $.001
par value ("Series A Preferred Stock") (1,640,000 shares on an as-converted
basis) to a group of investors, including certain employees and directors,
at a purchase price of $5.00 per share ($1.25 per share on as-converted
basis).
5. In July 1995, the Registrant issued 160,000 shares of Series A
Preferred Stock (640,000 on an as- converted basis) to its Chairman of the
Board of Directors and Chief Executive Officer and to its Senior Vice
President, Research & Technology in connection with the Registrant's
acquisition of a majority of the shares of ExperNet Corporation
("ExperNet") and in December 1995, the Registrant issued to its Senior Vice
President, Research & Technology, in connection with the Registrant's
acquisition of the remaining shares of ExperNet, a 6% $400,000 Convertible
Promissory Note.
6. In October 1995, the Registrant issued 1,908,000 shares of Common
Stock to a group of employees, consultants and directors at a purchase
price of $0.50 per share.
7. In November 1995 and February 1996, the Registrant issued and sold an
aggregate of 5,272,215 shares of Series B Preferred Stock, $.001 par value
("Series B Preferred Stock") to a group of investors at a purchase price of
$3.50 per share.
8. In August 1995, the Registrant issued a warrant to purchase 285,714
shares of Series B Preferred Stock to an investor at an exercise price of
$2.345 per share. In September 1996, the investor made a cashless exercise
of the warrant and received 218,714 shares of the Company's Series B
Preferred Stock.
9. In February 1996, the Registrant issued a warrant to purchase 107,876
shares of Series B Preferred Stock to Montgomery Securities in
consideration for certain placement agent services at an exercise price of
$4.5625 per share.
10. In August 1996, the Registrant issued 25,000 shares of Common Stock
to an employee in connection with the acquisition of his business.
Other than Montgomery Securities which served as placement agent in
connection with the November 1995 and February 1996 sales by the Registrant of
shares of its Series B Preferred Stock, no underwriters were engaged in
connection with any of the foregoing sales of securities. Montgomery
Securities was paid a placement agent fee of $695,105 and received a warrant
to purchase 107,876 shares of Series B Preferred Stock, exercisable at a price
of $4.5625 per share, in connection with its services as placement agent for
the sale of shares of the Registrant's Series B Preferred Stock.
The shares of capital stock and other securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date.
3.2* Form of Restated Certificate of Incorporation of the Registrant (to be
filed with the State of Delaware upon the closing of the Offering to
which this Registration Statement relates).
3.3* By-Laws of the Registrant.
3.4* Form of Restated Bylaws of the Registrant (to become effective upon
the closing of the Offering to which this Registration Statement
relates).
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of
the Registrant.
5 Opinion of Hale and Dorr with respect to the validity of the
securities being offered.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.1* Stock Purchase Agreement dated July 6, 1995, as amended, between the
Registrant and David L. Gilmour.
10.2* Series A Preferred Stock Purchase Agreement dated July 6, 1996 between
the Registrant and the investors named on Schedule I thereto.
10.3* Series B Preferred Stock Purchase Agreement dated November 13, 1995,
as amended, between the Registrant and the investors named on Exhibit
A thereto.
10.4* Convertible Note and Warrant Purchase Agreement dated August 1995
between the Registrant and RRE Giga Investors, L.P.
10.5* Series B Preferred Stock Purchase Warrant dated August 1995 registered
in the name of RRE Giga, L.P.
10.6* Registration Rights Agreement dated November 13, 1995 among the
Registrant, the investors named on Exhibit A thereto, Gideon I.
Gartner and David L. Gilmour.
10.7* Co-Sale and Stock Restriction Agreement dated November 13, 1995 among
the Registrant, Gideon I. Gartner and the stockholders named on the
signature pages thereto.
10.8 Form of Series B Preferred Stock Purchase Warrant dated February 28,
1996 registered in the name of Montgomery Securities.
10.9* Registrant's 5% $1.0 Million Convertible Promissory Note dated April
5, 1995 naming Friday Holdings, L.P. as payee.
10.10* Registrant's 6% $400,000 Convertible Promissory Note dated December
31, 1995 naming David L. Gilmour as payee.
10.11* Employment Agreement dated February 1, 1996 between the Registrant and
Leander R. Jennings, Jr.
10.12* Employment Agreement dated December 1, 1995 between the Registrant and
Kenneth E. Marshall.
10.13* Employment Agreement dated July 6, 1995 between the Registrant and
David L. Gilmour.
10.14* Non-competition Agreement dated November 13, 1995 between the
Registrant and Gideon I. Gartner.
10.15* Consulting Agreement dated January 1, 1996 between the Registrant and
Neill H. Brownstein Corporation.
10.16* Promissory Note dated December 1, 1995 naming the Registrant as payee
issued by Kenneth E. Marshall.
10.17* Letter Agreement dated July 12, 1996 between the Registrant and
Richard L. Crandall.
10.18* Lease dated October 31, 1995 between the Registrant and Cambridge 1400
Limited Partnership.
10.19* Lease dated October 6, 1987, as amended, between BIS Strategic
Decisions, Inc. and Charles A. Pesko, Jr., as Trustee of Longwater
Circle Trust.
10.20+* Content Distribution Agreement dated May 21, 1996 between the
Registrant and Dow Jones and Company, Inc.
10.21+* Agreement dated August 1, 1996 between the Registrant and Peripheral
Insight, Inc.
10.22+* Agreement dated August 15, 1996 between the Registrant and Decision
Analytics, Inc.
11* Calculation of shares used in determining pro forma net loss per
common share.
21 Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Coopers & Lybrand.
24* Powers of Attorney (included on page II-6).
27* Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Restated Certificate of
Incorporation and Amended and Restated By-Laws of the Registrant and the laws
of the State of Delaware, or otherwise, the Registrant has been advised that
in the opinion of the Commission 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 the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CAMBRIDGE, COMMONWEALTH OF MASSACHUSETTS, ON THIS 21ST DAY OF OCTOBER,
1996.
Giga Information Group, Inc.
/s/ Kenneth E. Marshall
By: _________________________________
KENNETH E. MARSHALL
PRESIDENT AND CHIEF OPERATING
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Gideon I. Gartner* Chairman of the
- ------------------------------------- Board of Directors October 21,
GIDEON I. GARTNER and Chief Executive 1996
Officer (Principal
Executive Officer)
/s/ Kenneth E. Marshall President and Chief
- ------------------------------------- Operating Officer; October 21,
KENNETH E. MARSHALL Director 1996
Richard B. Goldman* Senior Vice
- ------------------------------------- President and Chief October 21,
RICHARD B. GOLDMAN Financial Officer; 1996
Treasurer;
Secretary
(Principal
Financial and
Accounting Officer)
David L. Gilmour*
- ------------------------------------- Senior Vice October 21,
DAVID L. GILMOUR President, 1996
Research; Director
Neill H. Brownstein* Director
- ------------------------------------- October 21,
NEILL H. BROWNSTEIN 1996
Richard L. Crandall* Director
- ------------------------------------- October 21,
RICHARD L. CRANDALL 1996
II-6
<PAGE>
SIGNATURE TITLE DATE
Irwin Lieber* Director
- ------------------------------------- October 21,
IRWIN LIEBER 1996
James D. Robinson III* Director
- ------------------------------------- October 21,
JAMES D. ROBINSON III 1996
/s/ Kenneth E. Marshall
*By: ________________________________ October 21,
ATTORNEY-IN-FACT 1996
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant, as amended to date.
3.2* Form of Restated Certificate of Incorporation of the Registrant
(to be filed with the State of Delaware upon the closing of the
Offering to which this Registration Statement relates).
3.3* By-Laws of the Registrant.
3.4* Form of Restated Bylaws of the Registrant (to become effective
upon the closing of the Offering to which this Registration
Statement relates).
4.1* Specimen Certificate for shares of Common Stock, $.001 par
value, of the Registrant.
5 Opinion of Hale and Dorr with respect to the validity of the
securities being offered.
10.1* Stock Purchase Agreement dated July 6, 1995, as amended,
between the Registrant and David L. Gilmour.
10.2* Series A Preferred Stock Purchase Agreement dated July 6, 1996
between the Registrant and the investors named on Schedule I
thereto.
10.3* Series B Preferred Stock Purchase Agreement dated November 13,
1995, as amended, between the Registrant and the investors
named on Exhibit A thereto.
10.4* Convertible Note and Warrant Purchase Agreement dated August
1995 between the Registrant and RRE Giga Investors, L.P.
10.5* Series B Preferred Stock Purchase Warrant dated August 1995
registered in the name of RRE Giga, L.P.
10.6* Registration Rights Agreement dated November 13, 1995 among the
Registrant, the investors named on Exhibit A thereto, Gideon I.
Gartner and David L. Gilmour.
10.7* Co-Sale and Stock Restriction Agreement dated November 13, 1995
among the Registrant, Gideon I. Gartner and the stockholders
named on the signature pages thereto.
10.8 Form of Series B Preferred Stock Purchase Warrant dated
February 28, 1996 registered in the name of Montgomery
Securities.
10.9* Registrant's 5% $1.0 Million Convertible Promissory Note dated
April 5, 1995 naming Friday Holdings, L.P. as payee.
10.10* Registrant's 6% $400,000 Convertible Promissory Note dated
December 31, 1995 naming David L. Gilmour as payee.
10.11* Employment Agreement dated February 1, 1996 between the
Registrant and Leander R. Jennings, Jr.
10.12* Employment Agreement dated December 1, 1995 between the
Registrant and Kenneth E. Marshall.
10.13* Employment Agreement dated July 6, 1995 between the Registrant
and David L. Gilmour.
10.14* Non-competition Agreement dated November 13, 1995 between the
Registrant and Gideon I. Gartner.
10.15* Consulting Agreement dated January 1, 1996 between the
Registrant and Neill H. Brownstein Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
10.16* Promissory Note dated December 1, 1995 naming the Registrant as
payee issued by Kenneth E. Marshall.
10.17* Letter Agreement dated July 12, 1996 between the Registrant and
Richard L. Crandall.
10.18* Lease dated October 31, 1995 between the Registrant and
Cambridge 1400 Limited Partnership.
10.19* Lease dated October 6, 1987, as amended, between BIS Strategic
Decisions, Inc. and Charles A. Pesko, Jr., as Trustee of
Longwater Circle Trust.
10.20+* Content Distribution Agreement dated May 21, 1996 between the
Registrant and Dow Jones and Company, Inc.
10.21+* Agreement dated August 1, 1996 between the Registrant and
Peripheral Insight, Inc.
10.22+* Agreement dated August 15, 1996 between the Registrant and
Decision Analytics, Inc.
11* Calculation of shares used in determining pro forma net loss
per common share.
21 Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Coopers & Lybrand.
24* Powers of Attorney (included on page II-6).
27* Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE>
DRAFT 10/21/96
--------------
EXHIBIT 1
4,000,000 Shares
GIGA INFORMATION GROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
______ ___,1996
LEHMAN BROTHERS INC.
OPPENHEIMER & CO., INC.
SALOMON BROTHERS INC
As Representatives of the several
U.S. Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Giga Information Group, Inc., a Delaware corporation (the "Company"),
proposes to sell an aggregate of 4,000,000 shares (the "Firm Stock") of the
Company's Common Stock, par value $.001 per share (the "Common Stock"). In
addition, the Company proposes to grant to the Underwriters named in Schedule I
hereto (the "Underwriters") an option to purchase up to an additional 600,000
shares of the Common Stock on the terms and for the purposes set forth in
Section 2 (the "Option Stock"). The Firm Stock and the Option Stock, if
purchased, are hereinafter collectively called the "Stock." This is to confirm
the agreement concerning the purchase of the Stock from the Company by the
Underwriters named in Schedule I hereto (the "Underwriters").
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) Each of the registration statement on Form S-1, and any
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations as hereinafter defined, and any amendments thereto, with
respect to the Stock has (i) been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective
<PAGE>
under the Securities Act. Copies of each of such registration statement,
including any registration statement filed pursuant to Rule 462(b), and the
amendments thereto have been delivered by the Company to you as the
representatives (the "Representatives") of the Underwriters and such
copies, to the extent applicable, were identical to the electronically
transmitted copies thereof filed with the Commission pursuant to the
Commission's Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"), except to the extent permitted by Regulation S-T. As used in
this Agreement, "Effective Time" means the date and the time as of which
such registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective Date"
means the date of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments thereof,
before it became effective under the Securities Act and any prospectus
filed with the Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement, as amended at
the Effective Time, including all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations in accordance with Section hereof and deemed to be a part
of the registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; "Rule 462(b)
Registration Statement" means any registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations, and after such filing, the term
"Registration Statement" shall include the Rule 462(b) Registration
Statement; and "Prospectus" means such final prospectus, as first filed
with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus. For purposes of this
Agreement, all references to any Preliminary Prospectus, the Registration
Statement, any Rule 462(b) Registration Statement, the Prospectus, or any
amendment or supplement to any of the foregoing, shall be deemed to include
the respective copies thereof filed with the Commission pursuant to EDGAR.
(b) The Registration Statement, including any Rule 462(b)
Registration Statement, conforms, and the Prospectus and any further
amendments or supplements to the Registration Statement, including any Rule
462(b) Registration Statement, or the Prospectus, when they become
effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Securities Act
and the Rules and Regulations and do not and will not, as of the applicable
Effective Date (as to the Registration Statement and any amendment thereto)
and as of the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that no
representation or warranty is made as to information contained in or
omitted from the Registration Statement, including any Rule 462(b)
Registration Statement, or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
-2-
<PAGE>
(c) The Company and each of its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the conduct of
its business requires such qualification, and has all power and authority
necessary to own or hold its properties and to conduct the business in
which it is engaged; and none of the subsidiaries (other than BIS Shrapnel
Pty Limited (a "Significant Subsidiary")) is a "significant subsidiary," as
such term is defined in Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus. Except for the Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock, which will be converted into Common Stock
upon the closing of the Offering, no shares of capital stock of the Company
are outstanding other than the Common Stock; and all of the issued shares
of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
(e) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein,
will be duly and validly issued, fully paid and non-assessable; and the
Stock will conform to the descriptions thereof contained in the Prospectus.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
(g) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, nor will
such actions result in any violation of the provisions of the charter or
by-laws of the Company or any of its subsidiaries or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets; and except for the registration of the Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the United States
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
applicable state or foreign securities laws and clearance by the National
Association of Securities Dealers Inc. in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order
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of, or filing or registration with, any such court or governmental agency
or body is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby.
(h) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(i) Except as described in the Registration Statement, the Company
has not sold or issued any shares of Common Stock during the six-month
period preceding the date of the prospectus, including any sales pursuant
to Rule 144A under, or Regulations D or S of, the Securities Act, other
than shares issued pursuant to employee benefit plans, qualified stock
options plans or other employee compensation plans or pursuant to
outstanding options, rights or warrants.
(j) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
such date, there has not been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated
in the Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated and have been prepared in conformity
with generally accepted accounting principles (except in the case of
unaudited interim financial statements for normal recurring adjustments)
applied on a consistent basis throughout the periods involved, except as
otherwise stated therein.
(l) Coopers & Lybrand L.L.P. and Ernst & Young LLP, who have
certified certain financial statements of the Company, whose reports appear
in the Prospectus and who have delivered the initial letters referred to in
Section 9(g) hereof, are independent public accountants as required by the
Securities Act and the Rules and Regulations.
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(m) The Company together with its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, in each case free and clear
of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries taken as a whole; and,
except as set forth or contemplated in the Prospectus, all real property
and buildings held under lease by the Company and its subsidiaries are held
by it under valid, subsisting and enforceable leases, with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its subsidiaries
taken as a whole.
(n) The Company together with its subsidiaries carry or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
properties and as is customary for companies engaged in similar businesses
in similar industries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries own or possess rights to use
all trademarks, trademark applications, trade names, service marks,
patents, patent applications, patent rights, copyrights, inventions, trade
secrets, know how, licenses, and approvals that are necessary to conduct
their business as described in the Registration Statement and Prospectus;
the Company has no knowledge of, and has received no notice of, any
material infringement or misappropriation by the Company of any trademark,
trademark application, trade name, service mark, patent, patent
application, patent right, copyright, invention, know how, license, trade
secret or other similar rights of others, and there is no claim being made
against the Company regarding trademark, trademark application, trade name,
service mark, patent, patent application, mask work, copyright, license,
trade secret or other infringement which is reasonably likely to have a
material adverse effect on the financial position, stockholders' equity or
results of operations of the Company; the Company is not in violation of
any material agreement covering its intellectual property rights; and the
Company and its subsidiaries have no reason to believe that the conduct of
their respective businesses will conflict with, and have not received any
notice of any claim of conflict with, any rights of third parties to any of
the intellectual property of the Company or its subsidiaries.
(p) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, might have a material adverse
effect on the financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries taken
as a whole; and to the best of the Company's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or threatened by
others.
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<PAGE>
(q) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required
to be described in the Prospectus which is not so described.
(s) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which might be expected to
have a material adverse effect on the financial position, stockholders'
equity, results of operations, business or prospects of the Company and its
subsidiaries.
(t) The Company and its subsidiaries are in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
liability; the Company has not incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(u) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company which has had (nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the
Company or any of its subsidiaries, is reasonably likely to have) a
material adverse effect on the financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries taken as a whole, otherwise than as set forth in the
Prospectus.
(v) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted any
securities (other than grants of options to employees and issuances upon
exercise of outstanding options or warrants), (ii) incurred any material
liability or obligation, direct or contingent, other than liabilities and
obligations which were
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<PAGE>
incurred in the ordinary course of business, (iii) entered into any
material transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its property or assets may be subject, which
violation would have a material adverse affect on its business.
(y) Neither the Company nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or any of its subsidiaries, has used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision
of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
(z) To the Company's knowledge, there has been no storage, disposal,
generation, manufacture, refinement, transportation, handling or treatment
of toxic wastes, medical wastes, hazardous wastes or hazardous substances
by the Company or any of its subsidiaries (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or from any of the
property now or previously owned or leased by the Company or its
subsidiaries in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial
action which would not have, or could not be reasonably likely to have,
singularly or in the aggregate with all such violations and remedial
actions, a material adverse effect on the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; to the Company's knowledge, there has been no
material spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment surrounding
such property of any toxic wastes, medical wastes, solid wastes,
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<PAGE>
hazardous wastes or hazardous substances due to or caused by the Company or
any of its subsidiaries or with respect to which the Company or any of its
subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and it subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(aa) Neither the Company nor any of its subsidiaries is, or will
become as a result of the consummation of the transactions contemplated by
this Agreement, an "investment company" within the meaning of such term
under the Investment Company Act of 1940 and the rules and regulations of
the Commission thereunder.
2. Purchase of the Stock by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 4,000,000 shares of
the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 600,000 shares of Option Stock. Such option is granted solely
for the purpose of covering overallotments in the sale of Firm Stock and is
exercisable as provided in Section 4 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. Such respective purchase obligations with respect to the
Option Stock shall be rounded among the Underwriters to avoid fractional shares,
as the Representatives may determine. The price of both the Firm Stock and any
Option Stock shall be $_____ per share.
3. Offering of Stock by the Underwriters. Upon authorization by
the Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and
payment for the Firm Stock shall be made at the office of Hale and Dorr, 60
State Street, Boston, MA 02109, at 10:00 A.M., Boston time, on the third full
business day (unless otherwise required by the Commission pursuant to Rule 15c6-
1 of the Exchange Act) following the date of this Agreement or at such other
date or place as shall be determined by agreement between the Representatives
and the Company. This date and time are sometimes referred to as the "First
Delivery Date." On the First Delivery Date, the Company shall deliver or cause
to be delivered certificates
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<PAGE>
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company of the purchase
price by wire transfer in same-day funds. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Firm Stock shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Firm Stock, the Company shall make the
certificates representing the Firm Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date. If the
Representatives so elect, delivery of the shares of Firm Stock may be made by
credit through full fast transfer to the accounts at the Depository Trust
Company designated by the Representatives.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 2 may be exercised by written notice
being given to the Company by the Representatives. Such notice shall set forth
the aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representatives, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
third business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date").
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in same-day
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Option Stock shall be registered
in such names and in such denominations as the Representatives shall request in
the aforesaid written notice. For the purpose of expediting the checking and
packaging of the certificates for the Option Stock, the Company shall make the
certificates representing the Option Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the Second Delivery Date. If the
Representatives so elect, delivery of the shares of Option Stock may be made by
credit through full fast transfer to the accounts as the Depository Trust
Company designated by the Representatives.
5. Further Agreements of the Company. The Company agrees:
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<PAGE>
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than Commission's close of business on the
second business day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act; to make no further amendment or any supplement to
the Registration Statement or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement or any Rule
462(b) Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of the issuance
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, of the
suspension of the qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop order
or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or suspending any such qualification, to use
promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration Statement,
including any Rule 462(b) Registration Statement, as originally filed with
the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement, including any Rule 462(b)
Registration Statement, as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than this
Agreement and the computation of per share earnings) and, (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required at any time
after the Effective Time in connection with the offering or sale of the
Stock or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Securities Act, to notify the Representatives and,
upon their request, to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance. To the extent applicable, the copies of the
Registration Statement and each amendment thereto (including all exhibits
filed
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<PAGE>
therewith), including any Rule 462(b) Registration Statement, any
Preliminary Prospectus or Prospectus (in each case, as amended or
supplemented) furnished to the Underwriters and counsel to the Underwriters
will be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T;
(d) To file promptly with the Commission any amendment to the
Registration Statement, including any filing required under Rule 462(b), or
the Prospectus or any supplement to the Prospectus that may, in the
judgment of the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement, including any filing required under Rule 462(b), or
supplement to the Prospectus or any Prospectus pursuant to Rule 424 of the
Rules and Regulations, to furnish a copy thereof to the Representatives and
counsel for the Underwriters and obtain the consent of the Representatives
to the filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's shareholders and to deliver to the
Representatives an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11 (a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company,
Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder; and to the extent applicable, such reports or documents shall
be identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as
long as may be necessary to complete the distribution of the Stock;
(i) For a period of 180 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans, stock
option plans or other employee compensation plans existing on the date
hereof or pursuant to currently outstanding options, warrants or rights),
or sell or
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<PAGE>
grant options, rights or warrants with respect to any shares of Common
Stock (other than the grant of options pursuant to option plans existing on
the date hereof), without the prior written consent of Lehman Brothers
Inc.; and to cause each officer and director and each record owner of
shares of Common Stock and Preferred Stock of the Company other than those
record owners listed in writing by the Company to Lehman Brothers Inc. and
approved by it prior to the First Delivery Date, to furnish to the
Representatives, prior to the First Delivery Date, a letter or letters, in
form and substance satisfactory to counsel for the Underwriters, pursuant
to which each such person shall agree not to offer for sale, sell or
otherwise dispose of (or enter into any transaction which is designed to,
or could be expected to, result in the disposition by any person of),
directly or indirectly, any shares of Common Stock for a period of 180 days
from the date of the Prospectus, without the prior written consent of
Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of the
Stock on the Nasdaq National Market and to use its best efforts to complete
that listing, subject only to official notice of issuance and evidence of
satisfactory distribution, prior to the First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and consider its
comments thereon, and to deliver promptly to the Representatives a signed
copy of each report on Form SR filed by it with the Commission;
(l) To apply the net proceeds from the sale of the Stock being sold by
the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the Stock; (e) the costs of delivering and
distributing the terms of agreement relating to the organization of the domestic
underwriting syndicate and selling group to the members thereof by mail, telex
or other means of communications; (f) the filing fees incident to securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of sale of the Stock; (g) any applicable listing
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<PAGE>
or other fees; (h) the fees and expenses of qualifying the Stock under the
securities laws of the several jurisdictions as provided in Section 5(h) and of
preparing, printing and distributing a Blue Sky Memorandum (including related
fees and expenses of counsel to the Underwriters); (k) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement; provided that, except as provided in this Section 6 and in
Section 11 the Underwriters shall pay their owns costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Stock which
they may sell and the expenses of advertising any offering of the Stock made by
the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 6(a); no stop order suspending the effectiveness
of the Registration Statement, including any Rule 462(b) Registration
Statement, or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
any request of the Commission for inclusion of additional information in
the Registration Statement or the Prospectus or otherwise shall have been
complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration Statement,
any Rule 462(b) Registration Statement, or the Prospectus or any amendment
or supplement thereto contains an untrue statement of a fact which, in the
opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters,
is material or omits to state a fact which, in the opinion of such counsel,
is material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(d) Hale and Dorr shall have furnished to the Representatives its
written opinion, as counsel to the Company, addressed to the Underwriters
and dated such Delivery Date, in form and substance reasonably satisfactory
to the Representatives, to the effect that:
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(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business and is in
good standing as a foreign corporation in Massachusetts and has all power
and authority necessary to own or hold its properties and to conduct the
business in which it is engaged. To our knowledge, the Company has no
direct or indirect subsidiaries other than Giga Information Group
Investment Corporation, Giga Information Group Limited, BIS Schrapnel PTY
Limited, Giga Information Group GmbH, Giga Information Group S.A.R.L., Giga
Information Group Korea, Inc., BIS Italy srl, BIS Strategic Decisions
Japan, Inc. and Guidelines of America, Inc.;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the shares of Stock being delivered on such Delivery
Date) have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock"; the shares of
Stock being issued and sold by the Company to the Underwriters hereunder
have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly
issued fully paid and non-assessable and the stock will conform to the
description thereof contained in the Prospectus; all of the issued shares
of capital stock of the subsidiaries of the Company are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims known to such counsel; and no shares of any class
of capital stock of the Company are outstanding other than the shares of
Common Stock, Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock reflected in the Prospectus;
(iii) There are no preemptive or other rights to subscribe for
or to purchase, nor any restriction upon the voting or transfer of, any
shares of the Stock pursuant to the Company's charter or by-laws or any
agreement or other instrument known to such counsel;
(iv) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of
which any property or assets of the Company or any of its subsidiaries is
the subject which, is reasonably expected to have a material adverse effect
on the consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries taken
as a whole; and, to such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, was declared effective under the Securities Act as
of the date and time specified in such opinion, the Prospectus was filed
with the Commission pursuant to the subparagraph of Rule 424(b) of the
Rules and Regulations specified in such opinion on the
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date specified therein and no stop order suspending the effectiveness of
the Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by the
Commission;
(vii) The Registration Statement, including any Rule 462(b)
Registration Statement, and the Prospectus and any further amendments or
supplements thereto made by the Company prior to such Delivery Date (other
than the financial statements and related schedules and financial data
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act
and the Rules and Regulations (other than the financial statements and
related schedules and financial data therein, as to which such counsel need
express no opinion), and when they were filed with the Commission complied
as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder;
(viii) To such counsel's knowledge, there are no contracts or
other documents which are required to be described in the Prospectus or
filed as exhibits to the Registration Statement by the Securities Act or by
the Rules and Regulations which have not been described or filed as
exhibits to the Registration Statement or incorporated therein by reference
as permitted by the Rules and Regulations;
(ix) The statements contained in the Prospectus under the
caption "Business--Legal Proceedings," insofar as such statements
constitute a summary of documents referred to therein or matters of law,
constitute an accurate summary of the matters described therein;
(x) This Agreement has been duly authorized, executed and
delivered by the Company;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance by the
Company with all of the provisions of this Agreement and the consummation
of the transactions contemplated hereby and thereby will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or by which the Company
is bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such actions result in any violation
of the provisions of the charter or by-laws of the Company or any statute
or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of
its properties or assets; and, except for the registration of the Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange Act
and applicable state or foreign securities laws and clearance by the
National Association of Securities Dealers, Inc. in connection with the
purchase and distribution of the Stock by the Underwriters, no consent,
approval,
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authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby;
(xii) To such counsel's knowledge, except as described in the
Prospectus, there are no contracts, agreements or understandings between
the Company and any person granting such person the right (other than
rights which have been waived or satisfied) to require the Company to file
a registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act; and
(xiii) Neither the Company nor any of its subsidiaries is, or
will become as a result of the consummation of the transactions
contemplated by this Agreement or the International Underwriting Agreement,
an "investment company" within the meaning of such term under the United
States Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the General Corporation Law of the State of Delaware and that
such counsel is not admitted in the State of Delaware. Such counsel shall
also have furnished to the Representatives a written statement, addressed
to the Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the
Company, the Representatives and counsel for the Representatives at which
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel is not passing upon and
does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectuses and based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel is not requested to and need not express any
comment with respect to the financial statements and schedules and other
financial and statistical data included in the Registration Statement or
Prospectus).
(e) The Representatives shall have received from ________________,
counsel for BIS Shrapnel Pty Limited [and any other significant
subsidiary], such opinion or opinions, dated such Delivery Date, with
respect to its due incorporation, valid existence
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<PAGE>
in good standing under the laws of its jurisdiction of incorporation, and
capitalization, and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to
pass upon such matters.
(f) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statement, the Prospectus and other related matters
as the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Representatives
shall have received from Coopers & Lybrand L.L.P. and Ernst & Young LLP, a
letter, in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming that
they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation
S-X of the Commission, (ii) stating, as of the date hereof (or, with
respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date hereof),
the conclusions and findings of such firm with respect to the financial
information and other matters ordinarily covered by accountants' "comfort
letters" to underwriters in connection with registered public offerings.
(h) With respect to the letter of Coopers & Lybrand L.L.P. and
Ernst & Young LLP, referred to in the preceding paragraph and delivered to
the Representatives concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the Representatives
a letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of the
bring-down letter), the conclusions and findings of such firm with respect
to the financial information and other matters covered by the initial
letter and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date; the
Company has complied with
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all its agreements contained herein; and the conditions set forth in
Sections 7(a) and 7(m) have been fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and (B) since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration Statement
or the Prospectus.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus or
(ii) since such date there shall not have been any change in the capital
stock or long-term debt of the Company or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is, in the judgment of the Representatives, so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(k) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) The Nasdaq National Market shall have approved the Stock for
listing, subject only to official notice of issuance and evidence of
satisfactory distribution.
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<PAGE>
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who
controls any Underwriter within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to
which that Underwriter, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as, such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the Company (or based
upon any written information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the securities laws of
any state or other jurisdiction (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not misleading,
or (iii) any act or failure to act or any alleged act or failure to act by
any Underwriter in connection with, or relating in any manner to, the Stock
or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of
or based upon matters covered by clause (i) or (ii) above (provided that
the Company shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct), and shall
reimburse each Underwriter and each such officer, employee or controlling
person promptly upon demand for any legal or other expenses reasonably
incurred by that Underwriter, officer, employee or controlling person in
connection with investigating or defending or preparing to defend against
such loss, claim, damage, liability or action as such expenses are
incurred; and, provided, further, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement
or alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any such amendment or supplement, or in any Blue Sky Application, in
reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein. The foregoing
indemnity agreement is in addition to any liability which
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<PAGE>
the Company may otherwise have to any Underwriter or to any officer,
employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its
directors, and each person, if any, who controls the Company within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or (B) in any Blue
Sky Application or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person
in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses
are incurred. The foregoing indemnity agreement is in addition to any
liability which any Underwriter may otherwise have to the Company or any
such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
identified party shall, if a claim in respect thereof is to be made against
the indemnifying party under this Section 8, notify the indemnifying party
in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 8 except
to the extent it has been materially prejudiced by such failure and,
provided further, that the failure to notify the indemnifying party shall
not relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 8. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying
party thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation;
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<PAGE>
provided, however, that the Representatives shall have the right to employ
counsel to represent jointly the Representatives and those other
Underwriters and their respective officers, employees and controlling
persons who may be subject to liability arising out of any claim in respect
of which indemnity may be sought by the Underwriters against the Company
under this Section 8 if, in the reasonable judgment of the Representatives,
it is advisable for the Representatives and those Underwriters, officers,
employees and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of such separate counsel
shall be paid by the Company. No indemnifying party shall (i) without, the
prior written consent of the indemnified parties (which consent shall not
be unreasonably withheld), settle or compromise or consent to the entry of
any judgment with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or
proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with the consent of the indemnifying
party or if there be a final judgment of the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a), 8(b) or 8(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand
and the Underwriters on the other from the offering of the Stock or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriters on the other with respect to
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Stock purchased under this Agreement
(before deducting expenses) received by the Company, on the one hand, and
the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the
offering of the shares of the Stock under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to whether the, untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and
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<PAGE>
their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to
this Section were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be
deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable, to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 8(e)
are several in proportion to their respective underwriting obligations and
not joint.
(e) The Underwriters severally confirm that the statements with
respect to the public offering of the Stock by the Underwriters set forth
on the cover page of, the legend concerning over-allotments on the inside
front cover page and the concession and reallowance figures appearing under
the caption "Underwriting" in, the Prospectus are correct and constitute
the only information concerning such Underwriters furnished in writing to
the Company by or on behalf of the Underwriters specifically for inclusion
in the Registration Statement and the Prospectus.
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule I hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining non-
defaulting Underwriter shall not be obligated to purchase more than 110% of the
number of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the
remaining non-defaulting Underwriters, or those other underwriters satisfactory
to the Representatives who so agree, shall have the right, but shall not be
obligated,
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<PAGE>
to purchase, in such proportion as may be agreed upon among them, all the Stock
to be purchased on such Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the
shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the Second
Delivery Date, the obligation of the Underwriters to purchase, and of the
Company to sell, the Option Stock) shall terminate without liability on the part
of any non-defaulting Underwriter or the Company, except that the Company will
continue to be liable for the payment of expenses to the extent set forth in
Sections 6 and 11. As used in this Agreement, the term "Underwriter" includes,
for all purposes of this Agreement unless the context requires otherwise, any
party not listed in Schedule 1 hereto who, pursuant to this Section 9, purchases
Firm Stock which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 9(i) or 9(j), shall have occurred
or the event described in Section 7(k) shall not have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company
shall fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled, the Company will reimburse the Underwriters for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred by
the Underwriters in connection with this Agreement and the proposed purchase of
the Stock, and upon demand the Company shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 9 by
reason of the default of one or more Underwriters, the Company shall not be
obligated to reimburse any defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-526-6588), with a copy, in the case of any notice pursuant to
Section 8(d), to the Director of Litigation, Office of the
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<PAGE>
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285, with a copy to Testa, Hurwitz & Thibeault, LLP,
125 High Street, High Street Tower, Boston, Massachusetts 02110, Attention:
Gordon H. Hayes, Jr., Esq.;
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: President (Fax: 908-906-1008) with a
copy to Hale and Dorr, 60 State Street, Boston, Massachusetts 02109,
Attention: Mark G. Borden, Esq.;
provided, however, that any notice to an Underwriter pursuant to Section 8(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company and
their respective personal representatives and successors. This Agreement and
the terms and provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and agreements of
the Company contained in this Agreement shall also be deemed to be for the
benefit of the person or persons, if any, who control any Underwriter within the
meaning of Section 15 of the Securities Act and (B) the indemnity agreement of
the Underwriters contained in Section 8(c) of this Agreement shall be deemed to
be for the benefit of directors of the Company, officers of the Company who have
signed the Registration Statement and any person controlling the Company within
the meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 13, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Term "Business Day". For purposes of this
Agreement, "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
17. Jurisdiction. The parties hereto each hereby irrevocably
submits to the jurisdiction of any New York state or federal court sitting in
the city of New York, New York
- 24 -
<PAGE>
County, in any action or proceeding arising out of or relating to this Agreement
and the parties hereto each hereby irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in such New York state
court or such federal court. The parties hereto also each hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. The parties
hereto each irrevocably consent to the service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding by certified mail, return receipt requested, or by delivery of a copy
of such process to the parties at its address specified in Section 12 or by any
other method permitted by law. The parties hereto each agree that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or by any other manner
provided by law.
18. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[Remainder of Page Intentionally Left Blank]
- 25 -
<PAGE>
If the foregoing correctly sets forth the agreement among the Company and
the Underwriters, please indicate your acceptance in the space provided for that
purpose below.
Very truly yours,
GIGA INFORMATION GROUP, INC.
By
------------------------
President
Accepted:
LEHMAN BROTHERS INC.
OPPENHEIMER & CO., INC.
SALOMON BROTHERS INC
For themselves and as
Representatives of the
several Underwriters
named in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By
---------------------------
Authorized Representative
- 26 -
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ------------ ----------------
<S> <C>
Lehman Brothers Inc................
Oppenheimer & Co., Inc.............
Salomon Brothers Inc...............
Total..............................
----------------
</TABLE>
255016
- 27 -
<PAGE>
EXHIBIT 5.1
October 22, 1996
Giga Information Group, Inc.
Ore Kendall Square
Building 1400W
Cambridge, MA 02139
Ladies and Gentlemen:
We have assisted in the preparation and filing of a Registration
Statement on Form S-1 (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended, relating to the registration of an
aggregate of 4,600,000 shares (the "Shares") of Common Stock, $.001 par
value per share of Giga Information Group, Inc., a Delaware corporation
(the "Company"), including 600,000 shares subject to an over-allotment
option. The Shares are to be sold to the Underwriters (as defined
below) pursuant to an underwriting agreement (the "Underwriting
Agreement") to be entered into by and among the Company and Lehman
Brothers Inc., Openheimer & Co. Inc., and Salomon Brothers Inc, as
representatives of the several underwriters named in the Underwriting
Agreement (the "Underwriters").
We have examined signed copies of the Registration Statement and
all exhibits thereto, all as filed with the Commission. We have also
examined and relied upon the original or copies of minutes of meetings
of the stockholders and Board of Directors of the Company, stock record
books of the Company, a copy of the By-laws of the Company, as amended,
and a copy of the Certificate of Incorporation of the Company, as
amended.
We assume that appropriate action will be taken, prior to the
offer and sale of the Shares, to register and qualify the Shares for
sale under all applicable state "Blue Sky" and securities laws.
In our examination of the foregoing documents, we have
assumed the genuineness of all signatures and authenticity of all
documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as copies, and the
authenticity of the originals of such latter documents.
<PAGE>
Giga Information Group, Inc.
October 22, 1996
Page 2
Based upon the foregoing, we are of the opinion that the Shares
have been duly and validly authorized for issuance and, when issued in
accordance with the terms of the Underwriting Agreement against payment
therefor, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as part of
the Registration Statement and to the use of our name therein and
in the related Prospectus under the caption "Legal Matters."
Very truly yours,
/s/ HALE AND DORR
HALE AND DORR
<PAGE>
Exhibit 10.8
The Warrant represented by this certificate has not been registered under
the Securities Act of 1933, and such Warrant may not be sold or transferred
unless such sale or transfer is in accordance with the registration requirements
of the Securities Act of 1933, as at the time amended, or in conformity with the
limitations of Rule 144 or similar rule as then in effect under such Act, or
unless some other exemption from the registration requirements of such Act is
available with respect thereto.
No. 1 Warrant to Purchase
107,876 Shares of Series B Preferred Stock
(Subject to Adjustment)
Giga Information Group, Inc.
SERIES B PREFERRED STOCK PURCHASE WARRANT
Void after February 28, 2001
Giga Information Group, Inc. a Delaware corporation (together with any
corporation which shall succeed to or assume the obligations of the Company
hereunder, the "Company"), hereby certifies that, for value received, MONTGOMERY
SECURITIES, or registered assigns (the "Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company at any time or from time to
time before 5:00 p.m. Pacific time, on February 28, 2001 (the "Expiration
Date"), One Hundred Seven Thousand Eight Hundred Seventy-Six (107,876) fully
paid and nonassessable shares of Series B Stock of the Company, as constituted
on the date hereof at the purchase price per share of $4.5625 and otherwise in
accordance with the terms hereof. The number and character of such shares of
Series B Stock are subject to adjustment as provided below.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The terms "Common Stock" shall mean the Common Stock, $.001 par
value per share, of the Company.
(b) The term "Series B Stock" shall mean the Series B Convertible
Preferred Stock, $.001 par value per share, of the Company and any
other securities or property of the Company or of any other person
(corporate or otherwise) which the holder of this Warrant at any
time shall be entitled
-1-
<PAGE>
to receive on the exercise hereof, in lieu of or in addition to Series B
Stock, or which at any time shall be issuable in exchange for or in
replacement of Series B Stock.
1. Exercise Period. This Warrant may be exercised at any time or from time
---------------
to time and shall expire at 5:00 p.m., Pacific time, on February 28,
2001; provided, however, that this Warrant shall terminate if not
--------- --------
otherwise exercised or exchanged pursuant to Section 2 below immediately
prior to the closing of the Company's sale of all or substantially all
of its assets or the acquisition of the Company by another entity by
means of merger, combination or other transaction as a result of which
shareholders of the Company immediately prior to such acquisition
possess in the aggregate less than 50% of the voting power of the
acquiring entity immediately following such acquisition (an
"Acquisition"). In the event of an Acquisition, the Company shall give
notice to the Holder at least fifteen (15) days prior to the closing of
such transaction.
2. Exercise of Warrant; Partial Exercise and Exchange of Warrant.
-------------------------------------------------------------
2.1 Exercise of Warrant and Partial Exercise.
----------------------------------------
This Warrant may be exercised in full or in part by the Holder
hereof by surrender of this Warrant, with the form of subscription
attached hereto duly executed by such Holder, to the Company at its
principal office, accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, of the purchase
price of the shares of Series B Stock to be purchased hereunder, the
cancellation by the holder of indebtedness of the Company to the Holder
in an amount equal to such purchase price, or any combination thereof.
For any partial exercise hereof, the Holder shall designate in the
subscription the number of shares of Series B Stock that it wishes to
purchase. On any such partial exercise, the Company at its expense shall
forthwith issue and deliver to the Holder hereof a new warrant of like
tenor, in the name of the Holder hereof, which shall be exercisable for
such number of shares of Series B Stock represented by this Warrant
which have not been purchased upon such exercise.
2.2 Right to Exchange Warrant for Series B Stock.
--------------------------------------------
(a) Right to Exchange. In addition to and without limiting
-----------------
the rights of the Holder under the terms of this Warrant, the Holder
shall have the right to exchange this Warrant or any portion hereof (the
"Exchange Right") into shares of Series B Stock as provided in this
Section 2.2 at any time or from time to time during the term of this
Warrant; provided that
-2-
<PAGE>
the Exchange Right shall expire on an Acquisition of the Company. Upon exercise
of the Exchange Right with respect to a particular number of shares subject to
this Warrant (the "Exchange Warrant Shares"), the Company shall deliver to the
Holder (without payment by the Holder of any cash or other consideration) that
number of shares of Series B Stock equal to the quotient obtained by dividing
(x) the value of this Warrant (or the specified portion hereof) on the Exchange
Date (as defined in section 2.2(c), which value shall be determined by
subtracting (A) the aggregate exercise purchase price of the Exchanged Warrant
Shares immediately prior to the exercise of the Exchange Right from (B) the
aggregate fair market value of the Exchanged Warrant Shares issuable upon
exercise of this Warrant (or the specified portion hereof) on the Exchange Date
by (y) the fair market value of one share of Series B Stock on the Exchange
Date. No fractional shares shall be issuable upon exercise of the Exchange
Right, and if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
Holder an amount in cash equal to the fair market value of the resulting
fractional share on the Exchange Date.
(b) Method of Exercise. The Exchange Right may be exercised by the
------------------
Holder by the surrender of this Warrant prior to its expiration, at the
principal office of the Company together with a written statement specifying
that the Holder thereby intends to exercise the Exchange Right and indicating
the number of shares subject to this Warrant which are being surrendered
(referred to in subsection (a) hereof as the Exchanged Warrant Shares) in
exercise of the Exchange Right. Such exchange shall be effective upon receipt
by the Company of this Warrant together with the aforesaid written statement, or
on such later date as is specified therein (the "Exchange Date") and, at the
election of the Holder, may be made contingent upon the closing of an
Acquisition. Certificates for the shares of Series B Stock issuable upon
exercise of the Exchange Right (or any other securities deliverable in lieu
thereof under Section 5) and, if applicable, a new warrant evidencing the
balance of the shares remaining subject to this Warrant, shall be issued as of
the Exchange Date and shall be delivered to the holder immediately following the
Exchange Date.
(c) Determination of Fair Market Value. For purposes of this Section
----------------------------------
2.2, fair market value of a share of Exchanged Warrant Shares as of a particular
date (the "Determination Date") shall mean:
(i) If the Exchange Right is exercised in connection with an
Acquisition, the effective per share consideration to be received in an
Acquisition by holders of the Series B Stock, which price shall be as
specified in the agreement entered into with respect to such
-3-
<PAGE>
Acquisition and determined assuming receipt of the aggregate
exercise price of all outstanding warrants to purchase equity
securities of the Company (the "Outstanding Warrants"), or if no
such price is set forth in the agreement concerning the
Acquisition, than as determined in good faith by the Company's
Board of Directors upon a review of relevant factors, including
the aggregate exercise price of all Outstanding Warrants.
(ii) If the Exchange Right is not exercised in connection
with or contingent upon an Acquisition, then as follows:
(A) If such type of security is traded on a securities
exchange, the fair market value shall be deemed to be the average
of the closing prices of such type of security on such exchange
over the 30-day period ending five business days prior to the
Determination Date;
(B) If such type of security is traded over-the-
counter, the fair market value shall be deemed to be the average
of the closing bid prices of such type of security over the 30-day
period ending five business days prior to the Determination Date;
and
(C) If there is no public market for such type of
security, then fair market value shall be determined by mutual
agreement of the Holder and the Company, and if the Holder and the
Company are unable to so agree, by an investment banker of
national reputation selected by the Company and reasonably
acceptable to the Holder.
3. When Exercise Effective. The exercise of this Warrant shall be deemed to
-----------------------
have been effected immediately prior to the close of business on the
business day on which this Warrant is surrendered to the Company as provided
in Section 2, and at such time the person in whose name any certificate for
shares of Series B Stock shall be issuable upon such exercise, as provided
in Section 4, shall be deemed to be the record holder of such Series B Stock
for all purposes.
4. Delivery on Exercise. As soon as practicable after the exercise of this
--------------------
Warrant in full or in part, and in any event within five business days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered
to the Holder hereof, or as such Holder may direct, a certificate or
certificates for the number of fully paid and nonassessable full shares of
-4-
<PAGE>
Series B Stock to which such Holder shall be entitled on such exercise,
together with cash, in lieu of any fraction of a share, equal to such
fraction of the current market value of one full share as determined in
good faith by the Board of Directors.
5. Adjustment of Purchase Price and Number of Shares. The character of the
-------------------------------------------------
shares of Series B Stock issuable upon exercise of this Warrant (or any
shares of stock or other securities at the time issuable upon exercise
of this Warrant) and the purchase price therefor, are subject to
adjustment upon the occurrence of the following events:
5.1 Adjustment for Stock Splits Stock Dividends, Recapitalizations,
---------------------------------------------------------------
etc. The exercise price of this Warrant and the number of shares of
----
Series B Stock issuable upon exercise of this Warrant (or any shares of
stock or other securities at the time issuable upon exercise of this
Warrant) shall be appropriately adjusted to reflect any stock dividend,
stock split, combination of shares, reclassification, recapitalization
or other similar event affecting the number of outstanding shares of
Series B Stock (or such other stock or securities). For example if there
should be a 2-for-1 stock split, the exercise price would be divided by
two and such number of shares would be doubled.
5.2 Adjustment for Other Dividends and Distributions. In case the
------------------------------------------------
Company shall make or issue, or shall fix a record date for the
determination of eligible holders entitled to receive, a dividend or
other distribution with respect to the Series B Stock (or any shares of
stock or other securities at the time issuable upon exercise of the
Warrant) payable in (i) securities of the Company (other than shares of
Series B Stock) or (ii) assets (excluding cash dividends paid or payable
solely out of retained earnings), then in each case, the Holder of this
Warrant on exercise hereof at any time after the consummation, effective
date or record date of such event, shall receive, in addition to the
Common Stock (or such other stock or securities) issuable on such
exercise prior to such date, the securities or such other assets of the
Company to which such Holder would have been entitled upon such date if
such Holder had exercised this Warrant immediately prior thereto (all
subject to further adjustment as provided in this Warrant).
5.3 Adjustment for Reorganization, Consolidation, Merger, etc. In case
----------------------------------------------------------
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in
which the Company shall not be the continuing or surviving entity of
such consolidation, merger or reorganization, or any transaction in
which in excess of 50% of the Company's voting power is transferred, or
any sale of
-5-
<PAGE>
all or substantially all of the assets of the Company (any such
transaction being hereinafter referred to as a "Reorganization"), then,
in each case, the Holder of this Warrant, on exercise hereof at any time
after the consummation or effective date of such Reorganization (the
"Effective Date"), shall receive, in lieu of the Series B Stock issuable
on such exercise prior to the Effective Date, the stock and other
securities and property (including cash) to which such Holder would
have been entitled upon the Effective Date if such Holder had exercised
this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant).
5.4 Certificate as to Adjustments. In case of any adjustment or
-----------------------------
readjustment in the price or kind of securities issuable on the exercise
of this Warrant, the Company will promptly give written notice thereof
to the Holder of this Warrant in the form of a certificate, certified
and confirmed by the Board of Directors of the Company, setting forth
such adjustment or readjustment and showing in reasonable detail the
facts upon which such adjustment or readjustment is based.
6. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect
the rights of the Holder of this Warrant against dilution or other
impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable
therefor on such exercise, (b) will at all times reserve and keep
available a number of its authorized shares of Series B Stock, free from
all preemptive rights therein, which will be sufficient to permit the
exercise of this Warrant, and (c) shall take all such action as may be
necessary or appropriate in order that all shares of Series B Stock as
may be issued pursuant to the exercise of this Warrant will, upon
issuance, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue
thereof.
7. Notices of Record Date, etc. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, or
-6-
<PAGE>
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, or any transfer of all
or substantially all the assets of the Company to or consolidation or merger
of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company, or
(d) any proposed issue or grant by the Company of any shares of stock of
any class or any other securities, or any right or option to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities, then and in each such event the Company will mail to the Holder
hereof a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Series B Stock (or any shares of stock or other securities at the
time issuable upon the exercise of this Warrant) shall be entitled to
exchange their shares for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or
grant is to be offered or made. Such notice shall be mailed at least 20 days
prior to the date therein specified.
8. Exchange of Warrants. On surrender for exchange of this Warrant, properly
--------------------
endorsed, to the Company, the Company at its expense will issue and deliver
to or on the order of the Holder thereof a new Warrant of like tenor, in
the name of such Holder or as such Holder may direct, calling in the
aggregate on the face thereof for the number of shares of Series B Stock
called for on the face of the Warrant so surrendered.
9. Replacement of Warrants. On receipt by the Company of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company or in the case of any such mutilation, on
surrender and cancellation of such Warrant, the
-7-
<PAGE>
Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
10. Investment Intent. Unless a current registration statement under the
-----------------
Securities Act of 1933, as amended, shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder thereof,
by accepting this Warrant, covenants and agrees that, at the time of
exercise hereof, and at the time of any proposed transfer of securities
acquired upon exercise hereof, such Holder will deliver to the Company a
written statement that the securities acquired by the Holder upon exercise
hereof are for the account of the Holder for investment and are not
acquired with a view to, or for sale in connection with, any distribution
thereof (or any portion thereof) and with no present intention (at any such
time) of offering and distributing such securities (or any portion
thereof).
11. Transfer. Subject to the transfer conditions referred to in the legend
--------
endorsed hereon, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the Holder hereof upon surrender of
this Warrant with a properly executed assignment (in the form annexed
hereto) at the principal office of the Company. Upon any partial transfer,
the Company will at its expense issue and deliver to the Holder hereof a
new Warrant of like tenor, in the name of the Holder hereof, which shall be
exercisable for such number of shares of Series B Stock which were not so
transferred.
12. No Rights or Liability as a Stockholder. This Warrant does not entitle the
---------------------------------------
Holder hereof to any voting rights or other rights as a stockholder of the
Company. No provisions hereof, in the absence of affirmative action by the
Holder hereof to purchase Series B Stock, and no enumeration herein of the
rights or privileges of the Holder hereof shall give rise to any liability
of such Holder as a stockholder of the Company. Notwithstanding the
foregoing, the Company will transmit to the Holder such information,
documents and reports as are generally distributed to the holders of any
class or series of the securities of the Company concurrently with the
distribution thereof to the shareholders.
13. Damages. The Company recognizes and agrees that the Holder hereof will not
-------
have an adequate remedy if the Company fails to comply with the terms of
this Warrant and that damages will not be readily ascertainable, and the
Company expressly agrees that, in the event of such failure, it shall not
oppose an application by the Holder of this Warrant or any other person
entitled to the benefits of this Warrant requiring specific performance of
any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of the terms hereof.
-8-
<PAGE>
14. Representations and Warranties. The Company represents and warrants to the
------------------------------
Holder as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms;
(b) The shares of Series B Stock issuable hereunder have been duly
authorized and reserved for issuance by the Company and, when issued in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable;
(c) The execution and delivery of this Warrant are not, and the
issuance of the shares of Series B Stock upon exercise of this Warrant in
accordance with the terms hereof will not be, inconsistent with the
Company's Certificate of Incorporation or by-laws, do not and will not
contravene any law, governmental rule or regulation, judgment or order
applicable to the Company, and, except for consents that have already been
obtained by the Company, do not and will not conflict with or contravene
any provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument of which the Company is a party or by which it
is bound or require the consent or approval of, the giving of notice to,
the registration with or the taking of any action in respect of or by, any
Federal, state or local governmental authority or agency or other person.
15. Registration Rights. The Company covenants and agrees as follows:
-------------------
15.1 Definitions. For purposes of this Section 15:
-----------
The term "Registrable Securities" means (i) the Common Stock issuable upon
conversion of the Series B Stock issued pursuant to this Warrant and (ii)
any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock.
15.2 Grant of Rights. The Company hereby grants to the initial Holder of
---------------
this Warrant (and the permitted transferee of the Registration Rights, as
hereinafter defined) the "piggy-back" registration rights set forth in
Section 2.3 of the Registration Rights Agreement dated as of November 13,
1995, by and among the Company and the investors who are signatories
thereto (the "Registration Rights Agreement")(such rights are referred to
herein as the "Registration Rights"). Each of the Company and the Holder
severally covenants and agrees that it shall comply with each of the
-9-
<PAGE>
covenants and agreements contained in the Registration Rights Agreement,
which covenants and agreements are expressly incorporated herein by
reference as though stated herein in full.
15.3 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to the Registration
Rights may be assigned by a Holder to a transferee or assignee of such
securities to the same extent as permitted by Section 2.13 of the
Registration Rights Agreement.
15.4 No Conflicting Agreements. The Company represents and warrants to
-------------------------
the Holder that the Company is not a party to any agreement that
conflicts in any manner with the Holder's rights to cause the Company to
register Registrable Securities pursuant to the Registration Rights. The
Company covenants and agrees that it shall comply with the provisions
set forth in Section 1.1 of the Registration Rights Agreement with
respect to amendments or modifications of the Registration Rights.
15.5 Rights and Obligations Survive Exercise and Expiration of Warrant.
-----------------------------------------------------------------
The rights and obligations of the Company and the Holder set forth in
this Section 15 and in the Registration Rights shall survive the
exercise and expiration of this Warrant.
16. Initial Public Offering. If the Company shall effect an initial public
-----------------------
offering of its Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended (an "Initial
Public Offering"), which results in the conversion of the Series B Stock
into Common Stock pursuant to the Company's Certificate of Incorporation
in effect immediately prior to such Initial Public Offering, then,
effective upon such conversion, this Warrant shall change from the right
to purchase shares of Series B Stock to the right to purchase shares
of Common Stock, and the Holder shall thereupon have the right to
purchase, at a total price equal to that payable upon the exercise of
this Warrant in full, the number of shares of Common Stock which would
have been receivable by the Holder upon the exercise of this Warrant for
shares of Series B Stock immediately prior to such conversion of such
shares of Series B Stock into shares of Common Stock, and in such event
appropriate provisions shall be made with respect to the rights and
interest of the Holder to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the purchase price
and the number of shares purchasable upon exercise of this Warrant)
shall thereafter be applicable to any shares of Common Stock deliverable
upon the exercise hereof.
-10-
<PAGE>
17. Notices. All notices referred to in this Warrant shall be in writing and
-------
shall be delivered personally or by certified or registered mail, return
receipt requested, postage prepaid and will be deemed to have been given
when so delivered or mailed (i) to the Company, at its principal
executive offices and (ii) to the Holder of this Warrant, at such
Holder's address as it appears in the records of the Company (unless
otherwise indicated by such Holder).
18. Payment of Taxes. All shares of Series B Stock issued upon the exercise
----------------
of this Warrant shall be validly issued, fully paid and nonassessable,
and the Company shall pay all taxes and other governmental charges that
may be imposed in respect to the issue or delivery thereof.
19. Miscellaneous. This Warrant and any term hereof may be changed, waived,
-------------
discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant is being delivered in the State of
California and shall be governed by and construed and enforced in
accordance with the internal laws of the State of California (without
reference to any principles of the conflicts of laws). The headings in
this Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof.
[Rest of Page Left Blank Intentionally]
-11-
<PAGE>
Effective as of February 28, 1996
(Corporate Seal) GIGA INFORMATION GROUP, INC.
By:
-------------------------------
Kenneth Marshall
President
Attest:
By:
-------------------------------
Richard B. Goldman
Senior Vice President
-12-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO
---------------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________________/*/ shares of Common Stock of __________,
and herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_________________, whose address is __________________________.
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
---------------------------------------
---------------------------------------
(Address)
Dated:
- ------------------
/*/Insert here the number of shares as to which the Warrant is being exercised.
-13-
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________ the right represented by the within Warrant to purchase
shares of Common Stock of _________________ to which the within Warrant relates,
and appoints ____________________ Attorney to transfer such right on the books
of ____________________ with full power of substitution in the premises.
------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
------------------------------------
------------------------------------
(Address)
Dated:
- --------------
-14-
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name Jurisdiction of Organization/Incorporation
---- ------------------------------------------
<S> <C>
Giga Information Group Investment Corporation Massachusetts
Giga Information Group Ltd. England
BIS Shrapnel PTY Limited Australia
Giga Information Group GmbH Germany
BIS Italy SRL Italy
Giga Information Group S.A.R.L. France
Giga Information Group Korea, Inc. Korea
BIS Strategic Decisions Japan, Inc. Japan
Guidelines of America, Inc. Pennsylvania
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement of Giga Information Group, Inc. on Form S-1 (File No. 333-11711) to
register 4,000,000 shares of Common Stock of our report dated August 31, 1996
on our audits of the consolidated financial statements of Giga Information
Group, Inc. as of December 31, 1995 and June 30, 1996 and the periods March
17, 1995 to December 31, 1995 and January 30, 1996 to June 30, 1996. We also
consent to the references to our firm under the captions "Selected Financial
Data" and "Experts."
We also consent to the inclusion in this Amendment No. 2 to the Registration
Statement of our report dated August 31, 1996 on our audit of the combined
statements of operations, stockholder's equity and cash flows of BIS Strategic
Decisions for the period January 1, 1995 to April 5, 1995.
Coopers & Lybrand L.L.P
Boston, Massachusetts
October 22, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and the use of our report dated March 13, 1995,
except with respect to the matters described in Note 12, as to which the date
is September 6, 1996, with respect to the financial statements of BIS
Strategic Decisions as of December 31, 1994 and for the year ended December
31, 1994, the period from December 16, 1993 to December 31, 1993 and the
period from January 1, 1993 to December 15, 1993, in the Amendment No. 2 to
the Registration Statement on (Form S-1 No. 333-11711) and Related Prospectus
of Giga Information Group, Inc.
Ernst & Young L.L.P.
Boston, Massachusetts
October 22, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement (File No. 333-11711) of Giga Information Group, Inc. on Form S-1 to
register 4,000,000 shares of Common Stock of our report dated 21 October 1996,
on our audits of the financial reporting packages of BIS Shrapnel Pty Limited
as of 15 December 1993 and 31 December 1993 and the periods 1 January 1993 to
15 December 1993 and 16 December 1993 to 31 December 1993. We also consent to
the reference to our firm under the caption "Experts".
Coopers & Lybrand
Sydney, Australia
21 October 1996
